<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: August 10, 1999
CYTATION.COM INCORPORATED
(Exact Name of Registrant as Specified in its Charter)
NEW YORK
(State or Other Jurisdiction of Incorporation)
0-5388 16-0961436
(Commission File Number) (I.R.S. Employer
Identification Number)
809 Aquidneck Avenue, Middletown, RI 02842
(Address of Principal Executive Offices) (Zip Code)
(800) 275-5895
(Registrant's Telephone Number, Including Area Code)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On August 10, 1999 Cytation.com Incorporated ("Cytation") acquired ECI,
Inc. ("ECI"), an e-commerce company that supplies products and services to
college-bound students, their parents and colleges.
The acquisition was structured as a merger of ECI with and into Cytation's
wholly-owned subsidiary CollegeLink.com Incorporated ("CollegeLink"). As
consideration for the acquisition, each share of ECI Common Stock was converted
into (a)1.2453 shares of Cytation Common Stock, (b) .5308 shares Cytation Series
B Convertible Preferred Stock ("Series B Stock"), and (c) cash for any fraction
of a share remaining after the conversion. Consequently, ECI's 48 stockholders
of record received an aggregate of 550,809 shares of Cytation Common Stock,
234,771 shares of Series B Stock and $488.56 in cash. CollegeLink also assumed
approximately $778,000 of ECI liabilities in connection with the merger and
settled a claim against ECI in exchange for 108,196 shares of Cytation Common
Stock and 45,000 shares of Series B Stock.
Two principal stockholders of ECI have become managers of CollegeLink.
ECI's former President, Thomas J. Burgess, serves as President of CollegeLink,
and ECI's former Chief Executive Officer, Gerald A. Paxton, has been retained as
a consultant.
Cytation intends to continue to operate the business formerly owned by ECI
through CollegeLink.
ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(a) Financial Statements of business acquired.
ECI, INC.
All required financial statements will be filed by amendment pursuant to
Item 7(a)(4) within 60 days of the date on which this report is filed.
(b) Pro Forma Financial Information
All required pro forma financial information will be filed by amendment
pursuant to Item 7(a)(4) within 60 days of the date on which this report is
filed.
<PAGE> 3
INDEX TO EXHIBITS
EXHIBIT NO DESCRIPTION
x 2.1 Articles of Merger between CollegeLink.com,
Incorporated and ECI, Inc., dated August 10, 1999;
x 2.2 Certificate of Merger of CollegeLink.com Incorporated and
ECI, Inc., dated August 10, 1999
x 2.3 Agreement and Plan of Merger by and among Cytation.com
Incorporated, CollegeLink.com Incorporate, ECI, Inc. and
Gerald A. Paxton, Thomas J. Burgess and Gerald A. Paxton,
as Agent, dated June 18, 1999
x 2.4 List of Schedules omitted from the Agreement and Plan of
Merger
* 3.1 Articles of Incorporation of the Company;
# 3.2 Designation of Rights and Preferences for the Company's
Series A Convertible Preferred Stock;
* 3.3 Bylaws of the Company;
x 3.4 Certificate of Amendment of Cytation.com Incorporated
x 4.1 Please see Exhibits 3.1 through 3.4 for provisions of the
articles of incorporation and bylaws of the Company defining
the rights of holders of the common stock of the company;
- -----------------------
x Filed herewith.
* Incorporated by reference from the Registrant's Annual Report on Form 10KSB
(S.E.C. File No. 0-5388) filed December 31, 1998.
# Incorporated by reference from the Registrant's Form 8-K, Current Report,
filed April 27, 1999.
<PAGE> 4
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.
CYTATION.COM INCORPORATED
/s/ Kevin J. High
DATE: August 25, 1999 By: KEVIN J. HIGH
Name: Kevin J. High
Title: President
<PAGE> 1
FEDERAL IDENTIFICATION FEDERAL IDENTIFICATION
NO. 043112716 NO.
THE COMMONWEALTH OF MASSACHUSETTS
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
ARTICLES OF MERGER*
(GENERAL LAWS, CHAPTER 156B, SECTION 79)
*merger of ECI, Inc., a Massachusetts corporation
and
CollegeLink.com Incorporated,
a Delaware corporation
-------------------------------------,
the constituent corporations, into
CollegeLink.com Incorporated,
*one of the constituent corporations organized under the laws of: Delaware.
The undersigned officers of each of the constituent corporations certify under
the penalties of perjury as follows:
1. An agreement of *merger has been duly adopted in compliance with the
requirements of General Laws, Chapter 156B, Section 79, and will be kept as
provided by Subsection (c) thereof. The *surviving corporation will furnish a
copy of said agreement to any of its stockholders, or to any person who was a
stockholder of any constituent corporation, upon written request and without
charge.
2. The effective date of the *merger determined pursuant to the agreement of
*merger shall be the date approved and filed by the Secretary of the
Commonwealth. If a later effective date is desired, specify such date which
shall not be more than thirty days after the date of filing:
N/A
3. (For a merger)
*The following amendments to the Articles of Organization of the surviving
corporation have been effected pursuant to the agreement of merger:
None
(For a consolidation)
(a) The purpose of the resulting corporation is to engage in the following
business activities:
N/A
*Delete the inapplicable words.
Note: If the space provided under any article or item on this form is
insufficient, additions shall be set forth on separate 8 1/2 x 11 sheets of
paper with a left margin of at least 1 inch. Additions to more than one
article may be made on a single sheet as long as each article requiring each
addition is clearly indicated.
THE SECRETARY OF
THE COMMONWEALTH
99 AUG 10 PM 3:51
<PAGE> 2
(For a consolidation)
(b) State the total number of shares and the par value, if any, of each class
of stock which the resulting corporation is authorized to issue:
- -------------------------------------------------------------------------------
WITHOUT PAR VALUE WITH PAR VALUE
- -------------------------------------------------------------------------------
TYPE NUMBER OF SHARES TYPE NUMBER OF SHARES PAR VALUE
- -------------------------------------------------------------------------------
Common: Common
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Preferred: Preferred
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
**(c) If more than one class of stock is authorized, state a distinguishing
designation for each class and provide a description of the preferences,
voting powers, qualifications, and special or relative rights or privileges of
each class and of each series then established.
**(d) The restrictions, if any, on the transfer of stock contained in the
agreement of consolidation are:
**(e) Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
ITEM 4 BELOW MAY BE DELETED IF THE SURVIVING CORPORATION IS ORGANIZED UNDER
THE LAWS OF A STATE OTHER THAN MASSACHUSETTS.
4. The information contained in Item 4 is not a permanent part of the Articles
of Organization of the "resulting/*surviving corporation.
(a) The street address (post office boxes are not acceptable) of the
*resulting/*surviving corporation in Massachusetts is:
**If there are no provisions state "None".
<PAGE> 3
(b) The name, residential address and post office address of each director
and officer of the *resulting/*surviving corporation is:
NAME RESIDENTIAL POST OFFICE ADDRESS
President:
Treasurer:
Clerk:
Directors:
(c) The fiscal year end (i.e. tax year) of the *surviving corporation shall end
on the last day of the month of:
(d) The name and business address of the resident agent, if any, of the
*surviving corporation is:
ITEM 5 BELOW MAY BE DELETED IF THE SURVIVING CORPORATION IS ORGANIZED UNDER
THE LAWS OF MASSACHUSETTS.
5. The *surviving corporation hereby agrees that it may be sued in the
Commonwealth of Massachusetts for any prior obligation of any constituent
Massachusetts corporation, any prior obligation of any constituent foreign
corporation qualified under General Laws, Chapter 181, and any obligations
hereafter incurred by the *surviving corporation, including the obligation
create by General Laws, Chapter 156B, Section 85, so long as any liability
remains outstanding against the corporation in the Commonwealth of
Massachusetts, and it hereby irrevocably appoints the Secretary of the
Commonwealth as its agent to accept service of process in any action for the
enforcement of any such obligation, including taxes, in the same manner as
provided in Chapter 181.
FOR MASSACHUSETTS CORPORATIONS
The undersigned *President and *Clerk of ECI, Inc., a corporation organized
under the laws of Massachusetts, further state under the penalties of perjury
that the agreement of *consolidation/*merger has been duly executed on behalf
of such corporation and duly approved in the manner required by General
Laws, Chapter 156B, Section 78.
/s/ Thomas J. Burgess, *President
/s/ Richard A. Gariepy, *Clerk
FOR CORPORATIONS ORGANIZED IN A STATE OTHER THAN MASSACHUSETTS
The undersigned, + President and ++ Assistant Secretary
of CollegeLink.com Incorporated, a corporation organized under the laws of
Delaware, further state under the penalties of perjury that the agreement of
*merger has been duly adopted by such corporation in the manner required by the
laws of Delaware.
+ /s/ Gerald A. Paxton
---------------------------
Gerald A. Paxton
++ /s/ Edward F. Hayes
---------------------------
Edward F. Hayes
*Delete the inapplicable words.
+Specify the officer having powers and duties corresponding to those of the
president or vice president of a Massachusetts corporation organized under
General Laws, Chapter 156B.
++Specify the officer having powers and duties corresponding to the clerk
or assistant clerk of such a Massachusetts corporation.
<PAGE> 4
THE COMMONWEALTH OF MASSACHUSETTS
ARTICLES OF *CONSOLIDATION/*MERGER
(General Laws, Chapter 156B, Section 79)
===============================================================================
I hereby approve the within Articles of *Consolidation/*Merger and, the filing
fee in the amount of $________, having been paid, said articles are deemed
to have been filed with me this ________ day of _________________, 19____.
Effective date______________________________________
WILLIAM FRANCIS GALVIN
Secretary of the Commonwealth
TO BE FILED IN BY CORPORATION
Photocopy of document to be sent to:
Michael D. Webber, Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Telephone: 617-832-1000
<PAGE> 1
Exhibit 2.2
CERTIFICATE OF MERGER
Merging
ECI, INC.,
a Massachusetts corporation
with and into
COLLEGELINK.COM INCORPORATED
a Delaware corporation
----------------------------------
Pursuant to Section 252 of the General Corporation Law of the State of Delaware
----------------------------------
CollegeLink.com Incorporated, a corporation duly organized and existing
under the laws of the State of Delaware ("Merger Sub"), does hereby certify as
follows:
FIRST: An Agreement and Plan of Merger (the "Merger Agreement") dated
June 18, 1999, among Cytation.com Incorporated, a New York corporation
("Parent"), Merger Sub, ECI, Inc., a Massachusetts corporation ("ECI"), Gerald
A. Paxton and Thomas J. Burgess setting forth the terms and conditions of the
merger of ECI with and into Merger Sub (the "Merger"), has been approved,
adopted, certified, executed and acknowledged by Merger Sub and ECI
(collectively, the "Constituent Corporations") in accordance with Section 252 of
the Delaware General Corporation Law.
SECOND: The name of the corporation surviving the Merger (the
"Surviving Corporation") shall be CollegeLink.com Incorporated.
THIRD: The Certificate of Incorporation of the Surviving Corporation
shall be its Certificate of Incorporation.
FOURTH: An executed copy of the Merger Agreement is on file at the
principal place of business of the Surviving Corporation at the following
address:
CollegeLink.com Incorporated
c/o Cytation.com Incorporated
809 Aquidneck Avenue
Middletown, RI 02842
FIFTH: A copy of the Merger Agreement will be furnished by the
Surviving Corporation, on request and without cost, to any stockholder of
either Constituent Corporation.
SIXTH: The authorized capital stock of ECI, Inc. is 500,000 shares of
common stock, $.01 par value per share.
SEVENTH: The Merger shall become effective upon the filing of this
Certificate of Merger with the Secretary of State of the State of Delaware.
IN WITNESS WHEREOF, CollegeLink.com Incorporated has caused this
Certificate of Merger to be executed as of August 10, 1999.
COLLEGELINK.COM INCORPORATED
By:/s/ Edward F. Hayes
-------------------------
Edward F. Hayes
Treasurer
<PAGE> 1
EXHIBIT 2.3
AGREEMENT AND PLAN OF MERGER
by and among
CYTATION.COM INCORPORATED
COLLEGELINK.COM INCORPORATED
ECI, INC.
and
GERALD A. PAXTON
THOMAS J. BURGESS
and
GERALD A. PAXTON, as Agent
June 18, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
AGREEMENT AND PLAN OF MERGER ..................................................... -1-
ARTICLE 1 THE MERGER ............................................................. -1-
1.1 Procedure for the Merger .............................. -1-
1.2 Surviving Corporation ................................. -2-
1.3 Conversion of Stock ................................... -3-
1.4 Fractional Shares ..................................... -5-
1.5 Issuance of Parent Stock .............................. -5-
1.6 Closing ............................................... -6-
1.7 Escrow Fund ........................................... -6-
1.8 Dissenter's Rights .................................... -6-
1.9 Principals' Agent ..................................... -7-
1.10 Transfers of Ownership ................................ -8-
1.11 Tax and Accounting Consequences ....................... -8-
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF ECI AND PRINCIPALS ................... -9-
2.1 Organization and Corporate Power ...................... -9-
2.2 Due Authorization; Effect of Transaction .............. -9-
2.3 Financial Statements .................................. -9-
2.4 Liabilities ........................................... -10-
2.5 Capitalization ........................................ -10-
2.6 Dividends and Distributions ........................... -10-
2.7 Subsidiaries .......................................... -10-
2.8 Leases ................................................ -11-
2.9 Encumbrances .......................................... -11-
2.10 Employment Arrangements ............................... -11-
2.11 Material Contracts and Arrangements ................... -11-
2.12 Ordinary Course of Business ........................... -12-
2.13 Litigation and Compliance with Laws ................... -13-
2.14 Tax Returns ........................................... -13-
2.15 Tax Status of Reorganization .......................... -14-
2.16 Environmental Matters ................................. -14-
2.17 Intellectual Property ................................. -15-
2.18 Insurance Policies .................................... -15-
2.19 Extraordinary Events .................................. -15-
2.20 Material Information .................................. -16-
2.21 Certain Transactions .................................. -16-
</TABLE>
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<TABLE>
<S> <C>
2.22 No Governmental Authorizations or Approvals Required .. -16-
2.23 Employee Benefit Plans ................................ -16-
2.24 No Broker's or Finder's Fees .......................... -16-
2.25 Continuing Representations ............................ -16-
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PRINCIPALS ........................... -17-
3.1 Authority of the Principals ........................... -17-
3.2 No Conflict ........................................... -17-
3.3 No Broker's or Finder's Fees .......................... -17-
3.4 Restricted Securities ................................. -17-
3.5 Acquired for Investment ............................... -18-
3.6 Sophistication ........................................ -18-
3.7 Continuing Representations ............................ -18-
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB ............... -18-
4.1 Organization and Corporate Power ...................... -18-
4.2 Due Authorization; Effect of Transaction .............. -19-
4.3 Capitalization ........................................ -19-
4.4 SEC Documents; Financial Statements ................... -19-
4.5 Continuing Representations ............................ -20-
ARTICLE 5 ADDITIONAL AGREEMENTS .................................................. -20-
5.1 Conduct of ECI Business Pending Closing ............... -20-
5.2 Expenses .............................................. -21-
5.3 Restrictions on Resale ................................ -21-
5.4 Convertible Securities ................................ -22-
5.5 Registration Agreement ................................ -22-
5.6 Escrow Agreement ...................................... -22-
5.7 Paxton Employment Agreement ........................... -22-
5.8 Burgess Consulting Agreement .......................... -23-
5.9 Public Announcements .................................. -23-
5.10 Stockholders Meeting .................................. -23-
5.11 Approval of Principals; Proxy ......................... -23-
5.12 Exclusivity ........................................... -24-
5.13 Reasonable Efforts .................................... -24-
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 6 CONDITIONS PRECEDENT ................................................... -24-
6.1 Conditions to Obligations of Parent and Merger Sub .... -24-
6.2 Conditions to Obligations of ECI and Principals ....... -26-
ARTICLE 7 INDEMNIFICATION ........................................................ -27-
7.1 Indemnification by Principals ......................... -27-
7.2 Limitation on Liability ............................... -28-
7.3 Process of Indemnification for Parent Claims .......... -28-
ARTICLE 8 TERMINATION ............................................................ -29-
8.1 Termination Events .................................... -29-
8.2 Certain Effects of Termination ........................ -30-
ARTICLE 9 MISCELLANEOUS .......................................................... -30-
9.1 Entire Agreement; Amendments; Waivers ................. -30-
9.2 Assignment; Successors and Assigns .................... -31-
9.3 Severability .......................................... -31-
9.4 Counterparts .......................................... -31-
9.5 Certain Matters of Construction ....................... -31-
9.6 Knowledge ............................................. -31-
9.7 Notices ............................................... -32-
9.8 Governing Law ......................................... -33-
9.9 Courts ................................................ -33-
9.10 Arbitration ........................................... -33-
</TABLE>
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<PAGE> 5
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger dated as of June 18, 1999 (this
"Agreement") is made by and among (i) Cytation.com Incorporated, a New York
corporation ("Parent"); (ii) CollegeLink.com Incorporated, a Delaware
corporation ("Merger Sub"); (iii) ECI, Inc., a Massachusetts corporation
("ECI"); (iv) Gerald A. Paxton ("Paxton") and Thomas J. Burgess ("Burgess")
(collectively, the "Principals"); and (v) Gerald A. Paxton, as agent for the
Principals (the "Principals' Agent").
WHEREAS, the respective boards of directors of Parent, Merger Sub and
ECI have approved and adopted this Agreement, which provides for the merger of
ECI with and into Merger Sub (the "Merger") on the terms and conditions set
forth herein and in accordance with the applicable provisions of the General
Corporation Law of the State of Delaware (the "DGCL") and the Business
Corporation Law of The Commonwealth of Massachusetts (the "MBCL");
WHEREAS, the respective boards of directors of Merger Sub and ECI
(collectively, the "Constituent Corporations") have approved and committed to
recommend this Agreement to the stockholders of Merger Sub and ECI,
respectively;
WHEREAS, the parties desire to make certain representations and
warranties and other agreements in connection with the Merger; and
WHEREAS, the parties intend, by executing this Agreement, to adopt a
plan of reorganization within the meaning of Section 368 of the Internal Revenue
Code of 1986, as amended (the "Code");
NOW, THEREFORE, Parent, Merger Sub, ECI, the Principals and the
Principals' Agent hereby agree as follows:
ARTICLE 1
THE MERGER
1.1 Procedure for the Merger. ECI shall be merged, in accordance with
the applicable provisions of the DGCL and the MBCL, with and into Merger Sub,
which shall be the surviving corporation. Merger Sub, as such surviving
corporation, is sometimes referred to herein to as the "Surviving Corporation".
The Merger shall be effected by filing (a) a certificate of merger,
substantially in the form of Exhibit 1.1A (the "Certificate of Merger"), with
the Secretary of State of the State of Delaware in accordance with the
applicable
<PAGE> 6
provisions of the DGCL, and (b) articles of merger, substantially in the form of
Exhibit 1.1B (the "Articles of Merger"), with the State Secretary of The
Commonwealth of Massachusetts in accordance with the applicable provisions of
the MBCL. The effective date of the Merger (the "Effective Date") shall be the
date upon which the Certificate of Merger shall have been filed with the
Secretary of State of the State of Delaware and the effective time of the Merger
(the "Effective Time") shall be the time of the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware.
1.2 Surviving Corporation.
(a) Corporate Existence. The Surviving Corporation shall
continue its corporate existence under the laws of the State of Delaware. The
separate corporate existence of ECI shall cease at the Effective Time.
(b) Certificate of Incorporation and Bylaws. The certificate
of incorporation of Merger Sub, as in effect immediately prior to the Effective
Time, shall be the certificate of incorporation of the Surviving Corporation
until the same shall be amended thereafter in accordance with the DGCL and such
certificate of incorporation. The bylaws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the bylaws of the Surviving Corporation
until the same shall be amended thereafter in accordance with the DGCL, the
certificate of incorporation of the Surviving Corporation and such bylaws.
Without limiting the generality of the foregoing, the purposes of Merger Sub, as
stated in Merger Sub's certificate of incorporation as in effect immediately
prior to the Effective Time, shall be the purposes of the Surviving Corporation
until such purposes shall be amended in accordance with the DGCL and the
Surviving Corporation's certificate of incorporation.
(c) Directors and Officers. The directors and officers of the
Surviving Corporation at and as of the Effective Time shall be as set forth in
Schedule 1.2(c).
(d) Effect of the Merger. As of the Effective Time, the effect
of the Merger shall be as provided in this Agreement and the applicable
provisions of the DGCL and the MBCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the estate, property,
rights, privileges, powers and franchises of the Constituent Corporations shall
vest in the Surviving Corporation and the Surviving Corporation shall be
responsible and liable for all the liabilities and obligations of each
Constituent Corporation.
(e) Additional Actions. If, at any time after the Effective
Time, the Surviving Corporation shall believe or be advised that any further
assignments or assurances in law or any other acts are necessary or desirable
(a) to vest, perfect or confirm in the Surviving Corporation title to or
ownership or possession of any estate, property, right, privilege, power,
franchise or other asset of either Constituent Corporation acquired or to be
acquired by reason of, or as a result of, the Merger or (b) otherwise to carry
out the purposes of this Agreement,
-2-
<PAGE> 7
then (i) each Constituent Corporation and its officers and directors shall be
deemed to have granted hereby to the Surviving Corporation an irrevocable power
of attorney to execute and deliver all proper assignments and assurances in law
and to undertake all other acts necessary or proper to vest, perfect or confirm
title to or ownership or possession of such estate, property, rights,
privileges, powers, franchises or other assets in the Surviving Corporation and
otherwise to carry out the purposes of this Agreement and (ii) the officers and
directors of the Surviving Corporation shall be deemed to be fully authorized to
take any and all such actions in the name of either Constituent Corporation or
otherwise.
1.3 Conversion of Stock.
(a) Stock of ECI. At the Effective Time, each share of Common
Stock, $.01 par value per share, of ECI ("ECI Common Stock") issued and
outstanding immediately prior to the Effective Time (other than Dissenting
Shares (as defined in and to the extent provided in Section 1.8)) shall
automatically, by virtue of the Merger and without any action on the part of the
holder thereof, be converted into and become the right to receive (i) the number
of shares of the Common Stock, $.001 par value per share, of Parent ("Parent
Common Stock") equal to the Common Stock Exchange Ratio (as defined in Section
1.3(b)(i)), and (ii) the number of shares of Series B Preferred Stock, $.01 par
value per share, of Parent ("Parent Series B Stock") equal to the Series B Stock
Exchange Ratio (as defined in Section 1.3(b)(ii)).
(b) Definitions of Exchange Ratios.
(i) Common Stock Exchange Ratio. As used herein,
the following terms shall have the following meanings:
"Execution Date Price": the closing asked price per share of
Parent Common Stock (as quoted on the Nasdaq OTC Bulletin
Board) on the business day immediately preceding the date that
Parent executes this Agreement.
"Parent Common Stock Price": the Execution Date Price;
provided, however, that (i) if the Execution Date Price is
less than $5.00 per share, then the Parent Common Stock Price
shall be $5.00 per share, (ii) if the Execution Date Price is
greater than $9.00 per share but less than $12.00 per share,
then the Parent Common Stock Price shall be $9.00 per share,
and (iii) if the Execution Date Price is equal to or greater
than $12.00 per share, then the Parent Common Stock Price
shall be $10.00 per share.
"Parent Common Stock Amount": $4,200,000 divided by the Parent
Common Stock Price.
-3-
<PAGE> 8
"Fully-Diluted Shares": the aggregate number of shares of ECI
Common Stock outstanding immediately prior to the Effective
Time, assuming for these purposes exercise of all Convertible
Securities (as defined in Section 2.5), whether vested or
unvested, outstanding immediately prior to the Effective Time.
"Common Stock Exchange Ratio": a number rounded up to four
decimal places equal to a fraction, the numerator of which is
the Parent Common Stock Amount and the denominator of which is
Fully-Diluted Shares.
(ii) Series B Stock Exchange Ratio. As used herein, the
following terms shall have the following meanings:
"Parent Series B Dollar Amount": means $3,500,000 (i) less the
amount, if any, by which the Closing Date Liabilities (as
defined in Section 6.1(f)) exceed $800,000; or (ii) plus the
amount, if any, by which $800,000 exceeds the Closing Date
Liabilities.
"Parent Series B Stock Price": $15.00
"Parent Series B Stock Amount": the Parent Series B Dollar
Amount divided by the Parent Series B Stock Price.
"Series B Stock Exchange Ratio": a number rounded to four
decimal places equal to a fraction, the numerator of which is
the Parent Series B Stock Amount and the denominator of which
is Fully-Diluted Shares.
(c) Adjustment of Common Stock Exchange Ratio. If, between the
date of this Agreement and the Effective Time of the Merger, the outstanding
shares of Parent Common Stock shall have been changed into a different number of
shares or a different class by reason of any reclassification, recapitalization,
split-up, stock dividend, stock combination, exchange of shares or readjustment,
the Common Stock Exchange Ratio shall be correspondingly adjusted.
(d) Stock of Merger Sub. Each share of the Common Stock, $.01
par value per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall remain outstanding.
-4-
<PAGE> 9
1.4 Fractional Shares.
(a) Parent Common Stock. No fraction of a share of Parent
Common Stock will be issued by virtue of the Merger, but in lieu thereof each
holder of shares of ECI Common Stock who would otherwise be entitled to a
fraction of a share of Parent Common Stock (after aggregating all fractional
shares of Parent Common Stock to be received by such holder) shall receive from
Parent a check for an amount of cash (rounded up to the next whole cent) equal
to the product of (a) such fraction, multiplied by (b) the Parent Common Stock
Price.
(b) Parent Series B Stock. No fraction of a share of Parent
Series B Stock will be issued by virtue of the Merger, but in lieu thereof each
holder of shares of ECI Common Stock who would otherwise be entitled to a
fraction of a share of Parent Series B Stock (after aggregating all fractional
shares of Parent Series B Stock to be received by such holder) shall receive
from Parent a check for an amount of cash (rounded up to the next whole cent)
equal to the product of (a) such fraction, multiplied by (b) the Parent Series B
Stock Price.
1.5 Issuance of Parent Stock.
(a) ECI Stockholders Other than Principals. At and after the
Effective Time, upon surrender to Parent by each stockholder of ECI other than
the Principals (the "Non-Principal Stockholders") of certificates for the number
of shares of ECI Common Stock owned by such Non-Principal Stockholder
immediately prior to the Effective Time, Parent shall issue and deliver to each
such Non-Principal Stockholder two certificates. One certificate shall represent
the total number of shares of Parent Common Stock into which such Principal
Stockholder's ECI Common Stock has been converted and the other certificate
shall represent the total number of shares of Parent Series B Stock into which
such Non-Principal Stockholder's ECI Common Stock has been converted. Each such
certificate shall be registered in the name of such Non-Principal Stockholder
and legended as set forth in Section 5.3(b).
(b) Principals. At and after the Effective Time, upon
surrender to Parent by each Principal of certificates for the number of shares
of ECI Common Stock owned by such Principal immediately prior to the Effective
Time, Parent shall issue and deliver to each such Principal four certificates:
(i) one such certificate (the "Escrow Common Certificate") shall represent
$640,530 (in the case of Paxton) and $259,470 (in the case of Burgess) worth of
shares of Parent Common Stock into which such Principal's ECI Common Stock has
been converted (rounded up to the next whole number of shares), and shall be
delivered at the Closing by such Principal to State Street Bank and Trust
Company, as escrow agent (the "Escrow Agent"), as provided in Section 1.7; (ii)
one such certificate shall represent the balance of the of the total number of
shares of Parent Common Stock into which such
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Principal's ECI Common Stock has been converted after deducting therefrom the
shares of Parent Common Stock being placed in escrow hereunder; (iii) one such
certificate (the "Escrow Preferred Certificate") shall represent $355,850 (in
the case of Paxton) and $144,150 (in the case of Burgess) worth of shares of
Parent Series B Stock into which such Principal's ECI Common Stock has been
converted (rounded up to the next whole number of shares), and shall be
delivered at the Closing by such Principal to the Escrow Agent, as provided in
Section 1.7; and (iv) one certificate shall represent the balance of the total
number of shares of Parent Series B Stock into which such Principal's ECI Common
Stock has been converted after deducting therefrom the shares of Parent Series B
Stock being placed in escrow hereunder. Each such certificate shall be
registered in the name of such Escrow Group Stockholder and legended as set
forth in Section 5.3(b).
1.6 Closing. The closing of the Merger (the "Closing") shall take place
at the offices of Foley, Hoag & Eliot LLP in Boston, Massachusetts at a time and
date to be specified by Parent and ECI, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article 6, or at such other time, date and location as Parent and ECI agree.
1.7 Escrow Fund. In order to provide for the indemnity obligations of
the Principals hereunder, at the Closing each Principal shall deliver to the
Escrow Agent such Principal's Escrow Common Certificate and Escrow Preferred
Certificate, together with stock powers endorsed in blank by such Principal. The
Escrow Agent shall hold and administer such shares in accordance with the terms
of an escrow agreement dated as of the Effective Date among Parent, the
Principals, the Principal's Agent and the Escrow Agent (the "Escrow Agreement"),
such Escrow Agreement to be substantially in the form of Exhibit 1.7.
1.8 Dissenter's Rights. If stockholders of ECI are entitled to
appraisal rights pursuant to Sections 86 through 98 of the MBCL in connection
with the Merger, any shares of ECI Common Stock held by stockholders who
exercise and perfect such appraisal rights ("Dissenting Shares") shall not be
converted into a right to receive the consideration specified in Section 1.3(a)
but shall be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to the laws
of The Commonwealth of Massachusetts. ECI shall give Parent prompt notice of any
demand received by ECI for appraisal of ECI Common Stock, and Parent shall have
the right to control all negotiations and proceedings with respect to such
demand. ECI agrees that, except with the prior written consent of Parent or as
required under the MBCL, it will not voluntarily make any payment with respect
to, or settle or offer to settle, any such demand for appraisal. Each holder of
Dissenting Shares (a "Dissenting Stockholder") who, pursuant to the provisions
of the MBCL, becomes entitled to payment of the value of shares of ECI Common
Stock shall receive payment therefor (but only after the value therefor shall
have been agreed upon or finally determined pursuant to the provisions of the
MBCL). In the event that any stockholder fails to make an effective demand for
payment or otherwise loses his status as a Dissenting
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<PAGE> 11
Stockholder, Parent shall, as of the later of the Effective Time of the Merger
or the occurrence of such event, deliver, upon surrender by such stockholder of
his certificate or certificates, the consideration, without interest thereon, to
which such stockholder would have been entitled to under Section 1.3(a).
1.9 Principals' Agent.
(a) In order to administer efficiently the defense and/or
settlement of any indemnity claims for which the Principals may be required to
indemnify members of the Parent Group (as defined in Section 7.1(a)) pursuant to
Article 7, the Principals hereby appoint the Principals' Agent as their agent
and representative, and the Principals' Agent hereby accepts such appointment.
(b) The Principals hereby authorize the Principals' Agent (i)
to take all action necessary in connection with the defense and/or settlement of
any indemnity claims for which the Principals may be required to indemnify
members of the Parent Group pursuant to Article 7 and (ii) to give and receive
all notices required to be given and take all action required or permitted to be
taken under this Agreement and the other agreements contemplated hereby to which
all of the Principals are a party, including the Escrow Agreement and the
Registration Agreement.
(c) In the event that Paxton dies, becomes unable to perform
his responsibilities hereunder as a Principals' Agent or resigns from such
position, Burgess shall be deemed to be the Principals' Agent for all purposes
of this Agreement.
(d) The members of the Parent Group may rely on any written
document signed by Paxton (or his successor) as evidence of the Principals'
Agent's authority to act hereunder.
(e) All decisions and actions by the Principals' Agent,
including the defense or settlement of any indemnity claims for which the
Principals may be required to indemnify members of the Parent Group pursuant to
Article 7, shall be binding upon all of the Principals, and no Principal shall
have the right to object, dissent, protest or otherwise contest the same.
(f) By their execution of this Agreement, the Principals agree
that:
(i) The members of the Parent Group shall be able to rely
conclusively on the instructions and decisions of the Principals' Agent
as to the settlement of any indemnity claims by members of the Parent
Group pursuant to Article 7 or any other actions required to be taken
by the Principals' Agent hereunder, and no party hereunder shall have
any cause of action against any member of the Parent Group
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for any action taken by any member of the Parent Group in reliance upon
the instructions or decisions of the Principals' Agent;
(ii) all actions, decisions and instructions of the
Principals' Agent shall be conclusive and binding upon all of the
Principals and no Principal, nor Parent or Merger Sub, shall have any
cause of action against the Principals' Agent for any action taken,
decision made or instruction given by the Principals' Agent under this
Agreement, except for fraud or willful breach of this Agreement by the
Principals' Agent;
(iii) the provisions of this Section 1.09 are
independent and severable, are irrevocable and coupled with an interest
and shall be enforceable notwithstanding any rights or remedies that
any Principal may have in connection with the transactions contemplated
by this Agreement; and
(iv) the provisions of this Section 1.09 shall be
binding upon the heirs, legal representatives, successors and assigns
of each Principal, and any references in this Agreement to a Principal
or the Principals shall mean and include the successors to the
Principals' rights hereunder, whether pursuant to testamentary
disposition, the laws of descent and distribution or otherwise.
1.10 Transfers of Ownership. If any certificate for shares of Parent
Common Stock or Parent Series B 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 (a) the certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer and that the
stockholder requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of issuance of a
certificate for shares of Parent Common Stock or Parent Series B Stock in any
name other than that of the registered holder of the certificate surrendered, or
established to the reasonable satisfaction of Parent or any agent designated by
it that such tax has been paid or is not payable and (b) Parent will have
received an opinion, in form and substance reasonably satisfactory to Parent and
its counsel, of counsel which (to Parent's reasonable satisfaction) is
knowledgeable in securities laws matters, to the effect that such issuance of a
certificate for shares of Parent Common Stock or Parent Series B Stock in any
name other than that of the registered holder of the certificate surrendered may
be effected without registration under the Securities Act of 1933, as amended
(the "Securities Act"), and qualification under any applicable state securities
laws.
1.11 Tax and Accounting Consequences. It is intended by the parties
hereto that the Merger shall (a) constitute a reorganization within the meaning
of Section 368 of the Code and (b) be accounted for as a pooling under generally
accepted accounting principles ("GAAP").
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ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF ECI AND PRINCIPALS
ECI and the Principals jointly and severally represent and warrant to
Parent and Merger Sub as follows:
2.1 Organization and Corporate Power. ECI is a corporation duly
organized, validly existing and in good standing under the laws of The
Commonwealth of Massachusetts and is duly qualified and in good standing as a
foreign corporation in each other jurisdiction in which it owns or leases
properties, conducts operations or maintains a stock of goods, where failure to
so qualify would have a material adverse effect on the ECI or its business or
property, with full power and authority to carry on the business in which it is
engaged (a true and correct list of each such jurisdiction is set forth in
Schedule 2.1) and to execute and deliver and carry out the transactions
contemplated by this Agreement.
2.2 Due Authorization; Effect of Transaction. Except as set forth in
Schedule 2.2, the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby are not events which of themselves or
with the giving of notice or the passage of time or both, could constitute, on
the part of ECI, a violation of or conflict with or result in any breach of, or
default under the terms, conditions or provisions of, any judgment, law or
regulation, or of the articles of organization, as amended, or bylaws of ECI,
any agreement, instrument or understanding to which ECI is a party or by which
it is bound, or result in the creation or imposition of any lien, security
interest, charge or encumbrance of any nature whatsoever ("Encumbrance") on the
property or assets of ECI and no such event of itself or with the giving of
notice or the passage of time or both will result in the acceleration of the due
date of any obligation of ECI. All requisite corporate and other authorizations
for such execution, delivery, performance and satisfaction have been duly
obtained. This Agreement will, upon execution and delivery, be a legal, valid
and binding obligation of ECI, enforceable in accordance with its terms. ECI is
not in default in the performance, observance or fulfillment of any of the terms
or conditions of its articles of organization, as amended, or bylaws.
2.3 Financial Statements. Attached as Schedule 2.3 are the following
financial statements of ECI (collectively, the "Financial Statements"): (a) the
unaudited balance sheet (the "April Balance Sheet") of ECI as of April 30, 1999
(the "Balance Sheet Date"), (b) the related unaudited statements of income,
stockholders' equity and cash flows for the four months then ended, (c) the
unaudited balance sheet of ECI as of December 31, 1998, and (d) the related
unaudited statements of income, stockholders' equity and cash flows for the year
then ended. All of the Financial Statements are true, correct and complete, have
been prepared in accordance with GAAP consistently applied (except that none of
such statements include any notes or any supplemental schedules as may be
required by GAAP) and fairly present, in all material respects, the financial
condition of ECI and the results of its operations as at the dates
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thereof and throughout the periods covered thereby. The Financial Statements
reflect or provide for all claims against, and all debts and liabilities of,
ECI, fixed or contingent, as at the dates thereof (other than miscellaneous
liabilities that do not exceed $5,000 in the aggregate), and there has not been
any change between the Balance Sheet Date and the date of this Agreement which
has affected materially or adversely the business or properties or condition or
prospects, financial or other, or results of operations of ECI, and no fact or
condition exists or is contemplated or threatened, which might cause any such
change at any time in the future, except that since the Balance Sheet Date ECI
has continued to incur negative results of operations and to be significantly
constrained by insufficient cash resources.
2.4 Liabilities. ECI has no liabilities of any nature, whether
absolute, contingent or otherwise, except as set forth in the April Balance
Sheet, other than (i) liabilities incurred after the Balance Sheet Date in the
ordinary course of business and (ii) miscellaneous liabilities that do exceed
$7,000 in the aggregate. ECI is generally in breach or default or in arrears in
respect of the terms or conditions of all such liabilities and no waiver or
forbearance has been granted by any holder of any such liability with respect to
any such liability.
2.5 Capitalization. The capitalization of ECI is as set forth in
Schedule 2.5. All of the outstanding capital stock of ECI is duly authorized and
validly issued, fully paid and nonassessable. All the outstanding capital stock
of ECI is owned of record and in the amounts and by the persons set forth on
Schedule 2.5. Except as set forth on Schedule 2.5, there are no options,
warrants, or securities exercisable for or convertible into shares of capital
stock of ECI ("Convertible Securities") nor are there any other rights,
agreements, or commitments obligating ECI, now or in the future, to issue or
sell any shares of its capital stock or any Convertible Securities. Sufficient
shares of authorized but unissued ECI Common Stock have been reserved by
appropriate corporate action in connection with the prospective exercise or
conversion of the Convertible Securities. Except as set forth in Schedule 2.5,
no person holds any phantom stock or other contractual rights the value of which
is determined, in whole or in part, by reference to the value of the capital
stock of ECI or the financial performance of ECI. There are no stock
appreciation rights granted by ECI. Except as set forth in Schedule 2.5, there
are no shares of preferred stock or bonds, debentures, notes or other
indebtedness of ECI which have the right to vote (or are exercisable for or
convertible into securities having the right to vote) on any matters on which
the stockholders of ECI have the right to vote. Except as set forth in Schedule
2.5, there are no outstanding contractual obligations of ECI to purchase, redeem
or otherwise acquire any shares of its capital stock or any other securities.
2.6 Dividends and Distributions. From the end of its most recent fiscal
year to the date hereof ECI has not declared or paid any dividend or declared or
made any distribution whatsoever to its stockholders, either in cash, stock or
other property, through purchases or redemptions of stock or otherwise.
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2.7 Subsidiaries. ECI does not own, directly or indirectly, any of the
capital stock of any corporation, association, trust or similar entity, any
interest in the equity of any partnership or similar entity, any share in any
joint venture, or any other equity or proprietary interest in any entity or
enterprise, however organized and however such interest may be denominated or
evidenced.
2.8 Leases. The leases listed and described in Schedule 2.8 constitute
all the leases of real or personal property under which ECI is bound or to which
ECI is a party. Each lease listed in Schedule 2.8 is valid, binding, subsisting
and enforceable in accordance with its terms, and, except as set forth in
Schedule 2.8, neither ECI nor, to the knowledge of ECI, any landlord or lessor
is in default or in arrears in the performance or satisfaction of any agreement
or condition on its part to be performed or satisfied thereunder, and no waiver
or indulgence has been granted by any of the landlords or lessors under said
leases. ECI is not the landlord or lessor under any leases of real or personal
property.
2.9 Encumbrances. Except as set forth in Schedule 2.9, ECI has good and
marketable title to all of its property and assets, real, personal or mixed,
tangible or intangible, that it purports to own, free and clear of any
mortgages, pledges, charges, liens, security interests, claims or other
encumbrances (collectively, "Encumbrances").
2.10 Employment Arrangements. Schedule 2.10 sets forth a true, correct
and complete list of all employment agreement, collective bargaining or other
labor agreement, any agreement containing severance or termination pay
arrangements, deferred compensation agreement, retainer or consulting
arrangements, pension or retirement plan, bonus or profit-sharing plan, stock
option or purchase plan or other employee contract or non-terminable (whether
with or without penalty) arrangement, group life, health, medical or
hospitalization insurance, plan or program or other employee or fringe benefit
plan, including vacation plans or programs and sick leave plans or programs
(collectively, the "Employment Arrangements") and a list of all employees of ECI
together with their salaries. Schedule 2.10 sets forth the basis of funding, and
the current status of, any past service liability with respect to any such plan
or agreement. Except as set forth on Schedule 2.10 ECI or its employees are not
now and for the past five years have not been subject to or involved in or, to
the knowledge of ECI, threatened with any union elections, petitions therefor or
other organizational activities. ECI has performed and paid all obligations
required to be performed or paid under all such agreements, plans and
arrangements and is not in breach of or in default or arrears under the terms
thereof.
2.11 Material Contracts and Arrangements. Except as set forth in
Schedule 2.11, ECI is not a party to any written or oral (a) contract or
arrangement with any college, university or other institution, (b) contract or
arrangement with any educational testing service (c) contract for the purchase
or sale of services which could cause ECI to incur or receive fees in excess of
$3,000 in any month or $25,000 in the aggregate during the term of such contract
or arrangement, (d) contract for the future purchase of fixed assets or for the
future purchase of
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materials, supplies or equipment in excess of normal operating requirements; (e)
agreement or indenture relating to the borrowing of money or to the mortgaging,
pledging or otherwise placing a lien on any assets of the Corporation; (f)
guaranty of any obligation for borrowed money or otherwise; (g) license or lease
agreement with respect to any Intellectual Property Rights (as defined in
Section 2.17); (h) agreement or other commitment for capital expenditures in
excess of $5,000; or (i) any other contract, agreement, arrangement or
understanding which is material to the business of the Corporation or which is
material to a prudent investor's understanding of the business of the
Corporation. Except as set forth in Schedule 2.11, the Corporation is not
engaged in any negotiations which could lead to any such contract, agreement,
arrangement, understanding or commitment. Each of contracts or arrangements
listed in Schedule 2.11 is valid, binding, subsisting and enforceable in
accordance with its terms and ECI has performed all obligations required to be
performed under any such contract or arrangement and is not in breach or default
or in arrears in any material respect or in any other respect which would permit
the other party to cancel such contract or arrangement under the terms thereof.
To the knowledge of each Principal, each of the contracts set forth in Schedule
2.11 calling for the performance of services can be satisfied or performed by
ECI without any loss to ECI.
2.12 Ordinary Course of Business. ECI, from the Balance Sheet Date to
the date hereof,
(a) has operated its business in the normal, usual and
customary manner in the ordinary and regular course of business;
(b) has not sold or otherwise disposed of any of its
properties or assets, other than inventory sold in the ordinary course of
business;
(c) except in each case in the ordinary course of business,
(i) has not amended or terminated any outstanding
lease, contract or agreement,
(ii) has not incurred any obligations or liabilities
(fixed, contingent or other), and
(iii) has not entered any commitments;
(d) has not discharged or satisfied any Encumbrance or paid
any obligation or liability (absolute or contingent) other than current
liabilities or obligations under contracts then existing or thereafter entered
into in the ordinary course of business, and commitments under leases existing
on that date or incurred since that date in the ordinary course of business;
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(e) has not mortgaged, pledged or subjected to any
Encumbrance, any of its assets, tangible or intangible;
(f) has not sold or transferred any tangible asset or canceled
any debts or claims except in each case in the ordinary course of business;
(g) has not sold, assigned or transferred any Intellectual
Property Rights (as defined in Section 2.17) or other intangible assets;
(h) has not increased the compensation payable or to become
payable to any of its officers, employees, or agents;
(i) has not suffered any material damage, destruction or loss
(whether or not covered by insurance) or any acquisition or taking of property
by any domestic, foreign, Federal or local public body or authority, including
any court department, commission, board bureau, agency or instrumentality
("Governmental Entity");
(j) has not waived any rights which individually or in the
aggregate exceed $5,000;
(k) has not experienced any organized work stoppage or
industrial action; or
(l) has not entered into any other transaction or transactions
which individually or in the aggregate are material to ECI, other than in the
ordinary course of business.
2.13 Litigation and Compliance with Laws.
(a) Schedule 2.13 contains a brief description of all
litigation or legal or other actions, suits, proceedings or investigations, at
law or in equity or admiralty, or before any Governmental Entity, in which ECI
or any of its officers or director, in such capacity, is engaged, or, to the
knowledge of ECI, with which ECI or any of its officers or director is
threatened in connection with the business or affairs or properties or assets of
ECI.
(b) Schedule 2.13 contains a true, correct and complete list
of all permits, licenses, approvals, authorizations, and other permissions from
Governmental Entities necessary or desirable for the operation of ECI's business
(collectively, the "Operating Permits"). ECI is and at all times since its
inception has been in compliance with all laws and governmental rules and
regulations, domestic and foreign, and all requirements of the Operating Permits
and insurance carriers, applicable to its business or affairs or properties or
assets, including those relating to environmental protection, water or air
pollution and similar matters.
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2.14 Tax Returns. ECI has filed, in accordance with applicable law, all
federal, state, county and local income and franchise tax returns and all real
and personal property tax returns which are required to be filed, and all such
returns were true, correct and complete in all material respects. All taxes owed
by ECI (whether or not shown on any tax return) have been paid. The provision
for taxes shown on the April Balance Sheet is sufficient to satisfy all taxes of
any kind of ECI, including interest and penalties in respect thereof, whether
disputed or not, and whether accrued, due, absolute, deferred, contingent or
other for all periods ended on or prior to the Balance Sheet Date. As of the
date hereof no tax liabilities have been assessed or proposed which remain
unpaid, and ECI has not signed any extension agreement with the Internal Revenue
Service or any other Governmental Entity. ECI has paid all taxes which have
become due pursuant to such returns and has paid all installments of estimated
taxes due. All taxes and other assessments and levies which ECI is required by
law to withhold or to collect have been duly withheld and collected, and have
been paid over to the proper Governmental Entities to the extent due and
payable. From the end of its most recent fiscal year to the date hereof ECI has
not made any payment of or on account of any federal, state or local income,
franchise or any real or personal property taxes, except as set forth in
Schedule 2.14. Neither ECI nor any Principal is aware of any basis upon which
any assessment for a material amount of additional federal income taxes could be
made. The information shown on the federal income tax returns of ECI heretofore
delivered to Parent is true, accurate and complete and fairly presents the
information purported to be shown.
2.15 [INTENTIONALLY OMITTED]
2.16 Environmental Matters. ECI has not caused or allowed, or
contracted with any party for, the generation, use, transportation, treatment,
storage or disposal of any Hazardous Substances (as defined below) in connection
with the operation of its business or otherwise. ECI, the operation of its
business, and any real property that ECI owns, leases or otherwise occupies or
uses (the "Premises") are in compliance with all applicable Environmental Laws
(as defined below) and orders or directives of any Governmental Entities having
jurisdiction under such Environmental Laws, including any Environmental Laws or
orders or directives with respect to any cleanup or remediation of any release
or threat of release of Hazardous Substances. ECI has not received any citation,
directive, letter or other communication, written or oral, or any notice of any
proceeding, claim or lawsuit, from any person arising out of the ownership or
occupation of the Premises, or the conduct of its operations, and ECI is not
aware of any basis therefor. ECI has obtained and is maintaining in full force
and effect all necessary permits, licenses and approvals required by all
Environmental Laws applicable to the Premises and the business operations
conducted thereon (including operations conducted by tenants on the Premises),
and is in compliance with all such permits, licenses and approvals. ECI has not
caused or allowed a release, or a threat of release, of any Hazardous Substance
onto, at or near the Premises, and, to the knowledge of ECI, neither the
Premises nor any property at or near the Premises has ever been subject to a
release, or a threat of release, of any Hazardous Substance. For the purposes of
this Agreement, the term "Environmental Laws" shall mean any Federal,
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state or local law or ordinance or regulation pertaining to the protection of
human health or the environment, including the Comprehensive Environmental
Response, Compensation, and Liability Act, 42 U.S.C. Sections 9601, et seq., the
Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections 11001, et
seq., and the Resource Conservation and Recovery Act, 42 U.S.C. Sections 6901 et
seq. For the purposes of this Agreement, the term "Hazardous Substances" shall
include oil and petroleum products, asbestos, polychlorinated biphenyls, urea
formaldehyde and other materials classified as hazardous or toxic under any
Environmental Laws.
2.17 Intellectual Property. Except in each case as set forth in
Schedule 2.17.
(a) ECI owns or has the right to use all Intellectual Property
Rights (as defined below) necessary or required for the conduct of its business
as presently conducted or as proposed to be conducted, which Intellectual
Property Rights are identified in said Schedule 2.17;
(b) no royalties or other amounts are payable by ECI to other
persons by reason of the ownership or use of said Intellectual Property Rights;
(c) no product or service marketed or sold or proposed to be
marketed or sold by ECI violates or will violate any license or infringes any
Intellectual Property Rights of another, nor has ECI received any notice that
any of such Intellectual Property Rights or the operation or proposed operation
of ECI's business conflicts or will conflict with the rights of others; and
(d) there are no claims pending or, to the knowledge of ECI,
threatened with respect to any Intellectual Property Rights necessary or
required for the conduct of ECI's business as presently conducted or as proposed
to be conducted, nor does there exist any basis therefor.
As used herein, the term "Intellectual Property Rights" means all patents,
trademarks, service marks, trade names, copyrights, inventions, trade secrets,
know-how, proprietary processes and formulae, domain names, and applications for
patents, trademarks, service marks and copyrights, and other industrial and
intellectual property rights.
2.18 Insurance Policies. The insurance policies listed and described
briefly in Schedule 2.18 constitute all of the policies in force and effect in
respect of the business, properties and assets, including insurance on
personnel, of ECI. ECI is not in default under any such policy. The insurance
policies so listed and identified are sufficient in nature, scope and amounts to
insure adequately (and, in any event, in amounts sufficient to prevent ECI from
becoming a co-insurer within the terms of such policies) the business,
properties and assets of ECI. ECI has not been refused insurance by any
insurance carrier to which it has applied for insurance.
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2.19 Extraordinary Events. From the end of its most recent fiscal year
to the date hereof, neither the business or properties or condition, financial
or other, or results of operations of ECI have been materially and adversely
affected in any way as the result of any fire, explosion, accident, casualty,
labor disturbance, requisition or taking of property by any Governmental Entity,
flood, embargo, or Act of God or the public enemy, or cessation, interruption or
diminution of operations, whether or not covered by insurance.
2.20 Material Information. Neither the Financial Statements nor this
Agreement (including the Schedules and Exhibits hereto) nor any certificate or
other information or document furnished or to be furnished by ECI or any
Principal to Parent or Merger Sub contains or will contain any untrue statement
of a material fact or omits or will omit to state a material fact required to be
stated herein or therein or necessary to make the statements herein or therein
not misleading.
2.21 Certain Transactions. None of the officers, directors or employees
of ECI is presently a party to any transaction with ECI (other than for services
as officers, directors and employees), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from, any officer, director, any such employee, any member of a
family of any officer, director or such employee or any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
2.22 No Governmental Authorizations or Approvals Required. No
authorization or approval of, or filing with, any Governmental Entity will be
required in connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby.
2.23 Employee Benefit Plans. Except as set forth in Schedule 2.10, ECI
does not have or otherwise contribute to or participate in any employee benefit
plan subject to the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.24 No Broker's or Finder's Fees. Except as set forth in Schedule
2.24, none of ECI or any of its officers, directors, employees or stockholders
has paid or become obligated to pay any fee or commission to any broker, finder,
financial advisor or intermediary in connection with the transactions
contemplated by this Agreement.
2.25 ECI Stockholders. Except as set forth in Schedule 2.25, each
stockholder of ECI is an "accredited investor" within the meaning of Rule 501
promulgated under the Securities Act.
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2.26 Proxies. On or before the date of this Agreement, ECI has
delivered to Parent original, Irrevocable Proxies of ECI stockholders who hold,
in the aggregate, more than 67% of all the outstanding shares of ECI Common
Stock having a right to vote at the stockholder meeting called, or to be called,
for purposes of voting on the Merger Proposal (as hereafter defined), which
proxies appoint the Principals as the attorneys-in-fact for the ECI Stockholders
granting such proxies (with full power of substitution) and which proxies direct
the Principals to vote all shares subject to such proxies in favor of the Merger
Proposal. Such Irrevocable Proxies are hereinafter referred to as the "ECI
Proxies".
2.27 Continuing Representations. The representations and warranties of
ECI herein contained (a) relating to non-tax matters shall survive the Closing
for a period of 3 years and (b) relating to tax and ERISA matters shall survive
the Closing for the applicable statute of limitations.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF PRINCIPALS
Each of the Principals, severally and not jointly, represents and
warrants to Parent and Merger Sub as follows:
3.1 Authority of the Principals. Such Principal has the power to enter
into this Agreement and the other agreements contemplated hereby to be signed by
such Principal and to consummate the transactions contemplated hereby and
thereby. Such Principal has good and marketable title to the shares of ECI
Common Stock purportedly owned by such Principal as shown in Schedule 2.5, free
and clear of all Encumbrances. This Agreement and the other agreements
contemplated hereby to be signed by such Principal have been duly executed and
delivered by such Principal, and constitute the valid and binding obligations of
such Principal, enforceable against such Principal in accordance with their
respective terms.
3.2 No Conflict. Neither the execution and delivery of this Agreement
by such Principal and the other agreements contemplated hereby to be signed by
such Principal, nor the performance by such Principal of such Principal's
obligations hereunder or thereunder, nor the consummation by such Principal of
the transactions contemplated hereby or thereby will with or without the giving
of notice or the lapse of time, or both, conflict with, or result in any
violation or breach of, or constitute a default under, or result in any right to
accelerate or result in the creation of any Encumbrance pursuant to, or right of
termination under, any provision of any note, mortgage, indenture, lease,
instrument or other agreement, permit, concession, grant, franchise, license,
judgment, order, decree, statute, ordinance, rule or regulation to which such
Principal is a party or by which such Principal or any of such Principal's
assets or properties is bound or which is applicable to such Principal or any of
such Principal's assets or properties.
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3.3 No Broker's or Finder's Fees. Such Principal has not paid or become
obligated to pay any fee or commission to any broker, finder, financial advisor
or intermediary in connection with the transactions contemplated by this
Agreement.
3.4 Restricted Securities. Such Principal understands that the shares
of Parent Common Stock and Parent Series B Stock to be received by such
Principal upon conversion of such Principal's shares of ECI Common Stock in the
Merger have not been registered under the Securities Act or qualified under the
securities or "blue sky" laws of any jurisdiction, and other than pursuant to
its obligations under the Registration Agreement (as defined in Section 5.5),
Parent is not, nor will it be, under any obligation to register such shares of
Parent Common Stock under the Securities Act or the "blue sky" laws of any
jurisdiction. Such Principal further understands that such shares of Parent
Common Stock and Parent Series B Stock will constitute "restricted securities"
within the meaning of Rule 144 promulgated under the Securities Act and that, as
such, such shares of Parent Common Stock and Parent Series B Stock must be held
indefinitely unless they are subsequently registered under the Securities Act or
unless an exemption from the registration requirements thereof is available.
3.5 Acquired for Investment. Such Principal is acquiring the shares of
Parent Common Stock and Parent Series B Stock to be received by such Principal
in the Merger for such Principal's own account for investment and not for, with
a view to or in connection with any resale or distribution thereof.
3.6 Sophistication. Such Principal by reason of such Principal's
business and financial experience, and the business and financial experience of
those persons retained by such Principal to advise such Principal with respect
to such Principal's investment in the shares of Parent Common Stock and Parent
Series B Stock to be received by such Principal in the Merger, has such
knowledge, sophistication and experience in business and financial matters as to
be capable of evaluating the merits and risks of the prospective investment, and
is able to bear the economic risk of such investment and is able to afford a
complete loss of such investment. Such Principal acknowledges that such
Principal has been granted the opportunity to ask questions of, and receive
answers from, representatives of Parent concerning Parent and the Parent Common
Stock and Parent Series B Stock that such Principal is receiving in the Merger
and to obtain any additional information that such Principal deems necessary to
verify the accuracy of the answers such Principal received from such
representatives. Such Principal represents and warrants that he is an
"accredited investor" within the meaning of Rule 501 promulgated under the
Securities Act.
3.7 Continuing Representations. The representations and warranties of
the Principals herein contained shall survive the Closing for a period of 3
years.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to
ECI and the Principals as follows:
4.1 Organization and Corporate Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and is duly qualified and in good standing in each other jurisdiction
in which it owns or leases properties, conducts operations or maintains a stock
of goods, where failure to so qualify would have a material adverse effect on
Parent or its business or property, with full corporate power and authority to
carry on the business in which it is engaged and to execute and deliver and
carry out the transactions contemplated by this Agreement. Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and is duly qualified and in good standing in each
other jurisdiction in which it owns or leases properties, conducts operations or
maintains a stock of goods, where failure to so qualify would have a material
adverse effect on Merger Sub or its business or property, with full corporate
power and authority to carry on the business in which it is engaged and to
execute and deliver and carry out the transactions contemplated by this
Agreement.
4.2 Due Authorization; Effect of Transaction. No provision of Parent's
or Merger Sub's Certificate of Incorporation or By-laws, or of any agreement,
instrument or understanding, or any judgment, decree, rule or regulation, to
which Parent or Merger Sub is a party or by which it is bound, have been or will
be violated by the execution by Parent or Merger Sub of this Agreement or the
performance or satisfaction of any agreement or condition herein contained upon
the part of Parent or Merger Sub to be performed or satisfied, and all requisite
corporate and other authorizations for such execution, delivery, performance and
satisfaction have been duly obtained. This Agreement will upon execution and
delivery be a legal, valid and binding obligation of each of Parent and Merger
Sub, enforceable in accordance with its terms.
4.3 Capitalization. The authorized capital stock of Merger Sub consist
of 1,000 shares of Common Stock, $.01 par value per share, all of which are
issued, outstanding and owned beneficially and of record by Parent. The
authorized capital stock of Parent consists of 100,000,000 shares of Parent
Common Stock and 10,000,000 shares of preferred stock, $.01 par value per share
("Parent Preferred Stock"). Schedule 4.3 sets forth the capitalization of Parent
as of April 30, 1999. All issued and outstanding shares of Parent Common Stock
and Parent Preferred Stock have been duly authorized and validly issued, are
fully paid and nonassessable, are not subject to any right of rescission, and
have been offered, issued, sold and delivered by Parent in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws.
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4.4 SEC Documents; Financial Statements. Parent has made available to
ECI and the Principals a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed by Parent with the
Securities Exchange Commission (the "Commission") since June 30, 1997 (as such
documents have since the time of their filing been amended, the "Parent SEC
Documents"), which are all the documents (other than preliminary material) that
Parent was required to file with the Commission since such date. As of their
respective dates, the Parent SEC Documents and any forms, reports and other
documents filed by Parent after the date of this Agreement complied or will
comply in all material respects with the requirements of the Securities Act or
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as the
case may be, and the rules and regulations of the Commission thereunder
applicable to such Parent SEC Documents or such other forms, reports or other
documents, and none of the Parent SEC Documents contained, or will contain at
the time they are filed, any untrue statement of a material fact or omitted, or
will omit at the time they are filed, to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The financial
statements of Parent included in the Parent SEC Documents comply as to form in
all material respects with applicable accounting requirements and with the
published rules and regulations of the Commission with respect thereto, have
been prepared in accordance with GAAP applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto or, in the
case of the unaudited statements, as permitted by Form 10-QSB of the Commission)
and fairly present (subject, in the case of the unaudited statements, to normal,
recurring audit adjustments, which were not individually or in the aggregate
material) in all material respects the financial position of Parent as at the
dates thereof and the results of its operations and cash flows for the periods
then ended.
4.5 Continuing Representations. The representations and warranties of
Parent and Merger Sub herein contained shall survive the Closing for a period of
3 years.
ARTICLE 5
ADDITIONAL AGREEMENTS
5.1 Conduct of ECI Business Pending Closing. Without the prior written
consent of Parent, ECI, from the date hereof to the Closing Date,
(a) will not operate its business in any manner other than in
the normal, usual and customary manner in the ordinary and regular course of
business;
(b) will not sell or otherwise dispose of any of its
properties or assets, other than inventory of finished goods sold in the
ordinary course of business;
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(c) except in each case in the ordinary course of business,
(i) will not amend or terminate any outstanding
lease, contract or agreement,
(ii) will not incur any obligations or liabilities
(fixed, contingent or other), and
(iii) will not enter into any commitments;
(d) will not make any unusual transactions in its inventory or
any additions to its property or any purchases of machinery or equipment, except
for normal maintenance and replacements;
(e) will not discharge or satisfy any Encumbrance or pay any
obligation or liability (absolute or contingent) other than current liabilities
or obligations under contracts now existing or hereafter entered into in the
ordinary course of business, and commitments under leases now existing;
(f) will not mortgage, pledge or subject to lien or any other
Encumbrances, any of its assets, tangible or intangible unless such Encumbrance
is discharged before the Closing;
(g) will not sell or transfer any tangible asset or cancel any
debts or claims except in each case in the ordinary course of business;
(h) will not sell, assign or transfer any of its Intellectual
Property Rights or other intangible assets;
(i) will not increase the rate of compensation payable or to
become payable to any of its officers, employees, or agents;
(j) will not suffer any material damage, destruction or loss
(whether or not covered by insurance) or any acquisition or taking of property
by any Governmental Entity;
(k) will not waive any rights of substantial value; or
(l) will not enter into any other transaction or transactions
which individually or in the aggregate are material to ECI.
5.2 Expenses. ECI shall be responsible for all costs and expenses
(including fees and disbursements of consultants, investment bankers, and other
financial advisors, brokers
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and finders, counsel and accountants) incurred by it in connection with the
matters contemplated hereby, provided, however, that the Principals shall be
responsible for all such costs and expenses (other than the fees and
disbursements of accountants) in excess of $20,000. The Principals shall
indemnify and hold harmless Parent and the Surviving Corporation from and
against any and all such costs and expenses (other than the fees and
disbursements of accountants) in excess of $20,000. Parent and Merger Sub shall
be responsible for all costs and expenses (including fees and disbursements of
consultants, investment bankers, and other financial advisors, brokers and
finders, counsel and accountants) incurred by them in connection with the
matters contemplated hereby.
5.3 Restrictions on Resale.
(a) Transfers Without Registration. Each Principal shall not
sell or otherwise dispose of any shares of Parent Common Stock or Parent Series
B Stock without registration under the Securities Act and qualification under
the "blue sky" laws of the appropriate jurisdiction, unless an exemption from
registration and qualification thereunder is available. In connection with the
proposed transfer of any shares of Parent Common Stock that have not been
registered under the Securities Act, the Principal attempting to transfer such
shares shall deliver written notice to Parent describing in reasonable detail
the proposed transfer, together with an opinion, in form and substance
reasonably satisfactory to Parent and its counsel, of counsel which (to Parent's
reasonable satisfaction) is knowledgeable in securities laws matters, to the
effect that such transfer of shares of Parent Common Stock or Parent Series B
Stock may be effected without registration under the Securities Act and
qualification under any applicable state securities laws.
(b) Legend. Each certificate for the shares of Parent Common
Stock or Parent Series B Stock to be delivered to stockholders of ECI pursuant
to the Merger will be imprinted with a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR
QUALIFIED UNDER THE SECURITIES OR "BLUE SKY" LAWS OF ANY
JURISDICTION. THESE SECURITIES MAY NOT BE SOLD, TRANSFERRED,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF SUCH REGISTRATION OR
QUALIFICATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND
SUCH BLUE SKY LAWS AND AN OPINION OF COUNSEL REASONABLY
ACCEPTABLE TO THE COMPANY TO SUCH EFFECT.
5.4 Convertible Securities. After entering into this Agreement, ECI, if
it has not already done so, shall notify each holder of Convertible Securities
(collectively, the "Optionholders") of the proposed Merger and shall use its
best efforts to cause each
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Optionholder to exercise or convert all of the Convertible Securities held by
such Optionholder immediately prior to the Closing. ECI shall cause any
Convertible Securities that are not exercised or converted immediately prior to
the Closing to be terminated and cancelled to the fullest extent that it may
legally do so. The Principal Stockholders shall indemnify Parent and the Merger
Sub for any claims of the Optionholders relating to any Convertible Securities.
5.5 Registration Agreement. At the Closing, Parent, the Principals and
the Principals' Agent shall enter into a Registration Agreement (the
"Registration Agreement") substantially in the form of Exhibit 5.5.
5.6 Escrow Agreement. At the Closing, Parent, the Escrow Group
Stockholders and the Principals' Agent shall enter into the Escrow Agreement
with the Escrow Agent.
5.7 Paxton Employment Agreement. At the Closing, Parent, Merger Sub and
Paxton shall enter into an Employment Agreement substantially in the form of
Exhibit 5.7 (the "Paxton Employment Agreement").
5.8 Paxton Option Agreement. At the Closing, Parent and Paxton shall
enter into a Nonqualified Stock Option Agreement substantially in the form of
Exhibit 5.8 (the "Paxton Option Agreement").
5.9 Burgess Consulting Agreement. At the Closing, Parent, Merger Sub
and Burgess shall enter into an Consulting Agreement substantially in the form
of Exhibit 5.9 (the "Burgess Consulting Agreement").
5.10 Parent Charter Amendment. At the Closing, Parent shall execute and
file a certificate of amendment to its certificate of incorporation designating
the powers, preferences, limitations and relative rights of the Parent Series B
Stock. Such certificate of amendment shall be substantially in the form of
Exhibit 5.10.
5.11 Public Announcements. Parent shall have sole control of the
content and timing of any press release or other public disclosure of
information concerning the Merger or the other transactions contemplated hereby.
5.12 Stockholders Meeting. Promptly after execution of this Agreement,
ECI shall send notice to its stockholders of a stockholders meeting for the
purposes of approving this Agreement and the consummation of the Merger and the
other transactions contemplated hereby (the "Merger Proposal"). Such meeting
shall be scheduled and held as soon as permitted by the MBCL and ECI's articles
of organization, as amended, and bylaws after the giving of such notice. After
obtaining stockholder approval of the Merger Proposal in accordance with the
MBCL, at the Closing, ECI shall take whatever action is necessary under
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the MBCL and ECI's articles of organization, as amended, and bylaws to file the
Articles of Merger with the Secretary of State of The Commonwealth of
Massachusetts.
5.13 Approval of Principals; Proxy. Each Principal hereby irrevocably
appoints Richard A. Fisher and Kevin J. High, and each of them, as the sole and
exclusive attorneys and proxies of the undersigned, with full power of
substitution and resubstitution, to the full extent of such Principal's rights
with respect to (i) the shares of capital stock of ECI beneficially owned by
such Principal and any and all other shares or securities of ECI issued or
issuable to such Principal on or after the date hereof (collectively, with
respect to each such Principal, his "Shares"), and (ii) the shares of capital
stock of ECI controlled by such Principal pursuant to the ECI Proxies, until the
earlier to occur of (A) the termination of this Agreement in accordance with its
terms or (B) the Effective Time. Upon the execution of this Agreement, all prior
proxies given by each Principal with respect to his Shares on or after the date
hereof are hereby revoked and no subsequent proxies will be given. This proxy is
irrevocable and is granted in consideration of Parent entering into this
Agreement. The attorneys and proxies named above will be empowered at any time
prior to termination of this Agreement to exercise all voting and other rights
(including the power to execute and deliver written consents with respect to
each Principal's Shares) of each Principal at every annual, special or adjourned
meeting of ECI stockholders, and in every written consent in lieu of such a
meeting, or otherwise, (i) in favor of the Merger Proposal and any matter that
could reasonably be expected to facilitate the Merger, and (ii) against approval
of any proposal (A) made in opposition to or competition with consummation of
the Merger, (B) for any merger, consolidation, sale of assets, reorganization or
recapitalization, with any party other than with Parent and its affiliates, and
(C) for the liquidation or winding up of ECI. Without limiting the generality of
this Section 5.13, this proxy shall be binding upon the successors and assigns
of the Principals.
5.14 Exclusivity. Except as provided in Sections 5.4 and 5.12, from and
after the date of this Agreement until the earlier of the Effective Time and
termination of this Agreement in accordance with Article 8, ECI shall not,
directly or indirectly, through its affiliates, agents, stockholders, officers,
directors or otherwise, (a) solicit, initiate, participate in discussions or
negotiations or otherwise cooperate in any way with, or provide any information
to any person, entity or group other than Parent concerning, any tender offer,
exchange offer, merger, business combination, sale of all or substantially all
of ECI's assets, sale of shares of capital stock or similar transaction
involving ECI or (b) effect, or enter into any agreement to effect, any such
transaction. ECI shall promptly communicate to Parent the terms of any proposal
or offer or request for information which it may receive in respect of any such
proposed transaction.
5.15 Reasonable Efforts. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take, or cause to be taken, all action and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws
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and regulations to consummate and make effective the Merger and the other
transactions contemplated by this Agreement.
5.16 Tax Related Agreements.
Neither Merger Sub nor Parent will cause or permit any
amendment of any tax return of ECI for any period ending on or prior to the date
of the Closing to be filed without the prior written consent of both Principals
which consent will not be unreasonably withheld, delayed or conditioned.
Neither Merger Sub nor Parent has taken or failed to take, or
will take or fail to take any action which has or would have caused or will
cause the Merger to fail to qualify as a tax-free reorganization under the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the federal Internal
Revenue Code. Parent and Merger Sub will treat the Merger as a reorganization
pursuant to Sections 368(a)(1)(A) and 368(a)(2)(D) of the federal Internal
Revenue Code. Neither ECI nor the Principals has taken or failed to take, or
will take or fail to take any action which has or would have caused or will
cause the Merger to fail to qualify as a tax-free reorganization under the
provisions of Sections 368(a)(1)(A) and 368(a)(2)(D) of the federal Internal
Revenue Code.
ECI, Merger Sub and Parent shall cooperate to the extent
reasonably requested by the other part, in connection with the preparation any
filing of any tax return, statement, form or report (including any report
required by federal Treasury Regulations), and any audit, litigation or other
proceeding with respect to taxes. Such cooperation shall include (i) the
provision of information reasonably requested by ECI or any of its stockholders
regarding any tax period ending upon or prior to the Effective Time, (ii) the
provision of book and tax workpapers related to any returns filed or to be filed
for any tax period ending upon or prior to the Effective Time and (iii) the
retention and the provision of records and information (including employees to
explain any material so provided) relevant to any such matter. Merger Sub and
Parent agree to retain for the time periods required by law books and records
with respect to tax matters pertinent to ECI relating to any tax period ending
upon or prior to the Effective Time and to abide by all record retention
requirements of any taxing authority.
ARTICLE 6
CONDITIONS PRECEDENT
6.1 Conditions to Obligations of Parent and Merger Sub. All obligations
of Parent and Merger Sub under this Agreement are subject to satisfaction (or
waiver by Parent and Merger Sub) of the following conditions precedent at or
before the Closing.
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(a) No Opposition. No suit, action or proceeding shall be
pending or threatened at any time prior to or on the date of the Closing before
or by any Governmental Entity seeking to restrain or prohibit, or damages or
other relief in connection with, the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby or which might
materially and adversely affect the business or properties or condition,
financial or other, or results of operations of Parent or Merger Sub.
(b) Corporate Proceedings. All corporate and other proceedings
to be taken by ECI and all waivers and consents to be obtained in connection
with the transactions contemplated by this Agreement shall have been taken or
obtained and all documents incident to such transactions shall be reasonably
satisfactory in form and substance to Parent and its counsel, who shall have
received all such originals or certified or other copies of such documents as
they may reasonably request. Without limiting the generality of the foregoing,
the Merger Proposal shall have been approved by the requisite vote of the
stockholders of ECI in accordance with the MBCL and the Articles of Merger shall
have been filed with the Secretary of State of The Commonwealth of Massachusetts
and no stockholders of ECI shall have exercised dissenters rights.
(c) Representations and Warranties Correct. The
representations and warranties made by ECI in Article 2 and the Principals in
Article 3 shall be true and correct in all material respects when made, and,
except as provided in Section 6.1(e) shall be true and correct in all material
respects immediately prior to the Closing with the same force and effect as if
they had been made at and immediately prior to the Closing.
(d) Compliance with Covenants. ECI and the Principals shall
have duly complied with and performed all covenants and agreements of ECI and
the Principals herein which are required to be complied with and performed at or
before the Closing.
(e) Certificates of Compliance. ECI and each Principal shall
have provided to Parent and Merger Sub a certificate, dated the date of the
Closing, in form and substance reasonably satisfactory to Parent, confirming
compliance with the conditions set forth in Sections 6.1(c) and 6.1(d). ECI
shall attach to its certificate of compliance a revised draft of Schedule 2.5,
dated the date of the Closing, which confirms that all of the Convertible
Securities of ECI have been terminated and cancelled in accordance with Section
5.4.
(f) Closing Balance Sheet. At the Closing, ECI shall deliver
to Parent and Merger Sub an unaudited balance sheet of ECI as of a moment
immediately prior to the Closing Date (the "Closing Balance Sheet") and a
certificate signed by the Principals representing and warranting that the
Closing Balance Sheet has been prepared in accordance with GAAP consistently
applied and fairly presents, in all material respects, the financial condition
of ECI as of a moment immediately prior to the Closing Date; provided, that the
Closing Balance Sheet shall not take into account any obligations owed by ECI to
USA Group
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and need not include any notes or supplemental schedules as may be required by
GAAP. For the purposes of this Agreement, the total liabilities of ECI as of a
moment immediately prior to the Closing Date, as reflected in the Closing
Balance Sheet, are hereinafter referred to as the "Closing Date Liabilities".
(g) Opinion of Counsel. At the Closing, Parent and Merger Sub
shall have received from Gordon A. Carpenter, counsel for ECI, an opinion
addressed to Parent and Merger Sub, dated the date of the Closing, to the effect
set forth in Exhibit 6.1(g). In addition, ECI shall have received an opinion of
counsel (in formal substance reasonably satisfactory to Parent) that the Merger
constitutes a reorganization described in Section 368(a)(1) A and 2(D) of tax
code.
(h) Related Agreements and Documents. At or before the
Closing, the parties thereto shall have executed and delivered the following
agreements to Parent and Merger Sub:
(i) The Escrow Agreement;
(ii) The Paxton Employment Agreement;
(iii) The Paxton Option Agreement; and
(iv) The Burgess Consulting Agreement.
(i) USA Group Settlement. USA Group Enterprises, Inc. and its
affiliates shall have executed and delivered to Parent and ECI a general release
in form and substance satisfactory to Parent in its sole discretion.
(j) Third Party Consents. ECI shall have obtained the consents
of any third parties that are required in order to consummate this Agreement and
the transactions contemplated herein, and each such consent shall be in full
force and effect.
(k) Operating Permits. The Merger Sub shall have obtained all
Operating Permits which Parent shall, in the exercise of its sole discretion,
deem necessary or desirable for the operation by the Surviving Corporation of
the business of ECI after the Closing.
(l) Diligence. Parent and Merger Sub shall have completed its
diligence review of the business, properties, assets and liabilities of ECI,
with results reasonably satisfactory to Parent and Merger Sub.
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(m) All Convertible Securities shall have been converted or
exercised prior to the Effective Time and ECI shall have no securities other
than common stock outstanding. No stockholders of ECI shall have exercised
appraisal rights.
(n) Parent shall be satisfied in the exercise of its sole
discretion that ECI has, and can transfer to Merger Sub, all rights to
intellectual property (including software) necessary or desirable for the
operation of ECI's business free and clear of any and all encumbrances of any
nature (including any claim of Wolf Rock Corporation).
6.2 Conditions to Obligations of ECI and Principals. All
obligations of ECI and the Principals under this Agreement are subject to
satisfaction (or waiver by ECI and the Principals) of the following conditions
precedent at or before the Closing:
(a) No Opposition. No suit, action or proceeding shall be
pending or threatened at any time prior to or on the date of the Closing before
or by any Governmental Entity seeking to restrain or prohibit, or damages or
other relief in connection with, the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby or which might
materially and adversely affect the business or properties or condition,
financial or other, or results of operations of ECI.
(b) Corporate Proceedings. All corporate and other proceedings
to be taken by Parent, Merger Sub and the stockholders of ECI and all waivers
and consents to be obtained in connection with the transactions contemplated by
this Agreement, shall have been taken or obtained and all documents incident to
such transactions shall be reasonably satisfactory in form and substance to ECI
and its counsel, who shall have received all such originals or certified or
other copies of such documents as they may reasonably request. Without limiting
the generality of the foregoing, the Merger shall have been approved by the sole
stockholder of Merger Sub in accordance with the DGCL and the Certificate of
Merger shall have been filed with the Secretary of State of the State of
Delaware.
(c) Representations and Warranties Correct. The
representations and warranties made by Parent and Merger Sub in Article 4 shall
be true and correct in all material respects when made, and shall be true and
correct in all material respects at the time of the Closing with the same force
and effect as if they had been made at and as of the time of the Closing.
(d) Compliance with Covenants. Parent and Merger Sub shall
have duly complied with and performed all covenants and agreements of Parent and
Merger Sub herein which are required to be complied with and performed at or
before the Closing.
(e) Related Agreements and Documents. At or before the
Closing, the parties thereto shall have executed and delivered the following
agreements to ECI:
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(i) The Paxton Employment Agreement;
(ii) The Paxton Option Agreement;
(iii) The Burgess Consulting Agreement; and
(iv) The Registration Agreement.
ARTICLE 7
INDEMNIFICATION.
7.1 Indemnification by Principals
(a) The Principals shall (without any right of contribution
from ECI or the Surviving Corporation or any right of indemnification against
ECI or the Surviving Corporation) jointly and severally indemnify, defend and
hold harmless Parent and Merger Sub and each of their respective directors,
officers and agents (collectively, the "Parent Group") from and against the
amount of any damage, loss, cost or expense, including reasonable attorneys'
fees and settlement costs ("Loss"), suffered, incurred or paid by any member of
the Parent Group occasioned or caused by, resulting from or arising out of the
following (collectively, "Parent Claims"):
(i) Any failure by ECI or the Principals to perform,
abide by or fulfill any of the agreements, covenants or obligations of
ECI or the Principals set forth in or entered into, in connection with
this Agreement;
(ii) Any breach of any of the representations or
warranties set forth in this Agreement, or any certificate or Schedule
or other writing furnished pursuant hereto;
(iii) Any fraud or wilful or deliberate wrongdoing of ECI
or any Principal;
(iv) Any claim, known or unknown, arising out of or by
virtue of or based upon any liability or obligation of ECI which is not
disclosed in any Schedule to this Agreement and is required so to be;
(v) Any claim, known or unknown, arising out of or by
virtue of or based upon any failure by ECI to perform any obligation or
satisfy any liability under
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any contract or agreement of ECI, to the extent any such obligation or
liability was required to be performed or satisfied at or prior to the
Closing;
(vi) Any liability or obligation for any tort or any
breach or violation of any contractual, quasi-contractual, legal,
fiduciary or equitable duty by any Principal, whether before, at or
after the Closing; or
(vii) In addition to and without derogating from any of
the foregoing, any liability or obligation of ECI, whether or not
disclosed to or known by Parent or Merger Sub, in excess of $800,000
plus an amount equal to one half of the amounts carried on ECI's books
for (a) noncurrent portions of leases and (b) capitalized leases
(totaling approximately $86,000 on the date hereof).
(b) The amount of any Loss shall be the amount of cash
reimbursement that, when received by the member or members of the Parent Group
incurring such Loss, shall place such member or members of the Parent Group in
the same financial position it or they would have been in if such Loss had not
occurred.
7.2 Limitation on Liability. Notwithstanding any other provision
herein, the obligations and liabilities of the Principals hereunder with respect
to indemnification for Parent Claims shall not exceed $1,400,000 or such lesser
amount as shall be held pursuant to the Escrow Agreement; provided, that the
Principals agree to indemnify the Parent Group in full for all Losses occasioned
by or caused by, resulting from or arising out of any breach of the
representations set forth in Sections 2.14 and 3.1, and/or fraud or wilful or
deliberate wrongdoing of any Principal. The sole recourse for indemnification
under this Agreement (except for breaches of Sections 2.14 and 3.1) shall be to
the escrowed securities and proceeds thereof. All claims for indemnification
must be brought within 15 months after the Closing Date; except for claims
described in the proviso to the first sentence of this Section 7.2, as to which
there is no limit.
7.3 Process of Indemnification for Parent Claims.
(a) Recovery by Parent. In seeking to collect the amount of
any Parent Claim that a member of the Parent Group has established and is
entitled to indemnification hereunder, Parent shall first give the Principals'
Agent written notice of such Parent Claim (the "Claim Notice"). The Claim Notice
shall contain a reasonably detailed summary of the basis for and the amount of
the Parent Claim. If the Principals' Agent does not dispute the basis or amount
of any Parent Claim within 30 days of receiving the Claim Notice thereof, Parent
shall have the right promptly to recover indemnity as and to the extent provided
in the Escrow Agreement and herein. If the Principals' Agent disagrees with the
basis of the Parent Claim or the amount of damages caused thereby, then within
30 days of receiving the Claim Notice thereof, the Principals' Agent shall give
notice to Parent of such disagreement and, in that
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case, Parent shall have no right to recover indemnity hereunder until such time,
if at all, as (a) an arbitrator resolves the disagreement pursuant to Section
9.10, (b) a court of competent jurisdiction issues a final, non-appealable order
specifying the amount of Parent's recovery, in which case Parent shall have the
right promptly to recover the amount so specified (subject to the limitations
contained in Section 7.2) or (c) Parent and the Principals' Agent agree in
writing to the amount of Parent's recovery, in which case Parent shall have the
right promptly to recover the amount so agreed.
(b) Third-Party Parent Claims. Parent agrees to notify the
Principals' Agent of any Parent Claims asserted by third parties that, in the
opinion of Parent, are reasonably likely to give rise to indemnification
hereunder ("Third-Party Parent Claims"). Parent agrees that it will not settle
any Third-Party Parent Claims without the consent of the Principals' Agent,
which consent shall not be unreasonably withheld or delayed. Parent further
agrees that if the Principals Agent wishes to enter into a settlement with
respect to a Third-Party Parent Claim on terms reasonably acceptable to Parent,
Parent will cooperate in such settlement, provided that such settlement
includes, as an unconditional term thereof, the giving by the third party to
Parent of a release from all liability in respect of such Third-Party Parent
Claim.
ARTICLE 8
TERMINATION.
8.1 Termination Events. This Agreement may be terminated on or before
the Closing, without liability on the part of the terminating party, in the
manner described in this Article.
(a) Mutual Consent. By mutual consent of the ECI and Parent;
(b) Drop Dead Date. By Parent or ECI, if, other than as a
result of a breach or violation of or default under this Agreement by such
party, the Closing shall not have occurred on or before September 1, 1999;
(c) By ECI. By ECI upon notice to Parent and the Merger Sub if
(i) a condition to the performance of the obligations of ECI and the Principals
set forth in Section 6.2 shall not be fulfilled at the time specified for the
fulfillment thereof; (ii) a material default under, or a material breach of,
this Agreement shall be made by Parent or Merger Sub; or (iii) any
representation or warranty of Parent or Merger Sub set forth in this Agreement
or in any instrument delivered by Parent or Merger Sub pursuant hereto shall be
materially false or misleading;
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(d) By Parent. By Parent upon notice to ECI and the Principals
if (i) a condition to the performance of Parent and Merger Sub set forth in
Section 6.1 shall not be fulfilled at the time specified for the fulfillment
thereof; (ii) a material default under, or a material breach of, this Agreement
shall be made by ECI; or (iii) any representation or warranty of ECI or the
Principals set forth in this Agreement or in any instrument delivered by ECI or
the Principals pursuant hereto shall be materially false or misleading; or
(e) By any Party. By any party, if, other than as a result of
a breach or violation of or default under this Agreement by the terminating
party which resulted therein, a Governmental Entity of competent jurisdiction
shall have issued an order, decision, judgment or other ruling (a "Ruling")
(which Ruling the parties hereto shall use all commercially reasonable business
efforts to lift or reverse), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement, and such
Ruling shall have become final and not subject to appeal.
Written notice setting forth the reasons for any termination (other
than pursuant to Section 8.1(a)) shall be given by the terminating party to each
other party, and the parties receiving the same shall have thirty (30) days
within which to cure the default specified in such notice.
8.2 Certain Effects of Termination. In the event of termination of
this Agreement as provided in Section 8.1, this Agreement shall forthwith become
void and there shall be no liability or obligation on the part of Parent, Merger
Sub, ECI or their respective officers, directors, stockholders or affiliates,
except to the extent that a party hereto is in breach of any of its
representations, warranties, covenants or agreements set forth in this
Agreement, and provided that the provisions of Sections 5.2, 5.11 and Articles 8
and 9 shall remain in full force and effect and survive any termination of this
Agreement.
ARTICLE 9
MISCELLANEOUS.
9.1 Entire Agreement; Amendments; Waivers. This Agreement
constitutes the entire agreement of the parties related to the subject matter of
this Agreement, supersedes all prior or contemporary agreements,
representations, warranties, covenants and understandings of the parties,
including the letter of intent dated April 30, 1999 between Parent and ECI, as
supplemented by the letter of intent dated May 19, 1999 and the letter of intent
dated June 2, 1999. This Agreement may not be amended, nor shall any waiver,
change, modification, consent or discharge be effective, except by an instrument
in writing executed by or on behalf of the party against whom enforcement of any
amendment, waiver, change modification, consent or discharge is sought. In
furtherance of the foregoing, the parties hereto acknowledge that (i) there have
been no representations, warranties, covenants, understandings or
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<PAGE> 37
agreements related to the subject matter of this Agreement other than as set
forth herein and therefore no reliance can be placed on matters other than as
set forth herein, and (ii) no agent of any party has or had authority to make
representation, warranties, covenants or agreements on behalf of such party and
if and to the extent so made, such representations, warranties, covenants or
agreements were not authorized and have not been the subject upon which reliance
has been placed.
Any waiver of any term or condition of this Agreement, or of the breach
of any covenant, representation or warranty contained herein, in any one
instance, shall not operate as or be deemed to be or construed as a further or
continuing waiver of such term, condition or breach of covenant, representation
or warranty, nor shall any failure at any time or times to enforce or require
performance of any provision hereof operate as a waiver of or affect in any
manner such party's right at a later time to enforce or require performance of
such provision or of any other provision hereof; and no such written waiver,
unless it, by its own terms, explicitly provides to the contrary, shall be
construed to effect a continuing waiver of the provision being waived and no
such waiver in any instance shall constitute a waiver in any other instance or
for any other purpose or impair the right of the party against whom such waiver
is claimed in all other instances or for all other purposes to require full
compliance with such provision.
9.2 Assignment; Successors and Assigns. This Agreement shall not be
assignable by any party without the written consent of the others. This
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
9.3 Severability. If any provision or provisions of this Agreement
shall be, or the found to be, invalid, inoperative or unenforceable as applied
to any particular case in any jurisdiction or jurisdictions, or in all
jurisdictions or in all cases, because of the conflict of any provision with any
constitution or statute or rule of public policy or for any other reason, such
circumstance shall not have the effect of rendering the provision or provisions
in question invalid, inoperative or unenforceable in any other jurisdiction or
in any other case or circumstance or of rendering any other provision or
provisions herein contained invalid, inoperative or unenforceable to the extent
that such other provisions are not themselves actually in conflict with such
constitution, statute or rule of public policy, but this Agreement shall be
reformed and construed in any such jurisdiction or case as if such invalid,
inoperative or unenforceable provision had never been contained herein and such
provision reformed so that it would be valid, operative and enforceable to the
maximum extent permitted in such jurisdiction or in such case.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and
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the same instrument, and in pleading or proving any provision of this Agreement
it shall not be necessary to produce more than one such counterpart.
9.5 Certain Matters of Construction. A reference to a Section, Exhibit
or Schedule shall mean a Section in, or Exhibit or Schedule to, this Agreement
unless otherwise expressly stated. The titles and headings herein are for
reference purposes only and shall not in any manner limit the construction of
this Agreement which shall be considered as a whole. The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." Whenever the context may require,
any pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of names and pronouns shall include the
plural and vice-versa.
9.6 Knowledge. As used herein, the phrase "to the knowledge of ECI"
refers to the actual knowledge of those officers of ECI actively involved in the
management of ECI and the knowledge that a prudent business person acting as an
officer of ECI should have obtained in the management of ECI after making due
inquiry and exercising due diligence with respect thereto.
9.7 Notices. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given if
delivered or mailed, postage prepaid, certified mail, return receipt requested:
(a) If to ECI, to:
ECI, Inc.
55 Green Street
Clinton, MA 01510
Attention: President
Fax: (978) 365-4900
with a copy to:
Gordon A. Carpenter, Esquire
91 Friendship Street
Providence, RI 02903-3837
Fax: (401) 453-4118
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<PAGE> 39
(b) If to Parent or Merger Sub, to:
Cytation.com Incorporated
809 Aquidneck Avenue
Middletown, RI 02842
Attention: General Counsel
Fax: (401) 845-8816
with a copy to:
David A. Broadwin, Esquire
Foley, Hoag & Eliot LLP
One Post Office Square
Boston, MA 02109
Fax: (617) 832-7000
(c) If to the Principals' Agent, to:
Gerald A. Paxton
CollegeLink.com Incorporated
c/o Cytation.com Incorporated
809 Aquidneck Avenue
Middletown, RI 02842
Fax: (401) 845-8816
and/or to such other person(s) and address(es) as any party shall have
specified in writing to the others.
9.8 Governing Law. This Agreement shall be governed by, and construed
and enforced in accordance with, the laws of the State of Delaware, without
regard to its principles of conflicts of laws.
9.9 Courts. Any action to enforce, arising out of, or relating in any
way to, any of the provisions of this Agreement may be brought and prosecuted in
such court or courts located in The Commonwealth of Massachusetts as is provided
by law; and the parties consent to the jurisdiction of said court or courts
located in the State of Delaware and to service of process by registered mail,
return receipt requested, or in any other manner provided by law.
9.10 Arbitration. In the event the parties hereto are unable to resolve
any dispute with respect to claims arising hereunder within 30 days of written
notice of such dispute by one party to the others, such dispute shall be settled
by compulsory and binding arbitration by a panel of one arbitrator in accordance
with the Commercial Arbitration Rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrator(s) may be
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entered in any court having jurisdiction. The parties agree that such
arbitration shall be held in Boston, Massachusetts.
[Remainder of page intentionally left blank.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and
Plan of Merger as of the date first written above.
CYTATION.COM INCORPORATED
By: /s/ Richard A. Fisher
-----------------------------------
Name: Richard A. Fisher
Title: Chairman and General Counsel
COLLEGELINK.COM INCORPORATED
By: /s/ Richard A. Fisher
-----------------------------------
Name: Richard A. Fisher
Title: Chairman and Secretary
ECI, INC.
By: /s/ Gerald A. Paxton
-----------------------------------
Name: Gerald A. Paxton
Title: CEO and Treasurer
ECI, INC.
By: /s/ Thomas J. Burgess
-----------------------------------
Name: Thomas J. Burgess
Title: President
/s/ Gerald A. Paxton
---------------------------------------
Gerald A. Paxton
/s/ Thomas J. Burgess
---------------------------------------
Thomas J. Burgess
/s/ Gerald A. Paxton
---------------------------------------
Gerald A. Paxton, as Principals' Agent
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<PAGE> 1
Exhibit 2.4
SCHEDULES AND EXHIBITS OMITTED FROM
THE AGREEMENT AND PLAN OF MERGER
AS FILED HEREWITH
1 Escrow Agreement
2 Registration Agreement
3 Paxton Employment Agreement
4 Paxton Option Agreement
5 Opinion of Counsel to ECI, Inc.
6 List of Directors and Officers of Surviving Corporation
7 Disclosure Schedules of ECI, Inc.
8 Capitalization of Cytation.com Incorporated
<PAGE> 1
EXHIBIT 3.4
CERTIFICATE OF AMENDMENT
OF
CYTATION.COM INCORPORATED
Pursuant to Sections 502 and 805 of the New York Business Corporation Law,
the undersigned officer of Cytation.com Incorporated, a New York corporation
(the "Corporation"), does hereby submit for filing with the Department of State
of the State of New York this Certificate of Amendment:
FIRST: The name of the Corporation is Cytation.com Incorporated. The
Corporation was named Stylex Homes, Inc. at the time that it was formed.
SECOND: The Certificate of Incorporation of the Corporation was filed with
the Department of State of the State of New York on April 2, 1969.
THIRD: The Corporation hereby creates, from the 10,000,000 shares of
Preferred Stock, $0.01 par value per share ("Preferred Stock"), of the
Corporation authorized to be issued pursuant to Section 4 of the Certificate of
Incorporation of the Corporation, as amended (the "Certificate of
Incorporation"), a series of Preferred Stock and hereby fixes the designations,
powers, preferences, limitations and relative rights of the shares of such
series as follows:
1. Designation. Of the 10,000,000 shares of authorized Preferred Stock,
300,000 shall be designated and known as "Series B Preferred Stock".
2. Conversion. The holders of Series B Preferred Stock shall have
conversion rights as follows:
(a) Definitions. For the purposes of this Section 2, the
following definitions shall apply:
"Automatic Conversion Date" means the first anniversary of the Original
Issue Date.
"Automatic Conversion Date Price" means the average of the closing bid
price per share of the Common Stock (as quoted on the Nasdaq OTC Bulletin Board,
or the Nasdaq stock exchange, as the case may be) for the 20 consecutive trading
days immediately preceding the Automatic Conversion Date.
"Closing Date Price" means $7.625.
<PAGE> 2
"Common Stock" means the common stock, $.001 par value per share, of
the Corporation.
"Optional Conversion Date Price" means, with respect to a given date,
the average of the closing bid price per share of the Common Stock (as quoted on
the Nasdaq OTC Bulletin Board, or the Nasdaq stock exchange, as the case may be)
for the 10 consecutive trading days immediately preceding such date.
"Original Issue Date" means the first date on which a share of Series B
Preferred Stock was issued.
"Series B Conversion Price" is the price at which shares of Common
Stock shall be deliverable upon conversion of Series B Preferred Stock without
the payment of any additional consideration by the holder thereof.
"Transfer Agent" means American Securities Transfer, Inc., whose
address is 1825 Lawrence Street, Suite 444, P.O. Box 1596 Denver, Colorado
80201-1596, and any successor transfer agent appointed by the Corporation.
(b) Right to Convert; Conversion Price. Subject to the terms
and conditions of this Section 2, each share of Series B Preferred Stock shall
be convertible, without the payment of any additional consideration by the
holder thereof at the office of the Transfer Agent, into such number of fully
paid and nonassessable shares of Common Stock as is determined by dividing
$15.00 (which amount shall be subject to equitable adjustment whenever there
shall occur a stock dividend, stock split, combination of shares,
reclassification or other similar event with respect to the Series B Preferred
Stock) by the Series B Conversion Price, determined as hereinafter provided, in
effect at the time of conversion.
(c) Automatic Conversion.
(i) Timing and Price. Each share of Series B
Preferred Stock shall automatically be converted into shares of Common Stock on
the Automatic Conversion Date. For the purposes of this Section 2(c), the Series
B Conversion Price on the Automatic Conversion Date shall be equal to the
greater of (i) the Closing Date Price (which amount shall be subject to
equitable adjustment whenever there shall occur a stock dividend, stock split,
combination of shares, reclassification or other similar event with respect to
the Common Stock) and (ii) the Automatic Conversion Date Price.
(ii) Mechanics. On the Automatic Conversion Date,
the Series B Preferred Stock shall be converted automatically without any
further action by the holders of such shares and whether or not the certificates
representing such shares are surrendered to the Transfer Agent; provided, that
the Corporation shall not be obligated to issue certificates evidencing the
shares of Common Stock issuable upon such conversion unless certificates
evidencing such shares of the Series B Preferred Stock being converted are
either delivered to the
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<PAGE> 3
Transfer Agent, or the holder notifies the Transfer Agent that such certificates
have been lost, stolen, or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection therewith and, if the Corporation so elects, provides an appropriate
indemnity bond. On the Automatic Conversion Date, all rights with respect to the
Series B Preferred Stock so converted shall terminate except for the right of
the holder thereof, upon surrender of the holder's certificate or certificates
therefor, to receive certificates for the number of shares of Common Stock into
which such Series B Preferred Stock has been converted. Upon the automatic
conversion of the Series B Preferred Stock, the holders of such Series B
Preferred Stock shall surrender the certificates representing such shares at the
office of the Transfer Agent. If so required by the Transfer Agent, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Transfer
Agent, duly executed by the registered holder or by the holder's attorney duly
authorized in writing. Upon surrender of such certificates there shall be issued
and delivered to such holder, promptly at such office and in the holder's name
as shown on such surrendered certificate or certificates, a certificate or
certificates for the number of shares of Common Stock into which the shares of
the Series B Preferred Stock surrendered were convertible on the Automatic
Conversion Date. No fractional share of Common Stock shall be issued upon
automatic conversion of the Series B Preferred Stock. In lieu of any fractional
share to which the holder would otherwise be entitled, the Corporation shall pay
cash equal to such fraction multiplied by the Automatic Conversion Date Price.
(d) Optional Conversions.
(i) Timing and Price. Each share of Series B
Preferred Stock may be converted into shares of Common Stock, at the option of
the holder thereof, at any time (i) after the Original Issue Date, (ii) prior to
the Automatic Conversion Date and (iii) that the Optional Conversion Date Price
is greater than $15.00 (which amount shall be subject to equitable adjustment
whenever there shall occur a stock dividend, stock split, combination of shares,
reclassification or other similar event with respect to the Common Stock). For
the purposes of this Section 2(d), the Series B Conversion Price applicable to
an optional conversion pursuant to this Section 2(d) shall be the Optional
Conversion Date Price on the date of the Conversion Notice (as defined below).
(ii) Mechanics. In order to convert his shares of
Series B Preferred Stock into shares of Common Stock pursuant to this Section
2(d), a holder of Series B Preferred Stock shall surrender the certificate or
certificates therefor at the office of the Transfer Agent, and shall give
written notice (the "Conversion Notice") to the Transfer Agent at such office
that the holder elects to convert the same and shall state therein the holder's
name or the name or names of the holder's nominees in which the holder wishes
the certificate or certificates for shares of Common Stock to be issued. On the
date of conversion, all rights with respect to the Series B Preferred Stock so
converted shall terminate, except any of the rights of the holders thereof, upon
surrender of their certificate or certificates therefor, to receive certificates
for the number of shares of Common Stock into which such Series B Preferred
Stock has been converted. If so required by the Transfer Agent, certificates
surrendered for conversion shall be endorsed or accompanied by written
instrument or instruments of transfer, in form satisfactory to the Transfer
Agent, duly
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<PAGE> 4
executed by the registered holder or by the holder's attorney duly authorized in
writing. No fractional share of Common Stock shall be issued upon optional
conversion of the Series B Preferred Stock. In lieu of any fractional share to
which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the Optional Conversion Date Price on the
date of the Conversion Notice. The Corporation shall cause the Transfer Agent,
as soon as practicable after surrender of the certificate or certificates for
conversion, issue and deliver at such office to such holder of Series B
Preferred Stock, or to the holder's nominee or nominees, a certificate or
certificates for the number of shares of Common Stock to which the holder shall
be entitled as aforesaid, together with cash in lieu of any fraction of a share.
Such conversion shall be deemed to have been made immediately prior to the close
of business on the date of the Conversion Notice, and the person or persons
entitled to receive the shares of Common Stock issuable upon conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.
(e) Notices. All notices required or permitted to be sent
pursuant to this Section 2 shall be deemed sufficient if contained in a written
instrument and delivered in person or duly sent by first-class mail postage
prepaid or by fax or DHL, Federal Express or other recognized express courier
service, addressed to the intended recipient at the recipient's address as it
appears on the books of the Corporation.
3. Dividends. The holders of shares of Series B Preferred Stock shall
not be entitled to receive any dividends.
4. Liquidation Rights. The holders of shares of Series B Preferred
Stock shall not be entitled to any preferential payment or distribution in the
event of any liquidation, dissolution or winding up of the Corporation, but
shall share ratably on an as-converted basis assuming automatic conversion in
any distribution of the assets of the Corporation to all the holders of Common
Stock.
5. Voting Rights. Except as otherwise required by law or as set forth
in the Certificate of Incorporation of the Corporation, the holders of Series B
Preferred Stock shall not be entitled to vote on any matter or to notice of any
meeting of the stockholders.
6. No Reissuance of Preferred Stock. No share or shares of Series B
Preferred Stock acquired by the Corporation by reason of conversion or otherwise
shall be reissued, and all such shares shall be cancelled, retired and
eliminated from the shares which the Corporation shall be authorized to issue.
7. Residual Rights. All rights accruing to the outstanding shares of
the Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
THIRD: This Certificate of Amendment was duly adopted by the Board of
Directors of the Corporation by means of a written consent of all of the
directors dated as of June 18, 1999.
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<PAGE> 5
FOURTH: This Certificate of Amendment was filed with the Department of
State of the State of New York on August 10, 1999.
EXECUTED this 10th day of August, 1999.
/s/ Kevin J. High
__________________________
Kevin J. High, President
5
