AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENTREPORT CORPORATION
UNIVERSITY MERGER CORP.,
AND
XXXXXXXXXX.XXX, INC.
OCTOBER 24, 2000
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT is dated as of October 24, 2000, by and among Entreport
Corporation, a Florida corporation ("PARENT"), University Merger Corp., a
Minnesota corporation and wholly-owned subsidiary of Parent ("MERGER
SUBSIDIARY"), and Xxxxxxxxxx.xxx, Inc., a Minnesota corporation (the "COMPANY").
WHEREAS, the Company is in the business of developing, hosting,
managing and providing support for online training and education portals (the
"BUSINESS"); and
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary, and the
Company have approved the merger of Merger Subsidiary with and into the Company
(the "MERGER") upon the terms and subject to the conditions set forth herein;
and
WHEREAS, for federal income tax purposes, it is intended that the
Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger;
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements contained herein,
the parties hereto agree as follows:
ARTICLE 1
THE MERGER; CONVERSION OF SHARES
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.2 hereof), Merger Subsidiary will
be merged with and into the Company in accordance with the provisions of the
Minnesota Business Corporation Act (the "MBCA"), whereupon the separate
corporate existence of Merger Subsidiary will cease, and the Company will
continue as the surviving corporation (the "SURVIVING CORPORATION"). >From and
after the Effective Time, the Surviving Corporation will possess all the rights,
privileges, powers, and franchises and be subject to all the restrictions,
disabilities, and duties of the Company and Merger Subsidiary, all as more fully
described in the MBCA.
1.2 EFFECTIVE TIME. As soon as practicable after each of the conditions
set forth in Article 6 and Article 7 has been satisfied or waived, the Company
and Merger Subsidiary will file, or cause to be filed, with the Secretary of
State of the State of Minnesota Articles of Merger (including a plan of merger)
for the Merger, which Articles will be in the form required by and executed in
accordance with the applicable provisions of the MBCA. The Merger will become
effective at the time such filing is made or, if agreed to by Parent and the
Company, such later time or date set forth in the Articles of Merger (the
"EFFECTIVE TIME").
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1.3 CLOSING. Unless this Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to Article 7
hereof the closing of the Merger (the "CLOSING"), will take place at a time and
on a date (the "CLOSING DATE") to be specified by the parties, which will be no
later than January 31, 2001; provided, however, that all of the conditions
provided for in Articles 6 and 7 hereof have been satisfied or waived by such
date. The Closing will be held at the offices of Xxxxxxxxxxx Xxxxx & Xxxxxxxx
LLP, 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxxx Xxxxx, Xxxxxxxxxx 00000, or
such other place as the parties may agree, at which time and place the documents
and instruments necessary or appropriate to effect the transactions contemplated
herein will be exchanged by the parties. Except as otherwise provided herein,
all actions taken at the Closing will be deemed to be taken simultaneously.
1.4 CONVERSION OF SHARES. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any share of capital stock of the Company or Merger
Subsidiary:
(a) Each share of common stock of the Company, par value $.01
per share ("COMPANY COMMON STOCK"), issued and outstanding immediately
prior to the Effective Time (except for Dissenting Shares, as defined
in Section 1.5 hereof, and except for shares referred to in Section
1.4(b) hereof) will be converted into the right to receive that
fraction of a share of common stock of the Parent, par value $.001 per
share ("PARENT COMMON STOCK"), equal to 1.75 divided by the average
closing price per share of Parent Common Stock as reported on the
American Stock Exchange for the ten (10) consecutive trading days
immediately preceding and including October 18, 2000 (the "EXCHANGE
RATIO"); provided that the Exchange Ratio will not be less than 0.35 or
more than 0.5833 (except as provided pursuant to Section 1.4(e)). The
amount of Parent Common Stock into which each such share of Company
Common Stock is converted is referred to herein as the "MERGER
CONSIDERATION".
(b) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time that is then owned beneficially
or of record by Parent, Merger Subsidiary, or any direct or indirect
subsidiary of Parent or the Company will be canceled without payment of
any consideration therefor and without any conversion thereof.
(c) Each share of any other class of capital stock of the
Company (other than Company Common Stock) will be canceled without
payment of any consideration therefor and without any conversion
thereof.
(d) Each share of common stock of Merger Subsidiary, par value
$.01 per share ("MERGER SUBSIDIARY COMMON STOCK"), issued and
outstanding immediately prior to the Effective Time will be converted
into one share of the common stock of the Surviving Corporation, par
value $.01 per share ("SURVIVING CORPORATION COMMON STOCK").
(e) Notwithstanding the foregoing, if and to the extent that
Parent pays any Bank Indebtedness (as defined in Section 4.12), the
Merger Consideration otherwise payable at the Closing with respect to
each share of Company Common Stock will be reduced by a fraction, the
numerator of which is equal to the amount of the Bank Indebtedness
multiplied by 0.5, and the denominator of which is equal to the total
number of shares of Company Common Stock outstanding immediately prior
to the Effective Time.
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1.5 DISSENTING SHARES. Notwithstanding any provision of this Agreement
to the contrary, each outstanding share of Company Common Stock, the holder of
which has demanded and perfected such holder's right to dissent from the Merger
and to be paid the fair value of such shares in accordance with Sections
302A.471 and 302A.473 of the MBCA and, as of the Effective Time, has not
effectively withdrawn or lost such dissenters' rights ("DISSENTING SHARES"),
will not be converted into or represent a right to receive Parent Common Stock
into which shares of Company Common Stock are converted pursuant to Section 1.4
hereof, but the holder thereof will be entitled only to such rights as are
granted by the MBCA. Parent will cause the Company to make all payments to
holders of shares of Company Common Stock with respect to such demands in
accordance with the MBCA. The Company will give Parent (i) prompt written notice
of any notice of intent to demand fair value for any shares of Company Common
Stock, withdrawals of such notices, and any other instruments served pursuant to
the MBCA and received by the Company, and (ii) the opportunity to conduct
jointly all negotiations and proceedings with respect to demands for fair value
for shares of Company Common Stock under the MBCA. The Company will not, except
with the prior written consent of Parent or as otherwise required by law,
voluntarily make any payment with respect to any demands for fair value for
shares of Company Common Stock or settle or offer to settle any such demands.
1.6 RETAINED CONSIDERATION. Notwithstanding the Merger Consideration
that would otherwise be payable to the shareholders of the Company upon
consummation of the Merger, the Parent will be entitled to retain twenty percent
(20%) of the total number of shares of Parent Common Stock comprising the Merger
Consideration (the "RETAINED CONSIDERATION") to offset any claims made by the
Parent for indemnification pursuant to Article 8 hereof. The Retained
Consideration will be deposited into a third party escrow account pursuant to an
escrow agreement mutually acceptable to the parties. The Retained Consideration
will remain in the escrow account for a period one year after the Effective Time
(the "ESCROW PERIOD"). Any portion of the Retained Consideration that has not
been used to offset any such indemnification claims as of the expiration of the
Escrow Period will be distributed to the shareholders of the Company in
accordance with Section 1.7(b).
1.7 EXCHANGE OF COMPANY COMMON STOCK.
(a) At the Closing, the Company will arrange for each holder
of record (a "SHAREHOLDER") of a certificate or certificates that
immediately prior to the Effective Time represented outstanding shares
of Company Common Stock ("COMPANY CERTIFICATES") to deliver to the
Parent such holder's Company Certificates, together with appropriate
stock powers signed by such holders, in exchange for the number of
whole shares of Parent Common Stock into which such shares have been
converted as provided in Section 1.4(a) other than the portion
attributable to the Retained Consideration, and the Company
Certificate(s) so surrendered will be canceled.
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(b) After the expiration of the Escrow Period, each holder of
record of Company Certificates surrendered pursuant to Section 1.7(a)
will be entitled to receive, in addition to the Merger Consideration
received pursuant to Section 1.7(a), the proportion of the Retained
Consideration to which they otherwise would have been entitled pursuant
to Section 1.7(a), less any portion used to offset any indemnification
claims of the Parent.
(c) All shares of Parent Common Stock issued upon the
surrender for exchange of Company Common Stock in accordance with the
terms hereof (including any cash paid for fractional shares pursuant to
Section 1.7(e) hereof) will be deemed to have been issued in full
satisfaction of all rights pertaining to such shares of Company Common
Stock.
(d) As of the Effective Time, the holders of Company
Certificates representing shares of Company Common Stock will cease to
have any rights as shareholders of the Company, except such rights, if
any, as they may have pursuant to the MBCA. Except as provided above,
until such Company Certificates are surrendered for exchange, each such
Company Certificate will, after the Effective Time, represent for all
purposes only the right to receive the number of whole shares of Parent
Common Stock into which the shares of Company Common Stock have been
converted pursuant to the Merger as provided in Section 1.4(a) hereof
(subject to the Parent's right of set-off against the Retained
Consideration) and the right to receive the cash value of any fraction
of a share of Parent Common Stock as provided in Section 1.6(d) hereof.
(e) No fractional shares of Parent Common Stock will be issued
upon the surrender for exchange of Company Certificates, no dividend or
other distribution of Parent will relate to any fractional share, and
such fractional share interests will not entitle the owner thereof to
vote or to any rights of a shareholder of Parent. All fractional shares
of Parent Common Stock to which a holder of Company Common Stock
immediately prior to the Effective Time would otherwise be entitled, at
the Effective Time, will be aggregated if and to the extent multiple
Company Certificates of such holder are submitted together to Parent.
If a fractional share results from such aggregation, then (in lieu of
such fractional share) Parent will pay to each holder of shares of
Company Common Stock who otherwise would be entitled to receive such
fractional share of Parent Common Stock an amount of cash (without
interest) equal to the value of such fraction of a share based on the
Exchange Ratio.
1.8 EXCHANGE OF MERGER SUBSIDIARY COMMON STOCK. From and after the
Effective Time, each outstanding certificate previously representing shares of
Merger Subsidiary Common Stock will be deemed for all purposes to evidence
ownership of and to represent the number of shares of Surviving Corporation
Common Stock into which such shares of Merger Subsidiary Common Stock have been
converted. Promptly after the Effective Time, the Surviving Corporation will
issue to Parent a stock certificate or certificates representing such shares of
Surviving Corporation Common Stock in exchange for the certificate or
certificates that formerly represented shares of Merger Subsidiary Common Stock,
which will be canceled.
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1.9 STOCK OPTIONS.
(a) Subject to Section 1.9(b), at the Effective Time, all
rights with respect to each option to purchase Company Common Stock (a
"COMPANY OPTION") then outstanding will be converted into and become
rights with respect to Parent Common Stock, and Parent will assume each
such Company Option (an "ASSUMED Option") in accordance with the
requirements of Section 424(a) of the Code (as in effect as of the date
of this Agreement) and the terms of the stock option plan under which
it was issued and the stock option agreement by which it is evidenced.
From and after the Effective Time, (i) each Assumed Option may be
exercised solely for shares of Parent Common Stock, (ii) the number of
shares of Parent Common Stock subject to each such Assumed Option will
be equal to the number of shares of Company Common Stock subject to the
Company Option immediately prior to the Effective Time multiplied by
the Exchange Ratio, rounding to the nearest whole share, (iii) the per
share exercise price under each Assumed Option will be adjusted by
dividing the per share exercise price under such Company Option by the
Exchange Ratio and rounding up to the nearest cent and (iv) any
restriction on the exercise of any such Company Option will continue in
full force and effect and the term, exercisability, vesting schedule
and other provisions of such Company Option will otherwise remain
unchanged; provided, however, that each Assumed Option will, in
accordance with its terms, be subject to further adjustment as
appropriate to reflect any stock split, stock dividend, reverse stock
split, reclassification, recapitalization or other similar transaction
subsequent to the Effective Time. It is the intention of the parties
that each Assumed Option will qualify, immediately after the Effective
Time, as incentive stock options under Section 422 of the Code to the
same extent those options qualified as such incentive stock options
immediately prior to the Effective Time. Within 20 business days after
the Effective Time, Parent will issue to each person who, immediately
after the Effective Time, was a holder of an Assumed Option a document
in form and substance reasonably satisfactory to the Company evidencing
the foregoing assumption of such Company Option by Parent.
(b) Notwithstanding anything to the contrary contained in this
Section 1.9, in lieu of assuming outstanding Company Options in
accordance with Section 1.9(a), Parent may, at its election, cause such
outstanding Company Options to be replaced by issuing substantially
equivalent replacement stock options in substitution therefor, which
replacement stock options will include equivalent terms relating to
acceleration, vesting and the effect of a change in control. Nothing in
this Section 1.9(b) will be construed to eliminate any vested right of
a holder of any Company Option.
1.10 CAPITALIZATION CHANGES. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Parent Common Stock are changed
into a different number of shares or a different class by reason of any
reclassification, stock-split, combination, exchange of shares, stock dividend
or similar change in the capitalization of Parent, all per-share price amounts
and calculations set forth in this Agreement will be appropriately adjusted.
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1.11 ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION. The
Articles of Incorporation of Merger Subsidiary, as in effect immediately prior
to the Effective Time, will be the Articles of Incorporation of the Surviving
Corporation until thereafter amended in accordance with applicable law;
provided, however, that upon the Effective Time, Article 1 of the Articles of
Incorporation of the Surviving Corporation will be amended to read in its
entirety as follows: "The name of the corporation will be Xxxxxxxxxx.xxx, Inc."
1.12 BYLAWS OF THE SURVIVING CORPORATION. The Bylaws of Merger
Subsidiary, as in effect immediately prior to the Effective Time, will be the
Bylaws of the Surviving Corporation until thereafter amended in accordance with
applicable law.
1.13 DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION. The directors
and officers of Merger Subsidiary immediately prior to the Effective Time will
be the directors and officers, respectively, of the Surviving Corporation until
their respective successors are duly elected and qualified.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent as follows:
2.1 DISCLOSURE SCHEDULE. The disclosure schedule attached hereto as
EXHIBIT 2.1 (the "DISCLOSURE SCHEDULE") is divided into sections that correspond
to the sections of this Article 2. The Disclosure Schedule comprises a list of
all exceptions to the truth and accuracy of, and of all disclosures or
descriptions required by, the representations and warranties set forth in the
remaining sections of this Article 2.
2.2 CORPORATE ORGANIZATION, ETC. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota with the requisite corporate power and authority to carry on its
business as it is now being conducted and to own, operate and lease its
properties and assets, is duly qualified or licensed to do business as a foreign
corporation in good standing in every other jurisdiction in which the character
or location of the properties and assets owned, leased or operated by it or the
conduct of its business requires such qualification or licensing, except in such
jurisdictions in which the failure to be so qualified or licensed and in good
standing would not, individually or in the aggregate, have a Material Adverse
Effect (as defined below) on the Company. The Disclosure Schedule contains a
list of all jurisdictions in which the Company is qualified or licensed to do
business and includes complete and correct copies of the Company's articles of
incorporation and bylaws. The Company does not own or control any capital stock
of any corporation or any interest in any partnership, joint venture or other
entity.
2.3 CAPITALIZATION. The authorized capital stock of the Company is set
forth in the Disclosure Schedule. The number of shares of the capital stock of
the Company outstanding, as of the date of this Agreement and as set forth in
the Disclosure Schedule, represent all of the issued and outstanding capital
stock of the Company. All issued and outstanding shares of capital stock of the
Company are duly authorized, validly issued, fully paid and nonassessable and
are without, and were not issued in violation of, preemptive rights. There are
no shares of capital stock or other equity securities of the Company outstanding
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or any securities convertible into or exchangeable for such shares, securities
or rights. Other than as set forth on the Disclosure Schedule and pursuant to
this Agreement, there is no subscription, option, warrant, call, right,
contract, agreement, commitment, understanding or arrangement to which the
Company is a party, or by which it is bound, with respect to the issuance, sale,
delivery or transfer of the capital stock of the Company, including any right of
conversion or exchange under any security or other instrument. The Company has
no subsidiaries.
2.4 AUTHORIZATION, ETC. The Company has all requisite corporate power
and authority to enter into, execute, deliver, and perform its obligations under
this Agreement. This Agreement has been duly and validly executed and delivered
by the Company and is the valid and binding legal obligation of the Company
enforceable against the Company in accordance with its terms, subject to
bankruptcy, moratorium, principles of equity and other limitations limiting the
rights of creditors generally.
2.5 NON-CONTRAVENTION. Except as set forth in the Disclosure Schedule,
neither the execution, delivery and performance of this Agreement, and each
other agreement to be entered into in connection with this Agreement, nor the
consummation of the transactions contemplated herein will:
(a) violate, contravene or be in conflict with any provision
of the articles of incorporation or bylaws of the Company;
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or
permit the acceleration of the maturity of, or give rise to any right
of termination, cancellation, imposition of fees or penalties under any
debt, note, bond, lease, mortgage, indenture, license, obligation,
contract, commitment, franchise, permit, instrument or other agreement
or obligation to which the Company is a party or by which the Company
or any of the Company's properties or assets is or may be bound;
(c) result in the creation or imposition of any pledge, lien,
security interest, restriction, option, claim or charge of any kind
whatsoever ("ENCUMBRANCES") upon any property or assets of the Company
under any debt, obligation, contract, agreement or commitment to which
the Company is a party or by which the Company or any of the Company's
assets or properties are bound; or
(d) materially violate any statute, treaty, law, judgment,
writ, injunction, decision, decree, order, regulation, ordinance or
other similar authoritative matters (referred to herein individually as
a "LAW" and collectively as "LAWS") of any foreign, federal, state or
local governmental or quasi-governmental, administrative, regulatory or
judicial court, department, commission, agency, board, bureau,
instrumentality or other authority (referred to herein individually as
an "AUTHORITY" and collectively as "AUTHORITIES").
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2.6 CONSENTS AND APPROVALS. Except as set forth in the Disclosure
Schedule, with respect to the Company, no consent, approval, order or
authorization of or from, or registration, notification, declaration or filing
with ("CONSENT") any individual or entity, including without limitation any
Authority, is required in connection with the execution, delivery or performance
of this Agreement by the Company or the consummation by the Company of the
transactions contemplated herein.
2.7 FINANCIAL STATEMENTS. The Disclosure Schedule contains a copy of
the balance sheet of the Company as of December 31, 1999, together with a copy
of the balance sheet of the Company as of September 30, 2000 (the "MOST RECENT
BALANCE SHEET") and statements of income and cash flows for the Company for the
twelve-month period ended December 31, 1999, together with a statement of income
for the nine months ended September 30, 2000 (the "MOST RECENT INCOME
STATEMENT") and the Company's balance sheets as of December 31, 1998 and
statements of income, cash flows and shareholders' equity for the period from
inception (June 12, 1998) to December 31, 1998 (collectively, the "FINANCIAL
STATEMENTS"). Except as disclosed therein or in the Disclosure Schedule, the
aforesaid Financial Statements: (i) are in accordance with the books and records
of the Company and have been prepared in conformity with GAAP consistently
applied for all periods (except as stated therein or in the notes thereto); and
(ii) are true, complete and accurate in all material respects and fairly present
the financial position of the Company as of the respective dates thereof, and
the income or loss, changes in shareholders' equity and changes in cash flows
(or financial position) for the periods then ended, except that the Most Recent
Balance Sheet and the Most Recent Income Statement do not contain all required
footnotes and are subject to normal year-end adjustments. The Company's balance
sheets as of December 31, 1998 and December 31, 1999, and statements of income
and cash flows for the respective twelve-month periods then ended, have been
audited in accordance with United States generally accepted auditing standards.
2.8 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any
material liabilities, obligations or claims of any kind whatsoever, whether
secured or unsecured, accrued or unaccrued, fixed or contingent, matured or
unmatured, known or unknown, direct or indirect, contingent or otherwise and
whether due or to become due (referred to herein individually as a "LIABILITY"
and collectively as "LIABILITIES"), other than: (a) Liabilities that are fully
reflected or reserved for in the Most Recent Balance Sheet; (b) Liabilities that
are set forth on the Disclosure Schedule; (c) Liabilities incurred by the
Company in the ordinary course of business after the date of the Most Recent
Balance Sheet and consistent with past practice and in an amount not to exceed
$25,000 individually or in the aggregate (none of which results from, arises out
of, relates to, is in the nature of, or was caused by any breach of contract,
breach of warranty, tort, infringement or violation of Law) unless such amounts
are disclosed on the Disclosure Schedule; or (d) Liabilities for express
executory obligations to be performed after the Closing under the contracts
described in Section 2.19 of the Disclosure Schedule (other than any express
executory obligations that might arise due to any default or other failure of
performance by the Company prior to the Closing Date).
2.9 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Disclosure
Schedule, since the date of the Most Recent Balance Sheet, the Company has owned
and operated its assets, properties and business in the ordinary course of
business and consistent with past practice. Without limiting the generality of
the foregoing, subject to the aforesaid exceptions:
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(a) the Company has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
Company;
(b) the Company has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse
Effect on the Company; and
(c) no event has taken place which if consummated following
the date hereof would constitute a violation of Section 4.2 hereof.
2.10 ASSETS. Except as set forth in the Disclosure Schedule, the
Company has good and marketable title to all of its assets and properties,
whether or not reflected in the Most Recent Balance Sheet or acquired after the
date thereof (except for properties sold or otherwise disposed of since the date
thereof in the ordinary course of business and consistent with past practices),
that relate to or are necessary for the Company to conduct its business and
operations as currently conducted, including, without limitation, all (i) of the
Company's training course software and content and all intellectual property
rights related to such software and content, (ii) furniture, fixtures, equipment
and other personal property, and (iii) books, records, brochures, pamphlets and
other marketing materials (collectively, the "ASSETS"), free and clear of any
mortgage, pledge, lien, security interest, conditional or installment sales
agreement, encumbrance, claim, easement, right of way, tenancy, covenant,
encroachment, restriction or charge of any kind or nature (whether or not of
record) (a "LIEN"), other than (i) liens securing specific Liabilities shown on
the Most Recent Balance Sheet with respect to which no breach, violation or
default exists; (ii) mechanics', carriers', workers' or other like liens arising
in the ordinary course of business; (iii) minor imperfections of title that do
not individually or in the aggregate, impair the continued use and operation of
the Assets to which they relate in the operation of the Company as currently
conducted; and (iv) liens for current taxes not yet due and payable or being
contested in good faith by appropriate proceedings ("PERMITTED LIENS"). The
Company has full right and power to, and at the Closing will, deliver to Parent
good and marketable title to all of the Assets, free and clear of any Lien,
other than Permitted Liens. Except as set forth on the Disclosure Schedule, the
equipment, vehicles and other personal property used by the Company (whether or
not reflected on the Most Recent Balance Sheet or acquired after the date
thereof) are in good operating condition and repair (normal wear and tear
excepted) and fit for the intended purposes thereof, and no material
maintenance, replacement or repair has been deferred or neglected.
2.11 INVENTORIES. Except as set forth in the Disclosure Schedule, the
inventories of the Company, whether reflected in the Most Recent Balance Sheet
or otherwise, (a) consist of a quality and quantity useable in the ordinary
course of business, and the present quantities of all inventory are reasonable
in the present circumstances of the business as currently conducted or as
proposed to be conducted and (b) are transferable to Parent.
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2.12 RECEIVABLES AND PAYABLES.
(a) Except as set forth on the Disclosure Schedule, all
accounts receivable of the Company represent sales in the ordinary
course of business and, to the Company's knowledge, are current and
collectible net of any reserves shown on the Most Recent Balance Sheet
and none of such receivables is subject to any Lien other than a
Permitted Lien.
(b) Except as set forth on the Disclosure Schedule, all
payables by the Company arose in bona fide transactions in the ordinary
course of business and no such payable is delinquent by more than sixty
(60) days beyond the due date in its payment.
2.13 INTELLECTUAL PROPERTY RIGHTS. The Company owns or has the
unrestricted right to use, and the Disclosure Schedule contains a detailed
listing of, all patents, patent applications, patent rights, registered and
unregistered trademarks, trademark applications, tradenames, service marks,
service xxxx applications, copyrights, internet domain names or URLs (including,
without limitation, XXXXXXXXXX.XXX), computer programs and other computer
software, inventions, know-how, trade secrets, technology, proprietary
processes, trade dress, software and formulae (collectively, "INTELLECTUAL
PROPERTY RIGHTS") used in, or necessary for, the operation of its business as
currently conducted or proposed to be conducted. Except as set forth on the
Disclosure Schedule, the use of all Intellectual Property Rights necessary or
required for the conduct of the business of the Company as presently conducted
and as proposed to be conducted does not infringe or violate the Intellectual
Property Rights of any person or entity. Except as described on the Disclosure
Schedule: (a) the Company does not own or use any Intellectual Property Rights
pursuant to any written license agreement; (b) the Company has not granted any
person or entity any rights, pursuant to a written license agreement or
otherwise, to use the Intellectual Property Rights; and (c) the Company owns,
has unrestricted right to use and has sole and exclusive possession of and has
good and valid title to, all of the Intellectual Property Rights, free and clear
of all Liens and Encumbrances. All license agreements relating to Intellectual
Property Rights are binding and there is not, under any of such licenses, any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default, or would constitute a basis for a
claim on non-performance) on the part of the Company or, to the knowledge of the
Company, any other party thereto.
2.14 LITIGATION. Except as set forth in the Disclosure Schedule, there
is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled, or, to the knowledge of the Company, threatened or contemplated by or
against or involving the Company, its assets, properties or business or its
directors, officers, agents or employees (but only in their capacity as such),
whether at law or in equity, before or by any person or entity or Authority, or
which questions or challenges the validity of this Agreement or any action taken
or to be taken by the parties hereto pursuant to this Agreement or in connection
with the transactions contemplated herein.
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2.15 TAX MATTERS. For purposes of this Agreement, the term "TAXES"
means all federal, state, local, foreign and other net income, gross income,
gross receipts, sales, use, ad valorem, transfer, franchise, profits, license,
lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, real or personal property, windfall
profits, customs, duties or other taxes, fees, assessments, charges or levies of
any kind whatever, together with any interest and any penalties, additions to
tax or additional amounts with respect thereto, and the term "TAX" means any one
of the foregoing Taxes. In addition, the term "TAX RETURNS" means all returns,
declarations, reports, statements and other documents required to be filed with
any Authority in respect of Taxes, and the term "TAX RETURN" means any one of
the foregoing Tax Returns. Except as set forth in the Disclosure Schedule, the
Company hereby represents and warrants the following with respect to the
Company:
(a) FILING OF TAX RETURNS. There have been properly completed
and duly filed on a timely basis all Tax Returns required to be filed
on or prior to the date hereof by the Company with respect to Taxes
arising from the Company's operations. As of the time of filing, the
foregoing Tax Returns correctly reflected the facts regarding the
income, business, assets, operations, activities, status or other
matters of the Company or any other information required to be shown
thereon. Any Tax Returns filed after the date hereof, but on or before
the Closing Date, will conform with the provisions of this subsection
2.15(a).
(b) PAYMENT OF TAXES. With respect to all amounts in respect
of Taxes imposed upon the Company with respect to Taxes arising from
the Company's operations, or for which the Company is or could be
liable, whether to taxing authorities (as, for example, under Law) or
to other persons or entities (as, for example, under tax allocation
agreements), with respect to all taxable periods or portions of periods
ending on or before the Closing Date, all applicable Tax Laws and
agreements have been or will be fully complied with, and all such
amounts of Taxes required to be paid by the Company (whether or not
shown on any Tax Return) to taxing authorities or others on or before
the date hereof have been duly paid or will be paid on or before the
Closing Date or adequate provision has been made therefor in the Most
Recent Balance Sheet at Closing; the reserves for all such Taxes
reflected in the Most Recent Balance Sheet at Closing are, or will be,
adequate to offset any Taxes payable by the Company in any post-Closing
Date period for any pre-Closing Date Taxes, including without
limitation an appropriate accrual for all AD VALOREM Taxes including
real and personal property Taxes for assessment periods that include
the Closing Date.
(c) AUDITS AND EXTENSIONS. Neither the federal Tax Returns of
the Company nor any state or local Tax Returns of the Company have been
examined by the Internal Revenue Service or any similar state or local
authority and there are no pending examinations currently being made by
any authority nor has there been any written or oral notification to
the Company of any intention to make an examination of any Taxes by any
Authority. There are no outstanding agreements or waivers extending the
statutory period of limitations applicable to any Tax Return for any
period.
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(d) INDEPENDENT CONTRACTORS AND EMPLOYEES. For purposes of
computing Taxes and the filing of Tax Returns, the Company has not
failed to treat as "employees" any individual providing services to the
Company, as the case may be, who would be classified as an "employee"
under the applicable rules or regulations of any authority with respect
to such classification.
(e) WITHHOLDING. The Company has complied with all applicable
laws relating to the withholding of Taxes and the payment thereof
(including, without limitation, withholding of Taxes under Sections
1441 and 1442 of the Code, or similar provisions under any foreign
laws), and timely and properly withheld from individual employee wages
and paid over to the proper governmental entity all amounts required to
be so withheld and paid over under all applicable laws.
(f) TAX LIENS. There are no liens for Taxes upon any assets of
the Company, except liens for Taxes not yet due.
(g) ADDITIONAL TAXES. The Company does not expect the
assessment of any additional Taxes of the Company and is not aware of
any unresolved questions, claims or disputes concerning the liability
of the Company for Taxes that would exceed the estimated reserves
established on its books and records. The Company is not a party to any
Tax allocation or sharing agreement.
(h) EXTENSIONS. The Company has not requested any extension of
time within which to file any Tax Return, which Tax Return has not
since been filed.
(i) SECTION 481 ADJUSTMENTS. The Company is not required to
include in income any adjustment under Section 481(a) of the Code by
reason of a voluntary change in accounting method initiated by the
Company and the Company has no knowledge that the Internal Revenue
Service has proposed any such adjustment or change in accounting
method.
(j) DISCLOSURE OF TAX POSITIONS. All transactions that could
give rise to an understatement of federal income tax (within the
meaning of Section 6661 of the Code as it applied prior to repeal) or
an underpayment of tax (within the meaning of Section 6662 of the Code)
were reported in a manner for which there is substantial authority or
were adequately disclosed (or, with respect to Tax Returns filed on or
before the Closing Date, will be reported in such a manner or
adequately disclosed) on the Tax Returns required in accordance with
Sections 6661 (b)(2)(B) and 6662(d)(2)(B) of the Code.
(k) COLLAPSIBLE CORPORATION ELECTIONS. The Company has not
made an election under Section 341(f) of the Code for any taxable years
not yet closed for statute of limitation purposes.
(l) SECTION 1374. The Company has never been liable for any
Tax under Section 1374 of the Code (relating to "built-in gains"), has
not acquired the assets of a C corporation in a carryover basis
transaction and the Company is not aware of any facts that may result
in the Company being liable in the future for any Tax under Section
1374 of the Code.
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(m) SECTION 280G. The Company has not made any payments that
would be nondeductible under Section 280G of the Code, or does the
Company have any liability for any related excise tax imposed by Code
Section 4999.
(n) ACCRUAL BASIS. The Company is an accrual basis taxpayer
and it has recognized revenue, on or prior to the Closing Date, with
respect to all accounts receivable set forth in its balance sheet on
the day prior to the Closing Date.
2.16 INSURANCE. The Disclosure Schedule contains an accurate and
complete list of all policies of fire and other casualty, auto, liability,
general liability, theft, life, workers' compensation, health, directors and
officers, business interruption and other forms of insurance owned or held by
the Company, specifying the insurer, the policy number, the term of coverage, a
description of any retroactive premium adjustments or other loss-sharing
arrangements and, in the case of any "claims made" coverage, the same
information as to predecessor policies for the past three years. With respect to
each such insurance policy: (a) the policy is valid, binding, enforceable, and
in full force and effect; (b) neither the Company nor, to the knowledge of the
Company, any other party to the policy is in breach or default (including with
respect to the payment of premiums or the giving of notices), and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default, or permit termination, modification, or acceleration, under the
policy; and (c) no party to the policy has repudiated any provision thereof. The
Disclosure Schedule also describes any self-insurance arrangements affecting the
Company.
2.17 EMPLOYEE BENEFIT PLANS. Except as set forth in the Disclosure
Schedule, there are no facts or circumstances which could, directly or
indirectly, subject Parent or any of its affiliates to any Liability of any
nature with respect to any employee pension, welfare, incentive, perquisite,
paid time off, severance or other employee benefit plan, policy, practice or
agreement sponsored, maintained or contributed to by the Company or any
affiliate, whether or not administered by the Company (collectively, "BENEFIT
PLANS"), to which the Company or any affiliate is a party or with respect to
which the Company or any affiliate could have any Liability. The Disclosure
Schedule contains a list of all Benefit Plans. Such Benefit Plans were
established and have been executed, managed and administered without exception
in accordance with all applicable requirements of the Code and the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") and of all other
applicable Laws.
2.18 BANK ACCOUNTS; POWERS OF ATTORNEY. The Disclosure Schedule sets
forth: (a) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Company maintains
accounts, deposits, safe deposit boxes of any nature, and the account numbers
and names of all persons authorized to draw thereon or make withdrawals
therefrom; (b) the terms and conditions thereof and any limitations or
restrictions as to use, withdrawal or otherwise; and (c) the names of all
persons or entities holding general or special powers of attorney from the
Company and a summary of the terms thereof.
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2.19 CONTRACTS AND COMMITMENTS; NO DEFAULT.
(a) Except as set forth in the Disclosure Schedule, the
Company is not a party to, nor are any of the Assets bound by, any
written or oral:
(i) employment, non-competition, consulting or
severance agreement, collective bargaining agreement, or
pension, profit-sharing, incentive compensation, deferred
compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay or retirement plan or
agreement;
(ii) indenture, mortgage, note, installment
obligation, agreement or other instrument relating to the
borrowing of money by the Company;
(iii) contract, agreement, lease (real or personal
property) or arrangement that (A) is not terminable on less
than 30 days' notice without penalty, (B) is not over one year
in length of obligation of the Company, or (C) involves an
obligation of more than $5,000 over its term;
(iv) contract, agreement, commitment or license
relating to Intellectual Property Rights or contract,
agreement or commitment of any other type, whether or not
fully performed, not otherwise disclosed pursuant to this
Section 2.19;
(v) obligation or requirement to provide funds to or
make any investment (in the form of a loan, capital
contribution or otherwise) in any person or entity;
(vi) outstanding sales or purchase contracts,
commitments or proposals that will result in any material loss
upon completion or performance thereof after allowance for
direct distribution expenses, or bound by any outstanding
contracts, bids, sales or service proposals quoting prices
that are not reasonably expected to result in a normal profit;
or
(vii) contract, commitment, agreement or arrangement
with any "disqualified individual" (as defined in Section
280G(c) of the Code) which contains any severance or
termination pay liabilities which would result in a
disallowance of the deduction for any "excess parachute
payment" (as defined in Section 280G(b)(1) of the Code) under
Section 280G of the Code.
(b) True and complete copies (or summaries, in the case of
oral items) of all agreements disclosed pursuant to this Section 2.19
(the "COMPANY CONTRACTS") have been provided to Parent for review.
Except as set forth in the Disclosure Schedule, all of the Company
Contracts items are valid and enforceable by and against the Company in
accordance with their terms, and are in full force and effect. Except
as otherwise specified in the Disclosure Schedule, none of the Company
Contracts contains a provision requiring the consent of any party with
respect to the consummation of the transactions contemplated by this
Agreement. The Company is not in breach, violation or default, however
14
defined, in the performance of any of its obligations under any of the
Company Contracts, and no facts and circumstances exist which, whether
with the giving of due notice, lapse of time, or both, would constitute
such breach, violation or default thereunder or thereof, and, to the
knowledge of the Company, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no
facts or circumstances exist which, whether with the giving of due
notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof. None of the Company
Contracts is subject to renegotiation with any Authority.
2.20 ORDERS, COMMITMENTS AND RETURNS. All accepted and unfulfilled
orders for the sale of the Company's services were made in bona fide
transactions in the ordinary course of business. Except as set forth in the
Disclosure Schedule, there are no claims or complaints of a material nature
against the Company for any unsatisfactory services.
2.21 LABOR MATTERS. Except as set forth in the Disclosure Schedule: (a)
the Company is and has been in material compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice; (b)
no grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or have been
threatened; (c) no collective bargaining agreement is binding and in force
against the Company or currently being negotiated by the Company; (d) the
Company has not experienced any significant labor difficulty; (e) the Company is
not delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons, including without
limitation any amounts due under any Benefit Plans; (f') upon termination of the
employment of any person, neither the Company nor Parent will, by reason of
anything done prior to or as of the Closing Date, be liable to any of such
persons for so-called "severance pay" or any other payments; and (g) within the
twelve-month period prior to the date hereof there has not been any expression
of intention to the Company by any officer or key employee of any such entity to
terminate such employment.
2.22 CUSTOMERS. Except as set forth in the Disclosure Schedule, there
has not been in the twelve-month period prior to the date hereof any dispute
with any customer or user of the Company's products or services that could
reasonably be anticipated to have a Material Adverse Effect. The Company has not
received any formal or informal notice that any customer of the Company would
cease to continue doing business with Parent in the manner in which such
business has been conducted in the past. The Company has not received any formal
or informal notice that would cause the Company to believe that any customer
intends to terminate its relationship with the Company as a result of the
transactions contemplated by this Agreement.
2.23 COMPLIANCE WITH LAW; PERMITS AND OTHER OPERATING RIGHTS. Except as
set forth in the Disclosure Schedule, the Assets, properties, business and
operations of the Company are and have been in compliance in all respects with
all Laws applicable to the Company's assets, properties, business and
operations, except where the failure to comply would not have a Material Adverse
Effect. Except as set forth in the Disclosure Schedule, the Company does not
require the Consent of any Authority to permit it to operate in the manner in
15
which its business is presently being operated. The Company possesses all
material permits, licenses and other authorizations from all Authorities
necessary to permit it to operate its business in the manner in which it
presently is conducted and the consummation of the transactions contemplated by
this Agreement will not prevent the Company from being able to continue to use
such permits and operating rights. Except as set forth in the Disclosure
Schedule, the Company is not restricted by agreement from carrying on its
business or any part thereof anywhere in the world or from competing in any line
of business with any person or entity. The Company has not received notice of
any violation of any such applicable Law, and is not in default with respect to
any order, writ, judgement, award, injunction or decree of any Authority.
2.24 ENVIRONMENTAL MATTERS. Except as set forth in the Disclosure
Schedule, the operation of the Business does not involve the handling,
manufacture, treatment, storage, use, generation, emission, release, discharge,
refining, dumping or disposal of any pollutant, contaminant, or toxic or
hazardous substance, material or waste (a "HAZARDOUS SUBSTANCE") (whether legal
or illegal, accidental or intentional, direct or indirect). To the knowledge of
the the Company, there are no facts or circumstances that could, directly or
indirectly, subject Parent, or any of its affiliates to any Liability of any
nature whatsoever arising out of or related to any pollution or threat to human
health or the environment or violation of any environmental or occupational
safety or health law that is related in any way to the Company or any affiliate
or any previous owner's or operator's management, use, control, ownership, or
operation of the Assets, any property, or the Business or any affiliate,
including without limitation any on-site or off-site activities involving any
Hazardous Substance, and that occurred, existed, arose out of conditions or
circumstances that occurred or existed, or was caused, in whole or in part, on
or before the date hereof.
2.25 BROKERS. Neither the Company nor, to the knowledge of the Company,
any of the its directors, officers or employees, has employed any broker,
finder, investment banker or financial advisor or incurred any liability for any
brokerage fee or commission, finder's fee or financial advisory fee, in
connection with the transactions contemplated hereby, nor is there any basis
known to the Company for any such fee or commission to be claimed by any person
or entity.
2.26 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Company for inclusion in the Proxy Statement (as defined in
Section 4.1 (a)) will, at the date the Proxy Statement is first mailed to the
Parent's shareholders or at the time of the Special Meeting (as defined in
Section 4.1 (b)), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading.
2.27 ISSUANCE OF PARENT COMMON STOCK. To the Company's knowledge, as of
the date of this Agreement and as of the Effective Time, no facts or
circumstances exist or will exist that could cause the issuance of Parent Common
Stock pursuant to the Merger to fail to meet the exemption from the registration
requirements of the Securities Act set forth in Rule 506 of Regulation D under
of the Securities Act.
16
2.28 ABSENCE OF CERTAIN BUSINESS PRACTICES. Neither the Company nor any
director, officer, employee or agent of the Company, nor any other person acting
on its behalf, has, directly or indirectly, within the past five years given or
agreed to give any gift or similar benefit to any customer, supplier,
governmental employee or other person who is or may be in a position to help or
hinder the business of the Company (or assist the Company in connection with any
actual or proposed transaction) that: (a) might subject the Company or Parent to
any damage or penalty in any civil, criminal or governmental litigation
proceeding; (b) if not given in the past, might have had a Material Adverse
Effect on the assets, business or operations of the Company as reflected in the
financial statements described in Section 2.7; or (c) if not continued in the
future, might have a Material Adverse Effect on the Company's assets, business,
operations or prospects or that might subject the Company or Parent to suit or
penalty in any private or governmental litigation or proceeding.
2.29 BOOKS AND RECORDS. The books of account, minute books, stock
record books, and other material records of the Company, all of which have been
made available to Parent, are complete and correct in all material respects and
have been maintained in accordance with reasonable business practices. The
minute books of the Company contain accurate and complete records of all formal
meetings held of, and corporate action taken by, the shareholders, the Board of
Directors, and committees of the Board of Directors of the Company. At the
Closing, all of those books and records will be in the possession of the
Company.
2.30 BUSINESS GENERALLY; ACCURACY OF INFORMATION. No representation or
warranty made by the Company in this Agreement, the Disclosure Schedule, or in
any document, agreement or certificate furnished or to be furnished to Parent at
the Closing by or on behalf of the Company in connection with any of the
transactions contemplated by this Agreement contains or will contain any untrue
statement of material fact or omit or will omit to state any material fact
necessary in order to make the statements herein or therein not misleading in
light of the circumstances in which they are made, and all of the foregoing
completely and correctly present the information required or purported to be set
forth herein or therein. To the knowledge of the Company, there is no material
fact as of the date hereof that has not been disclosed in writing to Parent
related to the Company, its operations, properties, financial condition or
prospects, taken as a whole, that has, or could reasonably be expected to have,
a Material Adverse Effect on the Company. The representations and warranties
contained in this Article 2 or elsewhere in this Agreement or any document
delivered pursuant hereto will not be affected or deemed waived by reason of the
fact that Parent or its representatives knew or should have known that any such
representation or warranty is or might be inaccurate in any respect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE MERGER SUBSIDIARY
Parent and the Merger Subsidiary represent and warrant to the Company
as follows:
17
3.1 PARENT DISCLOSURE SCHEDULE. The disclosure schedule of the Parent
attached hereto as EXHIBIT 3.1 (the "PARENT DISCLOSURE SCHEDULE") is divided
into sections that correspond to the sections of this Article 3. The Disclosure
Schedule comprises a list of all exceptions to the truth and accuracy of, and of
all disclosures or descriptions required by, the representations and warranties
set forth in the remaining sections of this Article 3.
3.2 CORPORATE ORGANIZATION, STANDING AND POWER. The Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Florida. Merger Subsidiary is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota.
Each of Parent and Merger Subsidiary has all corporate power and authority to
own its properties and to carry on its business as now being conducted and is
duly qualified to do business and is in good standing in each jurisdiction in
which the failure to be so qualified would have a Material Adverse Effect on
Parent and Merger Subsidiary.
3.3 AUTHORIZATION. Each of Parent and the Merger Subsidiary has all the
requisite corporate power and authority to enter into this Agreement and,
subject to the approval of the shareholders of the Parent in accordance with
applicable Law (the "PARENT SHAREHOLDER APPROVAL"), to carry out the
transactions contemplated herein. The Board of Directors of Parent and the
Merger Subsidiary, and Parent as the sole shareholder of the Merger Subsidiary
have taken all action required by law, their respective articles of
incorporation and bylaws or otherwise to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated herein. This Agreement is the valid and binding legal obligation of
Parent and the Merger Subsidiary enforceable against each of them in accordance
with its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization or similar laws that affect creditors'
rights generally.
3.4 NON-CONTRAVENTION. Neither the execution, delivery and performance
of this Agreement nor the consummation of the transactions contemplated herein
will: (i) violate any provision of the articles of incorporation or bylaws of
Parent or the Merger Subsidiary; or (ii) except for such violations, conflicts,
defaults, accelerations, terminations, cancellations, impositions of fees or
penalties, mortgages, pledges, liens, security interests, encumbrances,
restrictions and charges which would not, individually or in the aggregate, have
a Material Adverse Effect on Parent, (A) violate, be in conflict with, or
constitute a default, however defined (or an event which, with the giving of due
notice or lapse of time, or both, would constitute such a default), under, or
cause or permit the acceleration of the maturity of, or give rise to, any right
of termination, cancellation, imposition of fees or penalties under, any debt,
note, bond, lease, mortgage, indenture, license, obligation, contract,
commitment, franchise, permit, instrument or other agreement or obligation to
which Parent or the Merger Subsidiary is a party or by which Parent or the
Merger Subsidiary or any of their respective properties or assets is or may be
bound (unless with respect to which defaults or other rights, requisite waivers
or consents will have been obtained at or prior to the Closing) or (B) result in
the creation or imposition of any mortgage, pledge, lien, security interest,
encumbrance, restriction, adverse claim or charge of any kind, upon any property
or assets of Parent or the Merger Subsidiary under any debt, obligation,
contract, agreement or commitment to which Parent or the Merger Subsidiary is a
party or by which Parent or the Merger Subsidiary or any of their respective
assets or properties is or may be bound; or (iii) violate any Law of any
Authority.
18
3.5 CAPITALIZATION. The authorized capital stock of Parent consists of
50,000,000 shares of Parent Common Stock, of which there are 11,681,213 shares
of Parent Common Stock issued and outstanding as of the date of this Agreement.
The authorized capital stock of the Merger Subsidiary consists of 1,000 shares
of Merger Subsidiary Common Stock, all of which are issued and outstanding and
owned by Parent.
3.6 CONSENTS AND APPROVALS. Except for the Parent Shareholder Approval
and except as set forth in the Parent Disclosure Schedule, no Consent is
required by any person or entity, including without limitation any Authority, in
connection with the execution, delivery and performance by Parent of this
Agreement, or the consummation of the transactions contemplated herein, other
than any Consent which, if not made or obtained, will not, individually or in
the aggregate, have a Material Adverse Effect on the business of Parent.
3.7 VALID ISSUANCE. Upon obtaining the Parent Shareholder Approval, the
Parent Common Stock to be used in connection with the Merger will be duly
authorized and, when issued, delivered and paid for as provided in this
Agreement, will be validly issued, fully paid and non-assessable.
3.8 ABSENCE OF CERTAIN CHANGES. Except as set forth in the Parent SEC
Documents and except as set forth in the Parent Disclosure Schedule, the Company
has owned and operated its assets, properties and business in the ordinary
course of business and consistent with past practice. Without limiting the
generality of the foregoing, subject to the aforesaid exceptions:
(a) the Parent has not experienced any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
Parent;
(b) the Parent has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers,
distributors, independent contractors, customers or suppliers, which
had or may reasonably be expected to result in a Material Adverse
Effect on the Parent.
3.9 INTELLECTUAL PROPERTY RIGHTS. Except as disclosed in the Parent SEC
Documents and except as set forth in the Parent Disclosure Schedule, the Parent
owns or has the unrestricted right to use all Intellectual Property Rights used
in, or necessary for, the operation of its business as currently conducted or
proposed to be conducted. Except as disclosed in the Parent SEC Documents or the
Parent Disclosure Schedule, the use of all Intellectual Property Rights
necessary or required for the conduct of the business of the Parent as presently
conducted and as proposed to be conducted does not infringe or violate the
Intellectual Property Rights of any person or entity. Except as disclosed in the
Parent SEC Documents or the Parent Disclosure Schedule: (a) the Parent does not
own or use any Intellectual Property Rights pursuant to any written license
agreement; (b) the Parent has not granted any person or entity any rights,
pursuant to a written license agreement or otherwise, to use the Intellectual
Property Rights; and (c) the Parent owns, has unrestricted right to use and has
sole and exclusive possession of and has good and valid title to, all of the
Intellectual Property Rights, free and clear of all Liens and Encumbrances. All
license agreements relating to Intellectual Property Rights are valid and
effective and there is not, under any of such licenses, any existing default or
event of default (or event which with notice or lapse of time, or both, would
constitute a default, or would constitute a basis for a claim on
non-performance) on the part of the Parent or, to the knowledge of the Parent,
any other party thereto.
19
3.10 LITIGATION. Except as disclosed in the Parent SEC Documents, there
is no legal, administrative, arbitration, or other proceeding, suit, claim or
action of any nature or investigation, review or audit of any kind, or any
judgment, decree, decision, injunction, writ or order pending, noticed,
scheduled, or, to the knowledge of the Parent or the Merger Subsidiary,
threatened or contemplated by or against or involving the Parent, its assets,
properties or business or its directors, officers, agents or employees (but only
in their capacity as such), whether at law or in equity, before or by any person
or entity or Authority, or which questions or challenges the validity of this
Agreement or any action taken or to be taken by the parties hereto pursuant to
this Agreement or in connection with the transactions contemplated herein.
3.11 EMPLOYEE BENEFIT PLANS. There are no facts or circumstances which
could, directly or indirectly, subject the Parent or any of its affiliates to
any Liability of any nature with respect to any Benefit Plans to which the
Parent or any affiliate is a party or with respect to which the Parent or any
affiliate could have any Liability. The Parent's Benefit Plans were established
and have been executed, managed and administered without exception in accordance
with all applicable requirements of the Code, ERISA and of all other applicable
Laws.
3.12 CONTRACTS AND COMMITMENTS; NO DEFAULT. Except as set forth in the
Parent Disclosure Schedule, the Parent is not a party to, nor are any of its
Assets bound by, any material contract that is not disclosed in the Parent SEC
Documents and that is or will be required to be disclosed in the Parent SEC
Documents pursuant to Item 601(b)(10) of Regulation S-K. Except as disclosed in
the Parent SEC Documents, none of the Parent Contracts contains a provision
requiring the consent of any party with respect to the consummation of the
transactions contemplated by this Agreement. The Parent is not in breach,
violation or default, however defined, in the performance of any of its
obligations under any of the Parent Contracts, and no facts and circumstances
exist which, whether with the giving of due notice, lapse of time, or both,
would constitute such breach, violation or default thereunder or thereof, and,
to the knowledge of the Parent, no other parties thereto are in a breach,
violation or default, however defined, thereunder or thereof, and no facts or
circumstances exist which, whether with the giving of due notice, lapse of time,
or both, would constitute such a breach, violation or default thereunder or
thereof. None of the Parent Contracts is subject to renegotiation with any
Authority.
3.13 LABOR MATTERS. Except as disclosed in the Parent SEC Documents:
(a) the Parent is and has been in material compliance with all applicable Laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, including without limitation any such Laws
respecting employment discrimination and occupational safety and health
requirements, and has not and is not engaged in any unfair labor practice; (b)
no grievance or any arbitration proceeding arising out of or under collective
bargaining agreements is pending and no claims therefor exist or have been
threatened; (c) no collective bargaining agreement is binding and in force
against the Parent or currently being negotiated by the Parent; (d) the Parent
has not experienced any significant labor difficulty; (e) the Parent is not
delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation for any services performed by
20
them or amounts required to be reimbursed to such persons, including without
limitation any amounts due under any Benefit Plans; (f') upon termination of the
employment of any person, the Parent will not, by reason of anything done prior
to or as of the Closing Date, be liable to any of such persons for so-called
"severance pay" or any other payments; and (g) within the twelve-month period
prior to the date hereof there has not been any expression of intention to the
Parent by any officer or key employee of the Parent to terminate employment.
3.14 NO BROKER OR FINDER. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or any of the other transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent.
3.15 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Parent has delivered or made available to the Company
accurate and complete copies (excluding copies of exhibits) of each
report, registration statement and definitive proxy statement filed by
Parent with the SEC since January 1, 1999 (collectively, with all
information incorporated by reference therein or deemed to be
incorporated by reference therein, the "PARENT SEC DOCUMENTS"). All
statements, reports, schedules, forms and other documents required to
have been filed by Parent with the SEC have been so filed on a timely
basis. As of the time it was filed with the SEC (or, if amended or
superseded by a filing prior to the date of this Agreement, then on the
date of such filing): (i) each of the Parent SEC Documents complied in
all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act") or the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(ii) none of the Parent SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not
misleading. Except as disclosed in the Parent SEC Documents filed prior
to the date hereof and except as set forth in the Parent Disclosure
Schedule, Parent has not incurred any liabilities that are of a nature
that would be required to be disclosed on a balance sheet of Parent or
the footnotes thereto prepared in conformity with GAAP other than (A)
liabilities incurred in the ordinary course of business and (B)
liabilities that in the aggregate would not reasonably be expected to
have a Material Adverse Effect on the Parent.
(b) The consolidated financial statements contained in the
Parent SEC Documents: (i) complied as to form in all material respects
with the published rules and regulations of the SEC applicable thereto;
(ii) were prepared in accordance with GAAP applied on a consistent
basis throughout the periods covered (except as may be indicated in the
notes to such financial statements and, in the case of unaudited
statements, as permitted by Form 10-QSB of the SEC, and except that
unaudited financial statements may not contain footnotes and are
subject to normal and recurring year-end audit adjustments which will
not, individually or in the aggregate, be material in amount); and
(iii) fairly present, in all material respects, the consolidated
financial position of Parent and its consolidated subsidiaries as of
the respective dates thereof and the consolidated results of operations
of Parent and its consolidated subsidiaries for the periods covered
thereby. All adjustments considered necessary for a fair presentation
of the financial statements have been included.
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3.16 INFORMATION SUPPLIED. None of the information supplied or to be
supplied by the Parent for inclusion in the Proxy Statement (as defined in
Section 4. l(a)) will, at the date the Proxy Statement is first mailed to the
Parent's shareholders or at the time of the Special Meeting (as defined in
Section 4.1 (b)), contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Proxy Statement will comply as to form in all material
respects will the requires of the Exchange Act and the rules and regulations
promulgated thereunder, except that no representation is made by the Parent or
the Merger Subsidiary with respect to statements made or incorporated by
reference therein based on information supplied by the Company for inclusion
therein.
ARTICLE 4
COVENANTS OF THE PARTIES
4.1 PREPARATION OF PROXY STATEMENT; SPECIAL MEETING.
(a) PROXY STATEMENT. Promptly following the date of this
Agreement, the Parent will prepare and file with the SEC, a proxy
statement relating to the Parent Shareholder Approval (the "PROXY
STATEMENT"). The Parent will use its reasonable best efforts to cause
the Proxy Statement to be mailed to the Parent's shareholders as
promptly as practicable after it has been filed with the SEC, unless
the SEC has elected to review and comment upon the proxy statement, in
which case the Parent will use its reasonable best efforts to cause the
proxy statement to be mailed to the Parent's shareholders as promptly
as practicable after the SEC has completed such review.
(b) SPECIAL MEETING. The Parent will, as promptly as
practicable following the date of this Agreement, duly call, give
notice of, convene and holder a special meeting of the shareholders of
the Parent for the purpose of authorizing and approving the Merger (the
"SPECIAL MEETING"). The Parent will, through its Board of Directors,
recommend to its shareholders approval of the Merger and such
recommendation will be included in the proxy statement. The Parent will
use reasonable efforts to hold the Special Meeting as soon as
practicable after the date hereof.
4.2 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Company will conduct its business and operations according to its
ordinary and usual course of business consistent with past practices with the
intent of preserving substantially intact its business organizations and
preserving its current relationships with customers, employees, suppliers and
other persons with which it has significant business relations. Without limiting
the generality of the foregoing, and, except as otherwise expressly provided in
this Agreement or as otherwise disclosed on the Disclosure Schedule, prior to
the Closing Date, without the prior written consent of Parent, the Company will
not:
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(a) amend its articles of incorporation or bylaws;
(b) issue, reissue, sell, deliver or pledge or authorize or
propose the issuance, reissuance, sale, delivery or pledge of shares of
capital stock of any class, or securities convertible into capital
stock of any class, or any rights, warrants or options to acquire any
convertible securities or capital stock;
(c) adjust, split, combine, subdivide, reclassify or redeem,
purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
(d) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination
thereof) in respect of its capital stock, redeem or otherwise acquire
any shares of its capital stock or other securities, alter any term of
any of its outstanding securities;
(e) (i) except as required under any employment agreement,
increase in any manner the compensation of any of its directors,
officers or other employees; (ii) pay or agree to pay any pension,
retirement allowance or other employee benefit not required or
permitted by any existing plan, agreement or arrangement to any such
director, officer or employee, whether past or present; or (iii) except
in connection with any written arrangement approved by Parent, commit
itself to any additional pension, profit-sharing, bonus, incentive,
deferred compensation, stock purchase, stock option, stock appreciation
right, group insurance, severance pay, retirement or other employee
benefit plan, agreement or arrangement, or to any employment agreement
or consulting agreement (arising out of prior employment ) with or for
the benefit of any person, or, except to the extent required to comply
with applicable law, amend any of such plans or any of such agreements
in existence on the date of this Agreement;
(f) hire any additional personnel;
(g) incur, assume, suffer or become subject to, whether
directly or by way of guarantee or otherwise, any Liabilities which,
individually or in the aggregate, would have a Material Adverse Effect
on the Company;
(h) pay, discharge or satisfy' any Liabilities other than the
payment, discharge or satisfaction in the ordinary course of business
and consistent with past practice;
(i) sell, transfer, or otherwise dispose of any of its Assets
or license to other the use of any of its technology, other than in the
ordinary course of business and consistent with past practice;
(j) permit or allow any of its Assets to be subjected to any
Encumbrance, except for Permitted Liens;
23
(k) write down the value of any inventory or write off as
uncollectible any receivables, except for immaterial write-downs and
write-offs in the ordinary course of business and consistent with past
practice;
(l) cancel any debts or waive any claims or rights, in each
case, of substantial value;
(m) dispose of or permit to lapse any Intellectual Property
Rights, or dispose of or disclose (except as necessary in the conduct
of its business) to any individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or, as
applicable, any other entity ("PERSON") other than representatives of
Parent, any Intellectual Property Rights not theretofore a matter of
public knowledge;
(n) make or enter into any commitment for capital expenditures
in excess of $10,000 in any one case;
(o) pay, lend or advance any amount to, or sell, transfer or
lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or enter into any agreement or arrangement with, any of
its officers or directors or any affiliate or associate of any of its
officers or directors;
(p) terminate, enter into or amend in any material respect any
contract, agreement, lease, license or commitment identified in Section
2.19 of the Disclosure Schedule, or take any action or omit to take any
action which will cause a breach, violation or default (however
defined) under any such items, except in the ordinary course of
business and consistent with past practice;
(q) acquire any of the business or assets of any other person
or entity;
(r) permit any of its current insurance (or reinsurance)
policies to be cancelled or terminated or any of the coverage
thereunder to lapse, unless simultaneously with such termination,
cancellation or lapse, replacement policies providing coverage equal to
or greater than coverage remaining under those cancelled, terminated or
lapsed are in full force and effect;
(s) suffer any adverse change in its relationship with a
material customer, including the loss of any such customer or a
contract with such customer;
(t) enter into other material agreements, commitments or
contracts not in the ordinary course of business or in excess of
current requirements;
(u) settle or compromise any suit, claim or dispute or
threatened suit, claim or dispute;
(v) make any change in its accounting methods, principles or
practices except as required by GAAP; or
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(w) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty
in this Agreement untrue or incorrect in any material respect.
4.3 NO COMPANY SOLICITATION OF ALTERNATE TRANSACTION. The Company, the
Company's directors, officers and employees, independent contractors,
consultants, counsel, accountants, investment advisors and other representatives
and agents will not, directly or indirectly, solicit, initiate or entertain
offers from, or participate in any way in negotiations with, provide any
nonpublic information to, enter into any agreement with, or in any manner
encourage, discuss, accept or consider any proposal of, any third party relating
to the acquisition of the Company, its assets or business, in whole or in part,
whether through a tender offer (including a self tender offer), exchange offer,
merger, consolidation, sale of substantial assets or of a significant amount of
assets, sale of securities, acquisition of the Company's securities,
liquidation, dissolution or similar transactions involving the Company or any
division of the Company (such proposals, announcements or transactions being
called herein "ACQUISITION PROPOSALS"). The Company will promptly inform Parent
of any inquiry (including the terms thereof and the identity of the third party
making such inquiry) that it may receive in respect of an Acquisition Proposal
and furnish to Parent a copy of any such written inquiry.
4.4 FULL ACCESS TO PARENT. Throughout the period prior to Closing, the
Company will afford to Parent and its directors, officers, employees, counsel,
accountants, investment advisors and other authorized representatives and
agents, reasonable access to the facilities, properties, books and records of
the Company in order that Parent may have full opportunity to make such
investigations as it will desire to make of the affairs of the Company. The
Company will furnish such additional financial and operating data and other
information as Parent will, from time to time, reasonably request, including
without limitation access to the working papers of its independent certified
public accountants; PROVIDED, HOWEVER, that any such investigation will not
affect or otherwise diminish or obviate in any respect any of the
representations and warranties of the Company herein.
4.5 CONFIDENTIALITY. Each of the parties hereto agrees that it will not
use, or permit the use of, any of the information relating to any other party
hereto furnished to it in connection with the transactions contemplated herein
("INFORMATION") in a manner or for a purpose detrimental to such other party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible (collectively, "DISCLOSE"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their respective directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
party's counsel, by other requirements of Law; provided, however, that prior to
any Disclosure of any Information permitted hereunder, the disclosing party will
first obtain the recipients' undertaking to comply with the provisions of this
Section with respect to such information. The term "INFORMATION" as used herein
will not include any information relating to a party that the party disclosing
such information can show: (i) to have been in its possession prior to its
25
receipt from another party hereto; (ii) to be now or to later become generally
available to the public through no fault of the disclosing party; (iii) to have
been available to the public at the time of its receipt by the disclosing party;
(iv) to have been received separately by the disclosing party in an unrestricted
manner from a person entitled to disclose such information; or (v) to have been
developed independently by the disclosing party without regard to any
information received in connection with this transaction. Each party hereto also
agrees to promptly return to the party from whom it originally received such
information all original and duplicate copies of written materials containing
Information should the transactions contemplated herein not occur. A party
hereto will be deemed to have satisfied its obligations to hold the Information
confidential if it exercises the same care as it takes with respect to its own
similar information.
4.6 FILINGS; CONSENTS; REMOVAL OF OBJECTIONS. Subject to the terms and
conditions herein provided, the parties hereto will use their best efforts to
take or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in
limitation of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and they
respectively agree to exert commercially reasonable efforts to that end,
including without limitation: (i) the removal or satisfaction, if possible, of
any objections to the validity or legality of the transactions contemplated
herein; and (ii) the satisfaction of the conditions to consummation of the
transactions contemplated hereby.
4.7 FURTHER ASSURANCES; COOPERATION; NOTIFICATION.
(a) Each party hereto will, before, at and after Closing,
execute and deliver such instruments and take such other actions as the
other party or parties, as the case may be, may reasonably require in
order to carry out the intent of this Agreement. Without limiting the
generality of the foregoing, at any time after the Closing, at the
reasonable request of Parent and without further consideration, the
Company will execute and deliver such instruments of sale, transfer,
conveyance, assignment and confirmation and take such action as Parent
may reasonably deem necessary or desirable in order to more effectively
consummate the transactions contemplated hereby.
(b) The Company will cooperate with Parent to promptly develop
plans for the management of the business after the Closing, including
without limitation plans relating productivity, marketing, operations
and improvements, and the Company will further cooperate with Parent to
provide for the implementation of such plans as soon as practicable
after the Closing. Subject to applicable Law, the Company will confer
on a regular and reasonable basis with one or more representatives of
Parent to report on operational matters and the general status of
ongoing operations.
(c) At all times from the date hereof until the Closing, each
party will promptly notify the other in writing of the occurrence of
any event which it reasonably believes will or may result in a failure
by such party to satisfy the conditions specified in this Article 4.
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4.8 SUPPLEMENTS TO DISCLOSURE SCHEDULE. Prior to the Closing, the
Company will supplement or amend the Disclosure Schedule with respect to any
event or development which, if existing or occurring at or prior to the date of
this Agreement, would have been required to be set forth or described in the
Disclosure Schedule or which is necessary to correct any information in the
Disclosure Schedule or in any representation and warranty of the Company which
has been rendered inaccurate by reason of such event or development. For
purposes of determining the accuracy as of the date hereof of the
representations and warranties of the Company contained in Article 2 hereof in
order to determine the fulfillment of the conditions set forth herein, the
Disclosure Schedule will be deemed to exclude any information contained in any
supplement or amendment hereto delivered after the delivery of the Disclosure
Schedule.
4.9 PUBLIC ANNOUNCEMENTS. None of the parties hereto will make any
public announcement with respect to the transactions contemplated herein without
the prior written consent of the other parties, which consent will not be
unreasonably withheld or delayed; PROVIDED, HOWEVER, that any of the parties
hereto may at any time make any announcements that are required by applicable
Law so long as the party so required to make an announcement promptly upon
learning of such requirement notifies the other parties of such requirement and
discusses with the other parties in good faith the exact proposed wording of any
such announcement.
4.10 REGISTRATION RIGHTS.
(a) If the Parent at any time proposes to register any of its
securities under the Securities Act for sale to the public, whether for
its own account or for the account of other security holders or both
(except with respect to registration statements on Forms X-0, X-0 or
another form not available for registering the Parent Common Stock for
sale to the public), it will give written notice to each Shareholder of
its intention to do so and will give such notice not later than 20 days
prior to the filing of any such registration statement. Upon the
written request of any Shareholder, received by the Parent within 10
days after the giving of any such notice by the Parent, to register any
of the Parent Common Stock held by such Shareholder that was issued as
Merger Consideration ("REGISTRABLE SECURITIES"), the Parent will use
its best efforts to cause the Registrable Securities as to which
registration is so requested to be included in the securities to be
covered by the registration statement proposed to be filed by the
Parent, all to the extent requisite to permit the sale or other
disposition by such Shareholder (in accordance with its written
request) of the Registrable Securities so registered ("PIGGY-BACK
REGISTRATION RIGHTS"). The foregoing provisions notwithstanding, (i)
the Parent may withdraw any registration statement referred to herein
without thereby incurring any liability to the Shareholders; (ii) the
inclusion of shares of the Registrable Securities under such Piggy-Back
Registration Rights is subject to the cut-back provisions of sections
4.10(b) hereof; and (iii) the Piggy-Back Registration Rights will
terminate one year following the Closing Date. The registration rights
provided herein may not be assigned or transferred.
(b) If, in connection with a registration that involves an
underwriting, the representative(s) of the underwriters advises the
Parent in writing that marketing factors require a limitation on the
number of securities to be included in such underwriting, the amount of
Registrable Securities to be offered will be reduced (or eliminated
27
entirely) to the extent necessary to reduce the total number of
Registrable Securities to be included in such offering to the amount
recommended by such representative(s) of the underwriters.
(c) If any registration pursuant to this Section 4.10 is
underwritten in whole or in part, the Parent will so advise the
Shareholders in writing. The right of any Shareholders to include the
Registrable Securities in any underwritten registration pursuant to
this Section 4.10 will be conditioned upon such Shareholder's
participation in such underwriting and the inclusion of such
Shareholder's shares in the underwriting. All Shareholders proposing to
distribute their shares of Registrable Securities through such
underwriting (together with the Parent and any other selling
shareholders) will enter into an underwriting agreement in customary
form with the underwriter or underwriters selected.
(d) In connection with each registration hereunder, each
Shareholders will furnish to the Parent in writing such information
with respect to such Shareholder and the proposed distribution by it as
reasonably will be necessary in order to assure compliance with the
Securities Act and other applicable federal and state securities laws.
In addition, each Shareholder agrees that, following the effective date
of a Piggy-Back Registration, for the period of time and to the extent
reasonably requested by the Parent or the representative(s) of any
underwriters, such Shareholder will not sell, offer to sell, contract
to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of any securities
of the Parent held by it, directly or indirectly, except securities
covered by the registration statement and transfers to donees who agree
to be similarly bound.
(e) All expenses incurred by the Parent in complying with this
Section 4.10, including without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel for the
Parent and independent public accountants for the Parent, fees and
expenses, including counsel fees, incurred in connection with complying
with state securities or "blue sky" laws, fees of the National
Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars and costs of insurance are called
"REGISTRATION EXPENSES." All underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, are
called "SELLING EXPENSES." The Parent will pay all Registration
Expenses in connection with each registration statement relating to
such Piggy-Back Registration Rights, provided that the participating
sellers will pay the fees and expenses of their own counsel or
accountants. All Selling Expenses in connection with each registration
statement under this Section 4.10 will be borne by the participating
sellers with respect to the number of shares sold by each.
(f) Parent covenants that it will file the reports require to
be filed by it (if so required) under the Securities Act and the
Exchange Act and the Rules and Regulations adopted by the SEC
thereunder in a timely manner and, if at any time Parent is not
required to file such reports, it will, upon the request of any holder
of Registrable Securities, make publicly available other information so
long as necessary to permit sales pursuant to Rule 144 under the
Securities Act. Parent further covenants that it will take such further
28
action as any holder of Registrable Securities may reasonably request,
all to the extent required from time to time to enable such holder to
sell Registrable Securities without registration under the Securities
Act pursuant to the exemptions provided by Rule 144 under the
Securities Act. Upon the request of any holder of Registrable
Securities, the Company will deliver to such holder a written statement
as to whether it has complied with such information requirements.
(g) Notwithstanding anything to the contrary set forth this
Agreement, the provisions of this Section 4.10(a) through (e) are not
applicable and will have no effect with respect to any shares of Parent
Common Stock owned or acquired by Xxxxx Xxxxxxxx for so long as he is
employed by Parent or the Company.
4.11 BOARD SEAT. The Parent will take such actions as may be necessary
to cause one person designated by the Company and approved by the Parent to be
appointed as a member of the Parent's Board of Directors effective as of the
Effective Time.
4.12 LOAN AGREEMENT. Each party agrees to negotiate in good faith and
use its commercially reasonable efforts to obtain a mutually acceptable
amendment to that certain Commercial Loan and Security Agreement, dated July 24,
2000, between the Company and Crown Bank (the "LOAN AGREEMENT") providing for,
among other mutually acceptable terms, (i) a waiver by Crown Bank of any event
of default occurring as a result of the Merger, (ii) an extension of the term of
the Loan Agreement of at least twelve months and (iii) a continuation of the
personal guarantees of Xxx Xxxxxxxxxxxx and Xxxxx Xxxxx for the extended term of
the Loan Agreement. If the parties fail to reach an agreement with respect to
the Loan Agreement, then, concurrent with the Closing, Parent will pay all
indebtedness outstanding under the Loan Agreement as of the Closing Date (the
"BANK INDEBTEDNESS"), in which event the Merger Consideration otherwise payable
to the Shareholders upon consummation of the Merger will be reduced as provided
in Section 1.4(e).
4.13 SATISFACTION OF CONDITIONS PRECEDENT. Each party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to them, and to cause the transactions
contemplated by this Agreement to be consummated, and, without limiting the
generality of the foregoing, to obtain all material consents and authorizations
of third parties and to make filings with, and give all notices to, third
parties that may be necessary or reasonably required on its part in order to
effect the transactions contemplated hereby.
ARTICLE 5
CONDITIONS TO THE OBLIGATIONS OF THE PARENT
AND MERGER SUBSIDIARY
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing, or waiver by Parent, of each of the following conditions:
29
5.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of the Company contained in this Agreement, including without
limitation in the Disclosure Schedule initially delivered to Parent as Exhibit
2.1 (and not including any changes or additions delivered to Parent pursuant to
Section 4.8), will be true, complete and accurate in all material respects as of
the date when made and at and as of the Closing Date as though such
representations and warranties were made at and as of such time, except for
changes specifically permitted or contemplated by this Agreement, and except
insofar as the representations and warranties relate expressly and solely to a
particular date or period, in which case they will be true and correct at the
Closing with respect to such date or period.
5.2 PERFORMANCE. The Company will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by the Company on or
prior to the Closing.
5.3 REQUIRED APPROVALS AND CONSENTS.
(a) All action required by law and otherwise to be taken by
the shareholders of the Company to authorize the execution, delivery
and performance of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly taken.
(b) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, will have been
delivered, made or obtained, and Parent will have received copies
thereof.
(c) The Parent Shareholder Approval will have been obtained.
5.4 AGREEMENTS AND DOCUMENTS. Parent and Merger Subsidiary will have
received the following agreements and documents, each of which will be in full
force and effect:
(a) an employment agreement in the form of Exhibit 5.4(a)
executed by Xxxxx Xxxxxxxx;
(b) confidentiality, non-competition and assignment of
inventions agreements in the form of Exhibit 5.4(b) executed by each
person reasonably required by the Parent;
(c) an agreement substantially in the form attached hereto as
Exhibit 5.4(c) executed by each of the directors and officers of the
Company agreeing to vote his or her shares of Company Common Stock in
favor of the Merger at the meeting of the shareholders of the Company
called for the purpose of approving the Merger;
(d) an agreement in a form and substance reasonably
satisfactory to Parent executed by the holders of at least eighty
percent (80%) of the aggregate number of shares underlying Company
Options that are incentive stock options agreeing to convert each such
Company Options into an options to purchase Parent Common Stock in the
manner described in Section 1.9 hereof without any acceleration of the
vesting of such Company Options as a result of the Merger;
30
(e) a legal opinion from Xxxxxx & Xxxxxxx LLP, counsel to the
Company, dated the Closing Date, substantially in the form and
substance set forth as Exhibit 5.4(e) hereto;
(f) a certificate executed on behalf of the Company by its
Chief Executive Officer confirming that the conditions set forth in
Sections 5.1, 5.2, 5.3, 5.5, 5.6 and 5.7 have been duly satisfied;
(g) an investor representation letter in the form of Exhibit
5.4(g) executed by each holder of capital stock of the Company
immediately prior to the Effective Time; and
(h) the escrow agreement referred to in Section 1.6 executed
by the escrow agent and such person as may be duly appointed by the
Shareholders to act as agent and attorney-in-fact for the Shareholders
in connection with the transactions contemplated by this Agreement and
the escrow agreement.
5.5 ADVERSE CHANGES. No material adverse change will have occurred in
the business, financial condition, prospects, assets or operations of the
Company since September 30, 2000.
5.6 NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will have
been instituted or threatened which delays or questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would, in the reasonable judgment of Parent, individually or in the aggregate,
otherwise have a Material Adverse Effect on the Company's business, financial
condition, prospects, assets or operations or prevent or delay the consummation
of the transactions contemplated by this Agreement.
5.7 LEGISLATION. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby or
any of the conditions to the consummation of such transaction.
5.8 APPROPRIATE DOCUMENTATION. The Parent will have received, in a form
and substance reasonably satisfactory to Parent, dated the Closing Date, all
certificates and other documents, instruments and writings to evidence the
fulfillment of the conditions set forth in this Article 5 as Parent may
reasonably request.
ARTICLE 6
CONDITIONS TO OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company and the Shareholders to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing of each of the following conditions:
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6.1 REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties of Parent contained in this Agreement will be true, complete and
accurate in all material respects as of the date when made and at and as of the
Closing, as though such representations and warranties were made at and as of
such time, except for changes permitted or contemplated in this Agreement, and
except insofar as the representations and warranties relate expressly and solely
to a particular date or period, in which case they will be true and correct at
the Closing with respect to such date or period.
6.2 PERFORMANCE. The Parent will have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Parent at or
prior to the Closing.
6.3 CORPORATE APPROVALS. All action required to be taken by
shareholders and the Board of Directors of Parent to authorize the execution,
delivery and performance of this Agreement by Parent and the consummation of the
transactions contemplated hereby will have been duly and validly taken.
6.4 NO PROCEEDING OR LITIGATION. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity will have
been instituted or threatened which delays or questions the validity or legality
of the transactions contemplated hereby or which, if successfully asserted,
would, in the reasonable judgement of the Company, individually or in the
aggregate, otherwise have a Material Adverse Effect on Parent's business,
financial condition, prospects, assets or operations or prevent or delay the
consummation of the transactions contemplated by this Agreement.
6.5 AGREEMENT TO FACILITATE MERGER. The Parent will have delivered an
agreement substantially in the form attached hereto as Exhibit 6.5 executed by
each of the directors of the Parent agreeing to vote his or her shares of Parent
Common Stock in favor of the Merger at the meeting of the shareholders of the
Parent called for the purpose of approving the Merger;
6.6 ESCROW AGREEMENT. The Parent and the escrow agent will have
executed and delivered the escrow agreement referred to in Section 1.6.
ARTICLE 7
TERMINATION AND ABANDONMENT
7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated at
any time prior to the Closing by the written consent of the Company and Parent.
7.2 TERMINATION BY EITHER THE COMPANY OR PARENT. This Agreement may be
terminated by either the Company or Parent if the Closing is not consummated by
January 31, 2001 (provided that the right to terminate this Agreement under this
Section 7.2 will not be available to any party whose failure to fulfill any
obligation under this Agreement has been the cause of or resulted in the failure
of the Closing to occur on or before such date).
7.3 TERMINATION BY PARENT. This Agreement may be terminated at any time
prior to the Closing by Parent if any of the conditions provided for in Article
5 have not been met or waived by Parent in writing prior to the Closing.
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7.4 TERMINATION BY THE COMPANY. This Agreement may be terminated prior
to the Closing by action of the Company if any of the conditions provided for in
Article 6 have not been met or waived by the Company in writing prior to the
Closing.
7.5 PROCEDURE AND EFFECT OF TERMINATION. In the event of termination of
this Agreement and abandonment of the transactions contemplated hereby by the
Company or Parent pursuant to this Article 7, written notice thereof will be
given to all other parties and this Agreement will terminate (except to the
extent provided in Section 8.1 hereof) and the transactions contemplated hereby
will be abandoned, without further action by any of the parties hereto. If this
Agreement is terminated as provided herein:
(a) Each of the parties will, upon request, redeliver all
documents, work papers and other material of the other parties relating
to the transactions contemplated hereby, whether obtained before or
after the execution hereof, to the party furnishing the same;
(b) No party will have any liability for a breach of any
representation, warranty, agreement, covenant or the provision of this
Agreement, unless such breach was due to a willful or bad faith action
or omission of such party or any representative, agent, employee or
independent contractor thereof, and except for such representations,
warranties and covenants that will survive termination of this
Agreement pursuant to Section 8.1; and
(c) All filings, applications and other submissions made
pursuant to the terms of this Agreement will, to the extent
practicable, be withdrawn from the agency or other person to which
made.
ARTICLE 8
SURVIVAL AND INDEMNIFICATION
8.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS;
INVESTIGATION. The representations, warranties and covenants of each of the
parties hereto will survive the Closing for a period of one (1) year thereafter.
The right to indemnification or any other remedy based on representations,
warranties, covenants and obligations in this Agreement will not be affected by
any investigation conducted with respect to, or any knowledge acquired (or
capable of being acquired) at any time, whether before or after the execution
and delivery of this Agreement or the Closing Date, with respect to the accuracy
or inaccuracy of or compliance with, any such representation, warranty, covenant
or obligation. The waiver of any condition based on the accuracy of any
representation or warranty, or on the performance of or compliance with any
covenant or obligation, will not affect the right to indemnification or any
other remedy based on such representations, warranties, covenants, and
obligations.
8.2 INDEMNIFICATION BY THE COMPANY AND THE SHAREHOLDERS. The Company
and the Shareholders, jointly and severally, agree to indemnify Parent and the
Merger Subsidiary and each of their respective shareholders, officers,
directors, employees and agents (collectively, the "PARENT INDEMNITEES") from
and against any and all losses, liabilities, obligations, demands, judgments,
settlements, damages, or expenses (including, but not limited to, interest,
penalties, fees, and reasonable professional fees and expenses) and against all
33
claims in respect thereof (including, without limitation, amounts paid 'in
settlement and costs of investigation) or diminution in value, whether or not
involving a third-party claim (referred to in this Article 8 collectively as
"LOSSES" or individually as a "LOSS") that any of the Parent Indemnitees may
incur, directly or indirectly, as a result from or in connection with: (i) any
untrue representation or breach of warranty by the Company in any part of this
Agreement; (ii) the breach of or nonfulfillment of any covenant, agreement or
undertaking of the Company in this Agreement, notice of which is given to the
Company on or prior to the relevant expiration date; (iii) any debt, liability
or obligation, direct or indirect, known or unknown, fixed contingent or
otherwise that relates to the Company and is based upon or arises from any act
or omission, transaction, circumstance, state of facts or other condition
occurring or existing on or before the Closing Date and not disclosed on the
Most Recent Balance Sheet or on the Disclosure Schedule, whether or not then
known, due or payable; (iv) any obligation for Taxes of the Company for any
period (or portion thereof) prior to the Closing Date. The Shareholders
acknowledge that if a representation or warranty that is qualified by
materiality (including a Material Adverse Effect) is breached after giving
effect to such materiality qualification then the Losses incurred by Parent
resulting from such breach will include all Losses resulting from a breach of
such representation or warranty and not solely the portion of such Losses in
excess of such materiality qualifier. The Shareholders further acknowledge that
upon the Closing, the Company will cease to have any indemnification obligations
pursuant to this Section 8.2 and that the Shareholders will bear such
obligations and will have no right of contribution from the Company with respect
to their indemnification obligations.
8.3 INDEMNIFICATION BY PARENT. Parent agrees to indemnify, defend and
hold the Shareholders harmless from and against any and all Loss or Losses that
any of the Shareholders may incur, directly or indirectly, as a result from or
in connection with: (i) any untrue representation of, or breach of warranty by,
Parent or the Merger Subsidiary in any part of this Agreement; (ii) any
nonfulfillment of any covenant, agreement or undertaking of Parent or the Merger
Subsidiary in any part of this Agreement, notice of which is given to Parent on
or prior to the relevant expiration date.
8.4 LIMITATIONS ON INDEMNIFICATION. The aggregate indemnification
obligations of the Company and the Shareholders and the sole recourse of the
Parent and the Merger Subsidiary for indemnification under this Article 8 will
be limited to the Retained Consideration. The aggregate indemnification
obligations of the Parent and the Merger Subsidiary under this Article 8 will be
limited to an amount equal to the number of shares of Parent Common Stock
comprising the Retained Consideration multiplied by the average closing price
per share of Parent Common Stock as reported on the American Stock Exchange for
the ten (10) consecutive days immediately preceding the date of this Agreement.
In addition, no party hereto will be entitled to indemnification under this
Article 8 unless such party has incurred Losses in excess of $50,000 in the
aggregate, in which case such Indemnified Party will be entitled to
indemnification for any and all Losses in accordance with this Article 8.
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8.5 CLAIMS FOR INDEMNIFICATION.
(a) GENERAL. The parties intend that all indemnification
claims be made as promptly as practicable by the party seeking
indemnification (the "INDEMNIFIED Party"). Whenever any claim arises
for indemnification hereunder the Indemnified Party will promptly
notify the party from whom indemnification is sought (the "INDEMNIFYING
PARTY") of the claim and, when known, the facts constituting the basis
for such claim. The failure to so notify the Indemnifying Party will
not relieve the Indemnifying Party of any liability that it may have to
the Indemnified Party except to the extent the Indemnifying Party
demonstrates that the defense of such action is prejudiced thereby. The
Parent will have the right to set-off any indemnification claims as
against amounts it owes, now or in the future, to the Shareholders,
including without limitation the Retained Consideration, pursuant to
the terms of this Agreement or any ancillary agreement, if any, entered
into between the parent and any shareholder of the Company.
(b) CLAIMS BY THIRD PARTIES. With respect to claims made by
third parties, the Indemnifying Party will be entitled to assume
control of the defense of such action or claim with counsel reasonably
satisfactory to the Indemnified Party; provided, however, that:
(i) the Indemnified Party will be entitled to
participate in the defense of such claim and to employ counsel
at its own expense to assist in the handling of such claim;
(ii) no Indemnifying Party will consent to (A) the
entry of any judgment or enter into any settlement that does
not include as an unconditional term thereof the giving by
each claimant or plaintiff to each Indemnified Party of a
release from all liability in respect of such claim or (B) if,
pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against
the Indemnified Party or such judgment or settlement could
materially interfere with the business, operations or assets
of the Indemnified Party; and
35
(iii) if the Indemnifying Party does not assume
control of the defense of such claim in accordance with the
foregoing provisions within three days after receipt of notice
of the claim, the Indemnified Party will have the right to
defend such claim in such manner as it may deem appropriate at
the cost and expense of the Indemnifying Party, and the
Indemnifying Party will promptly reimburse the Indemnified
Party therefore in accordance with this Article 8, provided
that the Indemnified Party will not be entitled to consent to
the entry of any judgment or enter into any settlement of such
claim that does not include as an unconditional term thereof
the giving by each claimant or plaintiff to each Indemnifying
Party of a release from all liability in respect of such claim
without the prior written consent of the Indemnifying Party
if, pursuant to or as a result of such consent or settlement,
injunctive or other equitable relief would be imposed against
the Indemnifying Party or such judgment or settlement could
materially interfere with the business, operations or assets
of the Indemnifying Party.
(c) REMEDIES CUMULATIVE. The remedies provided herein will be
cumulative and will not preclude assertion by any party of any rights
or the seeking of any other remedies against any other party. The
Shareholders hereby agree that they will not make any claim for
indemnification against Parent or the Company by reason of the fact
that any such Shareholder was a director, officer, employee, or agent
of the Company or was serving at the request of any such entity as a
partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines,
costs, amounts paid in settlement, losses, expenses or otherwise and
whether such claim is pursuant to any statute, charter document, bylaw,
agreement, or otherwise) with respect to any action, suit, proceeding,
complaint, claim or demand brought by Parent against such Shareholders
(whether such action, suit, proceeding, complaint, claim or demand is
pursuant to this Agreement, applicable law, or otherwise).
8.6 TAX EFFECT AND INSURANCE. The liability of an Indemnifying Party
with respect to any indemnification claim will be reduced by the tax benefit
actually realized and any insurance proceeds actually received by the
Indemnified Party as a result of any Losses upon which such indemnification
claim is based, and will include any tax detriment actually suffered by the
Indemnified Party as a result of such Losses. The amount of any such tax benefit
or detriment will be determined by taking into account the effect, if any, and
to the extent determinable, of timing differences resulting from the
acceleration or deferral of items of gain or loss resulting from such Losses and
will otherwise be determined so that payment by the Indemnifying Party of the
indemnification claim, as adjusted to give effect to any such tax benefit or
detriment, will make the Indemnified Party as economically whole as is
reasonably practical with respect to the Losses upon which the indemnification
claim is based. Any dispute as to the amount of such tax benefit or detriment
will be resolved by arbitration as provided in Section 9.12 herein.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 EXPENSES. The Parent and the Company (including the Shareholders)
will each bear their own costs and expenses relating to the transactions
contemplated hereby, including without limitation, fees and expenses of legal
counsel, accountants, investment bankers, brokers or finders, printers, copiers,
consultants or other representatives for the services used, hired or connected
with the transactions contemplated hereby.
9.2 AMENDMENT AND MODIFICATION. Subject to applicable Law, this
Agreement may be amended or modified by the parties hereto at any time with
respect to any of the terms contained herein; PROVIDED, HOWEVER, that all such
amendments and modifications must be in writing duly executed by all of the
parties hereto.
9.3 WAIVER OF COMPLIANCE; CONSENTS. Any failure of a party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition will not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial exercise
of a right or remedy will preclude any other or further exercise thereof or of
any other right or remedy hereunder. Whenever this Agreement requires or permits
the consent by or on behalf of a party, such consent will be given in writing in
the same manner as for waivers of compliance.
36
9.4 NO THIRD PARTY BENEFICIARIES. Nothing in this Agreement will
entitle any person or entity (other than a party hereto and his, her or its
respective successors and assigns permitted hereby) to any claim, cause of
action, remedy or right of any kind.
9.5 NOTICES. All notices, requests, demands and other communications
required or permitted hereunder will be made in writing and will be deemed to
have been duly given and effective: (i) on the date of delivery, if delivered
personally; (ii) on the earlier of the fourth (4th) day after mailing or the
date of the return receipt acknowledgement, if mailed, postage prepaid, by
certified or registered mail, return receipt requested; or (iii) on the date of
transmission, if sent by facsimile, telecopy, telegraph, telex or other similar
telegraphic communications equipment, or to such other person or address as the
Company will furnish to the other parties hereto in writing in accordance with
this subsection.
If to the Company or any Shareholder
prior to the Merger: With a copy to:
Xxxxxxxxxx.xxx, Inc. Xxxxxx & Xxxxxxx LLP
000 Xxxxxxxxxx Xxxxxx X., Xxxxx 000 000 Xxxxx 0xx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000 Xxxxxxxxxxx, Xxxxxxxxx 00000
Attn: Xxxxx Xxxxxxxx Attn: Xxxxxxx X. Xxxxxx
Fax: ( ) _________________ Fax: (000) 000-0000
or to such other person or address as either the Company or the Shareholders
will furnish to the other parties hereto in writing in accordance with this
subsection.
If to any Shareholder following the Merger, to the address set forth in
the Shareholder Representation Letter executed and delivered by such Shareholder
pursuant to Section 5.4(g) hereto.
If to the Parent: With a copy to:
Entreport Corporation Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP
0000 Xxxxxxxx Xxxxx Xxxxx, Xxxxx X 000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxx, Xxxxxxxxxx 00000 Xxxxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: Xxxxxxx Xxxx Attn: Xxxxxx X. Xxxxxxx
Fax: (000) 000-0000 Fax: (000) 000-0000
or to such other person or address as Parent will furnish to the other parties
hereto in writing in accordance with this subsection.
37
9.6 ASSIGNMENT. This Agreement and all of the provisions hereof will be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
parties hereto without the prior written consent of the other parties.
9.7 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto will be governed by and construed in accordance with the internal
substantive laws of the State of California (without regard to the laws of
conflict that might otherwise apply) as to all matters, including without
limitation matters of validity, construction, effect, performance and remedies.
9.8 COUNTERPARTS. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
9.9 HEADINGS. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and will not
constitute a part hereof.
9.10 ENTIRE AGREEMENT. This Agreement, the Disclosure Schedule and the
exhibits and other writings referred to in this Agreement or in the Disclosure
Schedule or any such exhibit or other writing are part of this Agreement,
together they embody the entire agreement and understanding of the parties
hereto in respect of the transactions contemplated by this Agreement and
together they are referred to as this "Agreement" or the "Agreement." There are
no restrictions, promises, warranties, agreements, covenants or undertakings,
other than those expressly set forth or referred to in this Agreement. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to the transaction or transactions contemplated by this Agreement,
including, but not limited to, the letter of intent dated August 21, 2000.
Provisions of this Agreement will be interpreted to be valid and enforceable
under applicable Law to the extent that such interpretation does not materially
alter this Agreement; PROVIDED, HOWEVER, that if any such provision becomes
invalid or unenforceable under applicable Law such provision will be stricken to
the extent necessary and the remainder of such provisions and the remainder of
this Agreement will continue in full force and effect.
9.11 REMEDIES AND INJUNCTIVE RELIEF. It is expressly agreed among the
parties hereto that monetary damages would be inadequate to compensate a party
hereto for any breach by any other party of its covenants in Article 4 hereof.
Accordingly, the parties agree and acknowledge that any such violation or
threatened violation will cause irreparable injury to the other and that, in
addition to any other remedies which may be available, such party will be
entitled to injunctive relief against the threatened breach of Article 4 hereof
or the continuation of any such breach without the necessity of proving actual
damages and may seek to specifically enforce the terms thereof.
Notwithstanding anything contained in this Agreement to the contrary,
the Company and the Shareholders, on the one hand, and Parent and the Merger
Subsidiary, on the other hand, will only have the right to make a claim against
the other for damages (other than an indemnification claim pursuant to Article 8
herein) if the non-claiming party has willfully and materially breached any of
its representations, covenants or agreements set forth in this Agreement. For
38
purposes of this provision, a party will be deemed to have willfully breached
any of its representations, covenants or agreements set forth in this Agreement
if such party has intentionally and knowingly taken, or intentionally and
knowingly failed to take, any action that causes a breach of any of its
covenants or agreements set forth in this Agreement. No party hereto will be
entitled to rescind this Agreement after the Closing.
9.12 DISPUTE RESOLUTION.
(a) MEDIATION. No party will commence an arbitration
proceeding pursuant to the provisions set forth below unless such party
will first give a written notice (a "DISPUTE NOTICE") to the other
parties setting forth the nature of the Dispute. The parties will
attempt in good faith to resolve the Dispute by mediation under the CPR
Institute for Dispute Resolution ("CPR") Model Mediation Procedure for
Business Disputes (the "CPR PROCEDURE") in effect at the time of the
Dispute. If the parties cannot agree on the selection of a mediator
within 20 days after receipt of the Dispute Notice, the mediator will
be selected in accordance with the CPR Procedure.
(b) ARBITRATION.
(i) If the Dispute has not been resolved by mediation
as provided in Section 9.12 within 20 days after receipt of
the Dispute Notice or such greater period as the parties may
agree upon in writing, or if a party fails to participate in a
mediation, then the Dispute will be determined by binding
arbitration in [Minneapolis, Minnesota]. The arbitration will
be conducted in accordance with the Commercial Arbitration
Rules of the American Arbitration Association ("AAA") in
effect on the date on which the Dispute Notice is sent,
subject to any modifications contained in this Agreement. The
Dispute will be determined by one arbitrator, except that if
the Dispute involves an amount in excess of $100,000
(exclusive of interest and costs), three arbitrators will be
appointed. Persons eligible to serve as arbitrators will be
members of the AAA Large, Complex Case Panel or a CPR Panel of
Distinguished Neutrals, or persons who have professional
credentials similar to those persons listed on such AAA or CPR
panels. The arbitrator(s) will have the right to appoint an
independent expert (including an independent accounting firm)
and the costs and expenses of such expert, together with the
costs and expenses of the arbitrator(s), will be born one-half
by the Shareholders and one-half by Parent. The award will be
in writing and include the findings of fact and conclusions of
law upon which it is based.
(ii) The arbitration will be governed by the
substantive laws of the State of California, without regard to
conflicts-of-law rules, and by the arbitration law of the
Federal Arbitration Act (Title 9, U.S. Code). Judgment upon
the award rendered may be entered in any court having
jurisdiction.
39
(iii) Except as otherwise required by law, the
parties and the arbitrator(s) agree to keep confidential and
not disclose to third parties any information or documents
obtained in connection with the arbitration process, including
the resolution of the Dispute. If a party fails to proceed
with arbitration as provided in this Agreement, or
unsuccessfully seeks to stay the arbitration, or fails to
comply with the arbitration award, or is unsuccessful in
vacating or modifying the award pursuant to a petition or
application for judicial review, the other party or parties,
as applicable, will be entitled to be awarded costs, including
reasonable attorneys' fees, paid or incurred in successfully
compelling such arbitration or defending against the attempt
to stay, vacate or modify such arbitration award and/or
successfully defending or enforcing the award.
9.13 DEFINITION OF MATERIAL ADVERSE EFFECT. "MATERIAL ADVERSE EFFECT"
with respect to the Company means a material adverse change in or effect on the
business, operations, financial condition, properties or liabilities of the
Company taken as a whole; provided, however, that a Material Adverse Effect will
not be deemed to include (i) changes as a result of the announcement of this
transaction, (ii) events or conditions arising from changes in general business
or economic conditions or (iii) changes in generally accepted accounting
principles. .
(REMAINDER OF PAGE INTENTIONALLY LEFT BLANK)
40
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
ENTREPORT, INC. XXXXXXXXXX.XXX, INC.
By: /S/ W. A. XXXX By: /S/ XXXXX XXXXXXXX
--------------------------------- -----------------------------
Its: PRESIDENT
-----------------------------
SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER
41
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
ENTREPORT CORPORATION,
UNIVERSITY MERGER CORP.,
AND
XXXXXXXXXX.XXX, INC.
This First Amendment to Agreement and Plan of Merger by and among
EntrePort Corporation, University Merger Corp., and Xxxxxxxxxx.xxx, Inc. is
entered into this 25th day of October, 2000.
WHEREAS, Xxxxxxxxxx.xxx has signed that certain Agreement and Plan of
Merger by and among EntrePort Corporation, University Merger Corp., and
Xxxxxxxxxx.xxx dated October 18, 2000;
WHEREAS, EntrePort Corporation desires additional assurances as set
forth below in consideration for the execution of that certain Agreement and
Plan of Merger by and among EntrePort Corporation, University Merger Corp., and
Xxxxxxxxxx.xxx dated October 18, 2000;
NOW THEREFORE, the parties agree as follows:
1. The following provision is added to that certain Agreement and Plan
of Merger by and among EntrePort Corporation, University Merger Corp., and
Xxxxxxxxxx.xxx dated October 18, 2000, in Article 5, Conditions of Closing:
"5.9 WORKING CAPITAL. As of the Closing Date, the Company's Working
Capital shall be greater than or equal to $-0-. For purposes of this Agreement,
Working Capital is defined as current assets minus current liabilities under
generally accepted accounting principles, excluding the $100,000 liability due
under that certain "Domain Name Transfer Agreement" dated March 24, 1999,
between Xxxxxx X. Xxxxxx and Knowledgent Corporation."
2. In addition, the parties recognize that Xxxxxxxxxx.xxx may be
required to raise additional capital funds in order to satisfy the
above-referenced condition of closing and may be required to issue additional
shares. In such an event, the price per share payable to the Shareholders of
Xxxxxxxxxx.xxx under this Agreement shall be adjusted downward. In no event
shall the total consideration to be paid by EntrePort Corporation exceed the
consideration due and payable assuming that there are issued and outstanding
11,740,484 shares of Xxxxxxxxxx.xxx's common stock as provided in Disclosure
Schedule Section 2.3.
42
3. Section 4.12 of that certain Agreement and Plan of Merger by and
among EntrePort Corporation, University Merger Corp., and Xxxxxxxxxx.xxx dated
October 18, 2000 is deleted in its entirety.
IT IS SO AGREED:
ENTREPORT CORPORATION XXXXXXXXXX.XXX, INC.
By: /s/ W. A. Xxxx By: Xxxxx Xxxxxxxx
--------------------------------- ---------------------------------
Its: President Its: President
-------------------------------- --------------------------------
43
