AGREEMENT AND PLAN OF REORGANIZATION
AMERICOM USA, INC.
("Parent Corporation")
KSI ACQUISITION, INC.
("Acquiring Corporation")
KIOSK SOFTWARE, INC.
("Target Corporation")
▇▇▇▇ ▇▇▇▇▇▇
("Principal Shareholder")
January 24, 1999
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (this
"Agreement") is made and entered into, effective on the
date set forth below, by and among AMERICOM USA, INC., a
Delaware corporation ("Parent Corporation"); KSI
ACQUISITION, INC., a Delaware corporation ("Acquiring
Corporation"); KIOSK SOFTWARE, INC., a California
corporation ("Target Corporation"); and ▇▇▇▇ ▇▇▇▇▇▇
("Principal Shareholder"), with reference to the following
facts:
RECITALS:
A. The Boards of Directors of each of Parent
Corporation and Acquiring Corporation and the undersigned
chief executive officer of Target Corporation believe it
is in the best interests of each such company and their
respective shareholders that Acquiring Corporation acquire
Target Corporation through the statutory merger of Target
Corporation with and into Acquiring Corporation (the
"Merger").
B. Pursuant to the Merger, among other
things, and subject to the terms and conditions of this
Agreement, all of the issued and outstanding shares of
common stock, no par value per share, of Target
Corporation ("Target Corporation Common Stock") shall be
converted into the right to receive shares of Common Stock
of Parent Corporation.
C. Target Corporation, Principal Shareholder,
Parent Corporation, and Acquiring Corporation have agreed
to execute this Agreement in order to memorialize the
terms and conditions on which Target Corporation shall
merge with and into Acquiring Corporation.
AGREEMENTS:
NOW, THEREFORE, in consideration of the covenants,
promises and representations set forth herein, and for
other good and valuable consideration, intending to be
legally bound hereby, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as
defined in Section 1.2) and subject to and upon the terms
and conditions of this Agreement and the applicable
provisions of the Delaware General Corporation Law, as
amended (the "Delaware GCL") and the California General
Corporation Law, as amended (the "California GCL"), Target
Corporation shall be merged with and into Acquiring
Corporation, the separate corporate existence of Target
Corporation shall cease, and Acquiring Corporation shall
continue as the surviving corporation. The surviving
corporation after the Merger is hereinafter sometimes
referred to as the "Surviving Corporation."
1.2 Effective Time. Unless this Agreement is
earlier terminated pursuant to Section 8.1, below, the
closing of the Merger (the "Closing") shall occur on or
before February 15, 1999 (the "Scheduled Closing Date"),
at the offices of Reicker, Clough, ▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
unless another place or time is hereafter agreed to in
writing by Acquiring Corporation and Target Corporation.
The date upon which the Closing actually occurs is herein
referred to as the "Closing Date." On the Closing Date,
the parties hereto shall cause the Merger to be
consummated by filing a Certificate of Merger (the
"Merger Certificate") with the Secretary of State of the
State of Delaware in accordance with the relevant
provisions of the Delaware GCL. The time of acceptance by
the Secretary of State of the State of Delaware of such
filing shall be referred to herein as the "Effective
Time." As promptly as practicable after the Closing Date,
Acquiring Corporation shall cause the Merger Certificate
to be filed with the Secretary of State of the State of
California in accordance with the relevant provisions of
the California GCL.
1.3 Effect of the Merger. At the Effective
Time, the effect of the Merger shall be as provided in the
applicable provisions of the Delaware GCL and the
California GCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all
the property, rights, privileges, powers and franchises of
Target Corporation and Acquiring Corporation shall vest in
the Surviving Corporation, and all debts, liabilities and
duties of Target Corporation and Acquiring Corporation
shall become the debts, liabilities and duties of
Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) The Certificate of Incorporation of
Acquiring Corporation, as in effect immediately prior to
the Effective Date, shall be the Certificate of
Incorporation of the Surviving Corporation until
thereafter amended.
(b) The Bylaws of Acquiring Corporation, as in
effect immediately prior to the Effective Time, shall be
the Bylaws of the Surviving Corporation until thereafter
amended.
1.5 Directors and Officers. The directors of
Acquiring Corporation immediately prior to the Effective
Time and Principal Shareholder shall be the initial
directors of the Surviving Corporation, each of whom shall
hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation.
The officers of Acquiring Corporation immediately prior to
the Effective Time shall be the initial officers of the
Surviving Corporation, except that Principal Shareholder
shall be appointed as President of the Surviving
Corporation as of the Effective Time, and each such
officer shall hold office in accordance with the Bylaws of
the Surviving Corporation.
1.6 Effect of Merger on the Capital Stock of
Target Corporation.
(a) Exchange of Target Corporation Common
Stock. As of the Effective Time of the Merger, each share
of Target Corporation Common Stock that is issued and
outstanding immediately prior to the Effective Time of the
Merger shall, by virtue of the Merger and without any
action on the part of Acquiring Corporation, Target
Corporation, Parent Corporation, or the officers,
directors, or shareholders of any such entity, be canceled
and extinguished and converted into the right to receive
from Parent Corporation that number of shares of the
common capital stock of Parent Corporation (the "Parent
Corporation Common Stock") determined by dividing (i) One
Million (1,000,000), by (ii) the total number of shares of
Target Corporation Common Stock outstanding immediately
prior to the Effective Time (such quotient , the "Exchange
Ratio"). Subject to Section 1.6(b), below, the holder of
one or more shares of Target Corporation Common Stock
shall be entitled to receive in exchange therefor a number
of shares of Parent Corporation Common Stock equal to the
product of (x) the number of shares of Target Corporation
Common Stock owned by such shareholder, times (y) the
Exchange Ratio.
(b) Adjustments to Parent Corporation Common
Stock. The number of shares of Parent Corporation Common
Stock issuable hereunder 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 Corporation Common
Stock or Target Corporation Common Stock), reorganization,
recapitalization or other like change with respect to
Parent Corporation Common Stock or Target Corporation
Common Stock occurring after the date hereof and prior to
the Effective Date.
(i) The parties (x) acknowledge that
Parent Corporation is conducting an Offering (the "Reg S
Offering") of Parent Corporation Common Stock pursuant to
that certain Regulation S Private Offering Memorandum
dated December 2, 1998 (the "Parent Corporation Offering
Memorandum"), (y) further acknowledge that Parent
Corporation is in the process of amending that Parent
Corporation Offering Memorandum in order to attempt to
raise up to an additional Three Million Seven Hundred and
Fifty Thousand Dollars ($3,750,000.00) at a price of not
less than Two Dollars ($2.00) per share of Parent
Corporation Common Stock, and (z) agree that such
amendment and the sale of such additional shares at a
price of at least $2.00 per share shall not affect the
Exchange Ratio.
(ii) Notwithstanding any provision of
this Agreement to the contrary, if during the period
commencing on the effective date of this Agreement and
ending one hundred and eighty (180) days after the Closing
Date (the "Measuring Period"), Parent Corporation sells
any shares of Parent Corporation Common Stock in the Reg S
Offering at a price less than Two Dollars ($2.00) per
share, then:
(A) The Exchange Ratio shall be
modified by substituting in place of "1,000,000" in
Section 1.6(a), above, a figure equal to the quotient
determined by dividing (x) $2,000,000, by (y) the lowest
price at which shares of Parent Corporation Common Stock
are sold during the Measuring Period;
(B) The aggregate number of shares of
Parent Corporation Common Stock exchanged in the Merger
shall be increased from 1,000,000 to a figure equal to the
quotient determined under the foregoing subparagraph
"(A);" and
(C) Immediately after the expiration
of the Measuring Period, Parent Corporation shall deliver
to each former shareholder of Target Corporation a share
certificate for the additional number of shares of Parent
Corporation Common Stock which such shareholder is
entitled to receive under this Section 1.6(b)(ii).
(c) Fractional Shares. No fractional share of
Parent Corporation Common Stock shall be issued in the
Merger. In lieu thereof, any fractional share shall be
rounded up or down to the nearest whole share of Parent
Corporation Common Stock (with any fraction greater than
or equal to 0.50 being rounded up and any fraction less
than 0.50 rounded down).
(d) Treasury Stock. All shares of the capital
stock of Target Corporation held in the treasury of Target
Corporation immediately prior to the Effective Time shall
be canceled and extinguished without any conversion
thereof and no Parent Corporation Common Stock or other
consideration shall be delivered or deliverable in
exchange therefor.
(e) Stock Options.
(i) At the Effective Time, all unexpired
and unexercised option to purchase shares of Target
Corporation Common Stock (a "Target Corporation Option")
granted under the Target Corporation Stock Option Plan
(the "Target Corporation Option Plan") and outstanding
immediately prior to the Effective Time shall be replaced
by an option (a "Parent Corporation Option") issued under
the Stock Option Plan to be adopted by Parent Corporation
prior to the Closing pursuant to Section 6.1(e), below
(the "Parent Corporation Option Plan"), except that (i)
such Parent Corporation Option shall be exercisable for
that number of whole shares of Parent Corporation Common
Stock equal to the product of the number of shares of
Target Corporation Common Stock that were purchasable
under such Target Corporation Option immediately prior to
the Effective Time multiplied by the Exchange Ratio,
rounded down to the nearest whole number of shares of
Parent Corporation Common Stock, and (ii) the exercise
price per share for the shares of Parent Corporation
Common Stock issuable upon exercise of each Parent
Corporation Option shall be equal to the quotient
determined by dividing (x) the exercise price per share of
Target Corporation Common Stock under the pertinent Target
Corporation Option being exchanged, divided by (y) the
Exchange Ratio.
(ii) Parent Corporation and Acquiring
Corporation each acknowledges that the holder of each such
Parent Corporation Option issued as of the Effective Time
pursuant to this Agreement shall be fully vested in and
immediately may exercise the entire option owned by such
holder.
(iii) Subject to Sections 6.1(e), below,
each Parent Corporation Option shall be subject to the
terms and conditions of the Parent Corporation Option
Plan. The date of grant of each Parent Corporation Option
for purposes of such terms and conditions shall be deemed
to be the date on which the corresponding Target
Corporation Option was granted. At the Effective Time,
Acquiring Corporation shall issue to each holder of a
Target Corporation Option a stock option agreement under
the Parent Corporation Option Plan evidencing the
respective Parent Corporation Option. It is the purpose
and intention of the parties that, subject to applicable
law, the exchange of Parent Corporation Options for Target
Corporation Options shall meet the requirements of Section
424(a) of the Internal Revenue Code of 1986, as amended
(the "Code") and that each Parent Corporation Option shall
qualify immediately after the Effective Time as an
incentive stock option as defined in Section 422 of the
Code but only to the extent that the related Target
Corporation Option so qualified immediately before the
Effective Time, and the foregoing provisions of this
Section 1.6 shall be interpreted to further such purpose
and intention. The right to receive a Parent Corporation
Option may not be assigned or transferred except as
provided under the Parent Corporation Option Plan. Any
attempted assignment contrary to this Section 1.6(e) shall
be null and void.
1.7 Surrender of Certificates.
(a) Exchange Agent. The Secretary of Acquiring
Corporation shall act as exchange agent (the "Exchange
Agent") in the Merger.
(b) Exchange Procedures. On the Closing Date,
(i) each holder of record of a certificate or certificates
(collectively, the "Target Corporation Stock
Certificates") that immediately prior to the Effective
Time represented outstanding shares of Target Corporation
Common Stock whose shares were converted into the right to
receive shares of Parent Corporation Common Stock pursuant
to Section 1.6(a), above, will deliver to the Exchange
Agent for cancellation Target Corporation Stock
Certificates, together with a letter of transmittal and an
executed stock power in blank, and (ii) the Exchange Agent
will deliver to each such holder of record of Target
Corporation Stock Certificate(s) a certificate
representing the number of whole shares of Parent
Corporation Common Stock (rounded up or down to the
nearest whole share pursuant to Section 1.6(d)). Until so
surrendered, each outstanding Target Corporation Stock
Certificate that, prior to the Effective Time, represented
shares of Target Corporation Common Stock will be deemed
from and after the Effective Time, for all corporate
purposes, to evidence the ownership of the number of full
shares of Parent Corporation Common Stock (rounded to the
nearest whole share) into which such shares of Target
Corporation Common Stock shall have been so converted.
(c) Transfers of Ownership. If any certificate
for shares of Parent Corporation Common Stock is to be
issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it shall
be a condition of the issuance thereof that the
certificate so surrendered will be properly endorsed and
otherwise in proper form for transfer and that the person
requesting such exchange shall have paid to Acquiring
Corporation or any agent designated by it any transfer or
other taxes required by reason of the issuance of a
certificate for shares of Parent Corporation Common Stock
in any name other than that of the registered holder of
the certificate surrendered, or established to the
satisfaction of Acquiring Corporation or any agent
designated by it that such tax has been paid or is not
payable.
1.8 No Further Ownership Rights in Target
Corporation Common Stock. All shares of Parent
Corporation Common Stock issued upon the surrender for
exchange of shares of Target Corporation Common Stock in
accordance with the terms hereof (including any cash paid
in respect thereof) shall be deemed to have been issued in
full satisfaction of all rights pertaining to such shares
of Target Corporation Common Stock, and there shall be no
further registration of transfers on the records of the
Surviving Corporation of shares of capital stock of Target
Corporation that were outstanding immediately prior to the
Effective Time. If, after the Effective Time, any stock
certificates evidencing shares of capital stock of Target
Corporation are presented to the Surviving Corporation for
any reason, they shall be canceled and exchanged as
provided in this Article I.
1.9 Lost, Stolen or Destroyed Certificates. In
the event any certificates evidencing shares of capital
stock of Target Corporation shall have been lost, stolen
or destroyed, the Exchange Agent shall issue in exchange
for such lost, stolen or destroyed certificates, upon the
making of an affidavit of that fact by the holder thereof,
such shares of Parent Corporation Common Stock and such
cash as may be required pursuant to Section 1.6(a).
1.10 Tax Treatment of the Merger. For federal
income tax purposes, the parties shall use reasonable best
efforts to qualify the Merger as a tax-free reorganization
under the "forward triangular merger" provisions of
Section 368(a)(1)(A) and 368(a)(2)(C) of the Code. Each
party to this Agreement has consulted with its own tax
advisors in connection with the Merger.
1.11 Taking of Necessary Action; Further Action.
If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purposes
of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of
Target Corporation and Acquiring Corporation, the officers
and directors of Target Corporation and Acquiring
Corporation are fully authorized in the name of their
respective corporations or otherwise to take, and will
take, all such lawful and necessary action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF TARGET CORPORATION
AND PRINCIPAL SHAREHOLDER
Target Corporation and Principal Shareholder hereby
jointly and severally represent and warrant to Acquiring
Corporation and Parent Corporation as follows:
2.1 Organization. The Target Corporation is a
corporation duly organized, validly existing and in good
standing under the laws of the State of California. The
Target Corporation has full power and authority to own its
assets and to carry on its business as and where such
business is now conducted. The Target Corporation is duly
qualified or licensed to do business and is in good
standing in all jurisdictions in which the nature of its
business or the character of its properties or assets
requires such qualification or license (except where any
failure to do so does not have a Material Adverse Effect),
all of which jurisdictions are set forth in Schedule
2.1-1. Set forth as Schedule 2.1-2 is a listing of all
fictitious names and trade names by which the Target
Corporation has been known or under which the Target
Corporation has done business, and all business addresses
and locations from which such business has been conducted,
for the past five (5) years. Copies of the Formation
Documents of the Target Corporation, and all amendments
thereto, heretofore delivered to Acquiring Corporation are
true, accurate and complete as of the date of this Agreement.
2.2 Capitalization. The number of shares of
authorized capital stock of the Target Corporation, the
par value per share, and the number of shares of each
class of capital stock of the Target Corporation which are
presently issued and outstanding are as set forth on
Schedule 2.2. Also set forth in Schedule 2.2 is a list of
the holders of Stock along with an indication of the
number of shares held by each such Person. Each
Shareholder is the sole shareholder of each share of Stock
indicated on 2.2 as owned by him, free and clear of any
and all Encumbrances. All outstanding shares of Stock
have been duly and validly issued and are fully paid and
non-assessable and were issued in compliance with all
applicable state and federal securities and other laws.
There is no other capital stock of any class authorized or
issued by the Target Corporation. There are no
outstanding options, warrants, calls, commitments,
agreements or other rights to subscribe for, purchase or
otherwise acquire any capital stock of the Target
Corporation or securities convertible into or exchangeable
for any capital stock of the Target Corporation to which
the Target Corporation or each Shareholder is or may be
bound.
2.3 Ability to Carry Out Agreement. Except as
set forth on Schedule 2.2 and except for any liabilities
arising by reason of a Target Corporation shareholder's
exercising dissenters' rights pursuant to applicable
provisions of the California Corporations Code, the
consummation of the transactions contemplated hereby,
including, but not limited to, the execution, delivery and
performance of this Agreement and all other documents
collateral hereto or thereto, contemplated hereby or
thereby, or required to effect the transactions
contemplated hereby and thereby, does not and will not:
(a) constitute a violation of or default under, conflict
with or result in a breach of (i) the formation documents
of the Target Corporation, (ii) any terms of any contract
to which the business, the Target Corporation or the
Shareholders are or may be bound or constitute a default
thereunder (either immediately or upon notice, lapse of
time or both), (iii) any court order or (iv) to their
knowledge, any regulation; (b) result in the creation or
imposition of any encumbrances (other than encumbrances
approved by Parent Corporation or Acquiring Corporation)
or liabilities of any nature whatsoever which can be
reasonably be expected to have a material adverse effect
on Target Corporation, or give to any person any interest
or right in any of the stock, the assets of the Target
Corporation and/or the business of Target Corporation; or
(c) accelerate the maturity of, or otherwise modify, any
contract of the Target Corporation and/or its business.
2.4 Validity of Agreement - Authority. As of
the Effective Time, the execution, delivery and
performance of this Agreement and all other documents
required to effect the transactions contemplated hereby,
and the consummation of the transactions contemplated
hereby and thereby, will have been duly and validly
authorized and approved by all necessary action on the
part of the Shareholders and the Target Corporation, to
the extent required by California law. This Agreement and
any other document or instrument contemplated by this
Agreement, after execution and delivery by the
Shareholders and the Target Corporation to Acquiring
Corporation, shall constitute valid and binding
obligations of the Shareholders and the Target
Corporation, enforceable in accordance with their
respective terms, except as the enforceability thereof may
be limited by bankruptcy, reorganization, moratorium or
similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to
enforceability. Except as set forth on Schedule 2.4, no
Consent is required with respect to the Shareholders or
the Target Corporation in connection with the execution,
delivery and performance of this Agreement or any other
agreement collateral hereto or contemplated hereby.
2.5 Permits and Licenses. The Target
Corporation holds all Permits and Licenses necessary for
the operation of the Business as conducted and presently
anticipated to be conducted by the Target Corporation, all
of which are listed on Schedule 2.5. To the knowledge of
Principal Shareholder and Target Corporation, the Target
Corporation is in compliance with all of the terms and
conditions of the Permits and Licenses. Except as noted
on Schedule 2.5, the transactions contemplated by this
Agreement shall not conflict with or result in the
modification, cancellation or termination of any of the
Permits or Licenses.
2.6 Compliance with Regulations. The Assets,
the Business, and the Target Corporation are in compliance
with all Regulations and neither the Shareholders or the
Target Corporation have received written notice of any
violation of any Regulation(s), the violation of which
would have a Material Adverse Effect on the Business.
Since inception, the Target Corporation has not engaged in
any transaction, maintained any bank account or used any
funds except for transactions, bank accounts and funds
which have been and are reflected in their normally
maintained Books and Records.
2.7 Financial Statements. The Books and Records
of the Target Corporation fairly and accurately reflect in
all material respects the transactions to which the Target
Corporation is and was a party or by which its properties
are and were affected and such Books and Records have been
properly kept and maintained in accordance with GAAP, and
will continue to be so kept and maintained through the
Closing Date. On the Closing Date such Books and Records
will be correct and complete and will fairly and
accurately present the Target Corporation's financial
condition and operations in all material respects.
Attached as Schedule 2.7-1 are copies of the balance
sheets, statements of income, statements of cash flows and
statements of shareholder equity for the Target
Corporation for the years ended December 31, 1996,
December 31, 1997, December 31, 1998 (collectively, the
"Financial Statements"). Except as described on Schedule
2.7-2 or as disclosed in the Financial Statements, as of
their respective dates, the Financial Statements (i) are
in accordance with the Books and Records of the Target
Corporation, (ii) were prepared in accordance with GAAP,
consistently applied from period to period (except for
changes, if any, permitted by GAAP and disclosed therein),
and (iii) fairly present in all material respects in
accordance with GAAP, the financial position, results of
operations, cash flows and shareholders' equity of the
Target Corporation as of the dates and for the periods
covered thereby.
2.8 Title to and Condition of Certain Fixtures
and Equipment. Except as set forth in Schedule 2.8, the
Target Corporation has good, valid and marketable title to
all of its Fixtures and Equipment, wherever located, and
the Assets, free and clear of all Encumbrances other than
Permitted Encumbrances. All such Fixtures and Equipment
are, and shall on the Closing Date be, in good operating
condition and repair, reasonable wear and tear excepted,
and adequate and sufficient for the operation of the
Business as currently conducted, and there are no material
defects in such Fixtures and Equipment as would have a
Material Adverse Effect on the use of such Fixtures and
Equipment in the Business. All Fixtures and Equipment
owned by the Target Corporation valued in excess of $500
are listed on Schedule 2.8-1, and are physically located
at the Premises, with the exception of the assets
described in 2.8-2 wherein the specific description and
locations of such assets are set forth.
2.9 Tax Returns and Taxes. The Target
Corporation has furnished to Acquiring Corporation true,
accurate and complete copies of all Tax Returns of the
Target Corporation, as filed, for each of the last three
(3) years as well as all ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ and
local payroll tax returns. Except as set forth on
Schedule 2.9, Target Corporation has duly and timely filed
with the appropriate Governmental Entity all tax and other
returns and reports required to be filed, all of which
have been accurately prepared. All Taxes due, owing and
payable, or which may be due, owing and payable, arising
out of all operations of the Target Corporation for all
periods ended on December 31, 1998, have been fully paid
or duly reserved for by the Target Corporation in
accordance with GAAP in the Financial Statements,
including, without limitation, any and all Taxes due,
owing or payable with respect to employees, consultants
and independent contractors of the Target Corporation.
All Taxes arising from the date of this Agreement to the
Closing Date will be, on the Closing Date, fully paid or
reserved in accordance with GAAP. Adequate provisions
have been and will through the Closing Date be made by the
Target Corporation in its Books and Records for Taxes not
required to be paid prior to the respective due dates
therefor. Except as fully described on Schedule 2.9, none
of the Shareholders or the Target Corporation have
received written notice from any Governmental Entity of
any deficiency or other adjustment which has not been
satisfied. Except as fully described on Schedule 2.9, the
Target Corporation is not presently under audit by the
Internal Revenue Service ("IRS") for any Taxes, has not
been the subject of an IRS audit during the past five (5)
years, or has received any notice of a proposed IRS audit.
There are no agreements, waivers, or other arrangements
providing for an extension of time with respect to the
assessment of any Taxes or deficiency against the Target
Corporation, nor are there any Actions, now pending or, to
their knowledge, threatened against the Target Corporation
in respect of any Taxes; and
2.10 Labor Relations. The Target Corporation is
not a party to any collective bargaining or union
contract, nor are any of the Shareholders or the Target
Corporation aware of any current union organization effort
with respect to the Target Corporation's employees.
During the most recent two (2) year period, the Target
Corporation has not received any notice, of, and there
have not been, any strikes, slowdowns, work stoppages,
lock-outs or threats thereof, by or with respect to any of
the Target Corporation's employees.
2.11 Status of Contracts. Schedule 2.11-1
identifies all Contracts between the Target Corporation
and third parties as relate to, or are connected with and
are a part of the Business. The Contracts represent all
of the agreements between the Target Corporation and third
parties relating to the Target Corporation's conduct of
the Business. Except as set forth in Schedule 2.11-2, the
Target Corporation is not in default, nor is there any
basis known to the Target Corporation for any claim of
default by any party, nor has the Target Corporation
received any notice of cancellation or termination, under
any Contract described in Schedule 2.11-2 where such
default, cancellation or termination could have a Material
Adverse Effect on the Target Corporation or the Business.
All of the foregoing Contracts are valid, binding and in
full force and effect and the Target Corporation is not a
party to or otherwise bound by any oral agreement or
contract.
2.12 Changes or Events. Except as set forth in
Schedule 2.12, during the period from January 1, 1999 to
the date of this Agreement none of the following has
occurred with respect to either the Target Corporation:
(a) any change in the financial condition,
assets, Liabilities, business, prospects or operations,
other than changes in the regular, normal and ordinary
course of business consistent with past custom or
practice, which alone or in the aggregate could have a
Material Adverse Effect on the Target Corporation or the
Business;
(b) any damage, destruction or loss, as a result
of fire, storm casualty, other acts of God or theft of a
substantial amount of Fixtures and Equipment, whether or
not covered by insurance, adversely affecting the Target
Corporation or any of their assets which alone or in the
aggregate could be reasonably be expected to have a
Material Adverse Effect on the Target Corporation or the
Business;
(c) any disposition of or Encumbrance or
agreement to dispose of or place an Encumbrance upon any
of the Target Corporation's assets, other than
dispositions in the regular, normal and ordinary course of
business, consistent with past custom or practice and
Permitted Encumbrances;
(d) any transaction relating to the Target
Corporation involving over $5,000 entered into by the
Target Corporation other than in the regular, normal and
ordinary course of business consistent with past custom or
practice;
(e) any adverse event of default, cancellation
or termination of any Contract involving over $5,000
between the Target Corporation and any party thereto;
(f) any Liability involving over $5,000 incurred
by the Target Corporation, except Liabilities incurred and
obligations under Contracts entered into, in the regular,
normal and ordinary course of the Target Corporation's
business;
(g) any capital expenditure or commitment for
addition to property, plant or equipment of the Target
Corporation involving over $5,000;
(h) any agreement or commitment by the Target
Corporation to do or take any of the actions referred to
in paragraphs (a) through (h) of this Section 2.12.
2.13 Employees and Employee Benefits.
(a) Set forth on Schedule 2.13-1 is a true,
accurate and complete listing of (a) all employment,
managerial, advisory or consulting agreements to which the
Target Corporation and any employee are parties; (b) all
confidentiality or other agreements protecting proprietary
processes, formulae or information to which the Target
Corporation and any employee are parties; (c) all other
written obligations of the Target Corporation to any
employee; (d) the name, current compensation, accrued
severance pay, sick pay and vacation benefits of each
employee; and (e) all Employee Plans. Neither the Target
Corporation, any of their respective officers or
directors, has taken any action directly or indirectly to
obligate the Target Corporation to adopt any additional
Employee Plan. True, correct and complete copies of all
Employee Plans and related documents, including amendments
thereto, any related trust agreements, any documents
setting out the Target Corporation's personnel policies
and procedures, any insurance contracts under which
benefits are provided, as currently in effect, and
descriptions of any such plan that is not written, have
been supplied to Acquiring Corporation. Acquiring
Corporation has also been provided with a copy of the
Summary Plan Description, if any, for each Employee Plan,
as well as copies of any other summaries or descriptions
of any such Employee Plans that have been provided to
employees or other beneficiaries during the previous three
(3) calendar years;
(b) The Target Corporation has fulfilled its
obligations, to the extent applicable, under the minimum
funding requirements of Section 302 of ERISA and Section
412 of the Code, with respect to each "employee benefit
plan" (as defined in Section 3(3) of ERISA). Each
Employee Plan is in compliance with, and has been
administered in all respects consistent with, the
presently applicable provisions of ERISA, the Code and
state law including, but not limited to, the satisfaction
of all applicable reporting and disclosure requirements
under the Code, ERISA and state law. The Target
Corporation has made all payments to all Employee Plans as
required by the terms of each such plan in accordance, if
applicable, with the actuarial and funding assumptions in
effect as of the most recent actuarial valuation of such
plans. All required actuarial valuations and reports
relating to all Employee Plans have been prepared, and a
copy of the most recent actuarial valuation and report for
each pension plan, as defined in Section 3(2) of ERISA,
has been provided to Acquiring Corporation, if applicable.
Except as set forth on 2.13-2, the Target Corporation has
filed or caused to be filed with IRS annual reports on
Form 5500 for each Employee Plan attributable to them for
all years and periods for which such reports were required
and within the time period required by ERISA and the Code,
and true, correct and complete copies of such reports for
the past five (5) years are attached hereto as part of
2.13-2. The Target Corporation has funded or will fund
each Employee Plan attributable to it in accordance with
its terms through the Closing Date. To the extent that
any annual contribution for the current year is not yet
required for any Employee Plan as of the Closing Date, the
Target Corporation has made a pro rata contribution to
said plan for the period ended at the Closing Date or said
contribution has been accrued on the Interim Financial
Statement;
(c) No "prohibited transaction", as defined in
Section 406 of ERISA and Section 4975 of the Code, has
occurred in respect of any Employee Plan, and no civil or
criminal action brought pursuant to Part 5 of Title I of
ERISA is pending or is threatened in writing or orally
against any fiduciary of any such plan;
(d) The IRS has issued a letter for each
employee pension benefit plan, as defined in Section 3(2)
of ERISA, determining that such plan is a qualified plan
under Section 401(a) of the Code and is exempt from United
States Federal Income Tax under Section 501(a) of the
Code, and there has been no occurrence since the date of
any such determination letter that has adversely affected
such qualification. In addition, the Target Corporation
does not maintain a plan or arrangement intended to
qualify under Section 501(c)(9) of the Code. Furthermore,
neither IRS nor the Department of Labor is currently
auditing or reviewing any tax qualified plan of the Target
Corporation, and the Target Corporation has not received
any notice, written or otherwise, of any impending audit
or review of any such arrangements from IRS or the
Department of Labor;
(e) Each Employee Plan that provides medical
benefits has been operated in compliance with all
requirements of Section 4980B(f) of the Code and Sections
601 through 608 of ERISA relating to continuation of
coverage under certain circumstances in which coverage
would otherwise cease;
(f) The Target Corporation, nor any entity that
is treated as a single employer with the Target
Corporation pursuant to Section 414(b), (c), (m) or (o) of
the Code currently maintains any Employee Plan that is
subject to Title IV of ERISA, nor has the Target
Corporation previously maintained any such plan that has
resulted in any liability or potential liability for the
Target Corporation under said Title IV. There shall not
be as of the Closing Date any outstanding unpaid minimum
funding waiver within the meaning of Section 412(d) of the
Code;
(g) Attached hereto as a part of Schedule 2.13-2
is a five-year contribution history indicating the dollar
amount contributed and the level of contribution as a
percentage of compensation of covered participants for
each profit sharing plan, stock bonus plan or other
retirement plan to which the Target Corporation makes
discretionary contributions;
(h) The Target Corporation does not maintain any
plans or programs and are not parties to any agreement
providing post-retirement medical benefits (other than
benefits described in this Section and those required by
Law), death benefits or other post retirement welfare
benefits. A copy of any written description of
post-retirement welfare benefits that has been provided to
employees is attached hereto as a part of Schedule 2.13-2.
Copies of each plan document, insurance contract or other
written instrument providing for post retirement welfare
benefits, together with a description of any advance
funding arrangement that has been established to fund post
retirement welfare benefits, are attached hereto as part
of Schedule 2.13-2. Schedule 2.13-2 contains a list of
those persons who are currently retired with a right to
future post-retirement welfare benefits and also contains
a list of employees who would be currently eligible for
post retirement welfare benefits if they retired and
satisfied any waiting period provided for under the
applicable plan. All plans or programs for providing post
retirement medical, death or other welfare benefits could
be terminated by the Target Corporation as of the Closing
Date without liability for such benefits to any employee
who has not retired on or before Closing Date;
(i) Neither the Target Corporation, nor any
employer referred to in Section 5.14(f) maintains, or has
contributed within the past five years to, any
multi-employer plan within the meaning of Sections 3(37)
or 4001(a)(3) of ERISA. No such employer currently has
any liability to make withdrawal liability payments to any
multi-employer plan. There is no pending dispute between
any such employer and any multi-employer plan concerning
payment of contributions or payment of withdrawal
liability payments; and
(j) All Employee Plans have been operated and
administered in accordance with their respective terms and
no inconsistent representation or interpretation has been
made to any plan participant. No lawsuit or complaint
(including any dispute that might result in a lawsuit or
complaint against, by or relating to any Employee Plan or
any fiduciary, as defined in Section 3(21) of ERISA) if an
Employee Plan has been filed or is pending.
2.14 Real Property; Leaseholds.
(a) The Target Corporation does not own any real
property of any nature whatsoever;
(b) Schedule 2.14 sets forth a list and summary
description of the Leasehold of the Target Corporation.
The Target Corporation is the holder of the Leasehold is
in full force and effect and constitutes a valid and
binding obligation of the Target Corporation and all other
parties thereto enforceable in accordance with its terms,
except as the enforceability thereof may be limited by
bankruptcy, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally or by
equitable principles relating to enforceability. The
Target Corporation has the sole right to use or occupy the
realty subject of the Leasehold and, upon consummation of
the transactions contemplated hereby and obtaining the
consents required thereunder, the Leasehold will continue
in full force and effect and constitute a valid and
binding obligation on the part of the Target Corporation
and all other parties thereto enforceable in accordance
with its terms, except as the enforceability thereof may
be limited by bankruptcy, reorganization, moratorium or
similar laws relating to or limiting creditors' rights
generally or by equitable principles relating to
enforceability. The Target Corporation enjoys peaceful
and undisturbed possession of the Leasehold;
(c) No portion of the realty subject of the
Leasehold is subject to any pending condemnation
proceeding by any public or quasi-public authority and
there is no threatened condemnation proceeding with
respect thereto. The physical condition of each portion
of the realty is sufficient to permit the continued
conduct of the Business as presently conducted and as
proposed by the Target Corporation to be conducted
following the Closing Date. The Target Corporation has
not received written notice of any outstanding violation
of any Regulation respecting any portion of the leased
realty and no written notice of any such violation has
been issued to the Target Corporation by any Governmental
Entity requiring construction, alterations or installation
or in connection with any portion of the leased realty
which has not been complied with. Each parcel of leased
realty is supplied with utilities and other services
necessary for the operation of such facility as presently
conducted, and all of such services are adequate to
conduct that portion of the Business as is presently
conducted at such facility. The Target Corporation has
not sublet, underlet or assigned the Leasehold and no
third party is in possession of any portion of the leased
realty other than the Target Corporation. The zoning of
each portion of the leased realty, permits the presently
existing improvements and the continuation of the Business
presently being conducted thereon as a conforming use.
The existing use of each tract of the leased realty is not
dependent on the use or availability of any other parcel
and no restrictions exist in the right to remodel, rebuild
or replace any improvements located thereon or to continue
the operation of the Business. To their knowledge, there
are no pending changes in Regulations that will render any
part of the Business as presently conducted illegal or
uneconomical, or any plan, study or effort by any
Governmental Entity or any non-governmental Person that
would result in a Material Adverse Affect.
2.15 Insurance. Schedule 2.15 lists (a) all
policies of insurance presently in force and, without
restricting the generality of the foregoing, those
covering the Target Corporation's public and product
liability and its personnel, properties, buildings,
machinery, equipment, furniture, fixtures and operations,
specifying with respect to each such policy, the name of
the insurer, type of coverage, term of policy, limits of
liability and annual premium, (b) all outstanding
insurance claims by the Target Corporation for damage to
or loss of property or income or against the Target
Corporation which have been referred to insurers or which
the Target Corporation believes to be covered by
commercial insurance, and (c) any agreements, arrangements
or commitments under which the Target Corporation
indemnifies any other Person (with the exception of any
obligation arising in connection with lease, purchase or
sale transactions or otherwise arising in the ordinary
course of the Target Corporation's business) or is
required to carry insurance for the benefit of any other
▇▇▇▇▇▇.▇▇▇▇▇▇▇▇▇ Certificates shall be furnished upon
execution of this Agreement.
2.16 Litigation. Except as disclosed on Schedule
2.16, there is no Action or Court Order pending, to their
knowledge, threatened, affecting, naming or directly
involving the Shareholders, the Target Corporation, the
Assets or the Business. The Financial Statements and the
Interim Financial Statements include adequate reserves
with respect to all matters disclosed in Schedule 2.16.
Neither Principal Shareholder nor Target Corporation know
of any facts or circumstances or other events which have
occurred or may reasonably be expected to recur that could
be reasonably expected to give rise to any Action or Court
Order.
2.17 Related-Party Target Transactions. Except
as disclosed in Schedule 2.17, there exist no transactions
or agreements between the Target Corporation and any
Affiliate of the Target Corporation involving more than
$5,000 in amount, including, without limitation all
guarantees by the Target Corporation, which have occurred
between January 1, 1998 and the date of this Agreement.
2.18 Accounts Receivable. All accounts
receivable of the Target Corporation shown on the
Financial Statements or arising thereafter, to the extent
uncollected on the date hereof, represent and will
represent valid obligations owing by the account debtors
thereof and are fully collectible by the Business within
one hundred twenty (120) days of the Closing Date. There
are no refunds, discounts or other adjustments payable in
respect of any of the accounts receivable of the Target
Corporation or any material defenses, rights of set-off,
assignments, restrictions, or Encumbrances known to the
Target Corporation or the Shareholders enforceable by
third parties on or affecting any accounts receivable of
the Target Corporation. A summary of accounts receivable
due the Target Corporation specifying the name, amount,
age and any amount written off or reserved against as of
the effective date of this Agreement is attached as
Schedule 2.18.
2.19 Relationship with Customers. The Target
Corporation has no reason to believe that relationships
with its customers are not good commercial working
relationships. Except as set forth on Schedule 2.19, no
customer of the Target Corporation has canceled or
otherwise terminated or threatened to cancel or otherwise
terminate, its relationship with the Target Corporation,
or has during the last twelve (12) months decreased
materially, or threatened to decrease, its relationship
with the Target Corporation or its usage of any of the
Target Corporation's services or purchases of the Target
Corporation's products. Except as stated in Schedule
2.19, and except for termination arising automatically as
a result of law, the Target Corporation has not received
notice that any customer intends to take any of the action
in the preceding sentence.
2.20 Proprietary Rights. Schedule 2.20 contains
a listing of all material Proprietary Rights of the Target
Corporation. Except as disclosed in Schedule 2.20:
(a) the Target Corporation owns all right, title
and interest in the Proprietary Rights described in
Schedule 2.20 (including, without limitation, exclusive
rights to use and license the same) free and clear of any
Encumbrances other than Permitted Encumbrances;
(b) the Target Corporation has not granted any
other party rights with respect to the Proprietary Rights;
(c) the Proprietary Rights described in Schedule
2.20 are valid;
(d) the Proprietary Rights described in Schedule
2.20 which have been filed, have been duly issued and have
not been canceled, abandoned or otherwise terminated;
(e) the Proprietary Rights described in Schedule
2.20 which have been filed, have been duly filed; and
(f) the Target Corporation has not received
notice of default under any of the Proprietary Rights and,
to their knowledge, no other party is in default thereunder.
2.21 Non-Infringement of Proprietary Rights.
Except as disclosed on Schedule 2.21 (i) none of the
services or products provided by the Target Corporation,
or processes, equipment, software or technology used by
the Target Corporation, or the trademarks, trade names,
labels or other marks or copyrights used by the Target
Corporation, infringe the Proprietary Rights of any other
Person, or require the payment of any royalty, license
fee, or other charge or fee of any kind to any Person, and
none of the Target Corporation, Shareholders has received
any notice of adverse claim by any third party with
respect thereto, (ii) all employees of the Target
Corporation have executed written agreements protecting
the Proprietary Rights of the Target Corporation, (iii)
the Target Corporation has license agreements in force to
the extent necessary to permit its full use of all of the
processes used by it in its operations in accordance with
present and planned practices; and (iv) the Target
Corporation owns or has the right to use pursuant to the
licenses, if any, disclosed on Schedule 2.21 all
Proprietary Rights used in its business.
2.22 Environmental Requirements. Except as
disclosed on Schedule 2.22,
(a) Neither the Target Corporation nor any other
Person has engaged in or, to their knowledge, permitted
any operations or activities upon, or any use or occupancy
of, any Leasehold, or any portion thereof, or any other
property now or previously owned or operated by the Target
Corporation, resulting in the storage, emission, release,
discharge, dumping or disposal of any Hazardous Materials
on, under, in or about any Leasehold or any other property
now or previously owned or operated by the Target
Corporation, nor have any Hazardous Materials migrated
from any Leasehold or any other property now or previously
owned or operated by the Target Corporation to, upon,
about or beneath other properties, nor have any Hazardous
Materials migrated or threatened to migrate from other
properties to, upon, about or beneath any Leasehold or any
other property now or previously owned or operated by the
Target Corporation;
(b) There is not, nor has there been,
constructed, placed, deposited, stored, disposed of or
located on any Leasehold or any other property now or
previously owned or operated by the Target Corporation any
asbestos or lead paint, (ii) each Leasehold and its
existing uses and activities and its prior uses and
activities and the uses and activities of other property
now or previously owned or operated by the Target
Corporation, comply and have at all times complied in all
material respects with all Environmental Requirements, and
each of the Target Corporation has obtained and complied
with all Permits and Licenses necessary under applicable
Environmental Requirements, and (iii) neither the Target
Corporation nor any prior owner or occupant of any
Leasehold or any other property now or previously owned or
operated by the Target Corporation or has received any
notice or other communication concerning any alleged
violation of Environmental Requirements, whether or not
corrected to the satisfaction of the appropriate
Governmental Entity, or any notice or other communication
concerning alleged liability for violation of
Environmental Requirements in connection with each
Leasehold or any other property now or previously owned or
operated by the Target Corporation, and there exists no
Action or Court Order threatened, relating to the
ownership, use, maintenance of operation of any Leasehold
or any other property now or previously owned or operated
by the Target Corporation or by any Person, arising from
allege violation of Environmental Requirements, or from
the suspected presence of Hazardous Materials thereon or
potential migration thereto, and there are no existing
facts or conditions which could give rise to any such
violation or liabilities; and
(c) Neither any Leasehold nor any of the Assets
is (or with the passage of time and/or giving of notice
would be) subject to any private or governmental
Encumbrances relating to Hazardous Materials or a
violation of an Environmental Requirement.
2.23 Political Contributions and Other Payments.
During the past five (5) years, neither the Target
Corporation, Affiliated Entities, nor any other Person
acting on behalf of the Target Corporation, Affiliated
Entities, has (i) except for lawful political
contributions in the regular, normal and ordinary course
of business consistent with past custom or practice, made
any payment to any official, employee or agent (domestic
or foreign) of any Governmental Entity to wrongfully
induce the recipient or the recipient's employer to do
business with, grant favorable treatment to, or compromise
or forego any claim by or against the Target Corporation,
or (ii) made any significant payment or conferred any
significant benefit which, the Target Corporation, in the
exercise of reasonable business judgment, considers or
reasonably should consider to be improper.
2.24 Occupational Safety and Health Act. Except
as set forth on Schedule 2.24, the Target Corporation is
in compliance with all requirements of the Occupational
Safety and Health Act and the Americans With Disabilities
Act, pertaining to the Target Corporation, the Assets and
the Business.
2.25 Consents. Except for those Consents
heretofore obtained, satisfied or made, or those set forth
in Schedule 2.25, no Consent is required to be obtained,
satisfied or made pursuant to any Regulation, Permit or
License or Contract in connection with the execution,
delivery and performance of this Agreement by the Target
Corporation.
2.26 Disclosure. No representation or warranty
by the Shareholders and/or the Target Corporation in this
Agreement, nor any statement contained in any certificate,
schedule, list or other writing furnished or to be
furnished by the Shareholders and/or the Target
Corporation to Acquiring Corporation pursuant to this
Agreement (a) contains or shall contain any untrue
statement of a material fact, or (b) omits or shall omit
to state a material fact necessary in order to make the
statements contained herein or therein not misleading.
2.27 Year 2000 Compliance. All software products
and components designed, manufactured, produced or sold by
or on behalf of the Target Corporation are designed to be
used prior to, during, and after calendar year 2000 A.D.
and will operate during each such time period without
error relating to date data, specifically including any
error relating to, or the product of, date data which
represents or references different centuries or more than
one century and will be otherwise Year 2000 Compliant.
2.28 Investor Status. Principal Shareholder is
taking ownership of the Parent Corporation Common Stock
for investment purposes only and not with a view to
distribute same within the meaning of the Securities Act
of 1933, as amended (the "Securities Act"). Each
Shareholder has been provided with an opportunity to ask
questions of management of Parent Corporation and
Acquiring Corporation as such Shareholder deemed appropriate.
ARTICLE III
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF PRINCIPAL SHAREHOLDER
In addition to the representations and warranties
made by Principal Shareholder in Article II hereof,
Principal Shareholder hereby represents and warrants to
Acquiring Corporation as follows:
3.1 Title to the Shares. Principal Shareholder
is and as of the Effective Time will be the sole legal,
beneficial and record owner of all of the issued and
outstanding shares of capital stock of Target Corporation
issued in the name of such Shareholder.
3.2 Authority and Capacity. Principal
Shareholder has full legal right, capacity, power and
authority on her own individual behalf to execute and
deliver this Agreement and all other documents,
instruments, certificates and agreements executed or to be
executed by her pursuant hereto, and to consummate the
transactions contemplated hereby and thereby.
3.3 Absence of Violation. The execution,
delivery and performance by Principal Shareholder of her
obligations under this Agreement and all other documents,
instruments, certificates and agreements contemplated
hereby to which Principal Shareholder individually is a
party, the fulfillment of and the compliance with the
respective terms and provisions hereof and thereof, and
the consummation of the transactions contemplated hereby
and thereby, do not and will not: (a) conflict with, or
violate any provision of, any laws having applicability to
Principal Shareholder; or (b) conflict with, or result in
any breach of, or constitute a default under, any
agreement to which Principal Shareholder is a party.
3.4 Restrictions and Consents. There are no
agreements, laws or other restrictions of any kind to
which Principal Shareholder is a party or subject that
would prevent or restrict the execution, delivery or
performance of this Agreement by Principal Shareholder.
3.5 Binding Obligation. This Agreement has been
duly executed and delivered by Principal Shareholder and,
assuming the due authorization, execution and delivery by
Acquiring Corporation and Target Corporation, constitutes
a legal, valid and binding obligation of such Shareholder,
enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors'
rights generally and by the application of general
principles of equity.
3.6 No Registration Under the Securities Act.
Principal Shareholder understands that the shares of
Parent Corporation Common Stock to be issued to the
Shareholder under this Agreement have not yet been and in
the future may not be registered under the Securities Act
of 1933, as amended (the "Securities Act"), except as
otherwise set forth in this Agreement in reliance upon
exemptions contained in the Securities Act or
interpretations thereof, and until so registered as
contemplated by Section 6.1(d), below, cannot be offered
for sale, sold or otherwise transferred unless such shares
of Parent Corporation Common Stock are registered or
qualify for exemption from registration under the
Securities Act. Principal Shareholder acknowledges and
agrees that until such Parent Corporation Common Stock is
so registered as contemplated by Section 6.1(d), below,
each certificate representing Parent Corporation Common
Stock issued pursuant to her pursuant to this Agreement,
and any shares issued or issuable in respect of any such
shares of Parent Corporation Common Stock upon any stock
split, stock dividend, recapitalization, or similar event,
shall be imprinted with a legend in substantially the
following form (in addition to any legend required under
applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND MAY NOT BE
TRANSFERRED OR SOLD OTHER THAN (I) PURSUANT
TO AN EFFECTIVE REGISTRATION UNDER THE
SECURITIES ACT AND OTHER APPLICABLE STATE
SECURITIES LAWS OR AN AVAILABLE EXEMPTION
FROM SUCH REGISTRATION, AND (II) UPON
RECEIPT BY THE ISSUER OF EVIDENCE
SATISFACTORY TO IT OF COMPLIANCE WITH THE
SECURITIES ACT AND OTHER APPLICABLE STATE
SECURITIES LAWS. THE ISSUER SHALL BE
ENTITLED TO REQUIRE AN OPINION OF COUNSEL
SATISFACTORY TO IT WITH RESPECT TO
COMPLIANCE WITH THESE REQUIREMENTS.
The certificates evidencing the shares of Parent
Corporation Common Stock to be issued to the Shareholder
under this Agreement shall also bear any legend required
by the Commissioner of Corporations of the State of
California or such as are required pursuant to any state,
local or foreign law governing such securities.
3.7 Acquisition for Investment. The shares of
Parent Corporation Common Stock being issued to Principal
Shareholder pursuant to this Agreement are being acquired
by the Shareholder in good faith solely for the
Shareholder's own account, for investment and not with a
view toward resale or other distribution within the
meaning of the Securities Act. Principal Shareholder
further represents that the Shareholder has no present
contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such
person or to grant to any third person with respect to any
share of Parent Corporation Common Stock. The shares of
Parent Corporation Common Stock being issued to the
Shareholder pursuant to this Agreement will not be offered
for sale, sold or otherwise transferred by the Shareholder
without either registration or exemption from registration
under the Securities Act.
3.8 Evaluation of Merits and Risks of
Investment. Principal Shareholder has such knowledge and
experience in financial and business matters that
Principal Shareholder is capable of evaluating the merits
and risks of Principal Shareholder's investment in the
shares of Parent Corporation Common Stock being acquired
hereunder. Principal Shareholder further (i) acknowledges
that the only materials being delivered to Principal
Shareholder for purposes of evaluating Parent
Corporation's financial condition and prospects are (or
prior to the Closing Date will be) copies of (A) Parent
Corporation's Form 8-K dated December 12, 1998, (B) Parent
Corporation's Offering Memorandum, (C) a statement of
shareholder equity for Parent Corporation dated January
20, 1998, (D) audited financial statements for Parent
Corporation for the period ended September 30, 1998, (E)
an unaudited balance sheet for Parent Corporation as of
and a statement of income and expense for Parent
Corporation with respect to the period ended December 31,
1998, and (F) an estimated profit and loss statement for
Parent Corporation for calendar month January 1999
(collectively, the "Parent Corporation Disclosure
Materials"), (ii) acknowledges that except for information
to be supplied after the effective date of this Agreement
and prior to Closing, she has received all the information
that Principal Shareholder has requested from Acquiring
Corporation and Target Corporation that Principal
Shareholder considers necessary or appropriate for
deciding whether to accept the Parent Corporation Common
Stock being issued to Principal Shareholder pursuant to
this Agreement; (iii) represents that she has the ability
to bear the economic risks of Principal Shareholder's
prospective investment; and (iv) represents that she is
able, without materially impairing Principal Shareholder's
financial condition, to hold the Parent Corporation Common
Stock for an indefinite period of time and to suffer
complete loss on Principal Shareholder's investment.
Principal Shareholder confirms that Acquiring Corporation
has made available to Principal Shareholder and its
representatives and agents the opportunity to ask
questions of the officers and management employees of
Acquiring Corporation about the business and financial
condition of Acquiring Corporation as Principal
Shareholder has requested.
3.9 Forward Looking Information/ Risk Factors.
Principal Shareholder acknowledges and agrees that any
oral or written forward-looking statements made by or on
behalf of Acquiring Corporation in connection with the
Merger were made in the context of and shall have been
deemed to have been accompanied by the risk factors set
forth in the Parent Corporation Disclosure Materials.
Principal Shareholder acknowledges that actual results
could differ materially from those projected in or implied
by any forward-looking statement.
3.10 Transfer Limitations. Principal Shareholder
further agrees that unless transferred in compliance with
Rule 144 promulgated under the Securities Act ("Rule 144")
promulgated under the Securities Act, prior to any
proposed transfer of any of the shares of Parent
Corporation Common Stock, unless there is in effect a
registration statement under the Securities Act covering
the proposed transfer, Principal Shareholder shall give
written notice to Acquiring Corporation of Principal
Shareholder's intention to effect such transfer. Each
such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall, if
Acquiring Corporation so requests, shall be accompanied by
either (a) a written opinion of legal counsel who shall be
satisfactory to Acquiring Corporation, addressed to
Acquiring Corporation and satisfactory in form and
substance to Acquiring Corporation's counsel, to the
effect that the proposed transfer of Parent Corporation
Common Stock may be effected without registration under
the Securities Act, or (b) a "No Action" letter from the
Commission to the effect that the transfer of such
securities without registration will not result in a
recommendation by the staff of the Commission that action
be taken with respect thereto, whereupon the holder of
such Parent Corporation Common Stock shall be entitled to
transfer such shares of Parent Corporation Common Stock in
accordance with the terms of the notice delivered by the
holder to Acquiring Corporation. Each certificate
evidencing the shares of Parent Corporation Common Stock
transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 3.6, above, except
that such certificate shall not bear such restrictive
legend if in the opinion of counsel for Acquiring
Corporation such legend is not required in order to
establish compliance with any provisions of the Securities
Act.
3.11 Rule 144 Limitations. Principal Shareholder
is familiar with the provisions of Rule 144, which in
substance permits the limited public resale of "restricted
securities" acquired, directly or indirectly from the
issuer thereof (or from an affiliate of such issuer) in a
non-public offering subject to the satisfaction of certain
conditions. Principal Shareholder further understands
that in the event all of the applicable requirements of
Rule 144 are not satisfied, registration under the 1933
Act or compliance with a registration exemption would be
required to sell the shares of Parent Corporation Common
Stock received from Acquiring Corporation hereunder. With
a view to making available the benefits of certain rules
and regulations of the Commission, which may permit the
sale to the public without registration of the shares of
Parent Corporation Common Stock being issued to Principal
Shareholder pursuant to this Agreement, Acquiring
Corporation agrees, for a period of two years following
the Closing Date, to use reasonably diligent efforts to:
(a) make and keep public information available,
as those terms are understood and defined in Rule 144, at
all times after the effective date that Acquiring
Corporation becomes subject to the reporting requirements
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act");
(b) file with the Commission in a timely manner
all reports and other documents required of Acquiring
Corporation under the Securities Act and the Exchange Act;
and
(c) so long as Principal Shareholder owns any
shares of Parent Corporation Common Stock being issued
pursuant to this Agreement, to furnish to Principal
Shareholder forthwith upon request a written statement by
Acquiring Corporation as to its compliance with the
reporting requirements of Rule 144, a copy of the most
recent annual or quarterly report of Acquiring Corporation
and such other reports and documents of Acquiring
Corporation and other information in the possession of or
reasonably obtainable by Acquiring Corporation as
Principal Shareholder may reasonably request in availing
itself of any rule or regulation of the Commission
allowing Principal Shareholder to sell any such shares of
Parent Corporation Common Stock without registration.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT CORPORATION
AND ACQUIRING CORPORATION
4.1 Parent Corporation. Parent Corporation and
Acquiring Corporation jointly and severally represent and
warrant to Target Corporation and Principal Shareholder as
follows:
(a) Organization and Qualification. Parent
Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State
of Delaware. Parent Corporation has the requisite power
and authority to own, lease and operate its assets and
properties, to carry on its business as now being
conducted and to perform the terms of this Agreement and
the transactions contemplated hereby. Parent Corporation
is duly qualified to conduct its business, and is in good
standing, in each jurisdiction where the ownership or
leasing of its properties or the nature of its activities
in connection with the conduct of its business makes such
qualification necessary.
(b) Authority. The execution and delivery of
this Agreement by Parent Corporation and the consummation
by Parent Corporation of the transactions contemplated
hereby have been duly and validly authorized by all
necessary corporate action and no other corporate
proceedings on the part of Parent Corporation are
necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been
duly executed and delivered by Parent Corporation and,
assuming the due authorization, execution and delivery by
Target Corporation and the Shareholders, constitutes a
legal, valid and binding obligation of Parent Corporation,
enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws of
general applicability relating to or affecting creditors'
rights generally and by the application of general
principles of equity.
(c) No Conflict; Required Filings and Consents.
(i) Except as set forth in Schedule 4
to this Agreement, the execution and delivery of this
Agreement by Parent Corporation do not, and the
performance by Parent Corporation of their obligations
under this Agreement will not, (a) conflict with or
violate the certificate of incorporation or bylaws of
Parent Corporation, (b) conflict with or violate any law
applicable to Parent Corporation or their assets and
properties, or (c) result in any breach of or constitute a
default under any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent Corporation
is a party or by which Parent Corporation is bound, or by
which any of their properties or assets is subject.
(ii) Except as set forth in Schedule 4
to this Agreement, the execution and delivery of this
Agreement by Parent Corporation does not, and the
performance of this Agreement by Parent Corporation will
not, require any consent, approval, authorization or
permit of, or filing with or notification to, any
government entity.
(d) Brokers and Finders. Parent Corporation
has not retained any investment banker, broker or finder
in connection with the transactions contemplated by this
Agreement.
(e) Issuance of Parent Corporation Common
Stock. The shares of Parent Corporation Common Stock
issued to the Shareholders in connection with the Merger,
when issued, sold and delivered in accordance with the
terms and for the consideration expressed in this
Agreement, shall be duly and validly issued (including,
without limitation, issued in compliance with applicable
federal and state securities laws), fully paid and
non-assessable.
(f) Registration and Trading of Shares.
Parent Corporation expects to receive on or before January
31, 1999, a trading symbol and all other permits and
approvals required for the listing and trading of all
shares of Parent Corporation Common Stock (including but
not limited to the Parent Corporation Common Stock issued
to holders of Target Corporation Common Stock in
connection with the Merger) on the "Over the Counter
Bulletin Board" of the National Association of Securities
Dealers ("NASD"), save and except for those shares that
are restricted pursuant to Rule 144.
4.2 Acquiring Corporation. Parent Corporation
and Acquiring Corporation hereby jointly and severally
represent and warrant as follows:
(a) Organization and Qualification. Acquiring
Corporation is a corporation duly organized, validly
existing and in good standing under the laws of the State
of Delaware. Acquiring Corporation have the requisite
power and authority to own, lease and operate its assets
and properties, to carry on its business as now being
conducted and to perform the terms of this Agreement and
the transactions contemplated hereby. Acquiring
Corporation is duly qualified to conduct its business, and
is in good standing, in each jurisdiction where the
ownership or leasing of its properties or the nature of
its activities in connection with the conduct of its
business makes such qualification necessary.
(b) Authority. The execution and delivery of
this Agreement by Acquiring Corporation and the
consummation by Acquiring Corporation of the transactions
contemplated hereby have been duly and validly authorized
by all necessary corporate action and no other corporate
proceedings on the part of Acquiring Corporation are
necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been
duly executed and delivered by Acquiring Corporation and,
assuming the due authorization, execution and delivery by
Target Corporation and the Shareholders, constitutes a
legal, valid and binding obligation of Acquiring
Corporation, enforceable in accordance with its terms,
except as such enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium and
other similar laws of general applicability relating to or
affecting creditors' rights generally and by the
application of general principles of equity.
(c) No Conflict; Required Filings and Consents.
(i) Except as set forth in Schedule 4 to
this Agreement, the execution and delivery of this
Agreement by Acquiring Corporation do not, and the
performance by Acquiring Corporation of their obligations
under this Agreement will not, (a) conflict with or
violate the certificate of incorporation or bylaws of
Acquiring Corporation, (b) conflict with or violate any
law applicable to Acquiring Corporation or their assets
and properties, or (c) result in any breach of or
constitute a default under any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which
Acquiring Corporation is a party or by which Acquiring
Corporation is bound, or by which any of their properties
or assets is subject.
(ii) Except as set forth in Schedule 4 to
this Agreement, the execution and delivery of this
Agreement by Acquiring Corporation does not, and the
performance of this Agreement by Acquiring Corporation
will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any
government entity.
(d) Brokers and Finders. Acquiring Corporation
has not retained any investment banker, broker or finder
in connection with the transactions contemplated by this
Agreement.
ARTICLE V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Affirmative Covenants of Target Corporation
and Principal Shareholder. Target Corporation and
Principal Shareholder hereby covenant and agree that,
prior to the Effective Time, unless otherwise expressly
contemplated by this Agreement or consented to in writing
by Acquiring Corporation, Target Corporation shall (i)
operate its business in the usual and ordinary course
consistent with past practices and in accordance with
applicable laws; (ii) preserve intact its business
organization, maintain its rights and franchises, use its
best efforts to retain the services of its officers and
key employees and maintain its relationship with its
suppliers, contractors, distributors, customers and others
having business relationships with it; (iii) maintain and
keep its properties and assets in as good repair and
condition as at present, ordinary wear and tear excepted;
and (iv) keep in full force and effect insurance
comparable in amount and scope of coverage to that
currently maintained. Target Corporation shall promptly
notify Acquiring Corporation of any event or occurrence or
emergency not in the ordinary course of business of Target
Corporation, and any material event involving Target
Corporation.
5.2 Negative Covenants of Target Corporation and
the Shareholders. Except as expressly contemplated by
this Agreement or otherwise consented to in writing by
Acquiring Corporation, from the date hereof until the
Effective Time, Target Corporation shall not, and the
Shareholders shall cause Target Corporation not to, do any
of the following:
(a) enter into any commitment or transaction not
in the ordinary course of business;
(b) enter into any agreement or issue any
purchase order, in either case involving payment by Target
Corporation of more than $5,000 individually or $25,000 in
the aggregate;
(c) enter into any arrangement with any person
or entity to: (i) transfer to such person or entity or
any other person or entity any rights to the intellectual
property of Target Corporation; (ii) acquire any rights to
the intellectual property of such person or entity or any
other person or entity; or (iii) modify in any way any of
the intellectual property of Target Corporation.
(d) enter into or amend any agreements pursuant
to which any other party is granted marketing,
distribution or similar rights of any type or scope with
respect to any products of Target Corporation;
(e) amend or otherwise modify (or agree to do
so), or violate the terms of, any of the agreements set
forth or described in any of the Schedules described in
Article II, above;
(f) commence any litigation;
(g) grant any loans to others or purchase debt
securities of others or amend the terms of any outstanding
loan agreement, except in the ordinary course of business
and consistent with past practices.
(h) grant any severance or termination pay (i)
to any director or officer or (ii) to any other employee
except payments made pursuant to standard written
agreements outstanding on the date hereof;
(i) adopt or amend any employee benefit plan, or
enter into any employment contract, pay or agree to pay
any special bonus or special remuneration to any director
or employee, or increase the salaries or wage rates of its
employees, except in connection with annual pay adjustment
consistent with past practices which increases in the
aggregate have been approved by Parent Corporation or
Acquiring Corporation in writing and which for the
Shareholders have been approved by Parent Corporation or
Acquiring Corporation in writing;
(j) revalue any of its assets, including without
limitation writing down the value of inventory or writing
off notes or accounts receivable other than in the
ordinary course of business;
(k) enter into any strategic alliance or joint
marketing arrangement or agreement, or any agreement to
perform services (including research and development
services);
(l) (i) increase the compensation payable to or
to become payable to any of its directors, officers or
employees, except for increases in salary, wages or
bonuses payable or to become payable in the ordinary
course of business and consistent with past practice; (ii)
grant any severance or termination pay to, or enter into
or modify any employment or severance agreement with, any
of its directors, officers or employees; or (iii) adopt or
amend any employee benefit plan or arrangement, except as
may be required by applicable law;
(m) declare, set aside or pay any dividend on,
or make any other distribution in respect of, any of its
capital stock;
(n) (i) redeem, repurchase or otherwise
reacquire any share of its capital stock or any securities
or obligations convertible into or exchangeable for any
share of its capital stock, or any options, warrants or
conversion or other rights to acquire any shares of its
capital stock or any such securities or obligations; (ii)
effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of its capital 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 its capital stock;
(o) (i) issue, deliver, award, grant or sell, or
authorize or propose the issuance, delivery, award, grant
or sale (including the grant of any encumbrances) of, any
shares of any class of its capital stock (including shares
held in treasury) or other equity securities, any
securities or obligations directly or indirectly
convertible into or exercisable or exchangeable for any
such shares, or any rights, warrants or options to
acquire, any such shares or securities or any rights,
warrants or options directly or indirectly to acquire any
such shares or securities; or (ii) amend or otherwise
modify the terms of any such securities, obligations,
rights, warrants or options in a manner inconsistent with
the provisions of this Agreement or the effect of which
shall be to make such terms more favorable to the holders
thereof;
(p) acquire or agree to acquire, by merging or
consolidating with, by purchasing an equity interest in or
a 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 or agree to acquire any assets of any
other person (other than the purchase of inventory in the
ordinary course of business and consistent with past
practice), or make or commit to make any capital
expenditures other than capital expenditures in the
ordinary course of business consistent with past practice;
(q) sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, or agree to sell, lease,
exchange, mortgage, pledge, transfer or otherwise dispose
of, any of its assets except for dispositions of inventory
in the ordinary course of business and consistent with
past practice;
(r) propose or adopt any amendment to its
Articles of Incorporation or Bylaws, except to the extent
necessary to implement an increase in the authorized
number of shares of Target Corporation Common Stock and a
10-to-1 stock split previously approved by the
shareholders and Board of Directors of Target Corporation;
(s) (i) change any of its methods of accounting
in effect as of the effective date of this Agreement, or
(ii) make or rescind any express or deemed election
relating to taxes, settle or compromise any claim, action,
suit, litigation, proceeding, arbitration, investigation,
audit or controversy relating to taxes, or change any of
its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation
of the federal income tax returns for the taxable year
ended December 31, 1998, except, in the case of clause (i)
or clause (ii), as may be required by law or generally
accepted accounting principles, consistently applied;
(t) prepay, before the scheduled maturity
thereof, any of its long-term debt, or incur any
obligation for borrowed money, whether or not evidenced by
a note, bond, debenture or similar instrument, other than
trade payables incurred in the ordinary course of business
consistent with past practices;
(u) enter into or modify in any material respect
any agreement which, if in effect as of the date hereof,
would have been required to be disclosed in the Disclosure
Letter;
(v) take any action that would or could
reasonably be expected to result in any of its
representations and warranties set forth in this Agreement
being untrue or in any of the conditions to the Merger set
forth in Article VIII not being satisfied; or
(w) agree in writing or otherwise to do any of
the foregoing.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Covenants of Parent Corporation and
Acquiring Corporation. Parent Corporation and Acquiring
Corporation covenant and agree as follows:
(a) Board Approval. As promptly as practicable
after the effective date of this Agreement, Parent
Corporation and Acquiring Corporation shall obtain
approval of this Agreement and the Merger by the
respective Boards of Directors of Parent Corporation and
Acquiring Corporation.
(b) Consents, Approvals, Filings, and Notices.
Prior to the Effective Time, Parent Corporation and
Acquiring Corporation shall obtain, file, and deliver such
consents, filings, and notices as may be necessary or
appropriate for enabling the Merger to occur in compliance
with applicable laws, rules, and regulations, including
but not limited to such federal securities laws, rules,
and regulations as may apply to Parent Corporation.
(c) Offering by Target Corporation. Parent
Corporation and Acquiring Corporation acknowledge and
agree that (i) Target Corporation is preparing to conduct
a private offering (the "Offering") of shares of Target
Corporation's capital stock, and (ii) notwithstanding any
other provision of this Agreement to the contrary, if
Parent Corporation fails within five (5) business days a
written request from Target Corporation to provide
additional advances to Target Corporation pursuant to
Section 6.1(f), below, then Target Corporation thereafter
may pursue such Offering and shall be deemed not to be a
breach or violation of any other term or provision of this
Agreement solely by reason of pursuing such Offering.
(d) Registration of Shares. Parent Corporation
(i) shall prosecute with reasonable diligence its
application for issuance of a trading symbol and
completion and issuance of all other permits and approvals
required for the listing and trading of all shares of
Parent Corporation Common Stock (including but not limited
to the Parent Corporation Common Stock issued to holders
of Target Corporation Common Stock in connection with the
Merger) on the "Over the Counter Bulletin Board" of the
NASD, and (ii) shall not oppose any sale or attempted sale
of Parent Corporation Common Stock by any Target
Corporation Shareholder (other than Principal Shareholder)
pursuant to an exemption from registration under
Securities and Exchange Commission Rule 144 or any other
available exemption from registration under the Securities
Act of 1933..
(e) Adoption and Registration of Option Plan.
On or before the Closing Date, Parent Corporation shall
adopt in compliance with applicable law and its bylaws and
certificate of incorporation the Parent Corporation Option
Plan (as defined in Section 1.6(e), above) and reserve and
set aside thereunder at least such number of shares as are
necessary to permit Parent Corporation to satisfy its
obligation to issue Parent Corporation Options as of the
Effective Time pursuant to Section 1.6(e), above. On or
before March 31, 1999, Parent Corporation shall file with
the United States Securities and Exchange Commission such
application and registration filings and forms with
respect to such Parent Corporation Option Plan, and
thereafter shall prosecute such applications and
registration filings with reasonable diligence, to the
extent reasonably necessary to permit shares of Parent
Corporation Common Stock issued upon exercise of Parent
Corporation Options to be registered under the Securities
Act of 1933.
(f) Loan to Target Corporation. The parties
acknowledge Parent Corporation has loaned to Target
Corporation the sum of Fifty Thousand Dollars
($50,000.00), and that Target Corporation has executed a
promissory note evidencing Target Corporation's obligation
to repay that $50,000.00 advance, with interest at 8.0%
per annum, on the first annual anniversary of the date of
the advance. So long as Target Corporation has not
caused any delays which result in the need for additional
financing prior to the closing of the Merger pursuant to
this Agreement, Parent Corporation from time to time shall
advance to Target Corporation such additional capital as
target Corporation may request and reasonably need the
additional advances to fund its working capital needs
prior to the Closing. The principal of each such
additional advance shall be repaid by Target Corporation
on or before the first annual anniversary of such advance,
together with interest thereon at eight percent (8.0%) per
annum. Upon request of Parent Corporation, Target
Corporation shall execute a promissory note in
commercially reasonable form to evidence the obligation of
Target Corporation to repay such principal of and interest
on that loan pursuant to this Section 6.1(f) and the
additional advances.
(g) Target Corporation Legal Fees. Parent
Corporation and Acquiring Corporation (i) acknowledge that
Target Corporation is represented in connection with the
Merger by the law firm of Reicker, Clough, ▇▇▇▇ & ▇▇▇▇,
LLP ("Target Corporation Law Firm") pursuant to that
certain engagement letter dated December 22, 1998
("Engagement Letter"), and (ii) agree that Parent
Corporation and the Surviving Corporation shall be solely
responsible for paying, and shall indemnify, defend, and
hold Target Corporation and Principal Shareholder free and
harmless from and against, all attorneys' fees, costs, and
other amounts incurred by Target Corporation to Target
Corporation Law Firm pursuant to that Engagement Letter.
(h) Payoff of SBA Loan. Parent Corporation
and Acquiring Corporation (i) acknowledge that Target
Corporation is indebted to First Bank of San ▇▇▇▇ Obispo
pursuant to a loan having an original principal amount of
$150,000.00 and a current outstanding principal balance of
approximately $139,000.00 (the "SBA Loan"), and that
Principal Shareholder has personally guaranteed the
obligations of Target Corporation with respect to such SBA
Loan, and (ii) agree to pay and discharge all amounts due
with respect to that SBA Loan on or before the Closing
Date.
(i) Payoff of Other Loans. Parent Corporation
and Acquiring Corporation (i) acknowledge that in addition
to the SBA Loan, Target Corporation is indebted to certain
other creditors for amounts which Principal Shareholder
has personally guaranteed (the "Guaranteed Loans") and is
indebted to Principal Shareholder for monies that she has
advanced to or on behalf of Target Corporation (the
"▇▇▇▇▇▇ Loans"), all as disclosed in Schedules 2.3 and
2.11-1 to this Agreement and the Financial Statements
attached hereto at Schedule 2.7-1, and (ii) agree to
discharge on or before the Closing Date the entire
principal of and all accrued and unpaid interest on the
Guaranteed Loans, the ▇▇▇▇▇▇ Loans, and all other
indebtedness of Target Corporation.
(j) Position of Principal Shareholder After
Closing. Parent Corporation and Acquiring Corporation
covenant and agree that from and after the Effective Time:
(i) The Acquiring Corporation shall
employ Principal Shareholder as its chief operating
officer. In consideration of such services, Acquiring
Corporation shall pay to Principal Shareholder annual cash
compensation of One Hundred Thousand Dollars
($100,000.00), payable in equal monthly or other more
frequent installments in accordance with Target
Corporation's customary payroll practices. In addition,
during the period of her employment pursuant to this
Section 6.1(j)(i), Principal Shareholder shall be eligible
to receive such employee fringe benefits and to
participate in fringe benefit plans as Parent Corporation
maintains from time to time for the benefit of its
management employees. The terms and conditions of such
employment otherwise shall be in accordance with the
customary practices of Parent Corporation.
(ii) Parent Corporation shall cause
Principal Shareholder to be (A) appointed as President and
chief operating officer of Acquiring Corporation, with all
power and authority that a chief operating officer of an
operating corporation customarily has, (B) elected as a
member of the Board of Directors of Acquiring Corporation.
The terms and conditions of such employment otherwise
shall be in accordance with the customary practices of
Parent Corporation.
(k) Blue Sky Laws. Parent Corporation 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 Corporation
Common Stock pursuant hereto. Target Corporation shall
use its best efforts to assist Parent Corporation as may
be necessary to comply with the securities and blue sky
laws of all jurisdictions which are applicable in
connection with the issuance of Parent Corporation Common
Stock pursuant hereto.
(l) Filing with California Secretary of State.
Each of the parties shall use reasonable best efforts to
take, or to cause to be taken, such actions as may be
necessary to facilitate the filing, as promptly as
practicable after the Closing Date, of the Merger
Certificate with the Secretary of State of the State of
California in accordance with the relevant provisions of
the California GCL. Such actions shall include, but shall
not be limited to, actions required to obtain a Tax
Clearance Certificate from the Franchise Tax Board of the
State of California
(m) Tax Returns. Acquiring Corporation shall
prepare all federal and state income tax returns of Target
Corporation to be filed by Target Corporation for taxable
periods ending on or prior to the Effective Time and the
shareholders of Target Corporation have paid or will pay
all income and withholding taxes attributable to them with
respect to the income of Target Corporation for such
periods, including any withholding associated with the
receipt of shares of Target Corporation Common Stock prior
to the Merger. Each of the parties hereto shall report
the Merger as a tax-free reorganization under the
provisions of Sections 368(a)(1)(A) 368(a)(2)(C) of the
Code and shall make all requisite filings associated
therewith, including the statement required under Treasury
Regulations Section 1.368-3. After the Effective Time,
Acquiring Corporation, on the one hand, and the
Shareholders, on the other hand, will make available to
the other, as reasonably requested, all information,
records or documents relating to the liability for taxes
of Target Corporation for all periods ending on or prior
to the Effective Time and will preserve such information,
records or documents until the expiration of any
applicable statute of limitations or extensions thereof.
(n) Disclosure Materials. As soon as
practicable after the effective Date of this Agreement and
in all events at least two business days prior to the
Closing Date, Parent Corporation shall deliver to Target
Corporation and to Principal Shareholder true, correct,
and complete copies of the Parent Corporation Disclosure
Materials described in Section 3.8, above.
6.2 Covenants of Target Corporation and
Principal Shareholder. Target Corporation and Principal
Shareholder covenant and agree as follows:
(a) Consents and Approvals; Filings and Notices.
Target Corporation and Principal Shareholder shall use
reasonable efforts to as promptly as possible make all
filings with, provide all notices to and obtain all
consents and approvals from third parties required to be
obtained by Target Corporation in connection with the
transactions contemplated hereunder, including, without
limitation, all filings with, notices to and consents and
approvals from government entities and other persons.
(b) Access and Information. From the date
hereof to the Effective Time, Target Corporation shall
afford to Parent Corporation, Acquiring Corporation, and
their respective officers, employees, accountants,
consultants, legal counsel, representatives of current and
prospective sources of financing and other representatives
of Acquiring Corporation full and complete access during
normal business hours to the properties, books, records,
documents, instruments, reports, contracts, facilities,
premises, and equipment relating to Target Corporation and
its properties and to the employees of Target Corporation,
and an opportunity to review and copy such books, records,
documents, instruments, reports, contracts and other
materials as Acquiring Corporation may request.
(c) Shareholder Approval. As promptly as
practicable after the execution of this Agreement, Target
Corporation shall submit this Agreement and the
transactions contemplated hereby to its shareholders for
approval and adoption as provided by the California GCL
and Target Corporation's Articles of Incorporation and
Bylaws.
(d) No Solicitation. During the term of this
Agreement, neither Target Corporation nor Principal
Shareholder shall directly or indirectly, through a
representative or otherwise, solicit or entertain offers
from, or negotiate with or in any manner encourage,
discuss, accept or consider any proposal of any other
person relating to any proposed merger, consolidation,
sale or acquisition of Target Corporation, the assets or
all or substantially all of the capital stock of Target
Corporation, whether directly, indirectly, through merger,
purchase, consolidation or otherwise. Target Corporation
shall immediately notify Acquiring Corporation regarding
any contact between Target Corporation or its
representatives and any other person or entity regarding
any such offer or proposal or any related inquiry and
shall state the name of such other person or entity and
the material terms and conditions of any such offer,
including the offering price.
6.3 Joint Covenants of Parties. Each of the
parties to this Agreement covenants and agrees as follows:
(a) Confidentiality. Except for such
information with respect to the Merger as Parent
Corporation may be required to file with the United States
Securities and Exchange Commission, each party shall hold
in confidence all documents and information concerning the
other and its business and properties (except that either
party may disclose such documents and information to any
government entity reviewing the transactions contemplated
hereby or as required in either party's judgment pursuant
to any legal requirement or in furtherance of the
transactions contemplated herein), and if the transaction
contemplated hereby should not be consummated, such
confidence shall be maintained, and all such documents and
information (in whatever form) and copies thereof shall
immediately thereafter be destroyed, or returned to the
party originally furnishing same.
(b) Expenses. Subject to the obligations of
Parent Corporation under Section 6.1(g), above, whether or
not the Merger is consummated, all fees and expenses
incurred in connection with the Merger including, without
limitation, all legal, accounting, financial advisory,
consulting and all other fees and expenses of third
parties ("Third Party Expenses") incurred by a party in
connection with the negotiation and effectuation of the
terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation
of the respective party incurring such fees and expenses.
(c) Notification of Certain Matters. Target
Corporation shall give prompt notice to Acquiring
Corporation and Parent Corporation, and Parent Corporation
and Acquiring Corporation shall give prompt notice to
Target Corporation, of (i) the occurrence or
non-occurrence of any event, the occurrence or
non-occurrence of which is likely to cause any
representation or warranty of Target Corporation or
Principal Shareholder and Parent Corporation or Acquiring
Corporation, respectively, contained in this Agreement to
be untrue or inaccurate at or prior to the Effective Time
and (ii) any failure of Target Corporation, Principal
Shareholder, Parent Corporation, or Acquiring
Corporation, as the case may be, to comply with or satisfy
any covenant, condition or agreement to be complied with
or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 6.3(c)
shall not limit or otherwise affect any remedies available
to the party receiving such notice.
(d) Further Action; Reasonable Best Efforts.
Each of the parties shall use reasonable best efforts to
take, or cause to be taken, all appropriate action, and
do, or cause to be done, all things necessary, proper or
advisable under applicable laws or otherwise to consummate
and make effective the transactions contemplated by this
Agreement as promptly as practicable, including, without
limitation, using its reasonable best efforts to obtain
all licenses, permits, consents, approvals,
authorizations, qualifications and orders of government
entities and parties to contracts with Target Corporation
and Acquiring Corporation as are necessary for the
transactions contemplated herein.
(e) Public Announcements. No party shall not
issue any press release or other public announcement with
respect to the Merger without first obtaining the prior
approval of each other party to this Agreement.
(f) Acknowledgment by Parties. The parties
hereto acknowledge and agree that the shares of Parent
Corporation Common Stock issuable in the Merger shall
constitute "restricted securities" within the meaning of
the Securities Act. The certificates for the shares of
Parent Corporation Common Stock to be issued in the Merger
shall bear appropriate legends to identify such privately
placed shares as being restricted under the Securities
Act, to comply with applicable state securities laws and,
if applicable, to notice the restrictions on transfer of
such shares.
ARTICLE VII
CONDITIONS TO THE MERGER
7.1 Conditions to Obligations of Each Party to
Effect the Merger. The respective obligations of each
party to this Agreement to effect the Merger shall be
subject to the satisfaction at or prior to the Effective
Time of the following conditions:
(a) 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 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.
(b) Litigation. There shall be no action, suit,
claim or proceeding of any nature pending, or overtly
threatened, against Parent Corporation, Acquiring
Corporation, Target Corporation, their respective
properties, or any of their officers or directors, or
Principal Shareholder, arising out of, or in any way
connected with, the Merger or the other transactions
contemplated by the terms of this Agreement.
(c) Shareholder Approval. This Agreement and
the Merger shall have been approved and adopted by the
shareholders of Target Corporation by the requisite vote
under applicable law and Target Corporation's Articles of
Incorporation.
(d) Parent Corporation Advisors' Approval re
Stock Options. The obligations of Parent Corporation
pursuant to this Agreement are subject to Parent
Corporation's advisors approving the provisions of this
Agreement prior to 5:00 p.m. P.S.T. on January 26, 1999,
those provisions of this Agreement relating to any stock
option or tax matter and paragraph 6.1(d).
7.2 Conditions to Obligations of Parent
Corporation and Acquiring Corporation. The obligations of
Parent Corporation and Acquiring Corporation to effect the
Merger and the other transactions contemplated in this
Agreement are also subject to the following conditions,
any or all of which may be waived, in whole or in part, to
the extent permitted by applicable law:
(a) Governmental Approvals. On or prior to the
Closing Date, all material permits, authorizations,
consents and approvals of governmental authorities or any
other persons required to be obtained by Target
Corporation, as a condition to the lawful consummation of
the transactions contemplated hereby, shall have been
obtained, including, but not limited to, any and all
consents required under any contract that Target
Corporation is a party to, and Acquiring Corporation shall
have received copies of each said consent in form and
substance satisfactory to Acquiring Corporation. No such
required consent or approval shall have been withdrawn or
suspended as of the Closing Date.
(b) Representations and Warranties. The
representations and warranties of Target Corporation and
Principal Shareholder in this Agreement shall be true and
correct in all material respects, on and as of the
Effective Time with the same effect as though such
representations and warranties had been made on and as of
the Effective Time (provided that any representation or
warranty contained herein that is qualified by a
materiality standard shall not be further qualified
hereby), except for representations and warranties that
speak as of a specific date or time other than the
Effective Time (which need only be true and correct in all
material respects as of such date or time).
(c) Agreements and Covenants. The agreements
and covenants of Target Corporation and Principal
Shareholder required to be performed on or before the
Effective Time shall have been performed in all material
respects.
(d) No Material Adverse Change. There shall not
have occurred any Material Adverse Change in the business,
assets (including intangible assets), results of
operations, liabilities (contingent or accrued), financial
condition or prospects of Target Corporation since the
effective date of this Agreement.
(e) Required Consents. Target Corporation shall
have delivered to Acquiring Corporation at or before
Closing all consents or notices necessary to be obtained
or made by Target Corporation in connection with the
transactions contemplated by this Agreement.
(f) Good Standing Certificate. Acquiring
Corporation shall have received from the California
Secretary of State a certificate of status with respect to
Target Corporation dated within ten (10) days of the
Closing Date, certifying that the Target Corporation is in
good standing under the laws of the State of California.
(g) Satisfactory Investigation. Acquiring
Corporation shall have completed to its satisfaction its
investigation of (i) the business, assets, and financial
condition of Target Corporation in connection with the
transactions contemplated by this Agreement, and (ii) any
event or condition arising or discovered after the date of
this Agreement which could reasonably be expected to
result in a failure of any conditions precedent to the
obligations of Acquiring Corporation under this Agreement.
(h) Resignations of Officers and Directors.
Acquiring Corporation shall have received resignations
dated as of the Closing Date duly executed by all
directors and officers of Target Corporation.
(i) Agreements, Etc. Target Corporation shall
have delivered to Acquiring Corporation keys to the
premises at ▇▇▇▇-▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇.
(j) Certificate of Target Corporation.
Acquiring Corporation shall have been provided with a
certificate executed on behalf of Target Corporation by
its President to the effect that, as of the Effective
Time, the conditions set forth in Section 7.2 (b), (c),
(d), and (e) have been satisfied.
(k) Certificate of Principal Shareholder.
Acquiring Corporation shall have been provided with a
certificate executed by the Principal Shareholder to the
effect that, as of the Effective Time, the conditions set
forth in Section 7.2 (b) and (c) have been satisfied.
(l) Other Closing Documents. Target
Corporation, Principal Shareholder, and each other Target
Corporation Shareholder shall have executed and delivered
to Parent Corporation or Acquiring Corporation, as may be
required under this Agreement, such additional documents,
certificates, opinions and agreements as Parent
Corporation or Acquiring Corporation may reasonably
request to implement the transactions contemplated by this
Agreement.
7.3 Conditions to Obligations of Target
Corporation and Principal Shareholder. The obligations of
Target Corporation and Principal Shareholder to effect the
Merger and the other transactions contemplated by this
Agreement are subject to satisfaction of the following
conditions at or before the Effective Time (or such sooner
date as is specified below).
(a) Representations and Warranties. The
representations and warranties of Parent Corporation and
Acquiring Corporation in this Agreement shall be true and
correct in all material respects, on and as of the
Effective Time with the same effect as though such
representations and warranties had been made on and as of
the Effective Time (provided that any representation or
warranty contained herein that is qualified by a
materiality standard shall not be further qualified
hereby), except for representations and warranties that
speak as of a specific date or time other than the
Effective Time (which need only be true and correct in all
material respects as of such date or time). Target
Corporation shall have received certificates of Parent
Corporation and Acquiring Corporation to that effect.
(b) Agreements and Covenants. The agreements
and covenants of Parent Corporation and Acquiring
Corporation required to be performed on or before the
Effective Time shall have been performed in all material
respects. Target Corporation shall have received a
certificate of Parent Corporation and Acquiring
Corporation to that effect.
(c) No Material Adverse Change. There shall not
have occurred any Material Adverse Change in the business,
assets (including intangible assets), results of
operations, liabilities (contingent or accrued), financial
condition or prospects of Parent Corporation or Acquiring
Corporation after the effective date of this Agreement.
(d) SBA Loan. Either (i) the holder of the
SBA Loan shall have consented to the assumption of such
loan by Parent Corporation or Acquiring Corporation, or
(ii) Parent Corporation or Acquiring Corporation shall
have discharged the entire principal of and all interest
on such loan at or prior to the Effective Time.
(e) Completion of Due Diligence. On or before
5:00 p.m. on the second business day after the first date
as of which Parent Corporation has delivered to Target
Corporation and Principal Shareholder all of the Parent
Corporation Disclosure Materials described in Section 3.8,
above, Target Corporation shall have completed its due
diligence with respect to the financial capacity of Parent
Corporation and determined in the sole discretion of
Target Corporation that Parent Corporation and Acquiring
Corporation have the financial capacity to discharge their
respective obligations under this Agreement and as
contemplated hereby.
(f) Approval of Board of Directors and
Shareholders. At or before 5:00 p.m. on February 4, 1999,
this Agreement and the Merger contemplated hereunder shall
have been approved by (i) the Board of Directors of Target
Corporation, and (ii) those holders of Target Corporation
Common Stock who hold in the aggregate at least
seventy-five percent (75%) of the Target Corporation
Common Stock held by persons other than Principal
Shareholder.
(g) Good Standing Certificate. Target
Corporation shall receive a certificate of good standing
from the Secretary of State of the State of Delaware,
certifying that Acquiring Corporation is in good standing
under the laws of the State of Delaware.
(h) Certificate of Acquiring Corporation.
Target Corporation shall have been provided with a
certificate executed on behalf of Parent Corporation and
Acquiring Corporation by their duly authorized officers to
the effect that, as of the Effective Time, the conditions
set forth in Section 7.3 (a) and (b) have been satisfied.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section
8.2 below, this Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time only:
(a) by mutual written consent of Parent
Corporation, Acquiring Corporation, Target Corporation,
and Principal Shareholder;
(b) by Parent Corporation if (i) Parent
Corporation is not then in breach of its obligations under
this Agreement, (ii) Target Corporation or Principal
Shareholder shall have breached any of their respective
representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or
warranty shall have become untrue such that the conditions
precedent to the obligation of Parent Corporation to close
specified in Section 7.2, above, will not be satisfied,
and (iii) such breach has not been cured within ten (10)
days following receipt by Target Corporation or the
Shareholders of written notice of such breach
(c) by Acquiring Corporation if (i) Acquiring
Corporation is not then in breach of its obligations under
this Agreement, (ii) Target Corporation or the
Shareholders shall have breached any of their
representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or
warranty shall have become untrue, in any such case such
that the conditions precedent to the obligation of
Acquiring Corporation to close specified in Section 7.2,
will not be satisfied, and (iii) such breach has not been
cured within ten (10) days following receipt by Target
Corporation or the Shareholders of written notice of such
breach
(d) by Target Corporation if (i) neither it nor
Principal Shareholder is in breach of its respective
obligations under this Agreement, (ii) Parent Corporation
or Acquiring Corporation shall have breached any of its
representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or
warranty shall have become untrue, in any such case such
that the conditions precedent to the obligation of Target
Corporation to close specified in Section 7.3, above, will
not be satisfied, and (iii) such breach has not been cured
within ten (10) days following receipt by Parent
Corporation or Acquiring Corporation, as the case may be,
of written notice of such breach;
(e) by Principal Shareholder if (i) neither she
nor Target Corporation is in breach of its respective
obligations under this Agreement, (ii) Parent Corporation
or Acquiring Corporation shall have breached any of its
representations, warranties, covenants or agreements
contained in this Agreement, or any such representation or
warranty shall have become untrue, in any such case such
that the conditions precedent to the obligation of Target
Corporation to close specified in Section 7.3, above, will
not be satisfied, and (iii) such breach has not been cured
within ten (10) days following receipt by Parent
Corporation or Acquiring Corporation, as the case may be,
of written notice of such breach;
(f) by any party if (i) any decree, permanent
injunction, judgment, order or other action by any court
of competent jurisdiction or any government entity
preventing or prohibiting consummation of the Merger shall
have become final and nonappealable; or (ii) there shall
be any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Merger
by any government entity that would make consummation of
the Merger illegal;
(g) by Acquiring or Parent Corporation if there
shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or
deemed applicable to the Merger by any government entity,
which would: (i) prohibit Acquiring or Parent
Corporation's ownership or operation of any portion of the
business of Target Corporation or (ii) compel Parent
Corporation to dispose of or hold separate all or a
portion of the business or assets of Target Corporation or
Acquiring Corporation as a result of the Merger;
(h) by any party if the Effective Time has not
occurred on or prior to February 28, 1999, (unless such
date shall be extended by the mutual written consent of
the parties); provided, however, that the right to
terminate this Agreement under this Section 8.1(f) shall
not be available to any party whose breach of
representations, warranties, covenants or agreements
contained in this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to occur by
such date or the inability of such condition to be satisfied;
(i) by Acquiring Corporation if an event having
a Material Adverse Effect on Target Corporation shall have
occurred after the effective date of this Agreement; or
(j) by Target Corporation or Principal
Shareholder if an event having a Material Adverse Effect
on Parent Corporation or Acquiring Corporation shall have
occurred after the effective date of this Agreement.
Where action is taken by a party that is a corporation to
terminate this Agreement pursuant to this Section 8.1, it
shall be sufficient for such action to be authorized by
such party's Board of Directors.
8.2 Effect of Termination. If this Agreement is
terminated pursuant to Section 8.1, then this Agreement
shall forthwith become void and there shall be no
liability or obligation on the part of any party hereto,
except that the provisions of Sections 6.4(a), 6.4(b), and
6.4(e), above, shall not be extinguished but shall survive
such termination, and nothing herein shall relieve any
party from liability for any breach thereof and each party
shall be entitled to any remedies at law or in equity for
such breach.
8.3 Waiver. At any time prior to the Effective
Time, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the
other party, (b) waive any inaccuracies in the
representations and warranties contained in this Agreement
or in any document delivered pursuant to this Agreement
and (c) waive compliance by the other party with any of
the agreements or conditions contained in this Agreement.
Any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION; REMEDIES
9.1 Survival of Representations. The
representations and warranties of each party made in or
pursuant to this Agreement shall be deemed made on and as
of the Effective Time as though such representations and
warranties were made on and as of such date, and all such
representations and warranties shall survive the Effective
Time and any investigation, audit or inspection at any
time made by or on behalf of any party hereto, as follows:
(a) unless otherwise specified below, representations and
warranties shall survive for a period of eighteen (18)
months after the Effective Time; (b) representations and
warranties with respect to taxes shall survive until the
expiration of the applicable statute of limitations; and
(c) representations, warranties and covenants for matters
relating to title to the capital stock of Target
Corporation shall continue in full force and effect in
perpetuity. Notwithstanding anything herein to the
contrary, any representation or warranty which is the
subject of a claim which is asserted in writing reasonably
and in good faith prior to the expiration of the
applicable period set forth above shall survive with
respect to such claim or dispute until the final
resolution thereof.
9.2 Agreement of Principal Shareholder to
Indemnify. Principal Shareholders hereby agrees to
indemnify, defend and hold harmless Parent Corporation,
Acquiring Corporation, and their respective officers,
directors, employees, agents and representatives
(collectively, the "Indemnified Persons") from and against
and in respect of all demands, losses, claims, actions or
causes of action, assessments, damages, liabilities, costs
and expenses, including, without limitation, interest,
penalties and reasonable attorneys' fees and
disbursements, but excluding any lost profits, lost
revenue or opportunity costs (collectively, "Losses")
resulting from, imposed upon or incurred by the
Indemnified Persons, directly or indirectly, by reason of
or resulting from any misrepresentation or breach of any
representation or warranty, given or made by Principal
Shareholder or Target Corporation in this Agreement or in
any document, certificate or agreement furnished by or on
behalf of any such party pursuant to this Agreement.
Notwithstanding the foregoing:
(a) The liabilities or obligations of Principal
Shareholder arising out of this Article IX shall commence
only following the incidence of Losses (incurred by any
and all Indemnified Persons) aggregating Fifty Thousand
Dollars ($50,000.00);
(b) The aggregate indemnification provided by
Principal Shareholder pursuant to this Article IX shall
not exceed the aggregate consideration received by such
Shareholder pursuant to Article I;
(c) The sole remedy of the Indemnified Persons
against Principal Shareholder for breach or inaccuracy of
or any failure to comply with the provisions of this
Agreement is a claim for indemnification pursuant to this
Article IX;
(d) Notwithstanding the foregoing, nothing
herein shall limit an Indemnified Person's remedies in the
event of fraud or intentional deception on the part of
Target Corporation or any Shareholder with respect to any
of the obligations of Target Corporation or the
Shareholders under this Agreement.
9.3 Notice of Losses. If an Indemnified Person
believes that it has suffered or is likely to suffer any
Losses against which it is indemnified pursuant hereto, it
shall notify the Shareholders promptly in writing
describing such Losses, the amount thereof, if known, and
the method of computation of such Losses, all with
reasonable particularity and containing a reference to the
provisions of this Agreement in respect of which such
Losses have occurred. If any action at law or suit in
equity is instituted by or against a third party with
respect to which any Indemnified Person intends to claim
any liability or expense as Losses under this Article IX,
any such Indemnified Person shall promptly notify
Principal Shareholder of such action or suit. The failure
of any Indemnified Person to give notice as provided
herein shall not relieve Principal Shareholder of her
obligations under this Article IX unless such failure
results in actual detriment to such Shareholder, and only
to the extent of such detriment.
(a) In calculating any Losses (i) there shall be
no reduction for any tax benefits with respect to any
Losses; and (ii) there shall be no increase for taxes
imposed upon the receipt of any indemnity payment with
respect to any Losses.
(b) The amount to which an Indemnitee shall be
entitled under this Article IX shall be determined (i) by
written agreement between the Indemnified Person and
Principal Shareholder; or (ii) if the Indemnified Person
and Principal Shareholder are unable to agree as to any
claim for indemnification hereunder within thirty (30)
days after one party delivers to the other a written
notice invoking the mediation and arbitration provisions
of Section 9.6, below, then the matter shall be referred
for such mediation and arbitration thereunder.
9.4 Third Party Claims. If a third party
asserts a Claim against any Indemnified Person, then the
Indemnified Person shall promptly give notice of such
Claim in accordance with Section 9.3 above. Principal
Shareholder shall be entitled to assume the defense of
such Claim, including the employment of counsel reasonably
satisfactory to the Indemnified Person; provided, however,
that, in the event that the Indemnified Person reasonably
determines in good faith that such Indemnified Person's
interests with respect to such Claim cannot appropriately
be represented by Principal Shareholder, such Indemnified
Person shall have the right to assume control of the
defense of such Claim and to have such Indemnified
Person's reasonable expenses reimbursed promptly with
respect to such Claim. In addition, in the event that the
Shareholders, within a reasonable time after notice of any
such Claim, fail to defend any Indemnified Person, such
Indemnified Person (upon further notice to the
Shareholders) shall have the right to undertake the
defense of such Claim for the account of the Shareholders
and to have such Indemnified Person's reasonable expenses
reimbursed promptly with respect to such Claim.
Regardless of which party is controlling the defense of
any Claim, no settlement of such Claim may be agreed to
without the written consent of each of the Indemnified
Person, which consent shall not be unreasonably withheld.
The controlling party shall deliver, or cause to be
delivered, to the other parties copies of all
correspondence, pleadings, motions, briefs, appeals or
other written statements relating to or submitted in
connection with the defense of any such Claim, and timely
notices of any hearing or other court proceeding relating
to such Claim.
9.5 No Recourse Against Target Corporation.
Principal Shareholder hereby irrevocably waive any and all
right to recourse against Target Corporation with respect
to any misrepresentation or breach of any representation,
warranty or indemnity, given or made by Principal
Shareholder or Target Corporation in this Agreement and
any document, certificate and agreement entered into or
delivered pursuant hereto. Principal Shareholder shall
not be entitled to contribution from, subrogation to or
recovery against Target Corporation with respect to any
liability of Principal Shareholder or Target Corporation
that may arise under or pursuant to this Agreement or the
transactions contemplated hereby.
9.6 Mediation and Arbitration. Except for any
action requiring the exercise of equitable powers, any
dispute referred for mediation and arbitration under this
Section 9.6 initially shall be referred for mediation in
San Luis Obispo, California, before a mediator selected by
agreement of the parties within fifteen (15) days after
expiration of the 30-day period described in Section 9.5,
above.
(a) If the parties do not agree within that
15-day period, then the mediator shall be designated by
action of the Board of Directors of Parent Corporation.
Any mediator appointed pursuant to this Section 9.6 shall
be independent of each party. The costs and fees of any
mediator shall be paid equally by the parties. If the
mediator is unable to facilitate a settlement of the
dispute within a reasonable period of time, as determined
by the mediator (but in all events not more than thirty
(30) days after the mediator has been appointed), then the
mediator shall issue a written statement to the parties to
that effect and any party thereafter may submit the
dispute for binding arbitration pursuant to subparagraph
(b), below.
(b) Any dispute not resolved through mediation
shall be resolved by binding arbitration in San Luis
Obispo, California, before a single arbitrator pursuant to
the Commercial Arbitration Rules of the American
Arbitration Association (the "Association"). The
arbitrator shall be selected by the joint agreement of the
parties, but if they do not so agree within fifteen (15)
Business Days after the date of the notice referred to
above, the selection shall be made pursuant to the rules
from the panels of arbitrators maintained by such
Association. The arbitrator shall render his decision
within one hundred eight (180) days of appointment. Any
award rendered by the arbitrator shall be final,
conclusive and binding upon the parties hereto. Judgment
upon the award rendered by the arbitrator may be entered
by any court having jurisdiction thereof. Each party
shall pay its own costs and expenses of arbitration,
including attorneys' fees and expenses of the arbitrator.
The arbitrator shall not be permitted to award punitive
damages under any circumstances.
(c) This agreement to arbitrate shall be
specifically enforceable.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices, requests, demands or
other communications permitted or required under this
Agreement shall be effective only if in writing, and shall
be deemed to have been given, received and delivered (a)
when personally delivered; (b) on the third (3rd) business
day after the date on which mailed by certified or
registered United States mail, return receipt requested,
postage prepaid; (c) on the date on which transmitted by
facsimile or other electronic means generating a receipt
evidencing a successful transmission; or (d) on the next
business day after the business day on which deposited
with a public carrier regulated under United States laws
for the fastest commercially available overnight delivery,
with a return receipt (or equivalent thereof administered
by such regulated public carrier) requested, freight
prepaid, addressed to the party for whom intended at the
address or facsimile number set forth on the signature
page of this Agreement or such other address, notice of
which is given in a manner permitted by this Section 10.1.
(a) if to Parent Corporation or to Acquiring
Corporation:
Americom USA, Inc. Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
to: ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇ Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
▇▇.▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
with a copy to: and a copy to:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Stradley, Ronon, ▇▇▇▇▇▇▇ Schwarz, Gillen
& Young LLP ▇▇▇▇ ▇▇▇▇▇ ▇▇., ▇▇▇. ▇▇▇
One ▇▇▇▇▇▇ Square, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇
Tel No.: (▇▇▇) ▇▇▇-▇▇▇▇ Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
(b) If to Target Corporation or to Principal
Shareholder:
to: with a copy to:
▇▇. ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Esq.
c/o Kiosk Software, Inc. Reicker, Clough, ▇▇▇▇ & ▇▇▇▇,
▇▇-▇ ▇▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇.▇. ▇▇▇ ▇▇▇▇
Tel. No.: (▇▇▇) ▇▇▇-▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇ Tel No.: (▇▇▇) ▇▇▇-▇▇▇▇
Fax No.: (▇▇▇) ▇▇▇-▇▇▇▇
10.2 Headings. The headings contained in this
Agreement are for reference purposes only and shall not
affect in any way the meaning or interpretation of this
Agreement.
10.3 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
transactions contemplated hereby is not affected in any
manner materially adverse to any party. Upon such
determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so
as to effect the original intent of the parties as closely
as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the
extent possible.
10.4 Entire Agreement; Amendments. This
Agreement, together with the Schedules hereto and the
other documents delivered pursuant hereto, (a) constitutes
the entire agreement of the parties with respect to the
Merger and the other matters set forth herein, and
supersedes all prior and contemporaneous understandings,
whether oral or written, regarding such matters, and (b)
may not be modified or amended, except by a written
instrument executed after the effective date hereof by the
party sought to be charged by such amendment.
10.5 Specific Performance. The transactions
contemplated by this Agreement are unique. Accordingly,
each of the parties acknowledges and agrees that, in
addition to all other remedies to which it may be
entitled, each of the parties hereto is entitled to a
decree of specific performance, provided such party is not
in material default hereunder.
10.6 Binding Effect; Assignment. This Agreement
is binding upon and shall inure to the benefit of each of
the parties hereto as well as their respective heirs (as
to Principal Shareholder), successors, and assigns (as to
all parties.
10.7 Shareholders as Third Party Beneficiaries.
The representations, warranties, and covenants of Parent
Corporation and Acquiring Corporation under this Agreement
are expressly intended to benefit not only Target
Corporation and Principal Shareholder but also each other
Shareholder of Target Corporation, each of whom is hereby
acknowledged to be an express third party beneficiary of
this Agreement.
10.8 Governing Law. This Agreement shall be
governed by, and construed in accordance with, the laws of
the State of California, regardless of the laws that might
otherwise govern under applicable principles of conflicts
of law. Each party hereby consents to the jurisdiction of
the courts of the State of California for purposes of
enforcing the rights created hereunder.
10.9 Attorneys' Fees. If any action is commenced
to construe or enforce this Agreement or the rights and
duties created hereunder, then the party prevailing in
that action shall be entitled to recover its attorneys'
fees and costs in that action, as well as all costs and
fees incurred in enforcing any judgment entered therein.
10.10 Counterparts. This Agreement may be
executed and delivered in two or more counterparts, and by
the different parties hereto in separate counterparts,
each of which when executed and delivered shall be deemed
to be an original but all of which taken together shall
constitute one and the same agreement.
10.11 Further Assurances. From and after the
Closing Date, each of Acquiring Corporation and the
Shareholders, at any time and from time to time shall
make, execute and deliver, or cause to be made, executed
and delivered, such instruments, agreements, consents and
assurances and take or cause to be taken all such actions
as may reasonably be requested by any party to effect the
purpose and intent of this Agreement.
10.12 Interpretation. The words "include,"
"includes" and "including" when used herein shall be
deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained
in this Agreement are for reference purposes only and
shall not affect in any way the meaning or interpretation
of this Agreement.
10.13 Other Remedies. Except as otherwise
provided herein, any and all remedies herein expressly
conferred upon a party will be deemed cumulative with and
not exclusive of any other remedy conferred hereby, or by
law or equity upon such party, and the exercise by a party
of any one remedy will not preclude the exercise of any
other remedy.
10.14 Rules of Construction. The parties hereto
agree that they have been represented by counsel during
the negotiation and execution of this Agreement and,
therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities
in an agreement or other document will be construed
against the party drafting such agreement or document.
10.15 Effective Date. The effective date of
this Agreement shall be January 24, 1999.
(Signatures appear on the following page.)
IN WITNESS WHEREOF, Parent Corporation, Acquiring
Corporation, Target Corporation, and Principal Shareholder
have caused this Agreement to be signed by their duly
authorized respective officers, all as of the date first
written above.
"PARENT CORPORATION:" "TARGET CORPORATION:"
AMERICOM USA, INC., a Delaware corporation KIOSK SOFTWARE, INC.,
a California
corporation
By By
Name: ▇▇▇▇ ▇▇▇▇▇▇, President
Title:
"PRINCIPAL SHAREHOLDER:"
Date
"ACQUIRING CORPORATION:" ▇▇▇▇ ▇▇▇▇▇▇
KSI ACQUISITION, INC., a Delaware
corporation
Date
By
Name:
Title:
Date