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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (the "Agreement") dated June 6,
2000, by and among EpicEdge, Inc., a Texas corporation, with its principal place
of business at 3200 Wilcrest, Suite 370, Houston, Texas 77042 ("EDG"), EDG
Acquisition Corporation, a California corporation, with its principal place of
business at 3200 Wilcrest, Suite 370, Houston, Texas 77042 (the "Sub"), IPS
Associates, Inc., a California corporation, having its principal place of
business at 1680 Bayport Avenue, San Carlos, CA 94070 (the "Company"), William
Kern, Isabelle Suares, Peter Heinrich, and William Johnson (such individuals
collectively referred to as "Certain Stockholders"). EDG, the Sub, the Company,
and the Certain Stockholders are sometimes referred to collectively herein as
the "Parties."
WHEREAS, the respective Boards of Directors of EDG, Sub, and the
Company, have approved the acquisition of the Company by EDG, by means of a
merger of the Sub with and into the Company (the "Merger"), upon the terms and
subject to the conditions of this Agreement;
WHEREAS, pursuant to the Merger, among other things, all of the issued
and outstanding shares of capital stock of the Company shall be converted into a
right to receive shares of EDG common stock, par value $.01 per share (the "EDG
Common Stock");
WHEREAS, a portion of the shares of EDG Common Stock (the "Escrow
Shares") otherwise issuable by EDG in connection with the Merger shall be placed
in escrow by EDG for purposes of satisfying damages, losses, expenses and other
similar charges which result from breaches of the representations, warranties
and covenants of the Company and the Certain Stockholders;
WHEREAS, the parties intend that the Agreement qualify as a tax-free
merger pursuant to Section 368 of the Internal Revenue Code of 1986, as amended
(the "Code");
WHEREAS, EDG, Sub, the Company and the Certain Stockholders desire to
make certain representations, warranties, covenants and agreements in connection
with the Agreement and also to prescribe various conditions to consummation
thereof;
NOW THEREFORE, in consideration of the foregoing premises and of the
mutual covenants, representations, warranties and agreements herein contained,
the parties, intending to be legally bound hereby, agree as follows:
SECTION I.
THE MERGER AND RELATED MATTERS
1.1 The Merger.
(a) Subject to the terms and conditions of this Agreement, at the
time of the Closing (as defined in Section 1.8 hereof), an agreement of merger
(the "California Agreement of Merger") shall be duly prepared, executed and
acknowledged by EDG, Sub, and the Company in accordance with the California
General Corporation Law (the "CGCL") and filed by the Company with the Secretary
of State of the State of California. The Merger shall become effective upon the
filing of the California Agreement of Merger with the Department of State of the
State of California in accordance with the provisions and requirements of the
CGCL or at such later date or time as may be set forth by mutual agreement of
the parties. The date and time when the Merger shall become effective is
hereinafter referred to as the "Effective Time."
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(b) At the Effective Time, the Sub shall be merged with and into the
Company, and the separate corporate existence of the Sub shall cease, and the
Company shall survive and continue to exist as a California company (the
"Surviving Company").
(c) From and after the Effective Time the Merger shall have the
effects set forth in Section 1100 of the CGCL.
1.2 Conversion of Stock.
(a) At the Effective Time, each Class A and Class B share of Company
common stock, par value $.001 per share (the "Company Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares of
Company Stock in the treasury of the Company, all of which shall be canceled and
none of which shall receive any payment with respect thereto) shall,
automatically by virtue of the Merger and without any action on the part of any
Person, be converted into and represent the right to receive the Per Share
Merger Consideration (as defined in paragraph (b) below).
(b) As used herein the term "Per Share Merger Consideration" shall
mean, for each share of the Company Stock, (i) .51 (subject to adjustment
pursuant to Section 1.4, the "Conversion Number") shares of EDG Common Stock,
(ii) $1.028cash (the "Merger Cash") and (iii) if applicable, the Fractional Cash
(as defined in paragraph (c) below).
(c) Notwithstanding the foregoing, no fractional shares of EDG Common
Stock shall be issued to holders of Company Stock (the "Company Stockholders");
instead, Sub shall, at the time of the exchange set forth in Section 1.4 hereof,
pay to each Company Stockholder who would otherwise be entitled to a fractional
share of EDG Common Stock, an amount of cash (the "Fractional Cash") determined
by multiplying such fraction by the average of the last sales price of EDG
Common Stock as reported on the American Stock Exchange ("AMEX") for the ten
trading days immediately preceding the Closing.
(d) At the Effective Time, each Company incentive stock option
outstanding pursuant to the 1993 Employee Stock Option Plan, whether or not
exercisable, and whether or not vested, shall in accordance with the provisions
of such plan become an option to acquire shares of EDG Common Stock (an "ISO
Continuing Option"). The number of shares of EDG Common Stock subject to ISO
Continuing Options shall be computed in compliance with the requirements of
Section 424(a) of the Code. Subject to the foregoing, (x) the number of shares
of EDG Common Stock subject to any such ISO Continuing Option will be determined
by multiplying the number of shares underlying such Company option immediately
prior to the Effective Time by the "Exchange Ratio" (with "Exchange Ratio"
defined as the sum of (i) the Conversion Number, plus (ii) a number of shares
equal to the Merger Cash divided by the average of the last sales price of the
EDG Common Stock for the ten trading days prior to the date hereof), and (y) the
exercise price under any such ISO Continuing Option will be determined by
dividing the exercise price per share in effect immediately prior to the
Effective Time of the Merger by the Exchange Ratio, and rounding the exercise
price thus determined to the nearest whole cent (a half cent shall be rounded to
the next higher whole cent). Such options shall be subject to substantially all
of the other terms and conditions of the original option to which they relate.
Each holder of ISO Continuing Options shall surrender their current option
agreement(s) and execute new option agreements with EDG with respect to such ISO
Continuing Options and shall be required to execute an appropriate release.
(e) Each issued and outstanding share of Sub capital stock shall be
converted into one share of the Surviving Company.
(f) Each share of EDG Common Stock issued and outstanding immediately
prior to the Effective Time will remain issued and outstanding.
1.3 Registration of Stock. Within thirty (30) days of the closing
hereof, EDG shall file a registration statement with the Securities and Exchange
Commission registering the resale of 158,520 shares of the EDG Common Stock
issued as consideration hereby, EDG shall use its best efforts to have the
registration statement declared effective by the Securities and Exchange
Commission, as soon as practicable thereafter.
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1.4 Exchange Procedures. At the Effective Time, (i) each Company
Stockholder shall deliver to Sub (A) a stock power in the form attached hereto
as Exhibit 1.4(a), (B) a letter of Non-distributive Intent (as described in
Section 2.15, and in the form attached as Exhibit 2.15) and (C) any other
documents required by this Agreement, (ii) Sub shall deliver to the White & Lee,
LLP, (the "Escrow Agent") by wire transfer of immediately available funds to an
account designated in writing to Sub or EDG at least one business day prior to
the Closing, a cash amount in United States currency equal to the sum of (x) the
Fractional Cash, if any, applicable to such Company Stockholder, and (y) the
product of (I) the number of shares of Company Stock owned by such Company
Stockholder immediately prior to the Effective Time, and (II) the Merger Cash,
and (iii) EDG shall issue and deliver to the Escrow Agent for the benefit of
each Company Stockholder a certificate of EDG Common Stock for the number of
whole shares of EDG Common Stock that comes closest to but does not exceed the
product of (I) the number of shares of Company Stock owned by such Company
Stockholder immediately prior to the Effective Time, and (II) the Conversion
Number. The Escrow Agent shall hold sixty percent (60%) of the EDG Common Stock
issued to the Certain Stockholders hereby to be distributed or cancelled in
accordance with the terms and conditions of an Escrow Agreement in the Form of
Exhibit 1.4(b) attached hereto (the "Escrow Agreement") subject to the terms of
Section 9.13 and 9.16 hereof, and shall distribute the remaining shares of EDG
Common Stock, the Merger Cash and the Fractional Cash to the Company
Stockholders. The portion of the shares of EDG Common Stock to be escrowed on
behalf of each Certain Stockholder shall be in proportion to the aggregate
number of shares of EDG Common Stock such Certain Stockholder is entitled to
receive in the Merger by virtue of ownership of outstanding shares of Company
Stock. In the event that EDG changes (or establishes a record date for
changing) the number of shares of EDG Common Stock issued and outstanding prior
to the Effective Time as result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding EDG
Common Stock and the record date therefore shall be prior to the Effective Time,
the Conversion Number shall be proportionately adjusted.
1.5 Directors of the Surviving Company. At the Effective Time, the
directors of the Sub (all of whom are listed on Exhibit 1.5) shall be the
directors of the Surviving Company, and each such director shall hold office,
subject to the applicable provision of the Articles of Incorporation and Bylaws
of the Surviving Company, until the next annual meeting of shareholders of the
Surviving Company and until their respective successors shall be duly elected or
appointed and qualified. At the Effective Time, the officers of the Sub (all of
whom are listed on Exhibit 1.5) shall be the officers of the Surviving Company,
and each such officer shall, subject to the applicable provisions of the
Articles of Incorporation and Bylaws of the Surviving Company, be the officers
of the Surviving Company until their respective successors shall be duly elected
or appointed and qualified.
1.6 Articles of Incorporation of the Surviving Company. At the
Effective Time, the Articles of Incorporation of the Surviving Company shall be
the Articles of Incorporation of the Company as in effect immediately prior to
the Effective Time, as set forth in Exhibit 1.6 hereto.
1.7 By-laws of the Surviving Company. The Bylaws of the Surviving
Company shall be as set forth in Exhibit 1.7 hereto, until thereafter amended as
provided by law.
1.8 The Closing. The closing of the transactions contemplated
hereby (the "Closing") shall take place on June 30, 2000 unless extended by
mutual agreement of the parties (the "Closing Date").
SECTION II.
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE CERTAIN STOCKHOLDERS
The Company, and the Certain Stockholders represent and warrant to EDG
as follows:
2.1 Organization and Qualification. Other than IPS Associates (Asia)
PTE, Ltd and IPS Global Partners, Inc. ( collectively, the "Company Subs"), the
Company does not own any interest in any other business enterprise or legal
entity, except as disclosed in Exhibit 2.1. Exhibit 2.1 also correctly sets
forth as to the Company and the Company Subs, their principal place of business,
and jurisdictions in which they are qualified to do business. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the State of California, with all requisite corporate power and
authority to conduct its business and is not in breach of, or in default with
respect to, any term of its Articles of Incorporation, Bylaws or other
organizational documents. Each of the Company Subs is a corporation duly
organized, validly existing, and in good standing under the laws of the
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jurisdiction in which it is organized, with all requisite corporate power and
authority to conduct its business and is not in breach of or in default with
respect to any of its organizational documents. The Company and the Company Subs
have obtained all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and declarations and filings
with, all federal, state, local, and other governmental authorities and all
courts and other tribunals, to own, lease, license, and use its properties and
assets and to carry on the business in which they are now engaged and the
business in which they contemplate engaging. The Company and the Company Subs
are duly qualified to transact the business in which they are engaged in every
jurisdiction in which their ownership, leasing, licensing, or use of property or
assets or the conduct of their business makes such qualification necessary,
except where the failure to do so would not have a Material Adverse Effect.
2.2 Capitalization. As of the date hereof, the total number of
shares of capital stock the Company is authorized to issue is 10,000,000 Class A
shares of common stock and 10,000,000 Class B shares of common stock. As of the
date hereof, 1,714,244 shares of Class A and 1,203,704 shares of Class B Company
Stock are issued and outstanding, and owned by the Company Stockholders as set
forth on Exhibit 2.2. As of the date hereof, there are options outstanding to
purchase 1,928,600shares of Class A and zero shares of Class B Company Stock,
which are held by the option holders as set forth on Exhibit 2.2. The total
number of shares of capital stock IPS Associates (Asia) PTE, Ltd. is authorized
to issue is 100,000 (the "Asia Stock") of which 100,000 shares are issued and
outstanding, 100% of which is owned by the Company. The total number of shares
of capital stock IPS Global Partners, Inc. is authorized to issue is 10,000,000
(the "Global Stock") of which 100 shares are issued and outstanding, 100% of
which is owned by the Company. The Company Stock, the Asia Stock and the Global
Stock is not owned or held in violation of any preemptive right of any other
person or entity, is duly authorized, validly issued, fully paid and non-
assessable, and is owned of record and beneficially by the persons set forth in
Exhibit 2.2. The shares of Company Stock, Asia Stock and Global Stock are free
and clear of all liens, security interests, pledges, charges, encumbrances,
voting agreements, and voting trusts. The Company owns 925,926 shares of common
stock of Vite, which constitutes 17.64% of Vite common stock outstanding and
5.76% of common stock on a fully-diluted basis, 1,500,000 shares of common stock
of Emprend, which constitutes 31% of Emprend common stock outstanding and 30.73%
of common stock on a fully-diluted basis, and 1,000,000 shares of common stock
of XIS, which constitutes 9% of XIS common stock outstanding and 9% of common
stock on a fully-diluted basis, all of which are free and clear of all liens,
security interests, pledges, charges, encumbrances, voting agreements, and
voting trusts. Except as set forth in Exhibit 2.2, there is no commitment,
plan, or arrangement to issue, and no outstanding option, warrant, or other
right calling for the issuance of, any shares of capital stock of the Company or
the Company Subs or any security or other instrument convertible into,
exercisable for, or exchangeable for capital stock of the Company or the Company
Subs. There is outstanding no security or other instrument convertible into or
exchangeable for capital stock of the Company or the Company Subs.
2.3 Financial Condition. The Company has delivered to EDG true and
correct copies of the following which are attached as Exhibit 2.3: (i) audited
consolidated and unaudited consolidating balance sheets and statements of
income, changes in stockholders' equity, and cash flow as of and for the fiscal
years ended December 31, 1997, 1998 and 1999, and an unaudited balance sheet
("The Company Last Balance Sheet"), statement of income and statement of cash
flows for the four months ended April 30, 2000 ("The Company Last Balance Sheet
Date"), which statements have been covered by the compilation report of the
Company's independent accountants. Each such balance sheet presents fairly the
financial condition, assets and liabilities of the Company as of its date; each
such statement of income presents fairly the results of operations of the
Company for the period indicated; and each statement of cash flows presents
fairly the information purported to be shown therein. The financial statements
referred to in this Section 2.3 are correct and complete, and are in accordance
with the books and records of the Company (which books and records are correct
and complete). Except as set forth in Exhibit 2.3, since April 30, 2000:
(a) There has been no event or condition affecting the Company or the
Company Subs which would have a Material Adverse Effect on the Company or the
Company Subs (provided, however, that the Company and the Certain Stockholders
express no opinion as to political, business or economic matters of general
applicability), and the Company and the Company Subs have operated profitably;
(b) The Company has not authorized, declared, paid or effected any
dividend or liquidation or other distribution in respect of the Company Stock or
other equity interest or any direct or indirect redemption, purchase or other
acquisition of any equity interest of the Company, out of the ordinary course of
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business and the Company Subs has not authorized, declared, paid or effected any
dividend or liquidation or other distribution in respect of the Asia Stock or
the Global Stock or other equity interest or any direct or indirect redemption,
purchase or other acquisition of any equity interest of the Company Subs, out of
the ordinary course of business;
(c) The operations of the Company and the Company Subs have been
conducted in all respects only in the ordinary course of business;
(d) Neither the Company nor the Company Subs have suffered any loss
(whether or not covered by insurance) in excess of $5,000 or waived any material
right;
(e) There has been no accepted purchase order or quotation,
arrangement or understanding for future sale of the products or services of the
Company or the Company Subs out of the ordinary course of business, which the
Company or the Company Subs expects will not be profitable;
(f) Neither the Company nor the Company Subs have sold, leased,
transferred, or assigned any of their assets, tangible or intangible, other than
for a fair consideration in the ordinary course of business;
(g) No party has accelerated, terminated, modified or cancelled any
agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) involving more than $5,000 to which the Company
or the Company Subs is a party;
(h) Neither the Company nor the Company Subs have made a capital
expenditure (or series of related capital expenditures) either involving more
than $5,000 or outside the ordinary course of business;
(i) Neither the Company nor the Company Subs have made any capital
investment in, any loan to, or any acquisition of the securities or assets of,
any other person (or series of related capital investments, loans and
acquisitions) either involving more than $5,000 or outside the ordinary course
of business;
(j) Neither the Company nor the Company Subs have issued any note,
bond or other debt security or created, incurred or assumed, or guaranteed any
indebtedness for borrowed money or capitalized lease obligations either
involving more than $5,000 singly, or $20,000 in the aggregate;
(k) Neither the Company nor the Company Subs have delayed or
postponed the payment of accounts payable and other liabilities outside the
ordinary course of business;
(l) Neither the Company nor the Company Subs have granted any license
or sublicense of any rights under or with respect to any Intellectual Property;
(m) Neither the Company nor the Company Subs have made any loan to, or
entered into any other transaction with, any of its directors, officers, and
employees, outside the ordinary course of business; and
(n) Neither the Company nor the Company Subs have committed to any of
the foregoing.
2.4 Tax and Other Liabilities. Except as set forth on Exhibit 2.4,
neither the Company nor the Company Subs have any present liability of any
nature, accrued or contingent, including, without limitation, liabilities for
federal, state, local, or foreign taxes and liabilities to customers or
suppliers, which could have a Material Adverse Effect upon the Company or the
Company Subs, other than the following:
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(a) Liabilities for which full provision has been made on the Company
Last Balance Sheet as of the Company Last Balance Sheet Date; and
(b) Other liabilities arising since the Company Last Balance Sheet
Date and prior to the Closing in the ordinary course of business which are not
inconsistent with the representations and warranties of Company or the Company
Subs or any other provision of this Agreement.
Without limiting the generality of the foregoing, the amounts set forth as
provisions for taxes on the Company Last Balance Sheet are sufficient for all
accrued and unpaid taxes of the Company and the Company Subs, whether or not due
and payable and whether or not disputed, under tax laws, as in effect on the
Company Last Balance Sheet Date or now in effect, for the period ended on such
date and for all fiscal years prior thereto. The Company and the Company Subs
have filed all applicable tax returns required to be filed by them or have
obtained applicable extensions and are not delinquent with respect to such
extensions; have paid (or have established on the Company Last Balance Sheet a
reserve for) all taxes, assessments, and other governmental charges payable or
remittable by it or levied upon it or its properties, assets, income, or
franchises, which are due and payable and have delivered to EDG a true and
correct copy of any report as to adjustments received by the Company or the
Company Subs from any taxing authority during the past five years and a
statement as to any litigation, governmental or other proceeding (formal or
informal), or investigation pending.
2.5 Litigation and Claims. Neither the Company nor the Company Subs
have received written notice of any litigation, arbitration, claim, governmental
or other proceeding, or investigation (each, a "Claim") pending, nor does the
Company, the Company Subs or any Certain Stockholder possess Knowledge of any
threatened Claim, with respect to the Company, the Company Subs or any Certain
Stockholder (as it relates to the business of the Company or the Company Subs),
or any of the Company's or the Company Subs' business, properties, or assets,
except as set forth on Exhibit 2.5. Neither the Company nor the Company Subs is
affected by, nor do they or any Certain Stockholder have any knowledge of, any
present or threatened strike, labor disturbance, or claim for breach of
employment agreement, consulting agreement or non-compete agreement to which
they are a party or to which any of their employees or consultants is or was a
party, nor to the Knowledge of the Company, the Company Subs or any Certain
Stockholder, is any union attempting to represent any employee of the Company as
collective bargaining agent. To the Knowledge of the Company, the Company Subs,
and the Certain Stockholders, neither the Company nor the Company Subs is in
material violation of, or in material default with respect to, any law, rule,
regulation, order, judgment, or decree, nor is the Company, the Company Subs or
any Certain Stockholder, required to take any action in order to avoid such
violation or default.
2.6 Properties. The Company and the Company Subs have good and
marketable title to all properties and assets used in their business or owned by
them (except such real and other property and assets as are held pursuant to
leases or licenses described in Exhibit 2.6), free and clear of all liens,
mortgages, security interests, pledges, charges, and encumbrances, (except such
as are disclosed in Exhibit 2.7 or disclosed on the Company Last Balance Sheet
or are Permitted Liens).
(a) Attached as Exhibit 2.6 is a true and complete list of all
properties and assets owned, leased, or licensed by the Company and the Company
Subs having an individual value of $3,000 or more. Except for those properties
and assets of the Company or the Company Subs that were acquired subsequent to
the Company Last Balance Sheet, all such properties and assets owned by the
Company and the Company Subs are reflected on the Company Last Balance Sheet.
All properties and assets owned, leased, or licensed by the Company and the
Company Subs are in good and usable condition (ordinary wear and tear, which is
not such as would have a Material Adverse Effect on the Company or the Company
Subs, excepted); and
(b) No real property owned, leased or licensed by the Company or the
Company Subs lies in an area which, to the Knowledge of the Company, the Company
Subs, or any Certain Stockholder, is subjected to zoning, use or building code
restrictions which prohibit, and no stated facts relating to the actions or
inaction of another person or entity of his or its ownership, licensing,
leasing, or use of any real or personal property exists which prevents the
continued effective ownership, leasing, licensing or use of such real property
in the business in which the Company or the Company Subs are now engaged.
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2.7 Contracts, Agreements and Instruments. Set forth on Exhibit 2.7
is a description of each material contract, agreement or instrument to which the
Company or the Company Subs is a party. Exhibit 2.7 accurately and completely
sets forth the information required to be contained therein. For purposes of
this Section 2.7, material shall include those contracts, agreements and
instruments involving payments to or by the Company or the Company Subs in
excess of $10,000 per annum. The Company has furnished to EDG:
(a) The Articles of Incorporation, Bylaws and other organizational
documents of the Company and the Company Subs and all amendments thereto, as
presently in effect, certified by the president of the Company and the president
of each of the Company Subs;
(b) True and correct copies of all material contracts, agreements and
other instruments referred to in Exhibit 2.7;
(c) True and correct copies of all material leases and licenses
referred to in Exhibit 2.6; and
(d) True and correct written descriptions of all service, material
supply, distribution, agency, financing or other arrangements or understandings
referred to in Exhibit 2.7.
Except for matters which, in the aggregate, would not have a Material Adverse
Effect or are otherwise disclosed in this Agreement, to the Knowledge of the
Company, the Company Subs or any Certain Stockholder, no other party to any such
contract, agreement, instrument, lease, or license is now in violation or breach
of, or in default with respect to complying with, any material provision
thereof, and each such contract, agreement, instrument, lease, or license
contained in the exhibits hereto is in full force and effect and is the legal,
valid, and binding obligation of the parties thereto and is enforceable as to
them in accordance with its terms. Each such service, supply, distribution,
agency, financing, or other arrangement or understanding contained in the
exhibits hereto is a valid and continuing arrangement or understanding, except
for matters which, in the aggregate, would not have a Material Adverse Effect;
neither the Company, the Company Subs, nor any other party to any such
arrangement or understanding has given notice of termination or taken any action
inconsistent with the continuance of such arrangement or understanding, except
for matters which, in the aggregate, would not have a Material Adverse Effect;
and the execution, delivery, and performance of this Agreement will not
prejudice any such arrangement or understanding in any way contained in the
exhibits hereto, except for matters which, in the aggregate, would not have a
Material Adverse Effect. Neither the Company nor the Company Subs has been a
party to since its formation, nor is it now a party to, any contract, agreement,
lease, license, arrangement, or understanding with any Company Stockholder or
employee of the Company (except for employment agreements listed in Exhibit 2.7
and employment and compensation arrangements described in Exhibit 2.8, in each
case with such Company Stockholder and employees who are not relatives or
affiliates described in the next clause), any relative or affiliate of any
Company Stockholder or of any employee of the Company or the Company Subs, or
any other partnership or enterprise in which any Company Stockholder or employee
of the Company or the Company Subs, or any such relative or affiliate then had
or now has a 5% or greater ownership interest or other substantial interest,
other than contracts and agreements listed and so specified in Exhibit 2.7.
Other than in connection with this Agreement, neither the Company nor the
Company Subs is a party to any letter of intent, capital stock or asset purchase
agreement, merger agreement or any other agreement involving the acquisition or
disposition of property out of the ordinary course of business.
2.8 Employees. Neither the Company nor the Company Subs, have or
contributes to, any pension, profit-sharing, option, other incentive plan, or
other Employee Benefit Plan (as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974), or has any obligation to or customary
arrangement with employees for bonuses, incentive compensation, vacations,
severance pay, insurance, or other benefits, except as set forth in Exhibit 2.8.
Exhibit 2.8(a) correctly and accurately sets forth a list of Company employees
participating in the Company Employee Stock Ownership Plan, the number of shares
of Company Stock allocated to such employee, and whether or not any of such
shares of Company Stock have vested. Exhibit 2.8(b) contains a true and correct
statement of the names, relationship with the Company, present rates of
compensation (whether in the form of salary, bonuses, commissions, or other
supplemental compensation now or hereafter payable), and total annual
compensation for the employees of the Company and the Company Subs as of April
30, 2000. Since April 30, 2000, the Company has not changed the rate of
compensation of any of the Company or the Company Subs, employees, agents,
dealers or distributors, except as disclosed in Exhibit 2.8. Neither the
Company, the Company Subs nor the
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Certain Stockholders have received verbal or written notice that any of the
employees listed on Exhibit 2.8 will not continue their employment relationship
with the Company after the Effective Time.
2.9 Intellectual Property. The Company does not own or have pending,
nor has it licensed, any Intellectual Property, other than as described in
Exhibit 2.9 (the "Company Intellectual Property"). The Company Intellectual
Property has not been the subject of any interference, opposition or
cancellation proceedings. No Company Stockholder, employee of the Company or
the Company Subs, relative or affiliate of any Company Stockholder or of any
such employee, nor any other partnership or enterprise in which any Company
Stockholder, any such employee, or any such relative or affiliate had or now has
a 5% or greater ownership interest or other substantial interest, possesses any
Intellectual Property which is used by the Company pursuant to any agreement or
arrangement with such Person. The Company has not received any written notice
or written claim of infringement by the Company of the Intellectual Property of
any third party. To the Knowledge of the Company, the Company Subs or any
Certain Stockholder, there is no infringement by others of the Intellectual
Property of the Company.
2.10 Questionable Payments. To the Knowledge of the Company, the
Company Subs or any Certain Stockholder, neither the Company, the Company Subs
nor any of the Company Stockholders, agents, employees, or any other persons
associated with or acting on behalf of the Company or the Company Subs has,
directly or indirectly:
(a) Used any of the Company or Company Subs funds for unlawful
contributions, gifts, entertainment, or other unlawful expenses relating to
political activity;
(b) Made any unlawful payment to foreign or domestic government
officials or employees or to foreign or domestic political parties or campaigns
from corporate funds;
(c) Violated any provision of the Foreign Corrupt Practices Act of
1977;
(d) Established or maintained any unlawful or unrecorded fund of
corporate monies or other assets;
(e) Made any false or fictitious entry on the books or records of the
Company or the Company Subs;
(f) Made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment; or
(g) Made any bribe, kickback, or other payment of a similar or
comparable nature, whether lawful or not, to any person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
2.11 Authority to Merge. The Company and the Company Subs have all
requisite corporate power and authority to execute, deliver, and perform
this Agreement, and each Certain Stockholder has all requisite power and
authority to execute, deliver, and perform this Agreement. All necessary
corporate proceedings of the Company and the Company Subs have been duly
taken to authorize the execution, delivery, and performance of this
Agreement by the Company. A resolution by the board of directors of the
Company and the Company Subs and a majority of the Company Stockholders
authorizing this Agreement will be provided at Closing. This Agreement
and all exhibits hereto have been duly authorized, executed, and delivered
by the Company, have been duly executed and delivered by the Certain
Stockholders, and is enforceable as to them in accordance with its terms,
except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights
and remedies and except as enforceability may be limited by general
principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). No consent,
authorization, approval, order, license, certificate, or permit of or from,
or declaration or filing with, any federal, state, local, or other
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governmental authority or any court or other tribunal or any third party
(each of the foregoing, a "Consent") is required by the Company, the
Company Subs or any Certain Stockholder for the execution, delivery, or
performance of this Agreement and exhibits by the Company or any Certain
Stockholder. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which the
Company, the Company Subs or any Company Stockholder is a party, or to
which it or they or any of its or their properties or assets are subject,
is required for the execution, delivery, or performance of this Agreement
and exhibits (except [i] where the failure to obtain such Consent would not
have a Material Adverse Effect on the Company or the Company Subs, or [ii]
such consents referred to in Exhibit 2.7 will be obtained at or prior to
the Closing Date, true and correct copies of will be delivered to EDG at
Closing, or [iii] where the failure to obtain such consents would not have
a Material Adverse Effect); and, except where such violation, breach,
conflict or entitlement would not have a Material Adverse Effect, the
execution, delivery, and performance of this Agreement and exhibits will
not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to
terminate or call a default under any term of any such written contract,
agreement, instrument, lease, license, arrangement, or understanding to
which the Company or the Company Subs is a party, or violate or result in a
breach of any term of the Articles of Incorporation, Bylaws or other
organizational documents, as amended, of the Company or the Company Subs,
or violate, result in a breach of, or conflict with any material law, rule,
regulation, order, judgment, or decree binding on the Company or the
Company Subs. Upon the Closing, EDG will have good title to all of the
outstanding capital stock and other ownership interests of the Company and
the Company Subs, including but not limited to Intellectual Property, free
and clear of all liens, security interests, pledges, charges, encumbrances,
voting agreements, and voting trusts, except as otherwise disclosed in this
Agreement or any schedule hereto.
2.12 Environment, Health, and Safety.
(a) The Company and the Company Subs have complied with all
environmental, health and safety laws, except where such non-compliance would
not have a Material Adverse Effect, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against the Company or the Company Subs alleging any failure so to
comply. Without limiting the generality of the preceding sentence, to the
Knowledge of the Company, the Company Subs and its Certain Stockholders, the
Company and the Company Subs have obtained and been in compliance with all of
the terms and conditions of all permits, licenses, and other authorizations
which are required under, and has complied with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules, and timetables which are contained in, all environmental, health and
safety laws, except where such non-compliance would not have a Material Adverse
Effect; and
(b) Neither the Company nor the Company Subs have any material
liability for damage to any site, location or body of water (surface or
subsurface), for any illness of or personal injury to any employee or other
individual, or for any reason under any environmental, health and safety law,
except such damage that would not have a Material Adverse Effect.
2.13 Completeness of Disclosure. No representation or warranty by
the Company, the Company Subs, or any Certain Stockholder in this Agreement
contains or on the date of the Closing will contain any untrue statement of a
material fact or omits or on the Closing Date will omit to state a material fact
necessary to make the statements made not misleading, except for changes beyond
the control of the Company and the Certain Stockholders or unless disclosed by
the Company, the Company Subs or the Certain Stockholders prior to Closing
2.14 Operating Licenses. Set forth on Exhibit 2.14 hereto is a
description of each operating license or permit required for the conduct of the
business of the Company, and the Company Subs, together with the name of the
government agency or entity issuing such license or permit. Such licenses and
permits are valid and in full force and effect, and will not be terminated or
otherwise adversely affected by the consummation of the transactions
contemplated hereby except where such termination or effect would not have a
Material Adverse Effect.
2.15 Non-distributive Intent. The Company Stockholders are receiving
the shares of EDG's Common Stock to be issued hereunder to them for their own
account (and not for the account of others) for
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investment and not with a view to the distribution thereof. The Company
Stockholders will not sell or otherwise dispose of such shares without
registration under the Securities Act of 1933, as amended (the "Act"), or an
exemption therefrom, and the certificate or certificates representing such
shares will contain a legend to the foregoing effect. The Company Stockholders
further acknowledge and agree that such shares shall be restricted from resale
for a period of 12 months after the Closing Date, unless a registration
statement registering the resale under the Act is deemed effective by the SEC at
an earlier date. By virtue of their position, the Company Stockholders shall
have access to the kind of financial and other information about EDG as would be
contained in a registration statement filed under the Act, including reports
filed pursuant to the Securities Exchange Act of 1934. The Company Stockholders
have acknowledged their understanding of the foregoing in a Letter of Non-
distributive Intent, which is attached hereto as Exhibit 2.15 and incorporated
herein by reference.
2.16 Certain Financial Representations.
(a) Accounts and Notes Receivable. All accounts and notes receivable
reflected on the Company Last Balance Sheet, and arising since the Last Balance
Sheet Date, represent bona fide claims of the Company and the Company Subs
against third-party debtors for arms' length sales made, services performed or
other charges for valid consideration arising to the extent that they have not
been collected. To the Knowledge of the Company, the Company Subs and each
Certain Stockholder, such accounts and notes receivable are subject to no right
of recourse, defense, deduction, return of goods, counterclaim, offset, or
setoff on the part of the obligor, and, if not collected, can reasonably be
anticipated to be paid within 90 days of the date incurred.
(b) Accounts Payable. The amounts set forth as provisions for
accounts payable on the Company Last Balance Sheet reflect all accounts payable
of the Company and the Company Subs.
(c) Value of Fixed Assets and Other Assets. The value of the fixed
assets and other assets as reflected on the Company Last Balance Sheet are
accurate as of its date.
2.17 Insurance.
(a) Set forth on Exhibit 2.17 is a complete and accurate list of all
policies or binders of fire, liability, product liability, worker's
compensation, vehicular and other insurance bonds that insure the assets or the
operations of the Company and the Company Subs, copies of which have been
furnished to EDG. Such policies include all policies that are required in
connection with the current operation of the business by applicable laws or
regulations or by the terms of any contract
(b) With respect to each insurance policy: (i) the policy is in full
force and effect and constitutes a legal, valid and binding obligation,
enforceable and in full force and effect on identical terms following the
Closing Date, (ii) neither the Company or the Company Subs nor any other party
to the insurance policies is in breach or default (including with respect to the
payment of premiums or the giving of notices), and no event has occurred which,
with notice or the lapse of time, would constitute such breach or default or
permit termination, modification, or acceleration, under the policy; and (iii)
no party to the insurance policies has repudiated any provision thereof.
2.18 Customers. Set forth on Exhibit 2.18 is a list of the Company
and the Company Subs' fifteen (15) largest customers for the four months ended
April 30, 2000 and for the twelve months ended December 31, 1999. To the
Knowledge of the Company, the Company Subs and the Certain Stockholders, the
consummation of the Merger will not result in a loss of any of such customers,
nor result in a reduction of their account.
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SECTION III.
REPRESENTATIONS AND WARRANTIES OF EDG AND THE SUB
Each of EDG and the Sub represents and warrants to the Company and the
Certain Stockholders as follows:
3.1 EDG Organization and Qualification. EDG does not own any
interest in any other business enterprise or legal entity, except as disclosed
in Exhibit 3.1. Exhibit 3.1 also correctly sets forth as to EDG and Sub their
place of formation, principal place of business, and jurisdictions in which they
are qualified to do business. EDG and the Sub are corporations duly organized,
validly existing, and in good standing under the laws of Texas and California,
respectively, with all requisite power and authority to conduct their business
and are not in breach of, or in default with respect to, any term of their
Articles of Incorporation, Bylaws or other organizational documents, except
where such breach would not have a Material Adverse Effect. EDG and the Sub
have obtained all necessary consents, authorizations, approvals, orders,
licenses, certificates, and permits of and from, and declarations and filings
with, all federal, state, local, and other governmental authorities and all
courts and other tribunals, to own, lease, license, and use their properties and
assets and to carry on the business in which they are now engaged and the
business in which they contemplate engaging, except where the failure to do so
would not have a Material Adverse Effect. EDG and the Sub are duly qualified to
transact the business in which they are engaged in every jurisdiction in which
their ownership, leasing, licensing, or use of property or assets or the conduct
of their business makes such qualification necessary, except where the failure
to do so would not have a Material Adverse Effect.
3.2 Authority to Exchange. Each of EDG and the Sub has all requisite
corporate power and authority to execute, deliver, and perform this Agreement.
All necessary corporate proceedings of each of EDG and the Sub have been duly
taken to authorize the execution, delivery, and performance of this Agreement by
each of EDG and the Sub. This Agreement and all exhibits hereto have been duly
authorized, executed, and delivered by EDG and the Sub, constitute the legal,
valid, and binding obligation of each of EDG and the Sub and are enforceable as
to each of them in accordance with its terms. No consent, authorization,
approval, order, license, certificate, or permit of or from, or declaration or
filing with, any federal, state, local, or other governmental authority or any
court or other tribunal is required by EDG or the Sub for the execution,
delivery, or performance of this Agreement and exhibits by EDG and the Sub,
except for federal and state securities laws notice filings which EDG will make
prior to closing. No consent of any party to any contract, agreement,
instrument, lease, license, arrangement, or understanding to which EDG or the
Sub is a party, or to which it or any of its properties or assets are subject,
is required for the execution, delivery or performance of this Agreement and
exhibits; and, except where such breach would not have a Material Adverse
Effect, the execution, delivery, and performance of this Agreement and exhibits
will not violate, result in a breach of, conflict with, or (with or without the
giving of notice or the passage of time or both) entitle any party to terminate
or call a default under any term of any such contract, agreement, instrument,
lease, license, arrangement, or understanding, or violate or result in a breach
of any term of the Articles of Incorporation (or other charter document) or
Bylaws or other organizational documents, as amended, of EDG or the Sub; or
violate, result in a breach of, or conflict with any law, rule, regulation,
order, judgment, or decree binding on EDG or the Sub or to which EDG's or the
Sub's operations, business, properties, or assets are subject.
3.3 Financial Condition. EDG has delivered to the Company and the
Company Stockholders, and the Company and the Company Stockholders acknowledge
receipt of its Form 10-KSB for the fiscal year ended December 31, 1999, as
amended ("Form 10-KSB/A"), its Form 10-QSB for the three months ended March 31,
2000 ("Form 10-QSB") and its proxy statement dated May 5, 2000. The Form
10-KSB/A and Form 10-QSB present fairly the financial condition, assets,
liabilities, and stockholders' equity of EDG as of its date; each such statement
of income and statement of retained earnings presents fairly the results of
operations of EDG for the period indicated; and each such statement of changes
in financial position presents fairly the information purported to be shown
therein. The financial statements referred to in this Section 3.3 have been
prepared in accordance with GAAP consistently applied throughout the periods
involved, are correct and complete in all material respects and are in
accordance with the books and records of EDG.
3.4 Reports. Since January 1, 1999, EDG has filed all forms, reports
and documents with the SEC required to be filed by it pursuant to the federal
securities laws and Commission rules and regulations
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thereunder, and all such forms, reports and documents, as amended, filed with
the Commission have complied in all material respects with all applicable
requirements of the federal securities laws and the Commission rules and
regulations promulgated thereunder.
3.5 Completeness of Disclosure. No representation or warranty by
either EDG or the Sub in this Agreement contains or on the date of the Closing
will contain any untrue statement of a material fact or omits or on the Closing
Date will omit to state a material fact necessary to make the statements made
not misleading, except for changes beyond the control of EDG or unless disclosed
by EDG prior to Closing. No event or circumstance has occurred or information
exists with respect to EDG or the Sub or its or their business, properties,
operations or financial conditions, which, under applicable law, rule or
regulation, requires public disclosure or announcement by EDG but which has not
been so publicly announced or disclosed.
3.6 Issuance. The EDG shares of common stock issued as consideration
hereunder are duly authorized and, upon issuance in accordance with the terms
hereof, shall be validly issued, fully paid and non-assessable, free from all
taxes, liens and charges with respect to the issue thereof, and shall not be
subject to preemptive rights or other similar rights of stockholders of EDG.
3.7 Listing. The EDG Common Stock has been listed for trading on
AMEX since November 1999, and EDG has not been notified to date of any de-
listing procedure.
3.8 EDG Capitalization. As of the date hereof, the total number of
shares of capital stock EDG is authorized to issue is 50,000,000. As of June 5,
2000, 25,665,986 are issued and outstanding and 3,956,300 shares of EDG common
stock are reserved for issuance upon exercise of outstanding options and
warrants. The EDG Common Stock is not owned or held in violation of any
preemptive right of any other person or entity. Except as described herein,
there is no commitment, plan, or arrangement to issue, and no outstanding
option, warrant, or other right calling for the issuance of, any shares of
capital stock of EDG or any security or other instrument convertible into,
exercisable for, or exchangeable for capital stock of EDG. There is outstanding
no right, security or other instrument convertible into or exchangeable for
capital stock of EDG.
SECTION IV.
DEFINITIONS
The following additional definitions shall apply in this Agreement:
4.1 "Intellectual Property" means all (a) patents, patent
applications, patent disclosures, and improvements thereto, (b) trademarks,
service marks, trade dress, logos, trade names, and corporate and company names
and registrations and applications for registration thereof, (c) copyrights and
registrations and applications for registration thereof, (d) computer software,
data, code sources and documentation, and improvements thereto, (e) trade
secrets and confidential business information (including ideas, formulas,
compositions, inventions whether patentable or unpatentable and whether or not
reduced to practice, know-how, processes and techniques, plans, proposals,
technical data, copyrightable works, financial, marketing, and business data,
pricing and cost information, business and marketing plans, and customer and
supplier lists and information), (f) other proprietary rights, and (g) copies
and tangible embodiments thereof (in whatever form or medium).
4.2 "Knowledge" means actual knowledge after reasonable
investigation.
4.3 "Material Adverse Effect" means a material adverse effect on the
business, property, financial condition or results of operations taken as a
whole.
4.4 "Operating Licenses" means those licenses, permits and
registrations issued by the appropriate state and federal agencies, which are
necessary to the operation of the Company's business. Such Operating Licenses
are more fully described in Exhibit 2.14 hereto.
4.5 "Permitted Liens" means (i) liens, charges or encumbrances
disclosed in the financial statements referred to in Section 2.3 hereof,
including the notes thereto, if any, (ii) liens, charges or encumbrances
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for current taxes not yet due and payable or which may hereafter be paid without
penalty, (iii) liens, charges, encumbrances or security interests pursuant to
Exhibit 2.3, (iv) zoning, building and other similar governmental restrictions
and liens, charges or encumbrances imposed by operation of law (including
without limitation mechanics', carriers', workmen's, repairmen's, landlord's or
other similar liens arising from or incurred in the ordinary course of business
and for which the underlying payments are not yet delinquent), and liens arising
under equipment leases with third parties entered into in the ordinary course of
business, (v) easements, covenants, encroachments, rights-of-way or other
similar restrictions and imperfections of title (none of which items referred to
in the foregoing clauses (iv) and (v) materially impairs the use or value of the
property subject thereto in the business of the Company as presently conducted),
and (vi) any other liens, charges or encumbrances that would not have a Material
Adverse Effect on the Company.
4.6 "Person" means any individual, corporation, partnership, limited
liability company or entity of any kind.
4.7 "Subsidiary" means, when used with reference to any entity, any
other entity in which at least fifty percent (50%) of the outstanding voting
securities or interests (including membership interests) are owned directly or
indirectly, but shall specifically exclude Loch Energy, Inc.
SECTION V
CONDITIONS TO OBLIGATIONS OF EDG
The obligations of EDG under this Agreement are subject, at the option
of EDG, to the following conditions:
5.1 Accuracy of Representations and Compliance with Conditions. All
representations and warranties of the Company and the Certain Stockholders
contained in this Agreement shall be accurate when made and, in addition, shall
be accurate in all material respects as of the Closing as though such
representations and warranties were then made by the Company or such Certain
Stockholders, except for representations and warranties that speak as of a
specific date or time other than the date of Closing, (which need only be true
and correct in all material respects as of such date or time). As of the
Closing, the Company and the Certain Stockholders shall have performed and
complied with, in all material respects, all covenants and agreements, and
satisfied in all material respects, all conditions required to be performed and
complied with by any of them at or before such time by this Agreement.
5.2 Other Closing Documents. The Company and the Company
Stockholders shall have delivered to EDG at or prior to the Closing such other
documents as EDG may reasonably request in order to effect the consummation of
the transactions contemplated hereby.
5.3 Legal Action. There shall not have been instituted or threatened
any legal proceeding seeking to prohibit or otherwise challenging the
consummation of, the transactions contemplated by this Agreement, excluding any
such legal proceeding instituted by EDG or any affiliate thereof.
5.4 No Governmental Action. There shall not have been any action
taken, or any law, rule, regulation, order, or decree proposed, promulgated,
enacted, entered, enforced, or deemed applicable to the transactions
contemplated by this Agreement by any federal, state, local, or other
governmental authority or by any court or other tribunal, including the entry of
a preliminary or permanent injunction, which:
(a) Makes any of the transactions contemplated by this Agreement
illegal; or
(b) Otherwise prohibits, restricts, or delays consummation of any of
the transactions contemplated by this Agreement.
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5.5 Stockholder Approval. The Company's Stockholders shall have
taken all action necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws to approve the merger of the Company and the Sub by the
Company Stockholders as required by the CGCL.
5.6 No Dissenting Stockholders. No Company Stockholder shall have
exercised any right under the CGCL to dissent from the Merger.
5.7 Opinion of Counsel. EDG shall have received the opinion of White
& Lee, LLP, counsel to the Company, dated the Closing Date and addressed to EDG,
in form and substance reasonably satisfactory to EDG and its counsel, as set
forth in Exhibit 5.7.
5.8 Resignations of Officers and Directors. The officers and
directors of the Company shall have resigned and elected the officers and
directors listed on Exhibit 1.5, to serve as directors and hold office until
such time as their successors are duly elected and qualified.
5.9 Releases. EDG shall have received releases, in the form attached
hereto as Exhibit 5.9, from each person who is, who before closing becomes or
who at any time one year prior to the date hereof was an officer, director or 2%
or greater stockholder of the Company.
5.10 401(k) Rollover. The Company 401(k) shall be terminated.
5.11 Contractual Consents Needed. The Company and the Company Subs
shall have obtained at or prior to the Closing all consents required for the
consummation of the transactions contemplated by this Agreement from any party
to any contract, agreement, instrument, lease, license, arrangement, or
understanding to which any of them or any subsidiary is a party, or to which any
of their respective businesses, properties, or assets are subject, except where
the failure would not have a Material Adverse Effect.
5.12 ESOP Legal Opinion. EDG shall have received a legal opinion
from its special counsel that the Company's Employee Stock Ownership Plan shall
continue and the shares of Company Stock to be issued thereunder may be
converted into the right to receive the Per Share Merger Consideration.
5.13 Non-Competition, Non-Solicitation and Employment Agreements.
William Kern and other key employees of the Company as agreed to by EDG shall
have executed and delivered non-competition, non-solicitation and employment
agreements substantially in the form attached hereto as Exhibit 5.13.
5.14 Option Plan Amendment. The stockholders of EDG shall have
approved an amendment to its 1999 Employee Stock Option Plan increasing the
shares available for issuance thereunder from 3,000,000 to 7,500,000.
5.15 Option Releases. EDG shall have received releases, in the form
of Exhibit 5.15, from the option holders set forth on Exhibit 2.2 that the
option they held pursuant to the IPS 1993 Employee Stock Option Plan has been
terminated and is of no further force and effect.
5.17 Certificate of Secretary. EDG shall have received a Certificate
of Secretary in the form of Exhibit 5.16, certifying the Company's Articles of
Incorporation, Bylaws, minutes of the board of directors and shareholders
approving the transaction, and providing a certificate of good standing.
5.18 Certificate. EDG shall have received a certificate of the
Company's chief executive officer, chief financial officer, and the Certain
Stockholders dated the Closing Date, certifying as to the fulfillment of the
conditions set forth in Sections 5.1, 5.3, 5.4, 5.5, 5.6, 5.8, 5.10 and 5.11.
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SECTION VI.
CONDITIONS TO OBLIGATIONS OF
THE COMPANY AND THE COMPANY STOCKHOLDERS
The obligations of the Company and the Company Stockholders under this
Agreement are subject, at the option of the Company and the Company
Stockholders, to the following conditions:
6.1 Accuracy of Representations and Compliance with Conditions. All
representations and warranties of EDG contained in this Agreement shall be
accurate when made and shall be accurate as of the Closing as though such
representations and warranties were then made by EDG. As of the Closing, EDG
shall have performed and complied with all covenants and agreements and
satisfied all conditions required to be performed and complied with by any of
them at or before such time by this Agreement.
6.2 Legal Action. There shall not have been instituted or threatened
any legal proceeding relating to, or seeking to prohibit or otherwise
challenging the consummation of, the transactions contemplated by this Agreement
or related agreements set forth as an exhibit hereto, or to obtain substantial
damages with respect thereto.
6.3 No Governmental Action. There shall not have been any action
taken, or any law, rule, regulation, order, or decree proposed, promulgated,
enacted, entered, enforced, or deemed applicable to the transactions
contemplated by this Agreement by any federal, state, local, or other
governmental authority or by any court or other tribunal, including the entry of
a preliminary or permanent injunction, which, in the reasonable judgment of the
Company:
(a) Makes any of the transactions contemplated by this Agreement
illegal;
(b) Requires the divestiture by the Company Stockholders of a
material portion of the business of the Company taken as a whole; or
(c) Otherwise prohibits, restricts, or delays consummation of any of
the transactions contemplated by this Agreement.
6.4 Opinion of Counsel. The Company and the Certain Stockholders
shall have received the opinion of Brewer & Pritchard, P.C., special counsel to
EDG and the Sub, dated the Closing Date and addressed to the Company and the
Certain Stockholders as set forth in Exhibit 6.4, in the form and substance
reasonably satisfactory to the Certain Stockholders and their counsel.
6.5 Listing. The EDG Common Stock issuable to the Company
Stockholders pursuant to this Agreement and the Option Shares to be reserved for
issuance upon the exercise of the Options shall have been authorized for listing
on AMEX, subject only to official notice of issuance.
6.6 Non-Competition, Non-Solicitation and Employment Agreement.
William Kern and other key employees of the Company as agreed to be EDG shall
have executed and delivered non-competition, non-solicitation and employment
agreements substantially in the form as Exhibit 5.13.
6.7 Other Closing Documents. EDG and the Sub shall have delivered to
the Company and the Certain Stockholders at or prior to the Closing such other
documents as the Company or the Certain Stockholders may reasonably request in
order to effect the consummation of the transactions contemplated hereby.
6.8 Stockholder Approval. The Company's Stockholders shall have
taken all action necessary in accordance with applicable law and its Articles of
Incorporation and Bylaws to approve the merger of the Company and the Sub by the
Company Stockholders as required by the CGCL.
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6.9 Certificate of Secretary. The Company shall have received a
Certificate of Secretary in the form of Exhibit 6.9, certifying EDG's Articles
of Incorporation, Bylaws, minutes of the board of directors approving the
transaction, and providing a certificate of good standing.
6.10 Officer's Certificate. The Company shall have received a
certificate of EDG's chief executive officer and chief financial officer, dated
the Closing Date, certifying as to the fulfillment of the conditions set forth
in Sections 6.1, 6.2, 6.3, and 6.5.
SECTION VII.
COVENANTS AND AGREEMENTS OF
THE COMPANY AND THE CERTAIN STOCKHOLDERS
The Company and the Certain Stockholders covenant and agree as
follows:
7.1 Public Statements. Before the Company or any Certain
Stockholders shall release any information concerning this Agreement or the
transactions contemplated by this Agreement which is intended for or may result
in public dissemination thereof, they shall cooperate with EDG, shall furnish
drafts of all documents or proposed oral statements to EDG for comments, and
shall not release any such information without the written consent of EDG, such
consent not to be reasonably withheld. Nothing contained herein shall prevent
the Company or any Certain Stockholders from furnishing any information to any
governmental authority if required to do so by law.
7.2 Consents Without any Condition. The Company and the Certain
Stockholders shall not make any agreement or understanding with a third party
not in the ordinary course of business without approval in writing by EDG.
7.3 Access. Upon reasonable written notice to the Company by EDG,
the Company will afford, and the Certain Stockholders will cause the Company to
afford the officers, counsel, agents, investment bankers, accountants, and other
authorized representatives of EDG, such access during normal business hours
throughout the period prior to the Effective Time, to the properties, books, and
records of the Company. During such period, EDG will be entitled to make
extracts from and copies of such books and records, and the Company will furnish
EDG with such additional financial and operating data and other information as
to the financial condition, results of operations, business, properties, assets
or liabilities of the Company as EDG from time to time may reasonably request.
The Company and the Certain Stockholders will also cause the public accountants
of the Company to make available to EDG and its public accountants the work
papers relating to the audits, if any, of the Company.
7.4 Conduct of Business. The Company will, and the Certain
Stockholders will cause the Company to, conduct its affairs so that at the
Closing, no representation or warranty of the Company or any Certain Stockholder
will be inaccurate in any material respect, no covenant or agreement of the
Company or any Certain Stockholder will be breached in any material respect, and
no condition in this Agreement will remain materially unfulfilled by reason of
the actions or omissions of the Company or any Certain Stockholder. During the
period from the date of this Agreement until the Effective Time, the Company
agrees (except to the extent EDG consents in writing), to carry on the Company's
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted, to pay the debts and taxes of the Company when
due, to pay or perform other obligations when due consistent with the past
practices of the Company, and, to the extent consistent with such past practices
and policies to preserve intact the Company's present business organizations,
keep available the service of the Company's present officers and key employees
and preserve the Company's relationships with customers, advertisers, suppliers,
distributors, licensors, licensees and others having business dealings with it,
all with the goal of preserving unimpaired the Company's goodwill and ongoing
business at the Effective Time. The Company shall promptly notify EDG of any
event or occurrence or emergency not in the ordinary course of business of the
Company and any material event involving the Company.
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7.5 Notice of Changes. Until the Closing or the earlier rightful
termination of this Agreement, the Company and the Certain Stockholders will
immediately advise EDG in a detailed written notice of any fact or occurrence or
any pending or threatened occurrence of which any of them obtains Knowledge and
which (if existing and known at the date of the execution of this Agreement)
would have been required to be set forth or disclosed in or pursuant to this
Agreement or an exhibit hereto, which (if existing and known at any time prior
to or at the Closing) would make the performance by any party of a covenant
contained in this Agreement impossible or make such performance materially more
difficult than in the absence of such fact or occurrence, or which (if existing
and known at the time of the Closing) would cause a condition to any party's
obligations under this Agreement not to be fully satisfied.
7.6 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, the Company agrees to use its reasonable best efforts in good
faith to take, or cause to be taken, all actions, and to do, or cause to be
done, all things necessary, proper or desirable, or advisable under applicable
laws (including without limitation, obtaining any necessary stockholder,
governmental and third party approval), so as to permit consummation of the
Merger as promptly as practicable and otherwise to enable consummation of the
transactions contemplated hereby and shall cooperate fully with EDG to that end.
7.7 Information. Each of the Company and the Company Subs agrees
that it will not, and will cause it representatives not to, use any information
obtained pursuant to this Agreement, as well as any other information obtained
prior to the date hereof in connection with its consideration of the
transactions contemplated hereby and the entering into of this Agreement, for
any purpose unrelated to the consummation of the transactions contemplated by
this Agreement. Each of the Company and the Company Subs shall keep
confidential, and shall cause its representatives to keep confidential, all
information and documents obtained pursuant to this Agreement), as well as any
other information obtained prior to the date hereof in connection with its
consideration of the transactions contemplated hereby and the entering into of
this Agreement, unless such information (i) was already known to the Company or
the Company Subs, (ii) is disclosed with the prior written approval of the party
to which such information pertains, (iii) is already present in the public
domain, or (iv) is required to be disclosed by law. In the event that this
Agreement is terminated or the transactions contemplated hereby shall otherwise
fail to be consummated, the Company and the Company Subs shall promptly cause
all copies of documents or extracts thereof containing information and data as
to EDG to be returned to EDG.
SECTION VIII.
COVENANTS AND AGREEMENTS OF EDG AND THE SUB
Each of EDG and the Sub covenants and agrees as follows:
8.1 Public Statements. Before EDG or the Sub shall release any
information concerning this Agreement or the transactions contemplated by this
Agreement which is intended for or may result in public dissemination thereof,
it shall cooperate with the Company, shall furnish drafts of all documents or
proposed oral statements to the Company for comments, and shall not release any
such information without the written consent of the Company, such consent not to
be reasonably withheld. Nothing contained herein shall prevent EDG or the Sub
from furnishing any information to any governmental authority if required to do
so by law.
8.2 Consents Without any Condition. Neither EDG nor the Sub shall
make any agreement or understanding with a third party not in the ordinary
course of business not approved in writing by the Company as a condition for
obtaining any consent, authorization, approval, order, license, certificate, or
permit required for the consummation of the transactions contemplated by this
Agreement.
8.3 Conduct of Business. Each of EDG and the Sub will conduct its
affairs so that at the Closing no representation or warranty of EDG or the Sub
will be inaccurate in any material respect, no covenant or agreement of EDG or
the Sub will be breached in any material respect, and no condition in this
Agreement will remain materially unfulfilled by reason of the actions or
omissions of EDG or the Sub.
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8.4 Notice of Changes. Until the Closing or the earlier rightful
termination of this Agreement, EDG will immediately advise the Company in a
detailed written notice of any fact or occurrence or any pending or threatened
occurrence of which it obtains Knowledge and which (if existing and known at the
date of the execution of this Agreement) would have been required to be set
forth or disclosed in or pursuant to this Agreement or an exhibit hereto, which
(if existing and known at any time prior to or at the Closing) would make the
performance by any party of a covenant contained in this Agreement impossible or
make such performance materially more difficult than in the absence of such fact
or occurrence, or which (if existing and known at the time of the Closing) would
cause a condition to any party's obligations under this Agreement not to be
fully satisfied.
8.5 Reasonable Best Efforts. Subject to the terms and conditions of
this Agreement, each of EDG and the Sub agree to use its reasonable best efforts
in good faith to take, or cause to be taken, all actions, and to do, or cause to
be done, all things necessary, proper or desirable, or advisable under
applicable laws (including without limitation, obtaining any necessary
stockholder, governmental and third party approval), so as to permit
consummation of the Merger as promptly as practicable and otherwise to enable
consummation of the transactions contemplated hereby and shall cooperate fully
with the Company to that end.
8.6 Information. Each of EDG and the Sub agrees that it will not,
and will cause it representatives not to, use any information obtained pursuant
to this Agreement (including without limitation, Section 7.3 hereof), as well as
any other information obtained prior to the date hereof in connection with its
consideration of the transactions contemplated hereby and the entering into of
this Agreement, for any purpose unrelated to the consummation of the
transactions contemplated by this Agreement. Each of EDG and the Sub shall keep
confidential, and shall cause its representatives to keep confidential, all
information and documents obtained pursuant to this Agreement (including without
limitation, Section 7.3 hereof), as well as any other information obtained prior
to the date hereof in connection with its consideration of the transactions
contemplated hereby and the entering into of this Agreement, unless such
information (i) was already known to EDG or the Sub, (ii) is disclosed with the
prior written approval of the party to which such information pertains, (iii) is
already present in the public domain, or (iv) is required to be disclosed by
law. In the event that this Agreement is terminated or the transactions
contemplated hereby shall otherwise fail to be consummated, EDG and the Sub
shall promptly cause all copies of documents or extracts thereof containing
information and data as to the Company to be returned to the Company.
SECTION IX.
MISCELLANEOUS
9.1 Brokerage and Other Fees. The Parties agree that there are no
brokerage arrangements or fee obligations, in writing or otherwise, with respect
to the transactions set forth in this Agreement. Each party shall be
responsible for the fees of their respective professionals (including, without
limitation, legal and accounting fees) engaged to assist in the preparation,
negotiation and counseling with respect, and relating, to this Agreement and
consummation of the transactions contemplated herein, as well as their
respective out-of-pocket expenses, except EDG agrees to pay for the preparation
of the necessary transfer documents to accomplish the Merger herein, and up to
$150,000 of the Company's fees associated with the transactions contemplated
herein.
9.2 Further Actions. At any time and from time to time, Parties
agree, at their expense, to take such actions and to execute and deliver such
documents as may be reasonably necessary to effectuate the purposes of this
Agreement.
9.3 Availability of Equitable Remedies. Since a breach of the
provisions of this Agreement could not adequately be compensated by money
damages, the Parties shall be entitled before, and only before, Closing, in
addition to any other right or remedy available to them, to an injunction
restraining such breach or a threatened breach and to specific performance of
any such provision of this Agreement; and in either case, no bond or other
security shall be required in connection therewith, and Parties hereby consent
to the issuance of such an injunction and to the ordering of specific
performance.
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9.4 Survival. All statements contained in any certificate or other
instrument delivered by or on behalf of either the Company or the Certain
Stockholders pursuant to this Agreement or in connection with the exchange
contemplated hereby shall be deemed joint and several representations and
warranties by the Company and the Certain Stockholders. All covenants,
agreements, representations, and warranties made by the Company, the Certain
Stockholders and EDG contained in or made pursuant to this Agreement shall
survive for the period of one year from the Closing Date, irrespective of any
investigation made by or on behalf of any party (the "Survival Date"). No claim
for indemnification may be brought pursuant to this Section 9.4 unless asserted
by written notice provided herein by the party claiming indemnification on or
before the Survival Date.
9.5 Modification. The Agreement and the exhibits hereto set forth
the entire understanding of the parties with respect to the subject matter
hereof supersede all existing agreements among them concerning such subject
matter, and may be modified only by a written instrument duly executed by the
Parties.
9.6 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
given if personally delivered, or if telecopied, provided that such facsimile
transmission is confirmed within one (1) business day thereafter by U.S. mail in
accordance with this Section 9.6, or if sent by national overnight delivery
service or mailed, first class, registered or certified mail, postage prepaid to
the following:
If to EDG or the Sub: 3200 Wilcrest, Suite370
Houston, Texas 77042
Phone: (713) 784-2374
Facsimile: (713) 784-2486
With a copy to: Margaret C. Fitzgerald
Brewer & Pritchard, P.C.
Three Riverway, Suite 1800
Houston, Texas 77056
Phone: (713) 209-2950
Facsimile: (713) 209-2923
If to the Company: 1680 Bayport Avenue
San Carlos, California 94070
Phone: (650) 802-1020
Facsimile: (650) 637-1724
If to a Certain Stockholder: William Kern
813 Tamarack Avenue
San Carlos, California 94070
Isabelle Suares
425 Covington Road
Los Altos, California 94024
Peter Heinrich
333 Central Park West, #84
New York, New York 10025
William Johnson
29 Roberts Road
Newtown Square, Pennsylvania 19073
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With a copy to: David Lee
White & Lee, LLP
545 Middlefield Road, Suite 250
Menlo Park, California 94025
Phone: 650-470-4000
Facsimile: 650-470-4099
or to such other address as shall be given in writing by any party to the
others. If sent by U.S. mail in accordance with this Section 9.6, such notices
shall be deemed given and received on the earlier to occur of (a) actual receipt
at the above specified address of the mailed addressee, or (b) the third (3rd)
business day after deposit with the U.S. Postal Service in the manner herein
provided or (c) the business day of the successful transmission of such telecopy
or delivery by national overnight service. Notices delivered by any other means
shall be deemed given and received upon actual receipt of the above-specified
address of the addressee.
9.7 Waiver. Any waiver by any party of a breach of any provision of
this Agreement shall not operate as or be construed to be a waiver of any other
breach of that provision or of any breach of any other provision of this
Agreement. The failure of a party to insist upon strict adherence to any term
of this Agreement on one or more occasions will not be considered a waiver or
deprive that party of the right thereafter to insist upon strict adherence to
that term or any other term of this Agreement. Any waiver must be in writing
and, in the case of a corporate party, be authorized by a resolution of the
Board of Directors or by an officer of the waiving party.
9.8 Binding Effect. The provisions of this Agreement shall be
binding upon and inure to the benefit of each party's respective successors,
assigns, heirs, and personal representatives.
9.9 No Third-Party Beneficiaries. This Agreement does not create,
and shall not be construed as creating, any rights enforceable by any person not
a party to this Agreement.
9.10 Severability. If any provision of this Agreement is invalid,
illegal, or unenforceable, the balance of this Agreement shall remain in effect,
and if any provision is inapplicable to any person or circumstance, it shall
nevertheless remain applicable to all other persons and circumstances.
9.11 Headings. The headings of this Agreement are solely for
convenience of reference and shall be given no effect in the construction or
interpretation of this Agreement.
9.12 Counterparts, Governing Law. This Agreement may be executed in
any number of counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. It shall be
governed by and construed in accordance with the laws of the State of Texas
without giving effect to conflict of laws.
9.13 Indemnification. The Certain Stockholders shall, jointly and
severally, indemnify, defend and hold harmless EDG from and against any damage,
loss claim, liability, cost or expense, including fees and disbursements of
counsel, accountants, experts and other consultants (collectively "Damages"),
resulting from, arising out of or occasioned by any misstatement or omission
from any representation by, or any breach of warranty or covenant of, either the
Company or the Certain Stockholders contained herein. EDG shall indemnify,
defend and hold harmless the Company and the Certain Stockholders from and
against any Damages, resulting from, arising out of, based upon or occasioned by
any misstatement of omission from any representation by, or any breach of
warranty, covenant or agreement of EDG contained herein., PROVIDED HOWEVER, that
the parties will not be entitled to indemnification hereunder (i) with respect
to any individual claim for less than $5,000 in Damages, or (2) unless the
aggregate amount for which valid indemnification claims are made exceeds
$15,000, in which case the indemnified parties will shall be entitled to
indemnification from the first dollar of indemnification claims.
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9.14 Indemnification Procedures. Promptly after receipt by EDG, on
the one hand, or Certain Stockholders on the other hand (in any such case, the
"Indemnitee"), of notice of any action, suit, proceeding, audit, claim or
potential claim (any of which is hereinafter individually referred to as a
"Circumstance"), which could give rise to a right to indemnification for damages
pursuant to Section 9.13, the Indemnitee shall give the party who may become
obligated to provide indemnification hereunder (the "Indemnitor") written notice
describing the Circumstance in reasonable detail; provided, that failure of an
Indemnitee to give such notice to the Indemnitor shall not relieve the
Indemnitor from any of its indemnification obligations hereunder unless (and
then only to the extent) that the failure to give such notice prejudices the
defense of the Circumstance by the Indemnitee. Such Indemnitor shall have the
right, at its option and upon its acknowledgment to the Indemnitee of
Indemnitor's liability to indemnify Indemnitee in respect of such asserted
liability, to compromise or defend, at its own expense and by its own counsel,
any such matter involving the asserted liability of the Indemnitee; provided,
that any such compromise (i) shall include as a unconditional term thereof the
giving by the claimant or the plaintiff to such Indemnitee of a release from all
liability in respect of such claim and (ii) shall not result in the imposition
on the Indemnitee of any remedy other than monetary damages to be paid in full
by the Indemnitor pursuant to Section 9.13. If any Indemnitor shall undertake to
compromise or defend any such asserted liability, it shall promptly notify the
Indemnitee of its intention to do so, and the Indemnitee agrees to, and to cause
its own independent counsel to, cooperate fully with the Indemnitor and its
counsel in the compromise of, or defense against, any such asserted liability.
All reasonable out-of-pocket costs and expenses incurred by the Indemnitee in
connection with such cooperation (including, without limitation, the reasonable
fees and expenses of the Indemnitee's own independent counsel) shall be borne by
the Indemnitor. In any event, the Indemnitee shall have the right to participate
with its own counsel (the reasonable fees and expenses of which will be borne by
Indemnitor) in the defense of such asserted liability; provided that if with
respect to a Circumstance, Indemnitor shall have acknowledged Indemnitor's
liability to indemnify Indemnitee if and to the extent of any loss arising out
of such Circumstance and Indemnitor shall be diligently defending such matter,
Indemnitor shall not be obligated to indemnify Indemnitee for the cost of
Indemnitee's participation in such defense, including Indemnitee's attorney's
fees. Under no circumstances shall the Indemnitee compromise any such asserted
liability without the written consent of the Indemnitor (which consent shall not
be unreasonably withheld), unless the Indemnitor shall have failed or refused to
undertake the defense of any such asserted liability after a reasonable period
of time has elapsed following the notice of a Circumstance received by such
Indemnitor pursuant to this Section 9.14.
9.15 Other Indemnification Provisions. The foregoing indemnification
provisions under this Section 9 are in addition to any statutory, equitable or
common law remedy any party may have for breach of representation, warranty or
covenant.
9.16 Limitation on Indemnification. The Certain Stockholders
indemnification obligations to EDG shall be limited, in the aggregate, to the
consideration received, provided however, that the foregoing limitation shall
not apply to obligations resulting from misstatements or omissions of such
Certain Stockholder's actual knowledge and Claims resulting therefrom.
9.17 Escrow Fund. As security for the indemnity provided for in
Section 9.13 and by virtue of this Agreement, at the Effective Time, the Escrow
Agent shall take deposit of the Escrow Shares. The Escrow Shares shall be
contributed on behalf of each Certain Stockholder in proportion to the aggregate
EDG Common Stock, which each such Certain Stockholder would otherwise be
entitled to receive pursuant to Section 1.4 hereof. The escrow shall be for the
period of one year from the date hereof, and shall be administered subject to
the terms and conditions of Exhibit 1.4.
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IN WITNESS WHEREOF, the Parties have duly executed this Agreement
effective as of the date written in the preamble of this Agreement.
EPICEDGE, INC.
By: /s/ Charles H. Leaver, Jr.
-----------------------------------
Name: Charles H. Leaver, Jr.
Title: Chief Executive Officer
SUB: EDG Acquisition Corporation
By: /s/ Charles H. Leaver, Jr.
-----------------------------------
Name: Charles H. Leaver, Jr.
Title: President
COMPANY: IPS ASSOCIATES, INC.
By: /s/ William Kern
-----------------------------------
Name: William Kern
Title: President
CERTAIN STOCKHOLDERS:
/s/ William Kern
--------------------------------------
Name: William Kern
Address: 813 Tamarack Ave.
San Carlos, CA 94070
/s/ Isabelle Suares
--------------------------------------
Name: Isabelle Suares
Address: 425 Covington Rd.
Los Altos, CA 94024
/s/ Peter Heinrich
--------------------------------------
Name: Peter Heinrich
Address: 333 Central Park West #84
New York, NY 10025
/s/ William Johnson
--------------------------------------
Name: William Johnson
Address: 29 Roberts Rd.
Newtown Square, PA 19073
22
