AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of the
7th day of May, 1999, by and among Ergovision, Inc. ("Ergovision"), a Delaware
corporation, Peeper's, Inc. ("Subsidiary"), a Delaware corporation, Peeper's
Sunglasses and Accessories, Inc. ("Peeper's"), a Minnesota corporation, and
Xxxxxx Xxxxxxx ("Thralow"), an individual residing at 0000 Xxxx 0xx Xxxxxx, Xxx.
#0, Xxxxxx, XX 00000.
W I T N E S S E T H:
WHEREAS, the Board of Directors of each of Ergovision and Peeper's
have determined that it is in the best interests of their respective companies
and stockholders to consummate the business combination transaction provided for
herein and in the Certificate of Merger required to be filed under Delaware law,
pursuant to which Peeper's will, subject to the terms and conditions set forth
herein, merge with and into Subsidiary (the "Merger") so that, upon the Merger,
Subsidiary will be the surviving entity and a wholly owned subsidiary of
Ergovision. Upon the effectiveness of the Merger, all the outstanding capital
stock of Peeper's will be cancelled and retired in exchange for the
consideration provided for in Section 2.03 hereof;
WHEREAS, the Merger is intended to be treated as a tax-free
reorganization pursuant to the provisions of Section 368(a)(1)(A) of the
Internal Revenue Code of 1986, as amended (the "Code"), by virtue of the
provisions of Section 368(a)(2)(D) of the Code; and
WHEREAS, the parties hereto desire to make certain representations,
warranties and agreements in connection with the Merger and also to prescribe
certain conditions to the Merger.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements contained herein, and intending to be
legally bound hereby, the parties hereto hereby agree as follows:
Article I.
DEFINITIONS
For purposes of this Agreement, the following terms shall have the
respective meanings set forth below:
"Code" means the Internal Revenue Code of 1986, as amended from time
to time, any successor statute thereto and all final or temporary regulations
promulgated thereunder and generally applicable published rulings entitled to
precedential effect.
"Environment" means soil, surface waters, ground waters, land,
stream, sediments, surface or subsurface strata and ambient air.
"Environmental Condition" means any condition with respect to the
Environment on any Facility, whether or not yet discovered, which could or does
result in any Losses (as defined in Section 9.01 hereof), including any
condition resulting from the operation
of the business of Peeper's or the operation of the business of any subtenant or
occupant of any Facility.
"Environmental Laws" means all Governmental Rules relating to injury
to, or the protection of, real or personal property or human health or the
Environment as in effect prior to the Closing Date, including, without
limitation, all valid and lawful requirements of courts and other Governmental
Bodies pertaining to reporting, licensing, permitting, investigation,
remediation and removal of emissions, discharges, releases or threatened
releases of Hazardous Substances, chemical substances, pesticides, petroleum or
petroleum products, pollutants, contaminants or hazardous or toxic substances,
materials or wastes, whether solid, liquid or gaseous in nature, into the
Environment, or relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of Hazardous Substances,
pollutants, contaminants or hazardous or toxic substances, materials or wastes,
whether solid, liquid or gaseous in nature.
"Ergovision Stock" means the Common Stock, par value $0.001 per
share, of Ergovision.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, any successor statute thereto and all final or
temporary regulations promulgated thereunder and generally applicable published
rulings entitled to precedential effect.
"Facility" means any facility which is now or has heretofore been
owned or used by Peeper's.
"GAAP" means generally accepted accounting principles in the United
States of America in effect from time to time.
"Governmental Body" means any federal, state, local or foreign
governmental authority or regulatory body, any subdivision, agency, commission
or authority thereof (including, without limitation, environmental protection,
planning and zoning), or any quasi-governmental or private body exercising any
regulatory authority thereunder (including, without limitation, Network
Solutions, Inc.) and any person directly or indirectly owned by and subject to
the control of any of the foregoing, or any court, arbitrator or other judicial
or quasi-judicial tribunal.
"Governmental Rules" means any statute, law, treaty, rule, code,
ordinance, regulation, policy, permit, certificate or order of any Governmental
Body or any judgment, decree, injunction, writ, order or like action of any
Governmental Body.
"Hazardous Substances" means any substance:
(a) the presence of which requires notification,
investigation, or remediation under any Environmental Law as in effect prior to
the Closing Date;
(b) which prior to the Closing Date is or becomes defined as a
"hazardous waste", "hazardous material" or "hazardous substance" or "pollutant"
or "contaminant" under any present or future Environmental Law or amendments
thereto including,
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without limitation, the Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.), the Resource
Conservation and Recovery Act ("RCRA") (42 U.S.C. Section 6901 et seq.), the
Clean Air Act (42 U.S.C. Section 7401 et seq.) and any Environmental Law
applicable to any jurisdiction in which or from which Peeper's conducts or has
conducted its business;
(c) which is toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous and is
or becomes regulated by any Governmental Body under Environmental Laws prior to
the Closing Date;
(d) without limitation, which contains gasoline, diesel fuel
or other petroleum hydrocarbons or volatile organic compounds;
(e) without limitation, which contains polychlorinated
byphenyls (PCBs) or asbestos or urea formaldehyde foam insulation; or
(f) without limitation, which contains or emits radioactive
particles, waves or materials, including radon gas.
"Lien" means any mortgage, charge, pledge, lien, security interest,
claim, encumbrance or restriction, of any kind or nature.
"Release" means a general release in substantially the form of
Exhibit D hereto to be executed by Thralow and each of the directors and
officers of Peeper's in favor of Subsidiary.
Article II.
PURCHASE AND SALE
Section 2.01 The Merger. (a) Upon the terms and subject to the conditions
hereof and in accordance with Section 252 of the Delaware General Corporation
Law (the "DGCL") and Sections 302A.601 and 302A.651 of the Minnesota Business
Corporation Law (the "MBCL"), as promptly as practicable following the
satisfaction or waiver of the conditions set forth in Article V and Article VI
hereof, but in no event later than May 31, 1999 (unless extended pursuant to
Section 7.06 hereof), the closing (the "Closing") of the Merger shall take place
at the offices of Rosenman & Colin LLP, 575 Madison Avenue, New York, New York,
or such other place and at such time as the parties shall agree in writing (the
"Closing Date").
(b) Concurrently with the Closing, (i ) a certificate of merger (the
"Certificate of Merger"), in form and substance reasonably satisfactory to
Ergovision and Peeper's, providing for the merger of Peeper's with and into
Subsidiary, shall be duly prepared, executed and filed by Ergovision, as the
sole shareholder of surviving corporation (the "Surviving Corporation"), with
the Delaware Secretary of State in accordance with the relevant provisions of
the DGCL and (ii) the appropriate officers of Peeper's and Subsidiary shall
execute and acknowledge the certificate required by Section 302A.651 of MBCL
(the "Minnesota Certificate") and it shall be filed with the Minnesota Delaware
Secretary of State in accordance with the MBCL, and the Merger shall become
effective upon completion of the latest of such
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filings as are required under the DGCL and MBCL. The date and time the Merger
becomes effective is referred to herein as the "Effective Time".
Section 2.02 Effects of the Merger. (a) The Merger shall have the effects
set forth in the DGCL and the MBCL and as hereinafter set forth. Following the
Merger, the Surviving Corporation shall (i) continue its corporate existence
under the laws of the State of Delaware, (ii) be a wholly owned subsidiary of
Ergovision, (iii) use the name "Peeper's" and (iv) succeed to all rights assets,
liabilities and obligations of Peeper's and Subsidiary in accordance with DGCL
and the MBCL. At the Effective Time, pursuant to Section 259 of the DGCL, the
separate existence of Peeper's shall cease and the Surviving Corporation shall
succeed, without other transfer, to all the rights and property of each of
Peeper's and Subsidiary (sometimes hereinafter referred to collectively as the
"Constituent Corporations") and shall be subject to all the debts and
liabilities of each in the same manner as if the Surviving Corporation had
itself incurred them. All rights of creditors and all Liens upon the property of
each of the Constituent Corporations shall be preserved unimpaired, provided
that such Liens upon property of Peeper's shall be limited to the property
affected thereby immediately prior to the time the Merger is effective. Any
action or proceeding pending by or against Peeper's may be prosecuted to
judgment, which shall bind the Surviving Corporation, or the Surviving
Corporation may be proceeded against or substituted in its place.
(b) At the Effective Time each share of common stock of Peeper's
issued and outstanding immediately prior to the Effective Time shall, by reason
of the Merger and without any action by the holder thereof, be cancelled and
retired.
Section 2.03 Merger Consideration. At the Effective Time, all of the
collective shares of common stock, $0.01 par value, of Peeper's (the "Peeper's
Common Stock") issued and outstanding immediately prior to the Effective Time
shall, by reason of the Merger and without any action by the holder thereof, be
converted into the right to receive the following aggregate consideration (the
"Merger Consideration"):
(a) $875,000 in immediately available funds, less any amounts
previously received from Ergovision in connection with that certain Letter of
Intent, dated March 26, 1999 (the "Letter of Intent"), executed by Ergovision,
Peeper's and Thralow;
(b) a promissory note for the principal amount of $875,000 in the
form of Exhibit A hereto, which note shall be secured by a first priority
security interest in all of the intellectual and intangible property of the
Surviving Corporation formerly owned by Peeper's, including, without limitation,
all domain names, toll-free telephone numbers, web-site content and contract
rights acquired from Peeper's in the Merger, payable in full on the earlier of
(x) the first anniversary of the Closing or (y) consummation by Ergovision of a
public financing transaction or transactions for gross proceeds in excess of
$10,000,000; and
(c) 1,210,159 shares of Ergovision Stock.
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Section 2.04 Directors and Officers, Articles of Incorporation; By-laws.
At the Effective Time, the Board of Directors of the Surviving Corporation shall
consist of Xxxx Xxxxx, Xxxx Xxxxxx and Xxxxxx Xxxxxxx, each to hold office in
accordance with the Articles of Incorporation and By-laws of the Surviving
Corporation. The Articles of Incorporation and By-laws of Subsidiary at the
Effective Time shall be the Articles of Incorporation and By-laws of the
Surviving Corporation after the Effective Time, and thereafter may be amended in
accordance with their respective terms and applicable law.
Section 2.05 Tax-Free Reorganization. The parties intend that the
Acquisition be treated as a plan of reorganization under Section 368(a)(1)(A)
and 368(a)(2)(D) of the Code. The Ergovision Stock issued in the Merger will be
issued solely in exchange for Peeper's Common Stock, and no other transaction
(other than the Merger and as provided in this Agreement) is intended to be an
adjustment to the consideration paid for Peeper's Common Stock. The parties
intend that, aside from that portion of the Merger Consolidation set forth in
Section 2.03(a) and (b), no consideration that could constitute "other property"
within the meaning of Section 356(a) of the Code is being transferred by
Ergovision for the Purchased Shares. The parties shall not take a position on
any tax return or before any taxing authority that is inconsistent with this
Section 2.05 unless otherwise required by a final and binding determination or
resolution of a Governmental Body with appropriate jurisdiction, and each party
agrees to promptly notify the other party of any assertion by a taxing authority
of a position that is inconsistent with this Section 2.05.
Article III.
REPRESENTATIONS AND WARRANTIES OF THRALOW AND PEEPER'S
Thralow and Peeper's, jointly and severally, represent and warrant
to Ergovision and Subsidiary, that:
Section 3.01 Organization and Good Standing. Peeper's is and at the
Closing will be a corporation duly organized, validly existing and in good
standing under the laws of the State of Minnesota and has and will have the
corporate power and authority to own or lease all of its properties and assets
and to carry on its business as it is now being conducted.
Section 3.02 Foreign Qualification. Peeper's is not licensed or qualified
to do business as a foreign corporation in any jurisdiction, and the character
and location of the assets owned or leased by Peeper's and the nature or conduct
of Peeper's business as it is now being conducted do not make such license or
qualification necessary.
Section 3.03 Capitalization; Authority of Seller. (a) Thralow is the sole
shareholder of Peeper's and has good and valid title to all issued and
outstanding shares of Peeper's Common Stock free and clear of all Liens.
(b) Thralow and Peeper's each have the power and authority to
execute and deliver this Agreement, the Release executed by Thralow and all
other documents hereby
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contemplated to be executed by Thralow and/or Peeper's, to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken pursuant to the provisions hereof and thereof. The
execution, delivery and performance of this Agreement and all other documents
hereby contemplated to be executed by Thralow and/or Peeper's has been, and the
consummation by Thralow and Peeper's of the transactions hereby and thereby
contemplated has been, duly authorized by all necessary action, corporate or
otherwise, of Thralow and/or Peeper's, as applicable. The Board of Directors and
sole shareholder of Peeper's has authorized and approved the execution, delivery
and performance of this Agreement and the transactions contemplated hereby. This
Agreement and all other documents hereby contemplated to be executed by Thralow
and/or Peeper's constitute the legal, valid and binding obligations of Thralow
and/or Peeper's, as applicable, enforceable against Thralow and/or Peeper's, as
applicable, in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency, fraudulent
conveyance, reorganization, or other similar laws affecting the enforcement of
creditor's rights.
Section 3.04 Corporate Instruments. Thralow has heretofore made available
to Ergovision true and complete copies of the existing Certificate of
Incorporation, the By-laws and the stock transfer books of Peeper's.
Section 3.05 Capitalization; Options; Common Stock. (a) Peeper's is
authorized to issue only 100 shares of Common Stock, par value $0.01 per share,
all of which shares of Common Stock are issued and outstanding and owned by
Thralow. There are no other series or classes of capital stock of Peeper's
authorized or issued.
(b) There are no outstanding warrants, options, contracts, rights
(pre-emptive or otherwise), calls, commitments or demands of any character
relating to any authorized and issued or unissued shares of the capital stock of
Peeper's or other instruments convertible into or exchangeable for such stock,
or which obligate Peeper's to seek authorization to issue additional shares of
any class of stock, nor will any be created by virtue of this Agreement or the
transactions hereby contemplated.
(c) The Common Stock owned by Thralow has been duly authorized and
legally and validly issued, is fully paid and nonassessable, and represents all
of the issued and outstanding shares of capital stock of Peeper's. None of the
Common Stock has been issued in violation of the securities or blue sky laws of
the United States of America or any state or territory thereof.
Section 3.06 No Violation of Other Instruments or Obligations. The
execution and delivery by Thralow and Peeper's of this Agreement or any other
documents hereby contemplated and the consummation of the transactions hereby
and thereby contemplated by Thralow and Peeper's shall not (i) constitute any
violation or breach of the Certificate of Incorporation or the By-laws of
Peeper's, (ii) constitute a default under or a violation or breach of, or result
in the acceleration of any obligation under, any provision of any contract,
mortgage or other instrument to which Thralow or Peeper's is a party or by which
any of its assets may be affected or secured, (iii) violate any Governmental
Rule affecting Peeper's or any of its assets, (iv) result in the creation of any
Lien on any of the assets or properties of Peeper's, or (v) result
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in the termination of any license, franchise, lease or permit to which Peeper's
is a party or by which it is bound.
Section 3.07 Compliance with Law; Consents and Approvals. Peeper's has
complied in all material respects with all Governmental Rules (including,
without limitation, any federal, state or local laws, rules or regulations
regulating the safety of the workplace and/or the discharge of materials into
the environment or otherwise relating to the protection of the environment)
applicable to the business of Peeper's as conducted on and prior to the date
hereof. Peeper's has maintained in full force and effect all licenses,
approvals, permits and consents for the lawful conduct of its business. Neither
Peeper's nor Thralow is in violation of any Governmental Rule applicable to
Thralow or Peeper's, and has not received any notice of any such violation.
Except as set forth on Schedule 3.07 hereof, no authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration, notice
or filing by or with any domestic or foreign Governmental Body (including,
without limitation, any filing or registration pursuant to the securities or
blue sky laws of the United States of America or any state or territory thereof)
by Peeper's is required in connection with the execution and delivery by Thralow
and Peeper's of this Agreement and the consummation of the transactions hereby
contemplated.
Section 3.08 Financial Statements. Schedule 3.08 hereto contains (i) the
unaudited balance sheet of Peeper's as of December 31, 1998 (the "December
Balance Sheet"), and the related statements of operations and shareholders'
equity, including the notes thereto, for the year then ended and (ii) the
unaudited balance sheet of Peeper's as of March 31, 1999 (the "March Balance
Sheet") and the related statements of operations and shareholders' equity,
including the notes thereto, for the three-month period then ended, all of which
have been certified by Peeper's independent certified public accountant and
delivered to Ergovision. Such financial statements present fairly, in all
material respects, the financial position of Peeper's as of December 31, 1998
and March 31, 1999, respectively, and the results of Peeper's operations and
shareholders' equity for the year ended December 31, 1998 and the three-month
period ended March 31, 1999, all in conformity with GAAP applied on a consistent
basis.
Section 3.09 Accounts Receivable. Except to the extent of the amount of
the reserve for doubtful accounts reflected on the December Balance Sheet, the
March Balance Sheet or Schedule 3.09, respectively, all the Accounts Receivable
of Peeper's reflected in the December Balance Sheet, the March Balance Sheet or
Schedule 3.09, respectively, and all accounts receivable that have arisen since
the December Balance Sheet and March Balance Sheet (except Accounts Receivable
that have been collected since such date) are valid and enforceable claims, and
constitute bona fide accounts receivable resulting from the sale of goods and
services in the ordinary course of Peeper's business. The Accounts Receivable
are subject to no valid defense, offsets, returns, allowances or credits of any
kind, and are fully collectible within 90 days from their due date, except to
the extent of the amount of the reserve, if any, for doubtful accounts reflected
on the December Balance Sheet, the March Balance Sheet or Schedule 3.09,
respectively. Except for Accounts Receivable, Peeper's has not made any loan or
advance to any person.
Section 3.10 Liabilities, Borrowings and Guarantees. Peeper's has no
debts, liabilities or other obligations, accrued, absolute, contingent or
otherwise, due or to become due, other than
7
liabilities disclosed or provided for on Schedule 3.10 and liabilities incurred
since March 31, 1999 in the ordinary and usual course of its business consistent
with past practice but in no event aggregating more than $5,000 collectively.
Section 3.11 Title to Assets; Inventories. (a) Except for Liens (i) for
any current taxes or assessments not yet delinquent or (ii) created by statute
of carriers, warehousemen, mechanics, laborers and materialmen incurred in the
ordinary course of business for sums not yet due, Peeper's has good and
marketable title, free and clear of all Liens, to all of its assets and personal
property.
(b) All inventories reflected on Schedule 3.11 are, and all
inventories owned by Peeper's as of the Closing Time shall be (i) valued at the
lower of cost or market value on a first-in, first-out basis in accordance with
GAAP and (ii) current and readily merchantable, containing no material amount of
obsolete or damaged goods which have not been written down or reserved in
conformity with GAAP. No inventory is held on consignment by Peeper's, as
consignee or consignor. To Thralow's knowledge, all inventory included in
Peeper's assets is free of any material defect or other deficiency.
Section 3.12 Real Property; Leases. Except as set forth on Schedule 3.12,
Peeper's does not own or lease any real property.
Section 3.13 Litigation. Except as set forth on Schedule 3.13, there are
no, and at the Closing there will not be any, claims, actions, suits,
litigations, proceedings, audits, controversies or investigations, pending or,
to the knowledge of Thralow, threatened against or affecting Peeper's or any of
its assets, and Peeper's has not been, and at the Closing will not have been,
charged with or, to the knowledge of the Thralow, threatened with a charge of
any violation of, and is not, and at the Closing will not have been, under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
its business.
Section 3.14 Taxes. (a) Peeper's has timely and duly filed (giving effect
to extensions duly taken) all federal, state, local or foreign tax returns or
reports required to be filed by or with respect to Peeper's on or prior to the
Closing Date.
(b) The tax returns and reports described in subparagraph (a) above
reflect accurately all liability for taxes, charges, fees, levies or other
assessments of any nature whatsoever (including, without limitation, all
federal, state, local and foreign income taxes, estimated taxes, excise taxes,
sales taxes, use taxes, transfer taxes, gross receipts taxes, franchise taxes,
employment, withholding, social security and other payroll related taxes,
property taxes and import duties, whether or not measured in whole or in part by
net income), together with any related penalties, interest and additions to
taxes (any of the foregoing being referred to herein as a "Tax"), for the
periods covered thereby. Peeper's has paid all Taxes required to be paid by it
with respect to the periods covered by the returns and reports described in
subparagraph (a) above. Peeper's has fully collected, withheld and/or paid over
all Taxes required to be collected, withheld and/or paid over to a taxing
authority.
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(c) Peeper's is not currently being audited by any taxing authority
with respect to the returns and reports described in subparagraph (a) above and
there are no claims or assessments pending against Peeper's. Peeper's has not
agreed to waive or extend the statute of limitations with respect to any Taxes
or tax returns and has not filed any consent under section 341(f) of the Code
(or any corresponding provision of state, local or foreign tax law). No written
claim has ever been made by a taxing authority in a jurisdiction where Peeper's
does not presently file Tax returns that Peeper's is or may be subject to
taxation by that jurisdiction. Accurate, correct and complete copies of all tax
returns and reports filed by Peeper's during the five-year period preceding the
Closing Date have been made available to Ergovision. Accurate, correct and
complete copies of any closing agreements with respect to Peeper's which were
entered into with the Internal Revenue Service or any other taxing authority
have heretofore been furnished to Ergovision.
(d) Since January 1, 1997 and through the date hereof, Peeper's has
been a subchapter S corporation within the meaning of Section 1361 of the Code
and under all corresponding provisions of applicable state and local tax laws to
the extent they recognize S corporation status.
Section 3.15 Insurance. Peeper's has insurance for its assets and
operations in amounts and for coverages customary for businesses of its kind and
size. Schedule 3.15 hereto is a complete and correct list of all policies of
insurance carried by Peeper's or pursuant to which Peeper's is a named
beneficiary or pursuant to which the business or assets of Peeper's are insured
and true and complete copies of which have been provided to Ergovision. All of
such policies are in full force and effect, all premiums due and payable in
respect of such policies have been paid in full, and there exists no default or
other circumstance which would create the substantial likelihood of the
cancellation or non-renewal of any such policy. Peeper's has notified such
insurers of any claim known to Peeper's which it believes is covered by any such
insurance policy and has provided Ergovision with a copy of such claim.
Section 3.16 Labor Disputes. Peeper's is not party to a union agreement
and there are no labor unions or other organizations representing or attempting
to represent any employee of Peeper's. There are no work stoppages or other
labor disputes, disturbances, grievances or claims pending or, to the knowledge
of Thralow, threatened in connection with the employees of Peeper's. There is no
unfair labor practice charge or complaint pending or, to the knowledge of
Thralow, threatened against Peeper's before the National Labor Relations Board
or any State Labor Relations Board. There are no claims of discrimination of any
kind pending or, to the knowledge of Thralow, threatened against Peeper's before
any Governmental Body.
Section 3.17 Contracts. Schedule 3.17 contains a complete and correct list
of all contracts, arrangements and agreements in effect on the date hereof (the
"Contracts") to which Peeper's is a party, whether written or oral, including
but not limited to agency or advertising contracts, agreements with employees,
sales representatives, suppliers, wholesalers, manufacturers and distributors,
arrangements with web hosting service providers, website designers, software
vendors or licensors, computer or technical service providers, and agreements
with factors, banks or other lending institutions. A true and complete copy of
each written Contract, and a complete and correct summary of each oral Contract,
has heretofore been made available to Ergovision. Peeper's has performed all of
its obligations required to be
9
performed by it, has paid all amounts required to be paid by it and is not in
default in any material respect under any Contract, and no event has occurred
which, with the lapse of time or the giving of notice or both, would constitute
such a default, and no other party to any Contract is in default in any material
respect thereunder. Each of the Contracts constitutes a legal, valid and binding
obligation of Peeper's and the other parties thereto enforceable in accordance
with its terms. Neither Thralow nor Peeper's has received notice that any other
party to any of the Contracts is in default thereunder. Except as set forth on
Schedule 3.17, none of the Contracts requires the consent of a third party in
connection with the transactions contemplated hereby.
Section 3.18 Intellectual Property. (a) Except as set forth on Schedule
3.18, Peeper's owns free and clear of all Liens, and possesses and has the
exclusive right to use, all patents, patent applications, patent rights,
trademarks, trademark applications, trade names, service marks, service xxxx
applications, domain names, domain name applications, copyrights, copyright
registrations, know-how, trade secrets, proprietary processes, computer programs
and other computer software, technology and formulae (the "Proprietary Rights")
necessary, required or desirable for the conduct of its business as presently
conducted or as proposed to be conducted. All Proprietary Rights are identified
on Schedule 3.18 hereto. Except as set forth on Schedule 3.18, Peeper's owns and
has the sole and exclusive right to use each of the Proprietary Rights for the
categories of goods and services with respect to which such Proprietary Rights
are registered to the extent that such goods and services are currently being
used. Peeper's (i) is not bound by or a party to any options, licenses, or
agreements of any kind with respect to the Proprietary Rights and (ii) has not
assigned, licensed or in any manner encumbered or impaired any rights in the
Proprietary Rights. No Proprietary Right infringes or violates any personal,
property, statutory or common law or any other rights of any third parties
(including, without limitation, copyright, trademark and the rights of privacy
and publicity), and no claim alleging any such infringement or violation by
Peeper's or its Proprietary Rights has been received by Thralow or Peeper's.
(b) Except as set forth on Schedule 3.18, no royalties, honoraria or
fees are payable to and no consents or approvals are needed from any third
persons or entities in connection with the ownership, use or exploitation of the
Proprietary Rights in Peeper's business.
Section 3.19 Software. (a) Schedule 3.19 sets forth a complete and
accurate list of all software programs, systems and applications (i) designed or
developed (or in the process of being designed or developed) by employees of
Peeper's or by consultants on Peeper's behalf (the "Peeper's Owned Software") or
(ii) licensed by Peeper's from any third party (other than "off-the-shelf"
software) (the "Licensed Software") pursuant to the License Agreements specified
on Schedule 3.18, in each case that is manufactured, developed or used by
Peeper's in the operation of Peeper's business or integrated into Peeper's Owned
Software or marketed, licensed or sold by Peeper's to third parties
(collectively, the "Software").
(b) All of Peeper's Owned Software are original works of authorship
and are protected by the copyright laws of the United States. Peeper's owns all
right, title and interest in and to Peeper's Owned Software, free and clear of
any Liens and, except as set forth on Schedule 3.19 hereof, has not sold,
assigned, licensed, distributed or in any other way disposed of Peeper's Owned
Software or subjected Peeper's Owned Software to any Lien, and none of the
employees
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or consultants referenced in Section 3.19(a) has any interest or claim
whatsoever to any of Peeper's Owned Software or any component or constituent
part thereof.
(c) The Licensed Software is validly held and used by Peeper's and
is fully and freely utilizable by Peeper's pursuant to the license agreement
with respect thereto without the consent of or notice to any third party.
Peeper's is in compliance with all material terms and conditions of each license
with respect to the Licensed Software, and neither Thralow nor Peeper's has
received any notice that Peeper's is in breach of any such license.
(d) To the best of Thralow's knowledge, the Software does not
contain any copy protection, computer virus, malicious code or destructive
feature.
Section 3.20 Year 2000. All Software is designed to be used prior to,
during, and after calendar year 2000 and the Software will operate during each
such time period without error relating to date data, specifically including any
error relating to, or the conduct of, date data which represents or references
different centuries or more than one century. Without limiting the generality of
the foregoing, (a) the Software will not abnormally end or provide invalid or
incorrect results as a result of date data and (b) the Software will be capable,
upon installation, of accurately processing, providing and/or receiving date
data from, into, and between the twentieth and twenty-first centuries, including
the years 1999 and 2000, and leap year calculations, and (ii) the Software will
lose no functionality with respect to the introduction of records containing
dates falling before, on or after January 1, 2000, and that the Software will be
interoperable with other software and systems that may deliver records to,
receive record from or otherwise interact with the Software, including but not
limited to, back-up and archived data, date data, century recognition
calculations that accommodate same century and multi-century formulas and date
values and date data interface values that reflect the century.
Section 3.21 Licenses and Permits. Peeper's has all licenses, permits,
consents and approvals necessary for Peeper's to conduct its business as
required by any Governmental Body, and all such licenses, permits, consents and
approvals are set forth in Schedule 3.21 hereto.
Section 3.22 ERISA. (a) Except as set forth on Schedule 3.22 hereto,
Peeper's does not maintain, administer or contribute to, nor has it maintained,
administered or contributed to, nor do the employees of Peeper's receive or
expect to receive as a condition of employment, benefits pursuant to any:
employee pension benefit plan (as defined in Section 3(2) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA")) (a "Plan"),
including, without limitation, any multiemployer plan as defined in Section
3(37) of ERISA (a "Multiemployer Plan"); employee welfare benefit plan (as
defined in Section 3(1) of ERISA) (a "Welfare Plan"); or bonus, deferred
compensation, stock purchase, stock option, severance plan, salary continuation,
vacation, sick leave, fringe benefit, incentive, insurance, welfare or similar
arrangement (an "Employee Benefit Plan"). Neither Peeper's nor any affiliate of
Peeper's as determined under Code section 414(b), (c), (m) or (o) (an "ERISA
Affiliate") maintains, administers or contributes to, nor have any of them
maintained, administered or contributed to, nor do the employees of Peeper's or
any ERISA Affiliate receive or expect to receive as a condition of employment,
benefits pursuant to any Plan which is subject to section 412 of the Code or
Title IV of ERISA. All Plans, Welfare Plans and Employee Benefit Plans and any
related trust agreements or annuity contracts comply in all material respects
with and are and
11
have been operated in accordance with each applicable provision of ERISA and the
Code (including, without limitation, requirements of Code 401(a) to the extent
any Plan is intended to conform to that section), other Federal statutes, state
law (including, without limitation, state insurance law) and the regulations and
rules promulgated pursuant thereto or in connection therewith. Neither Peeper's
nor any ERISA Affiliate has any notice or knowledge of any violation of any of
the foregoing by any Plan, Welfare Plan, or Employee Benefit Plan.
(b) Each Welfare Plan which is a group health plan (within the
meaning of section 5000(b)(1) of the Code) complies with and has been maintained
and operated in all material respects in accordance with the requirements of
section 4980B of the Code and Part 6 of Subtitle B of Title I of ERISA. There
are no pending or, to Peeper's knowledge, threatened claims against any of the
Plans, Welfare Plans, or Employee Benefit Plans by any employee or beneficiary
covered under any Plans, Welfare Plans or Employee Benefit Plans or otherwise
involving any Plan, Welfare Plan or Employee Benefit Plan (other than routine
claims for benefits).
Section 3.23 Employees and Other Matters. Schedule 3.23 hereto is a
correct and complete list of (i) the directors and officers of Peeper's and all
of the present employees, sales personnel and independent contractors regularly
employed by or in connection with the business of Peeper's, either as employees
or independent contractors, together with a statement of the full amount payable
by way of salary, bonuses, perquisites, fringe benefits and other direct or
indirect compensation to each such person and (ii) the names of all persons, if
any, holding powers of attorney from Peeper's and a summary statement of the
terms thereof.
Section 3.24 Environmental Matters. (a) Peeper's has obtained and
continues to maintain all permits, licenses, consents and approvals (the
"Environmental Approvals"), if any, necessary for conducting the business of
Peeper's which are required under Environmental Laws, and Peeper's has not
operated in violation of any Environmental Law or the terms of any Environmental
Approval.
(b) (i) Peeper's has not used, stored, generated, discharged,
emitted, transported, disposed of or treated Hazardous Substances except in a
manner which complies with Environmental Laws, (ii) to the best knowledge of
Thralow, no prior owner, occupant, tenant or user of any Facility has ever used,
stored, generated, discharged, emitted, transported, disposed of or treated
Hazardous Substances, at, on or from any Facility except in compliance with all
Environmental Laws, and (iii) to the best knowledge of Thralow, there is not,
and there has not been, any Environmental Condition or release or threat of
release (as those terms are defined in Section 101 of CERCLA) of Hazardous
Substances at, on or from any Facility.
(c) Neither Peeper's nor Thralow has received written notice of any
pending or threatened investigation, claims, enforcement proceedings, cleanup
orders, citizen suits or other actions instituted by any private party, employee
or Governmental Body arising out of the conduct or the operations of Peeper's,
in connection with any Environmental Laws, or as a result of any Environmental
Condition at any Facility.
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Section 3.25 Sales Target. The net sales generated by the Business ("Net
Sales") for the twelve months ended December 31, 1998, were at least $1,478,752,
and for the three months ended March 31, 1999 were at least $485,376.
Section 3.26 Ordinary Course; No Material Adverse Change. Since March 31,
1999, Peeper's has conducted its business in the ordinary and regular course
thereof and there has not been (i) any material adverse change in the assets,
business, prospects, financial condition or results of operations of Peeper's,
(ii) any damage, destruction or loss, whether or not covered by insurance, which
has materially adversely affected assets or the business of Peeper's or (iii)
any event or condition of any character whatsoever the occurrence of which
affects or threatens to materially adversely affect the assets, business,
prospects, financial condition or results of operations of Peeper's.
Section 3.27 Finder's Fees. Neither Thralow nor Peeper's has incurred any
liability for finder's or brokerage fees or agent's commissions in connection
with this Agreement or the transactions hereby contemplated.
Section 3.28 Full Disclosure. No representation or warranty of Peeper's or
the Thralow in this Agreement or in any other certificate, schedule or other
document delivered to Ergovision pursuant to this Agreement contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein and therein not misleading in light of the
circumstances in which they were made.
Article IV.
REPRESENTATIONS AND WARRANTIES OF ERGOVISION AND SUBSIDIARY
Ergovision and Subsidiary, jointly and severally, represent and
warrant to Peeper's and Thralow that:
Section 4.01 Organization and Good Standing. Ergovision is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to own or lease all
of its properties and assets and carry on its business as it is now being
conducted, except for such power and authority the lack of which would not have
a materially adverse effect on Ergovision. Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, is a wholly owned subsidiary of Ergovision and is organized solely for
the purpose of consummating the transactions contemplated hereby.
Section 4.02 Authority Relative to Agreement. Ergovision and Subsidiary
each have the corporate power and authority to execute and deliver this
Agreement, and all other documents hereby contemplated, to consummate the
transactions hereby and thereby contemplated and to take all other actions
required to be taken by each of them pursuant to the provisions hereof and
thereof. The execution, delivery and performance of this Agreement and all other
documents hereby contemplated to be executed by Ergovision and Subsidiary has
been, and the consummation by Ergovision and Subsidiary of the transactions
hereby and thereby contemplated has been, duly authorized by any and all
necessary corporate action of Ergovision
13
and Subsidiary, respectively. The respective Boards of Directors of Ergovision
and Subsidiary have authorized and approved the execution, delivery and
performance of this Agreement and the transactions contemplated hereby. This
Agreement and all other documents hereby contemplated to be executed by
Ergovision and Subsidiary constitute the legal, valid and binding obligations of
Ergovision and Subsidiary, respectively, enforceable against Ergovision and
Subsidiary in accordance with their respective terms, except as such
enforceability may be limited by bankruptcy, moratorium, insolvency, fraudulent
conveyance, reorganization, or other similar laws affecting the enforcement of
creditor's rights.
Section 4.03 No Violation of Other Instruments or Obligations. Neither the
execution and delivery of this Agreement or any other documents hereby
contemplated nor the consummation of the transactions hereby and thereby
contemplated shall (i) constitute any violation or breach of the Certificate of
Incorporation or By-laws of Ergovision or Subsidiary, (ii) constitute a default
under or a violation or breach of, or result in acceleration of any obligation
under, any provision of any contract, lease, mortgage or other instrument to
which either of them is a party, or (iii) violate any judgment, order, writ,
injunction, decree, statute, rule or regulation affecting Ergovision, Subsidiary
or any of their respective assets, which violation, breach or default, in the
case of (ii) or (iii), would have a materially adverse effect on Ergovision or
Subsidiary.
Section 4.04 Consents and Approvals. No authorization, approval, order,
license, permit, franchise or consent, and no registration, declaration, notice
or filing by or with any domestic or foreign Governmental Body by Ergovision or
Subsidiary is required in connection with the execution and delivery of this
Agreement and the consummation of the transactions hereby contemplated.
Section 4.05 Capitalization; Common Stock. (a) The capitalization of
Ergovision, including all outstanding stock options, is accurately and fully set
forth on Schedule 4.05 hereto. Subsidiary is authorized to issue only 100 shares
of common stock, .01 par value per share, all of which shares of common stock
are issued and outstanding and owned by Ergovision. There are no other series or
classes of capital stock of Subsidiary authorized or issued.
(b) The Ergovision Stock to be issued to Thralow pursuant to the
provisions of this Agreement will, upon such issuance, be duly authorized,
legally and validly issued, and fully paid and nonassessable.
Section 4.06 Financial Statements. Schedule 4.06 hereto contains (i) the
unaudited balance sheet of Ergovision as of December 31, 1998 and the related
statements of operations, cash flows and shareholders' equity, including the
notes thereto, for the year then ended and (ii) the unaudited balance sheet of
Ergovision as of February 28, 1999 and the related statements of operations,
cash flows and shareholders' equity, including the notes thereto, for the
two-month period then ended, all of which have been compiled by Ergovision's
certified public accountant and delivered to Peeper's and Thralow. Such
financial statements present fairly, in all material respects, the financial
position of Ergovision as of December 31, 1998 and February 28, 1999,
respectively, and the results of Ergovision's operations, cash flows and
shareholders' equity for the year ended December 31, 1998 and the two-month
period ended February 28, 1999, all in conformity with GAAP applied on a
consistent basis.
14
Section 4.07 Title to Assets. Except for Liens (i) for any current taxes
or assessments not yet delinquent or (ii) created by statute of carriers,
warehousemen, mechanics, laborers and materialmen incurred in the ordinary
course of business for sums not yet due, Ergovision has good and marketable
title, free and clear of all Liens, to all of its assets and personal property.
Section 4.08 Litigation. Except as set forth on Schedule 4.08 hereto,
there are no material claims, actions, suits, litigations, proceedings, audits,
controversies or investigations, pending or, to the knowledge of Ergovision,
threatened against or affecting Subsidiary, Ergovision or any of its assets, and
neither Ergovision nor Subsidiary has been charged with or, to the knowledge of
the Ergovision, threatened with a charge of any violation of, and is not under
investigation with respect to a possible violation of, any provision of any
federal, state or local law or administrative ruling or regulation relating to
its business, the adverse outcome of which, in any such case, would have a
materially adverse effect on Ergovision or Subsidiary.
Section 4.09 Licenses and Permits. Schedule 4.09 sets forth all licenses,
permits, consents and approvals necessary for Ergovision to conduct its business
as required by any Governmental Body, other than any such licenses, permits,
consents and approvals the absence of which would not have a materially adverse
effect on Ergovision.
Section 4.10 Ordinary Course; No Material Adverse Change. Since March 31,
1999, Ergovision has conducted its business in the ordinary and regular course
thereof and there has not been (i) any material adverse change in the assets,
business, prospects, financial condition or results of operations of Ergovision,
(ii) any damage, destruction or loss, whether or not covered by insurance, which
has materially adversely affected the assets or the business of Ergovision or
(iii) any event or condition of any character whatsoever the occurrence of which
materially adversely affects the assets, business, prospects, financial
condition or results of operations of Ergovision.
Section 4.11 Finder's Fees. Ergovision has not incurred any liability for
finder's or brokerage fees or agent's commissions in connection with this
Agreement or the transactions hereby contemplated.
Section 4.12 Full Disclosure. No representation or warranty of Ergovision
or Subsidiary in this Agreement or in any other certificate, schedule or other
document delivered to Peeper's or Thralow pursuant to this Agreement contains
any untrue statement of a material fact or omits to state a material fact
necessary in order to make the statements herein and therein not misleading in
light of the circumstances in which they were made.
Article V.
CONDITIONS TO ERGOVISION'S AND SUBSIDIARY'S OBLIGATIONS
All obligations of Ergovision and Subsidiary under this Agreement
are subject to the fulfillment of each of the following conditions:
Section 5.01 Representations and Warranties. The representations and
warranties of Peeper's and Thralow contained in Article III hereof shall be true
and correct at and as of the Closing Date as though such representations and
warranties were made at and as of such date.
15
Section 5.02 Employment Agreements. Thralow shall have entered into an
employment agreement substantially in the form of Exhibit B hereto. Xxxxxxxx
Xxxxxxx shall have entered into an employment agreement substantially in the
form of Exhibit C hereto.
Section 5.03 Powers of Attorney. There shall have been terminated or
revoked all powers of attorney of Peeper's.
Section 5.04 Opinion of Counsel. Peeper's shall cause to be delivered to
Ergovision an Opinion of Counsel for Peeper's, in form and substance
satisfactory to Ergovision and its counsel.
Section 5.05 Releases. Thralow shall have executed and delivered the
Release.
Section 5.06 Non-Competition Agreement. Thralow shall have entered into a
non-competition agreement substantially in the form of Exhibit E hereto.
Section 5.07 Resignations. Peeper's shall have caused to be delivered to
Ergovision written resignations, effective as of the Closing, of each of the
directors and officers of Peeper's from all offices and directorships of
Peeper's held.
Section 5.08 Governmental Permits and Approvals; Consents. Peeper's shall
have obtained (with the reasonable assistance of Ergovision to the extent
required to obtain such approvals) (i) all permits and approvals from any
Governmental Body required to be obtained by Peeper's for the lawful
consummation of the Closing and (ii) the consents set forth or required to be
set forth on Schedule 3.07. Notwithstanding the foregoing, Peeper's shall not be
required to pay any consideration to any third party in order to obtain any such
permit, approval, consent or estoppel representation letter.
Section 5.09 Merger. The Certificate of Merger and the Minnesota
Certificate shall each have been executed and delivered by Peeper's to
Ergovision.
Section 5.10 Assignment of Contracts. Peeper's shall obtain (with the
reasonable assistance of Ergovision to the extent necessary to obtain such
consents) the consent of all other parties to an assignment of any Contract in
all cases in which such consent is required thereunder. Notwithstanding the
foregoing, Peeper's shall not be required to pay any consideration to any third
party in order to obtain any such consent.
Section 5.11 Officer's Certificate. Peeper's shall have caused to be
delivered to Ergovision a certificate signed by the Chief Executive Officer
and/or the Secretary of Peeper's stating that (a) the representations and
warranties of Peeper's as set forth in Article 3 hereof are true and accurate on
and as of the Closing Date as if made on and as of such date and (b) all
conditions of Ergovision's obligations as set forth in Article 5 hereof have
been entirely fulfilled by Peeper's.
Section 5.12 Consent of Shareholders of Subsidiary. The sole shareholder
of Subsidiary shall have authorized and approved the execution, delivery and
performance of this Agreement and the transactions contemplated hereby.
16
Section 5.13 Due Diligence. Ergovision shall have completed its business,
financial and legal due diligence review of Peeper's to Ergovision's
satisfaction.
Section 5.14 Financing. Ergovision's third party sources of capital who
are financing the portion of the Merger Consideration set forth in Section
2.03(a) hereof shall have approved the transactions contemplated hereby.
Section 5.15 Monthly Sales Reports. Peeper's shall have delivered to
Ergovision monthly sales updates within five (5) business days of the end of
each calendar month between the date hereof and the Closing Date.
Section 5.16 Additional Documents. Peeper's and/or Thralow has executed
and delivered such additional closing documents, certificates and agreements as
Ergovision may reasonably request.
Article VI.
CONDITIONS TO PEEPER'S AND THRALOW'S OBLIGATIONS
All obligations of Peeper's and Thralow under this Agreement are
subject to the fulfillment of each of the following conditions:
Section 6.01 Representations and Warranties. The representations and
warranties of Ergovision and Subsidiary contained in Article IV hereof shall be
true and correct in all material respects at and as of the Closing Date as
though such representations and warranties were made at and as of such date.
Section 6.02 Employment Agreement. Ergovision shall have entered into an
employment agreement with Thralow substantially in the form of Exhibit B hereto
and an employment agreement with Xxxxxxxx Xxxxxxx substantially in the form of
Exhibit C hereto.
Section 6.03 Opinion of Counsel. Ergovision shall cause to be delivered to
Peeper's and Thralow an opinion of counsel for Ergovision and Subsidiary, in
form and substance satisfactory to Peeper's, Thralow and their counsel, opining,
inter alia, that on the basis of certain facts, representations and assumptions
set forth in such opinions which are consistent with the state of facts existing
at the Closing Date, to the effect that the Merger qualifies in relevant part as
a tax-free reorganization for United States Federal income tax purposes within
the meaning of Section 368(a) of the Code. In rendering the opinions described
in the preceding sentence, such counsel may require and rely upon
representations contained in certificates of officers of Ergovision and
Subsidiary.
Section 6.04 Governmental Permits and Approvals; Consents. Ergovision
shall have obtained (with the reasonable assistance of Ergovision to the extent
required to obtain such approvals) (i) all permits and approvals from any
Governmental Body required to be obtained by Ergovision for the lawful
consummation of the Closing and (ii) approval of this Agreement and the
transactions contemplated hereby by Subsidiary's shareholders. Notwithstanding
the foregoing, Ergovision shall not be required to pay any consideration to any
third party in order to obtain any such permit, approval, consent or estoppel
representation letter.
17
Section 6.05 Officer's Certificate. Ergovision shall have caused to be
delivered to Peeper's a certificate signed by the Chief Executive Officer and/or
the Secretary of Ergovision stating that (a) the representations and warranties
of Ergovision and Subsidiary as set forth in Article 4 hereof are true and
accurate on and as of the Closing Date as if made on and as of such date and (b)
all conditions of Peeper's and Thralow's obligations as set forth in Article 6
hereof have been entirely fulfilled by Ergovision and Subsidiary.
Section 6.06 Election to Boards of Directors. Ergovision shall have caused
Thralow to be elected to the respective Boards of Directors of Ergovision and
Subsidiary, with his term to commence as of the first business day after the
Closing Date.
Section 6.07 Due Diligence. Thralow and Peeper's shall have completed
their business, financial and legal due diligence review of Ergovision to the
satisfaction of Thralow and Peeper's.
Section 6.08 Additional Documents. Ergovision and/or Subsidiary has
executed and delivered such additional closing documents, certificates and
agreements as Peeper's or Thralow may reasonably request.
Article VII.
COVENANTS
Section 7.01 Further Assurances. From and after the date hereof, Thralow
and Peeper's shall, at any time and from time to time, at their sole cost and
expense, make, execute and deliver, or cause to be made, executed and delivered,
such assignments, deeds, drafts, checks, stock certificates, returns, filings
and other instruments, agreements, consents and assurances and take or cause to
be taken all such actions as counsel for Ergovision may reasonably request for
the effectual consummation, confirmation and particularization of this Agreement
and the transactions hereby contemplated.
Section 7.02 Collection of Receivables. In the event that Thralow receives
any amounts after the Closing Date in respect of Peeper's accounts receivable
that existed prior to the Closing Date, Thralow agrees to promptly forward all
such amounts to Ergovision.
Section 7.03 Taxes. (a) Thralow shall be responsible for the good faith
preparation of all federal S corporate income tax returns (i.e., Form 1120S) and
state S corporate income tax returns for Peeper's (the "S Corporation Returns"),
including extensions, for taxable periods ending prior to the Closing Date. At
least ninety (90) days prior to the due date (including extensions) of any S
Corporation Return, Thralow shall cause such S Corporation Returns to be
delivered to Ergovision for its approval, and, subject to approval by
Ergovision, will thereafter sign such Return as an officer of Peeper's. Once
approved, Ergovision shall timely file all S Corporation Returns timely
delivered to it by Thralow, without modifications, and shall furnish Thralow
with evidence regarding the filing of such S Corporation Returns.
18
(b) Thralow shall not amend any S Corporation Returns without the
prior written consent of Ergovision. If Thralow desires to amend or have amended
an S Corporation Tax Return, Thralow agrees to hold Ergovision harmless from any
additional Taxes that Ergovision may have to bear on account of such amended S
Corporation Return, and Ergovision and Thralow shall, at Thralow's cost,
cooperate in such matter to the extent reasonable.
Section 7.04 Standstill. In consideration of Ergovision's and Subsidiary's
execution and delivery of this Agreement, Thralow and Peeper's agree to
immediately cease any existing discussions or negotiations with any third
parties conducted prior to the date hereof with respect to any merger, business
combination, sale of a material portion of Peeper`s assets outside of the
ordinary course of business, change of control or similar transaction involving
the Company or any of its subsidiaries or division (each, an "Acquisition
Transaction"). Thralow and Peeper's shall not, and will cause their respective
"affiliates" (as defined in the Securities Exchange Act of 1934 (the "Exchange
Act")) as well as Peeper's management, employees, agents, representatives,
officers and directors, not to:
(a) from the date hereof until the earlier of the Closing Date or
the termination of this agreement, directly or indirectly solicit,
initiate, encourage, accept, entertain, participate in or consult with
respect to (including by way of furnishing information) any inquiry,
offer, discussion, proposal, negotiation, arrangement or understanding in
connection with any proposed Acquisition Transaction with any person, firm
or corporation other than Ergovision or Subsidiary, or provide any
information (public or non-public) or otherwise cooperate in any way with
anyone for any purpose inconsistent with the terms of this letter
agreement (it being also agreed that Thralow and Peeper's shall promptly
notify Ergovision in writing of any such inquiries or proposals); and
(b) for a period commencing on the date hereof and ending twelve
months following the date of the termination of this agreement, if
applicable,
(i) become a "participant" in a "solicitation" of proxies, as
those terms are defined in Rule 14a-11 and Rule 14a-1, respectively,
of Regulation 14A under the Exchange Act, to vote, or seek to advise
or influence any person, in respect of any voting securities of
Ergovision that may be outstanding and entitled to vote at any time
during such period, except in respect of the transactions
contemplated hereby;
(ii) form, join or in any way participate in any "group" (as
such term is defined in Section 13(d)(3) of the Exchange Act) for
the purpose of voting, purchasing or disposing of any securities of
Ergovision;
(iii) deposit any securities of Ergovision in a voting trust
or subject them to a voting agreement or other arrangement or
similar effect;
(iv) in any manner acquire or agree, offer, seek or propose to
acquire or make any proposal to acquire ownership (including,
without limitation, "beneficial" ownership, as defined by Rule 13d-3
promulgated under the Exchange Act) of any of the assets or
businesses of, or any securities of, or any
19
securities issued by, Ergovision or any rights or options to acquire
such ownership (including from a third party), except through the
transactions contemplated hereby;
(v) seek or propose to influence or control the management,
Board of Directors or policies of Ergovision, except for the
transactions contemplated hereby; or
(vi) enter into any discussion, proposal, negotiation,
arrangement or understanding with any third party in respect of any
of the foregoing.
Section 7.05 Continuation of Business. (a) From the date hereof until the
earlier of the Closing Date or the date of the termination of this Agreement,
except as Thralow, Peepers and Ergovision may otherwise agree, Peeper's will,
and Thralow will cause Peeper's to, preserve and continue to operate its
business diligently and in a proper and prudent manner and will not enter into
any transactions outside of the ordinary and usual course of its business or
enter into any transaction or make any commitment involving an expense or
capital expenditure by Peeper's in excess of $5,000. Except for those amounts
set forth on Schedule 7.05 hereto, during such period no bonuses or compensation
will be paid to the officers or employees of Peeper's other than salaries in
effect on the date hereof and payments made in the form of bonuses in the
ordinary course of business consistent with past practice, and Peeper's will not
declare any dividends, grant new stock options, accelerate any options or issue
new shares of stock or other securities (other than pursuant to exercise of
events of outstanding options, warrants or rights) or rights to acquire any such
options, shares or securities, or make any commitments with respect to any of
the foregoing, nor will distributions of any nature be made to the shareholders
of Peeper's. During such period, Peeper's will endeavor to maintain the goodwill
of business relationships with all of their existing customers and suppliers.
Specifically, without limitation of the foregoing, Peeper's shall not, and
Thralow shall cause Peeper's not to, (i) place or permit any third party to
place any Lien on any of Peeper's assets, (ii) commit any material breach of any
Contract which is not cured by the Closing Date, (iii) amend or waive any
defaults under any Contract or (iv) initiate or become a voluntary third party
participant in any litigation or arbitration proceeding.
(b) From the date hereof until the earlier of the Closing Date or
the date of the termination of this Agreement, except as Thralow, Peepers and
Ergovision may otherwise agree, Ergovision shall not grant new stock options,
accelerate any options or issue new shares of stock or other securities (other
than pursuant to exercise of events of outstanding options, warrants or rights)
or rights to acquire any such options, shares or securities, to any of
Ergovision's employees; provided, however, that such restrictions shall not
prevent or restrict Ergovision from engaging in such activities with respect to
Ergovision's consultants, contractors or other third parties.
Section 7.06 Standstill Payments. Ergovision may, in its sole discretion,
on or before the Closing Date (as extended pursuant to this Section 7.06), make
an additional payment of Ten Thousand Dollars ($10,000) to Peeper's to extend
the latest possible Closing Date through June 30, 1999 in consideration of such
additional payment. Any references to the "Closing Date" in this Agreement shall
be subject to and shall be deemed to include such extension. Any payments
20
made pursuant to this Section 7.06 shall, in the event of the Closing, be
credited against the portion Merger Consideration provided in Section 2.03(a)
hereof. In the event that the transactions contemplated hereby do not close, all
such funds may be retained by Peeper's for its own purposes except, however,
that such funds shall be promptly refunded in full to Ergovision in the event
that the transaction does not close because the due diligence review of
Ergovision by Peeper's and Thralow as set forth in Section 6.07 hereof shall not
be satisfactory to Peeper's or Thralow.
Section 7.07 Break-Up Fee. Peeper's and Thralow agree that in the event
that (i) Peeper's or Thralow breaches that certain Confidentiality Agreement,
dated March 26, 1999 (the "Confidentiality Agreement") or any material provision
hereof, or (ii) the transaction contemplated hereby is not consummated on or
before the Closing Date due to any unreasonable delay caused by Peeper's or
Thralow or as a result of the failure of Ergovision's closing conditions, as set
forth in this Agreement, to be met due to any action, omission or
misrepresentation of Peeper's or Thralow, then Peeper's shall promptly pay a
break-up fee to Ergovision in an amount equal to $250,000 (the "Break-Up Fee").
In addition, notwithstanding the terms of Section 7.06 hereof, in the event that
the transaction contemplated hereby does not close as a result of the events set
forth in clauses (i) or (ii) of the first sentence of this Section 7.07, all
payments made to Peeper's by Ergovision pursuant to Section 7.06 or the Letter
of Intent as of the date of such event shall also be promptly refunded to
Ergovision on demand. Peeper's obligation to pay the Break-Up Fee shall not be
triggered in the event that Ergovision and Subsidiary refuse to close the Merger
because of exceptions to the representations and warranties of Peeper's and
Thralow contained herein, where Ergovision and Subsidiary had actual knowledge
of the conditions or circumstances constituting such exceptions on the date
hereof.
Article VIII.
INVESTMENT INTENT; RESTRICTIONS ON TRANSFER
Section 8.01 Investment Representation. Thralow (i) represents and
warrants to Ergovision that he is acquiring all of the shares of Ergovision
Stock to be issued to him pursuant to the provisions of this Agreement for his
own account and for the purposes of investment and not with a view to, or for
sale in connection with, any distribution thereof, and (ii) agrees that he will
not at anytime sell or otherwise transfer, or permit the sale or other transfer
of, such shares of Ergovision Stock other than in transactions that are not in
violation of the Securities Act of 1933 or the provisions of any other
applicable securities laws, rules or regulations.
Section 8.02 Stock Legend. All certificates representing shares of
Ergovision Stock to be delivered to Thralow under this Agreement shall bear the
following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended, or under the securities laws of any
state and may not be sold, assigned, transferred, pledged or otherwise
disposed of except in compliance with, or pursuant to an exemption from,
the requirements of such Act or such laws."
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Article IX.
INDEMNIFICATION
Section 9.01 By Thralow. Thralow agrees to indemnify and hold harmless
Ergovision, Subsidiary and their respective directors, officers, employees and
agents (the "Purchaser Parties") against, and to reimburse Purchaser Parties on
demand with respect to, any and all losses, liabilities, obligations, suits,
proceedings, demands, judgments, damages, claims, expenses and costs (including,
without limitation, reasonable fees, expenses and disbursements of counsel)
(collectively, "Losses") which each may suffer, incur or pay by reason of (i)
the breach by Thralow or Peeper's of any representation or warranty made by
either of them in this Agreement or in any agreement, certificate or other
document executed by Thralow or Peeper's and delivered to Ergovision or
Subsidiary pursuant to the provisions of this Agreement; (ii) the failure of
Thralow or Peeper's to perform any agreement required by this Agreement or any
agreement executed pursuant to the provisions of this Agreement; (iii) the
allegation by any third party of the existence of any liability, obligation,
lease, agreement, contract, other commitment or state of facts which, if such
allegation were true, would constitute a breach by Thralow or Peeper's of any
representation or warranty made by either of them in this Agreement or in any
agreement, certificate or other document delivered by or on behalf of Thralow
and Peeper's to Ergovision or Subsidiary pursuant to the provisions of this
Agreement or of any covenant made by Thralow or Peeper's herein or therein.
Section 9.02 By Ergovision. Ergovision agrees to indemnify and hold
harmless Thralow against, and to reimburse Thralow on demand with respect to,
any and all Losses which Thralow may suffer, incur or pay by reason of (i) the
breach by Ergovision or Subsidiary of any representation or warranty made by
either of them in this Agreement or in any agreement, certificate or other
document executed by Ergovision or Subsidiary and delivered to Thralow pursuant
to the provisions of this Agreement; (ii) the failure of Ergovision or
Subsidiary to perform any agreement required by this Agreement or any agreement
executed pursuant to the provisions of this Agreement; and (iii) the allegation
by any third party of the existence of any liability, obligation, lease,
agreement, contract, other commitment or state of facts which, if such
allegation were true, would constitute a breach by Ergovision or Subsidiary of
any representation or warranty made by either of them in this Agreement or in
any agreement, certificate or other document delivered by or on behalf of
Ergovision or Subsidiary to Thralow pursuant to the provisions of this Agreement
or of any covenant made by Ergovision or Subsidiary herein or therein.
Section 9.03 Indemnification Procedure. The Purchaser Parties, in the case
of Section 9.01 hereof, and Thralow, in the case of Section 9.02 hereof
(hereinafter, the applicable party or parties providing indemnity, the
"Indemnifying Party" and the party or parties being indemnified, the
"Indemnified Party") agree to give the Indemnifying Party prompt written notice
of the allegation by any third party of the existence of any liability,
obligation, lease, agreement, contract, other commitment or state of facts
referred to in clause (iii) of Sections 9.01 and 9.02 hereof, as applicable. The
Indemnifying Party shall be entitled, at his or its sole cost and expense, to
participate in and to control the contest, defense, settlement or compromise of
any claim if the Indemnifying Party shall agree in writing within 15 days after
the receipt of notice of such claim that it is required, pursuant to this
Article 9, to indemnify the Indemnified
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Party for the full amount of such claim (the "Claim Acknowledgement Procedure").
If the Indemnifying Party shall assume the defense of a claim hereunder, the
Indemnified Party shall be kept informed with respect to, and shall have the
right to participate in, the contest, defense, settlement or compromise of any
such claim. If the Indemnifying Party does not assume the defense of a claim
within a reasonable time after notice thereof or, after assumption, does not
thereafter diligently pursue such defense or does not comply with the Claim
Acknowledgement Procedure, the Indemnified Party shall be entitled to defend,
settle or compromise such matter for the account and at the expense of the
Indemnifying Party. Notwithstanding the foregoing provisions of this Section
9.03, the Indemnified Party shall have the sole right to control the contest,
defense, settlement or compromise of any claim if such claim is not a claim
solely for monetary damages. Notwithstanding anything to the contrary set forth
in this Article IX, no Indemnified Party shall be entitled to indemnification
until the aggregate amount of Losses payable to such Indemnified Party (without
giving effect to this limitation) exceeds $25,000; provided, that, if the
aggregate amount of such Losses exceeds $25,000, indemnification shall be made
to the full extent of any such Losses, including any such Losses that arose
prior to the time that the aggregate of such Losses exceeded $25,000.
Section 9.04 Knowledge of Parties. Notwithstanding the generality of
Sections 9.01 and 9.02 hereof, conditions or circumstances that would otherwise
constitute exceptions to any representations or warranties of Ergovision or
Subsidiary, on the one hand, or Thralow or Peeper's, on the other hand, but of
which the other party has actual knowledge on the date hereof shall not cause
any liability of such representing or warranting party under this Agreement.
Article X.
TERMINATION
This Agreement may be terminated at any time prior to the Closing Date (as
such date may be extended pursuant to Section 7.06 hereof):
(a) By mutual consent of the parties;
(b) By Ergovision and Subsidiary, if there has been a material
violation or breach by Thralow or Peeper's of any agreement, representation,
warranty, or condition contained in this Agreement not cured to the reasonable
satisfaction of Ergovision and Subsidiary prior to the Closing Date; or
(c) By Thralow and Peeper's, if there has been a material violation
or breach by Ergovision or Subsidiary of any agreement, representation,
warranty, or condition contained in this Agreement not cured to the reasonable
satisfaction of Thralow and Peeper's prior to the Closing Date.
Article XI.
MISCELLANEOUS
Section 11.01 Survival of Representations and Warranties. All statements,
certifications, indemnification's, representations and warranties made hereby by
the parties to this Agreement
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and their respective covenants, agreements and obligations to be performed
pursuant to the terms hereof shall, unless waived in writing and notwithstanding
any examination by or on behalf of any party hereto and notwithstanding the
consummation of the transactions hereby contemplated, survive the closing of the
transactions hereby contemplated for a period of 24 months; provided, however,
that the representations and warranties set forth in Section 3.19 and Section
3.20 shall survive the closing of the transactions hereby contemplated for a
period of five years.
Section 11.02 Merger Provision. All prior or contemporaneous agreements,
contracts, promises, representations and statements, if any, among the parties
hereto (including, without limitation, the Letter of Intent) as to the subject
matter hereof, other than the Confidentiality Agreement, are merged into this
Agreement. This Agreement, together with the Confidentiality Agreement, all
agreements, schedules, exhibits, documents and other instruments to be attached
hereto or delivered herewith sets forth the entire understanding between the
parties, and there are no terms, conditions, representations, warranties or
covenants other than those contained herein and in such agreements, schedules,
exhibits, documents and other instruments to be attached hereto or delivered
herewith.
Section 11.03 Amendment and Modification. No term or provision of the
Agreement may be amended, released, discharged or modified in any respect except
in writing signed by the party to be charged and only to the extent therein set
forth.
Section 11.04 Waiver. (a) No waiver shall be deemed to be made by any of
the parties to any of its rights hereunder unless that waiver shall be in a
writing signed by the waiving party and only to the extent therein set forth.
(b) No failure of any of the parties to exercise any power given
such party hereunder or to insist upon strict compliance by any other party with
its obligations hereunder, and no custom or practice of the parties at variance
with the terms hereof shall constitute a waiver of the right of any party to
demand precise compliance with the terms of the Agreement.
Section 11.05 Notices. (a) All notices, consents, demands or other
communications required or permitted to be given pursuant to the Agreement shall
be in writing and shall be deemed sufficiently given on (i) the day on which
delivered personally or by telecopy (with prompt confirmation by mail) during a
business day to the appropriate location listed as the address below, (ii) three
business days after the posting thereof by United States registered or certified
first class mail, return receipt requested with postage and fees prepaid, or
(iii) one business day after deposit thereof for overnight delivery. Such
notices, consents, demands or other communications shall be addressed
respectively:
As to Thralow: Xxxxxx Xxxxxxx
0000 Xxxx 0xx Xxxxxx, Xxxxxxxxx #0
Xxxxxx, Xxxxxxxxx 00000
Telephone No.: (000) 000-0000
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with a copy to: Hanft, Fride, O'Brien, Harries, Swelbar & Xxxxx, P.A.
0000 X.X. Xxxx Xxxxx
000 Xxxx Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxx 00000-0000
Attn: Xxxx X. Xxxxx, Esq.
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
As to Ergovision: Ergovision, Inc.
Xxx Xxxxxxxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxx
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
with a copy to: Rosenman & Colin LLP
000 Xxxxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attn: Xxxx X. Xxxxxx, Esq.
Telephone No.: (000) 000-0000
Telecopy No.: (000) 000-0000
or to any other address or telecopy number which such party may have
subsequently communicated to the other parties in writing.
(b) Except as otherwise provided in this Agreement, any notice,
consent, demand or other communication given hereunder may be signed on behalf
of a party by any duly authorized representative of that party.
Section 11.06 Governing Law; Service of Process. This Agreement and any
other agreement entered into in connection herewith shall be governed by, and
construed under and in accordance with, the laws of the State of New York
applicable to contracts made and wholly to be performed therein by residents
thereof, without giving effect to the conflict of laws principles thereof. All
actions or proceedings seeking the interpretation and/or enforcement of this
agreement shall be brought only in the state or federal courts located in New
York County, all parties hereby submitting themselves to the jurisdiction of
such courts for such purpose. Any process in any action or proceeding commenced
in the courts of the State of New York arising out of any claim, dispute or
disagreement, may, among other methods, be served upon any party by delivering
or mailing the same, via registered or certified mail, addressed to such party
pursuant to Section 11.05 hereof. Any such delivery or mail service shall be
deemed to have the same force and effect as personal service within the State of
New York, New York County.
Section 11.07 Captions. The captions and the table of contents appearing
in this Agreement, are inserted only as a matter of convenience and for
reference and in no way define, limit or describe the scope or intent of this
Agreement or any of the provisions hereof.
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Section 11.08 Severability. If any term or provision of this Agreement,
the application thereof to any person, or circumstance shall, to any extent, be
invalid or unenforceable, the remainder of the Agreement or the application of
such term or provision to persons or circumstances other than those as to which
it is held void or unenforceable, shall not be affected thereby, and each term
and provision of the Agreement shall be valid and be enforced to the fullest
extent permitted by law.
Section 11.09 Publicity. Any communications and notices to third parties
and all other publicity concerning the transactions contemplated by the
Agreement (other than governmental or regulatory filings) shall be planned and
coordinated by and among the parties. Unless required by applicable law, none of
the parties shall disseminate or make public or cause to be disseminated or made
public any information regarding the transactions contemplated hereunder without
the prior written approval of the other parties, which approval shall not be
unreasonably withheld.
Section 11.10 Advice of Counsel. Thralow has reviewed with his tax advisor
the U.S. federal, state, local and foreign tax consequences of an investment in
the Ergovision Stock and the transactions contemplated by this Agreement.
Thralow is relying solely on such advisors and not on any statements or
representations of Ergovision or any of its agents (except for the Opinion of
Counsel provided for in Section 6.03 hereof) and understands that he (and not
Ergovision) shall be responsible for his own tax liability that may arise as a
result of this investment in Ergovision or the transactions contemplated by this
Agreement.
Section 11.11 Cumulative Rights and Remedies. The rights and remedies
provided for in this Agreement are cumulative and in addition to, and shall not
restrict or limit, any other rights and remedies available at law or in equity.
Section 11.12 Expenses. Each of the parties hereto shall bear its own
expenses associated with the negotiation and execution of the Agreement and the
consummation of the transactions contemplated hereby including, without
limitation, legal and accounting fees and expenses.
Section 11.13 Costs of Enforcement. The prevailing party in any proceeding
brought to enforce any provision of the Agreement shall be entitled to recover
the reasonable fees and costs of its counsel, plus all other costs of such
proceeding.
Section 11.14 Third Parties. Other than the parties hereto, no person
shall have any rights under or to enforce any provision of this Agreement.
Section 11.15 Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties hereto, their respective heirs,
administrators, executors, successors and assigns; provided, however, that this
Agreement may not be assigned by any of the parties hereto other than by and
among Ergovision and its subsidiaries.
Section 11.16 Counterparts. The Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall constitute a single agreement.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as
of the 7th day of May, 1999.
ERGOVISION, INC.
By /s/ Xxxx X. Xxxxx
----------------------------------------
Name: Xxxx X. Xxxxx
Title: President
PEEPER'S, INC.
By /s/ Xxxx X. Xxxxx
----------------------------------------
Name: Xxxx X. Xxxxx
Title: Chief Executive Officer
PEEPER'S SUNGLASSES AND ACCESSORIES, INC.
By /s/ Xxxxxx Xxxxxxx
----------------------------------------
Name: Xxxxxx Xxxxxxx
Title: President
/s/ Xxxxxx Xxxxxxx
-------------------------------------------
XXXXXX XXXXXXX
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