AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
SUNBURST ACQUISITIONS III, INC.
AND
SUNBURST SUBSIDIARY, INC.
AND
AMERICAN RECRUITMENT CONFERENCES, INC.
AND
XXXXXXXX.XXX
DATED AS OF AUGUST 30, 1999
THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is entered into as
of August 30, 1999, by and among SUNBURST ACQUISITIONS III, INC., a Colorado
corporation ("SUNBURST"), SUNBURST SUBSIDIARY, INC., a California corporation
("SUBSIDIARY"), XXXXXXXX.XXX, a California corporation ("WORKSEEK"), and
AMERICAN RECRUITMENT CONFERENCES, INC., a California corporation ("AMERICAN").
AMERICAN and WORKSEEK are herein sometimes collectively referred to as the
AFFILIATED COMPANIES.
RECITALS
A. Sunburst is a corporation that currently files reports with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended.
B. Subsidiary is a newly formed corporation and a wholly-owned subsidiary
of Sunburst.
C. The Boards of Directors of Sunburst, Subsidiary, American and WorkSeek,
and the shareholders of Subsidiary, American and WorkSeek, have approved the
merger of American and WorkSeek into Subsidiary (the "Merger"), pursuant to the
Agreement of Merger set forth as Exhibit A hereto (the "Agreement of Merger")
and the transaction contemplated hereby, in accordance with the applicable
provisions of the statutes of the States of California and Colorado.
D. For federal income tax purposes, it is intended that the merger
contemplated hereby shall qualify as a reorganization with the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code").
E. Before the closing of the Merger, Sunburst intends to cancel certain
shares of its currently outstanding 2,495,000 shares of common stock and intends
to effect a stock split (the "Stock-Split") of the remaining shares so that the
number of currently outstanding shares of Sunburst Common Stock shall increase
to a total of 6,481,600 shares. The shares of Sunburst Common Stock issued or
outstanding after the Stock-Split are herein referred to as "Post-Split Sunburst
Common Stock".
AGREEMENT
NOW, THEREFORE, for and in consideration of the foregoing recitals and of the
premises and the mutual agreements hereinafter set forth, in accordance with the
provisions of applicable law, the parties hereby agree as follows:
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1
ARTICLE I
THE MERGER
1.1 THE MERGER. On the Effective Date (as defined in Section 1.2), each of
American and WorkSeek shall be merged with and into Subsidiary and the
separate existence of each of the Affiliated Companies shall thereupon
cease, and the name of Subsidiary, as the surviving corporation in the
Merger (the "Surviving Corporation"), shall by virtue of the Merger be
changed to "AMERICAN RECRUITMENT CONFERENCES, INC." Upon the
effectiveness of the Merger, the separate existence of each of the
Affiliated Companies shall cease and Subsidiary, as the Surviving
Corporation, shall succeed, without other transfer, to all the rights
and properties of each of the Affiliated Companies and shall be subject
to all the debts and liabilities of the Affiliated Companies in the
same manner as if the Surviving Corporation had itself incurred them;
and the Surviving Corporation shall continue to be vested with all the
rights and property of Subsidiary and to be subject to all the debts
and liabilities of Subsidiary. The effect of the Merger shall in all
respects be the same as is provided in Section 1107 of the California
Corporations Code.
1.2 EFFECTIVE DATE OF THE MERGER. The Merger shall become effective when a
properly executed Agreement of Merger is duly filed with the California
Secretary of State, which filing shall be made concurrently with the
Closing as defined below. When used in this Agreement, the term
"Effective Date" shall mean the date and time at which such Agreement
of Merger is so filed.
1.3 ARTICLES OF INCORPORATION. At the Effective Date, Article ONE of the
Articles of Incorporation of Subsidiary shall be amended to read in
full as follows: "ONE: The name of this corporation is AMERICAN
RECRUITMENT CONFERENCES, INC." As so amended, the Articles of
Incorporation of Subsidiary shall be the Articles of Incorporation of
the Surviving Corporation, and thereafter may be amended in accordance
with its terms and as provided by law.
1.4 BY-LAWS. The By-Laws of Subsidiary as in effect on the Effective Date
of the Merger shall be the By-Laws of the Surviving Corporation until
amended or repealed as provided therein.
1.5 BOARD OF DIRECTORS. From and after the Effective Date, the Board of
Directors of American shall be the same as the Board of Directors of
the Sunburst, until changed by the vote or the written consent of
Sunburst.
1.6 OWNERSHIP OF SUBSIDIARY. All of the outstanding shares of capital stock
of Subsidiary have been issued to Sunburst and, immediately following
the Effective Date, shall continue to be owned by and registered in the
name of Sunburst on the Surviving Corporation's shareholder register
and shall continue to represent all of the issued and outstanding
shares of the Surviving Corporation.
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1.7 CONVERSION OF SHARES. Pursuant to this Agreement and the Agreement of
Merger, on the Effective Date, by virtue of the Merger and without any
action on the part of any holder of any capital stock of any of the
Affiliated Companies, the shares of American common stock (the
"American Common Stock"), and the shares of WorkSeek common stock (the
"WorkSeek Common Stock") shall be converted as follows:
(a) Each certificate that prior to the Effective Date represented
one outstanding share of American Common Stock will be
exchanged for 137.313 shares of Post-Split Sunburst Common
Stock. Accordingly, the 60,000 shares of American Common Stock
outstanding as of the date of this Agreement would be
exchanged into a total of 8,238,800 shares of Post-Split
Sunburst Common Stock.
(b) Each certificate that prior to the Effective Date represented
one outstanding share of WorkSeek Common Stock will be
exchanged for 5,000 shares of Sunburst Series B Convertible
Preferred Stock (the "SUNBURST PREFERRED STOCK"). Each share
of Sunburst Preferred Stock shall be convertible into shares
of Post-Split Sunburst Common Stock at an initial conversion
ratio of one share of preferred stock for one share of common
stock (subject to adjustment for stock splits, stock dividends
and other similar events), shall have a stated value of $1.00
per share, and shall have a 7% dividend preference. Each share
of Sunburst Preferred Stock shall be entitled to vote with the
Post-Split Sunburst Common Stock as a class on an as-converted
basis.
(c) (i) Each outstanding option to purchase American Common Stock
(an "American Option"), whether or not then exercisable, shall
be converted into an option to receive in substitution for
each share of American Common Stock subject to an American
Option, 137.313 shares of Post-Split Sunburst Common Stock at
an exercise price of $0.50 per share, and (ii) the currently
outstanding warrant (the "REORGANIZATION WARRANT") issued to
Xxxxx X. Xxxxxx by American granting Xx. Xxxxxx the rights to
purchase up to 10,924 shares of American common stock will be
exchanged for a warrant, having the same terms and conditions
as the Reorganization Warrant, issued by Sunburst granting Xx.
Xxxxxx the right to purchase up to a maximum of 1,500,000
shares of Post-Split Sunburst Common Stock at an exercise
price of $0.50 per share. The Reorganization Warrant was
granted to Xx. Xxxxxx pursuant to that certain Consulting
Agreement, dated as of June 30, 1999. Xx. Xxxxxx'x Consulting
Agreement and the form of the Reorganization Warrant are
attached hereto as Exhibit B. All other terms and conditions
of each American Option shall remain the same and American and
Sunburst shall provide an appropriate notice to each American
Option holder.
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(d) No fraction of a share of Post-Split Sunburst Common Stock or
Sunburst Preferred Stock will be issued in connection with the
Share Exchange. Instead amounts of shares will be rounded up
to the nearest whole number.
1.8 EXCHANGE OF CERTIFICATES. From and after the Effective Date, each
shareholder of either of the Affiliated Companies shall be entitled to
receive in exchange for stock certificates representing shares of
American and WorkSeek Common Stock, upon surrender thereof to Sunburst,
new certificates representing the whole number of shares of Post-Split
Sunburst Common Stock and Sunburst Preferred Stock into which such
Affiliated Companies' shares of American and WorkSeek Common Stock
shall have been exchanged as set forth herein. From and after the
Effective Date, Sunburst shall be entitled to treat the certificates
which immediately prior to the Effective Date represented shares of
American and WorkSeek Common Stock and which have not yet been
surrendered for exchange as evidencing the ownership of the number of
full shares of Post-Split Sunburst Common Stock represented by such
certificates as shall have been converted pursuant to this Agreement.
1.9 REPORTING OF MERGER. For federal, state, and local income tax return
reporting purposes, all parties agree to treat the Merger as a
nontaxable exchange under Section 368(a) of the Code.
1.10 BOARD OF DIRECTORS OF SUNBURST. As provided in Section 6.2(l) below,
simultaneously at Closing, the number of directors of Sunburst shall be
increased to seven. The existing officers and directors of Sunburst
shall resign from their positions and four members selected by the
Affiliated Companies and three members selected by CENTURY FINANCIAL
PARTNERS, INC. ("CENTURY") shall be appointed to fill the vacancies.
ARTICLE II
THE CLOSING
2.1 TIME AND PLACE OF CLOSING. The closing of the Merger (the "CLOSING")
shall, unless otherwise agreed to in writing by the parties, take place
at the offices of Xxxx & Xxxxx Professional Corporation, 0000 Xxxxxxx
Xxxx Xxxx, 00xx Xxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, at 10:00 a.m.,
local time, on or prior to September 30, 1999.
2.2 OBLIGATIONS OF THE AFFILIATED COMPANIES AT OR PRIOR TO THE CLOSING. At
or prior to Closing, and subject to the satisfaction by Sunburst of its
obligations hereunder, the Affiliated Companies shall deliver to
Sunburst the following:
(a) A copy of the Articles of Incorporation of American and
WorkSeek, each certified as of a date within thirty days of
the Closing by the Secretary of State of the State of
California and certified by the corporate secretaries of
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American and WorkSeek as to the absence of any amendments
between the date of certification by the Secretary of State
and the Closing;
(b) A certificate from the Secretary of State of the State of
California as to the existence and good standing of American
and WorkSeek, each as of a date within 15 days of the Closing;
(c) A certificate of the corporate secretary of American and
WorkSeek attaching thereto true and correct copies of the
bylaws of American and WorkSeek and the corporate resolutions
duly adopted by the board of directors of American and
WorkSeek authorizing the consummation of the transactions
contemplated hereby;
(d) The certificates referred to in Sections 6.1(a) and 6.1(b)
hereof; and
(e) Such other documents as are required pursuant to this
Agreement or as may reasonably be requested from the
Affiliated Companies by Sunburst or its counsel.
2.3 OBLIGATIONS OF SUNBURST AT OR PRIOR TO THE CLOSING. At or prior to
Closing, and subject to the satisfaction by the Affiliated Companies of
their obligations hereunder, Sunburst shall deliver to the Affiliated
Companies the following:
(a) A copy of the Articles of Incorporation of Sunburst and
Subsidiary, each certified as of a date within thirty days of
the Closing by the Secretary of State of the States of
Colorado and California, respectively, and certified by the
corporate secretary of Sunburst and Subsidiary as to the
absence of any amendments between the date of certification by
the Secretary of State and the Closing;
(b) A certificate from the Secretary of State of the State of
Colorado as to the existence and good standing of Sunburst as
of a date within 15 days of the Closing;
(c) A certificate from the Secretary of State of the State of
California as to the existence and good standing of Subsidiary
as of a date within 15 days of the Closing;
(d) A certificate of the corporate secretary of each of Sunburst
and Subsidiary attaching thereto true and correct copies of
the bylaws of Sunburst and Subsidiary and the corporate
resolutions duly adopted by the board of directors of Sunburst
and Subsidiary authorizing the consummation of the
transactions contemplated hereby;
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(e) The certificates of Sunburst and Subsidiary referred to in
Sections 6.2(a) and (b) hereof; and
(f) Such other documents as are required pursuant to this
Agreement or as may reasonably be requested from Sunburst and
Subsidiary by the Affiliated Companies or their counsel.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE AFFILIATED COMPANIES
Except as set forth below or as set forth in the schedule delivered by the
Affiliated Companies to Sunburst prior to the execution of this Agreement (the
"AFFILIATED COMPANIES DISCLOSURE SCHEDULE") , American represents, warrants, and
covenants to Sunburst and Subsidiary as follows with respect to American, and
WorkSeek represents, warrants and covenants to Sunburst and Subsidiary as
follows with respect to WorkSeek:
3.1 ORGANIZATION AND QUALIFICATION. Each of American and WorkSeek is a
corporation duly organized, validly existing and in good standing under
the laws of the State of California and has all requisite corporate
power and authority to (a) own, lease and operate its properties and
assets as they are now owned, leased and operated and (b) carry on its
business as currently conducted and as proposed to be conducted. Each
of American and WorkSeek is duly qualified or licensed to do business
in each jurisdiction in which the failure to be so qualified or
licensed could have a material adverse effect on its current business,
operations, properties, assets, liabilities, prospects, or condition
(financial or otherwise) (hereinafter a "MATERIAL EFFECT").
3.2 CAPITALIZATION. The issued and outstanding capital stock of American
consists of 60,000 shares of common stock, and the issued and
outstanding capital stock of WorkSeek consists of 1,000 shares of
common stock. All of the issued and outstanding shares of capital stock
of American and WorkSeek are validly issued, fully paid, and
nonassessable, and none of such shares have been issued in violation of
the preemptive rights of any person. No shares of American or WorkSeek,
whether or not currently outstanding, have been offered, sold or issued
in violation of any state or federal securities laws.
3.3 SUBSIDIARIES AND AFFILIATES. Neither American nor WorkSeek owns or
holds, directly or indirectly, any equity, debt, or other interest in
any entity or business or any option to acquire any such interest.
3.4 OPTIONS OR OTHER RIGHTS. No options, warrants, calls, commitments or
other rights to acquire, sell or issue shares of capital stock or other
equity interests of American in WorkSeek, whether upon conversion of
other securities or otherwise, are issued or
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outstanding, and there is no agreement or understanding with respect to
the voting of such capital stock or other equity interests.
3.5 OWNERSHIP OF SHARES. The shares of American Common Stock are owned of
record and beneficially by the American shareholders listed on the
Affiliated Companies Disclosure Schedule, and all of the shares of
WorkSeek Common Stock are owned by Xxxxx X. Xxxxxx.
3.6 VALIDITY AND EXECUTION OF AGREEMENT. Each of the Affiliated Companies
represents as to itself that it has the full legal right, capacity and
power required to enter into, execute and deliver this Agreement and to
carry out the transactions contemplated hereby. This Agreement has been
duly executed and delivered by each of the Affiliated Companies and
constitutes the valid and binding obligation of each of the Affiliated
Companies, enforceable in accordance with its terms, subject to the
qualification that enforcement of the rights and remedies created
hereby is subject to (a) bankruptcy, insolvency, reorganization,
moratorium and other laws of general application affecting the rights
and remedies of creditors and (b) general principles of equity
(regardless of whether such enforcement is considered in a proceeding
in equity or at law).
3.7 NO CONFLICT. Neither the execution, delivery, or performance of this
Agreement does or will: (a) result in any violation or be in conflict
with or constitute a default under any term or provision of the
Articles of Incorporation or bylaws of either American or WorkSeek or
any term or provision of any judgment, decree, order, statute,
injunction, rule, or regulation applicable to American or WorkSeek, or
of any material note, bond, mortgage, indenture, lease, license,
franchise, agreement, or other instrument or obligation to which
American or WorkSeek is bound; (b) result in the creation of any
material option, pledge, security interest, lien, charge, encumbrance,
or restriction, whether imposed by agreement, understanding, law or
otherwise, except those arising under applicable federal or state
securities laws (hereinafter an "ENCUMBRANCE") upon any of the
properties or assets of American or WorkSeek pursuant to any such term
or provision; or (c) constitute a default under, terminate, accelerate,
amend or modify, or give any party the right to terminate, accelerate,
amend, modify, abandon, or refuse to perform or comply with, any
material contract, agreement, arrangement, commitment, or plan to which
American or WorkSeek is a party, or by which American or WorkSeek or
any of their respective properties or assets may be subject or bound.
3.8 CONSENTS AND APPROVALS. No federal, state, or other regulatory
approvals are required to be obtained, nor any regulatory requirements
complied with, by American or WorkSeek in connection with the Merger.
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3.9 VIOLATION OF LAWS, PERMITS, ETC.
(a) Neither American nor WorkSeek is in violation of any term or
provision of its Articles of Incorporation or bylaws, or of
any material term or provision of any judgment, decree, order,
statute, law, injunction, rule, ordinance, or governmental
regulation that is applicable to it and where the failure to
comply with which would have a Material Effect on such
company.
(b) Each of American and WorkSeek has maintained in full force and
effect all certificates, licenses, and permits material to the
conduct of its business, and has not received any written
notification that any revocation or limitation thereof is
threatened or pending.
3.10 BOOKS AND RECORDS. The books and records of American and WorkSeek
(including, without limitation, the books of account, minute books, and
stock record books) are complete and correct in all material respects
and have been maintained in accordance with sound business practices.
The minute books of American and WorkSeek are complete and current in
all material respects and, as applicable, accurately reflect all
actions taken by the shareholders and the board of directors of
American and WorkSeek since the date of inception, and all signatures
contained therein are the true signatures of the persons whose
signatures they purport to be.
3.11 FINANCIAL STATEMENTS.
(a) The unaudited balance sheets of American as of fiscal years
ended December 31, 1997 and 1998, and the related unaudited
statements of income, statements of cash flow and statements
of shareholders equity for the years then ended, true and
complete copies of which have been delivered to Sunburst,
present fairly, in all material respects, the financial
position of American as at such dates and the results of
operations of American for the years then ended, in accordance
with generally accepted accounting principles ("GAAP")
consistently applied for the periods covered thereby.
(b) The unaudited balance sheet of American as of June 30, 1999
and the related statements of income, statements of cash flow
and statements of shareholders equity for the period then
ended, true and complete copies of which have heretofore been
delivered to Sunburst, present fairly, in all material
respects, the financial position of American as of such date
and the results of operations of American for the period then
ended, in each case in accordance with GAAP consistently
applied for the six-month period covered thereby, except for
footnotes and normal year-end adjustments.
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(c) The unaudited balance sheet of WorkSeek as of June 30, 1999
and the related statements of income, statements of cash flow
and statements of shareholders equity for the period then
ended, true and complete copies of which have heretofore been
delivered to Sunburst, present fairly, in all material
respects, the financial position of WorkSeek as of such date
and the results of operations of WorkSeek for the period then
ended, in each case in accordance with GAAP consistently
applied for the period covered thereby, except for footnotes
and normal year-end adjustments.
(d) The financial statements referred to in paragraphs (a), (b)
and (c) above are hereinafter referred to as the "FINANCIAL
STATEMENTS".
3.12 UNDISCLOSED LIABILITIES. Neither American nor WorkSeek has any material
direct or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, xxxxxx or
inchoate, liquidated or unliquidated, secured or unsecured, accrued,
absolute, contingent or otherwise (all of the foregoing being
collectively referred to as American's or WorkSeek's "LIABILITIES" and
individually as a "LIABILITY"), of a kind required by GAAP to be set
forth on a financial statement that is not fully and adequately
reflected or reserved against on the their respective Financial
Statements. Neither American nor WorkSeek has any Liabilities, whether
or not of a kind required by GAAP to be set forth on a financial
statement, other than (a) Liabilities incurred in the ordinary course
of business since the date of the latest balance sheet included in the
Financial Statements that are consistent with past practice and are
included in the latest Financial Statements, (b) Liabilities that are
fully reflected on or reserved against on the latest balance sheet
included in the Financial Statements, or (c) as specifically disclosed
in the Financial Statements.
3.13 TITLE TO PROPERTY; ENCUMBRANCES. Each of American and WorkSeek has good
and indefeasible title to and other legal right to use all properties
and assets, real, personal and mixed, tangible and intangible,
reflected as owned on its latest balance sheet included in the
Financial Statements or acquired after the date of such balance sheet,
except for properties and assets disposed of in accordance with
customary practice in the business or disposed of for full and fair
value since the date of such balance sheet in the ordinary course of
business consistent with past practice and except for matters that
would not have a Material Effect on such company.
3.14 TAXES. All returns, reports, information returns, or other documents
(including any related or supporting information) filed or required to
be filed with any federal, state, local, or foreign governmental entity
or others authority in connection with the determination, assessment or
collection of any Tax (whether or not such Tax is imposed on American
or WorkSeek) or the administration of any laws, regulations or
administrative requirements relating to any Tax (hereinafter "TAX
RETURNS"), reports and declarations of estimated tax or estimated tax
deposit forms required to be filed
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by American or WorkSeek have been duly and timely filed; each of
American and WorkSeek has paid all taxes, charges, fees, levies or
other assessments imposed by any federal, state, local or foreign
taxing authority, whether disputed or not, including, without
limitation, income, capital, estimated, excise, property, sales,
transfer, withholding, employment, payroll, and franchise taxes and
such terms shall include any interest, penalties or additions
attributable to or imposed on or with respect to such assessments and
any expenses incurred in connection with the settlement of any tax
liability (hereinafter "TAXES") which have become due whether pursuant
to such returns or any assessment received by it or otherwise, and has
paid all installments of estimated Taxes due; and all Taxes which
American or WorkSeek is required by law to withhold or to collect have
been duly withheld and collected, and have been paid over to the proper
court, tribunal, arbitrator or any government or political subdivision
thereof, whether federal, state, county, local or foreign, or any
agency, authority, official or instrumentality of any such government
or political subdivision (hereinafter "GOVERNMENTAL OR REGULATORY
BODY"). There are no tax liens upon any of the assets or properties of
American or WorkSeek except for any lien, pledge, hypothecation,
mortgage, security interest, claim, or charge (hereinafter "LIENS") for
Taxes not yet due. Neither American nor WorkSeek is a party to any
express tax settlement agreement, arrangement, policy or guideline,
formal or informal (a "SETTLEMENT AGREEMENT"), and neither American nor
WorkSeek has any obligation to make payments under any Settlement
Agreement.
3.15 LITIGATION. There is no action, proceeding, investigation, or inquiry
pending or, to the best of the Affiliated Companies' knowledge,
threatened (i) against or affecting any of the assets or business or
either American or WorkSeek that, if determined adversely to American
or WorkSeek, would result in a Material Effect to that company or (ii)
that questions this Agreement or any action contemplated by this
Agreement or in connection with the Merger.
3.16 CONTRACTS AND OTHER AGREEMENTS. Other than contracts entered into in
the ordinary course of business by American in connection with its
on-going operations as a recruiting company, SECTION 3.16 to the
Affiliated Companies Disclosure Schedule contains a complete and
correct list as of the date hereof of all material agreements,
contracts, and commitments (and all amendments thereto), written or
oral, to which American or WorkSeek is a party or by which any of their
properties are bound. American and WorkSeek have made available to
Sunburst complete and correct copies of all material written
agreements, contracts, and commitments, together with all
amendments thereto, and accurate (in all material respects)
descriptions of all material oral agreements. Such agreements,
contracts, and commitments are in full force and effect, and, to the
best of Affiliated Companies' knowledge, all other parties to such
agreements, contracts, and commitments have performed all obligations
required to be performed by them to date thereunder in all material
respects and are not in default thereunder in any material respect.
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3.17 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE. All accounts receivable
reflected on the balance sheets of American or WorkSeek included in the
Financial Statements, and all accounts receivable arising subsequent to
June 30, 1999, have arisen from BONA FIDE sales transactions in the
ordinary course of business on ordinary trade terms. American and
WorkSeek have made payments on accounts payable and other current
obligations arising subsequent to June 30, 1999 in accordance with past
practice of the business of American and WorkSeek.
3.18 COMPENSATION ARRANGEMENTS; OFFICERS, DIRECTORS AND EMPLOYEES. SECTION
3.18 to the Affiliated Companies Disclosure Schedule sets forth the
name of all present executive officers and directors of each of
American and WorkSeek and their respective current annual salary,
including any promised, expected or customary bonus or such other
amount. Except as set forth in the Affiliated Companies Disclosure
Schedule, neither American nor WorkSeek has made a commitment or
agreement (verbally or in writing) to increase the compensation or to
modify the conditions or terms of employment of any person listed in
SECTION 3.18 to the Affiliated Companies Disclosure Schedule.
3.19 ERISA. Except as set forth in SECTION 3.19 to the Affiliated Companies
Disclosure Schedule, there are no employee benefit plans as defined in
ERISA ("PLANS") maintained for the benefit of, or covering, any
employee, former employee, independent contractor or former independent
contractor of American or WorkSeek, or their dependents or their
beneficiaries, or otherwise, now or heretofore contributed to by
American or WorkSeek, and no such Plan is or has ever been subject to
ERISA.
3.20 OPERATIONS. Except as expressly authorized by this Agreement, and
except as set forth in SECTION 3.20 to the Affiliated Companies
Disclosure Schedule, since the date of the latest Financial Statements,
neither American nor WorkSeek have:
(a) amended its Articles of Incorporation or By-Laws or merged
with or into or consolidated with any other entity, or changed
or agreed to rearrange in any manner the character of their
business;
(b) issued, sold or purchased options or rights to subscribe to,
or entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests;
(c) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement, (ii) adopted,
entered into or amended any arrangement which is, or would be,
a Plan or (iii) made any change in any actuarial methods or
assumptions used in funding any Plan or in the assumptions or
factors used in determining benefit equivalencies thereunder;
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(d) except for the note issued on the date of this Agreement by
American to Sunburst in the principal amount of $1,400,000
(the "SUNBURST LOAN"), issued any note, bond or other debt
security, created, incurred or assumed any indebtedness for
borrowed money other than in the ordinary course of business
in connection with trade payables, or guaranteed any
indebtedness for borrowed money or any capitalized lease
obligation;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to the shareholders, or
made any direct or indirect redemption, retirement, purchase
or other acquisition of any shares of its capital stock or
other equity interests;
(f) knowingly waived any right of material value to its business;
(g) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any material write-down of inventory or
material write-off of accounts receivable as uncollectible;
(h) made any wage or salary increase or other compensation payable
or to become payable or bonus, or increase in any other direct
or indirect compensation, for or to any of its officers,
directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or agreement
to make or pay the same, other than increases made in the
ordinary course consistent with past practice;
(i) entered into any transactions with any of its affiliates,
shareholders, officers, directors, employees, consultants,
agents or other representatives (other than the Reorganization
Warrant or employment arrangements made in the ordinary course
of business consistent with past practice), or any affiliate
of any shareholder, officer, director, consultant, employee,
agent or other representative;
(j) made any payment or commitment to pay any severance or
termination pay to any person or any of its officers,
directors, employees, consultants, agents or other
representatives, other than payments or commitments to pay
such persons or their officers, directors, employees in the
ordinary course of business;
(k) except in the ordinary course of business, (i) entered into
any lease (as lessor or lessee), (ii) sold, abandoned or made
any other disposition of any of its assets or properties other
than in the ordinary course of business consistent with past
practice, (iii) granted or suffered any Lien on any of its
assets or properties other than sales of inventory in the
ordinary course of business, or
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12
(iv) entered into or amended any material contract or other
agreement to which it is a party, or by or to which it or its
assets or properties are bound or subject, or pursuant to
which it agrees to indemnify any person or to refrain from
competing with any person, in each case or type required to be
disclosed pursuant to SECTION 3.16 hereof;
(l) except in the ordinary course of business, incurred or assumed
any debt, obligation or liability (whether absolute or
contingent and whether or not currently due and payable),
except for the Sunburst Loan;
(m) except for inventory or equipment acquired in the ordinary
course of business, made any acquisition of all or any part of
the assets, properties, capital stock or business of any other
person;
(n) except in the ordinary course of business, paid, directly or
indirectly, any of its Liabilities before the same became due
in accordance with their terms or otherwise than in the
ordinary course of business, except to obtain the benefit of
discounts available for early payment;
(o) except for the Sunburst Loan, and except in the ordinary
course of business, created, incurred or assumed any
indebtedness for borrowed money, or guaranteed any
indebtedness for borrowed money or any capitalized lease
obligation, in each case in excess of $50,000 individually or
$150,000 in the aggregate;
(p) except in the ordinary course of business, made any capital
expenditures or commitments for capital expenditures in
aggregate amount exceeding $50,000; or
(q) except in the ordinary course of business, terminated, failed
to renew, amended or entered into any contract or other
agreement of a type required to be disclosed pursuant to
SECTION 3.16.
3.21 INTANGIBLE PROPERTY AND INTELLECTUAL PROPERTY. Each of American and
WorkSeek possesses all of the necessary licenses, trademarks, trade
names, domain names, patents (hereinafter "INTELLECTUAL PROPERTY")
necessary to conduct its business in the manner that is currently being
conducted and anticipates conducting in the future. None of the
Intellectual Property infringes upon the rights of any other person in
any material respect or, to the knowledge of the Affiliated Companies,
is so infringed upon by any other person or its property. Neither
American nor WorkSeek has received any written notice of any claim of
any other person relating to any of the Intellectual Property or any
process or confidential information of American or WorkSeek. Except for
the Intellectual Property, no other material intellectual property or
intangible property rights are required for American to conduct the
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13
business of American or WorkSeek in the ordinary course consistent with
past practice. Except as separately identified in SECTION 3.21 of the
Affiliated Companies Disclosure Schedule, no approval or consent of any
person is needed so that the interests of American and WorkSeek in the
Intellectual Property shall continue to be in full force and effect and
enforceable by American or WorkSeek following the transactions
contemplated by this Agreement.
3.22 EMPLOYEE RELATIONS. Neither American nor WorkSeek is a party to any
agreement with any labor organization, collective bargaining or similar
agreement with respect to its employees. There are no material
complaints, grievances or arbitrations, employment-related litigation,
administrative proceedings or controversies either pending or, to the
knowledge of the Affiliated Companies, threatened, involving any
employee, applicant for employment, or former employee of American or
WorkSeek or against either American or WorkSeek. During the past five
years, neither American not WorkSeek has suffered or sustained any
labor dispute resulting in any work stoppage and no such work stoppage
is, to the knowledge of the Affiliated Companies threatened. To the
knowledge of the Affiliated Companies, there are no attempts presently
being made to organize any employees employed by American or WorkSeek.
3.23 INSURANCE. American and WorkSeek have adequate policies of insurance
for their respective operations. Neither American nor WorkSeek is in
default with respect to any material provision contained in any policy
or binder of insurance and has failed to give any notice or present any
claim under any such policy or binder in due and timely fashion. There
are no outstanding unpaid claims under any such policy or binder which
have gone unpaid for more than 45 days or as to which the carrier has
disclaimed liability. Neither American nor WorkSeek has received any
notice of cancellation or non renewal of any such policy or binder.
Neither American nor WorkSeek has received any notice from any of its
insurance carriers that any insurance premiums will be materially
increased in the future or that any existing insurance coverage will
not be available in the future on substantially the same terms as now
in effect.
3.24 LICENSES AND PERMITS. Except as set forth in SECTION 3.24 of the
Affiliated Companies Disclosure Schedule, no material government
permits, licenses, domain name and other registrations, and other
consents and authorizations (federal, state, local and foreign) of any
Governmental or Regulatory Body (collectively, "PERMITS") is required
to be obtained by the Affiliated Companies in connection with their
properties or business. Neither American nor WorkSeek has received any
notice of any claim of revocation of any such Permit and has no
knowledge of any event which would be likely to give rise to such a
claim.
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14
3.25 YEAR 2000 COMPLIANCE. To the best of each Affiliated Companies'
knowledge, all data of any type that includes date information or which
is otherwise derived from, dependent on or related to date information
("DATE DATA") and any software, microcode or hardware system or
component, including any electric or electronically controlled system
or component, that processes any Date Data and (a) that is installed,
in development or on order by American or WorkSeek for its internal
use, or (b) which American or WorkSeek sells, supports, maintains,
operates, warrants, leases, licenses, assigns or otherwise provides as
an integral part of its products or services (or has sold, supported,
maintained, operated, warranted, leased, licensed, assigned or
otherwise provided in the past as an integral part of its products or
services ("DATE-SENSITIVE SYSTEMS") of American or WorkSeek are (i)
with respect to Date Data, in proper format and accurate for all dates
in the twentieth and twenty-first centuries, and (ii) with respect to
Date-Sensitive Systems, capable of correctly and accurately processing
all Date Data without interruption before, during and after January 1,
2000, including those relating to the twentieth and twenty-first
centuries, without loss of any functionality or performance, including
but not limited to calculating, comparing, sequencing, storing and
displaying such Date Data (including all leap year considerations and
the quad-centennial rule), when used as a stand alone system or in
combination with other software or hardware ("YEAR 2000 COMPLIANT").
3.26 BROKERS. Except for the involvement of Century, all negotiations
relating to this Agreement and the transactions contemplated hereby
have been carried out by the Affiliated Companies directly with
Sunburst and Subsidiary without the intervention of any other person on
behalf of the Affiliated Companies in such manner as to give rise to
any valid claim by any person against the Affiliated Companies,
Sunburst or Subsidiary for a finder's fee, brokerage commission or
similar payment.
3.27 DISCLOSURE. To the knowledge of the Affiliated Companies, neither this
Agreement, nor any Schedule or Exhibit to this Agreement, contains an
untrue statement of a material fact or omits a material fact necessary
to make the statements contained herein or therein not misleading.
3.28 ACQUISITION OF SUNBURST SHARES. Each of the shareholders of the
Affiliated Companies that has signed this Agreement hereby acknowledges
that the Sunburst Securities are restricted securities under the
Securities Act and represents that such Shareholder (i) is acquiring
the Sunburst Securities for his own account without a view to
distribution within the meaning of the Securities Act; (ii) has
received from Sunburst its filings with the Securities and Exchange
Commission and all other information that he/she has deemed necessary
to make an informed investment decision with respect to an investment
in Sunburst in general and the Sunburst Securities in particular; (iii)
is financially able to bear the economic risks of an investment in
Sunburst; and (iv) has such knowledge and experience in financial and
business matters in general and with respect to investments of a nature
similar to the
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15
Sunburst Securities so as to be capable, by reason of such knowledge
and experience, of evaluating the merits and risks of, and making an
informed business decision with regard to, the acquisition of the
Sunburst Securities. Each Shareholder understands and agrees that the
certificates evidencing the Sunburst Securities shall bear the usual
restrictive legend pertaining to Rule 144 under the Securities Act.
3.29 REPRESENTATIONS RELATED TO NONRECOGNITION TREATMENT FOR MERGER.
(a) As of the Effective Date, each of the Affiliated Companies
will hold at least 90 percent of the fair market value of its
net assets and at least 70 percent of the fair market value of
its gross assets. For purposes of this representation, amounts
paid by each of the Affiliated Companies to dissenters,
amounts used by each of the Affiliated Companies to pay
reorganization expenses, and all distributions (except for
regular, normal dividends) made by each of the Affiliated
Companies will be included as assets of each of the Affiliated
Companies prior to the Merger.
(b) As of the Effective Date, each of the Affiliated Companies
will continue to operate at least one or its significant
historic business lines, or will own a significant portion of
its historic business assets, in each case within the meaning
of Treasury Regulation ss. 1.368-1(d).
(c) Neither of the Affiliated Companies nor their shareholders
have sold or transferred, nor do they have a plan or intention
to sell or transfer at any time from the date hereof through
the date of the Merger, to Sunburst or a person related to
Sunburst (as defined in Treasury Regulation ss. 1.368-1(e)(3))
any shares of stock of the Affiliated Companies.
(d) Neither of the Affiliated Companies nor their shareholders
have a plan or intention to sell or transfer any of the
Sunburst stock issued in the Merger to
Sunburst or a person related to Sunburst (as defined in
Treasury Regulation ss. 1.368-1(e)(3)).
(e) From the date of their Agreement through the date of the
Merger, neither of the Affiliated Companies has redeemed any
of its stock nor made any extraordinary distributions with
respect to any of its stock, nor does it have a plan or
intention to do so.
(f) From the date of their Agreement and through the date of the
Merger, neither of the Affiliated Companies, nor any of their
shareholders have sold or transferred, nor do they or their
shareholders have a plan or intention to sell or transfer,
their stock to a person related to such Affiliated Company (as
defined in Treasury Regulation ss. 1.368-1(e)(3) determined
without regard to ss. 1.368- 1(e)(3)(i)(A)).
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16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SUNBURST AND SUBSIDIARY
Except as expressly set forth in this Agreement or in the schedule delivered by
Sunburst and Subsidiary to the Affiliated Companies prior to the execution of
this Agreement (the "SUNBURST DISCLOSURE SCHEDULE"), Sunburst and Subsidiary
each represent, warrant, and covenant to each of the Affiliated Companies as
follows:
4.1 ORGANIZATION AND QUALIFICATION. Sunburst and Subsidiary are
corporations duly organized, validly existing and in good standing
under the laws of the States of Colorado and California, respectively,
and have all requisite corporate power and authority to (a) own, lease
and operate their properties and assets as they are now owned, leased
and operated and (b) carry on their business as currently conducted and
as proposed to be conducted. Sunburst and Subsidiary are each duly
qualified or licensed to do business in each jurisdiction in which the
failure to be so qualified or licensed could have a Material Effect.
4.2 CAPITALIZATION. As of the date of this Agreement, the issued and
outstanding capital stock of Sunburst and Subsidiary consist of shares
of 2,495,000 common stock, no par value per share, and of 1,000 shares
of common stock, no par value per share, respectively. Prior to the
Effective Date, Sunburst shall cancel certain shares of the currently
outstanding 2,495,000 shares of common stock and shall effect a stock
split of the remaining shares so that the currently outstanding shares
of Sunburst Common Stock shall, on the Effective Date, be increased to
6,481,600 shares of Post-Split Sunburst Common Stock. No shares of any
series or class of preferred stock are currently issued or outstanding,
and all shares of preferred stock that may have previously been issued
have been redeemed or otherwise cancelled. All shares of
common stock or preferred stock of Sunburst that have been cancelled or
redeemed prior to the date of this Agreement, or that may hereafter be
cancelled or redeemed prior to the Closing, have been or will be
cancelled without any liability to Sunburst, and no holder of such
cancelled shares shall, after the Closing, have any claim or cause of
action against Sunburst regarding the issuance, ownership or
cancellation of such shares. The Affiliated Companies agree and
acknowledge that Sunburst shall offer and sell shares of its common
stock to certain accredited investors prior to the Closing, provided
that the number of such shares sold and outstanding as of the date of
the Closing shall not exceed the number of shares listed in Section
6.2(k) below. All of the currently issued and outstanding shares of
capital stock of Sunburst and Subsidiary are, and all additional shares
issued hereafter and outstanding on the date of the Closing will be,
validly issued, fully paid, and nonassessable, and none of such shares
have been or will be issued in violation of the preemptive rights of
any person. The Post-Split Sunburst Common Stock and Sunburst Preferred
Stock to be issued to the Affiliated Companies at the Closing shall be
validly issued, fully paid, and nonassessable. No shares of Sunburst or
Subsidiary, whether or not currently outstanding, have been offered,
sold or issued in violation of any federal or state
1215-2.005
17
securities law, and none of the shares offered and sold hereafter
pursuant to Section 6.2(k) shall be offered, sold or issued in
violation of any federal or state securities law.
4.3 SUBSIDIARIES AND AFFILIATES. Other than owning all of the outstanding
capital stock of Subsidiary, Sunburst does not own or hold, directly or
indirectly, any equity, debt, or other interest in any entity or
business or any option to acquire any such interest.
4.4 OPTIONS OR OTHER RIGHTS. No options, warrants, calls, commitments or
other rights to acquire, sell or issue shares of capital stock or other
equity interests of Sunburst or Subsidiary, whether upon conversion of
other securities or otherwise, are issued or outstanding, and there is
no agreement or understanding with respect to the voting of such
capital stock or other equity interests. The parties hereto agree and
acknowledge that the common stock purchase warrants listed in Section
6.2(k) below shall be issued prior to the Closing and shall be
outstanding as of the date of the Closing.
4.5 VALIDITY AND EXECUTION OF AGREEMENT. The execution and performance of
this Agreement have been duly and validly authorized by the board of
directors of Sunburst and Subsidiary and Sunburst, in its capacity as
the sole shareholder of Subsidiary, and no other corporate action by
Sunburst or Subsidiary is necessary to authorize the execution,
delivery, and performance of this Agreement. Sunburst has the corporate
power and authority to execute and perform this Agreement and to carry
out the transactions contemplated hereby. This Agreement has been duly
and validly executed on behalf of Sunburst and Subsidiary and is a
valid and binding obligation of Sunburst and Subsidiary, enforceable in
accordance with its terms, subject to the qualification that
enforcement of the rights and remedies created hereby is subject to (a)
bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting the rights and remedies of creditors and
(b) general principles of equity (regardless of whether such
enforcement is considered in a proceeding in equity or at law).
4.6 NO CONFLICT. None of the execution, delivery, or performance of this
Agreement does or will: (a) result in any violation or be in conflict
with or constitute a default under any term or provision of the
Articles of Incorporation or bylaws of either Sunburst or Subsidiary or
any term or provision of any judgment, decree, order, statute,
injunction, rule, or regulation applicable to either of them, or of any
material note, bond, mortgage, indenture, lease, license, franchise,
agreement, or other instrument or obligation to which Sunburst or
Subsidiary is bound; (b) result in the creation of any Encumbrance upon
any of the properties or assets of Sunburst or Subsidiary pursuant to
any such term or provision; or (c) constitute a default under,
terminate, accelerate, amend or modify, or give any party the right to
terminate, accelerate, amend, modify, abandon, or refuse to perform or
comply with, any material contract, agreement, arrangement, commitment,
or plan to which either
1215-2.005
18
Sunburst or Subsidiary is a party, or by which Sunburst or Subsidiary
or any of their properties or assets may be subject or bound.
4.7 CONSENTS AND APPROVALS. No federal, state, or other regulatory
approvals are required to be obtained, nor any regulatory requirements
complied with, by Sunburst or Subsidiary in connection with the Merger.
4.8 VIOLATION OF LAWS, PERMITS, ETC.
(a) Neither Sunburst nor Subsidiary is in violation of any term or
provision of its Articles of Incorporation or bylaws, or of
any material term or provision of any judgment, decree, order,
statute, law, injunction, rule, ordinance, or governmental
regulation that is applicable to it and where the failure to
comply with which would have a Material Effect.
(b) Sunburst and Subsidiary have maintained in full force and
effect all certificates, licenses, and permits material to the
conduct of their businesses, and neither of them has received
any notification that any revocation or limitation thereof is
threatened or pending.
4.9 BOOKS AND RECORDS. The books and records of Sunburst and Subsidiary
(including, without limitation, the books of account, minute books, and
stock record books) are complete and correct in all material respects
and have been maintained in accordance with sound business practices.
The minute books of Sunburst and Subsidiary are complete and current in
all material respects and, as applicable, accurately reflect all
actions taken by the shareholders and the boards of directors of
Sunburst and Subsidiary since the date of inception of Sunburst and
Subsidiary, and all signatures contained therein are the true
signatures of the persons whose signatures they purport to be.
4.10 SUNBURST FINANCIAL STATEMENTS.
(a) The audited balance sheets of Sunburst as of August 31, 1998,
and the related audited statements of income, statements of
cash flow and statements of shareholders equity for the year
then ended, true and complete copies of which have been
delivered to the Affiliated Companies, present fairly, in all
material respects, the financial position of Sunburst as at
such dates and the results of operations of Sunburst for the
year then ended, in accordance with GAAP consistently applied
for the periods covered thereby.
(b) The unaudited balance sheet of Sunburst as of May 31, 1999 and
the related statements of income, statements of cash flow and
statements of shareholders equity for the period then ended,
true and complete copies of which have heretofore been
delivered to the Affiliated Companies, present fairly, in all
1215-2.005
19
material respects, the financial position of Sunburst as of
such date and the results of operations of Sunburst for the
period then ended, in each case in accordance with GAAP
consistently applied for the nine-month period covered
thereby.
(c) The financial statements referred to in paragraphs (a) and (b)
above are hereinafter referred to as the "SUNBURST FINANCIAL
STATEMENTS".
(d) Subsidiary has not prepared any financial statements since its
inception.
4.11 UNDISCLOSED LIABILITIES. Sunburst does not have any Liabilities of a
kind required by GAAP to be set forth on a financial statement that is
not fully and adequately reflected or reserved against on the Sunburst
Financial Statements. Sunburst does not have any Liabilities, whether
or not of a kind required by GAAP to be set forth on a financial
statement, other than (a) Liabilities incurred in the ordinary course
of business since the date of the latest balance sheet included in the
Sunburst Financial Statements that are consistent with past practice
and are included in the latest Sunburst Financial Statements, (b)
Liabilities that are fully reflected on or reserved against on the
latest balance sheet included in the Sunburst Financial Statements, or
(c) as specifically disclosed in the Sunburst Financial Statements.
Sunburst does not have any Liabilities and will not have any
Liabilities as of the Closing.
4.12 TITLE TO PROPERTY; ENCUMBRANCES. Sunburst has good and indefeasible
title to and other legal right to use all properties and assets, real,
personal and mixed, tangible and intangible, reflected as owned on the
latest balance sheet included in the Sunburst Financial Statements or
acquired after the date of such balance sheet, except for properties
and assets disposed of in accordance with customary practice in the
business or disposed of for full and fair value since the date of such
balance sheet in the ordinary course of business consistent with past
practice and except for matters that would not have a Material Effect.
Subsidiary does not own any assets of any kind.
4.13 TAXES. All Tax Returns, reports and declarations of estimated tax or
estimated tax deposit forms required to be filed by Sunburst have been
duly and timely filed; Sunburst has paid all Taxes which have become
due whether pursuant to such returns or any assessment received by it
or otherwise, and has paid all installments of estimated Taxes due; and
all Taxes which Sunburst is required by law to withhold or to collect
have been duly withheld and collected, and have been paid over to the
proper Governmental or Regulatory Body. There are no tax liens upon any
of the assets or properties of Sunburst except for Liens for Taxes not
yet due. Sunburst is not a party to any Settlement Agreement, and
Sunburst does not have any obligation to make payments under any
Settlement Agreement. Subsidiary has not had to file any Tax Returns
and has no liability for any Taxes.
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4.14 LITIGATION.
(a) There is no action, proceeding, investigation, or inquiry
pending or, to the best of Sunburst's knowledge, threatened
(i) against or affecting any of Sunburst's assets or business
that, if determined adversely to Sunburst, would result in a
Material Effect or (ii) that questions this Agreement or any
action contemplated by this Agreement or in connection with
the Merger.
(b) Sunburst has no knowledge of any state of facts or of the
occurrence or nonoccurrence of any event or group of related
events, that should reasonably cause Sunburst to determine
that there exists any basis for any material claim against
Sunburst for any of the matters described in paragraph (a)
above.
4.15 CONTRACTS AND OTHER AGREEMENTS. SECTION 4.15 to the Sunburst Disclosure
Schedule contains a complete and correct list as of the date hereof of
all material agreements, contracts, and commitments (and all amendments
thereto), written or oral, to which Sunburst or Subsidiary is a party
or by which any of their properties is bound. Sunburst and Subsidiary
have made available to the Affiliated Companies complete and correct
copies of all material written agreements, contracts, and commitments,
together with all amendments thereto, and accurate (in all material
respects) descriptions of all material oral agreements. Such
agreements, contracts, and commitments are in full
force and effect, and, to the best knowledge of Sunburst and
Subsidiary, all other parties to such agreements, contracts, and
commitments have performed all obligations required to be performed by
them to date thereunder in all material respects and are not in default
thereunder in any material respect.
4.16 COMPENSATION ARRANGEMENTS; OFFICERS, DIRECTORS AND EMPLOYEES. Neither
Sunburst nor Subsidiary pays any compensation to any of its officers
and directors and neither company has any employees. Neither Sunburst
nor Subsidiary has made a commitment or agreement (verbally or in
writing) to pay any compensation to such persons.
4.17 ERISA. There are no Plans maintained for the benefit of, or covering,
any employee, former employee, independent contractor or former
independent contractor of Sunburst or Subsidiary or their dependents or
their beneficiaries, or otherwise, now or heretofore contributed to by
Sunburst or Subsidiary and no such Plan is or has ever been subject to
ERISA.
4.18 OPERATIONS. Except as expressly authorized by this Agreement, or except
as set forth in SECTION 4.18 to the Sunburst Disclosure Schedule, since
the date of the latest Sunburst Financial Statements, Sunburst has not:
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(a) amended its Articles of Incorporation or By-Laws or merged
with or into or consolidated with any other entity, or changed
or agreed to rearrange in any manner the character of the
business of Sunburst;
(b) except for the shares of Post-Split Sunburst Common Stock to
be issued hereafter in accordance with Section 6.2(k),
Sunburst has not, and prior to the Closing will not have
issued, sold or purchased options or rights to subscribe to,
or entered into any contracts or commitments to issue, sell or
purchase, any shares of its capital stock or other equity
interests;
(c) entered into, amended or terminated any (i) employment
agreement or collective bargaining agreement, (ii) adopted,
entered into or amended any arrangement which is, or would be,
a Plan or (iii) made any change in any actuarial methods or
assumptions used in funding any Plan or in the assumptions or
factors used in determining benefit equivalencies thereunder;
(d) issued any note, bond or other debt security, created,
incurred or assumed any indebtedness for borrowed money other
than in the ordinary course of business in connection with
trade payables, or guaranteed any indebtedness for borrowed
money or any capitalized lease obligation;
(e) declared, set aside or paid any dividends or declared or made
any other distributions of any kind to the shareholders, or
made any direct or indirect redemption, retirement, purchase
or other acquisition of any shares of its capital stock or
other equity interests;
(f) knowingly waived any right of material value to the business
of Sunburst;
(g) made any change in its accounting methods or practices or made
any changes in depreciation or amortization policies or rates
adopted by it or made any material write-down of inventory or
material write-off of accounts receivable as uncollectible;
(h) made any wage or salary increase or other compensation payable
or to become payable or bonus, or increase in any other direct
or indirect compensation, for or to any of its officers,
directors, employees, consultants, agents or other
representatives, or any accrual for or commitment or agreement
to make or pay the same;
(i) entered into any transactions with any of its affiliates,
shareholders, officers, directors, employees, consultants,
agents or other representatives, or any affiliate of any
shareholder, officer, director, consultant, employee, agent or
other representative;
1215-2.005
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(j) made any payment or commitment to pay any severance or
termination pay to any person or any of its officers,
directors, employees, consultants, agents or other
representatives;
(k) (i) entered into any lease (as lessor or lessee), (ii) sold,
abandoned or made any other disposition of any of its assets
or properties, (iii) granted or suffered any Lien on any of
its assets or properties, or (iv) entered into or amended any
material contract or other agreement to which it is a party,
or by or to which it or its assets or properties are bound or
subject, or pursuant to which it agrees to indemnify any
person or to refrain from competing with any person, in each
case or type required to be disclosed pursuant to SECTION 4.15
hereof;
(l) incurred or assumed any debt, obligation or liability (whether
absolute or contingent and whether or not currently due and
payable);
(m) made any acquisition of all or any part of the assets,
properties, capital stock or business of any other person;
(n) paid, directly or indirectly, any of its Liabilities before
the same became due in accordance with their terms or
otherwise than in the ordinary course of business, except to
obtain the benefit of discounts available for early payment;
(o) created, incurred or assumed any indebtedness for borrowed
money, or guaranteed any indebtedness for borrowed money or
any capitalized lease obligation, in each case in excess of
$5,000 individually or in the aggregate;
(p) made any capital expenditures or commitments for capital
expenditures in aggregate amount exceeding $5,000; or
(q) terminated, failed to renew, amended or entered into any
contract or other agreement of a type required to be disclosed
pursuant to SECTION 4.15.
Subsidiary has not, since the date of its incorporation, taken
any action referred to in SECTION 4.15 above, assuming for this purpose
that all references above to Sunburst refer to Subsidiary.
4.19 YEAR 2000 COMPLIANCE. All Date Data and Date-Sensitive Systems of
Sunburst are Year 2000 Compliant. Subsidiary has no Date-Sensitive
Systems.
4.20 BROKERS. Except for the involvement of Century in representing the
Affiliated Companies, all negotiations relating to this Agreement and
the transactions contemplated hereby have been carried out by the
Affiliated Companies directly with Sunburst and Subsidiary without the
intervention of any other person on behalf of the Affiliated Companies
in such manner as to give rise to any valid claim by any person
1215-2.005
23
against the Affiliated Companies, Sunburst or Subsidiary for a finder's
fee, brokerage commission or similar payment.
4.21 APPROVAL OF MERGER. The boards of directors of Sunburst and Subsidiary
and the sole shareholder of Subsidiary each have unanimously approved
the Merger without reservation or qualification. The approval or
consent of the shareholders of Sunburst for this Agreement and the
transactions contemplated hereby has not been sought is not required.
4.22 SEC REPORTING STATUS. Sunburst filed a registration statement under
Section 12(g) of the Securities Exchange Act of 1934 (the "EXCHANGE
ACT") which was declared effective on February 27, 1998. Since that
date, Sunburst has filed with the Securities and Exchange Commission
("SEC") all reports required to be filed pursuant to Section 13 of the
Exchange Act. It has not filed a certification on Form 15 pursuant to
Rule 12h-3 of the Exchange Act. All statements made by Sunburst in the
foregoing registration statement and all subsequent SEC reports were
true and correct at the time such statements were made, and neither the
registration statement nor any such report omitted a material fact
necessary to make the statements contained therein not misleading.
4.23 INVESTMENT COMPANY. Neither Sunburst nor Subsidiary is an investment
company within the meaning of Section 3 of the Investment Company Act.
4.24 OTC BULLETIN BOARD STATUS. The Sunburst Common Stock is approved for
trading on the OTC Bulletin Board.
4.25 DISCLOSURE. To the knowledge of Sunburst and Subsidiary, neither this
Agreement, nor any Schedule or Exhibit to this Agreement, nor any
report filed with the SEC contains an untrue statement of a material
fact or omits a material fact necessary to make the statements
contained herein or therein not misleading.
4.26 REPRESENTATIONS RELATED TO NONRECOGNITION TREATMENT OF MERGER.
(a) Immediately following the Merger, Subsidiary will hold at
least 90 percent of the fair market value of its net assets
and at least 70 percent of the fair market value of its gross
assets and at least 90 percent of the fair market value of
each of the Affiliated Companies' net assets and at least 70
percent of the fair market value of each of the Affiliated
Companies' gross assets held immediately prior to the Merger.
For purposes of this representation, amounts paid by each of
the Affiliated Companies or Subsidiary to dissenters, amounts
used by each such corporation to pay reorganization expenses,
and all distributions (except for regular, normal dividends)
made by each such corporation will be included as assets of
each such corporation, respectively, immediately prior to the
Merger.
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(b) From the formation of Subsidiary through the Merger, Sunburst
will be in control of Subsidiary within the meaning of Section
368(c) of the Code, control being generally defined therein as
ownership of at least 80% of the voting stock and of all other
classes of stock of a corporation.
(c) Sunburst has no plan or intention to cause Subsidiary, and
Subsidiary has no plan or intention, to issue additional
shares of Subsidiary's stock such that the result would be
Sunburst's losing control of Subsidiary within the meaning of
Section 368(c) of the Code.
(d) Sunburst has no intention to liquidate Subsidiary after the
Merger; to merge with or into another corporation; to sell or
otherwise dispose of the stock of Subsidiary; or to cause
Subsidiary to sell or otherwise dispose of any of its assets
or of any assets acquired from each of the Affiliated
Companies, except for dispositions made in the ordinary course
of business, or successive transfers of assets by Subsidiary
to one or more corporations controlled in each transfer by the
transferor, or transfers of assets to a corporation controlled
by Subsidiary.
(e) Following the Merger, Subsidiary will continue the historic
business of each of the Affiliated Companies or use a
significant portion of its historic business assets in a
business.
(f) Subsidiary and Sunburst will pay their respective expenses, if
any, incurred in connection with the Merger.
(g) At the time of the Merger, Sunburst and Subsidiary will not
have outstanding any warrants, options, convertible
securities, or any other type of right pursuant to which any
person could acquire stock in Subsidiary that, if exercised or
converted, would affect Sunburst's acquisition or retention of
control of Subsidiary, as defined in section 368(c) of the
Code.
(h) Neither Sunburst nor Subsidiary nor a related person to
either, as defined in Treasury Regulation ss. 1.368-1(e)(3),
will acquire any shares of the stock of any of the Affiliated
Companies prior to the Merger.
(i) Neither Sunburst nor Subsidiary, nor a related person to
either, as defined in Treasury Regulation ss. 1.368-1(e)(3),
has a plan or intention to acquire or repurchase any of the
Post-Split Sunburst Common Stock issued in the Merger.
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ARTICLE V
ACTIONS PRIOR TO CLOSING
5.1 CORPORATE EXAMINATIONS AND INVESTIGATIONS. At or prior to the Closing
Date, Sunburst shall be entitled to make such investigation of the
assets, properties, business and operations of American and WorkSeek
and such examination of the books, records, Tax Returns, financial
condition and operations of American and WorkSeek as Sunburst may wish.
Any such investigation and examination shall be conducted at reasonable
times and under reasonable circumstances and American WorkSeek shall
cooperate fully therein. In order that Sunburst may have full
opportunity to make such a business, accounting and legal review,
examination or investigation as Sunburst may wish of the business and
affairs of American and WorkSeek, the Affiliated Companies shall
furnish to Sunburst during such period all such information and copies
of such documents concerning the affairs of American and WorkSeek as
Sunburst may reasonably request and shall cause their officers,
employees, consultants, agents, accountants to cooperate full Sunburst
of all material facts affecting the financial condition and business
operations of American and WorkSeek. Until the Closing and if the
Closing shall not occur, thereafter, Sunburst and its affiliates shall
keep confidential and shall not use in any manner inconsistent with the
transactions contemplated by this Agreement and after termination of
this Agreement, Sunburst and its affiliates (including Subsidiary)
shall not disclose, nor use for their own benefit, any information or
documents obtained from the Affiliated Companies concerning the assets,
properties, business and operations of either American or WorkSeek,
unless (a) readily ascertainable from public or published information,
or trade sources, (b) received from a third party not under an
obligation to American or WorkSeek to keep such information
confidential or (c) required by any Law or Order. If this transaction
does not close for any reason, Sunburst and its affiliates shall return
or destroy all such confidential information and compilations thereof
as is practicable, and shall certify such destruction or return to
American and WorkSeek.
5.2 CONDUCT OF BUSINESS. From the date hereof through the Closing Date, the
Affiliated Companies shall conduct their businesses in the ordinary
course in the same manner as it has been conducted prior to the date of
this Agreement. The Affiliated Companies covenant that, except with the
prior written consent of Sunburst, which consent shall not be
unreasonably withheld, neither American nor WorkSeek will:
(a) Do any of the restricted acts set forth in SECTION 3.20
hereof, or enter into any agreement of a nature set forth in
SECTION 3.16 hereof; or
(b) Enter into any transaction other than in the ordinary course
of business. Sunburst hereby acknowledges that American and
WorkSeek have recently commenced conducting operations over
the Internet and that such companies are designing and
developing additional websites related to their Internet
operations. Accordingly, the parties hereto agree that, for
all purposes in this
1215-2.005
26
Agreement, the term "in the ordinary course of business" or
other similar expression shall include the new Internet
operations of American and WorkSeek.
5.3 PRESERVATION OF BUSINESS. From the date hereof through the Closing
Date, the Affiliated Companies shall use commercially reasonable
efforts to (i) preserve intact their business, assets, properties and
organizations; (ii) keep available the services of their present
officers, employees, consultants and agents; and (iii) maintain their
present suppliers and customers and preserve the goodwill of American
and WorkSeek.
5.4 ADVICE OF CHANGES. The Affiliated Companies will promptly advise
Sunburst in writing from time to time prior to the Closing with respect
to any matter hereafter arising and known to them that, if existing or
occurring at the date of this Agreement, would have been required to be
set forth or described in the Affiliated Companies Disclosure Schedule
or would have resulted in any representation of the Affiliated
Companies in this Agreement being untrue. Sunburst and Subsidiary will
promptly advise the Affiliated Companies in writing from time to time
prior to the Closing with respect to any matter hereafter arising and
known to them that, if existing or occurring at the date of this
Agreement, would have been required to be set forth or described in the
Sunburst Disclosure Schedule or would have resulted in any
representation of Sunburst in this Agreement being untrue in any
material respect.
5.5 OTC BULLETIN BOARD. Sunburst will use its best efforts to maintain the
listing on the OTC Bulletin Board of the Sunburst Common Stock.
5.6 SEC REPORTS. Sunburst shall timely file with the SEC all reports that
are required to be filed by the Exchange Act and the rules and
regulations promulgated thereunder.
5.7 OTHER AGREEMENTS. The Affiliated Companies, Sunburst and Subsidiary
agree to take, or cause to be taken, all actions and to do, or cause to
be done, all things reasonably necessary, proper or advisable to
consummate and make effective as promptly as practicable the
transactions contemplated by this Agreement, including, without
limitation, the obtaining of all necessary waivers, consents and
approvals and the effecting of all necessary registrations and filings,
including, but not limited to, submissions of information requested by
Governmental or Regulatory Bodies and any other persons required to be
obtained by them for the consummation of the closing and the
continuance in full force and effect of the permits, contracts and
other agreements set forth on the Schedules to this Agreement.
1215-2.005
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ARTICLE VI
CONDITIONS PRECEDENT TO CLOSING
6.1 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF SUNBURST AND SUBSIDIARY TO
COMPLETE THE CLOSING. The obligations of Sunburst and Subsidiary to
enter into and complete the Closing are subject to the fulfillment of
the following conditions, any one or more of which may be waived by
Sunburst and Subsidiary:
(a) (i) All of the terms, covenants, and conditions of this
Agreement to be complied with or performed by the Affiliated
Companies at or before the Closing shall have been duly
complied with and performed in all material respects, (ii) the
representations and warranties of the Affiliated Companies set
forth in Article III shall be true in all material respects on
and as of the Closing Date with the same force and effect as
if such representations and warranties had been made on and as
of the Closing, and (iii) Sunburst and Subsidiary shall have
received a certificate to such effect from the Affiliated
Companies.
(b) All consents, waivers, approvals, licenses, authorizations of,
or filings or declarations with third parties or Governmental
or Regulatory Bodies required to be obtained by the Affiliated
Companies in order to permit the transactions contemplated by
this Agreement to be consummated in accordance with agreements
and court orders applicable to the Affiliated Companies and
applicable governmental laws, rules, regulations and
agreements shall have been obtained and any waiting period
thereunder shall have expired or been terminated, and Sunburst
and Subsidiary shall have received a certificate from the
Affiliated Companies to such effect.
(c) All actions, proceedings, instruments, and documents in
connection with the consummation of the transactions
contemplated by this Agreement, including the forms of all
documents, legal matters, opinions, and procedures in
connection therewith, shall have been approved in form and
substance by counsel for Sunburst and Subsidiary, which
approval shall not be unreasonably withheld.
(d) The Affiliated Companies shall have furnished such
certificates to evidence compliance with the conditions set
forth in this Article, as may be reasonably requested by
Sunburst and Subsidiary or their counsel.
(e) Neither American nor WorkSeek shall have suffered any Material
Effect.
1215-2.005
28
(f) No material information or data provided or made available to
Sunburst and Subsidiary by or on behalf of American or
WorkSeek shall be incorrect in any material respect.
(g) No investigation and no suit, action, or proceeding before any
court or any governmental or regulatory authority shall be
pending or threatened by any state or federal governmental or
regulatory authority, against American, WorkSeek or any of
their affiliates, associates, officers, or directors seeking
to restrain, prevent, or change in any material respect the
transactions contemplated hereby or seeking damages in
connection with such transactions that are material to
American or WorkSeek.
(h) Counsel to the Affiliated Companies shall have delivered to
Sunburst on and as of the Closing Date an opinion to Sunburst
and Subsidiary substantially as to the matters set forth in
Sections 3.1, 3.2, 3.3, 3.4, 3.6., and 3.8, all subject to
customary limitations reasonably acceptable to counsel to
Sunburst and Subsidiary.
(i) The following key employees ("KEY EMPLOYEES") of American
shall have entered into five-year employment agreements with
the Surviving Corporation on terms satisfactory to Sunburst
and Century: Xxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxxxxx Xxxxxx and
Xxxxxx Xxxxxx. These Employment Agreements shall contain
provisions as to a year-end performance bonus based on
standards to be established by the directors of Sunburst,
incentive stock options with minimum guarantees, and customary
proprietary information provisions.
(j) Each of the Key Employees shall have entered into a
non-compete agreement on terms satisfactory to Sunburst and
Century. The non-compete agreements shall contain provisions
that are enforceable to the maximum extend permitted under
Sections 16600 and 16601 of the California Business and
Professions Code.
(k) The Affiliated Companies shall have completed the audit of
their financial statements for the fiscal years ended December
31, 1998 and December 31, 1997 and shall have delivered such
audited financial statements to Sunburst at or prior to the
Closing. Notwithstanding the foregoing, if the auditors
provide a letter, addressed to Sunburst and Subsidiary, that
states that in the opinion of the auditors the audited
financial statements will be completed within two weeks of the
date of the letter, which letter shall be in form and
substance reasonable satisfactory to Sunburst and Subsidiary,
then the parties can complete the transactions contemplated
hereby prior to the delivery of the foregoing audited
financial statements.
1215-2.005
29
(l) All of the shareholders of the Affiliated Companies shall have
entered into a Public Trading Agreement with Sunburst, the
form of which is attached hereto as Exhibit C, pursuant to
which each of such shareholders will agree not to initiate,
permit or enable the public trading of the Post-Split Sunburst
Common Stock on the OTC Bulletin Board or other public market
during the first six months following the Effective Date,
unless (i) Sunburst has completed a public offering of its
Post-Split Sunburst Common Stock or (ii) such public trading
has been approved by two-thirds of the entire Board of
Directors of Sunburst. The Public Trading Agreement shall
further provide that if Sunburst enters into a letter of
intent or other agreement with an underwriter for the purpose
of effecting a public offering of Sunburst's securities, the
shareholders who signed the Public Trading Agreement shall
agree to enter into any form of lock-up or standstill
agreement the underwriter shall request.
6.2 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE AFFILIATED COMPANIES TO
COMPLETE THE CLOSING. The obligations of the Affiliated Companies to
enter into and complete the Closing are subject to the fulfillment on
or prior to the Closing Date, of the following conditions, any one or
more of which may be waived by unanimous action taken by both of the
Affiliated Companies:
(a) (i) All of the terms, covenants, and conditions of this
Agreement to be complied with or performed by Sunburst and
Subsidiary at or before the Closing shall have been duly
complied with and performed in all material respects, (ii) the
representations and warranties of Sunburst and Subsidiary set
forth in Article IV shall be true in all material respects on
and as of the Closing Date with the same force and effect as
if such representations and warranties had been made on and as
of the Closing, and (iii) the Affiliated Companies shall have
received a certificate to such effect from Sunburst and
Subsidiary.
(b) All consents, waivers, approvals, licenses, authorizations of,
or filings or declarations with third parties or Governmental
or Regulatory Bodies required to be obtained by Sunburst or
Subsidiary in order to permit the transactions contemplated by
this Agreement to be consummated in accordance with agreements
and court orders applicable to Sunburst and Subsidiary and
applicable governmental laws, rules, regulations and
agreements shall have been obtained and any waiting period
thereunder shall have expired or been terminated, and the
Affiliated Companies shall have received a certificate from
Sunburst and Subsidiary to such effect.
(c) All actions, proceedings, instruments, and documents in
connection with the consummation of the transactions
contemplated by this Agreement, including the forms of all
documents, legal matters, opinions, and procedures in
1215-2.005
30
connection therewith, shall have been approved in form and
substance by counsel for the Affiliated Companies, which
approval shall not be unreasonably withheld.
(d) Sunburst and Subsidiary shall have furnished such certificates
to evidence compliance with the conditions set forth in this
Article, as may be reasonably requested by the Affiliated
Companies or their counsel.
(e) Neither Sunburst nor Subsidiary shall have suffered any
Material Effect.
(f) No material information or data provided or made available to
the Affiliated Companies by or on behalf of Sunburst or
Subsidiary shall be incorrect in any material respect.
(g) No investigation and no suit, action, or proceeding before any
court or any governmental or regulatory authority shall be
pending or threatened by any state or federal governmental or
regulatory authority, against Sunburst, Subsidiary or any of
their affiliates, associates, officers, or directors seeking
to restrain, prevent, or change in any material respect the
transactions contemplated hereby or seeking damages in
connection with such transactions that are material to
Sunburst or Subsidiary.
(h) Counsel to Sunburst shall have delivered to the Affiliated
Companies on and as of the Closing Date an opinion
substantially as to the matters set forth in Sections 4.1,
4.2, 4.3, 4.4, 4.5, 4.6., and 4.7, all subject to customary
limitations reasonably acceptable to counsel to the Affiliated
Companies.
(i) The Sunburst Common Stock shall be approved for listing on the
OTC Bulletin Board.
(j) Sunburst shall be in full compliance with (i) the filing
requirements set forth in Section 13 of the Exchange Act and
(ii) the requirements of Rule 15c2-11 as promulgated by the
SEC under the Exchange Act.
(k) Sunburst shall have completed a private placement of its
common stock to accredited investors (the "Private Placement")
pursuant to which Sunburst shall have issued a minimum of
1,000,000 of its unregistered Post-Split Sunburst Common Stock
and a maximum of 2,500,000 shares of its Post-Split Sunburst
Common Stock. The shares to be sold in the Private Placement
will be offered and sold at a price of $2.00 per share.
Sunburst shall not pay any commissions or other compensation
in connection with the Private Placement. The Private
Placement shall be effected in accordance with Rule 506 of the
rules promulgated under the Securities Act of 1933, as
amended, and all
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31
investors in the Private Placement shall be "accredited
investors" as that term is defined under Rule 501(a) of the
Securities Act of 1933. As a result of the Private Placement,
at the Closing Sunburst shall have outstanding a minimum of
7,481,600 shares of Post-Split Sunburst Common Stock and shall
have on hand a minimum of $2,000,000 in cash, or a maximum of
8,981,600 shares of Post- Split Sunburst Common Stock and
$5,000,000 in cash. For the purposes of the foregoing
sentence, the balance of any outstanding loans made by
Sunburst to the Affiliated Companies shall be deemed to
constitute cash. In addition, prior to the Closing, Sunburst
shall issue to Century or its affiliates, and there shall be
outstanding the following Sunburst Common Stock Purchase
Warrants: 2,000,000 "B" Warrants and 1,000,000 "C" Warrants.
Each "B" Warrant shall be exercisable to purchase one share of
Post-Split Sunburst Common Stock at a price of $0.75 per share
for a period for 24 months from Closing. Each "C" Warrant
shall be exercisable to purchase one share of Post-Split
Sunburst Common Stock at a price of $1.50 per share for a
period of 24 months from Closing. Both the "B" and "C"
Warrants shall have certain demand and piggyback demand
registration rights.
(l) At or prior to Closing, the Board of Directors of Sunburst
shall be increased to seven members. At Closing, one member of
Sunburst's Board of Directors shall resign, whereupon four
persons designated by the Affiliated Companies and three
persons designated by Century shall be elected by the
remaining director of Sunburst to fill the vacancies. The
remaining director of Sunburst shall then resign. In order to
effect such change in the composition of Sunburst's Board of
Directors, Sunburst, at or prior to Closing shall have
complied with the requirements of Section 14(f) of the
Exchange Act and Rule 14f-1 promulgated thereunder; PROVIDED,
that Sunburst's obligation to effect such compliance shall be
contingent upon the Affiliated Companies' and Century's
furnishing to Sunburst such information with respect to their
nominees to Sunburst's Board of Directors as is required by
the applicable provisions of the Exchange Act and the rules
and regulations promulgated thereunder for compliance with
Section 14(f) thereof.
(m) Sunburst shall have filed that form of Articles of Amendment,
in the form attached hereto as Exhibit D, to its Articles of
Incorporation with the Secretary of State of the State of
Colorado to (i) cancel and extinguish any class or series of
preferred stock that may have been previously designated, and
(ii) establish the Sunburst Preferred Stock and designate the
rights, preferences and privileges of the Sunburst Preferred
Stock.
(n) Sunburst shall have cancelled certain shares of its Common
Stock that is outstanding as of the date of this Agreement,
shall have effected the Stock-Split to increase the number of
shares of Sunburst Common Stock outstanding before the Private
Placement to 6,481,600, and shall have sold at least
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32
1,000,000 shares of Post-Split Sunburst Common Stock in the
Private Placement.
(o) The shareholders of Sunburst listed on Exhibit E hereto shall
have entered into a Public Trading Agreement with Sunburst,
the form of which is attached hereto as Exhibit C, pursuant to
which each of such shareholders will agree not to initiate,
permit or enable the public trading of the Post-Split Sunburst
Common Stock on the OTC Bulletin Board or other public market
during the first six months following the Effective Date,
unless (i) Sunburst has completed a public offering of its
Post-Split Sunburst Common Stock or (ii) such public trading
has been approved by two-thirds of the entire Board of
Directors of Sunburst. The Public Trading Agreement shall
further provide that if Sunburst enters into a letter of
intent or other agreement with an underwriter for the purpose
of effecting a public offering of Sunburst's securities, the
Sunburst shareholders who signed the Public Trading Agreement
shall agree to enter into any form of lock-up or standstill
agreement the underwriter shall request.
ARTICLE VII
POST-CLOSING COVENANTS
The parties covenant to take the following actions after the Closing Date:
7.1 FURTHER INFORMATION. Following the Closing, each party will afford to
the other party, its counsel and its accountants, during normal
business hours, reasonable access to the books, records and other data
of American, WorkSeek, Sunburst or Subsidiary, as the case may be,
relating to the business of American, WorkSeek, Sunburst or Subsidiary
in their possession with respect to periods prior to the Closing and
the right to make copies and extracts therefrom, to the extent that
such access may be reasonably required by the requesting party (a) to
facilitate the investigation, litigation and final disposition of any
claims which may have been or may be made against any party or its
affiliates and (b) for any other reasonable business purpose.
7.2 RECORD RETENTION. Each party agrees that for a period of not less than
five years following the Closing Date, such party shall not destroy or
otherwise dispose of any of the Books and Records of American,
WorkSeek, Sunburst or Subsidiary relating to the business of American,
WorkSeek, Sunburst or Subsidiary in its possession with respect to
periods prior to the Closing Date. Each party shall have the right to
destroy all or part of such Books and Records after the fifth
anniversary of the Closing Date or, at an earlier time by giving each
other party hereto 30 days prior written notice of such intended
disposition and by offering to deliver to the other party or parties,
at the other party's or parties' expense, custody of such Books and
Records as such party may intend to destroy.
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7.3 POST-CLOSING ASSISTANCE. The Affiliated Companies on the one hand, and
Sunburst and Subsidiary, on the other hand, will provide each other
with such assistance as may reasonably be requested in connection with
the preparation of any Tax Return, any audit or other examination by
any taxing authority, or any judicial or administrative proceedings
relating to liability for Taxes, and each will retain and provide the
requesting party with any records or information that may be reasonably
relevant to such return, audit or examination, proceedings or
determination. The party requesting assistance shall reimburse the
other party for reasonable out-of-pocket expenses incurred in providing
such assistance. Any information obtained pursuant to this SECTION 7.3
or pursuant to any other Section hereof providing for the sharing of
information or the review of any Tax Return or other schedule relating
to Taxes shall be kept confidential by the parties hereto.
7.4 SEC REPORTING. With a view to making available the benefits of certain
rules and regulations of the SEC which may at any time permit the sale
of the Sunburst Securities to the public without registration, from and
after the Closing, the new management of Sunburst will:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act,
at all times;
(b) file with the SEC in a timely manner all reports and other
documents required of Sunburst under the Exchange Act; and
(c) continue a listing with a recognized securities manual for a
period of at least three years after the Closing.
7.5 PUBLIC RELATIONS FIRM. The new management of Sunburst shall retain a
public relations firm, identified with the assistance of Century,
within 90 days after the Closing.
7.6 CONSULTING SERVICES. The new management of Sunburst shall retain the
services of Century for a period of 24 months at $10,000 per month
pursuant to the terms of an agreement to be entered at Closing,
substantially in the form attached as Exhibit F to this Agreement.
7.7 RESTRICTION ON REVERSE SPLITS. The Affiliated Companies and Sunburst
agree that, for a period of two years following the Closing, Sunburst
shall not effect a reverse split of the Post-Split Sunburst Common
Stock, unless a reverse split is required by an underwriter in a
registered public offering of the Post-Split Sunburst Common Stock or
such reverse split is necessary to obtain approval for quotation of the
Post-Split Sunburst Common Stock on any market operated by The Nasdaq
Stock Market.
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34
7.8 RESTRICTION ON CHANGES TO EMPLOYMENT AGREEMENTS. The new management of
Sunburst agrees that it will not amend any Employment Agreements for at
least two years following the Closing.
7.9 NAME CHANGE. Sunburst shall change its name to "XxxxXxxx.xxx, Inc."
within 60 days after the Closing Date.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND WARRANTIES. Notwithstanding
any investigation conducted or notice or knowledge obtained by or on
behalf of any party hereto, each agreement in this Agreement shall
survive the Closing without limitation as to time until fully performed
and each representation and warranty in this Agreement or in the
Exhibits, Schedules or certificates delivered pursuant to this
Agreement shall survive the Closing for a period of one year (other
than the representations and warranties contained in SECTION 3.14 AND
SECTION 4.13, which shall survive the Closing until the earlier of (i)
three and one-half years from the Closing Date and (ii) three years
following the date on which Sunburst files the Tax Return relating to
the taxable period from December 31, 1998 through the Closing Date).
Notice must be given to the party from whom indemnification is sought
of any claim for indemnification under Article VII prior to the
termination of the relevant survival period.
8.2 INDEMNIFICATION BY THE AFFILIATED COMPANIES. The Affiliated Companies
shall indemnify Sunburst and hold Sunburst harmless against and in
respect of any and all damages, losses, claims, penalties, liabilities,
costs and expenses (including, without limitation, all fines, interest,
reasonable legal fees and expenses and amounts paid in settlement),
that arise from or relate or are attributable to (a) any
misrepresentation by the Affiliated Companies or breach of any warranty
by them in this Agreement and (b) any breach of any covenant or
agreement on the part of the Affiliated Companies in this Agreement.
The right of the parties to be indemnified hereunder shall not be
limited or affected by any investigation conducted or notice or
knowledge obtained by or on behalf of any such persons.
8.3 SUNBURST'S INDEMNITY. Sunburst shall indemnify the Affiliated Companies
and hold the Affiliated Companies harmless against and in respect of
any and all damages, losses, claims, penalties, liabilities, costs and
expenses (including, without limitation, all fines, interest,
reasonable legal fees and expenses and amounts paid in settlement),
that arise from or relate or are attributable to (a) any
misrepresentation by Sunburst or breach of any warranty by Sunburst or
Subsidiary in this Agreement and (b) any breach of any covenant or
agreement on the part of Sunburst or Subsidiary in this Agreement. The
right of the parties to be indemnified hereunder shall not be limited
1215-2.005
35
or affected by any investigation conducted or notice or knowledge
obtained by or on behalf of any such persons.
ARTICLE IX
TERMINATION OF AGREEMENT
9.1 TERMINATION. This Agreement may be terminated at any time prior to the
Closing as follows:
(a) by mutual written consent of Sunburst, Subsidiary and the
Affiliated Companies;
(b) by Sunburst on the one hand, or by either of the Affiliated
Companies, on the other hand, by written notice to the other
party hereto, if the Closing shall not have occurred on or
prior to the close of business on September 15, 1999 (unless
such event has been caused by a breach of this Agreement by
the party seeking such termination);
(c) by Sunburst or by either of the Affiliated Companies if a
Governmental or Regulatory Body has permanently enjoined or
prohibited consummation of the Merger and such court or
government action is final and nonappealable;
(d) by Sunburst if the Affiliated Companies have failed to comply
in any material respect with any of their covenants or
agreements under this Agreement that are required to be
complied with prior to the date of such termination; or
(e) by either of the Affiliated Companies if either Sunburst of
Subsidiary has failed to comply in any material respect with
any of its covenants or agreements under this Agreement that
are required to be complied with prior to the date of such
termination.
Should the Affiliated Companies terminate this Agreement for any reason
other than a default by Sunburst or Subsidiary as described in SECTION
9.1(E) hereof, the Affiliated Companies shall be jointly and severally
liable for all damages caused by the failure to close and not just the
expenses listed in SECTION 10.1 hereof. Should Sunburst terminate this
Agreement for any reason other than a default by the Affiliated
Companies as described in SECTION 9.1(D) hereof, Sunburst shall be
liable for all damages caused to the Affiliated Companies by the
failure to close and not just the expenses listed in SECTION 10.1
hereof.
9.2 SURVIVAL AFTER TERMINATION. If this Agreement is terminated pursuant to
SECTION 9.1, (a) this Agreement shall become null and void and of no
further force and effect, except for the provisions of SECTION 5.1
relating to the obligation to keep confidential
1215-2.005
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certain information and (b) there shall be no liability on the part
of the Affiliated Companies or Sunburst or their respective affiliates.
ARTICLE X
MISCELLANEOUS
10.1 EXPENSES. The Affiliated Companies agree to pay $15,000 of the legal
fees incurred by Sunburst and Subsidiary in connection with the Merger
and to pay $15,000 of the legal fees incurred by Century in connection
with the transactions contemplated hereby. Except for the foregoing
fees, Sunburst and Subsidiary shall be solely responsible for their own
legal and accounting fees in connection with the Merger, the Private
Placement and Century's purchase of shares and warrants. The Affiliated
Companies shall be responsible for their legal and accounting fees and
other expenses incurred in connection with the Merger.
10.2 FURTHER ASSURANCES. At any time and from time to time after the Closing
Date at the request of any party hereto, and without further
consideration, all other parties to this Agreement will execute and
deliver such other instruments or documents and take such other action
as may reasonably requested and as necessary or desirable in order to
effect the transactions contemplated hereby. The parties shall use
their best efforts to fulfill or obtain the fulfillment of the
conditions to the Closing, including, without limitation, the execution
and delivery of any document or other papers, the execution and
delivery of which are conditions precedent to the Closing.
10.3 NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be in writing and
shall be given personally, sent by facsimile transmission or sent by
prepaid air courier or certified or express mail, postage prepaid. Any
such notice shall be deemed to have been given (a) when received, if
delivered in person, sent by facsimile transmission and confirmed in
writing within three (3) business days thereafter or sent by prepaid
air courier or (b) three (3) business days following the mailing
thereof, if mailed by certified first class mail, postage prepaid,
return receipt requested, in any such case as follows (or to such other
address or addresses as a party may have advised the other in the
manner provided in this SECTION 10.3):
If to the Affiliated Companies:
American Recruitment Conferences, Inc.
XxxxXxxx.xxx
00000 Xxxxx Xxxxxx Xxxxx, Xxx 000
Xxxxxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, President
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37
with a copy to:
Xxxx & Xxxxx Professional Corporation
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx Xxxxx, Esq.
If to Sunburst:
Sunburst Acquisitions III, Inc.
0000 Xxxxx Xxxx Xxx
Xxxxxxxx, Xxxxxxxx 00000
Attention: Xxx Xxxxxx, President
with a copy to:
Xxxx Xxxx Xxxx Xxxxxxxxxx & Xxxxxxxxx, P.C.
000 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxx, Xxxxxxxx 00000
Attention: Xxx X. Xxxxxxxxx, Esq.
10.4 ARBITRATION. Any dispute, controversy, or claim arising out of,
relating to, or in connection with, this Agreement or the agreements or
transactions contemplated by this Agreement shall be finally settled by
binding arbitration. The arbitration shall be conducted and the
arbitrator chosen in accordance with the rule of the American
Arbitration Association in effect at the time of the arbitration,
except as they may be modified herein or by mutual agreement of
Sunburst and the Affiliated Companies. In connection with any such
arbitration, each party shall be afforded the opportunity to conduct
discovery in accordance with the Federal Rules of Civil Procedure.
(a) The seat of the arbitration shall be in Orange County,
California, and will follow the format known as "Baseball
Arbitration". Each of the American Affiliated Companies and
Sunburst hereby irrevocably submits to the jurisdiction of the
arbitrator in Orange County, California, 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 format, or that such venue is improper.
(b) The arbitral award shall be in writing and shall be final and
binding on each of the parties to this Agreement. The award
may include an award of costs, including reasonable attorneys'
fees and disbursements. Judgment upon the award may be entered
by any court having jurisdiction thereof or having
jurisdiction over the parties or their assets. Each of the
Affiliated Companies and Sunburst acknowledges and agrees that
by agreeing to these arbitration
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38
provisions each of the parties hereto is waiving any right
that such party may have to a jury trial with respect to the
resolution of any dispute under this Agreement or the
agreements or transactions contemplated hereby.
10.5 PUBLICITY. No publicity release or announcement concerning this
Agreement or the transactions contemplated hereby shall be made without
advance approval thereof by Sunburst, American and WorkSeek except as
may be required by applicable law.
10.6 ENTIRE AGREEMENT. This Agreement (including the Exhibits and Schedules)
and the agreements, certificates and other documents delivered pursuant
to this Agreement contain the entire agreement among the parties with
respect to the transactions described herein, and supersede all prior
agreements, written or oral, with respect thereto.
10.7 WAIVERS AND AMENDMENTS. This Agreement may be amended, superseded,
canceled, renewed or extended, and the terms hereof may be waived, only
by a written instrument signed by all of the parties or, in the case of
a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
10.8 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of California without regard to
principles of conflicts of law.
10.9 BINDING EFFECT, NO ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement is not assignable by any party hereto
without the prior written consent of the other parties hereto except by
operation of law and any other purported assignment shall be null and
void.
10.10 COUNTERPARTS. This Agreement may be executed by the parties hereto in
separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of
a number of copies hereof each signed by less than all, but together
signed by all of the parties hereto.
10.11 EXHIBITS AND SCHEDULES. The Exhibits and Schedules are a part of this
Agreement as if fully set forth herein. All references herein to
Sections, subsections, clauses, Exhibits and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall
otherwise require.
10.12 HEADINGS. The headings in this Agreement are for reference only, and
shall not affect the interpretation of this Agreement.
1215-2.005
39
10.13 SEVERABILITY OF PROVISIONS. If any provision or any portion of any
provision of this Agreement or the application of such provision or any
portion thereof to any person or circumstance, shall be held invalid or
unenforceable, the remaining portion of such provision and the
remaining provisions of this Agreement, or the application of such
provision or portion of such provision as is held invalid or
unenforceable to persons or circumstances other than those as to which
it is held invalid or unenforceable, shall not be affected thereby.
[remainder of the page blank]
1215-2.005
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
SUNBURST:
SUNBURST ACQUISITIONS III, INC.
By: /s/Xxx Xxxxxx
Name: Xxx Xxxxxx
Title: President
SUBSIDIARY:
SUNBURST SUBSIDIARY, INC.
By: /s/Xxx Xxxxxx
Name: Xxx Xxxxxx
Title: President
AMERICAN:
AMERICAN RECRUITMENT
CONFERENCES, INC.
By: /s/Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: President
WORKSEEK:
XXXXXXXX.XXX
By: /s/ Xxxxx X. Xxxxxx
Name: Xxxxx X. Xxxxxx
Title: President
[signature page continued]
1215-2.005
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For the purposes of making the representations and warranties
contained in Section 3.28 only, the undersigned shareholders of American and
WorkSeek have executed this Agreement as of the date first above written.
AMERICAN
/s/ Xxxxx X. Xxxxxx
------------------------
Xxxxx X. Xxxxxx
-----------------------
Xxxxx Xxxxxx
----------------------
Xxxxxx Xxxxxx
----------------------
Xxxxxxxxx Xxxxxx
---------------------
Xxxx X. Xxxxxx
WORKSEEK
/s/ Xxxxx X. Xxxxxx
---------------------
Xxxxx X. Xxxxxx
1215-2.005
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EXHIBIT INDEX
EXHIBIT DOCUMENT
A. Agreement of Merger
X. Xxxxxx Consulting Agreement
C. Public Trading Agreement
D. Amendment to Articles of Incorporation of Sunburst
E. Principal Shareholders of Sunburst
F. Century Consulting Agreement
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