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EXHIBIT 2.1
FUTURELINK CORP.
AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
By and Among
FUTURELINK DISTRIBUTION CORP.
FUTURELINK PLEASANTON ACQUISITION CORP.
CN NETWORKS, INC. doing business as Computer Networks, Inc.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇
AND
▇▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇▇▇▇▇ LIVING TRUST, dated 3/28/98
Dated as of September 7, 1999
MORRISON, BROWN, SOSNOVITCH
▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇, ▇.▇. ▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
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AGREEMENT AND PLAN OF REORGANIZATION AND MERGER
THIS AGREEMENT AND PLAN OF REORGANIZATION AND MERGER (this "Agreement"),
is made and entered into as of September 7, 1999, by and among FUTURELINK
DISTRIBUTION CORP., a Colorado corporation ("Parent"), FUTURELINK PLEASANTON
ACQUISITION CORP., a Delaware corporation and wholly-owned subsidiary of Parent
("Merger Sub"), CN NETWORKS, INC., a California corporation (the "Company")
doing business as Computer Networks Inc., ▇▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇▇▇▇▇ LIVING
TRUST, dated 3/28/98 (the "Company Shareholder") and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇
▇▇▇▇▇") and ▇▇▇▇▇ ▇. ▇▇▇▇▇ ("▇▇▇▇▇ ▇▇▇▇▇"). Merger Sub and the Company are
sometimes collectively referred to herein as the "Constituent Corporations."
WHEREAS, the Boards of Directors of Parent, Merger Sub, and the Company
have each determined that it is in the best interest of their respective
companies and in the best interest of their respective shareholders to
consummate the business combination transaction provided for herein in which
the Company will, subject to the terms and conditions set forth herein, merge
with and into Merger Sub; and
WHEREAS, for federal income tax purposes, it is intended that the merger
will qualify as a tax-free reorganization under the provisions of Section
368(a)(1)(A) of the United States Internal Revenue Code of 1986, as amended
(the "Code"); and
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this Agreement, in
accordance with the applicable provisions of the Delaware General Corporation
Law (the "DGCL"), at the Effective Time (as defined in Section 1.3 hereof), the
Company shall merge with and into Merger Sub (the "Merger"). Merger Sub shall
be the surviving company (hereinafter sometimes called the "Surviving
Corporation") in the Merger, and shall continue its corporate existence under
the laws of the State of Delaware. Upon consummation of the Merger, the
separate corporate existence of the Company shall terminate.
1.2 Closing. The closing of the transactions contemplated hereby (the
"Closing") shall take place as soon as practicable after a written satisfaction
or waiver of each of the conditions set forth in Article VII hereof shall have
been received by the Company or Parent, as the case may be, which date shall
not be later than October 31, 1999 (the "Closing Date"). The Closing shall
take place at the offices of Parent at Micro Visions, ▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇,
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ or at such other location as the parties hereto agree.
1.3 Effective Time. The Merger shall become effective upon the filing of an
Agreement of Merger with the Secretary of State of the State of California and
the Secretary of State of the State of Delaware in such form as is required by,
and executed in accordance with the relevant provisions of, the DGCL on the
Closing Date (the "Agreement of Merger"). The term "Effective Time" shall be
the date and time of the filing of the Agreement of Merger with the Secretary
of
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State of the State of California or Secretary of State of the State of
Delaware or such later time as is specified in the Agreement of Merger.
1.4 Effects of the Merger. At and after the Effective Time, the Merger shall
have the effects set forth in this Agreement, the Agreement of Merger and the
applicable provisions of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
1.5 Articles of Incorporation; Bylaws. At the Effective Time, the Articles o
Incorporation of Merger Sub as in effect immediately prior to the Effective
Time, shall be the Articles of Incorporation of the Surviving Corporation until
thereafter amended in accordance with applicable law. At the Effective Time,
the Bylaws of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter amended in
accordance with applicable law.
1.6 Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation, each to hold office in accordance with the Articles
of Incorporation and Bylaws of the Surviving Corporation until their respective
successors are duly elected or appointed and qualified.
1.7 Tax Consequences. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368(a)(1)(A) of
the Code.
1.8 Pre-Merger Transactions. Prior to the Closing Date, Parent and Merger Sub
agree that the Company Shareholder may, at its option, carry out the following
pre-merger transactions:
(a) the Company may create a second class of shares ("Second Class
Shares") and issue such shares to the following individuals for nominal
or no consideration provided that each such individual agrees to sell
such shares to Parent for the consideration set out in Section 2.2 on the
same terms and conditions set out herein and agrees to execute an
investment intent letter as required by Company and in a manner to assure
compliance with California and federal securities laws in the issuance of
such shares, the form of which must be approved by Parent, which approval
shall not be unreasonably withheld:
Percentage of Second Class of Shares
▇▇▇▇ ▇▇▇▇▇▇▇ 19.298%
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 19.298%
▇▇▇▇ ▇▇▇▇▇▇ 19.298%
▇▇▇ ▇▇▇▇▇▇▇▇ 7.018%
▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇ 7.018%
▇▇▇ ▇▇▇▇▇ 7.018%
▇▇▇▇▇▇▇ ▇▇▇▇ 5.263%
▇▇▇▇▇ ▇▇▇▇▇▇ 5.263%
▇▇▇▇ ▇▇▇▇▇▇ 5.263%
▇▇▇▇ ▇▇▇▇▇▇▇▇ 5.263%
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If the employment with Company of any of the individuals listed in this Section
1.8 is terminated prior to the Closing Date, or if any of the individuals
listed do not sign the employment agreement required by this Section 7.2(e), at
the discretion of Company Shareholder, the new class stock percentage for such
individual or individuals may be redistributed among any other listed
individuals, and/or may be allocated to any other employees of Company,
including any hired after the signing of this Agreement provided that such
other employees have entered into the employment agreement with Parent as
required in Section 7.3(e).
Company shall provide copies of all pre-merger transaction documents
contemplated by this Section 1.8 to Parent for review and comment prior to
effecting such transactions.
ARTICLE II
MERGER CONSIDERATION; CONVERSION OF STOCK
2.1 Definitions. For purposes of this Agreement the following definitions
shall apply:
(a) "Company Stock" means all stock of the Company, including Second Class
Shares, if created, unless otherwise specified;
(b) "Deposit" shall have the meaning set forth in Section 2.5;
(c) "knowledge" shall mean, as it relates to the Company, the knowledge of
the President, Chief Executive Officer, Treasurer, Secretary or any director of
the Company. The term "knowledge" shall mean, as it relates to Parent and
Merger Sub, the knowledge of the President, Chief Executive Officer, Chief
Financial Officer, Treasurer, Secretary or any director of Parent, Merger Sub
and the Subsidiaries.
(d) "Material Adverse Effect" means an action, event or occurrence if it
has, or could reasonably be expected to have, a material adverse effect on the
assets, liabilities, business, financial condition or results of operations of
the Company or Parent (including their subsidiaries), as the case may be. Any
item susceptible of measurement in monetary terms which does not exceed the
amount of $25,000 shall not be considered a Material Adverse Effect;
(e) "Parent Stock" means the common stock of Parent;
(e) "Parent Stock Value" means the average of the closing sale prices (or
last bid prices if no closing sale prices are reported) of Parent Stock as
reported on the NASD OTC Bulletin Board for the ten (10) trading days
immediately preceding the date of this Agreement.
2.2 Conversion of Stock. At the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Merger Sub, the Company or any holder
of Company Stock :
(a) in the event that Company Shareholder chooses not to carry out the
pre-merger transactions as set out in Section 1.8, each common share of Company
Stock outstanding immediately prior to the Effective Time, shall automatically
be converted into and become a right to receive a pro rata portion of:
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(i) cash in the amount of $3,370,000 less the Deposit ("Cash
Consideration"); and
(ii) that number of shares of Parent Stock equal to $9,100,000 divided by
the Parent Stock Value ("Option 1 - Common Stock Consideration");
(b) in the event that Company Shareholder carries out the pre-merger
transactions as set out in Section 1.8, each common share of Company Stock
outstanding immediately prior to the Effective Time, shall automatically be
converted into and become a right to receive a pro rata portion of:
(i) the Cash Consideration;
(ii) that number of shares of Parent Stock equal to $7,675,000 divided by
the Parent Stock Value ("Option 2 - Common Stock Consideration"); and
each Second Class share of Company Stock outstanding immediately prior to the
Effective Time, shall automatically be converted into and become a right to
receive a pro rata portion of that number of shares of Parent Stock equal to
$1,425,000 divided by the Parent Stock Value ("Second Class Stock
Consideration");
(the Cash Consideration, Option 1 - Common Stock Consideration, Option 2 -
Common Stock Consideration and Second Class Stock Consideration are collectively
referred to as the "Merger Consideration");
(d) all shares of Company Stock held at the Effective Time as treasury shares
or by a subsidiary of the Company shall be canceled and no payment shall be
made with respect thereto;
(e) each share of capital stock of Merger Sub issued and outstanding as of
the Effective Time shall be unaffected by the Merger and shall represent one
share of common stock of the Surviving Corporation after the Merger.
(f) all Option 1 - Common Stock Consideration, Option 2 - Common Stock
Consideration or Second Class Stock Consideration granted hereunder shall
require that the recipients of such enter into a lock-up agreement agreeing to
be bound by the same lock-up provisions as the board of directors of Parent
which currently prohibits trading of Parent Stock until April 30, 2000, but
which may be extended by underwriters of future financings for Parent. In any
event, employees who hold fewer than 50,000 common shares of Parent Stock shall
be released from any lock-up requirements by no later than December 31, 2000.
2.3 Fractional Shares. Notwithstanding anything herein, with respect to each
holder of Company Stock, if the aggregate number of shares of Parent Stock
collectively issuable to such a holder for conversion of all of such holder's
Company Stock pursuant to Section 2.2 includes a fractional share, such
fractional share shall be rounded to the nearest whole number.
2.4 Certain Adjustments to Exchange Ratio. With respect to Section 2.2, the
number of Parent Stock issued shall be adjusted to reflect fully the effect of
any stock split, reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Stock), reorganization,
recapitalization or other like change with respect to Parent Stock, occurring
after the date hereof.
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2.5 Deposit. Company Shareholder acknowledges receipt, as of the date
hereof, of a deposit in the amount of $390,000 which shall be held in escrow by
Company Shareholder's attorneys, JG, P.C. Business & Corporate Law (the "Escrow
Agent") in an interest bearing account pending Closing or termination of the
transaction contemplated hereunder by either party for any reason. The amount
paid by Parent and any interest earned thereon pursuant to this Section 2.5 are
referred to herein as the "Deposit". The Deposit shall be applied to the Cash
Consideration as set out in Section 2.2 or upon notice from Parent or Company
Shareholder to the Escrow Agent that the Closing will not take place for any
reason, the Deposit shall be returned to Parent without deduction.
2.6 Payment of Merger Consideration. The Merger Consideration shall be
payable as follows:
(a) The Cash Consideration shall be paid at the Closing by certified check or
wire transfer to an account specified by Company Shareholder;
(b) Parent shall deliver to Company Shareholder, or as Company Shareholder or
recipients of stock consideration otherwise direct, at the Closing stock
certificates representing the Option 1 - Common Stock Consideration, Option 2 -
Common Stock Consideration and Second Class Stock Consideration;
2.7 Transfer Restrictions; Legends. The shares of Parent Stock issued in the
Merger shall not be transferable in the absence of an effective registration
statement under the Securities Act of 1933 as amended (the "Securities Act") or
an exemption therefrom. In the absence of an effective registration statement
under the Securities Act, neither such shares of Parent Stock nor any interest
therein shall be sold, transferred, assigned or otherwise disposed of, unless
Parent shall have previously received an opinion of counsel knowledgeable in
Federal securities law, in form and substance reasonably satisfactory to
Parent, to the effect that registration under the Securities Act is not
required in connection with such disposition. Parent covenants to submit a
registration statement in accordance with the Securities Act within twelve (12)
months of the Effective Time. Company and Company Shareholder acknowledge that
any registration is subject to approval of the Securities Exchange Commission.
The certificate or certificates representing the shares of Parent Stock
issued in the Merger shall bear the following legend restricting the transfer
thereof, in addition to any other legend required by applicable law:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT, UNLESS AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO THE COMPANY IS OBTAINED THAT SUCH REGISTRATION
IS NOT REQUIRED."
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE COMPANY SHAREHOLDER
The Company, the Company Shareholder, ▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇ represent and
warrant to Parent and Merger Sub as follows:
3.1 Corporate Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of
California. The Company has the corporate power and authority to own or lease
its properties and assets and to carry on its business as it is now being
conducted, and is qualified to do business in each jurisdiction in which the
nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such qualification necessary.
3.2 Capitalization.
(a) The authorized capital stock of Company consists of 1,000,000 shares of
Company Stock, of which 10,000 shares are issued and outstanding in the name of
the Company Shareholder as of the date hereof. All of the issued and
outstanding shares of Company Stock were duly authorized and validly issued and
are fully paid and nonassessable. The Company Shareholder is the owner of all
of the Company Stock outstanding, free and clear of any liens or encumbrances,
preemptive rights or rights of first refusal. None of the outstanding shares
of Company Stock were issued in violation of any applicable federal or state
securities law. No subscriptions, options or other rights to purchase or
otherwise receive any shares of Company Stock or any other equity security of
the Company or any securities representing the right to purchase or otherwise
receive any shares of Company Stock or any other equity security of the Company
are outstanding as of the date hereof. On the Closing Date the holders of
Company Stock shall be as set out in section 1.8(a) and the representations and
warranties given in this subsection shall apply to the shares issued in
accordance with section 1.8(a).
(b) The Company does not presently own or control, directly or indirectly,
and has no stock or other interest as owner or principal in, any other
corporation, partnership, limited liability company, joint venture, business,
trust, association or other business venture or entity.
3.3 Authority; No Violation.
(a) The Company has the requisite corporate power and authority to execute
and deliver this Agreement, to perform its obligations thereunder and to
consummate the transactions contemplated thereby. The Board of Directors of the
Company has unanimously approved this Agreement and the Merger and all
transactions contemplated thereby. The Company Shareholder, being the
controlling shareholder of the Company at the Closing Date, has approved this
Agreement, the Merger and the transactions contemplated hereby. No other
corporate proceedings on the part of the Company are necessary to approve this
Agreement and to consummate the transactions contemplated thereby. This
Agreement and all other agreements and documents to be entered into in
connection herewith have been duly and validly executed and delivered by the
Company and (assuming due authorization, execution and delivery by Parent and
Merger Sub) constitute valid and binding obligations of the Company, enforceable
against the Company, except as enforcement may be limited by general principles
of equity whether applied in a court of law or a court of equity and by
bankruptcy, insolvency and similar laws
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affecting creditors' rights and remedies generally. This Agreement and all
other agreements and documents to be entered into in connection herewith have
been duly and validly executed and delivered by the Company Shareholder and
(assuming due authorization, execution and delivery by Parent and Merger Sub)
constitute valid and binding obligations of the Company Shareholder,
enforceable against the Company Shareholder, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by the Company nor
the consummation by the Company of the transactions contemplated hereby, nor
compliance by the Company with any of the terms or provisions hereof, will,
assuming the consents and approvals referred to in Section 3.4 are obtained,
(i) violate any provision of the Articles of Incorporation or Bylaws of the
Company, (ii) violate any statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to the Company or any of its
properties or assets or (iii) violate, conflict with, result in a breach of any
provision of or the loss of any benefit under, constitute a default (or an
event which, with notice or lapse of time, or both, would constitute a default)
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of the Company under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company is a
party, or by which the Company or any of its properties or assets may be bound
or affected.
(c) Neither the execution and delivery of this Agreement by the Company
Shareholder, nor the consummation by the Company Shareholder of the
transactions contemplated hereby, nor compliance by the Company Shareholder
with any of the terms or provisions hereof, will, assuming that the consents
and approvals referred to in Section 3.4 hereof are obtained, (i) violate any
statute, code, ordinance, rule, regulation, judgment, order, writ, decree or
injunction applicable to the Company Shareholder or any of its properties or
assets or (ii) violate, conflict with, result in a breach of any provision of
or the loss of any benefit under, constitute a default (or an event which, with
notice or lapse of time, or both, would constitute a default) under, result in
the termination of or a right of termination or cancellation under, accelerate
the performance required by, or result in the creation of any lien, pledge,
security interest, charge or other encumbrance upon the properties or assets of
any of the Company Shareholder under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which any of the Company
Shareholder is a party, or by which the Company Shareholder or their respective
properties or assets may be bound or affected.
3.4 Consents and Approvals. Except for (a) the filing of Agreement of Merger
with the Secretary of State of the State of California and Secretary of State
of the State of Delaware and (b) such filings, authorizations or approvals as
may be set forth in Section 3.4 of the Company Disclosure Schedule, no
consents, approvals, orders or authorizations of or filings or registrations
with any court, administrative agency or commission or other governmental
authority or instrumentality (each a "Governmental Entity") or with any third
party are necessary with respect to the Company or any of the Company
Shareholder in connection with (1) the execution and delivery of this Agreement
and (2) the consummation of the Merger and the other transactions contemplated
hereby.
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3.5 Financial Statements. The Company has heretofore delivered to Parent
true and correct copies of (a) an unaudited balance sheet of the Company at
December 31, 1997, together with related unaudited statements of operations,
shareholders' equity and cash flows for the fiscal year then ended; (b) an
unaudited balance sheet of the Company (the "Reference Balance Sheet") at
December 31, 1998 (the "Reference Balance Sheet Date"), together with related
unaudited statements of operations, shareholders' equity and cash flows for the
fiscal year then ended (c) an unaudited balance sheet of the Company for the
seven month period ending July 31, 1999, together with related unaudited
statements of operations, shareholders' equity and cash flows for the fiscal
period then ended and has covenanted to deliver certain audited statements in
accordance with section 5.2 (collectively, the "Financial Statements"). Such
Financial Statements, excepting footnotes, have been prepared in accordance
with generally accepted accounting principles ("GAAP") applied on a basis
consistent throughout the periods indicated and with each other. The Financial
Statements fairly present the financial condition and operating results of the
Company as of the dates, and for the periods indicated therein, subject to
normal year-end audit adjustments. The Company has made known, or caused to be
made known, to the accountants or auditors who have prepared the Financial
Statements all material facts and circumstances which could affect the
preparation of the Financial Statements. Except as disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation. All financial transactions of the
Company relating to the Company business have been and will be accurately
recorded in the Company's books and records and, without limiting the
generality of the foregoing, all monies set aside or held in trust by the
Company for the benefit of another person are properly accrued or so held and
are completely and accurately recorded in the books and records of the Company
and no claim can be made against the Company in respect thereof in excess of
the amounts so set aside or held.
3.6 Absence of Undisclosed Liabilities. The Company has no material
obligations or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those disclosed or reserved against in its Reference
Balance Sheet, (ii) those incurred in the ordinary course of business and not
required to be set forth in the Reference Balance Sheet under GAAP, and (iii)
those incurred in the ordinary course of business since the Reference Balance
Sheet Date and consistent with past practice.
3.7 Absence of Certain Changes. Except as set out in Section 3.7 of Company
Disclosure Schedule, since the Reference Balance Sheet Date, the Company has
conducted its business in the ordinary course consistent with past practice,
and except for transactions contemplated or authorized hereby, there has not
occurred (i) any purchase or other acquisition of, sale, lease, disposition, or
other transfer of, or mortgage, pledge or subjection to any material
encumbrance or lien on, any material asset, tangible or intangible, of the
Company, other than in the ordinary course of business; (ii) any declaration,
setting aside, or payment of a dividend or other distribution with respect to
the shares of Company Stock, or any split-up or other recapitalization in
respect of Company Stock, or any direct or indirect redemption, purchase or
other acquisition by the Company of any shares of Company Stock; (iii) any
material contract entered into by the Company, other than in the ordinary
course of business and as provided to Parent, or any termination of, or default
under, any material contract to which the Company is a party or by which it is
bound; (iv) any amendment or change to the Articles of Incorporation or Bylaws
of the Company except for the transactions contemplated in Section 1.8; (v) any
increase in or modification of the compensation or benefits payable or to
become payable by the Company to any of its directors or employees, except
ordinary increases or bonuses payable in the ordinary course and except as
contemplated in Subsection 1.8(b); (vi) any issuance, transfer, sale or pledge
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by the Company of any shares of Company Stock or other securities or of any
commitment, option, right or privilege under which the Company is or may become
obligated to issue any shares of Company Stock or other securities, except as
contemplated in Section 1.8; (vii) any indebtedness for borrowed money incurred
by the Company, except such as may have been incurred or entered into in the
ordinary course of business not exceeding $30,000; (viii) any loan made or
agreed to be made by the Company, nor has the Company become liable or agreed
to become liable as a guarantor with respect to any loan; (ix) any loans to
employees, stockholders, directors or officers, (x) any waiver or compromise by
the Company of any right or rights or any payment, direct or indirect, of any
material debt, liability or other obligation, other than in the ordinary course
of business; (xi) any sale, assignment, or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets, other than in the
ordinary course of business; (xii) any actual or, to the knowledge of the
Company, threatened termination or loss of (a) any contract, lease, license or
other agreement to which the Company was or is a party, (b) any certificate,
license or other authorization required for the continued operation by the
Company of any portion of any of its business, or (c) termination or loss of
any customer or other revenue source, which termination or loss could
reasonably be expected to result in loss of revenues to the Company in excess
of $50,000 per year; (xiii) any resignation of employment of any key officer or
employee of the Company; (xiv) any negotiation or agreement by the Company to
do any of the things described in the preceding clauses (i) through (xii)
(other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement); or (xv) to the Company's
knowledge, any other event or circumstance that will have or could reasonably
be expected to have a Material Adverse Effect on the Company.
3.8 Legal Proceedings. There are no legal actions, suits, arbitrations or
other legal, administrative or governmental proceedings or investigations
pending or, to the knowledge of the Company, threatened against the Company or
its properties, assets or business, and neither the Company nor the Company
Shareholder is aware of any facts which might result in or form the basis for
any such action, suit or other proceeding or which would challenge the validity
or propriety of the transactions contemplated by this Agreement. The Company
is not in default with respect to any judgment, order or decree of any court or
any governmental agency or instrumentality.
3.9 Governmental Authorization; Compliance with Laws. The Company has
obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity that is
required for the operation of the Company's business (the "Company
Authorizations"), and all of such Company Authorizations are in full force and
effect. To the Company's knowledge, the Company is in material compliance with
all applicable laws, statutes, orders, rules and regulations of any Governmental
Entity relating to the Company.
3.10 Title and Condition of Personal Property. The Company has marketable
title to all of its personal property owned by it, free and clear of all
mortgages, liens, pledges, charges or encumbrances of any kind or character or
claims thereto, except (i) the lien of current taxes not yet due and payable
and (ii) liens securing debt which is reflected on the Reference Balance Sheet
and listed on the Company Schedules. The property and equipment of the Company
that are used in the operations of its business are in all material respects in
good operating condition and repair.
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3.11 Real and Leased Property. The Company does not own any fee simple
interest in real property. Section 3.11 of the Company Disclosure Schedule
sets forth a list of all real property leased or subleased by the Company (the
"Leased Property"). The Company has previously delivered to Parent a true and
complete copy of all of the lease and sublease agreements, as amended to date
(the "Leases") relating to the Leased Property. The Leases are valid, binding
and in full force and effect, all rent and other sums and charges payable
thereunder are current, no notice of default or termination under any of the
Leases is outstanding, no termination event or condition or uncured default on
the part of the Company exists under the Leases, and no event has occurred and
no condition exists which, with the giving of notice or the lapse of time or
both, would constitute such a default or termination event or condition.
3.12 Intellectual Property. The Company owns or licenses from another person
all inventions, patents, patent rights, computer software, trademarks,
trademark rights, service marks, service ▇▇▇▇ rights, trade names, trade name
rights and copyrights (collectively, the "Intellectual Property") necessary for
its business as presently conducted without any conflict with or infringement
of the valid rights of others and the lack of which could materially and
adversely affect the operations or condition, financial or otherwise, of the
Company, and the Company has not received any notice of infringement upon or
conflict with the asserted rights of others. Section 3.12 of the Company
Disclosure Schedule contains a complete list of all such patents, patent
rights, registered trademarks, registered service marks, registered copyrights,
all agreements related to the foregoing, and all agreements pursuant to which
the Company licenses Intellectual Property from or to a third party (excluding
"shrink wrap" license agreements relating solely to off the shelf software
which is not material to the Company's business). All Intellectual Property
owned by the Company is owned free and clear of all liens, adverse claims,
encumbrances, or restrictions, except for restrictions contained in the terms
of the licenses listed in Section 3.12 of the Company Disclosure Schedule. All
Intellectual Property licensed by the Company is the subject of a license
agreement which is legal, valid, binding and enforceable and in full force and
effect. The consummation of the transactions contemplated hereby will not
result in the termination or impairment of the Company's ownership of, or right
to use, any Intellectual Property. The Company has a valuable body of trade
secrets, including know-how, concepts, business plans, and other technical data
(the "Proprietary Information") relating to its business. The Company has the
right to use the Proprietary Information free and clear of any rights, liens,
encumbrances or claims of others. The Company is not aware, after reasonable
investigation, that any of its employees is obligated under any contract
(including licenses, covenants or commitments of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would interfere with the use of his or her best
efforts to promote the interests of the Company or that would conflict with the
Company's business.
3.13 Taxes.
(a) The Company has duly and timely filed (including applicable extensions
granted without penalty) all material Tax Returns (as hereinafter defined)
required to be filed at or prior to the Effective Time, and such Tax Returns
are true and correct in all material respects, and the Company has paid in full
or made adequate provision in the financial statements of the Company (in
accordance with GAAP) for all Taxes (as hereinafter defined) shown to be due on
such Tax Returns. As of the date hereof (i) the Company has not requested any
extension of time within which to file any Tax Returns in respect of any fiscal
year which have not since been filed and no request for waivers of the time to
assess any Taxes are pending or outstanding, (ii) no claim for
12
Taxes has become a lien against the property of the Company or is being
asserted against the Company other than liens for Taxes not yet due and
payable, (iii) no audit of any Tax Return of the Company is being conducted by
a Tax authority, (iv) no extension of the statute of limitations on the
assessment of any Taxes has been granted to the Company and is currently in
effect, and (v) there is no agreement, contract or arrangement to which the
Company is a party that may result in the payment of any amount that would not
be deductible by reason of Sections 280G, 162 or 404 of the Code. The Company
has not been nor will it be required to include any adjustment in taxable
income for any Tax period (or portion thereof) pursuant to Section 481 or 263A
of the Code or any comparable provision under state or foreign Tax laws as a
result of transactions, events or accounting methods employed prior to the
Merger.
(b) For the purposes of this Agreement, "Tax" or "Taxes" shall mean all
taxes, charges, fees, levies, penalties or other assessments imposed by any
United States federal, state, local or foreign taxing authority, including, but
not limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax
Return" shall mean any return, report, information return or other document
(including any related or supporting information) with respect to Taxes.
3.14 Environmental Matters.
(a) The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public.
(ii) "Facilities" shall mean all buildings and improvements located on
any real property leased or subleased by the Company.
(b) (i) the Company has received no notice (oral or written) of any
noncompliance of the Facilities or its past or present operations with
Environmental and Safety Laws; (ii) no notices, administrative actions or
suits are pending or, to the Company's knowledge, threatened relating to
a violation of any Environmental and Safety Laws; (iii) the Company has
not been notified that the Company is a potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act, or state analog statute, arising out of events occurring
prior to the Closing Date; (iv) to the Company's knowledge, the Company's
uses of and activities within the Facilities have at all times complied
with all Environmental and Safety Laws; and (v) the Company has all the
permits and licenses required by Environmental and Safety Laws to be
issued and are in full compliance with the terms and conditions of those
permits.
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3.15 Major Customers. Section 3.15 of the Company Disclosure Schedule sets
forth a list of the top twenty (20) customers (by revenue generated from such
customer) of the Company for the fiscal year ended December 31, 1998. There
has been no termination or cancellation of any relationship between the Company
and such customers.
3.16 Employment Agreements. Section 3.16 of the Company Disclosure Schedule
contains the names, job descriptions and annual salary rates and other
compensation of all officers, directors, employees and consultants of the
Company whose annual compensation by the Company exceeds $50,000. A list of
all employee policies, employee manuals or other written statements of rules or
policies as to working conditions, vacation and sick leave, and a complete copy
of each has been made available to Parent. There are no employment,
consulting, severance or indemnification arrangements, agreements or
understandings between the Company and any officer, director, consultant or
employee including, without limitation, any contracts to employ executive
officers, any severance, change in control or similar arrangements with any
officers, employees or agents of the Company that will result in any obligation
(absolute or contingent) of the Company to make any payment to any officer,
employee or agent of the Company following either the consummation of the
transactions contemplated hereby, termination of employment, or both.
3.17 Employee Benefit Plans. The Company has no employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended) except as listed in Section 3.17 of the Company Disclosure
Schedule.
3.18 Labor Matters. (i) the Company is not a party to or otherwise bound by
any collective bargaining agreement or other labor union contract and currently
there are no organizational campaigns, petitions or other unionization
activities seeking recognition of a collective bargaining unit which could
affect the Company; (ii) to the Company's knowledge, there are no
controversies, strikes, slowdowns, work stoppages or labor disturbances pending
or threatened between the Company and any of its employees; (iii) there are no
unfair labor practice complaints pending against the Company before the
National Labor Relations Board or any other Governmental Entity or any current
union representation questions involving employees of the Company; (iv) the
Company is currently in material compliance with all applicable laws relating
to the employment of labor, (v) to the Company's knowledge, there is no charge
or proceeding with respect to a violation of any occupational safety or health
standards that has been asserted or is now pending or threatened with respect
to the Company; and (vi) there is no charge of discrimination in employment or
employment practices, for any reason, including, without limitation, age,
gender, race, religion or other legally protected category, which has been
asserted or is now pending or threatened before the United States Equal
Employment Opportunity Commission, or any other Governmental Entity in any
jurisdiction in which the Company has employed or currently employs any person.
3.19 Contracts and Commitments. Section 3.19 of the Company Disclosure
Schedule shall contain a complete and accurate list of all contracts and
agreements (including, without limitation, oral and informal arrangements) of
the following categories to which the Company is a party or by which it is
bound as of the date of this Agreement (the "Material Contracts").
(a) material manufacturing, distribution, franchise, license, sales, agency or
advertising contracts;
14
(b) contracts involving payments to or by the Company in excess of $25,000
per year which are not cancelable (without material penalty, cost or other
liability) within ninety (90) days, other than purchase orders made in the
ordinary course of business consistent with past practice;
(c) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments proving for the lending of money, whether as
borrower, lender or guarantor;
(d) contracts (other than Leases) containing covenants limiting the freedom
of the Company or Company Shareholder to engage in any line of business or
compete with any person or operate at any location;
(e) joint venture or partnership agreements or joint development or similar
agreements;
(f) agreements, contracts or other arrangements with any current or former
officer, director or employee of the Company or any affiliate of the Company;
(g) leases or similar agreements with any person under which (i) the Company
is lessee of, or holds or uses, any machinery, equipment, vehicle or other
tangible personal property owned by any person or (ii) the Company is a lessor
or sublessor of, or makes available for use by any person, any tangible
personal property owned or leased by the Company, in any such case which has an
aggregate future liability or receivable, as the case may be, in excess of
$25,000 and is not terminable by the Company by notice of not more than sixty
(60) days for a cost of less than $10,000;
(h) license, option or other agreements relating in whole or in part to the
Intellectual Property other than as described in Section 3.12 of the Company
Disclosure Schedule;
(i) contracts or other instruments under which (i) any person has directly or
indirectly guaranteed indebtedness, liabilities or obligations of the Company
or (ii) the Company has directly or indirectly guaranteed indebtedness,
liabilities or obligations of any person (in each case other than endorsements
for the purpose of collection in the ordinary course of business);
(j) contracts or other instruments under which the Company has, directly or
indirectly, made any advance, loan, extension of credit or capital contribution
to, or other investment in, any person;
(k) mortgages, pledges, security agreements, deeds of trust or other
instruments granting a lien or other encumbrance upon any property of the
Company;
(l) agreements or instruments providing for indemnification of any person
with respect to liabilities relating to any current or former business of the
Company, or any predecessor entity;
(m) contracts for the acquisition, sale or lease of any assets or capital
stock or other ownership interests outside the ordinary course of business or to
effect any merger of the Company; and
(n) any exclusive retainer agreement or arrangement with attorneys,
accountants, actuaries, appraisers, investment bankers or other professional
advisors.
15
All forward commitments which have been entered into by the Company and which
remain unfulfilled have been entered into in the ordinary course of business.
The Company has provided parent with complete copies of all written Material
Contracts and within two weeks of the date hereof, shall provide the
information required for Section 3.19 of the Company Disclosure Schedule
including details of all oral agreements.
3.20 Absence of Breaches or Defaults. The Company is not and, to the
knowledge of the Company, no other party is, in default under, or in breach or
violation of, any Material Contract and, to the knowledge of the Company, no
event has occurred which, with the giving of notice or passage of time or both
would constitute a default under any Material Contact. Each Material Contract
is valid, binding and enforceable (subject to the effects of bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and other similar
laws relating to or affecting creditors' rights generally, general equitable
principles (whether considered in a proceeding in equity or at law)) and is in
full force and effect, and assuming all consents required by the terms thereof
or applicable law have been obtained, such Material Contracts will continue to
be valid, binding and enforceable and in full force and effect immediately
following the consummation of the transactions contemplated hereby, in each
case. No event has occurred which either entitles, or would, on notice or
lapse of time or both, entitle the holder of any indebtedness for borrowed
money affecting the Company (except for the execution or consummation of this
Agreement) to accelerate, or which does accelerate, the maturity of any
indebtedness affecting the Company.
3.21 Insurance. Section 3.21 of the Company Disclosure Schedule sets forth a
true and complete list of all insurance policies providing insurance coverage
of any nature to the Company. Such policies are sufficient for compliance by
the Company with all requirements of law and all material agreements to which
the Company is a party or by which any of its assets are bound. All of such
policies are in full force and effect and are valid and enforceable in
accordance with their terms, and the Company has complied with all material
terms and conditions of such policies, including premium payments. None of the
insurance carriers has indicated to the Company an intention to cancel any such
policy. The Company does not have any claim pending against any of the
insurance carriers under any of such policies.
3.22 Brokers. Neither the Company nor any of its officers or directors has
employed any broker or finder or incurred any liability for any broker's fees,
commissions or finder's fees in connection with any of the transactions
contemplated by this Agreement.
3.23 Minute Books. The minute books of the Company made available to Parent
contain a complete and accurate summary of all meetings of directors and
shareholders or actions by written consent since the time of incorporation of
the Company through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately with the exception of approval of this
agreement which minutes shall be provided to Parent prior to Closing.
3.24 Representations Complete. None of the representations or warranties made
by the Company or the Company Shareholder herein or in any Schedule hereto,
including the Company Disclosure Schedule, or certificate furnished by the
Company pursuant to this Agreement, when all such documents are read together
in their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading.
16
3.25 Potential Conflicts of Interest. No officer, director or stockholder of
Company, and no person directly or indirectly controlling or controlled by, or
under the direct or indirect control of, any of the foregoing persons:
(a) owns, directly or indirectly, any interest in, or is an officer,
director, employee or consultant of, any person which is a competitor, lessor,
lessee, customer or supplier of the Company;
(b) holds a beneficial interest in any contract or other agreement to which
Company is a party or by which it is obligated or bound or to which any of the
Assets may be subject;
(c) owns, directly or indirectly, in whole or in part, any tangible or
intangible property (including, without limitation, any Intellectual Property)
which Company is using or the use of which is necessary for the business of the
Company; or
(d) has any cause of action or other claim whatsoever against Company.
All purchases and sales or other transactions, if any, between Company and any
such persons have been made on the basis of prevailing market rates and all
such transactions have been made on terms no less favorable to Company than
those which would have been available from unrelated third parties. All
business of the Company has been conducted in the name of the Company and for
the benefit of the Company and there are no parties related, either directly or
indirectly, which are competing for the business of the Company.
3.26 Condition of Assets. The Company assets are in good operating condition
and repair, reasonable wear and tear expected, and are, in the case of
software, Year 2000 compliant.
3.27 Customs. Company has acted with reasonable care to properly value and
classify, in accordance with applicable tariff laws, rules and regulations, all
goods that Company or any of its subsidiaries import or exports into or out of
the United States (the "Goods"). To Company's knowledge, there are currently
no material claims pending against Company by the U.S. Customs Service (or
other foreign customs authorities) relating to the valuation, classification or
marketing of the Goods.
3.28 Insolvency. None of Company or Company Shareholder are insolvent, have
committed an act of bankruptcy, proposed a compromise or arrangement of their
creditors generally, had any petition or receiving order in bankruptcy filed
against them, taken any proceedings with respect to a compromise or arrangement
or to have a receiver appointed over any part of their assets, had an
encumbrancer take possession of any property, nor had an execution or distress
become enforceable or levied upon any of their property.
3.29 Qualification. No officer or director of Company is subject to any of
the disqualification provisions of Rule 505(b)(iii) under the Securities Act of
1933.
17
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND MERGER SUB
Except as set forth in the disclosure schedule attached hereto (the "Parent
Disclosure Schedule"), Parent and Merger Sub hereby jointly and severally
represent and warrant to the Company as follows:
4.1 Corporate Organization. Parent is a corporation duly organized, validly
existing and in good standing under the laws the State of Colorado and Merger
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Parent and Merger Sub have the
corporate power and authority to own or lease their respective properties and
assets and to carry on their respective businesses as they are now being
conducted, and are duly qualified to do business in each jurisdiction in which
the nature of the business conducted by them or the character or location of
the properties and assets owned or leased by them makes such qualification
necessary, except where the failure to be so qualified would not individually
or in the aggregate have a Material Adverse Effect.
4.2 Authority; No Violation.
(a) Each of Parent and Merger Sub has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The Board of
Directors of Parent has (i) approved this Agreement and the Merger and all
transactions contemplated hereby, (ii) determined that the Merger is in the
best interests of the shareholders of Parent and is on terms that are fair to
such shareholders and (iii) determined that this Agreement is advisable and
recommended that the shareholders of Parent, if required by law, approve this
Agreement and consummation of the Merger. The Board of Directors and the
shareholder of Merger Sub have approved this Agreement and the Merger and all
transactions contemplated hereby. Except for such approvals of Parent's
shareholders as may be required by law or Parent's Articles of Incorporation,
no other corporate proceedings on the part of Parent or Merger Sub are
necessary to approve this Agreement and to consummate the transactions
contemplated hereby. This Agreement and all other agreements and documents to
be entered into in connection herewith have been duly and validly executed and
delivered by Parent and Merger Sub and (assuming due authorization, execution
and delivery by the Company and the Company Shareholder) constitute valid and
binding obligations of Parent and Merger Sub, enforceable against each of them,
except as enforcement may be limited by general principles of equity whether
applied in a court of law or a court of equity and by bankruptcy, insolvency
and similar laws affecting creditors' rights and remedies generally.
(b) Neither the execution and delivery of this Agreement by Parent and Merger
Sub, nor the consummation by Parent and Merger Sub of the transactions
contemplated hereby, nor compliance by Parent and Merger Sub with any of the
terms or provisions hereof, will, assuming that the consents and approvals
referred to in Section 4.4 hereof are duly obtained, (i) violate any provision
of the Articles of Incorporation or Bylaws of Parent or Merger Sub, (ii)
violate any material statute, code, ordinance, rule, regulation, judgment,
order, writ, decree or injunction applicable to Parent or Merger Sub or any of
their respective properties or assets, or (iii) violate, conflict with, result
in a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or lapse of time, or both, would
constitute a default)
18
under, result in the termination of or a right of termination or cancellation
under, accelerate the performance required by, or result in the creation of any
lien, pledge, security interest, charge or other encumbrance upon any of the
properties or assets of Parent or Merger Sub under, any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture, deed
of trust, license, lease, agreement or other instrument or obligation to which
Parent or Merger Sub is a party, or by which either of them or any of their
respective properties or assets may be bound or affected.
4.3 Capitalization of Parent and Merger Sub.
(a) As of the date of this Agreement, the authorized capital stock of Parent
consists solely of (i) 100,000,000 shares of Parent Stock and 5,000,000 shares
of preferred stock (none issued). The number of shares of Parent Stock issued
and outstanding as at August 1, 1999 are as set out in the Proxy Statement
delivered to shareholders with respect to the Shareholders' Meeting of
September 23, 1999, (the "Proxy Statement"). No shares are issued and held in
treasury (which does not include the shares reserved for issuance) and no
shares are held by Subsidiaries of Parent. All convertible debt shares,
warrants, options and convertible equity shares, if any, are set out in the
Proxy Statement as at the date set out therein. Certain shares of Parent Stock
have been issued but not paid for, underlying certain convertible debt
financings, which Parent does not consider to be fully paid and non-assessable
until conversion or exercise of the outstanding security. Each outstanding
share of Parent Stock is, and all shares of Parent Stock to be issued in
connection with the Merger will be, duly authorized and validly issued, fully
paid and nonassessable, and each outstanding share of Parent Stock has not
been, and all shares of Parent Stock to be issued in connection with the Merger
will not be, issued in violation of any preemptive or similar rights or any
applicable securities laws.
(b) Merger Sub's authorized capital stock consists solely of 1500 shares of
common stock, no par value per share ("Merger Sub Common Stock"), of which, as
of the date hereof, 500 shares are issued and outstanding and none are reserved
for issuance. As of the date hereof, all of the outstanding shares of Merger
Sub Common Stock are owned free and clear of any liens, claims or encumbrances
by Parent.
(c) Parent is the sole record and beneficial owner of all the outstanding
securities of each of its Subsidiaries. There are no outstanding
subscriptions, options, warrants, calls, commitments, agreements, or
obligations of any character calling for the purchase, redemption or issuance
of any equity securities of any Subsidiary, nor are there outstanding any
securities which are convertible into or exchangeable for any equity securities
of any Subsidiary, and neither Parent nor any Subsidiary has any obligation of
any kind to issue any additional securities or to pay for or repurchase any
securities of any subsidiaries or their predecessors.
4.4 Consents and Approvals. Neither the execution and delivery of this
Agreement by Parent or Merger Sub nor the consummation of the transactions
contemplated hereby will require any action or consent or approval of, or
review by, or registration or filing by Parent or any of its affiliates with,
any third party or any Governmental Entity, other than (i) registrations or
other actions required under federal and state securities laws as are
contemplated by this Agreement, (ii) approval, if necessary, of this Agreement
by the requisite vote of the shareholders of Parent, (iii) consent of Executive
LAN Management, Inc., and (iv) those which would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on Parent
and its
19
Subsidiaries taken as a whole or a Material Adverse Effect on the ability of
the parties to consummate the transactions contemplated hereby.
4.5 Financial Statements and SEC Documents. Since January 1, 1999, Parent
has timely filed all reports, schedules, forms, statements and other documents
required to be filed by it with the SEC pursuant to the reporting requirements
of the Exchange Act (all of the foregoing and all exhibits included therein and
financial statements and schedules thereto and documents incorporated by
reference therein, with amendments read together with underlying documents, are
referred to herein as the "SEC Documents"). As of their respective dates, the
SEC Documents complied in all material respects with the requirements of the
Exchange Act and the rules and regulations of the SEC promulgated thereunder
applicable to the SEC Documents, and none of the SEC Documents, at the time
they were filed with the SEC, 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 light of the circumstances under
which they were made, not misleading. As of their respective dates, the
financial statements of Parent included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Such
financial statements have been prepared in accordance with GAAP, consistently
applied, during the periods involved and fairly and accurately present in all
material respects the consolidated financial position of Parent and its
consolidated subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except
as disclosed in such financial statements, Parent is not a guarantor or
indemnitor of any indebtedness of any other person, firm or corporation.
4.6 Legal Proceedings. Except as disclosed in the Form 10-Q filed on August
17, 1999, and a general letter to the Application Service Provider industry as
a whole dated July 13, 1999 claiming that the business of the ASP consortium
may conflict with U.S. Patent # 5,775,995 issued July 7, 1998, a copy of which
has been delivered to the Company, there are no legal actions, suits,
arbitrations or other legal, administrative or governmental proceedings or
investigations pending or, to the knowledge of Parent, threatened against
Parent or any Subsidiary or their properties, assets or business in which an
unfavorable outcome, ruling or finding would have a Material Adverse Effect,
and Parent is not aware of any facts which might result in or form the basis
for any such action, suit or other proceeding or which would challenge the
validity or propriety of the transactions contemplated by this Agreement.
Neither Parent nor any Subsidiary is in default with respect to any judgment,
order or decree of any court or any governmental agency or instrumentality
which would have a Material Adverse Effect.
4.7. Governmental Authorization; Compliance with Laws. Parent and its
Subsidiaries have obtained each federal, state, county, local or foreign
governmental consent, license, permit, grant, or other authorization of a
Governmental Entity that is required for the operation of the business of
Parent and its Subsidiaries (the "Parent Authorizations"), and all of such
Parent Authorizations are in full force and effect, except where the failure to
obtain or have any such Parent Authorizations could not reasonably be expected
to have a Material Adverse Effect on Parent. To Parent's knowledge, Parent and
the Subsidiaries are in material compliance with all applicable laws, statutes,
orders, rules and regulations of any Governmental Entity relating to them,
except where the failure to do so would not have a Material Adverse Effect.
20
4.8 Taxes. Parent and the Subsidiaries have duly and timely filed (including
applicable extensions granted without penalty) all material Tax Returns
required to be filed at or prior to the Effective Time, and such Tax Returns
are true and correct in all material respects, except where failure to do so
would not have a Material Adverse Effect, and Parent and the Subsidiaries have
paid in full or made adequate provision in the consolidated financial
statements of Parent (in accordance with GAAP) for all material Taxes shown to
be due on such Tax Returns except where failure to do so would not have a
Material Adverse Effect. As of the date hereof (i) neither Parent nor any
Subsidiary has requested any extension of time within which to file any Tax
Returns in respect of any fiscal year which have not since been filed and no
request for waivers of the time to assess any Taxes are pending or outstanding,
(ii) no claim for Taxes has become a lien against the property of Parent or any
Subsidiary or is being asserted against Parent or any Subsidiary other than
liens for Taxes not yet due and payable, (iii) no audit of any Tax Return of
Parent or any Subsidiary is being conducted by a Tax authority, (iv) no
extension of the statute of limitations on the assessment of any Taxes has been
granted to Parent or any Subsidiary and is currently in effect, and (v) there
is no agreement, contract or arrangement to which Parent or any Subsidiary is a
party that may result in the payment of any amount that would not be deductible
by reason of Sections 280G, 162 or 404 of the Code. Neither Parent nor any
Subsidiary has not been nor will they be required to include any adjustment in
taxable income for any Tax period (or portion thereof) pursuant to Section 481
or 263A of the Code or any comparable provision under state or foreign Tax laws
as a result of transactions, events or accounting methods employed prior to the
Merger.
4.9 Environmental Matters.
(a) For purposes hereof, "Parent Facilities" shall mean all buildings and
improvements located on any real property leased or subleased by Parent or any
Subsidiary.
(b) (i) Neither Parent nor any Subsidiary has received notice (oral or
written) of any noncompliance of the Parent Facilities or its past or present
operations with Environmental and Safety Laws; (ii) no notices, administrative
actions or suits are pending or, to Parent's knowledge, threatened relating to a
violation of any Environmental and Safety Laws; (iii) Neither Parent nor any
Subsidiary has been notified that it is a potentially responsible party under
the federal Comprehensive Environmental Response, Compensation and Liability
Act, or state analog statute, arising out of events occurring prior to the
Closing Date; (iv) to Parent's knowledge, Parent's and the Subsidiaries' uses of
and activities within the Facilities have at all times complied with all
Environmental and Safety Laws; and (v) Parent and the Subsidiaries have all the
permits and licenses required by Environmental and Safety Laws to be issued and
are in full compliance with the terms and conditions of those permits.
4.10 Insolvency. Parent is not insolvent. Since January 20, 1998 has not
committed an act of bankruptcy, proposed a compromise or arrangement of its
creditors generally, had any petition or receiving order in bankruptcy filed
against it, taken any proceedings with respect to a compromise or arrangement
or to have a receiver appointed over any part of its assets, had an
encumbrancer take possession of any property, nor had an execution or distress
become enforceable or levied upon any of its property.
4.11 Representations Complete. None of the representations or warranties made
by Parent or Merger Sub herein or in any Schedule hereto, including the Parent
Disclosure Schedule, or certificate furnished by the Parent pursuant to this
Agreement, when all such documents are read
21
together in their entirety, contains or will contain at the Effective Time any
untrue statement of a material fact, or omits or will omit at the Effective
Time to state any material fact necessary in order to make the statements
contained herein or therein, in the light of the circumstances under which
made, not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
5.1 Covenants of the Company. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement or with the written consent of
Parent, the Company shall carry on its business in the ordinary course
consistent with past practice. Without limiting the generality of the
foregoing, and except as previously disclosed by the Company to Parent in
writing or as otherwise contemplated by this Agreement or consented to in
writing by Parent, the Company shall not:
(a) declare or pay any dividends on, or make other distributions in respect
of, any shares of Company Stock;
(b) (i) except in accordance with section 1.8, repurchase, redeem or
otherwise acquire any shares of Company Stock, or any securities convertible
into or exercisable for any shares of Company Stock, (ii) split, combine or
reclassify any shares of Company Stock or issue or authorize or propose the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of Company Stock, or (iii) issue, deliver or sell, or authorize or
propose the issuance, delivery or sale of, any shares of its capital stock or
any securities convertible into or exercisable for, or any rights, warrants or
options to acquire, any such shares;
(c) except in accordance with section 1.8, amend its Articles of
Incorporation or Bylaws;
(d) make any capital expenditures in excess of $25,000 other than those which
are made in the ordinary course of business or are necessary to maintain
existing assets in good repair;
(e) enter into any new line of business, except as contemplated hereby;
(f) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation,
partnership, association or other business organization or division thereof or
otherwise acquire any assets, which would be material, individually or in the
aggregate, to the Company;
(g) take any action that is intended or may reasonably be expected to result
in any of its representations and warranties set forth in this Agreement being
or becoming untrue, or in any of the conditions to the Merger not being
satisfied;
(h) make a material change in its methods of accounting in effect at December
31, 1998, except as required by changes in GAAP or as concurred with by the
Company's independent auditors;
(i) (i) except as required by applicable law or as required to maintain
qualification pursuant to the Code, adopt, amend, or terminate any employee
benefit plan or any agreement,
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arrangement, plan or policy between the Company and one or more of its current
or former directors, officers or employees, or (ii) except as provided in
section 1.8 above, normal increases in the ordinary course of business
consistent with past practice or except as required by applicable law, increase
in any manner the compensation or fringe benefits of any director, officer or
employee, nor any payments thereto except as is consistent with past practice;
(j) other than activities in the ordinary course of business consistent with
past practice, sell, lease, encumber, assign or otherwise dispose of, or agree
to sell, lease, encumber, assign or otherwise dispose of, any of its material
assets, properties or other rights or agreements;
(k) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(l) other than agreements in the ordinary course of business that do not
require payments by the Company in excess of $50,000 per year per individual
agreement or an aggregate of $150,000 per year for all such agreements, create,
renew, amend or terminate or give notice of a proposed renewal, amendment or
termination of, any material contract, agreement or lease for goods, services
or office space to which the Company is a party or by which the Company or its
properties are bound; or
(m) agree to do any of the foregoing.
5.2 Filings and Audits. Company Shareholder agrees to make all filings
necessary under Section 13(d) of the Securities Exchange Act of 1934, as
amended, in a timely manner as required by law, and will, prior to closing,
cause the Company to deliver, at Company Shareholder's expense, audited
financial statements for the periods ended December 31, 1997 and 1998,
accompanied by the report of ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, CPA.
5.3 Covenants of Parent. During the period from the date of this Agreement
and continuing until the Effective Time, Parent shall not, without the prior
written consent of the Company, not to be unreasonably withheld, nor permit any
of its Subsidiaries to:
(a) enter into any new line of business, except as contemplated hereby or
in the Proxy Statement; or
(b) take any action that is intended or may reasonably be expected to
result in any of their representations and warranties set forth in this
Agreement being or becoming untrue, or in any of the conditions to the Merger
not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Preparation of Proxy Statement. As promptly as practicable after the
execution of this Agreement, Parent shall, if shareholder approval is required,
prepare and file with the SEC a proxy statement (together with all amendments
thereto "Proxy Statement") for use in connection with the Special Meeting (as
defined below). Parent shall prepare the Proxy Statement in
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compliance with applicable federal and state securities laws and with the
applicable provisions of Colorado law. As promptly as practicable after the
preparation of the Proxy Statement and the completion of the SEC's review, if
any, of such Proxy Statement, the Proxy Statement shall be mailed to the
shareholders of Parent. None of the information supplied in the Proxy
Statement shall, at the date it or any amendments or supplements thereto are
mailed to the shareholders in connection with the Special Meeting, at the time
of the Special Meeting, or at the Closing, 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. Company and Company
Shareholder shall cooperate with Parent and provide any information required
for the Proxy Statement or any other necessary securities filings.
6.2 Shareholders' Meeting. As promptly as practicable after the date hereof,
if required, Parent shall call and hold a special meeting of its shareholders
for the purpose of approving this Agreement and the transactions contemplated
hereby (the "Special Meeting"). Parent shall use its best efforts to solicit
from its shareholders proxies in favor of the approval of this Agreement and
the transactions contemplated hereby pursuant to the Proxy Statement.
6.3 Access to Information.
(a) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, Company shall afford to Parent and their respective
officers, employees, accountants, counsel and other representatives, access,
during normal business hours during the period prior to the Effective Time, to
all its properties, books, contracts, commitments, records, customers,
suppliers, officers, employees, accountants, counsel and other representatives.
Company shall not be required to provide access to or to disclose information
where such access or disclosure would jeopardize any attorney-client privilege
or contravene any law, rule, regulation, order, judgment, decree, fiduciary
duty or binding agreement entered into prior to the date of this Agreement.
The parties hereto will make appropriate substitute disclosure arrangements
under circumstances in which the restrictions of the preceding sentence apply.
(b) Each party hereto agrees to, and shall cause its employees, agents,
directors, advisors and representatives to, (i) treat and hold as confidential
and not disclose to any person, firm, corporation, association or other entity
for any purpose or reason whatsoever all information relating to trade secrets,
processes, patent or trademark applications, product development, price,
customer and supplier lists, pricing and marketing plans, policies and
strategies, operations methods, business development techniques, business
acquisition plans, new personnel acquisition plans and any other confidential
information with respect to the business of the other party, (ii) in the event
that it or any of its employees, agents, advisors, directors or representatives
becomes legally compelled to disclose any such information, provide the other
party with prompt written notice of such requirement so that such party may
seek a protective order or other remedy or waive compliance with this Section
6.3(b), and (iii) in the event that such protective order or other remedy is
not obtained, or the other party waives compliance with this Section 6.3(b),
furnish only that portion of such confidential information which is legally
required to be provided and exercise its best efforts to obtain assurances that
confidential treatment will be accorded such information; provided, however,
that this Section shall not apply to any information that, at the time of
disclosure, is available publicly and was not disclosed in breach of this
Agreement by either party, their respective agents, representatives, employees,
advisors, or directors. The parties agree and acknowledge that remedies at law
for any breach of their obligations under this
24
Section are inadequate and that in addition thereto the non-breaching party
shall be entitled to seek equitable relief, including injunction and specific
performance, in the event of any such breach, without the necessity of
demonstrating the inadequacy of money damages.
6.4 Public Disclosure. Unless otherwise permitted by this Agreement, Parent
and the Company shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated hereby,
and neither shall issue any such press release or make any such statement or
disclosure without the prior approval of the other (which approval shall not be
unreasonably withheld), except as may be required by law.
6.5 Compliance with Securities Laws. Parent shall take such steps as may be
necessary to comply with the securities and blue sky laws of all jurisdictions
which are applicable to the issuance of the Parent Stock in connection with the
Merger.
6.6 Solicitation. Prior to the Closing Date, each of the Company and the
Company Shareholder shall not, directly or indirectly, in any way solicit,
initiate contact with, or enter into or conduct any discussions or
negotiations, or enter into any agreements, whether written or oral, with any
other firm, entity or individual, with respect to the sale of the stock or
assets or the merger or other business combination of the Company with any
other entity. Each of the Company and the Company Shareholder shall, if it is
the recipient of such an offer, immediately notify Parent of such event and the
details of such offer.
6.7 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to Closing under
this Agreement. Each party hereto, at the reasonable request of another party
hereto, shall execute and deliver such other instruments and do and perform
such other acts and things as may be necessary or desirable for effecting
completely the consummation of this Agreement and the transactions contemplated
hereby. The parties hereto agree that, subsequent to the Effective Time, they
will at the request of the other party, execute and deliver such additional
conveyances, transfers and other assurances as, in the opinion of such party's
counsel, are reasonably required to carry out the intent of this Agreement.
▇▇▇▇ ▇▇▇▇▇ agrees to take all steps reasonably required by Parent to assist
Parent in retaining the goodwill of the Company and in particular to retain all
employees who have entered into employment agreements with Parent.
ARTICLE VII
CONDITIONS PRECEDENT
7.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) Shareholder Approval. If required, Parent shall have obtained the
requisite approval of this Agreement and the transactions contemplated hereby
by its shareholders.
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(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to
the Merger, which makes the consummation of the Merger illegal.
(c) Governmental Approval. All approvals, waivers and consents from each
Governmental Entity necessary for consummation of or in connection with the
Merger and the several transactions contemplated hereby shall have been
obtained.
7.2 Conditions to Obligations of Parent and Merger Sub. The obligation of
Parent and Merger Sub to effect the Merger is also subject to the satisfaction
or waiver by Parent and Merger Sub at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company and Company Shareholder set forth in this Agreement shall be true
and correct as of the date of this Agreement and as of the Closing Date as
though made on and as of the Closing Date. Parent shall have received a
certificate signed on behalf of the Company by its Chief Executive Officer and
Chief Financial Officer to that effect.
(b) Performance of Obligations of the Company. The Company and the Company
Shareholder shall have performed in all material respects all obligations
required to be performed by them under this Agreement at or prior to the
Closing Date, and Parent shall have received a certificate signed on behalf of
the Company by its Chief Executive Officer and Chief Financial Officer to that
effect.
(c) No Material Adverse Changes. There shall not have occurred any material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations or results of
operations of the Company, taken as a whole.
(d) Third Party Consents. Parent shall have been furnished with evidence
satisfactory to it of the consent or approval of those persons whose consent or
approval shall be required in connection with the Merger including those set
forth on Section 3.4 of the Company Disclosure Schedule.
(e) Employment Agreements. ▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ and at least eighty percent of all employees shall have entered into
employment agreements with Parent in a mutually satisfactory form which
agreements shall contain signing bonuses in the aggregate of $530,000 to the
individuals listed in the Employee Signing Bonus Schedule. If the employment
with Company of any of the individuals listed in the Employee Signing Bonus
Schedule is terminated prior to the Closing Date, or if any of the individuals
listed do not sign the employment agreement required by this Section 7.2(e), at
the discretion of Company Shareholder, the signing bonus for such individual or
individuals may be redistributed among any other listed individuals, and/or may
be allocated to any other employees of Company, including any hired after the
signing of this Agreement provided that such other employees have entered into
the employment agreement with Parent as required hereunder. All such employees
shall
26
have entered into lock-up agreements as described in Subsection 2.2(f). The
employment agreement for ▇▇▇▇ ▇▇▇▇▇ shall be for a minimum term of three years
and shall contain non-competition covenants during the term and for two years
after the end of the term of his employment agreement or earlier termination.
(f) Legal Opinion. Company shall have caused a legal opinion from JG, P.C.
Business & Corporate Law, counsel to the Company, in a form satisfactory to
Parent, in its sole discretion, to be delivered to Parent.
(g) Encumbrance. Company and Company Shareholder shall have caused any
encumbrances on the Company Stock (and assets of the Company, insofar as any
such encumbrance secures debt of any person other than that of the Company) to
have been removed, vacated or discharged on or prior to the Closing Date.
(h) Financing. Parent shall have obtained financing for the transactions
contemplated hereby on terms satisfactory to Parent.
(i) Micro Visions Merger. Parent shall have closed its merger transaction
with Executive LAN Management, Inc. prior to the Closing Date.
(j) Closing Deliveries. In addition to any other instruments and documents
required to be delivered by Company and Company Shareholder pursuant to this
agreement, Company and/or Company Shareholder shall have delivered to Parent on
or before the Closing Date such certificates, instruments and documentation as
are reasonably required in the opinion of Parent's counsel to complete the
transactions contemplated herein.
(k) Due Diligence. Parent shall have been satisfied in its sole discretion
with its review of due diligence materials supplied, either prior to or
subsequent to the date hereof, to Parent by Company and Company Shareholder
including without limitation the audited financial statements referred to in
Section 5.2 and such other materials as Parent requires Company or Company
shareholder to produce acting reasonably.
(l) Pre-Merger Transactions. Parent shall be satisfied that all conditions
of the pre-merger transactions set out in section 1.8 have been completed,
should Company choose to carry out such transactions.
7.3 Conditions to the Obligations of Company and Company Shareholder. The
obligation of the Company to effect the Merger is also subject to the
satisfaction or waiver by the Company at or prior to the Effective Time of the
following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Merger Sub set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date. The Company shall have received a certificate signed
(i) on behalf of Parent by its Chief Executive Officer and Chief Financial
Officer and (ii) on behalf of Merger Sub by its President , in each case to the
foregoing effect.
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(b) Performance of Obligations of Parent and Merger Sub. Parent and Merger
Sub shall have performed in all material respects all obligations required to be
performed by them under this Agreement at or prior to the Closing Date, and the
Company shall have received a certificate signed (i) on behalf of Parent by its
Chief Executive Officer and Chief Financial Officer and (ii) on behalf of
Merger Sub by its President, in each case to such effect.
(c) No Material Adverse Changes. There shall not have occurred any material
adverse change in the condition (financial or otherwise), properties, assets
(including intangible assets), liabilities, business, operations or results of
operations of Parent and its Subsidiaries, taken as a whole.
(d) Options. Parent shall have granted Company Shareholder the right to
distribute options to purchase 500,000 shares of Parent Stock, issued in
accordance with Parent's stock option plan, to the Company Shareholder and
employees and independent contractors of Company who have continued their
employment or contract with Parent after the Closing Date to be distributed in
a manner determined by Company shareholder, and which options may, at Company
Shareholder's discretion, be included in the employment agreements to be
executed under Section 7.2(e) provided that, in the opinion of Parent's tax
advisors, the inclusion of such will not change the treatment of such for
accounting purposes as merger consideration. Such options shall be priced at
market value when issued. The right to grant the option shall vest with the
Company Shareholder at the Effective Time and Company Shareholder shall, within
120 days of Closing grant such options. Company Shareholder acknowledges that
the right to grant such options is subject to shareholder or director approval.
ARTICLE VIII
TERMINATION AND AMENDMENT
8.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the shareholders of the Company:
(a) by mutual consent of the Company, Parent and Merger Sub in a written
instrument, if the Board of Directors of each so determines by a vote of a
majority of the members of its entire Board;
(b) by either Parent or the Company if there shall have been a material
breach of any of the representations or warranties set forth in this Agreement
on the part of the other party, which breach is not cured within thirty (30)
days following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing and which breach
shall constitute a Material Adverse Effect;
(c) by either Parent or the Company if there shall have been a material
breach of any of the covenants or agreements set forth in this Agreement on the
part of the other party, which breach shall not have been cured within thirty
(30) days following receipt by the breaching party of written notice of such
breach from the other party hereto, or which breach, by its nature, cannot be
cured prior to the Closing and which breach shall constitute a Material Adverse
Effect.
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8.2 Effect of Termination. In the event of termination of this Agreement by
either Parent or the Company as provided in Section 8.1, this Agreement shall
forthwith become void and have no effect except that (i) Sections 6.3(b), 6.4
and 10.3 shall survive any termination of this Agreement and notwithstanding
anything to the contrary contained in this Agreement, no party shall be
relieved or released from any liabilities or damages arising out of its willful
breach of any provision of this Agreement. The Company Shareholder shall
promptly cause its attorney to return the Deposit to Parent. The Company and
Company shareholder acknowledge that Parent will be expending resources and
time and as a result will be foregoing other potential transactions during the
period from the date hereof until the Closing Date. The parties hereto have
agreed that a fee (the "Break-up Fee") shall be paid by the Company and/or the
Company Shareholder to the Parent in the event that the Company or Company
Shareholder directly or indirectly:
(a) accepts any offer or enter into any agreement with any other party
with respect to any sale or other disposition of the Purchased Shares,
Business or Assets prior to the Time of Closing; or
(b) solicit, initiate, entertain or encourage enquiries, submissions,
discussions, proposals or offers from any other person for the sale or
other disposition of the Purchased Shares, Business or Assets prior to
the Time of Closing.
The Break-up Fee payable by the Company and/or Company Shareholder shall be
Four Hundred Thousand Dollars ($400,000) payable within 48 hours of any of the
occurrence of an event in (a) or (b) above and, in such event, the Deposit
shall also be returned to the Parent without deduction.
8.3 Amendment. Subject to compliance with applicable law, this Agreement may
be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the shareholders of the
Parent. This Agreement may not be amended except by an instrument in writing
signed on behalf of each of the parties hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, each of the
parties hereto, by action taken or authorized by its Board of Directors, may,
to the extent legally allowed, (a) extend the time for the performance of any
of the obligations or other acts of the other party hereto, (b) waive any
inaccuracies in the representations and warranties of the other party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions of the other party contained herein.
Any agreement on the part of a party hereto to any such extension or waiver
shall be valid only if set forth in a written instrument signed on behalf of
such party, but such extension or waiver or failure to insist on strict
compliance with an obligation, covenant, agreement or condition shall not
operate as a waiver of, or estoppel with respect to, any subsequent or other
failure.
ARTICLE IX
INDEMNIFICATION AND ESCROW FUND
9.1 Indemnity. (a) The Company Shareholder shall indemnify, defend, protect
and hold harmless Parent and its successors and assigns, subsidiaries,
directors, officers, employees, agents and affiliates (each a "Parent
Indemnified Person"), at all times from and after the date of
29
this Agreement (subject to any limitations provided in this Article IX) against
all losses, claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses ("Losses") (including specifically, but without
limitation, reasonable attorneys' fees and expenses of investigation ("Legal
Expenses")) based upon, resulting from or arising out of (i) any inaccuracy or
breach of any representation, or warranty of the Company or the Company
Shareholder contained in this Agreement, (ii) the breach by the Company or the
Company Shareholder of, or the failure by the Company or the Company
Shareholder to observe, any of its covenants or other agreements contained in
this Agreement and (iii) from any liability of the Company for the matters
listed in the Indemnity Schedule.
(b) Parent shall indemnify, defend, protect and hold harmless the Company
Shareholder and its trustees, agents, successors and assigns (the "Shareholder
Indemnified Person") at all times from and after the date of this Agreement
(subject to any limitations set forth in this Article IX) against all Losses
(including specifically, but without limitation, Legal Expenses) based upon,
resulting from or arising out of (a) any inaccuracy or breach of any
representation or warranty of Parent contained in this Agreement, and (b) the
breach by Parent of, or the failure by Parent to observe, any of its covenants
or other agreements contained in or made pursuant to this Agreement.
9.2 Indemnification Procedures.
(a) Promptly after receipt by any person entitled to indemnification under
Section 9.1 (an "indemnified party") of notice of the commencement of any
action, suit or proceeding by a person not a party to this Agreement in respect
of which the indemnified party will seek indemnification hereunder (a "Third
Party Action"), the indemnified party shall notify the person that is obligated
to provide such indemnification (the "indemnifying party") thereof in writing,
but any failure to so notify the indemnifying party shall not relieve it from
any liability that it may have to the indemnified party under Section 9.1,
except to the extent that the indemnifying party is prejudiced by the failure
to give such notice. The indemnifying party shall be entitled to participate
in the defense of such Third Party Action and to assume control of such defense
(including settlement of such Third Party Action) with counsel reasonably
satisfactory to such indemnified party; provided, however, that:
(i) the indemnified party shall be entitled to participate in the
defense of such Third Party Action and to employ counsel at its
own expense (which shall not constitute Legal Expenses for
purposes of this Agreement) to assist in the handling of such
Third Party Action;
(ii) the indemnifying party shall obtain the prior written approval
of the indemnified party before entering into any settlement of
such Third Party Action or ceasing to defend against such Third
Party Action, if pursuant to or as a result of such settlement
or cessation, injunctive or other equitable relief would be
imposed against the indemnified party or the indemnified party
would be adversely affected thereby;
(iii) no indemnifying party shall consent to 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 Third Party Action; and
30
(iv) the indemnifying party shall not be entitled to control the
defense of any Third Party Action unless the indemnifying party
confirms in writing its assumption of such defense and
continues to pursue the defense reasonably and in good faith.
After written notice by the indemnifying party to the
indemnified party of its election to assume control of the
defense of any such Third Party Action in accordance with the
foregoing, (i) the indemnifying party shall not be liable to
such indemnified party hereunder for any Legal Expenses
subsequently incurred by such indemnified party attributable to
defending against such Third Party Action, and (ii) as long as
the indemnifying party is reasonably contesting such Third
Party Action in good faith, the indemnified party shall not
admit any liability with respect to, or settle, compromise or
discharge the claim underlying, such Third Party Action without
the indemnifying party's prior written consent. If the
indemnifying party does not assume control of the defense of
such Third Party Action in accordance with this Section 9.2,
the indemnified party shall have the right to defend and/or
settle such Third Party Action 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 therefor in accordance with this Section 9.2.
The reimbursement of fees, costs and expenses required by this
Section 9.2 shall be made by periodic payments during the
course of the investigation or defense, as and when bills are
received or expenses incurred.
(b) If an indemnified party has actual knowledge of any facts or
circumstances other than the commencement of a Third Party Action which cause in
good faith it to believe that it is entitled to indemnification under this
Article IX then such indemnified party shall promptly give the indemnifying
party notice thereof in writing, but any failure to so notify the indemnifying
party shall not relieve it from any liability that it may have to the
indemnified party under Section 9.1, as the case may be, except to the extent
that the indemnifying party is prejudiced by the failure to give such notice.
9.3 Limitations and Payment of Claims.
(a) The right of indemnification or other claim against Parent or the Company
Shareholder with respect to each representation, warranty, covenant and
agreement contained in this Agreement shall, except with respect to
representations, warranties, covenants and agreements set forth in Sections
3.2, 3.10 and 3.14 which shall survive forever, terminate on the date (the
"Survival Date") occurring on (i) the thirtieth day after the expiration of the
applicable statute of limitations (or extensions or waivers thereof) relating
to the representations, warranties, covenants and agreements set forth in
Sections 3.8, 3.9, 3.13 and 4.6, and (ii) the second anniversary of the Closing
Date with respect to all other representations, warranties, covenants and
agreements contained in this Agreement, except in so far as a claim has been
asserted by either party and not been resolved prior to expiration of the
applicable periods set forth in item (i) or (ii) above.
(b) The Company Shareholder shall not be liable to any Parent Indemnified
Person for any claim under this Agreement unless the aggregate of Losses
suffered by all Parent Indemnified Persons considered together exceeds $50,000,
and then only to the extent of such excess. Parent shall not be liable to any
Shareholder Indemnified Person for any claim under this Agreement
31
unless the aggregate of Losses suffered by all Shareholder Indemnified Persons
considered together exceeds $50,000, and then only to the extent of such
excess.
(c) All amounts owed by the Company Shareholder to a Parent Indemnified
Person under this Article IX may be paid, at the election of the Company
Shareholder, either in (i) cash or (ii) shares of Parent Stock. All amounts
owed by Parent to a Shareholder Indemnified Person under this Article IX shall
be paid in shares of Parent Stock. Any shares of Parent Stock issued,
surrendered or transferred as payment of amounts owed pursuant to this Article
IX shall be valued at the average of the closing sale prices (or last bid prices
if no closing sale prices are reported) of Parent Stock as reported on the NASD
OTC Bulletin Board (or on such other exchange or quotation system as the Parent
Stock may be traded at such time) for the ten (10) trading days immediately
preceding the date such payment is required to be made.
ARTICLE X
GENERAL PROVISIONS
10.1 Survival of Representations and Warranties. The representations,
warranties, covenants and agreements of the parties made in this Agreement
shall survive the Closing and shall terminate on the dates that the right to
indemnification under such representations, warranties, covenants or agreements
terminates as provided in Section 9.1, and they shall not be affected in any
respect by any examination or investigation conducted by or on behalf of the
parties hereto and any information which any party may receive pursuant to the
schedules hereto or otherwise.
10.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given when delivered personally, 24 hours after
sent by facsimile (with confirmation), 3 days after mailed by registered or
certified mail (return receipt requested) or 1 day after sent by a nationally
recognized overnight courier (next day delivery) (with confirmation) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Company, ▇▇▇▇ ▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇ to:
CN Networks, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
JG, P.C. Business & Corporate Law
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
32
(b) if to Parent, to:
Futurelink Distribution Corp.
▇▇▇-▇▇▇-▇ ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇
with copies to:
▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Sosnovitch
▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇ ▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Jeffer, Mangels, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
2121 Avenue of the Stars, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
(c) if to the Company Shareholder, to:
▇▇▇▇▇▇▇ And ▇▇▇▇▇ ▇▇▇▇▇ Living Trust, dated 3/28/98
▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to:
JG, P.C. Business & Corporate Law
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇▇▇▇▇▇▇
33
10.3 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND
ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA (WITHOUT
REFERENCE TO CONFLICT OF LAW PRINCIPLES OTHER THAN THOSE DIRECTING CALIFORNIA
LAW).
10.4 Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the Merger is not affected in any manner materially adverse to any
party.
10.5 Assignment; Binding Effect; Benefit. Neither this Agreement nor any of
the rights, interests or obligations hereunder shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties hereto. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and permitted assigns.
Notwithstanding anything contained in this Agreement to the contrary, other
than Section 6.3, nothing in this Agreement, expressed or implied, is intended
to confer on any person other than the parties hereto or their respective
successors and permitted assigns any rights or remedies under or by reason of
this Agreement.
10.6 Expenses. All costs and expenses incurred by Parent in connection with
this Agreement and the transactions contemplated hereby shall be paid by Parent
except that Company Shareholder shall pay for any costs of Parent with respect
to reviewing and implementing Company and Company Shareholder's tax planning
including legal and accounting fees. All costs and expenses incurred by the
Company or the Company Shareholder in connection with this Agreement and the
transactions contemplated hereby shall be paid by Company Shareholder.
10.7 Headings. The descriptive headings contained in this Agreement are
included for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
10.8 Entire Agreement. This Agreement (including the Exhibits, Schedules, the
Parent Disclosure Schedule and the Company Disclosure Schedule) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings among the parties with
respect thereto. No addition to or modification of any provision of this
Agreement shall be binding upon any party hereto unless made in writing and
signed by all parties hereto.
10.9 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
34
IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Reorganization and Merger as of the date first written above.
PARENT
FUTURELINK DISTRIBUTION
CORP.
By: [signed: ▇. ▇▇▇▇▇▇▇]
-------------------------
Name: ▇. ▇▇▇▇▇▇▇
Title: Chief Financial Officer
MERGER SUB
FUTURELINK PLEASANTON
ACQUISITION CORP.
By: [signed: ▇. ▇▇▇▇▇▇▇]
-------------------------
Name: ▇. ▇▇▇▇▇▇▇
Title: Chief Financial Officer
COMPANY
CN NETWORKS, INC.
By: [signed: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇]
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: President
COMPANY SHAREHOLDER
▇▇▇▇▇▇▇ AND ▇▇▇▇▇ ▇▇▇▇▇ LIVING
TRUST, dated 3/28/98
By: [signed: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇]
-----------------------------
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Title: Trustee
[Signatures continued on following page]
35
[signed: C.A. ▇▇▇▇▇▇▇▇] [signed: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇]
------------------------------- ----------------------------------
WITNESS ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
[signed: ▇▇▇▇▇▇▇▇ ▇▇▇▇] [signed: ▇▇▇▇▇ ▇. ▇▇▇▇▇]
------------------------------- ----------------------------------
WITNESS ▇▇▇▇▇ ▇. ▇▇▇▇▇
36
EMPLOYEE SIGNING BONUS SCHEDULE
Signing
Bonus
▇▇▇▇ ▇▇▇▇▇▇▇ $80,000
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ $80,000
▇▇▇▇ ▇▇▇▇▇▇ $80,000
▇▇▇ ▇▇▇▇▇▇▇▇ $40,000
▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇▇▇▇ $35,000
▇▇▇ ▇▇▇▇▇ $35,000
▇▇▇▇▇▇▇ ▇▇▇▇ $25,000
▇▇▇▇▇ ▇▇▇▇▇▇ $25,000
▇▇▇▇ ▇▇▇▇▇▇ $25,000
▇▇▇▇ ▇▇▇▇▇▇▇▇ $25,000
▇▇▇▇▇ ▇▇▇▇▇▇ $8,000
▇▇▇ ▇▇▇▇▇▇ $8,000
▇▇▇▇▇ ▇▇▇▇▇▇ $8,000
▇▇▇▇▇▇▇ ▇▇▇▇ $8,000
▇▇▇▇ ▇▇▇▇ $8,000
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ $8,000
▇▇▇ ▇▇▇▇▇▇▇▇ $8,000
▇▇▇▇ ▇▇▇▇▇▇ $8,000
▇▇▇▇ ▇▇▇▇▇▇▇▇ $8,000
▇▇▇▇▇ ▇▇▇▇▇▇▇ $8,000