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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
Current Report
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of the Report (date of earliest event reported) : December 31, 1998
THE KROLL-O'GARA COMPANY
(Exact name of registrant as specified in its charter)
Ohio 000-21629 31-1470817
(State or other jurisdiction of (Commission (I.R.S. Employer
Incorporation) file number) Identification No.)
9113 LeSaint Drive
Fairfield, Ohio 45014
(513) 874-2112
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
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INFORMATION TO BE INCLUDED IN THE REPORT
Items 1, 3, 4, 6, 8 and 9 are not applicable and are omitted from this Current
Report.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On December 31, 1998, The Kroll-O'Gara Company (the "Company") completed
the acquisition of all of the outstanding capital stock of Securify Inc.
("Securify") of Mountain View, California. Securify is engaged in the business
of providing comprehensive security services in the areas of e-commerce and
business and government applications. Such services include network and system
security review and repair, product evaluation, development and implementation
of security policies, system architecture and information security training.
Securify is a consulting firm that is technology and vendor neutral. It
leverages a comprehensive understanding of the security of technologies and
products to deploy them to meet the requirements of its customers. The
transaction is expected to be dilutive to the Company's earnings in 1998 and
1999, but should be accretive to the Company beginning in 2000.
In the transaction, a wholly owned subsidiary of the Company was merged
into Securify, resulting in Securify becoming a wholly owned subsidiary of the
Company. All of the outstanding stock of Securify was converted to shares of
Kroll-O'Gara Common Stock at the rate of .110793 for Series A Preferred, .118273
for Series B Preferred, and .0955252 for Securify Common Stock. In total, the
Company issued 1,430,936 shares of Common Stock, valued at approximately $52.7
million, or $36.85 per share. In addition, outstanding employee stock options
of Securify were converted at the same ratio as Securify Common Stock into
options to purchase 179,877 shares of Kroll-O'Gara Common Stock. The
transaction is expected to qualify for "pooling of interests" accounting
treatment under generally accepted accounting principles.
The amount of consideration paid was determined by arms-length negotiations
between the Company and Securify. There was no prior material relationship
between Securify and the Company or any of the Company's affiliates, directors
or officers, or any associate of such directors or officers. The Company
intends to continue to devote the assets acquired to Securify's existing
businesses.
Certain of the statements set forth above are forward-looking statements
within the meaning of the federal securities laws. Such statements are based
upon management's estimates, assumptions, and projections and are subject to
substantial risks and uncertainties that could cause actual results to differ
materially from those in the forward looking statements.
ITEM 5. OTHER INFORMATION.
On December 31, 1998 the Company also acquired, through merger, all of the
capital stock of Schiff & Associates, Inc. ("Schiff") of Austin, Texas, in
exchange for 169,521 shares of Kroll-O'Gara Common Stock. This transaction is
also anticipated to qualify for "pooling of interests" accounting treatment
under generally accepted accounting principles.
Schiff provides integrated security consulting and engineering solutions to
corporations, governments, architects, owners, and developers for projects in
North America, Europe and Asia. For the nine months ended September 30, 1998,
Schiff reported unaudited total revenues of approximately $3.5 million and
pretax income of approximately $600,000.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements
In accordance with Item 7(a)(4), the financial statements of Securify
will be filed no later than 60 days after January 15, 1999.
(b) Pro Forma Financial Information
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In accordance with Item 7(b), required financial statements will be
filed no later than 60 days after January 15, 1999.
(c) Exhibits
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NUMBER DESCRIPTION
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10.1 Agreement and Plan of Merger Dated
December 31, 1998, among The Kroll-O'Gara
Company, TKOG Delaware, Inc., and Securify
Inc., a California corporation
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
DATE: JANUARY 15, 1998 THE KROLL-O'GARA COMPANY
By /s/Nicholas P. Carpinello
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Nicholas P. Carpinello
Controller and Treasurer
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of
December 31, 1998, among The Kroll-O'Gara Company ("TKOG"), an Ohio corporation
and a party to this Agreement but not a constituent corporation in the Merger
(as hereinafter defined), TKOG Delaware, Inc. ("BUYER"), a Delaware corporation
all of whose capital stock is owned directly by TKOG, and Securify Inc. (the
"COMPANY"), a California corporation.
WHEREAS, the Boards of Directors of Buyer and the Company, deeming
it advisable and for the respective benefit of Buyer and the Company, and their
shareholders, have approved the merger of Buyer with and into the Company on the
terms and conditions hereinafter set forth, and have approved this Agreement and
authorized the transactions contemplated hereby; and
WHEREAS, the Board of Directors of the Company has determined to
recommend to all of the Company's shareholders that the Merger and this
Agreement be approved; and
WHEREAS, TKOG, Buyer and the Company desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. DEFINITIONS
For purposes of this Agreement, the following terms have the meanings
specified or referred to in this Section 1:
"AGREEMENT OF MERGER"--as defined in Section 2.2.
"BUYER"--as defined in the first paragraph of this Agreement.
"CLOSING"--as defined in Section 2.1.
"CLOSING DATE"--the date and time as of which the Closing actually takes
place.
"CODE"--the Internal Revenue Code of 1986, as amended, and any successor
law.
"COMMISSION"--the United States Securities and Exchange Commission.
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"COMMON STOCK EXCHANGE RATIO"--as defined in Section 2.7(c).
"COMPANY"--as defined in the first paragraph of this Agreement.
"COMPANY CAPITAL STOCK"--the Company Common Stock and Company Preferred
Stock.
"COMPANY COMMON STOCK"--the common stock, no par value per share, of the
Company.
"COMPANY PREFERRED STOCK"--the Series A Preferred Stock and the Series B
Preferred Stock.
"COMPANY SHAREHOLDERS"-- the holders of the Company Common Stock and the
Company Preferred Stock.
"CONTRACT"--any agreement, contract, obligation, promise or undertaking
(whether written or oral and whether express or implied) that is legally
binding.
"DISCLOSURE SCHEDULE"--the disclosure schedule delivered by Sellers to
TKOG and Buyer concurrently with the execution and delivery of this Agreement.
"DISSENTING SHAREHOLDERS"--as defined in Section 2.7(d).
"EFFECTIVE TIME"--as defined in Section 2.2.
"EMPLOYMENT AGREEMENTS"--as defined in Section 6.11.
"ENCUMBRANCE"--any mortgage, charge, claim, community property interest,
condition, equitable interest, lien, option, pledge, security interest, right of
first refusal or restriction of any kind, including any restriction on use,
voting, transfer, receipt of income or exercise of any other attribute of
ownership.
"ENVIRONMENT"--soil, land surface or subsurface strata, surface waters,
groundwaters, drinking water supply, stream sediments, ambient air, plant and
animal life and any other environmental medium or natural resource.
"ENVIRONMENTAL, HEALTH, AND SAFETY LIABILITIES"--any cost, damages,
expense, liability, obligation or other responsibility arising from or under any
Environmental Law or Occupational Safety and Health Law and consisting of or
relating to: (a) any environmental, health or safety matter or condition
(including on-site or off-site contamination, generation, handling and disposal
of hazardous substances, occupational safety and health, and regulation of
chemical and hazardous substances or products); (b) fines, penalties, judgments,
awards, settlements, legal or administrative proceedings, damages, losses,
litigation, including civil and criminal claims, demands and response,
investigative, remedial, response or inspection costs and expenses arising under
Environmental Law or Occupational Safety and Health Law; (c) financial
responsibility under Environmental Law or Occupational Safety and Health Law for
cleanup costs or corrective action, including any investigation, cleanup,
removal,
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containment, or other remediation or response actions required by applicable
Environmental Law or Occupational Safety and Health Law and for any natural
resource damages; or (d) any other compliance, corrective, investigative, or
remedial measures required under Environmental Law or Occupational Safety and
Health Law. The terms "removal," "remedial," and "response action," include
the types of activities covered by the United States Comprehensive
Environmental Response, Compensation, and Liability Act, 42 U.S.C. Section
9601 ET SEQ., as amended ("CERCLA").
"ENVIRONMENTAL LAW"--any and all federal, state, local, provincial, and
foreign, civil and criminal laws, statutes, ordinances, orders, codes, rules,
regulations, permits, policies, guidance documents, judgments, decrees and
agreements with any Governmental Authority of or relating to the protection of
health and the Environment, worker health and safety, and/or governing the
handling, use, generation, treatment, storage, transportation, disposal,
manufacture, distribution, packaging, labeling or release of Hazardous
Materials, including CERCLA; the Resource Conservation and Recovery Act,
42 U.S.C Section 6901 ET SEQ.; the Clean Air Act, 42 U.S.C Section 7401 ET
SEQ.; and the Occupational Safety and Health Act, 29 U.S.C Section 651 ET SEQ.;
and the state analogues thereto and any common law doctrine, including
negligence, nuisance, trespass, personal injury or property damage related or
arising out of the presence, release or exposure to Hazardous Materials.
"ERISA"--the Employee Retirement Income Security Act of 1974, as
amended, or any successor law.
"ESCROW AMOUNT"--that number of shares of TKOG Common Stock issuable
pursuant to Section 2.7 upon conversion of all of the shares of Company Capital
Stock issued and outstanding as of the Effective Time MULTIPLIED BY 0.10. The
Escrow Amount shall consist only of shares of TKOG Common Stock which are fully
vested and not subject to any contractual repurchase or similar right, except
that to the extent any stockholder of the Company does not have sufficient
vested shares of TKOG Common Stock to fund fully such stockholder's share of the
Escrow Amount, any such shortfall may be satisfied with unvested shares of TKOG
Common Stock.
"ESCROW AGENT"--as defined in Section 2.8(i).
"ESCROW AGREEMENT"--as defined in Section 2.8(i).
"ESCROW FUND"--as defined in Section 2.8(i).
"EXCHANGE ACT"--the Securities Exchange Act of 1934, as amended, or any
successor law.
"EXCHANGE RATIO"--with respect to the Series A Preferred Stock, the
Series A Exchange Ratio; with respect to the Series B Preferred Stock, the
Series B Exchange Ratio; and with respect to the Company Common Stock, the
Common Stock Exchange Ratio.
"FACILITIES"--any real property, leaseholds or other interests currently
or formerly owned or operated by the Company and any buildings, plants,
structures or equipment (including motor vehicles) currently or formerly owned
or operated by the Company.
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"FINANCIAL STATEMENTS"--as defined in Section 4.5.
"GAAP"--generally accepted United States accounting principles applied
on a basis consistent with the basis on which the financial statements of the
Company referred to in Section 4.5 were prepared.
"GOVERNMENTAL AUTHORITY"--any court, tribunal, authority, agency,
commission, bureau, department, official or other instrumentality of the United
States, any foreign country or any domestic, foreign, state, local, county, city
or other political subdivision.
"GOVERNMENTAL PERMIT"--any license, franchise, permit or other
authorization of any Governmental Authority.
"HAZARDOUS ACTIVITY"--the distribution, generation, handling,
manufacturing, processing, production, release, storage, transportation,
treatment, disposal or use of Hazardous Materials in, on, under or about the
Facilities or any part thereof or from the Facilities or any part thereof into
the Environment, and any other act, business or operation that increases the
danger or poses an unreasonable risk of harm to persons or property on or off
the Facilities or that may affect the value of the Facilities or the Company.
"HAZARDOUS MATERIALS"--any waste or other substance that is listed,
defined, designated or classified as, or otherwise determined to be, hazardous,
radioactive or toxic or a pollutant or a contaminant under or pursuant to any
Environmental Law.
"INTELLECTUAL PROPERTY ASSETS" --as defined in Section 4.21.
"MATERIAL ADVERSE EFFECT"--as defined in Section 4.7.
"MERGER"--as defined in Section 2.1(a).
"NEW CERTIFICATES"--as defined in Section 2.8(a)(i).
"OCCUPATIONAL SAFETY AND HEALTH LAW"--any legal or governmental
requirement or obligation relating to safe and healthful working conditions and
to reduce occupational safety and health hazards, and any program, whether
governmental or private (including those promulgated or sponsored by industry
associations and insurance companies), designed to provide safe and healthful
working conditions.
"ORGANIZATIONAL DOCUMENTS"--(a) the articles or certificate of
incorporation and the bylaws or code of regulations of a corporation; (b) the
partnership agreement and any statement of partnership of a general partnership;
(c) the limited partnership agreement and the certificate of limited partnership
of a limited partnership; (d) the certificate of formation and operating
agreement of a limited liability company; (e) any charter or similar document
adopted or filed in connection with the creation, formation or organization of a
Person; and (e) any amendment to any of the foregoing.
"PERSON"--any individual, corporation (including any non-profit
corporation), general
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or limited partnership, limited liability company, joint venture, estate,
trust, association, organization, labor union or other entity or governmental
body.
"PROCEEDING"--as defined in Section 4.13.
"REGISTRATION RIGHTS AGREEMENT"--as defined in Section 7.4.
"SECURITIES ACT"--the Securities Act of 1933, as amended, or any
successor law.
"SERIES A PREFERRED STOCK"--as defined in Section 2.7(a).
"SERIES A EXCHANGE RATIO"--as defined in Section 2.7(a).
"SERIES B PREFERRED STOCK"--as defined in Section 2.7(b).
"SERIES B EXCHANGE RATIO"--as defined in Section 2.7(b).
"SUBSIDIARY"--any corporation, joint venture, limited liability company,
partnership, association or other business entity of which more than 50% of the
total voting power of stock or other equity entitled to vote generally in the
election of directors or managers thereof is owned or controlled, directly or
indirectly, by the Company or TKOG, as the case may be.
"SURVIVING CORPORATION"--as defined in Section 2.1(a).
"TKOG"--as defined in the first paragraph of this Agreement.
"TKOG COMMON STOCK"--the Common Stock, $0.01 par value per share, of
TKOG.
"TKOG SEC REPORTS"--as defined in Section 5.4.
"TKOG SHARES"--the shares of TKOG Common Stock to be issued to the
Company Shareholders in connection with the Merger.
"TRANSACTION DOCUMENTS"--means the Employment Agreements, the
Registration Rights Agreement and the Escrow Agreement.
"TRADING DAY"--means any day on which the Nasdaq National Market is open
for business.
2 THE MERGER; CLOSING
2.1 THE MERGER
(a) Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the California General Corporation Law (the
"CGCL") and the Delaware General Corporation Law (the "DGCL"), Buyer shall be
merged with and into the Company at the Effective Time (the "MERGER").
Following the Merger, the separate corporate existence of
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Buyer shall cease and the Company shall continue as the surviving corporation
(the "SURVIVING CORPORATION") under the name "SECURIFY INC."
(b) Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to
Section 10 and subject to the satisfaction or waiver of the conditions set
forth in Sections 8 and 9, the consummation of the Merger will take place as
promptly as practicable (and in any event within two business days) after
satisfaction or waiver of the conditions set forth in Sections 8 and 9 at the
offices of Kramer Levin Naftalis & Frankel LLP, 919 Third Avenue, New York,
New York (the "CLOSING"), unless another date, time or place is agreed to in
writing by the Company, Buyer and TKOG.
2.2 EFFECTIVE TIME
As soon as practicable following the Closing, the Company, Buyer and
TKOG shall (i) file an agreement of merger (the "AGREEMENT OF MERGER") in such
form as is required by and executed in accordance with the relevant provisions
of the CGCL and the DGCL, and (ii) make all other filings or recordings required
under the CGCL and the DGCL. The Merger shall become effective at such time as
the Agreement of Merger, having previously been filed with the Secretary of
State of the State of Delaware, is duly filed with the Secretary of State of the
State of California or at such subsequent time as the Company and TKOG shall
agree and shall be specified in the Agreement of Merger (the date and time the
Merger becomes effective being the "EFFECTIVE TIME").
2.3 EFFECTS OF THE MERGER
At and after the Effective Time, the Merger will have the effects set
forth in the CGCL and the DGCL.
2.4 ARTICLES OF INCORPORATION
At the Effective Time, the articles of incorporation of the Surviving
Corporation shall be amended in accordance with the CGCL such that the articles
of incorporation of the Surviving Corporation shall consist of the provisions of
the articles of incorporation of the Company as in effect at the Effective Time,
unless and until thereafter changed or amended as provided therein or by
applicable law.
2.5 BY-LAWS
The by-laws of Buyer as in effect at the Effective Time shall be the
by-laws of the Surviving Corporation unless and until thereafter changed or
amended as provided therein or by applicable law.
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2.6 OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
The officers of the Company as of the Effective Time shall be the
officers of the Surviving Corporation until the earlier of their resignation or
removal from office or their otherwise ceasing to be officers or until their
respective successors are duly elected and qualified. The directors of Buyer as
of the Effective Time shall be the directors of the Surviving Corporation until
the earlier of their resignation or removal from office or their otherwise
ceasing to be directors or until their respective successors are duly elected
and qualified.
2.7 CONVERSION OR CANCELLATION OF CAPITAL STOCK OF THE COMPANY
At the Effective Time, by virtue of the Merger and without any action on
the part of any holder thereof:
(a) SERIES A PREFERRED STOCK. Subject to the provisions of Sections
2.7(d), 2.8 and 2.9, each share of the Company's Series A Preferred
Stock, (the "SERIES A PREFERRED STOCK") issued and outstanding
immediately prior to the Effective Time and not theretofore converted
into Company Common Stock shall be converted into the right to receive
.110793 shares of TKOG Common Stock (the "Series A Exchange Ratio"), up
to any aggregate of 227,125 shares of TKOG Common Stock in respect of
all outstanding shares of Series A Preferred Stock.
(b) SERIES B PREFERRED STOCK. Subject to the provisions of Sections
2.7(d), 2.8 and 2.9, each share of the Company's Series B Preferred
Stock, (the "SERIES B PREFERRED STOCK"), issued and outstanding
immediately prior to the Effective Time and not theretofore converted
into Company Common Stock shall be converted into the right to receive
.118273 shares of TKOG Common Stock (the "Series B Exchange Ratio"), up
to an aggregate of 714,403 shares of TKOG Common Stock in respect of all
outstanding shares of Series B Preferred Stock.
(c) COMPANY COMMON STOCK. Subject to the provisions of Sections
2.7(d), 2.8 and 2.9, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted
into the right to receive .0955252 shares of TKOG Common Stock (the
"Common Stock Exchange Ratio"), up to an aggregate of 489,408 shares of
TKOG Common Stock in respect of all outstanding shares of Company Common
Stock.
(d) DISSENTERS. Shares of Company Preferred Stock and shares of
Company Common Stock owned by a holder who (i) shall not have voted in
favor of the Merger, and (ii) shall have delivered to the Company a
written notice of his intent to demand payment for his shares if the
Merger is effectuated in the manner provided in Section 1300 ET SEQ. of
the CGCL (collectively, the "DISSENTING SHAREHOLDERS"), shall not be
converted as provided above, but shall be entitled to receive such
consideration as shall be provided in such sections of the CGCL, except
that shares of any Dissenting Shareholder who shall thereafter not
perfect such holder's right to appraisal as provided in such sections of
the CGCL shall thereupon be deemed to have been converted, as of the
Effective Time, into TKOG Common Stock, as provided in Section 2.7(a),
(b) or (c), as the case may be. The Company shall notify TKOG and Buyer
in writing of the
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details of the Dissenting Shareholders and the number of shares of
Company Preferred Stock or shares of Company Common Stock that they
own. The Company shall not enter into any agreement or settlement
with any Dissenting Shareholder without the prior written consent
of TKOG.
(e) UNISSUED SHARES. Each authorized but unissued share of Company
Preferred Stock and Company Common Stock shall cease to exist.
(f) STOCK OPTIONS. All options to purchase Company Common Stock then
outstanding under the Company's 1998 Stock Plan and 1998 Stock Option
Plan (the "OPTION PLANS"), or otherwise, shall be assumed by TKOG in
accordance with provisions described below.
(i) At the Effective Time, each outstanding option to
purchase shares of Company Common Stock (each a "COMPANY
OPTION") under the Option Plans or otherwise, whether vested
or unvested, shall be, in connection with the Merger, assumed
by TKOG. Each Company Option so assumed by TKOG under this
Agreement shall continue to have, and be subject to, the same
terms and conditions set forth in the Option Plans and/or as
provided in the respective option agreements governing such
Company Option immediately prior to the Effective Time, except
that (A) such Company Option shall be exercisable for that
number of whole shares of TKOG Common Stock equal to the
product of the number of shares of Company Common Stock that
were issuable upon exercise of such Company Option immediately
prior to the Effective Time multiplied by the Common Stock
Exchange Ratio, rounded down to the nearest whole number of
shares of TKOG Common Stock (up to an aggregate of 179,877
shares of TKOG Common Stock in respect of all outstanding
Company Options), and (B) the per share exercise price for the
shares of TKOG Common Stock issuable upon exercise of such
assumed Company Option shall be equal to the quotient
determined by dividing the exercise price per share of Company
Common Stock at which such Company Option was exercisable
immediately prior to the Effective Time by the Common Stock
Exchange Ratio rounded up to the nearest whole cent.
(ii) It is the intention of the parties that the Company
Options assumed by TKOG qualify following the Effective Time
as incentive stock options as defined in Section 422 of the
Code to the extent the Company Options qualified as incentive
stock options immediately prior to the Effective Time.
(iii) Promptly following the Effective Time, TKOG will issue
to each holder of an outstanding Company Option a document
evidencing the foregoing assumption of such Company Option by
TKOG.
(g) BUYER'S COMMON STOCK. Each share of Buyer's Common Stock issued
and outstanding immediately prior to the Effective Time shall be
converted into one share
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of Common Stock, no par value, of the Surviving Corporation.
2.8 SURRENDER OF CERTIFICATES, ESCROW, ETC.
(a) EXCHANGE AGENT. TKOG or the transfer agent for the TKOG Common
Stock, or a bank or trust company designated by TKOG prior to the Effective Time
and reasonably acceptable to the Company, shall act as exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) TKOG TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
TKOG shall make available to the Exchange Agent for exchange in accordance with
this Section 2, the aggregate number of shares of TKOG Common Stock issuable
pursuant to Section 2.7 in exchange for outstanding shares of Company Capital
Stock, up to an aggregate of 1,430,936 shares of TKOG Common Stock in respect of
all outstanding shares of Company Capital Stock; provided that, on behalf of the
holders of Company Capital Stock, TKOG shall deposit into an escrow account
pursuant to Section 2.8(i) below a number of shares of TKOG Common Stock equal
to the Escrow Amount out of the aggregate number of shares of TKOG Common Stock
otherwise issuable pursuant to Section 2.7. The portion of the Escrow Amount
contributed on behalf of each holder of Company Capital Stock shall be in
proportion to the aggregate number of shares of TKOG Common Stock which such
holder would otherwise be entitled to receive under Section 2.7 by virtue of
ownership of outstanding shares of Company Capital Stock as more fully specified
in Section 2.8(i) below.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Exchange Agent shall cause to be mailed to each holder of record of a
certificate or certificates (the "CERTIFICATES") which immediately prior to the
Effective Time represented outstanding shares of Company Capital Stock whose
shares were converted into the right to receive shares of TKOG Common Stock
pursuant to Section 2.7 (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the Certificates shall
pass, only upon delivery of the Certificates to the Exchange Agent and shall be
in such form and have such other provisions as TKOG may reasonably specify) and
(ii) instructions for use in effecting the surrender of the Certificates in
exchange for certificates representing shares of TKOG Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by TKOG, together with such letter of
transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificates shall be entitled to
receive in exchange therefor a certificate representing the number of whole
shares of TKOG Common Stock (less the number of shares of TKOG Common Stock, if
any, to be deposited in the Escrow Fund (as defined in Section 2.8(i) below) on
such holder's behalf pursuant to Section 2.8(i) hereof), plus cash in lieu of
fractional shares in accordance with Section 2.9, to which such holder is
entitled pursuant to Section 2.7 and the Certificate so surrendered shall
forthwith be canceled. As soon as practicable after the Effective Time, and
subject to and in accordance with the provisions of Section 11 hereof, TKOG
shall cause to be distributed to the Escrow Agent a certificate or certificates
representing that number of shares of TKOG Common Stock equal to the Escrow
Amount which shall be registered in the name of the Escrow Agent. Such shares
shall be beneficially owned by the holders on whose behalf such shares were
deposited in the Escrow Fund and shall be available to compensate TKOG as
provided in Section 11. Until so surrendered, each outstanding Certificate
that, prior o the Effective Time, represented shares
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of Company Capital Stock will be deemed from and after the Effective Time,
for all corporate purposes, other than the payment of dividends, to evidence
the ownership of the number of full shares of TKOG Common Stock into which
such shares of Company Capital Stock shall have been so converted and the
right to receive an amount in cash in lieu of the issuance of any fractional
shares in accordance with Section 2.9.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared or made after the Effective Time with respect to
TKOG Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of TKOG
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of TKOG Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of TKOG Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of TKOG
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will 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 will have paid to TKOG or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
TKOG Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of TKOG or any agent
designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 2.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a holder of shares of TKOG Common Stock or Company
Capital Stock for any amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(g) NO FURTHER OWNERSHIP RIGHTS IN COMPANY CAPITAL STOCK. All shares
of TKOG Common Stock issued upon the surrender for exchange of shares of Company
Capital 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 Company Capital Stock, and there shall be no
further registration of transfers on the records of the Surviving Corporation of
shares of Company Capital Stock which were outstanding immediately prior to the
Effective Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged as
provided in this Section 2.8.
(h) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
certificates evidencing shares of Company Capital Stock shall have been lost,
stolen or destroyed, the Exchange Agent may require, before issuing Certificates
in respect of the shares evidenced thereby, such affidavits and indemnities as
it may reasonably require with respect to such loss, theft or destruction.
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(i) ESCROW. In lieu of delivering to such holders Certificates for the
full number of shares of TKOG Common Stock provided for in Sections 2.7(a), (b),
and (c), TKOG shall deliver (A) to each such holder one or more Certificates,
registered in the name of such holder, for a number of shares of TKOG Common
Stock equal to 90% of the total number of shares of TKOG Common Stock otherwise
to be delivered to such holder pursuant to this Section 2.8; and (B) to Star
Bank, N.A. as escrow agent (the "ESCROW AGENT") for deposit into the escrow fund
(the "ESCROW FUND") provided for in the escrow agreement in the form attached as
Exhibit 2.8 hereto (the "ESCROW AGREEMENT"), to secure the indemnity obligations
under Section 11.2, one or more Certificates, registered in the name of the
Escrow Agent, a number of shares of TKOG Common Stock equal to 10% of the total
number of shares of TKOG Common Stock otherwise to be delivered pursuant to this
Section 2.8 (with any fraction of a share being rounded down to the nearest
whole share), all of which will be held as part of the Escrow Fund and disposed
of by the Escrow Agent in accordance with the provisions of the Escrow
Agreement. The Escrow Agreement is incorporated herein by reference and shall
be considered part of this Agreement. By voting for or failing to dissent from
the approval of this Agreement, each Company Shareholder automatically and
without any further act or deed irrevocably agrees that:
(A) such Company Shareholder accepts and shall be bound by
the terms and provisions of the Escrow Agreement; and
(B) Magdalena Yesil is appointed Shareholder Representative
(the "SHAREHOLDER REPRESENTATIVE") for purposes of the Escrow
Agreement with all rights, powers and authority provided for in the
Escrow Agreement and that any action taken by the Shareholder
Representative pursuant to the Escrow Agreement shall be
conclusive, valid, binding and enforceable with respect to each
such Company Shareholder.
2.9 NO FRACTIONAL SHARES
Neither certificates nor scrip for fractional shares of TKOG Common
Stock shall be issued in connection with the Merger, but in lieu thereof each
holder of shares of Company Common Stock or Company Preferred Stock otherwise
entitled to a fraction of a share of TKOG Common Stock pursuant to the
provisions of Section 2.7 shall be paid in cash an amount equal to such fraction
multiplied by the average closing price of a share of TKOG Common Stock for the
five (5) consecutive Trading Days ending on the Trading Day that is four (4)
Trading Days immediately prior to the Closing Date, as reported on the Nasdaq
National Market (subject to appropriate adjustment for any stock splits or
combinations after the date hereof and prior to the Effective Time). No such
holder shall be entitled to dividends or interest on or, except for the cash
payment referred to in the preceding sentence, other rights in respect of any
such fractional interest. If more than one Old Certificate shall be surrendered
for the account of the same Company Shareholder, the number of full shares of
TKOG Common Stock for which Old Certificates shall be exchanged pursuant to
Section 2.8 shall be computed on the basis of the aggregate number of shares of
Company Common Stock or Company Preferred Stock represented by the Old
Certificates.
2.10 STOCK TRANSFER BOOKS
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At the close of business on the day prior to the Effective Time of the
Merger, the stock transfer books of the Company shall be closed and no transfer
of Company Common Stock or Company Preferred Stock shall thereafter be made on
such stock transfer books.
2.11 TAX-FREE REORGANIZATION
The parties intend that the Merger qualify as a tax-free reorganization
pursuant to Section 368 of the Code.
3. [Intentionally Omitted]
4 REPRESENTATIONS AND WARRANTIES CONCERNING THE COMPANY
The Company hereby represents and warrants to TKOG and Buyer as follows.
4.1 ORGANIZATION AND GOOD STANDING
(a) Section 4.1 of the Disclosure Schedule contains a complete and
accurate list of the jurisdictions in which the Company is authorized to do
business and its capitalization (including the identity of each shareholder and
the number of shares held by each). The Company is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation, with full corporate power and authority to
conduct its business as it is now being conducted and to own or use the
properties and assets that it purports to own or use. The Company is duly
qualified to do business as a foreign corporation and is in good standing under
the laws of each state or other jurisdiction in which either the ownership or
use of the properties owned or used by it, or the nature of the activities
conducted by it, requires such qualification, except where the failure to be so
qualified could not reasonably be expected to have a Material Adverse Effect on
the Company. The Company does not have, and has never had, any Subsidiaries.
(b) The Company has delivered to Buyer correct and complete copies of
the Organizational Documents of the Company.
4.2 AUTHORITY; NO CONFLICT
(a) The Company has the right, power, authority and capacity to execute
and deliver this Agreement and the Transaction Documents to which it is a party,
to consummate the Merger and to perform its obligations under this Agreement and
the Transaction Documents to which it is a party. This Agreement has been duly
authorized and approved, executed and delivered by the Company and constitutes
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms. Upon the authorization and approval,
execution and delivery by the Company of the Transaction Documents to which it
is a party, such Transaction Documents will constitute legal, valid and binding
obligations of the Company, enforceable against the Company in accordance with
their respective terms.
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(b) Except as set forth in Section 4.2 of the Disclosure Schedule,
neither the execution and delivery of this Agreement by the Company nor the
consummation or performance by the Company of the Merger or any of the other
transactions contemplated hereby will, directly or indirectly (with or without
notice or lapse of time or both):
(i) contravene, conflict with or result in a violation or breach
of (A) any provision of the Organizational Documents of the Company, (B) any
resolution adopted by the board of directors or the shareholders of the Company,
(C) any legal requirement or any order to which the Company or any of the assets
owned or used by the Company may be subject, or (D) any Governmental Permit,
which is held by the Company or that otherwise relates to the business of, or
any of the assets owned or used by, the Company;
(ii) result in a breach of or constitute a default, give rise to a
right of termination, cancellation or acceleration, create any entitlement to
any payment or benefit, or require the consent or approval of or any notice to
or filing with any third party under any Contract to which the Company is a
party or to which its assets are bound, or require the consent or approval of or
any notice to or filing with any Governmental Authority to which the Company or
its assets is subject; or
(iii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by the Company;
except, with respect to clauses (i) C and (D), (ii) or (iii) of this Section
4.2, where any such breach, default, termination right, cancellation or
acceleration right or Encumbrance would not have a Material Adverse Effect on
the Company or would not adversely affect the ability of the Company to
consummate the Merger or the other transactions contemplated by this Agreement.
4.3 CAPITALIZATION
The authorized equity securities of the Company consist of 20,000,000
shares of common stock, no par value per share, of which 5,123,338 shares are
issued and outstanding, and 2,050,000 shares of Series A Preferred Stock, no par
value per share, of which 2,050,000 shares are issued and outstanding and
6,240,268 shares of Series B Preferred Stock, no par value per share, of which
6,040,268 shares are issued and outstanding. All of the outstanding equity
securities of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Section 4.3 of the Disclosure Schedule sets forth
a complete and correct list of all options, including as to each holder thereof,
the number of shares of Company Common Stock and/or Preferred Stock subject
thereto and the exercisability, exercise price and termination date thereof.
There are no voting trusts or other agreements or understandings to which the
Company is a party with respect to the transfer, voting or registration of the
capital stock of the Company. There are no Contracts relating to the issuance,
sale or transfer of any equity securities or other securities of the Company.
None of the outstanding equity securities or other securities of the Company
were issued in violation of the Securities Act or any other legal requirement.
The Company does not own or has any Contract to acquire, any equity securities
or other securities of any Person or any, direct or indirect, equity or
ownership interest in any other business. No Person has any pre-emptive rights
with respect to any security of the Company.
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4.4 BOOKS AND RECORDS
Except as disclosed in Section 4.4 of the Disclosure Schedule, the books
of account and other records of the Company, all of which have been made
available to Buyer, are true, complete and correct. Except as disclosed in
Section 4.4 of the Disclosure Schedule, the minute books of the Company contain
true, accurate and complete records of all meetings held of, and corporate
action taken by, the shareholders, the Boards of Directors, and committees of
the Boards of Directors of the Company. The stock books of the Company are
true, accurate and complete. At the Closing, all of such books and records will
be in the possession of the Company.
4.5 FINANCIAL STATEMENTS
(a) For purposes of this Agreement: "FINANCIAL STATEMENTS" shall mean
the unaudited balance sheet of the Company as of November 30, 1998, and the
related income statements for the ten months then ended. The Company has
delivered to TKOG true and complete copies of the Financial Statements.
(b) The Financial Statements (i) have been prepared from the books and
records of the Company in accordance with GAAP, (ii) fully reflect all
liabilities and contingent liabilities of the Company required to be reflected
therein on such basis as at the date thereof, and (iii) fairly present in all
material respects the financial position of the Company as of the date of the
balance sheet included in the Financial Statements and the results of its
operations for the period indicated; provided, however, the Financial Statements
(x) are subject to normal year-end adjustments and (y) do not include footnotes.
4.6 NO UNDISCLOSED LIABILITIES
Except as set forth in Section 4.6 of the Disclosure Schedule, the
Company has no liabilities or obligations of any nature (whether absolute,
accrued, contingent, or otherwise) except for liabilities or obligations
reflected or reserved against in the Financial Statements and current
liabilities incurred in the ordinary course of business since the date of the
Financial Statements, consistent with past practices, which will not,
individually or in the aggregate, have a Material Adverse Effect as defined
below on the Company.
4.7 NO MATERIAL ADVERSE CHANGE
Since November 30, 1998, there has not been any material adverse change
in the business, operations, properties, assets, prospects reflected in the
Company's projections for 1999 and 2000, liabilities, results of operations or
financial condition (a "MATERIAL ADVERSE EFFECT") of the Company and no event
has occurred or circumstance exists that could reasonably be expected to result
in a Material Adverse Effect on the Company.
4.8 TAXES
(a) "TAXES" shall mean all taxes, charges, fees, liens, customs, duties
or other assessments, however denominated, including any interest, penalties,
additions to tax or
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additional taxes that may become payable in respect thereof, imposed by the
United States government, any state, local or foreign government, or any
agency or political subdivision of any such government (a "TAX AUTHORITY"),
which taxes shall include, without limiting the generality of the foregoing,
all income taxes, payroll and employee withholding taxes, unemployment
insurance, social security, sales and use taxes, excise taxes, capital taxes,
franchise taxes, gross receipt taxes, occupation taxes, real and personal
property taxes, value added taxes, stamp taxes, transfer taxes, workers'
compensation taxes, taxes relating to benefit plans and other obligations of
the same or similar nature.
(b) (i) The Company has filed or caused to be filed with the
appropriate Taxing Authorities in a timely manner all Tax returns, reports and
forms ("RETURNS") required to be filed by them; (ii) the information on such
Returns is complete and accurate in all material respects; (iii) the Company has
paid in full on a timely basis all Taxes (whether or not shown on any Return)
required to be paid by them; (iv) there are no liens for Taxes upon the assets
of the Company other than for Taxes not yet due and payable; and (v) no
deficiencies for Taxes have been claimed, proposed, or assessed by any Tax
Authority or other governmental authority with respect to the Company, and there
are no pending or, to the Company's knowledge, threatened audits, investigations
or claims for or relating to any liability in respect of Taxes of the Company.
(c) There are no outstanding agreements or waivers with respect to the
Company extending the statutory period of limitation applicable to any Taxes and
the Company has not requested any extension of time within which to file any
Return, which has not yet been filed.
(d) (i) The Company has made provision for all Taxes payable by it and
such provision is reflected on the Financial Statements with respect to any
period covered thereby as to Taxes which are not payable prior to the date of
such Financial Statements; (ii) the provisions for Taxes with respect to the
Company for any period prior to the Closing (excluding any reserve for deferred
Taxes established to reflect timing differences between book and Tax income) are
adequate to cover all Taxes with respect to such period; (iii) the Company has
withheld and paid all Taxes required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party; (iv) all material elections with
respect to Taxes made by the Company as of the date hereof are set forth in
Section 4.8 of the Disclosure Schedule; (v) there are no private letter rulings
in respect of any Tax pending between the Company and any Tax Authority, or
between the Seller and any Tax Authority, if such ruling would affect the
Company; (vi) the Company has never been a member of an affiliated group within
the meaning of section 1504 of the Code, or filed or been included in a
combined, consolidated or unitary return of any Person; (vii) the Company is not
liable for Taxes of any other Person, and the Company is not currently under any
contractual obligation to indemnify any Person with respect to Taxes, or a party
to any tax sharing agreement or any other agreement providing for payments by
the Company with respect to Taxes; (viii) the Company is not, nor has been, a
United States real property holding corporation (as defined in section 897(c)(2)
of the Code), during the applicable period specified in section 897(c)(1)(A)(ii)
of the Code; (ix) the Company is not a "collapsible corporation" under section
341 of the Code; (x) the Company is not a personal holding company within the
meaning of section 542 of the Code; (xi) the Company is not a party to any joint
venture, partnership or other arrangement or contract which could be treated as
a partnership for Tax purposes; (xii) the Company has not
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agreed to nor is required, as a result of a change in method of accounting or
otherwise, to include any adjustment under section 481 of the Code (or any
corresponding provision of state, local or foreign law) in taxable income;
(xiii) the Company is not a party to any agreement, contract, arrangement or
plan that could result (taking into account the transactions contemplated by
this Agreement), separately or in the aggregate, in the payment of any
"excess parachute payments" within the meaning of section 280G of the Code;
and (xiv) Section 4.8 of the Disclosure Schedule contains a list of all
jurisdictions to which any Tax is properly payable or in which any Return is
required to be filed by the Company, and no written claim has ever been made
by any Tax authority in any other jurisdiction that the Company is subject to
taxation in such jurisdiction.
4.9 ACCOUNTS RECEIVABLE
All accounts receivable of the Company that are reflected on the
Financial Statements or on the accounts receivable ledger of the Company as of
the Closing Date (collectively, the "ACCOUNTS RECEIVABLE") represent or will
represent valid obligations arising from sales actually made or services
actually performed in the ordinary course of business. To the knowledge of the
Company, all of the Accounts Receivable are or will be collectible at the full
recorded amount thereof, less any applicable reserves established in accordance
with GAAP, in the ordinary course of business without resort to litigation,
except for such Accounts Receivable, the failure of which to be collected will
not have a Material Adverse Effect on the Company.
4.10 TITLE TO PROPERTIES; ENCUMBRANCES
Section 4.10 of the Disclosure Schedule contains a complete and
accurate list of all real property, leaseholds or other interests therein
owned or held by the Company. The Company does not own, and has not owned,
any real property. The Company has delivered or made available to Buyer true,
correct and complete copies of the real property leases to which the Company
is party or pursuant to which it uses or occupies any real property. Except
as set forth in Section 4.10 of the Disclosure Schedule, the Company has good
title to all of the properties and assets, real and personal, tangible and
intangible, it owns or purports to own, or uses in its business, including
those reflected on its books and records and in the Financial Statements
(except for accounts receivable collected and materials and supplies disposed
of in the ordinary course of business consistent with past practice after the
date of the most recent Financial Statements). The Company has a valid
leasehold, license or other interest in all of the other tangible assets,
real or personal, which are used in the operation of its business. Except as
set forth in Section 4.10 of the Disclosure Schedule, all material properties
and assets owned, leased or used by the Company are free and clear of all
Encumbrances, except for (a) liens for current taxes not yet due, (b)
workman's, common carrier and other similar liens arising in the ordinary
course of business, none of which materially detracts from the value or
impairs the use of the property or asset subject thereto, or impairs the
operations of the Company, (c) Encumbrances disclosed in the Financial
Statements, and (d) with respect to real property, (i) minor imperfections of
title, if any, none of which is substantial in amount, materially detracts
from the value or impairs the use of the property subject thereto, or impairs
the operations of the Company, and (ii) zoning laws and other land use
restrictions that do not impair the present or anticipated use of the
property subject thereto.
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4.11 CONDITION AND SUFFICIENCY OF ASSETS
The Facilities and other property and assets owned or used by the
Company are structurally sound, are in good operating condition and repair, and
are adequate for the uses to which they are being put, and none of such
Facilities or other property and assets owned or used by the Company is in need
of maintenance or repairs except for ordinary, routine maintenance and repairs
that are not material in nature or cost.
4.12 COMPLIANCE WITH LAWS; GOVERNMENTAL AUTHORIZATIONS
(a) Except as set forth in Section 4.12 of the Disclosure Schedule, the
Company is in compliance in all material respects with all laws, regulations,
licenses, orders, ordinances, judgments and decrees affecting the properties or
assets owned or used by the Company and the business or operations of the
Company, including, without limitation, federal, state and local: (i)
Occupational Safety and Health Laws; (ii) private investigatory and other
similar laws; (iii) securities laws, rules and regulations; (iv) the Fair Credit
Reporting Act and similar state and local laws; and (v) any federal, state or
local law regarding or relating to trespass or violations of privacy rights.
The Company has not been charged with violating, nor to the knowledge of the
Company, threatened with a charge of violating, nor, to the knowledge of the
Company, is the Company under investigation with respect to a possible violation
of, any provision of any federal, state or local law, order or administrative
ruling, license or regulation relating to any of their respective properties or
assets or any aspect of their respective businesses.
(b) Section 4.12 of the Disclosure Schedule contains a complete and
accurate list of each Governmental Permit that is held by the Company or that
otherwise relates to the business of, or to any of the properties or assets
owned or used by, the Company. Each Governmental Permit listed or required to
be listed in Section 4.12 of the Disclosure Schedule is valid and in full force
and effect.
4.13 LEGAL PROCEEDINGS
Except as set forth in Section 4.13 of the Disclosure Schedule, there is
no pending claim, action, investigation, arbitration, litigation or other
proceeding ("PROCEEDING"):
(i) that has been commenced by or against the Company or that
otherwise relates to the business of, or any of the assets owned or used by, the
Company; or
(ii) that challenges, or that may have the effect of preventing,
delaying, making illegal, or otherwise interfering with, any of the transactions
contemplated hereby.
To the knowledge of the Company, no such Proceeding has been threatened.
The Company has made available to Buyer true, correct and complete copies of all
pleadings, correspondence and other documents relating to each Proceeding listed
in Section 4.13 of the Disclosure Schedule. The Proceedings listed in Section
4.13 of the Disclosure Schedule could not reasonably be expected to have a
Material Adverse Effect on the Company.
4.14 ABSENCE OF CERTAIN CHANGES AND EVENTS
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Except as set forth in Section 4.14 of the Disclosure Schedule, since
November 30, 1998, the Company has conducted its business only in the ordinary
course, consistent with past practice, and there has not been any:
(a) declaration or payment of any dividend or other distribution or
repurchase or payment in respect of shares of capital stock;
(b) issuance or sale or authorization for issuance or sale, or grant of
any options with respect to, any shares of its capital stock or any other type
of its securities, or any change in its outstanding shares of capital stock or
other ownership interests or its capitalization, whether by reason of a
reclassification, recapitalization, stock split or combination, exchange or
readjustment of shares, stock dividend or otherwise;
(c) mortgage, pledge or grant any security interest in any of its
assets;
(d) payment or increase of any bonuses, salaries or other compensation
to any stockholder, director, officer, consultant or (except in the ordinary
course of business consistent with past practice) employee or entry into any
employment, severance or similar Contract with any director, officer or
employee;
(e) adoption of, or increase in the payments to or benefits under, any
profit sharing, bonus, deferred compensation, savings, insurance, pension,
retirement or other employee benefit plan for or with any employees;
(f) damage to or destruction or loss of any customer, asset or
property, whether or not covered by insurance, which could reasonably be
expected to have a Material Adverse Effect on the Company;
(g) entry into, termination of, or receipt of notice of termination of
any Contract or transaction involving a total remaining commitment by or to the
Company of at least $50,000 including the entry into (i) any document evidencing
any indebtedness; (ii) any capital or other lease; or (iii) any guaranty;
(h) sale, lease or other disposition (other than in the ordinary course
of business consistent with past practice) of any property or asset or mortgage,
pledge, or imposition of any Encumbrance on any material property or asset;
(i) cancellation, compromise or waiver of any claim or right with a
value to the Company in excess of $50,000;
(j) incurrence or assumption of any indebtedness for borrowed money or
guarantee any obligation or the net worth of any Person in an aggregate amount
in excess of $50,000, except for endorsements of negotiable instruments for
collection in the ordinary course of business;
(k) discharge or satisfaction of any Encumbrance other than those which
are required to be discharged or satisfied during such period in accordance with
their original
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terms;
(l) payment of any material obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except for any current
liabilities, and the current portion of any long term liabilities, shown on the
Financial Statements (or not required as of the date thereof to be shown thereon
in accordance with GAAP) or incurred since the date of the most recent balance
sheet in the ordinary course of business consistent with past practice;
(m) any loan or advance to any Person other than travel and other
similar routine advances in the ordinary course of business consistent with past
practice, or acquire any capital stock or other securities of or any ownership
interest in any other business enterprise;
(n) any capital expenditure or capital addition or betterment in
amounts which exceed $50,000 in the aggregate;
(o) institution or settlement of any Proceeding before any court or
governmental body relating to it or its property;
(p) except in the ordinary course of business consistent with past
practice, commitment to provide services for an indefinite period or a period of
more than six (6) months;
(q) change in the method of accounting or the accounting principles or
practices used by the Company in the preparation of the Financial Statements
except as required by GAAP; or
(r) agreement, whether oral or written, by the Company to do any of the
foregoing.
4.15 CONTRACTS; NO DEFAULTS
(a) Section 4.15(a) of the Disclosure Schedule contains a complete and
accurate list, and the Company has delivered to Buyer true, correct and complete
copies, of:
(i) each Contract involving payments of at least $50,000 that
involves performance of services or delivery of goods or materials by the
Company;
(ii) each Contract involving payments of at least $50,000 that
involves performance of services or delivery of goods or materials to the
Company;
(iii) each lease, license and other Contract affecting any
leasehold or other interest in any real or personal property;
(iv) each licensing agreement or other Contract with respect to
patents, trademarks, copyrights, trade secrets or other intellectual property,
including agreements with current or former employees, consultants or
contractors regarding the appropriation or the non-disclosure of any
intellectual property;
(v) each collective bargaining agreement and other Contract to or
with any labor union or other employee representative of a group of employees;
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(vi) each joint venture, partnership and other Contract involving a
sharing of profits, losses, costs or liabilities by the Company with any other
Person or requiring the Company to make a capital contribution;
(vii) each Contract to which the Company is a party containing
covenants that in any way purport to restrict the business activity of the
Company or any of the key employees of the Company (collectively, the "KEY
EMPLOYEES") or limit the freedom of the Company or any of the Key Employees to
engage in any line of business or to compete with any Person or hire any Person;
(viii) each employment or consulting agreement between the Company
and its employees and consultants;
(ix) each agreement between the Company and an officer or director
of the Company, to the Company's knowledge, any affiliate of any of the
foregoing;
(x) each power of attorney granted by the Company that is
currently effective and outstanding;
(xi) each Contract for capital expenditures by the Company in
excess of $50,000;
(xii) each agreement of the Company under which any money has been
or may be borrowed or loaned or any note, bond, factoring agreement, indenture
or other evidence of indebtedness has been issued or assumed (other than those
under which there remain no ongoing obligations of the Company), and each
guaranty (including "take-or-pay" and "keepwell" agreements) of any evidence of
indebtedness or other obligation, or of the net worth, of any Person (other than
endorsements for the purpose of collection in the ordinary course of business);
(xiii) each agreement of the Company containing restrictions with
respect to the payment of dividends or other distributions in respect of the
Company's capital stock;
(xiv) each stock purchase, merger or other agreement pursuant to
which the Company acquired any material amount of assets, and all relevant
documents and agreements delivered in connection therewith;
(xv) each agreement to which the Company is a party containing a
change of control provision;
(xvi) each other agreement to which the Company is a party having
an indefinite term or a fixed term of more than one (1) year (other than those
that are terminable at will or upon not more than ninety (90) days' notice by
the Company without penalty) or requiring payments by the Company of more than
$50,000 per year; and
(xvii) each standard form of agreement pursuant to which the
Company provides services to customers.
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(b) Except as set forth in Section 4.15(b) of the Disclosure Schedule,
each Contract identified or required to be identified in Section 4.15(a) of the
Disclosure Schedule is in full force and effect and is valid and enforceable
against the Company and, to the knowledge of the Company, against the other
parties thereto in accordance with its terms.
(c) Except as set forth in Section 4.15(c) of the Disclosure Schedule:
(i) the Company is in full compliance with all applicable terms and
requirements of each Contract under which the Company has any obligation or
liability or by which the Company or any of the assets owned or used by the
Company is or was bound, except for such noncompliance that would not have a
Material Adverse Effect on the Company;
(ii) to the knowledge of the Company, each other person that has or
had any obligation or liability under any Contract under which the Company has
any rights is in full compliance with all applicable terms and requirements of
such Contract; and
(iii) no event has occurred and, to the knowledge of the Company,
no circumstance exists that (with or without notice or lapse of time or both) is
likely to result in a violation or breach of any Contract, which violation or
breach would have a Material Adverse Effect on the Company.
4.16 INSURANCE
Section 4.16 of the Disclosure Schedule sets forth and describes all the
insurance policies of the Company, which policies are now in full force and
effect in accordance with their terms and expire on the dates shown on
Section 4.16 of the Disclosure Schedule. There has been no material default in
the payment of premiums on any of such policies, and there is no ground for
cancellation or avoidance of any such policies, or any increase in the premiums
thereof, or for reduction of the coverage provided thereby. Such policies shall
continue in full force and effect up to the expiration dates shown in Section
4.16 of the Disclosure Schedule. True, correct and complete copies of all
insurance policies listed in Section 4.16 have been previously furnished to
Buyer.
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4.17 ENVIRONMENTAL MATTERS
Except as set forth in Section 4.17 of the Disclosure Schedule:
(a) The Company is, and at all times has been, in full compliance
with, and has not been and is not in violation of or liable under, any
Environmental Law except for such noncompliance or violation that will not
have a Material Adverse Effect on the Company. The Company has obtained and
is in compliance with all permits required under Environmental Laws. The
Company has not received any actual or threatened order, notice or other
communication from (i) any Governmental Authority or third party, or (ii) the
current or prior owner or operator of any Facilities, of any actual or
potential violation or failure to comply with any Environmental Law, or of
any actual or threatened Environmental, Health, and Safety Liabilities with
respect to any of the Facilities or any other properties or assets in which
the Company has had an interest or the operation of their respective
businesses, or with respect to any property or Facility at or to which
Hazardous Materials were generated, manufactured, transported, used or
processed by the Company.
(b) There are no pending or, to the knowledge of the Company, threatened
claims, Encumbrances, or other restrictions of any nature, resulting from any
Environmental, Health, and Safety Liabilities or arising under or pursuant to
any Environmental Law, with respect to or affecting any of the Facilities or any
other properties and assets in which the Company has or had an interest.
(c) The Company has no knowledge of any basis to expect, nor it
received, any inquiry, notice, order or other communication that relates to
Hazardous Activity, Hazardous Materials, or any violation or failure to comply
with any Environmental Law, or of any obligation to undertake or bear the cost
of any Environmental, Health, and Safety Liabilities with respect to any of the
Facilities or any other properties or assets in which the Company had an
interest, or with respect to any property or facility to which Hazardous
Materials generated, manufactured, transported, used, or processed by the
Company have been transported, treated, stored, handled or disposed.
(d) The Company has no Environmental, Health, and Safety Liabilities
with respect to the Facilities or with respect to any other properties and
assets in which the Company (or any predecessor) has or had an interest that
could reasonably be expected to have a Material Adverse Effect on the Company.
(e) There are no Hazardous Materials present on, in, under or migrating
to or from the Environment at the Facilities, to the knowledge of the Company.
The Company has not permitted or conducted, and is not aware of, any Hazardous
Activity conducted with respect to the Facilities or any other properties or
assets in which the Company has or had an interest except in compliance in all
material respects with all applicable Environmental Laws.
(f) To the knowledge of the Company, there has been no release, or,
threat of release, of any Hazardous Materials at or from the Facilities or at
any other locations where any Hazardous Materials were generated, manufactured,
transported, produced, used, disposed, or processed from or by the Facilities,
or from or by any other properties and assets in which the Company has or had an
interest whether by the Company, or any other Person.
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(g) The Company has delivered to Buyer true, correct and complete copies
and results of any and all reports, studies, analyses, tests, or monitoring
possessed or initiated by the Company pertaining to Hazardous Materials or
Hazardous Activities in, on, or under the Facilities, or concerning compliance
by the Company with Environmental Laws.
4.18 EMPLOYEES
(a) Section 4.18 of the Disclosure Schedule contains a complete and
accurate list of the following information for each employee of the Company:
name; job title; and current compensation.
(b) No officer or Key Employee of the Company is a party to, or is
otherwise bound by, any agreement or arrangement, including any confidentiality,
noncompetition, or proprietary rights agreement, between such officer or Key
Employee and any other Person that materially and adversely affects (i) the
performance of his duties as an officer or employee of the Company, or (ii) the
ability of the Company to conduct its business. To the knowledge of the
Company, no officer or other Key Employee of the Company intends to terminate
his or her employment with the Company.
(c) No Key Employee of the Company is bound by any agreement with any
other Person that is violated or breached by such employee performing the
services he is performing for the Company.
4.19 EMPLOYEE BENEFITS
(a) Except as listed on Section 4.19 of the Disclosure Schedule,
neither the Company nor any ERISA Affiliate maintains any Employee Benefit
Plans. "EMPLOYEE BENEFIT PLAN" means any "employee benefit plan" as defined in
Section 3(3) of ERISA and any other plan, policy, program, practice, agreement,
understanding or arrangement (whether written or oral) providing compensation or
other benefits to any current or former director, officer, employee or
consultant (or to any dependent or beneficiary thereof), of the Company or any
ERISA Affiliate, which are now, or were within the past six years, maintained by
the Company or any ERISA Affiliate, or under which the Company or any ERISA
Affiliate has any obligation or liability, whether actual or contingent,
including, without limitation, all incentive, bonus, deferred compensation,
vacation, holiday, cafeteria, medical, disability, stock purchase, stock option,
stock appreciation, phantom stock, restricted stock or other stock-based
compensation plans, policies, programs, practices or arrangements. "ERISA
AFFILIATE" means any entity (whether or not incorporated) other than the Company
that, together with the Company, is or was a member of (i) a controlled group of
corporations within the meaning of Section 414(b) of the Code; (ii) a group of
trades or businesses under common control within the meaning of Section 414(c)
of the Code; or (iii) an affiliated service group within the meaning of Section
414(m) of the Code.
The Company has delivered to TKOG or its counsel prior to the date
hereto true and complete copies of (i) any employment agreements and any
procedures and policies relating to the employment of employees of the Company
and the use of temporary employees and independent contractors by the Company
(including summaries of any procedures and policies
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that are unwritten), (ii) plan instruments and amendments thereto for all
Employee Benefit Plans and related trust agreements, insurance and other
contracts, summary plan descriptions, and summaries of material
modifications, and material communications distributed to the participants of
each Plan, (iii) to the extent annual reports on Form 5500 are required with
respect to any Employee Benefit Plan, the three most recent annual reports
and attached schedules for each Employee Benefit Plan as to which such report
is required to be filed and (iv) where applicable, the most recent (A)
opinion, notification and determination letters, (B) audited financial
statements, (C) actuarial valuation reports and (D) nondiscrimination tests
performed under the Code (including 401(k) and 401(m) tests) for each
Employee Benefit Plan.
(b) Neither the Company nor any ERISA Affiliate maintains or has ever
maintained an Employee Benefit Plan subject to Title IV of ERISA.
(c) To the knowledge of the Company, with respect to each Employee
Benefit Plan, (i) no party in interest or disqualified person (as defined in
Section 3(14) of ERISA and Section 4975 of the Code, respectively) has at any
time engaged in a transaction which could subject TKOG, Buyer or the Company,
directly or indirectly, to a tax, penalty or liability for prohibited
transactions imposed by ERISA or the Code and (ii) no fiduciary (as defined in
Section 3(21) of ERISA) with respect to any Employee Benefit Plan, or for whose
conduct the Company could have any liability (by reason of indemnities or
otherwise), has breached any of the responsibilities or obligations imposed upon
the fiduciary under Title I of ERISA.
(d) Each Employee Benefit Plan which is an "employee pension benefit
plan" within the meaning of Section 3(2) of ERISA (a "PENSION PLAN") and which
is subject to Sections 201, 301 or 401 of ERISA has received a favorable
determination letter from the Internal Revenue Service covering all amendments
required by the Tax Reform Act of 1986 and prior legislation and, to the
knowledge of the Company, there are no circumstances that are reasonably likely
to result in revocation of any such favorable determination letter. To the
knowledge of the Company, each Employee Benefit Plan is and has been operated in
all material respects in compliance with its terms and all applicable laws, and
by its terms can be amended and/or terminated at any time. As of and including
the Closing Date, the Company shall have made all contributions required to be
made by them up to and including the Closing Date with respect to each Employee
Benefit Plan, or adequate accruals therefor will have been provided for and will
be reflected on the Financial Statements provided to TKOG by the Company. All
notices, filings and disclosures required by ERISA or the Code (including
notices under Section 4980B of the Code) have been timely made.
(e) The Company has not received or is aware of any Proceeding (other
than routine claims for benefits) pending or, to the knowledge of the Company,
threatened with respect to any Employee Benefit Plan or against any fiduciary of
any Employee Benefit Plan, and the Company has no knowledge of any facts that
could give rise to any such Proceeding. To the knowledge of the Company, there
has not occurred any circumstances by reason of which the Company may be liable
for an act, or a failure to act, by a fiduciary with respect to any Employee
Benefit Plan.
(f) No Employee Benefit Plan provides for medical or health benefits
(through insurance or otherwise) or provided for the continuation of such
benefits or coverage for any
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participant or any dependent or beneficiary of any participant after such
participant's retirement or other termination of employment except as may be
required by Part 6 of Subtitle B of Title I of ERISA and Section 4980B of the
Code ("COBRA").
(g) Neither the Company nor any ERISA Affiliate has ever contributed
to, or withdrawn in a partial or complete withdrawal from, any "multiemployer
plan" (as defined in Section 3(37) of ERISA) or has any fixed or contingent
liability under Section 4204 of ERISA.
(h) No Employee Benefit Plan is a "multiple employer plan" as described
in Section 3(40) of ERISA or Section 413(c) of the Code.
(i) No Employee Benefit Plan, other than a "pension plan" within the
meaning of Section 3(2) of ERISA ("PENSION PLAN"), is funded through a trust
intended to be exempt from tax pursuant to Section 501 of the Code.
(j) Except as required by law, the Company has not proposed or agreed
to any changes to any Employee Benefit Plan that would cause an increase in
benefits under any such Employee Benefit Plan (or the creation of new benefits
or plans) or to change any employee coverage which would cause an increase in
the expense of maintaining any such plan.
(k) Except as provided in Section 4.19 of the Disclosure Schedule, no
person or entity has an employment, severance, consulting or independent
contractor agreement with the Company. No "leased employee" (within the meaning
of Section 414(n) or (o) of the Code) performs any material services for the
Company.
Except as set forth in Section 4.19 of the Disclosure Schedule, the
consummation of the transactions contemplated by this Agreement will not result
in (i) any payment (including, without limitation, severance, unemployment
compensation, golden parachute or bonus payments or otherwise) becoming due to
any director, officer, employee or consultant of the Company, (ii) any increase
in the amount of compensation or benefits payable in respect of any director,
officer, employee or consultant of the Company, or (iii) accelerate the vesting
or timing of payment of any benefits or compensation payable in respect of any
director, officer, employee or consultant of the Company. No Employee Benefit
Plan provides benefits or payments contingent upon, triggered by, or increased
as a result of a change in the ownership or effective control of the Company.
4.20 LABOR RELATIONS
Except as set forth in Section 4.20 of the Disclosure Schedule:
(a) To the knowledge of the Company, no employee is considering
terminating his or her employment with the Company or has expressed
dissatisfaction with his or her employment.
(b) To the knowledge of the Company, the consummation of the
transactions contemplated by this Agreement will not adversely affect its
relations with its employees.
(c) The Company is in compliance in all material respects with all
applicable laws
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respecting employment and employment practices, terms and conditions of
employment and wages and hours and none of them is engaged in any unfair
labor practice.
(d) No collective bargaining agreement with respect to the business of
the Company is currently in effect or being negotiated. The Company has not
encountered any labor union or collective bargaining organizing activity with
respect to its employees. The Company has no obligation to negotiate any such
collective bargaining agreement and, to the knowledge of the Company, there is
no indication that the employees of the Company desire to be covered by a
collective bargaining agreement.
(e) There are no strikes, slowdowns, work stoppages or other labor
trouble pending or, to the knowledge of the Company, threatened with respect to
the employees of the Company, nor has any of the above occurred or, to the
knowledge of the Company, been threatened.
(f) There is no representation claim or petition pending before the
National Labor Relations Board or any state or local labor agency and, to the
knowledge of the Company, no question concerning representation has been raised
or threatened respecting the employees of the Company.
(g) There are no complaints or charges against the Company pending
before the National Labor Relations Board or any state or local labor agency
and, to the knowledge of the Company, no complaints or charges have been filed
or threatened to be filed against the Company with any such board or agency.
(h) To the knowledge of the Company, no charges with respect to or
relating to the business of the Company are pending before the Equal Employment
Opportunity Commission or any state or local agency responsible for the
prevention of unlawful employment practices.
(i) Section 4.20 of the Disclosure Schedule accurately sets forth all
unpaid severance which, as of the date hereof, is due or claimed, in writing, to
be due from the Company to any Person whose employment with the Company was
terminated.
(j) The Company has not received notice of the intent of any government
body responsible for the enforcement of labor or employment laws to conduct an
investigation of the Company and no such investigation is in progress.
(k) The Company is not, and, to the knowledge of the Company, no
employee of the Company is, in violation in any material respect of any
employment agreement, non-disclosure agreement, non-compete agreement or any
other agreement regarding an employee's employment with the Company.
(l) The Company has paid all wages which are due and payable to each
employee and each independent contractor.
4.21 INTELLECTUAL PROPERTY
(a) INTELLECTUAL PROPERTY ASSETS. The term "INTELLECTUAL PROPERTY
ASSETS" includes:
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(i) all fictional business names, trade names, registered and unregistered
trademarks, service marks and applications (collectively, "MARKS"); (ii) all
patents, patent applications and inventions and discoveries that may be
patentable (collectively, "PATENTS"); (iii) all copyrights in both published
works and unpublished works, including training manuals, software and videos
(collectively, "COPYRIGHTS"); and (iv) all know-how, trade secrets,
confidential information, customer lists, technical information, data, plans,
drawings and blue prints (collectively, "TRADE SECRETS"); owned, used or
licensed by the Company as licensee or licensor.
(b) AGREEMENTS. Section 4.21(b) of the Disclosure Schedule contains a
true, correct and complete list and summary description, including any royalties
paid or received by the Company, of all Contracts relating to the Intellectual
Property Assets to which the Company is a party or by which the Company is
bound.
(c) KNOW-HOW NECESSARY FOR THE BUSINESS. The Intellectual Property
Assets are all those necessary for the operation of the business of the
Company as it is currently conducted. The Company owns all right, title and
interest in and to each of the Intellectual Property Assets, free and clear
of all Encumbrances, or have the right to use all of the Intellectual
Property Assets.
(d) TRADEMARKS. (i) Section 4.21(d) of Disclosure Schedule contains a
true, correct and complete list of all Marks; (ii) the Company owns all right,
title and interest in and to the Marks, free and clear of all Encumbrances;
(iii) all Marks that have been registered with the United States Patent and
Trademark Office are currently in compliance in all material respects with all
formal legal requirements and are valid and enforceable; (iv) to the knowledge
of the Company, no Mark is infringed or, has been challenged or threatened in
any way. To the knowledge of the Company, none of the Marks used by the Company
infringes or is alleged to infringe any trade name, trademark or service mark of
any Person.
(e) COPYRIGHTS. (i) The Company owns all right, title and interest in
and to each of the Copyrights, free and clear of all Encumbrances or has the
right to use the Copyrights; (ii) all the Copyrights owned by the Company,
whether or not registered, are valid and enforceable; (iii) to the knowledge of
the Company, no Copyright is infringed or has been challenged or threatened in
any way; (iv) to the knowledge of the Company, none of the subject matter of any
of the Copyrights infringes or is alleged to infringe any copyright of any
Person or is a derivative work based on the work of a third Person; and (v) all
works encompassed by the Copyrights have been marked with the proper copyright
notice.
(f) TRADE SECRETS. (i) The Company has taken all reasonable precautions
to protect the secrecy, confidentiality and value of their Trade Secrets; and
(ii) the Company has good title and an absolute right to use their Trade
Secrets. To the knowledge of the Company, the Trade Secrets have not been used,
divulged or appropriated either for the benefit of any Person (other than the
Company) or to the detriment of the Company. No Trade Secret is subject to any
material adverse claim or, to the knowledge of the Company, has been challenged
or threatened in any way.
4.22 CERTAIN PAYMENTS
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Neither the Company nor any director, officer, agent or employee of
the Company, or to the knowledge of the Company, any other Person associated
with or acting for or on behalf of the Company, has directly or indirectly
(a) made any contribution, gift, bribe, rebate, payoff, influence payment,
kickback or other payment to any Person, private or public, regardless of
form, whether in money, property or services (i) to obtain favorable
treatment in securing business, (ii) to pay for favorable treatment for
business secured, (iii) to obtain special concessions, or for special
concessions already obtained, for or in respect of the Company or any
affiliate of the Company, or (iv) in violation of any legal requirement, or
(b) established or maintained any fund or asset that has not been recorded in
the books and records of the Company.
4.23 RELATIONSHIPS WITH RELATED PERSONS
Except as set forth in Section 4.23 of the Disclosure Schedule, to the
knowledge of the Company, no officer, director or employee of the Company, nor
any spouse or child of any of them or any Person associated with any of them
("RELATED PERSON"), has any interest in any property used in or pertaining to
the business of the Company. Except as set forth in Section 4.23 of the
Disclosure Schedule, none of the officers, directors or employees of the Company
nor any Related Person has owned an equity interest or any other financial or
profit interest in a Person that has (i) had business dealings with the Company,
or (ii) engaged in competition with the Company. Except as set forth in Section
4.23 of the Disclosure Schedule, to the knowledge of the Company, no officer,
director or employee of the Company nor any Related Person is a party to any
Contract with, or has any claim or right against, the Company, except employment
or consulting agreements listed in Section 4.15(a) of the Disclosure Schedule.
4.24 BROKERS OR FINDERS
Neither the Company nor its agents has incurred any obligation or
liability, contingent or otherwise, for brokerage or finders' fees or agents'
commissions or financial advisory services or other similar payment in
connection with this Agreement.
4.25 DEPOSIT ACCOUNTS
Section 4.25 of the Disclosure Schedule contains a true, correct and
complete list of (a) the name of each financial institution in which the Company
has an account or safe deposit box, (b) the names in which each account or box
is held, (c) the type account, and (d) the name of each person authorized to
draw on or have access to each account or box.
4.26 POOLING OF INTERESTS
To its knowledge, the Company has not taken or agreed to take any
action, or caused any event or condition to occur, which would affect the
ability of TKOG to account for the transactions contemplated hereby as a
pooling-of-interests for accounting purposes.
4.27 CLIENT RELATIONSHIPS
To the knowledge of the Company, there are no facts or circumstances,
including the consummation of the transactions contemplated by this Agreement,
that are reasonably likely
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to result in the loss of any Client (as hereinafter defined) of the Company
or a material change in the relationship of the Company with such a Client.
4.28 CONDUCT OF BUSINESS; USE OF NAME
The business carried on by the Company has been conducted by the Company
directly and not through any affiliate of any shareholder, officer, director or
employee of the Company or through any other Person. The Company owns and has
the exclusive right, title and interest in and to the name "Securify" and no
other Person has the right to use the same, or any confusing derivative thereof,
as its corporate name or otherwise in connection with the operation of any
business similar or related to the business conducted by the Company.
4.29 RESTRICTIONS ON BUSINESS ACTIVITIES.
There is no Contract, judgment, injunction, order or decree binding upon
the Company or, to the knowledge of the Company, threatened that has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of the Company (either individually or in the aggregate),
any acquisition of property by the Company (either individually or in the
aggregate), providing of any service by the Company or the hiring of employees
or the conduct of business by the Company (either individually or in the
aggregate) as currently conducted or proposed to be conducted.
4.30 OUTSTANDING INDEBTEDNESS
Section 4.30 of the Disclosure Schedule sets forth as of November 30,
1998 (a) the amount of all indebtedness of the Company then outstanding and the
interest rate applicable thereto, (b) any Encumbrances which relate to such
indebtedness and (c) the name of the lender or the other payee of each such
indebtedness.
4.31 CONTRACTORS
Section 4.31 of the Disclosure Schedule contains a complete and accurate
list of the most significant contractors and subcontractors used by the Company.
4.32 CLIENTS
Section 4.32 of the Disclosure Schedule sets forth a true, complete and
correct listing of all existing clients (the "CLIENTS") of the Company.
4.33 PROJECTIONS
The Company has delivered to TKOG and Buyer certain projections for the
Company for 1999 and 2000. Such projections were prepared in good faith by the
officers and directors of the Company and the assumptions underlying such
projections, taken as whole, are reasonable.
4.34 YEAR 2000 COMPLIANCE
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(a) To the Company's knowledge, all hardware, software, and
embedded systems used by the Company, including any hardware, software, and
embedded systems used in connection with product and service development,
operations and production, financial operations, office and administration
operations, human resources functions, and legal and audit functions (the
"SYSTEMS") are designed to be used prior to, during, and after the calendar year
2000 ("YEAR 2000"). The Systems operate and will operate and will operate
during each such time period without error relating to date data. Without
limiting the generality of the foregoing:
(i) the Systems will not normally end or provide invalid or
incorrect results as a result of date data, specifically including date
data which represents or references different centuries or more than one
century;
(ii) the Systems have been designated to ensure Year 2000
compatibility, including date data century recognition, calculations
which accommodate same century and multi-century formulas and date
values, and date data interface values that reflect the century;
(iii) the Systems are designed to be used prior to, during
and after the Year 2000, and the Systems 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;
(iv) the date rollovers will not cause erroneous processing;
(v) manipulation of date data will be free of error over
the range of dates that the Systems are expected to handle;
(vi) explicit century values will be correctly stored and
passed across all applicable interfaces (including user interfaces);
(vii) century values will be correctly inferred;
(viii) all leap year values will be correctly calculated and
processed across all applicable interfaces (including user interfaces);
and
(ix) all dates will handle the date September 9, 1999, as
well as store and pass such date across all interfaces (including user
interfaces).
(b) Section 4.34 of the Disclosure Schedule describes any Year
2000 compliance audit or similar audit conducted by the Company and the
identity of any consultants or other persons or entities engaged in
connection therewith. The Company has delivered true, correct and complete
copies of the reports or results of any such audits to TKOG.
4.35 DISCLOSURE.
No representation or warranty of the Company in this Agreement as
modified by
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statements in the Disclosure Schedule is inaccurate in any material respect
or omits to state a material fact necessary to make the statements herein or
therein, in light of the circumstances under which they were made, not
misleading.
5. REPRESENTATIONS AND WARRANTIES OF TKOG AND BUYER
TKOG and Buyer each represents and warrants to the Company as follows:
5.1 ORGANIZATION AND GOOD STANDING
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. TKOG is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Ohio. Each of TKOG and Buyer has full corporate power and authority to conduct
its business as it is now being conducted and to own or use the properties and
assets that it purports to own or use. Each of TKOG and Buyer is duly qualified
to do business as a foreign corporation and is in good standing under the laws
of each state or other jurisdiction in which either the ownership or use of the
properties owned or used by it, or the nature of the activities conducted by it,
requires such qualification, except where the failure to be so qualified could
not reasonably be expected to have a Material Adverse Effect on TKOG and its
Subsidiaries, taken as a whole.
5.2 AUTHORITY; NO CONFLICT
(a) TKOG and Buyer each has the right, power, authority and capacity to
execute and deliver this Agreement and the Transaction Documents to which TKOG
or Buyer is a party, to consummate the Merger and to perform their respective
obligations under this Agreement and the Transaction Documents to which TKOG or
Buyer is a party. This Agreement has been duly authorized and approved,
executed and delivered by TKOG and Buyer and constitutes the legal, valid and
binding obligation of TKOG and Buyer, enforceable against them in accordance
with its terms. Upon the execution and delivery by TKOG and Buyer of the
Transaction Documents to which TKOG or Buyer is a party, such Transaction
Documents will constitute the legal, valid and binding obligations of TKOG and
Buyer, enforceable against them in accordance with their respective terms.
(b) Neither the execution and delivery of this Agreement by TKOG or
Buyer nor the consummation or performance by TKOG or Buyer of the Merger or any
of the other transactions contemplated hereby will, directly or indirectly (with
or without notice or lapse of time or both):
(i) contravene, conflict with, or result in a violation or breach
of (A) any provision of the Organizational Documents of TKOG or Buyer, (B) any
resolution adopted by the board of directors or the shareholders of TKOG or
Buyer, (C) any legal requirement or any order to which TKOG or Buyer or any of
the assets owned or used by them may be subject, or (D) any Governmental Permit
held by TKOG or Buyer;
(ii) result in a breach of or constitute a default, give rise to a
right of termination, cancellation or acceleration, create any entitlement to
any payment or benefit, or
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require the consent or approval of or any notice to or filing with any third
party, under any Contract to which TKOG or Buyer is a party or by which their
respective assets are bound, or require the consent or approval of or any
notice to or filing with any Governmental Authority to which either TKOG,
Buyer or their respective assets are subject; or
(iii) result in the imposition or creation of any Encumbrance upon
or with respect to any of the assets owned or used by TKOG or Buyer,
except, with respect to clause (i) (C) or (D), (ii) or (iii) of this Section
5.2, where any such contravention, conflict, violation, breach, default,
termination right, cancellation or acceleration right or Encumbrance would not
have a Material Adverse Effect on TKOG and its Subsidiaries taken as a whole or
would not adversely affect the ability of TKOG or Buyer to consummate the Merger
or the other transactions contemplated by this Agreement.
5.3 CAPITALIZATION; TKOG SHARES
(a) The authorized capital stock of TKOG consists of 1,000,000 shares of
preferred stock, $0.01 par value per share, of which as of the date of this
Agreement no shares are issued or outstanding, and 50,000,000 shares of TKOG
Common Stock, of which as of December 30, 1998 19,015,368 shares were issued and
outstanding. All of the authorized capital stock of Buyer is owned of record
and beneficially by TKOG.
(b) The TKOG Shares issuable as a result of the Merger have been duly
authorized and upon the Effective Time will be validly issued, fully paid and
nonassessable.
5.4 FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION
(a) TKOG has delivered to the Company true, correct and complete
copies of its Prospectus dated April 30, 1998 as filed with the Commission
(the "PROSPECTUS"), the Prospectus dated November 10, 1998, which forms a
part of its Registration Statement on Form S-4 (Registration No. 333-66959)
(the "S-4 PROSPECTUS"), its Annual Report on Form 10-K for the year ended
December 31, 1997 (the "FORM 10-K"), its Quarterly Report on Form 10-Q for
the quarter ended March 31, 1998 (the "MARCH FORM 10-Q"), its Quarterly
Report on Form 10-Q for the quarter ended June 30, 1998 (the "JUNE FORM
10-Q"), and its Quarterly Report on Form 10-Q for the quarter ended September
30, 1998 (the "SEPTEMBER FORM 10-Q," and together with the March Form 10-Q
and the June Form 10-Q, the "FORMS 10-Q"). The Prospectus, the S-4
Prospectus, the Form 10-K and the Forms 10-Q (collectively, the "TKOG SEC
REPORTS") have been timely filed pursuant to the Securities Act or the
Exchange Act, as applicable.
(b) The TKOG SEC Reports complied as to form in all material respects
with the requirements of the Securities Act and the Exchange Act, as
applicable, in effect on the respective dates thereof. None of the TKOG SEC
Reports, when filed pursuant to the Securities Act or the Exchange Act, as
applicable, contained any untrue statement of a material fact or omitted to
state any material fact necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) Each of the TKOG financial statements (including the related notes)
included in the
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TKOG SEC Reports presents fairly, in all material respects, the consolidated
financial position and consolidated results of operations and cash flows of
TKOG as of the respective dates or for the respective periods set forth
therein, all in conformity with GAAP consistently applied during the periods
involved except as otherwise noted therein, and subject, in the case of any
unaudited interim financial statements included therein, to normal year-end
adjustments and to absence of complete footnotes.
5.5 NO MATERIAL ADVERSE CHANGE
Since November 30, 1998, there has not been any material adverse change
in the business, operations, properties, prospects, liabilities, results of
operations, assets or condition (financial or otherwise) of TKOG and its
Subsidiaries taken as a whole and no event has occurred or circumstances exist
that could reasonably be expected to result in a Material Adverse Effect on TKOG
and its Subsidiaries taken as a whole.
5.6 LEGAL PROCEEDINGS
There is no pending Proceeding against TKOG or Buyer that challenges, or
that may have the effect of preventing, delaying, making illegal, or otherwise
interfering with, any of the transactions contemplated hereby, or that otherwise
could reasonably be expected to result in a Material Adverse Effect on TKOG and
its Subsidiaries taken as whole. To the knowledge of TKOG, no such Proceeding
has been threatened.
5.7 BROKERS OR FINDERS
Neither TKOG nor Buyer nor any of its officers and agents has incurred
any obligation or liability, contingent or otherwise, for brokerage or finders'
fees or agents' commissions or financial advisory services or other similar
payment in connection with this Agreement, except for fees that will be paid by
TKOG.
5.8 POOLING OF INTERESTS.
To its knowledge, TKOG has not taken or agreed to take any action, or
caused any event or condition to occur, which would affect the ability of TKOG
to account for the transactions contemplated hereby as a pooling-of-interests
for accounting purposes.
5.9 DISCLOSURE.
No representation or warranty of TKOG or Buyer in this Agreement is
inaccurate in any material respect or omits to state a material fact necessary
to make the statements herein in light of the circumstances under which they
were made, not misleading.
6 COVENANTS
The Company, TKOG and Buyer hereby covenant and agree as follows:
6.1 NORMAL COURSE
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From the date hereof until the Closing, the Company will: (a) maintain
its corporate existence in good standing; (b) maintain the general character of
its business; (c) use all reasonable commercial efforts to maintain in effect
all of its presently existing insurance coverage (or substantially equivalent
insurance coverage), preserve its business organization substantially intact,
keep the services of its present principal employees and preserve its present
business relationships with its material suppliers and customers; (d) permit
TKOG, Buyer, their accountants, their legal counsel and their other
representatives full access to its management, minute books and stock transfer
records, other books and records, Contracts, properties and operations at all
reasonable times and upon reasonable notice; and (e) in all respects conduct its
business in the usual and ordinary manner consistent with past practice and
perform in all material respects all agreements or other obligations with banks,
customers, suppliers, employees and others.
6.2 CONDUCT OF BUSINESS
Without limiting the provisions of Section 6.1, from the date hereof
until the Closing, the Company will not, without the prior written consent of
TKOG:
(a) amend or otherwise modify its Organizational Documents;
(b) except as set forth in Schedule 6.2 and except for the issuance of
shares of Company Common Stock upon exercise or conversion of presently
outstanding Company Securities, issue or sell or authorize for issuance or sale,
or grant any options or make other agreements of the type referred to in Section
4.3 with respect to, any shares of its capital stock or any other of its
securities, or alter any term of any of its outstanding securities or make any
change in its outstanding shares of capital stock or other ownership interests
or its capitalization, whether by reason of a reclassification,
recapitalization, stock split or combination, exchange or readjustment of
shares, stock dividend or otherwise;
(c) mortgage, pledge or grant any security interest in any of its
assets, except security interests solely in tangible personal property granted
pursuant to any purchase money agreement, conditional sales contract or capital
lease under which there exists an aggregate future liability not in excess of
$25,000 (which amount is not more than the purchase price for such personal
property and which security interest does not extend to any other item or items
of personal property);
(d) declare, set aside, make or pay any dividend or other distribution
to any shareholder with respect to its capital stock;
(e) redeem, purchase or otherwise acquire, directly or indirectly, any
capital stock of the Company;
(f) increase the compensation of any of its employees, except for
increases in the ordinary course of business, consistent with past practice;
(g) adopt or (except as otherwise required by law) amend any employee
benefit plan or enter into any collective bargaining agreement;
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(h) terminate or modify any material Contract, except for terminations
of Contracts upon their expiration during such period in accordance with their
terms;
(i) incur or assume any indebtedness for borrowed money or guarantee
any obligation or the net worth of any Person in an aggregate amount in excess
of $25,000, except for endorsements of negotiable instruments for collection in
the ordinary course of business;
(j) discharge or satisfy any Encumbrance other than those which are
required to be discharged or satisfied during such period in accordance with
their original terms;
(k) pay any material obligation or liability, absolute, accrued,
contingent or otherwise, whether due or to become due, except for any current
liabilities, and the current portion of any long term liabilities, shown on the
Financial Statements (or not required as of the date thereof to be shown thereon
in accordance with GAAP) or incurred since the date of the most recent balance
sheet in the ordinary course of business consistent with past practice;
(l) sell, transfer, lease to others or otherwise dispose of any of its
properties or assets having a fair market value in the aggregate in excess of
$25,000, except in the ordinary course of business consistent with past
practice;
(m) cancel, compromise or waive any material debt, claim or right;
(n) make any loan or advance to any Person other than travel and other
similar routine advances in the ordinary course of business consistent with past
practice, or acquire any capital stock or other securities of or any ownership
interest in any other business enterprise;
(o) make any capital expenditure or capital addition or betterment in
amounts which exceed $25,000 in the aggregate, except as contemplated in capital
budgets in effect on the date of this Agreement;
(p) change its method of accounting or the accounting principles or
practices utilized in the preparation of the Financial Statements, other than as
required by GAAP;
(q) institute or settle any Proceeding before any court or governmental
body relating to it or its property;
(r) except in the ordinary course of business consistent with past
practice, commit to provide services for an indefinite period or a period of
more than six (6 ) months;
(s) enter into other Contracts, except Contracts made in the ordinary
course of business consistent with past practice;
(t) make any new election with respect to Taxes or any change in
current elections with respect to Taxes; or
(u) enter into any commitment to do any of the foregoing.
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6.3 COMPANY SHAREHOLDERS ACTION
The Company shall solicit written consents of the Company Shareholders
as promptly as practicable for the purpose of consenting to the approval of the
Merger. The Company shall take all such reasonable action that is necessary or
advisable to secure the vote or consent of the Company Shareholders in favor of
such approval as soon as practicable and shall not take any action that could
reasonably be expected to prevent the vote or consent of shareholders in favor
of such approval.
6.4 AGREEMENTS WITH RESPECT TO AFFILIATES
The Company shall deliver to TKOG, and TKOG shall deliver to the
Company, prior to the Effective Time, letters (the "AFFILIATE LETTERS")
identifying all Persons who are, at the time of the action by the Company
Shareholders or immediately prior to the Effective Time, anticipated to be
"Affiliates" of the Company or TKOG, as the case may be for purposes of Rule 145
under the Securities Act ("RULE 145"), or the rules and regulations of the
Commission relating to pooling of interests accounting treatment for merger
transactions (the "POOLING RULES"). The Company and TKOG shall use their
respective reasonable best efforts to cause each Person who is identified as an
"affiliate" in the Affiliate Letter to deliver to as promptly as practicable a
written agreement (an "AFFILIATE AGREEMENT") in connection with restrictions on
Affiliates under Rule 145 and pooling of interests accounting treatment, in form
mutually agreeable to the Company and TKOG. TKOG shall be entitled to place
appropriate legends on the certificates evidencing any TKOG Common Stock to be
received by Company Affiliates, and to issue appropriate stop transfer
instructions to the transfer agent for TKOG Common Stock, consistent with the
terms of such Affiliate Agreements.
6.5 CERTAIN FILINGS
The Company shall cooperate with TKOG with respect to all filings with
regulatory authorities that are required to be made by the Company to carry out
the transactions contemplated by this Agreement. The Company shall assist TKOG
and Buyer in making all such filings, applications and notices as may be
necessary or desirable in order to obtain the authorization, approval or consent
of any Governmental Authority which may be reasonably required or which TKOG and
Buyer may reasonably request in connection with the consummation of the
transactions contemplated hereby.
6.6 CONSENTS AND APPROVALS
The Company shall use commercially reasonable efforts to obtain as
promptly as practicable all consents, authorizations, approvals and waivers
required in connection with the consummation of the transactions contemplated by
this Agreement.
6.7 BEST EFFORTS TO SATISFY CONDITIONS
The Company shall use commercially reasonable efforts to cooperate with
TKOG for purposes of satisfying the conditions set forth in Sections 8 and 9
that are within their control.
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6.8 INTERCOMPANY PAYMENTS
All loans, payables and other amounts due to or from the Company and its
affiliates as listed in Section 6.8 of the Disclosure Schedule shall be paid in
full, written off or adjusted to zero balances at or prior to the Closing. Such
amounts due may be paid from cash on hand or as may otherwise be available to
the Company from existing lines of credit with third party lenders.
6.9 NOTIFICATION OF CERTAIN MATTERS
The Company shall promptly notify TKOG of (i) the occurrence or
non-occurrence of any fact or event of which the Company has knowledge which
would be reasonably likely (A) to cause any representation or warranty of the
Company contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Closing Date or (B)
to cause any covenant, condition or agreement of the Company in this
Agreement not to be complied with or satisfied in any material respect and
(ii) any failure of the Company to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder in
any material respect; provided, however, that no such notification shall
affect the representations or warranties of the Company, or the right of TKOG
to rely thereon, or the conditions to the obligations of TKOG. The Company
shall give prompt notice to TKOG of any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement.
6.10 POOLING ACCOUNTING TREATMENT
TKOG and the Company shall each use its best efforts to cause the
business combination to be effected by the Merger to be accounted for as a
pooling of interests. Each of TKOG and the Company shall use its best
efforts to cause its respective employees, directors, stockholders and
affiliates not to take any action that would adversely affect the ability of
TKOG to account for the business combination to be effected by the Merger as
a pooling of interests. Neither TKOG nor the Company shall take any action,
including the acceleration of vesting of any options, restricted stock or
other rights to acquire shares of the capital stock of the Company, which
reasonably would be expected to (i) interfere with TKOG's ability to account
for the Merger as a pooling of interests or (ii) jeopardize the tax-free
nature of the reorganization hereunder.
6.11 EMPLOYMENT AGREEMENTS
The Company shall use its best efforts to cause Taher Elgamal and Dan
Kolkowitz to enter into employment agreements with the Company to be effective
on the Closing Date. Each employment agreement will be in substantially the
form attached as Exhibit 6.11(b) hereto.
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6.12 RELATIONSHIP WITH CLIENTS
The Company shall take all commercially reasonable steps to ensure that
a good relationship is maintained with each of its clients between the date of
this Agreement and the Closing Date.
7 COVENANTS OF TKOG AND BUYER
Each of TKOG and Buyer, jointly and severally, hereby covenants and
agrees as follows:
7.1 CERTAIN FILINGS
TKOG and Buyer agree to make or cause to be made all filings with
regulatory authorities that are required to be made by TKOG or Buyer or their
respective affiliates to carry out the transactions contemplated by this
Agreement.
7.2 BEST EFFORTS TO SATISFY CONDITIONS
Each of TKOG and Buyer agrees to use its best efforts to satisfy the
conditions set forth in Sections 8 and 9 that are within their control.
7.3 NOTIFICATION OF CERTAIN MATTERS
TKOG and Buyer shall promptly notify the Company of (i) the occurrence
or non-occurrence of any fact or event of which TKOG or Buyer has knowledge
which would be reasonably likely (A) to cause any representation or warranty of
Buyer or TKOG contained in this Agreement to be untrue or inaccurate in any
material respect at any time from the date hereof to the Closing Date or (B) to
cause any covenant, condition or agreement of Buyer or TKOG in this Agreement
not to be complied with or satisfied in any material respect and (ii) any
failure of Buyer or TKOG to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder in any material
respect; provided, however, that no such notification shall affect the
representations or warranties of Buyer and TKOG, or the Company's right to rely
thereon, or the conditions to the obligations of the Company. TKOG and Buyer
shall give prompt notice to the Company of any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement.
7.4 REGISTRATION RIGHTS AGREEMENT
At the Closing, TKOG will enter into the Registration Rights Agreement
in substantially the form attached as Exhibit 7.4 hereto.
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7.5 FORM S-8.
TKOG shall file a registration statement on Form S-8 with respect to the
shares of TKOG Common Stock issuable with respect to assumed Company Options as
soon as reasonably practicable but no later than thirty (30) days after the
Closing Date.
7.6 NMS LISTING.
TKOG shall authorize for listing on the Nasdaq National Market the
shares of TKOG Common Stock issuable, and those required to be reserved for
issuance, in connection with the Merger, upon official notice of issuance.
7.7 EMPLOYMENT MATTERS.
From and after the Effective Time, (i) all continuing employees of the
Company and all employees of the Company engaged by TKOG shall be eligible for
employee benefits generally available to employees of TKOG to substantially the
same extent as other employees of TKOG similarly situated and (ii) TKOG shall
grant all continuing employees of the Company credit for service (to
substantially the same extent as service with TKOG or any subsidiary of TKOG is
taken into account with respect to similarly situated employees of TKOG and its
subsidiaries) with the Company for determining benefit levels under such
employee benefits. Nothing contained in this Agreement shall create or imply
any obligation on the part of TKOG, Merger Sub, the Company or the Surviving
Corporation to provide any continuing employment right to any individual.
7.8 DIRECTOR AND OFFICER INDEMNIFICATION.
From and after the Effective Time, TKOG will fulfill and honor and will
cause the Surviving Corporation to fulfill and honor in all respects the
obligations of the Company pursuant to any indemnification agreements between
the Company and its directors and officers or indemnification provisions under
the Company's Articles of Incorporation or Bylaws existing prior to September
30, 1998 and previously disclosed to TKOG. From and after the Effective Time,
such obligations shall be the joint and several obligations of TKOG and the
Surviving Corporation and, by executing this Agreement, TKOG hereby assumes such
obligations to the extent such assumption would not affect the ability of TKOG
to account for the transactions contemplated hereby as a pooling-of-interests
for accounting purposes.
8. CONDITIONS TO OBLIGATIONS OF TKOG AND BUYER
The obligations of TKOG and Buyer under this Agreement to consummate the
Merger shall be subject to the satisfaction, on or before the Closing Date, of
each of the following conditions:
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8.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of the Company contained in this
Agreement or in the Disclosure Schedule or any certificate delivered pursuant
hereto shall be complete and correct as of the date when made, shall be deemed
repeated at and as of the Closing Date as if made on the Closing Date and,
without giving effect to any qualification as to materiality (or any variation
of such term) contained in any representation or warranty, shall then be
complete and correct in all material respects.
8.2 PERFORMANCE OF COVENANTS
The Company shall have performed and complied in all material respects
with each covenant, agreement and condition required by this Agreement to be
performed or complied with by it prior to or on the Closing Date.
8.3 LACK OF ADVERSE CHANGE
Except as set forth in Section 8.3 of the Disclosure Schedule, since
November 30, 1998, there shall not have occurred any incident or event which,
individually or in the aggregate, has had or is reasonably likely to result in a
Material Adverse Effect on the Company. For purposes of this condition, the
following shall not be considered a Material Adverse Effect: (i) any effect or
change occurring as a result of any or any combination of any (A) general
economic or financial conditions or (B) other developments that are not unique
to such person and its subsidiaries but also affect other persons who
participate or are engaged in the lines of business in which such person and its
subsidiaries participate or are engaged; or (ii) failure in itself, but not any
cause thereof, of a person's and its subsidiaries' results of operations to meet
any internal or external predictions, projections, estimates or expectations.
8.4 UPDATE CERTIFICATE
TKOG and Buyer shall have received favorable certificates, dated the
Closing Date, signed by the Company as to the matters set forth in Sections 8.1,
8.2 and 8.3.
8.5 NO GOVERNMENTAL OR OTHER PROCEEDING
No order of any Governmental Authority shall be in effect that restrains
or prohibits any transaction contemplated hereby or that would limit or affect
TKOG's or Buyer's ownership or operation of the business of the Company; no
suit, action, investigation, inquiry or proceeding by any Governmental Authority
shall be pending or threatened against TKOG, Buyer or the Company or any
director or officer of any thereof, as such, that challenges the validity or
legality, or that seeks to restrain the consummation, of the transactions
contemplated hereby or that seeks to limit or otherwise affect TKOG's or Buyer's
right to own or operate the business of the Company; and no written advice shall
have been received by TKOG, Buyer or the Company or by any of their respective
counsel from any Governmental Authority, and remain in effect, stating that an
action or proceeding will, if the Merger is consummated or sought to be
consummated, be filed seeking to invalidate or restrain the Merger or limit or
otherwise affect TKOG's or Buyer's ownership or operation of the business of the
Company.
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8.6 APPROVALS AND CONSENTS
All material consents, waivers, approvals, authorizations or orders
required to be obtained, and all filings required to be made, by the Company,
for the authorization, execution and delivery of this Agreement, the
consummation by it of the transactions contemplated hereby and the continuation
in full force and effect of any and all material rights, documents, agreements
or instruments of the Company shall have been obtained and made, except where
the failure to receive such consents, waivers, approvals, authorizations or
orders would not reasonably be expected to have a Material Adverse Effect on the
Company as a whole.
8.7 OPINION OF COUNSEL
The Company shall have delivered to TKOG and Buyer an opinion of Gray
Cary Ware & Freidenrich LLP, dated the Closing Date and addressed to TKOG and
Buyer, as to the matters set forth on Exhibit 8.7 hereto.
8.8 SHAREHOLDER APPROVAL
This Agreement shall have been duly approved at or prior to the
Effective Time of the Merger by the requisite consent or vote of the Company
Shareholders in accordance with the CGCL.
8.9 ESCROW AGREEMENT
The Escrow Agreement shall have been duly executed and delivered by the
Company and TKOG.
8.10 OPINION OF ACCOUNTANT
TKOG and Buyer shall have received an opinion of Arthur Andersen LLP,
independent certified public accountants, regarding the qualification of the
Merger as a pooling of interests for accounting purposes. Such opinion shall be
in form and substance reasonably satisfactory to TKOG.
8.11 AFFILIATE AGREEMENTS
TKOG shall have received from each Person who is identified in the
Affiliate Letter as an "affiliate" of the Company, an Affiliate Agreement, and
such Affiliate Agreement shall be in full force and effect.
8.12 EMPLOYMENT AGREEMENTS
The employment agreements referred to in Section 6.11 shall have been
executed by Taher Elgamal Dan Kolkowitz.
9. CONDITIONS TO OBLIGATIONS OF THE COMPANY
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The obligations of the Company under this Agreement to consummate the
Merger shall be subject to the satisfaction, on or before the Closing Date, of
each of the following conditions:
9.1 REPRESENTATIONS AND WARRANTIES
The representations and warranties of TKOG and Buyer contained in this
Agreement or in the Disclosure Schedule or any certificate delivered pursuant
hereto shall be complete and correct as of the date when made, shall be deemed
repeated at and as of the Closing Date as if made on the Closing Date and,
without giving effect to any qualification as to materiality (or any variation
of such term) contained in any representation or warranty, shall then be
complete and correct in all material respects.
9.2 PERFORMANCE OF COVENANTS
TKOG and Buyer shall have performed and complied in all material
respects with each covenant, agreement and condition required by this Agreement
to be performed or complied with by them prior to or on the Closing Date.
9.3 UPDATE CERTIFICATE
The Company shall have received favorable certificates, dated the
Closing Date, signed by TKOG and Buyer as to the matters set forth in Sections
9.1 and 9.2.
9.4 NO GOVERNMENTAL OR OTHER PROCEEDING
No order of any Governmental Authority shall be in effect that restrains
or prohibits the Merger; and no written advice shall have been received by TKOG,
Buyer or the Company or by any of their respective counsel from any Governmental
Authority, and remain in effect, stating that an action or proceeding will, if
the Merger is consummated or sought to be consummated, be filed seeking to
invalidate or restrain the Merger.
9.5 OPINION OF COUNSEL
TKOG and Buyer shall have delivered to the Company an opinion of Kramer
Levin Naftalis & Frankel LLP, dated the Closing Date and addressed to the
Company, as to the matters set forth on Exhibit 9.5 hereto.
9.6 SHAREHOLDER APPROVAL
This Agreement shall have been duly approved at or prior to the
Effective Time of the Merger by the requisite consent or vote of the Company
Shareholders in accordance with the CGCL.
9.7 TRANSACTION DOCUMENTS
TKOG shall have executed and delivered the Registration Rights Agreement
and the
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Escrow Agreement.
10. TERMINATION OF AGREEMENT
This Agreement may be terminated:
10.1 MUTUAL CONSENT
At any time prior to the Effective Time, by mutual consent of TKOG,
Buyer and the Company.
10.2 TRANSACTION DATE
By TKOG, Buyer or the Company if the Effective Time shall not have
occurred by February 28, 1999, unless such failure shall be due to a material
breach of any representation or warranty, or the nonfulfillment in a material
respect, and failure to cure such nonfulfillment, of any covenant or agreement
contained herein on the part of the party or parties seeking to terminate.
10.3 BREACH
By TKOG or Buyer if there has been a material misrepresentation by the
Company or a material breach on the part of the Company of any of its warranties
or covenants set forth herein, or a material failure on the part of the Company
to comply with any of its other obligations hereunder; or by the Company if
there has been a material misrepresentation by TKOG or Buyer, or a material
breach on the part of TKOG or Buyer of any of their warranties or covenants set
forth herein, or a material failure on the part of TKOG or Buyer to comply with
any of their other obligations hereunder PROVIDED, HOWEVER, that if such breach
is curable by the Company within ten (10) days through the exercise of its
reasonable best efforts, then for so long as the Company continues to exercise
such reasonable best efforts TKOG may not terminate this Agreement under this
Section 10.3 unless such breach is not cured within ten (10) days (but no cure
period shall be required for a breach which by its nature cannot be cured). No
such termination shall relieve any party of the consequences of any such
misrepresentation, breach or failure.
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11. INDEMNIFICATION
11.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
All of the Company's representations and warranties in this Agreement or
in any instrument delivered pursuant to this Agreement (each as modified by the
Disclosure Schedules) shall survive the Merger and continue until 5:00 p.m.,
California time, on (i) with respect to the representations which are subject to
resolution through the audit process, the date which is the earlier of the date
of the auditor's report for the first audit of TKOG's financial statements
commenced after the Effective Time or the Expiration Date (as defined below),
and (ii) with respect to all other representations and warranties, the
Expiration Date. For purposes of this Agreement, the "EXPIRATION DATE" shall
mean the date which is one year following the Effective Time.
11.2 OBLIGATION OF THE COMPANY TO INDEMNIFY, REIMBURSE, ETC.
Subject to the provisions of Section 11.4, the Company, its successors
and assigns, jointly and severally, shall indemnify, reimburse, defend and hold
harmless TKOG and Buyer and each of their successors and assigns and each of
their respective directors, officers, employees, affiliates, and their
respective successors and assigns (each a "TKOG INDEMNITEE") from and against
all Losses resulting from, imposed upon, incurred or suffered by any of them,
directly or indirectly, based upon, arising out of or otherwise in respect of
any inaccuracy in or any breach of any representation, warranty, covenant or
agreement of the Company. For purpose of this Agreement, "LOSSES" shall mean
any claims, losses, liabilities, damages, causes of action, costs and expenses
(including reasonable attorney's, accountant's, consultant's and expert's fees
and expenses), net of (i) any tax benefits, savings or reductions and (ii) any
insurance proceeds, in either case which the Indemnified Party actually receives
by virtue of such claims, losses, liabilities, damages, causes of action, costs
and expenses.
11.3 OBLIGATION OF TKOG TO INDEMNIFY, REIMBURSE, ETC.
Subject to the provisions of Section 11.4 hereof, TKOG and Buyer and
their respective successors and assigns, jointly and severally, shall indemnify,
defend and hold harmless the Company and its successors and assigns and each of
its directors, officers, employees, affiliates, and their respective successors
and assigns (each a "COMPANY INDEMNITEE") from and against any Losses resulting
from, imposed upon, incurred or suffered by any of them, directly or indirectly,
based upon, arising out of or otherwise in respect of any inaccuracy in or
breach of any representation, warranty, covenant or agreement of TKOG or Buyer.
11.4 LIMITS ON INDEMNIFICATION, REIMBURSEMENT, ETC.
(a) Absent fraud or willful misconduct of any party (for which
there shall be no limitation of liability of any party), no TKOG Indemnitee or
the Company Indemnitee shall have any right to seek indemnification,
reimbursement or defense under this Agreement or the Escrow Agreement until
Losses which would otherwise be indemnifiable hereunder, and have been incurred
by such party and other indemnitees associated with or related to such party,
exceed $100,000 in the aggregate, at which point all such losses, including
losses under $100,000 in the aggregate, shall be fully indemnifiable.
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(b) Absent fraud or wilful misconduct, the sole and exclusive
remedy and recourse by any TKOG Indemnitee against the Company shareholders (in
their capacities as such) for breach of representations, warranties, covenants
and agreements in this Agreement, its schedules, exhibits, attachments and
related certificates shall be pursuant to the Escrow Agreement. Any recovery of
any TKOG Indemnitee against the Company's option holders or shareholders (in
their capacities as such) for breach of representations, warranties, covenants
and agreements in this Agreement, its schedules, exhibits, attachments and
related certificates shall in all events be limited to the Escrow Fund.
11.5 ESCROW ARRANGEMENTS. Concurrent with the Effective Time, the Escrow
Amount shall be placed in the Escrow Fund, to be governed by the terms of the
Escrow Agreement. The Escrow Fund shall be available to compensate TKOG and its
affiliates for losses incurred by TKOG and its affiliates in connection with
breaches of representations, warranties, or covenants contained herein or
delivered pursuant hereto. The terms and conditions of the Escrow Fund shall be
set forth more fully in the Escrow Agreement. The Escrow Fund shall terminate
at the Expiration Date.
12. GENERAL PROVISIONS
12.1 EXPENSES
Except as otherwise expressly provided in this Agreement, each party to
this Agreement will bear its respective expenses incurred in connection with the
preparation, execution, delivery and performance of this Agreement, including
all fees and expenses of agents, representatives, counsel and accountants,
provided that the Company's expenses shall not exceed $550,000 in the aggregate.
12.2 PUBLIC ANNOUNCEMENTS
Unless required by law, any public announcement or similar publicity
with respect to this Agreement, the Closing or the transactions contemplated
hereby will be issued, if at all, at such time and in such manner as TKOG
determines with the concurrence of the Company, which concurrence shall not be
unreasonably withheld or delayed by the Company. Unless disclosure is consented
to by TKOG in advance or required by law, the Company shall keep this Agreement
strictly confidential and may not make any disclosure of this Agreement to any
Person. The Company and TKOG will consult with each other concerning the means
by which the Company's employees, customers and suppliers and others having
dealings with the Company will be informed of this Agreement, the Closing and
the transactions contemplated hereby, and representatives of TKOG may at its
option be present for any such communication.
12.3 NOTICES
All notices, consents, waivers, and other communications under this
Agreement must be in writing and will be deemed to have been duly given when (a)
delivered by hand (with written confirmation of receipt), (b) sent by fax (with
written confirmation of receipt), provided that a copy is mailed by registered
mail, return receipt requested, or (c) when
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received by the addressee, if sent by a nationally recognized overnight
delivery service (receipt requested), in each case to the appropriate
addresses or fax numbers set forth below (or to such other address, person's
attention or fax number as a party may designate by notice to the other
parties given in accordance with this Section 12.3):
(a) If to TKOG or Buyer:
The Kroll-O'Gara Company
9113 LeSaint Drive
Fairfield, OH 45014
Telecopier No.: (513) 874-1262
Telephone No.: (513) 881-5481
Attention: Abram S. Gordon, Esq.
With a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, NY 10022
Telecopier No.: (212) 715-8000
Telephone No.: (212) 715-9100
Attention: Peter S. Kolevzon, Esq.
(b) If to the Company:
Securify Inc.
2415-B Charleston Road
Mountain View, CA 94043
Telecopier No.: (650) 934-9301
Telephone No.: (650) 934-9303
Attention: Taher Elgamal
With a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, CA 94301
Telecopier No.: 650-328-6561
Telephone No.: 650-327-3699
Attention: Thomas W. Furlong, Esq.
12.4 JURISDICTION; SERVICE OF PROCESS
Any Proceeding seeking to enforce any provision of, or based on any
right arising out of, this Agreement may be brought against any of the parties
in the courts of the State of New York, County of New York or the United States
District Court for the Southern District of
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New York, and each of the parties consents to the jurisdiction of such
courts (and of the appropriate appellate courts) in any such Proceeding and
waives any objection to venue laid therein. Service of process or any other
papers in any such Proceeding may be made by registered or certified mail,
return receipt requested, pursuant to the provisions of Section 12.3.
12.5 FURTHER ASSURANCES
The parties agree (a) to furnish upon request to each other such further
information, (b) to execute and deliver to each other such other documents, and
(c) to do such other acts and things, all as the other party may reasonably
request for the purpose of carrying out the intent of this Agreement and the
documents referred to in this Agreement.
12.6 WAIVER
Neither the failure nor any delay by any party in exercising any right,
power or privilege under this Agreement or the documents referred to in this
Agreement will operate as a waiver of such right, power or privilege.
12.7 ENTIRE AGREEMENT AND MODIFICATION
This Agreement supersedes all prior agreements between the parties with
respect to its subject matter (including any correspondence among TKOG, Buyer,
the Company and any of its shareholders) and constitutes (along with the
documents referred to in this Agreement) the entire agreement among the parties
with respect to its subject matter. This Agreement may not be amended except by
a written agreement executed by the party to be charged with the amendment.
12.8 ASSIGNMENTS, SUCCESSORS, AND NO THIRD-PARTY RIGHTS
No party may assign any of its rights under this Agreement without the
prior written consent of the other parties except that TKOG may assign any of
its rights, but not its obligations, under this Agreement to any direct wholly
owned Subsidiary of TKOG. Subject to the preceding sentence, this Agreement
will apply to, be binding in all respects upon, and inure to the benefit of the
successors and permitted assigns of the parties and their respective heirs and
personal representatives. Except as contemplated by Section 7.8 assumption of
indemnity obligations, nothing expressed or referred to in this Agreement will
be construed to give any Person other than the parties to this Agreement and the
Persons contemplated by Section 11 any legal or equitable right, remedy or claim
under or with respect to this Agreement or any provision of this Agreement.
12.9 SEVERABILITY
If any provision of this Agreement or the application of any such
provision to any party or circumstances shall be determined by any court of
competent jurisdiction to be invalid or unenforceable to any extent, the
remainder of this Agreement, or the application of such provision to such person
or circumstances other than those to which it is so determined to be invalid or
unenforceable, shall not be affected thereby, and each provision hereof shall be
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enforced to the fullest extent permitted by law. If the final judgment of a
ocurt of competent jurisdiction declares that any item or provision hereof is
invalid or unenforceable, the parties hereto agree that the court making the
determination of invalidity or unenforceability shall have the power, and is
hereby directed, to reduce the scope, duration or area of the term or provision,
to delete specific words or phrases and to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or unenforceable
term or provision, and this Agreement shall be enforceable as so modified.
12.10 SECTION HEADINGS, CONSTRUCTION
The headings of Sections in this Agreement are provided for
convenience only and will not affect its construction or interpretation. In
this Agreement (i) words denoting the singular include the plural and vice
versa, (ii) "it" or "its" or words denoting any gender include all genders,
(iii) the word "including" shall mean "including without limitation," whether
or not expressed, (iv) any reference to a statute shall mean the statute and
any regulations thereunder in force as of the date of this Agreement or the
Closing Date, as applicable, unless otherwise expressly provided, (v) any
reference herein to a Section, Article, Schedule or Exhibit refers to a
Section or Article of or a Schedule or Exhibit to this Agreement, unless
otherwise stated, and (vi) when calculating the period of time within or
following which any act is to be done or steps taken, the date which is the
reference day in calculating such period shall be excluded and if the last
day of such period is not a Business Day, then the period shall end on the
next day which is a Business Day. Each party acknowledges that he, she or it
has been advised and represented by counsel in the negotiation, execution and
delivery of this Agreement and accordingly agrees that if an ambiguity exists
with respect to any provision of this Agreement, such provision shall not be
construed against any party because such party or its representatives drafted
such provision.
12.11 GOVERNING LAW
This Agreement will be governed by the internal laws of the State of
California without regard to principles of conflict of laws.
12.12 COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of
which will be deemed to be an original copy of this Agreement and all of which,
when taken together, will be deemed to constitute one and the same agreement.
12.13 KNOWLEDGE
Reference to a party's "knowledge" means (a) in the case of the Company,
the actual knowledge of Taher Elgamal or Dan Kolkowitz and (b) in the case of
TKOG or Buyer, the actual knowledge of the persons identified in Schedule 12.13.
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IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
THE KROLL-O'GARA COMPANY
By
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Name: Abram Gordon
Title: Vice President
TKOG DELAWARE, INC.
By
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Name: Abram Gordon
Title: President
SECURIFY INC.
By
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Name:
Title:
