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 (Date of earliest event reported): March 6, 1998
ENHANCED SERVICES COMPANY, INC.
(Exact Name of Registrant as Specified in Charter)
Colorado 0-24256 76-0462973
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
16000 Barkers Point Lane, Houston, Texas 77079
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code 281-556-5051
Item 1. CHANGES IN CONTROL OF REGISTRANT.
Not applicable.
Item 2. ACQUISITION OR DISPOSITION OF ASSETS.
Not applicable.
Item 3. BANKRUPTCY OR RECEIVERSHIP.
Not applicable.
Item 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANT.
Not applicable.
Item 5. OTHER EVENTS.
Pursuant to action by the Board of Directors of Enhanced Services
Company, Inc. ("Registrant"), [NASDAQ SmallCap Market: ESVS] the
Registrant entered into a Securities Acquisition Agreement
("Agreement"), dated as of March 3, 1998 (attached as Exhibit 1
hereto), pursuant to which it implemented a series of transactions
on March 6, 1998 ("Transactions").
Under the Agreement, the Registrant exchanged 220,000 of its Common
Shares, $.001 par value ("Enhanced Common Stock") and 1,000,000 of
its newly authorized 1998 Series Preferred Stock, $3.00 par value
per share ("1998 Preferred Stock" and collectively, with the
Enhanced Common Stock, the "Enhanced Stock") for 12,000,000 common
shares $.001 par value ("ZULU-tek Common Stock"), of ZULU-tek, Inc.,
a Utah corporation ("ZULU-tek") and 1,000,000 shares of Series D
Preferred Stock $.001 par value ("ZULU-tek Preferred" and
collectively, with the ZULU-tek Common Stock, the "ZULU-tek Stock")
held by Netvest Capital Partners LP, a Delaware limited partnership
("Netvest").
All of the securities issued and exchanged in the Transactions
are restricted securities. Prior to the Transactions, there were
1,131,474 shares of Enhanced Common Stock outstanding and 283,973
shares reserved for issuance for a total of 1,415,447 shares on a
fully diluted basis (with a result that the 220,000 shares of Common
Stock issued in the Transactions constituted an issuance of
approximately 19.4% of Enhanced Common Stock or 15.5% on a fully
diluted basis). The Enhanced 1998 Preferred Stock is convertible on
the basis of 2.772 shares of Enhanced Common Stock for each share of
1998 Preferred Stock, solely at the option of the Registrant and
only after receipt of shareholder approval at a meeting duly called
for such purposes. It is expected that the Registrant's meeting of
its shareholders will be convened promptly after appropriate proxy
materials are prepared for circulation.
The Transactions, described in exhibit 1, provide the Registrant
with access to ZULU-tek's interactive sales and marketing expertise
which, when combined with the advanced multi-media capabilities of
Enhanced Services' NB Digital Solutions products and services, will
allow the Registrant to offer its customers a complete Internet
technology and sophisticated program development solutions.
The Registrant intends to develop a business plan that builds on
strategic similarities of the Registrant and ZULU-tek and allows for
the refocusing of the business efforts of both entities, as
appropriate. In that connection, the Registrant intends to pursue a
financing of up to $50 million through a private placement of
convertible preferred equity securities of the Registrant, although
no assurance can be given that the Registrant will be successful in
arranging for this private placement.
In addition, in the Transactions, FCA Investment Company, an
unaffiliated entity which serves as a loan custodian for a group of
certain individuals and entities which made a $500,000 accounts
receivable loan to the Registrant, has recommended to its loan
participants that they convert the loan into equity of the
Registrant on terms comparable to the investors in the private
placement. One of the directors of the Registrant is an officer of,
and a director of the advisor to, FCA Investment Company.
The ZULU-tek Common Stock currently trades on the NASDAQ Bulletin
Board under the symbol "NETZ". As of March 2, 1998, there were
47,579,910 shares of ZULU-tek Common Stock outstanding and
10,753,037 shares of ZULU-tek Common Stock reserved for issuance.
The ZULU-tek Preferred exchanged in the Transactions is non-voting
except in certain corporate reorganizations, mergers and similar
matters and in such instances, each share entitles the holder to
fifty votes per share.
Netvest is a Delaware limited partnership of which Netvest Capital
Funding, Inc., a Delaware corporation, is the general partner. The
limited partnership interests are held by a number of independent
investors and investor entities with no prior relationship to the
Registrant. Netvest and certain of its limited partners may hold
shares of ZULU-tek Common Stock and therefore, while each of the
parties disclaim beneficial ownership of each other's interest,
Netvest may be deemed to be an affiliate of ZULU-tek.
Robert Smith will continue as Chief Financial Officer and will be
Assistant Secretary of the Registrant; Kenneth M. Duckman will
continue as a consultant to Registrant, responsible for the
oversight and development of the Laptop solutions divisions and
general product lines of the Registrant and its operating
subsidiaries; and Ralph LaBarge will continue as an employee
responsible for oversight of the digital video compression, DVD
format authoring and custom engineering development services. On
March 9, 1998, Messrs. Duckman and LaBarge and Bertram Pariser, John
Meaney and Michael Bernard resigned as directors of Registrant and
Bill S. Murski continued as a director. Messers. Paul Messina and
Robert H. Tourtelot were appointed to serve as directors until the
next annual meeting of the Registrant's shareholders.
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On February 26, 1998, the Registrant received a letter from NASDAQ
indicating that it was not in compliance with the new requirements
for maintaining a listing on the NASDAQ SmallCap Market. As a result
of the Transactions, and as reflected in the PRO FORMA balance sheet
included herein, Management of the Registrant believes it now meets
or exceeds all of the net tangible asset requirements for continued
listing on the NASDAQ Small Cap Market. On March 10, the Registrant
received a letter from NASDAQ stating that subject to receipt of
this Report on Form 8-K, the Registrant was in compliance with the
requirements for continued listing on the NASDAQ SmallCap Market.
Item 6. RESIGNATIONS OF REGISTRANT'S DIRECTORS.
As noted in Item 5 above, in connection with the Transactions,
certain of the directors of the Registrant resigned. Such
resignations did not arise because of any disagreement with the
Registrant.
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Item 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND
EXHIBITS.
Statement 1: PRO FORMA balance sheet of the Registrant at November 30, 1997
giving effect to the Transaction described in item 5.
PRO FORMA
ENHANCED SERVICES COMPANY, INC. AND CONSOLIDATED SUBSIDIARIES
BALANCE SHEET
(unaudited)
NOVEMBER 30,
1997 ADJUSTMENTS PRO FORMA
----------- ----------- -----------
Current Assets
Cash in bank ............................. $ 262,510 $ $ 262,510
Inventory ................................ 499,814 499,814
Accounts receivable, net of
allowance for doubtful
accounts of $90,920 .................... 624,671 624,671
Other current assets ..................... 145,173 145,173
----------- ----------- -----------
Total Current Assets ................... 1,532,168 1,532,168
Property and equipment, net of
accumulated depreciation
of $470,748 .................................. 355,868 355,868
Goodwill net of accumulated
amortization of $394,623 ..................... 710,304 710,304
Other assets ................................... 92,079 92,079
Investments
Investment in Zulu-tek, Inc. .............
(Note 2) ............................... 4,045,000 4,045,000
----------- ----------- -----------
Total Assets .................................. $ 2,690,419 $ 4,045,000 $ 6,735,419
=========== =========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses .... $ 669,326 $ $ 669,326
Notes payable (Note 1) ................... 517,261 (500,000) 17,261
Other current liabilities ................ 7,782 7,782
----------- ----------- -----------
Total Current Liabilities .............. 1,194,369 (500,000) 694,369
----------- ----------- -----------
Total Liabilities ........................ 1,194,369 (500,000) 694,369
----------- ----------- -----------
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Stockholders' Equity:
Preferred stock - $.001 par value,
5,000,000 shares authorized, 8,000
issued and outstanding, 8.6%
cumulative preferred (Liquidation
preference of $800,000) .................. 8 8
Preferred stock - $3.00 par value
per share, 1,000,000 Authorized,
issued and outstanding ................... 3,000,000 3,000,000
Common stock - $.001 par value,
15,000,000 shares authorized;
1,125,489 shares issued and
outstanding .............................. 1,126 220 1,346
Additional Equity ........................ 500,000(1) 500,000(1)
Additional paid-in capital ............... 3,229,957 1,044,780 4,274,737
Accumulated (deficit) .................... (1,735,041) (1,735,041)
----------- ----------- -----------
Total Stockholders' Equity ............... 1,496,050 4,545,000 6,041,050
----------- ----------- -----------
Total Liabilities and Stockholders' Equity ..... $ 2,690,419 $ 4,045,000 $ 6,735,419
=========== =========== ===========
The accompanying notes are an integral part of the pro forma Balance Sheet
Notes to Pro forma and un-audited Balance Sheet
November 30, 1997 and adjustments
The preceding pro forma balance sheet of November 30, 1997 has been
adjusted to reflect certain transactions of March 6, 1998 as if they had taken
place on November 30, 1997. These transactions are more fully described in Item
5. Other Events.
1. The Company anticipates that the $500,000 accounts receivable loan will be
converted to equity on the same basis as the private placement and is more
fully described in Item 5. Other Events.
2. 220,000 shares of Enhance Services Company, Inc. restricted common
stock were issued in connection with the transaction described in Item
5 and have been reflected at the closing price of $4.75 on the NASDAQ
Stock Market on March 3, 1998, in a manner consistent with the
presentation of "liquidity and Capital Resources" in the Company's
annual report on form 10-KSB and without any discount for the
restricted status of the common stock. In certain other transactions
the Company has applied, in its audited statements, a 50% discount
which would reduce additional paid in capital $552,500 to $3,782,237
and accordingly, would reduce the total liabilities and stockholder
equity, on a pro forma basis, to $6,242,919. Investment in Zulu-tek,
Inc. Series D Preferred Stock and Common Stock has been valued at the
market value on March 3, 1998 and liquidation value of Enhanced
Services Company's Common and Preferred Stock.
3. The transaction described in Item 5 and in the exhibit did not affect the
income statement of November 30, 1997, and accordingly is not shown.
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EXHIBITS:
Exhibit 1: Securities Acquisition Agreement, executed and dated as of
March 3, 1998.
Item 8. CHANGE IN FISCAL YEAR.
Not applicable.
Item 9. SALES OF EQUITY SECURITIES PURSUANT TO REGULATION S.
Not applicable.
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.
Enhanced Services Company, Inc.
Registrant
Date: March 16, 1998 By:/S/ ROBERT C. SMITH
Robert C. Smith, Treasurer
(Chief Financial Officer and
Authorized Signatory)
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EXHIBIT 1
SECURITIES ACQUISITION AGREEMENT
BY AND AMONG
ENHANCED SERVICES COMPANY, INC., a Colorado Corporation
AND
NETVEST CAPITAL PARTNERS LP, a Delaware Limited Partnership
AND
ZULU-tek, INC., a Utah Corporation
Executed and Dated as of March 3, 1998
SECURITIES ACQUISITION AGREEMENT
TABLE OF CONTENTS
ARTICLE I EXCHANGE OF ENHANCED AND ZULU-TEK STOCK.......................................1
1.01 EXCHANGE......................................................................1
1.02 FULLY PAID AND NONASSESSABLE STATUS...........................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES OF ENHANCED....................................2
2.01 ORGANIZATION..................................................................2
2.02 CORPORATE POWER AND AUTHORITY OF ENHANCED.....................................2
2.03 NO CONFLICT...................................................................2
2.04 ISSUANCE OF SHARES............................................................3
2.05 RESTRICTED SECURITIES.........................................................3
2.06 INVESTMENT REPRESENTATION.....................................................3
2.07 RECEIPT OF INFORMATION........................................................3
2.08 SOPHISTICATED INVESTOR........................................................4
2.09 LEGENDS.......................................................................4
2.10 CAPITAL STRUCTURE.............................................................4
(a) COMMON STOCK...........................................................4
(b) 8.6% PREFERRED.........................................................4
(c) 1998 PREFERRED.........................................................4
2.11 DIRECTORS AND OFFICERS........................................................5
2.12 CERTAIN FINANCIAL INFORMATION.................................................5
2.13 ABSENCE OF CERTAIN CHANGES....................................................5
2.14 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE OF ENHANCED..........................6
2.15 NO LITIGATION.................................................................6
2.16 NASDAQ MATTERS................................................................6
2.17 COMPLIANCE WITH LAW...........................................................6
2.18 CORPORATE RECORDS.............................................................7
2.19 MATERIAL CONTRACTS............................................................7
2.20 NO FURTHER REPRESENTATIONS AND WARRANTIES.....................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF NETVEST.....................................7
3.01 ORGANIZATION OF NETVEST.......................................................7
3.02 POWER AND AUTHORITY...........................................................7
3.03 NO CONFLICT...................................................................7
3.04 RESTRICTED SECURITIES.........................................................8
3.05 INVESTMENT REPRESENTATION.....................................................8
3.06 RECEIPT OF INFORMATION........................................................8
3.07 SOPHISTICATED INVESTOR........................................................8
3.08 LEGENDS.......................................................................8
3.09 NO FURTHER REPRESENTATIONS AND WARRANTIES.....................................9
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF ZULU-TEK....................................9
4.01 ORGANIZATION OF ZULU-TEK......................................................9
4.02 CORPORATE POWER AND AUTHORITY.................................................9
4.03 NO CONFLICT..................................................................10
4.04 CAPITAL STRUCTURE OF ZULU-TEK................................................10
(a) ZULU-TEK COMMON STOCK.................................................10
(b) SERIES A PREFERRED STOCK..............................................10
(c) SERIES B PREFERRED STOCK..............................................10
(d) SERIES C PREFERRED STOCK..............................................10
(e) SERIES D PREFERRED STOCK..............................................10
(f) SERIES E PREFERRED STOCK..............................................11
4.05 DIRECTORS AND OFFICERS.......................................................11
4.06 BUSINESS PLAN................................................................11
4.07 COMPLIANCE WITH LAW..........................................................11
4.08 CORPORATE RECORDS............................................................12
4.09 NO FURTHER REPRESENTATIONS AND WARRANTIES....................................12
ARTICLE V REGISTRATION RIGHTS..........................................................12
5.01 "PIGGYBACK" REGISTRATION RIGHTS..............................................12
5.02 UNDERWRITER LIMITATIONS......................................................12
5.03 ENHANCED'S ELECTION TO FILE..................................................13
5.04 DEMAND REGISTRATION..........................................................13
5.05 REPORTING REQUIREMENTS UNDER THE SECURITIES EXCHANGE ACT OF 1934.............13
5.06 EXPENSES.....................................................................14
5.07 INDEMNIFICATION; CONTRIBUTION................................................14
5.08 AFTER ACQUIRED SHARES........................................................16
5.09 OBLIGATIONS OF ENHANCED......................................................16
(a) FILING................................................................16
(b) AMENDMENTS............................................................16
(c) PROSPECTIVE DELIVERY..................................................16
(d) BLUE SKY..............................................................16
(e) UNDERWRITING MATTERS..................................................16
(f) OPINION...............................................................17
5.10 ASSIGNMENT OF REGISTRATION RIGHTS............................................17
ARTICLE VI CLOSING AND POST-CLOSING MATTERS.............................................17
6.01 POST-CLOSING MATTERS.........................................................17
(a) BUDGET................................................................17
(b) INCENTIVE PLANS.......................................................18
6.02 CLOSING......................................................................18
6.03 CLOSING DOCUMENTS............................................................18
(a) ENHANCED DELIVERIES...................................................18
(b) NETVEST DELIVERIES....................................................19
(c) ZULU-TEK DELIVERIES...................................................19
(d) OTHER DELIVERIES......................................................19
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ARTICLE VII COVENANTS AND CONDITIONS.....................................................20
7.01 FINANCIAL STATEMENTS.........................................................20
7.02 ENHANCED STOCKHOLDER APPROVAL................................................20
7.03 EQUITY FUNDING...............................................................20
7.04 LIMITATION ON EQUITY.........................................................20
7.05 SATISFACTION OF CONDITIONS...................................................21
ARTICLE VIII BROKERAGE AND SIMILAR FEES...................................................21
8.01 NO OTHER FEE AGREEMENTS......................................................21
ARTICLE IX CONFIDENTIALITY..............................................................21
9.01 MAINTENANCE OF CONFIDENTIAL INFORMATION......................................21
9.02 REMEDIES ON BREACH...........................................................22
ARTICLE X MUTUAL INDEMNIFICATION................................................22
10.01 INDEMNIFICATION BY ZULU-TEK AND NETVEST......................................22
10.02 INDEMNIFICATION BY ENHANCED..................................................22
10.03 CLAIMS FOR INDEMNIFICATION...................................................23
10.04 DEFENSE OF CLAIMS............................................................23
10.05 SURVIVAL OF OBLIGATIONS......................................................23
ARTICLE XI MISCELLANEOUS PROVISIONS.....................................................23
11.01 AMENDMENT AND WAIVER.........................................................23
11.02 SEVERABILITY.................................................................24
11.03 EXPENSES.....................................................................24
11.04 PRESS RELEASES...............................................................24
11.05 NOTICES......................................................................24
11.06 ENTIRE AGREEMENT.............................................................25
11.07 ASSIGNMENT...................................................................25
11.08 THIRD PARTIES................................................................25
11.09 SECTION AND OTHER HEADINGS...................................................25
11.10 COUNTERPARTS; FACSIMILE SIGNATURES...........................................25
11.11 GOVERNING LAW; VENUE; JURISDICTION...........................................26
11.12 FURTHER ASSURANCES...........................................................26
11.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES...................................26
11.14 PRONOUNS.....................................................................26
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EXHIBIT LIST
Exhibit 2.01 SUBSIDIARIES OF ENHANCED
Exhibit 2.10 CAPITAL STRUCTURE OF ENHANCED
Exhibit 2.11 CURRENT DIRECTORS AND OFFICERS OF ENHANCED WITH
COMMITTEE DESIGNATIONS
Exhibit 2.12 FINANCIAL INFORMATION OF ENHANCED INCLUDING
ENHANCED OBLIGATIONS
Exhibit 2.13 CHANGES IN CONDITION OF ENHANCED
Exhibit 2.14 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE OF
ENHANCED
Exhibit 2.15 PENDING LITIGATION OR PROCEEDINGS OF ENHANCED
Exhibit 2.19 CERTAIN CONTRACTS AND COMMITMENTS OF ENHANCED
Exhibit 4.01 SUBSIDIARIES OF ZULU-TEK
Exhibit 4.04 CAPITAL STRUCTURE OF ZULU-TEK
Exhibit 4.05 CURRENT DIRECTORS AND OFFICERS OF ZULU-TEK
Exhibit 4.06 MATTERS RELATED TO ZULU-TEK BUSINESS PLAN
Exhibit 6.03(d) FORM OF TWO-YEAR EMPLOYMENT AGREEMENT OF ENHANCED
AND LaBARGE
Exhibit 6.03(d) FORM OF TWO-YEAR CONSULTING AGREEMENT OF ENHANCED
AND DUCKMAN
SECURITIES ACQUISITION AGREEMENT
This SECURITIES ACQUISITION AGREEMENT ("Agreement") dated as of March 3,
1998 is made by and among Enhanced Services Company, Inc., a Colorado
corporation ("ENHANCED") with offices at 16000 Barker's Point Lane, Houston,
Texas 77079, Netvest Capital Partners LP, a Delaware limited partnership
("NETVEST"). with its California representative office at 935 West San Marcos
Boulevard, Suite 101, San Marcos, California 92069. and ZULU-tek, Inc., a Utah
corporation ("ZULU-tek"), with its principal office at 2361 Rosecrans Avenue,
Suite 275, El Segundo, California 90245 (which shall be a party hereto only with
reference to Articles II, IV, V, VII, IX, X and XI).
WHEREAS, ENHANCED desires to exchange 220,000 of its shares of Common
Stock $.001 par value ("Enhanced Common Stock") and 1,000,000 of its newly
authorized 1998 Preferred Stock $3,00 stated value per share ("1998 Preferred
Stock" and collectively with the Enhanced Common Stock, the "Enhanced Stock")
for 12,000,000 shares of Common Stock $.001 par value, of ZULU-tek ("ZULU-tek
Common Stock") and 1,000,000 shares of the Series D Preferred Stock $.01 par
value of ZULU-tek, being issued in connection with this transaction ("ZULU-tek
Preferred" and collectively with the ZULU-tek Common Stock, the "ZULU-tek
Stock") held by NETVEST and NETVEST desires to acquire the Enhanced Stock from
ENHANCED upon the terms and subject to the conditions hereinafter set forth; and
WHEREAS, in connection with such exchange, the parties hereto have
agreed to enter into agreements relating to certain other matters related to the
business, financing and governance of ENHANCED, all as set forth herein;
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties and agreements herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
EXCHANGE OF ENHANCED AND ZULU-TEK STOCK
1.01 EXCHANGE. In reliance on the representations and warranties set
forth herein, at the Closing (as hereinafter defined), ENHANCED shall issue and
deliver to NETVEST 220,000 shares of Enhanced Common Stock and 1,000,000 shares
of 1998 Preferred Stock, and NETVEST shall deliver to ENHANCED an aggregate of
12,000,000 shares of ZULU-tek Common Stock and 1,000,000 shares of the ZULU-tek
Preferred owned by it, with such delivery by each party to constitute full
payment to the other for the capital stock, so exchanged.
1.02 FULLY PAID AND NONASSESSABLE STATUS. All of the shares of ZULU-tek
Stock to be delivered by NETVEST and all of the shares of Enhanced Stock to be
issued and delivered by ENHANCED pursuant to this Agreement, when issued or
delivered, or both, in accordance with the terms of the Agreement, shall be duly
authorized, validly issued, fully paid and nonassessable and shall be restricted
securities as set forth in this Agreement.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ENHANCED
ENHANCED hereby represents and warrants to NETVEST and to ZULU-tek as
follows:
2.01 ORGANIZATION. ENHANCED is a corporation duly organized, validly
existing and in good standing under the laws of Colorado and has the requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business in the manner now being conducted and is duly qualified or
licensed to do business as a foreign corporation in good standing in any
jurisdictions in which the ownership of its property or the conduct of its
business requires such qualification, except such jurisdictions in which its
failure to be so qualified or licensed will have no material adverse effect on
its business or properties. Attached as Exhibit 2.01 is a list of all of the
entities in which ENHANCED holds any shares, options or other rights (the
"Subsidiaries").
2.02 CORPORATE POWER AND AUTHORITY OF ENHANCED. ENHANCED has the full
corporate power and authority to execute and deliver this Agreement, to issue
and deliver the Enhanced Stock and to perform its other obligations under this
Agreement. The execution, delivery and performance of this Agreement by ENHANCED
has been authorized by all necessary corporate actions required by law, by
ENHANCED's Articles of Incorporation, as amended to date ("ENHANCED Articles of
Incorporation"), its Bylaws, as in effect on the date hereof ("ENHANCED
Bylaws"), any voting trusts, voting agreements, stockholders or similar
agreements ("ENHANCED Stockholder Understandings") or otherwise required to be
taken to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Assuming due execution and
delivery of the Agreement by the other parties hereto, this Agreement is a valid
and binding agreement of ENHANCED, enforceable in accordance with its terms,
except to the extent such enforceability may be subject to limitations of public
policy under federal and state securities laws and under applicable bankruptcy,
insolvency or similar laws affecting creditor's rights generally or the
availability of equitable remedies.
2.03 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the consummation by ENHANCED of the transactions contemplated hereby will
(a) conflict with or result in a breach of any provision of the ENHANCED
Articles of Incorporation or the ENHANCED Bylaws, (b) result in a default (or
with the passing of time give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of the ENHANCED
Stockholder Understandings or any other material note, bond, mortgage,
indenture, franchise, license, permit or agreement or other instrument or
obligation to which ENHANCED is a party or by which ENHANCED is bound or to
which any of the assets of ENHANCED is subject and will not have a material
adverse effect on the financial condition of ENHANCED, (c) violate any statute
or law or any judgment, decree, order, writ, injunction, regulation or rule
applicable to ENHANCED, or (d) result in or require the creation of any material
lien with respect to any assets of ENHANCED.
2.04 ISSUANCE OF SHARES. The Enhanced Stock to be delivered pursuant to
this Agreement is authorized but unissued capital stock. ENHANCED has full power
and authority to issue and deliver the Enhanced Stock, has obtained and provided
all notices and consents required under the ENHANCED Articles of Incorporation,
the ENHANCED Bylaws and the applicable rules of the
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National Association of Securities Dealers ("NASD") or as a corporation listed
on the NASDAQ SmallCap ("NASDAQ") Stock Market (collectively, the "NASDAQ
Rules").
2.05 RESTRICTED SECURITIES. ENHANCED acknowledges that the shares of
ZULU-tek Stock to be delivered hereunder by NETVEST have not been registered
under the United States Securities Act of 1933, as amended (the "1933 Act") or
registered or qualified under any state securities laws on the grounds that such
shares of ZULU-tek Stock are being exchanged, in a transaction exempt from the
registration requirements of the 1933 Act and the registration or qualification
requirements of applicable state securities laws, and that the shares of
ZULU-tek Stock must be held indefinitely unless such shares of ZULU-tek Stock
are subsequently registered under the 1933 Act and qualified or registered under
applicable state securities laws or an exemption from registration and
qualification is available, and that ZULU-tek is under no obligation to register
or qualify the ZULU-tek Stock.
2.06 INVESTMENT REPRESENTATION. ENHANCED is acquiring the ZULU-tek Stock
as principal for its own account and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
selling or otherwise disposing of the same, except pursuant to an effective
registration statement under the 1933 Act or in a transaction exempt from the
registration requirements of the 1933 Act and the registration or qualification
requirements of applicable state securities laws.
2.07 RECEIPT OF INFORMATION. ENHANCED and its representatives have
received and reviewed this Agreement, all Exhibits hereto, the ZULU-tek, Inc.
Business Plan and Confidential Memorandum dated February 6, 1998 ("ZULU-tek
Business Plan"), and all other documents and materials that NETVEST or ZULU-tek
have provided to them in connection with the transactions contemplated by this
Agreement. ENHANCED and its representatives have had an opportunity to review
those documents and all other documents and materials requested of NETVEST or
ZULU-tek and have been given an opportunity to ask such questions of NETVEST or
ZULU-tek concerning the terms and conditions of the Agreement, their respective
organization and structure, and the business, operations, business prospects,
shareholders, advisers, representatives, market position, financial condition,
assets and liabilities (including contingent liabilities) of NETVEST and of
ZULU-tek as well as such other relevant matters as they have deemed necessary or
desirable and have been given all such information as they have requested, in
order to make an informed and independent evaluation of the merits and risks of
the transactions contemplated herein.
2.08 SOPHISTICATED INVESTOR. ENHANCED has, by reason of its corporate
status and financial experience, the capacity to make the independent evaluation
contemplated hereby and to protect its own interests in connection with this
Agreement and this transaction contemplated hereby.
2.09 LEGENDS. ENHANCED acknowledges that each certificate or other
document evidencing the ZULU-tek Stock shall be endorsed with the legends
restricting its transfer as contemplated by Section 2.05 above.
2.10 CAPITAL STRUCTURE. The authorized capital stock of ENHANCED
consists of 20,000,000 shares of capital stock of which 15,000,000 are shares of
Common Stock, par value $.001 per share (previously defined as "Enhanced Common
Stock") and 5,000,000 are preferred shares to be
3
issued on such terms and in such series as may be designated by the Board of
Directors of ENHANCED. The currently outstanding capital of ENHANCED is:
(a) COMMON STOCK. 1,131,474 shares are issued and outstanding as of the
date hereof and 283,973 shares are reserved for issuance on exercise of
outstanding options;
(b) 8.6% PREFERRED. 8.6% Cumulative Preferred Stock ("8.6% Preferred")
of which 15,000 shares are authorized and 8,000 shares are outstanding
on the date hereof; and
(c) 1998 PREFERRED. The newly authorized 1998 Preferred Stock
(previously defined as the "1998 Preferred Stock") consisting of
1,000,000 shares, par value $3.00, to be issued in connection with the
transactions contemplated hereby and which shares shall be convertible,
solely at the option of ENHANCED into shares of Enhanced Common Stock on
the basis of 2.772 shares of Common Stock for each one share of 1998
Preferred Stock, subject to adjustment in the event of any stock splits,
stock dividend, reclassifications or other capital transactions, as
applicable, and only after receipt of stockholder approval at a meeting
duly called for such purposes, for which proxy materials are provided to
each stockholder in accordance with the NASDAQ Rules and the
requirements of the Securities & Exchange Commission (the "SEC").
No other classes of preferred shares have been designated or issued and,
except as set forth herein with respect to the Enhanced Stock to be issued to
NETVEST and upon any exercise of outstanding options, no additional shares of
the capital stock of ENHANCED will be issued or reserved for issuance at or
prior to the Closing. The Certificate of Designation filed in the state of
Colorado correctly sets forth the terms of the ENHANCED Preferred Stock and the
other details of the outstanding capital stock of ENHANCED and the owners
thereof, including the holders of options and the 8.6% Preferred. The Enhanced
Common Stock entitles each holder to one vote for each share held and the 8.6%
Preferred entitles the holders to certain limited voting rights. Except as set
forth on Exhibit 2.10, as of the date of this Agreement and at Closing, there
are or will be no other outstanding options, warrants or other rights,
subscriptions, options, calls, rights, warrants, convertible securities,
unsatisfied preemptive rights or other agreements or commitments of any
character obligating ENHANCED to issue (or reserve for issuance) or to transfer
or sell any shares of its capital stock of any class.
2.11 DIRECTORS AND OFFICERS. The current directors (with committee
designations) and officers of ENHANCED are set forth on Exhibit 2.11 and each of
them currently validly holds their respective offices in accordance with the
provisions of the ENHANCED Articles of Incorporation and ENHANCED By-laws and
the ENHANCED Stockholder Understandings all as described in Exhibit 2.11. At
Closing, Kenneth M. Duckman, John Meaney, Michael Bernard, Bertram Pariser and
Ralph LaBarge will have resigned as directors of ENHANCED, the ENHANCED Board of
Directors will have been set at five directors, and the ENHANCED Board of
Directors will have acted to elect the designee, set forth on Exhibit 2.11,
leaving a Board of five persons consisting of Bill S. Murski and the four
persons listed on Exhibit 2.11.
2.12 CERTAIN FINANCIAL INFORMATION. The audited and unaudited financial
statements of ENHANCED, filed or to be filed with the SEC for all periods
through November 30, 1997, fairly
4
present the financial position of ENHANCED as of the date filed and fairly
represent the results of financial operations for the periods covered thereby,
in accordance with generally accepted accounting principles applied on a
consistent basis. Except as disclosed in such financial statements (collectively
the "Financial Statements") or on Exhibit 2.12 (the "ENHANCED Obligations"),
there are no material contingencies and no loans to or from any officers,
directors or affiliates of ENHANCED which exist or are committed as of the date
hereof. As set forth in Exhibit 2.12, FCA Investment Company, a Delaware
corporation ("FCAIC"), has advanced $500,000.00 to ENHANCED as working capital
and has agreed to convert the advance to equity on the conditions described in
Exhibit 2.12.
2.13 ABSENCE OF CERTAIN CHANGES. Since November 30, 1997, except as set
forth on Exhibit 2.12 or 2.13, ENHANCED has not:
(a) Permitted or allowed any of its property or assets (real, personal
or mixed, tangible or intangible) to be subjected to any material
mortgage, pledge, lien, security interest, encumbrance, restriction or
change of any kind, except for the ENHANCED Obligations and for liens
for current taxes not yet due and which are reflected in the Financial
Statements;
(b) Canceled any material debts or waived any material claims or rights;
(c) Sold, transferred or otherwise disposed of a material portion of any
of its properties or assets (real, personal or mixed, tangible or
intangible), except in the ordinary course of business and consistent
with past practice;
(d) Issued any capital stock or declared, paid or set aside for payment
any dividend or other distribution in respect to its capital stock or
redeemed, purchased or otherwise acquired, directly or indirectly, any
shares of capital stock or other securities of ENHANCED, except for
stock options set forth on Exhibit 2.10;
(e) Made any change in any method of accounting or accounting practice;
(f) Paid, loaned or advanced any amount to, or sold, transferred or
leased any properties or assets (real, personal or mixed, tangible or
intangible) to, or entered into any agreement or arrangement with, any
of its officers or directors or any affiliate of any of its officers or
directors;
(g) Agreed, whether in writing or otherwise, to take any action
described in this section.
2.14 ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE OF ENHANCED. To the best
of ENHANCED's knowledge, Exhibit 2.14 sets forth the accounts receivable and
accounts payable of ENHANCED, with aging thereof, as of February 27, 1998.
2.15 NO LITIGATION. Except as set forth on Exhibit 2.15, as of the date
of this Agreement, there is no litigation or proceeding pending or, to the best
of the knowledge of ENHANCED's stockholders and ENHANCED's directors and
officers, threatened against ENHANCED or any of its assets or properties. To the
extent that after the date hereof ENHANCED shall become aware that
5
such claims or litigation shall be initiated or threatened with respect to this
transaction or any actions of ENHANCED, it shall promptly advise NETVEST and
ZULU-tek thereof.
2.16 NASDAQ MATTERS. ENHANCED has or will, within one day hereof, have
submitted its application to NASDAQ to list the Enhanced Common Stock subject
hereto on NASDAQ. ENHANCED makes no representation or warranty associated with
the continued listing of the shares of ENHANCED for trading as a "small cap"
company on NASDAQ and NETVEST acknowledges receipt of a copy of a letter to
ENHANCED, dated February 26, 1998, pertaining to ENHANCED's NASDAQ listing.
NETVEST agrees to accept the ENHANCED Stock without any liability or obligation
concerning such listing, provided that ENHANCED covenants and agrees to use its
best efforts to maintain such NASDAQ listing. The other parties hereto agree to
cooperate, at the request of ENHANCED, in ENHANCED's efforts to maintain such
listing. but they each make no representation with respect to their capacity to
effect the continued listing of the ENHANCED Stock.
2.17 COMPLIANCE WITH LAW. ENHANCED is conducting its business and
operations in compliance with all governmental rules and regulations applicable
thereto and is not in violation or default in any material respect under any
statute, law, ordinance, rule, regulation, judgment, order, decree, concession,
grant, franchise, license or other governmental authorization or approval
applicable to it or any of its business and affairs.
2.18 CORPORATE RECORDS. True and correct copies of the Articles of
Incorporation, Bylaws and minutes of the Board of Directors and stockholders of
ENHANCED and all amendments thereto of ENHANCED have been delivered to NETVEST.
The minute books of ENHANCED for which minutes were prepared, contain accurate
minutes of the meetings of and consents to actions taken without meetings of the
Board of Directors and stockholders of ENHANCED since inception.
2.19 MATERIAL CONTRACTS. Exhibit 2.19 sets forth all employment
agreements, stock option plans and agreements, insurance plans, employee benefit
plans and all contracts of ENHANCED, in effect on the date hereof, which require
annual payments of more than $20,000, and the status of the same at the date
hereof.
2.20 NO FURTHER REPRESENTATIONS AND WARRANTIES. NETVEST and ZULU-tek
each acknowledge that no other representations or warranties have been made by
ENHANCED or relied upon by NETVEST and ZULU-tek except as set out in this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF NETVEST
NETVEST hereby represents and warrants to ENHANCED as follows:
3.01 ORGANIZATION OF NETVEST. NETVEST is a Delaware limited partnership
organized to participate in this transaction, with no operating history and has
the requisite power and authority to own, lease and operate its properties and
to carry on its business in the manner now being conducted.
3.02 POWER AND AUTHORITY. NETVEST has the requisite power and authority
to execute and deliver this Agreement, to transfer the ZULU-tek Common Stock, to
enter into the agreements to be delivered herewith and to perform its other
obligations under this Agreement. The execution, delivery
6
and performance of this Agreement by NETVEST has been authorized by all
necessary corporate or partnership actions required by law, as applicable under
NETVEST's respective constituent and governing documents or otherwise required
to be taken to authorize the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby. Assuming due execution and
delivery of the Agreement by the other parties hereto, this Agreement is a valid
and binding agreement of NETVEST, enforceable in accordance with its terms,
except to the extent such enforceability may be subject to limitations of public
policy under federal and state securities laws and under applicable bankruptcy,
insolvency or similar laws affecting creditor's rights generally or the
availability of equitable remedies.
3.03 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the consummation by NETVEST of the transactions contemplated hereby will (a)
conflict with or result in a breach of any provision of its constituent
documents, (b) result in a default (or with the passing of time give rise to any
right of termination, cancellation or acceleration) under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
franchise, license, permit or agreement or other instrument or obligation to
which NETVEST is a party or is bound or to which any of its respective assets
are subject, (c) violate any statute or law or any judgment, decree, order,
writ, injunction, regulation or rule applicable to NETVEST and will not have a
material adverse effect on the financial conditions of NETVEST, or (d) result in
or require the creation of any material lien with respect to any assets of
NETVEST.
3.04 RESTRICTED SECURITIES. NETVEST acknowledges and agrees that the
shares of Enhanced Stock to be acquired hereunder have not been registered under
the 1933 Act or registered or qualified under any state securities laws on the
grounds that such shares of Enhanced Stock are being issued in a transaction
exempt from the registration requirements of the 1933 Act and the registration
or qualification requirements of applicable state securities laws, and that the
shares of Enhanced Stock must be held indefinitely unless such shares of
Enhanced Stock are subsequently registered under the 1933 Act and qualified or
registered under applicable state securities laws or an exemption from
registration and qualification is available, and that, except as otherwise
provided in this Agreement, the Enhanced Stock cannot be transferred.
3.05 INVESTMENT REPRESENTATION. NETVEST is acquiring the Enhanced Stock
as principal for its own account and, not with a view to, or for sale in
connection with, any distribution thereof except to the extent that the Enhanced
Stock may be distributed to partners of NETVEST and, except with respect to such
reissuance, NETVEST has no present intention of selling or otherwise disposing
of the Enhanced Stock.
3.06 RECEIPT OF INFORMATION. NETVEST has received and reviewed this
Agreement, all Exhibits hereto, and all other documents and materials that
ENHANCED has provided to it in connection with the transactions contemplated by
this Agreement. NETVEST and its representatives have had an opportunity to
review all documents and other materials requested of ENHANCED and have been
given an opportunity to ask such questions of ENHANCED concerning the Enhanced
Stock to be acquired hereunder, their respective organization and structure, and
the business, operations, business prospects, shareholders, advisers,
representatives, market position, financial condition, assets and liabilities
(including contingent liabilities) of ENHANCED as well as such other relevant
matters as they have deemed necessary or desirable and have been given all such
information as they have
7
requested, in order to make an independent and informed evaluation of the merits
and risks of the investment in the Enhanced Stock contemplated herein.
3.07 SOPHISTICATED INVESTOR. NETVEST has, by reason of its financial
experience, the capacity to make the independent evaluation contemplated hereby
and to protect its interests in connection with this Agreement and the
transactions contemplated hereby.
3.08 LEGENDS. NETVEST acknowledges that each certificate or other
document evidencing the Enhanced Stock shall be endorsed with the legends set
forth below:
(a) "THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED ABSENT AN
EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR COMPLIANCE WITH
AN AVAILABLE EXEMPTION FROM REGISTRATION. THE COMPANY MAY REFUSE
TO AUTHORIZE ANY TRANSFER OF THE SHARES IN RELIANCE ON AN
EXEMPTION FROM REGISTRATION UNTIL IT HAS RECEIVED AN OPINION OF
COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY AND ITS COUNSEL,
THAT SUCH REGISTRATION IS NOT REQUIRED."
(b) If required by the authorities of any state in connection with
the issuance or sale of the Common Stock, the legend required by
such state authority.
3.09 NO FURTHER REPRESENTATIONS AND WARRANTIES. ENHANCED acknowledges
that no other representations or warranties have been made or relied upon by
ENHANCED except as set out in this Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF ZULU-TEK
ZULU-tek represents and warrants to ENHANCED as follows:
4.01 ORGANIZATION OF ZULU-TEK. ZULU-tek is a corporation duly organized,
validly existing and in good standing under the laws of Utah and has the
requisite corporate power and authority to own, lease and operate its properties
and to carry on its business in the manner now being conducted and is licensed
to do business as a foreign corporation in any jurisdictions in which the
ownership of its property or the conduct of its business requires such
qualification, except such jurisdictions in which its failure to be so qualified
or licensed will have no material adverse effect on its business or properties.
Attached as Exhibit 4.01 is a list of all of the entities in which ZULU-tek
holds any shares, options or other rights (the "ZULU Subsidiaries").
4.02 CORPORATE POWER AND AUTHORITY. ZULU-tek has the full corporate
power and authority to execute and deliver this Agreement and to perform its
obligations under this Agreement. The execution, delivery and performance of
this Agreement by ZULU-tek has been authorized by all necessary corporate
actions required by law, by ZULU-tek's Articles of Incorporation, and other
8
Bylaws or constituent documents or otherwise required to be taken to authorize
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby. Assuming due execution and delivery of the
Agreement by the other parties hereto, this Agreement is a valid and binding
agreement of ZULU-tek, enforceable in accordance with its terms, except to the
extent such enforceability may be subject to limitations of public policy under
federal and state securities laws and under applicable bankruptcy, insolvency or
similar laws affecting creditor's rights generally or the availability of
equitable remedies.
4.03 NO CONFLICT. Neither the execution and delivery of this Agreement
nor the consummation by ZULU-tek of the transactions contemplated hereby will
(a) conflict with or result in a breach of any provision of its constituent
documents, (b) result in a default (or give rise to any right of termination,
cancellation or acceleration) under any of the terms, conditions or provisions
of any material note, bond, mortgage, indenture, franchise, license, permit or
agreement or other instrument or obligation to which ZULU-tek is a party or by
which ZULU-tek is bound or to which any of its assets are subject, (c) violate
any statute or law or any judgment, decree, order, writ, injunction, regulation
or rule applicable to ZULU-tek and would not have a material adverse effect on
the financial conditions of ZULU-tek, or (d) result in or require the creation
of any material lien with respect to any assets of ZULU-tek.
4.04 CAPITAL STRUCTURE OF ZULU-TEK. ZULU-tek represents and warrants to
ENHANCED that as of the date of this Agreement, the authorized capital stock of
ZULU-tek consists of 150,000,000 shares of capital stock, including:
(a) ZULU-TEK COMMON STOCK. 100,000,000 shares of Common Stock, $0.001
par value per share, of which 47,579,910 were issued and
outstanding at March 2, 1998, 10,753,037 were reserved for
issuance under certain options and contractual agreements,
including the conversion of Series B Preferred Stock described
below, and none were held as treasury stock;
(b) SERIES A PREFERRED STOCK. 2,000,000 shares of Series A Preferred
Stock, of which 374,800 shares are issued and outstanding as of
the date hereof, which shares of Series A Preferred Stock entitle
the holders to a per share preferential payment of $1.00 plus
accrued and unpaid dividends;
(c) SERIES B PREFERRED STOCK. 3,000,000 shares of Series B Preferred
Stock, $1.00 stated value per share, which shares are convertible
at the option of the holder into an aggregate of 7,333,334 shares
of ZULU-tek Common Stock on February 6, 1998 (4,000,000 shares),
May 6, 1998 (2,000,000 shares), and August 6, 1998 (1,333,384
shares);
(d) SERIES C PREFERRED STOCK. 15,000 shares of Series C Preferred
Stock of which 10,209 shares are currently outstanding and 1,891
shares are currently reserved for or being issued to former
stockholders of Softbank Interactive Media, Inc. ("SIM") as
listed on Exhibit 4.04;
9
(e) SERIES D PREFERRED STOCK. 1,000,000 shares of ZULU-tek Preferred
Stock par value $.01 per share and a stated value of $12.00 per
share, authorized for issuance in connection with this Agreement,
of which 1,000,000 shares are to be issued to ENHANCED pursuant
to this Agreement and the terms and designations of which are set
forth in Exhibit 4.04; and
(f) SERIES E PREFERRED STOCK. 1,000,000 shares ($1,000,000.00 in
stated value) of Series E Preferred Stock, which has been
negotiated but not formally authorized for issuance or issued in
exchange for the common stock of SIM now held by two parties who
will receive the Series E Preferred, inter alia, in lieu of 1,666
shares of the Series C which the party would otherwise receive.
The ZULU-tek Common Stock and the Series A Preferred Stock are
voting shares, each entitling the holders to one vote for each share held and no
other classes of preferred stock have been designated or issued as of the date
hereof. Except as required by law or the terms of such series, the Series B,
Series C and Series D Preferred Stock are non-voting stock, and the Series E
Preferred Stock, if issued, will be a voting class only after conversion into
ZULU-tek Common Stock. The Certificate of Designation filed in the state of Utah
correctly set forth the terms of the ZULU-tek Class A, B, C and D Preferred
Stock which is outstanding or to be issued hereunder. Except as set forth on
Exhibit 4.04 as of the date of this Agreement, there are no outstanding options,
warrants or other rights, subscriptions, options, calls, rights, warrants,
convertible securities, unsatisfied preemptive rights or other agreements or
commitments of any character obligating ZULU-tek to issue (or reserve for
issuance) or to transfer or sell any shares of its capital stock of any class
and ZULU-tek covenants that it will not enter into arrangements between the date
hereof and March 1, 1999 which would result in more than 65,000,000 outstanding
shares of ZULU-tek Common Stock on a fully diluted basis, except as set forth in
Section 7.04 hereof.
4.05 DIRECTORS AND OFFICERS. The current directors (with committee
designations) and officers of ZULU-tek are set forth on Exhibit 4.05 and each of
them is currently holding their respective offices in accordance with the
provisions of the ZULU-tek Articles of Incorporation and ZULU-tek By-laws and
the ZULU-tek Shareholder Understandings all as described in Exhibit 4.05.
4.06 BUSINESS PLAN. Except as set forth in Exhibit 4.06 with respect to
recent operating developments and their impact on the ZULU-tek Business Plan and
the limitations under the SEC Rules with respect to "forward looking statements"
(as defined in the SEC Rules), the ZULU-tek Business Plan accurately sets forth
the financial results of SIM for the periods ended December 31, 1997 (subject to
adjustments as a result of the audit for 1997) and 1996 and sets forth the
current prospects of ZULU-tek in 1998 and 1999.
4.07 COMPLIANCE WITH LAW. ZULU-tek is conducting its business and
operations in compliance with all governmental rules and regulations applicable
thereto and is not in violation or default in any material respect under any
statute, law, ordinance, rule, regulation, judgment, order, decree, concession,
grant, franchise, license or other governmental authorization or approval
applicable to it or any of its business and affairs, the violation or default of
which would have a material adverse effect on its business.
10
4.08 CORPORATE RECORDS. True and correct copies of the Articles of
Incorporation, Bylaws and minutes of the Board of Directors and stockholders of
ZULU-tek and all amendments thereto of ZULU-tek have been delivered to ENHANCED.
The minute books of ZULU-tek contain all accurate minutes of the meetings for
which minutes were prepared and consents to actions taken without meetings of
the Board of Directors and stockholders of ZULU-tek since August 1, 1997.
4.09 NO FURTHER REPRESENTATIONS AND WARRANTIES. ENHANCED acknowledges
that no other representations or warranties have been made or relied upon by
ENHANCED except as set out in this Agreement.
ARTICLE V
REGISTRATION RIGHTS
5.01 "PIGGYBACK" REGISTRATION RIGHTS. If at any time during the first
thirty-six months after the Closing ("Covered Period"), ENHANCED, or any
successor by merger, acquisition, consolidation or a similar change of control
event, proposes to file under the 1933 Act, on its behalf and/or on behalf of
any of its securities holders, a new registration statement relating to any
securities of ENHANCED or of any successor by merger, acquisition, consolidation
or a similar change of control event (a "Registration Statement") other than in
connection with a dividend reinvestment, employee stock purchase, option or a
similar plan, ENHANCED shall give written notice to each of the other parties
hereto and any successors to their ownership of Enhanced Stock, as contemplated
herein (collectively the "Holders") at least thirty (30) days before the filing
with the SEC of such Registration Statement. Such notice shall offer to include
in such filing that number of shares of Enhanced Stock then held by the Holders
(including shares convertible into the class of equity being registered) as such
Holders may request pursuant to written notice to ENHANCED within twenty (20)
days after the date of mailing of such offer. ENHANCED shall thereupon include
in such filing that amount of Enhanced Stock so requested by the Holders, and,
subject to ENHANCED's right to withdraw such filing, shall use its best efforts
to effect registration under the 1933 Act of such shares of Enhanced Stock. The
right of the Holders to have their shares of Enhanced Stock included in any
Registration Statement in accordance with the provisions of this Article V shall
be provided for in each such Registration Statement.
5.02 UNDERWRITER LIMITATIONS. If any of the Holders' shares of Enhanced
Stock are to be sold in an underwritten public offering pursuant to this
Agreement, ENHANCED shall promptly notify the Holders as to its selection of
investment bankers for the offering. If the managing underwriters shall advise
ENHANCED in writing that in their good faith opinion the number of shares of
Enhanced Stock requested to be included in such Registration Statement exceeds
the number of shares which can be sold in an orderly manner in such offering,
then the Holders shall have the right, in addition to the rights in Section
5.04, exercisable not more than three times during the Covered Period, to
require ENHANCED to file a registration statement on From S-1, Form SB-1, Form
S-3 or otherwise to allow for the resale of the Enhanced Stock.
5.03 ENHANCED'S ELECTION TO FILE. Notwithstanding the foregoing, the
Board of Directors of ENHANCED, in its sole discretion, may determine not to
file the Registration Statement or proceed with the offering as to which the
notice specified herein is given without any liability to ENHANCED.
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5.04 DEMAND REGISTRATION. In addition, on or after March 1, 1999,
Holders representing more than fifty percent (50%) of the voting power of the
ENHANCED Stock issued pursuant hereto, based on the Enhanced Stock held by them,
acting jointly, may request, in writing, that ENHANCED file a registration
statement on Form S-1, Form SB-1 or Form S-3 under the 1933 Act covering the
registration of the Enhanced Stock issued to them. Upon receipt of such written
request, ENHANCED, shall immediately (and, in any event, within 60 days)
undertake to file a Registration Statement ninety (90) days of the receipt of
such written request effect the registration of such Enhanced Stock. The Holders
shall be entitled to only two "demand registrations" and any such "demand
registrations" may be made with respect to all or any portion (but not less than
$5,000,000 in market capitalization) of the Enhanced Stock they hold on the date
of such request. ENHANCED shall not be required to effect a registration
pursuant to this Section 5.04 if it has effected two (2) registrations under
Section 5.02 under which the Holders could have sold all of their shares
pursuant thereto and has provided the appropriate notices to Holders under
Section 5.01.
5.05 REPORTING REQUIREMENTS UNDER THE SECURITIES EXCHANGE ACT OF 1934.
To the extent required, ENHANCED shall timely file such information, documents,
and reports as the SEC may require or prescribe under either Section 13 or 15(d)
(whichever is applicable) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). ENHANCED shall whenever requested by the Holders notify
them in writing whether ENHANCED has, as of the date specified by the Holders,
complied with the Exchange Act reporting requirements to which ENHANCED is
subject for a period prior to such date as shall be specified by ENHANCED.
ENHANCED acknowledges and agrees that the purposes of the requirements contained
in this Section 5.05, are to enable the Holders, as the case may be, to comply
with the current public information requirements of Rule 144 under the 1933 Act
should the Holders ever wish to dispose of any of the shares of Enhanced Stock
acquired by them without registration under the 1933 Act in reliance upon Rule
144 (or any equivalent successor provision or similar rule hereafter adopted).
ENHANCED shall take such other measures and file such other information,
documents, and reports as shall hereafter be required by the SEC as a condition
to the availability of Rule 144 under the 1933 Act (or any equivalent successor
provision or similar rule hereafter adopted), including, without limitation,
using its best efforts to assure that there shall be available at all times
adequate public information with respect to ENHANCED and Enhanced Stock. The
obligation to make available adequate public information and otherwise take such
measures necessary to maintain the availability of Rule 144 shall remain in
effect for so long as ENHANCED or its successor is subject to the filing
requirements of Section 13 or Section 15(d) of the Exchange Act. In such event
and for so long as the Holders own any Enhanced Stock, ENHANCED shall furnish
forthwith upon request a written statement as to its compliance with the
reporting requirements of said Rule 144 of the 1933 Act, and of the Exchange Act
(at any time after it has become subject to such reporting requirements); a copy
of the most recent annual or quarterly report of ENHANCED and such other reports
and documents as the Holders may reasonably request in availing itself of any
rule or regulation of the SEC allowing it to sell any such securities without
registration.
5.06 EXPENSES. All expenses incident to ENHANCED's performance of or
compliance with its undertaking in this Article V, including, without
limitation, all registration and filing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for ENHANCED, one
counsel for the Holders and all independent certified public accountants,
underwriters (excluding
12
underwriting discounts and commissions) and other persons retained by ENHANCED
(all such expenses being herein called "Registration Expenses"), will be borne
by ENHANCED, whether or not such Registration Statement becomes effective.
5.07 INDEMNIFICATION; CONTRIBUTION.
(a) In the event of any registration of any Enhanced Stock under the
1933 Act pursuant to this agreement, ENHANCED shall indemnify,
defend and hold harmless, to the full extent permitted by law and
without limitation as to time, the Holders and all directors,
officers, employees, agents and consultants of the Holders
(collectively, the "Indemnified Persons"), against any losses,
claims, damages or liabilities, joint or several, to which any
Indemnified Person may become subject, under the 1933 Act or
otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of any material
fact contained in or incorporated by reference into such
Registration Statement or preliminary prospectus (if used prior
to the effective date of such Registration Statement) or final or
summary prospectus contained therein (if used during the period
ENHANCED is required to keep the Registration Statement
effective), or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state
therein a material fact required to be stated therein or
necessary to make the statements made therein (in the case of a
prospectus or form of prospectus or supplement thereto, in light
of the circumstances under which they are made) not misleading,
and any violation or alleged violation of the 1933 Act, the
Exchange Act or any state securities laws, or any rule or
regulation thereunder, and will reimburse each Indemnified Person
on a current basis for any legal or any other expenses reasonably
incurred by it in connection with investigating or defending any
such action or claim (excluding any amounts paid in settlement of
any litigation, commenced or threatened, if such settlement is
effected without the prior written consent of ENHANCED, which
consent shall not be unreasonably withheld); PROVIDED, HOWEVER,
that ENHANCED will not be liable to a particular Indemnified
Person in any such case to the extent that any such loss, claim,
damage, liability or expense arises out of or is based upon an
untrue statement or omission or alleged omission made in said
Registration Statement, said preliminary prospectus or said final
or summary prospectus or any amendment or supplement thereto, in
reliance upon written information furnished to ENHANCED by or on
behalf the Holders for use in the preparation thereof; and
provided further that the indemnity agreement contained in this
Section 5.07 with respect to any preliminary prospectus shall not
inure to the benefit of any Indemnified Person in respect of any
loss, claim, damage, liability or action asserted by someone who
purchased Enhanced Stock from such person if (i) a copy of the
final prospectus (as the same may be amended or supplemented) in
connection with such Registration Statement was not sent or given
to such person with or prior to written confirmation of the sale,
(ii) such final prospectus shall correct the untrue statement or
alleged untrue statement, or omission or alleged omission, which
is the basis of such loss, claim, liability or action, and (iii)
there would have been no such liability but for the failure to
deliver such final prospectus by the Holders, as the case may be.
13
(b) Promptly after receipt by a party entitled to indemnification
under Article V hereof of notice of the commencement of any
action, such indemnified party will, if a claim in respect
thereof is to be made against the indemnifying party under either
of such Sections, notify the indemnifying party in writing of the
commencement thereof. In case any such action is brought against
the indemnified party and it shall so notify the indemnifying
party of the commencement thereof, the indemnifying party shall
assume the defense thereof with counsel reasonably satisfactory
to such indemnified party; PROVIDED, -------- HOWEVER, that if
the indemnifying party fails to take reasonable steps -------
necessary to diligently defend such claim within 20 days after
receiving notice from the indemnified party that the indemnified
party believes the indemnifying party has failed to take such
steps, the indemnified party may assume its own defense and the
indemnifying party shall be liable for any expenses therefor. The
indemnity agreements in this Section 5.07 shall be in addition to
any liabilities which the indemnifying parties may have pursuant
to law.
(c) In the event that any provision of an indemnification clause in
an underwriting agreement executed by or on behalf of ENHANCED
differs from a provision in this Section 5.07 such provision in
the underwriting agreement shall determine ENHANCED's and the
Holders' rights in respect thereof.
5.08 AFTER ACQUIRED SHARES. All of the provisions of this Article V
shall apply to all of the shares of Enhanced Stock owned by the Holders,
acquired by the Holders pursuant to this Agreement or otherwise, including any
shares of the capital stock of ENHANCED or any successor acquired by the Holders
hereafter which are "restricted securities" within the meaning of Rule 144 under
the 1933 Act, or to any other securities issued in exchange for the foregoing
securities.
5.09 OBLIGATIONS OF ENHANCED. Whenever required to effect the
registration of any Enhanced Stock covered hereby, ENHANCED shall, as
expeditiously, as reasonably possible:
(a) FILING. Prepare and file with the SEC a registration statement
with respect to such Enhanced Stock and use all reasonable
efforts to cause such registration statement to become effective,
and keep such registration statement effective for up to ninety
(90) days or, if earlier, until the Holders have completed the
distribution related thereto.
(b) AMENDMENTS. Prepare and file with the SEC such amendments and
supplements to such registration statement and prospectus used in
connection with such registration statement as may be necessary
to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration
statement.
(c) PROSPECTIVE DELIVERY. Furnish to the Holders such number of
copies of the prospectus, including a preliminary prospectus, in
conformity with the requirements of the 1933 Act, and such other
documents as they reasonably request in order to facilitate the
disposition of the Enhanced Stock covered hereby owned by them
and notify the Holders covered by a registration statement for
which a prospectus relating thereto is required to be delivered
under the 1933 Act of any event which would cause the prospectus
included in such registration statement, as then in effect, to
include an
14
untrue statement of a material fact or to omit to state a
material fact required to be stated therein or necessary to make
the statements therein not misleading in the light of the
circumstances than existing.
(d) BLUE SKY. Use all reasonable efforts to register and qualify the
securities covered by such registration under such other
securities laws and Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that ENHANCED
shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) UNDERWRITING MATTERS. In the event of any underwritten public
offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter(s) of such offering. The Holders shall also
be required to enter into and perform their obligations under
such an agreement.
(f) OPINION. Furnish, at the request of the Holders on the date that
such Enhanced Stock is delivered to the underwriters for sale, if
such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date
that the registration statement with respect to such securities
becomes effective, (i) an opinion, dated as of such date, from
the counsel representing the Company for the purposes of such
registration, in the form and substance as is customarily given
to underwriters in an underwritten public offering and reasonably
satisfactory to a majority of the holders of Enhanced Stock
requesting registration, addressed to the underwriters, if any,
and to the holders requesting the registration of their Enhanced
Stock and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority of the Holders
requesting registration, addressed to the underwriters, if any,
and if permitted by applicable accounting standards, to the
Holders requesting the registration of the Enhanced Stock covered
hereby.
5.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause ENHANCED to
register Enhanced Stock pursuant to this Article V may be assigned by the
Holders, as the case may be, to a transferee or assignee, provided such
transferee or assignee (i) is a corporation or partnership controlled by the
Holders' subsidiary, parent, general partner (or member of the general partner),
limited partner or retired partner of such an entity, (ii) is a family member of
a Holder or trust for the benefit of a Holder, or (iii) acquires at least five
percent (5%) of the shares of Enhanced Stock issued to the Holders as of the
date hereof (as adjusted for stock splits and combinations) and is not a
competitor of ENHANCED (as determined by the Board of Directors of ENHANCED);
provided, however, (A) the transferor shall, within ten (10) days after such
transfer, furnish to ENHANCED written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned and (B) such transferee shall agree to be
subject to all restrictions set forth in this Agreement.
15
ARTICLE VI
CLOSING AND POST-CLOSING MATTERS
6.01 POST-CLOSING MATTERS.
(a) BUDGET. Within 10 days of the date hereof, ENHANCED shall provide
to the other parties, on a confidential basis, its operating
budget and estimated cash flow and projected operating results
through February 2000, for review and comment by them.
(b) INCENTIVE PLANS. Promptly after the date hereof, the parties will
review their respective incentive compensation, stock option,
benefit and other plans with a view to coordinating the terms
thereof and to integrating the participants and equities
available thereunder, including the submission of any such plans
to the stockholders of ZULU-tek or ENHANCED for approval, as
applicable.
6.02 CLOSING. The closing of the transactions contemplated hereby (the
"Closing") shall take place at the offices of Brand Farrar & Buxbaum LLP located
at 515 S. Flower Street, Suite 3500, Los Angeles, California 90071-2201 at 2:00
pm PST on the date hereof or on such other date as the parties determine, but no
later than March 9, 1998.
6.03 CLOSING DOCUMENTS. At the Closing the parties shall deliver or
exchange the following:
(a) ENHANCED DELIVERIES. At the Closing, ENHANCED shall deliver to
NETVEST:
(i) The certificate for the Enhanced Common Stock which shall
be issued as fully paid and non-assessable and free of all
claims, liens and encumbrances whatsoever;
(ii) The certificate for the ENHANCED Preferred Stock which
shall be issued as fully paid and non-assessable and free
of all claims, liens and encumbrances whatsoever;
(iii) Certified Resolutions of the Board of Directors of
ENHANCED approving the transactions contemplated hereby;
(iv) Certificate of Designation for 1998 Preferred Stock with
evidence of filing and effectiveness in Colorado;
(v) Officer's and director's certificates in form reasonably
satisfactory to NETVEST;
(vi) Fully executed and complete NASDAQ Listing Application for
the 220,000 shares of Enhanced Common Stock;
16
(vii) Incumbency Certificates with respect to directors and
officers;
(viii) Certificate of Status and good standing certificate from
Colorado; and
(ix) Such other documents, consents, instruments, opinions and
certificates as NETVEST may reasonably request; and
(x) Resignations of the directors of Enhanced pursuant to
Section 2.11.
(b) NETVEST DELIVERIES. At the Closing, NETVEST shall deliver to
ENHANCED:
(i) Stock certificates representing the 12,000,000 shares of
ZULU-tek Common Stock and 1,000,000 shares of the ZULU-tek
Preferred owned by NETVEST to be exchanged hereunder, duly
endorsed in blank or accompanied by appropriate
instruments of assignment duly executed in blank, free and
clear of all claims, liens and encumbrances whatsoever;
(ii) Corporate and Resolutions of General Partner approving the
transactions contemplated hereby;
(iii) Confirmation of partnership existence; and
(iv) Such other documents, consents, instruments, opinions and
certificates as ENHANCED may reasonably request.
(c) ZULU-TEK DELIVERIES. At the Closing, ZULU-tek shall deliver to
ENHANCED:
(i) Certified Resolutions of the Board of Directors of
ZULU-tek, approving the transactions contemplated hereby;
(ii) Director's and Officer's Certificates in form reasonably
acceptable to ENHANCED;
(iii) Incumbency Certificates with respect to directors and
officers;
(iv) Certificate of Status and good standing certificate from
Utah; and
(v) Such other documents, consents, instruments, opinion and
certificates as ENHANCED may reasonably request.
(d) OTHER DELIVERIES.
(i) ENHANCED and Ralph LaBarge ("LaBarge") shall enter into an
employment agreement substantially in the form of Exhibit
6.03(c)(i);
17
(ii) ENHANCED and Kenneth Duckman ("Duckman") shall enter into
a consulting agreement substantially in the form of
Exhibit 6.03(c)(ii); and
(iii) The parties, LaBarge and Duckman shall enter into such
other documents, consents, instruments, opinion and
certificates as the other parties may reasonably request.
ARTICLE VII
COVENANTS AND CONDITIONS
7.01 FINANCIAL STATEMENTS. Within 45 days after the date hereof,
ZULU-tek shall cause to be completed an audit of its financial statements
(consolidated with its subsidiaries) and shall pursue such audit for the year
ended December 31, 1997 in a manner that will allow the audited financial
statements to be available for the annual ENHANCED's stockholders meeting.
ENHANCED and ZULU-tek will deliver to the other unaudited consolidated balance
sheets and summaries of earnings for each calendar month after the date hereof
and continuing until the earlier of December 31, 2000 or the date on which one
or the other shall waive the requirement. All such financial statements shall
accurately present their financial position and results of operations and their
consolidated subsidiaries for the periods covered hereby.
7.02 ENHANCED STOCKHOLDER APPROVAL. ENHANCED will take appropriate
action to call and commence a meeting of its stockholders (the "Stockholders
Meeting") if required, to consider and vote upon the conversion of the 1998
Preferred Stock and such other matters proposed and requiring stockholder
action, with any such matters to be submitted, supported by a recommendation for
approval by its Board of Directors, ENHANCED shall solicit the approval thereof
by its stockholders by mailing or delivering to each such stockholder a proxy
statement and proxy. In connection therewith, promptly after the Closing the
parties will cooperate in finalizing and filing the appropriate proxy material
and registration statements with the SEC.
7.03 EQUITY FUNDING. Promptly after the date hereof, the parties will
coordinate in seeking funding through debt or preferred equity, as available,
for the business plan developed by ENHANCED and ZULU-tek through a private
placement to institutional or sophisticated investors and strategic partners
with the objectives of seeking $5,000,000 in immediate funding and substantial
additional funding to support growth and to implement the joint business plan of
the parties. If such funding is successful, certain advances by LaBarge, Duckman
and NETVEST will be reimbursed as agreed in separate letters.
7.04 LIMITATION ON EQUITY. If during the period from the date hereof
until March 1, 1999, ZULU-tek or Enhanced undertake a merger, consolidation or
similar transaction or form a new entity which is owned by their current
shareholders or a successor to either of them, the capital structure will be
such that if the same were undertaken on the date hereof, the shareholders of
ZULU-tek would hold 80% and the holders of Enhanced would hold 20% of the
resulting entity ("Deemed Ownership"). In addition, if ZULU-tek or Enhanced
elect to issue additional shares of their common stock or capital stock
convertible into Zulu-tek Common Stock or Enhanced Common Stock, as the case may
be, in order to effect independent corporate acquisitions or other transactions
(other than as contemplated by
18
existing employee incentive plans), such issuances shall be undertaken in
consultation with the other and on the basis of a pro rata dilution of the
Deemed Ownership on the date hereof as described above.
7.05 SATISFACTION OF CONDITIONS. Each party hereto agrees that
subsequent to Closing, it will take all actions reasonably within its power and
authority to duly and promptly carry out all of its obligations under this
Agreement and to comply with all of the representations and warranties hereunder
applicable to it and to use its reasonable best efforts to cause all of the
conditions to the obligation of the other hereunder, to be satisfied as promptly
as possible.
ARTICLE VIII
BROKERAGE AND SIMILAR FEES
8.01 NO OTHER FEE AGREEMENTS. ENHANCED, NETVEST and ZULU-tek each hereby
represents and warrants to the other that it has not entered into any other
agreements, or retained or otherwise authorized any investment banker,
individual, broker, finder, consultant or other intermediary to act for or on
its or their behalf in a manner which would entitle such person to any payment
of any broker's or finder's fees or other payments or commissions in connection
with the transactions Purchase or any other transactions contemplated hereby.
NETVEST, Enhanced and ZULU-tek each agree to be responsible for any costs they
may incur and will jointly and severally indemnify and hold the other and their
respective officers, directors, employees and agents harmless against any such
commissions, fees or other compensation found to be due on account of any such
agreements.
ARTICLE IX
CONFIDENTIALITY
9.01 MAINTENANCE OF CONFIDENTIAL INFORMATION. From the date hereof and
continuing until May 31, 1998 each party will hold in confidence all information
obtained or delivered by a party hereto and their representatives and designated
in writing by the person providing the same as "Confidential Information",
subject to the disclosure or use of such information as may be required in order
for the parties to perform their respective due diligence and other obligations
hereunder. This obligation of confidentiality shall not extend to any
information which is shown to have previously been (i) known to the party
receiving it, (ii) is generally known to others engaged in the trade or business
of the party receiving it, (iii) is part of public knowledge or literature, or
(iv) was lawfully received from a third party or shall be required to be
disclosed pursuant to applicable law or the rules of a stock exchange (including
NASDAQ) on which such party's securities may be listed. Without limiting the
generality of the foregoing, it is understood and agreed that certain
information disclosed by either ZULU-tek or ENHANCED to the other or their
respective representatives may constitute "material inside information" that has
not previously been disclosed to the public generally. The parties acknowledge
their understanding of the restrictions on the use of such information imposed
by Federal and State securities laws, and agree to comply and cause their
representatives to comply with such restrictions. In no event shall the
Confidential Information received by either party be used for its own commercial
or financial advantage. Each party shall take all steps necessary to insure
compliance with the requirements of this Section by all persons having access to
the Confidential Information, including any person retained to provide advice
relating to the transactions contemplated
19
hereby. Should the transactions not be consummated, all copies of Confidential
Information, in whatever form, shall be returned to the originator by each party
and its representatives.
9.02 REMEDIES ON BREACH. The parties hereto acknowledge and agree that
the breach of this Article IX will result in serious and irreparable damage and
that it would be extremely burdensome and difficult, if not impossible, to
determine the scope and extent of damages suffered by reason of a breach of this
Section. Accordingly, the parties hereto agree that all remedies at law or in
equity shall be available to enforce the terms of this Article VIII and to
recover damages of whatever kind and amount permitted by law for breach hereof.
Notwithstanding anything to the contrary contained herein, no party hereto shall
be deemed to have violated or breached this Article IX if such party provides a
copy of, or discloses information contained in, this Agreement in connection
with obtaining any waiver, consent, or approval, or undertaking registration or
filing required or contemplated by this Agreement.
ARTICLE X
MUTUAL INDEMNIFICATION
10.01 INDEMNIFICATION BY ZULU-TEK AND NETVEST. Each of ZULU-tek and
NETVEST jointly and severally shall indemnify, defend and hold harmless each of
ENHANCED and its officers, directors, employees, agents and consultants against
any and all claims, demands, losses, costs, expenses, liabilities and damages,
including without limitation, attorneys' fees and expenses (collectively,
"Claims") that any of them may suffer or incur which arise, result from or
relate to any breach by ZULU-tek or NETVEST of any of their respective
representations, warranties or covenants contained herein or in any certificate,
exhibit or agreement delivered by any of them pursuant hereto.
10.02 INDEMNIFICATION BY ENHANCED. Notwithstanding Section 5.07,
ENHANCED shall indemnify, defend and hold harmless each of ZULU-tek and NETVEST
and each of their respective officers, directors, employees, agents and
consultants against any and all Claims that any of them may suffer or incur
which arise, result from or relate to any breach by any of ENHANCED, Duckman or
LaBarge of any of their respective representations, warranties or covenants
contained herein or in any certificate, exhibit or agreement delivered by any of
them pursuant hereto.
10.03 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for
indemnification under this Article X, the party entitled to indemnification (the
"indemnified party") shall promptly notify the party obligated to provide
indemnification (the "indemnifying party") of the claim and, when known, the
facts constituting the basis for such claim; provided, however, that the failure
to so notify the indemnifying party shall not relieve the indemnifying party of
its obligation hereunder to the extent such failure does not materially
prejudice the indemnifying party. In the event of any claim for indemnification
hereunder resulting from or in connection with any claim or legal proceedings by
a third party, the notice to the indemnifying party shall specify, if known, the
amount or an estimate of the amount of the liability arising therefrom.
10.04 DEFENSE OF CLAIMS. In connection with any third party claim giving
rise to indemnity hereunder, the indemnifying party, at its sole cost and
expense and with counsel reasonably satisfactory to the indemnified party, shall
assume the defense of any such claim or legal proceeding.
20
The indemnified party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense, PROVIDED,
HOWEVER, that if there are one or more legal defenses available to the
indemnified party that conflict with those available to the indemnifying party,
or if the indemnifying party fails to take reasonable steps necessary to defend
diligently the claim after receiving notice from the indemnified party that it
believes the indemnifying party has failed to do so, the indemnified party may
assume the defense of such claim; PROVIDED, HOWEVER, that the indemnified party
may not settle such claim without the prior written consent of the indemnifying
party, which consent may not be unreasonably withheld. If the indemnified party
assumes the defense of the claim, the indemnifying party shall reimburse the
indemnified party for the reasonable fees and expenses of counsel retained by
the indemnified party and the indemnifying party shall be entitled to
participate in (but not control) the defense of such claim, with its counsel and
at its own expense.
10.05 SURVIVAL OF OBLIGATIONS. The provisions of this Article X shall
survive any termination of this Agreement.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.01 AMENDMENT AND WAIVER. This Agreement shall not be altered or
amended except by a written instrument executed by ENHANCED, ZULU-tek and
NETVEST. Any waiver of any term, covenant, agreement or condition contained in
this Agreement shall not be deemed a waiver of any other term, covenant,
agreement or condition, and any waiver of any default in such term, covenant,
agreement or condition shall not be deemed a waiver of any later default thereof
or of any default of any other term, covenant, agreement or condition.
11.02 SEVERABILITY. In the event that any one or more of the provisions
of this Agreement shall be invalid, illegal or unenforceable, all other
provisions hereof shall be given effect separately therefrom and shall not be
affected thereby.
11.03 EXPENSES. Except as otherwise provided herein, the parties hereto
shall be responsible for their own fees and expenses incurred in connection with
this Agreement.
11.04 PRESS RELEASES. All press releases or other public communications
relating to this Agreement or the transactions contemplated hereby will require
the prior approval of ZULU-tek, NETVEST and ENHANCED, unless counsel has advised
either party that such release or other public communication must immediately be
issued and the issuing party has not been able, despite its good faith efforts,
to secure the prior approval of the other party. Except as required by law or
the applicable securities regulations, the parties will use their best efforts
to maintain as confidential the purchase price and other economic terms of the
transaction and to seek confidential treatment with respect to filings of this
Agreement and any Exhibits hereto.
11.05 NOTICES. All notices, requests, demands and other communications
which are required or may be given under this Agreement shall be in writing and
shall be delivered by personal delivery, by overnight courier or by registered
or certified mail, postage prepaid, or by confirmed facsimile to the parties as
follows:
21
If to ENHANCED: Enhanced Services Company, Inc.
16000 Barker Point Lane
Houston, Texas 77079
Attention: Kenneth M. Duckman
Telecopy:
with a copy to: James, Goldman & Haugland, P.C.
Eighth Floor
Texas Commerce Bank Building
El Paso, Texas 79901-1770
Attention: Merton Goldman, Esq.
Telecopy: (915) 541-6440
If to NETVEST: NETVEST
Netvest Capital Funding, Inc.
11835 West Olympic Boulevard, Suite 1090
Los Angeles, California 92253
Attention: Rosanna Kander
Telecopy: (760) 564-5401
If to ZULU-tek: ZULU-TEK, Inc.
2361 Rosecrans Avenue, Suite 275
El Segundo, California 90245
Attention: Richard Fisher, General Counsel
Telecopy: (310) 563-0555
with a copy to: Brand Farrar & Buxbaum LLP
515 South Flower Street, Suite 3500
Los Angeles, California 90071
Attention: Margaret G. Graf, Esq.
Telecopy: (213) 426-6222
or to such other address as any party shall have specified by notice in writing
to the others in accordance with the terms of this Section 11.05. All notices
shall be effective upon delivery. Rejection or other refusal to accept delivery
of notice or the inability to deliver because of change of address as to which
no notice was given hereunder shall be deemed to be receipt of the notice sent.
11.06 ENTIRE AGREEMENT. This Agreement, the Exhibits hereto and the
other documents delivered by the parties at Closing pursuant to Article VI
hereof, constitute the entire agreement among the parties hereto with respect to
the subject matter hereof.
11.07 ASSIGNMENT. This Agreement and all of the provisions hereof shall
be binding and inure to the benefit of the parties hereto and their respective
successors and permitted assigns, but
22
neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by either party without the prior written consent of the other
party.
11.08 THIRD PARTIES. Nothing herein expressed or implied is intended or
shall be construed to confer upon or give to any person other than the parties
hereto and their successors or assigns, any rights or remedies under or by
reason of this Agreement.
11.09 SECTION AND OTHER HEADINGS. The Section and other headings
contained in this Agreement are for reference purposes only and shall not affect
the meaning or interpretation of this Agreement.
11.10 COUNTERPARTS; FACSIMILE SIGNATURES. This Agreement may be executed
in two or more counterparts, each of which shall be deemed to be an original and
all of which together shall be deemed to be one and the same instrument. The
parties hereto further agree that a facsimile signature may be relied upon and
treated with the same force and effect as an original signature. This Agreement
shall become effective, as of the effective date first written above, when each
party hereto shall have received a counterpart hereof signed by each other party
hereto.
11.11 GOVERNING LAW; VENUE; JURISDICTION. This Agreement shall be
governed by, and construed in accordance with, the laws of the State of
California without regard to its conflicts of laws doctrines. In the event of
any litigation among the parties hereto, suit shall be brought in Los Angeles
County, California and the parties hereto hereby submit themselves to the
jurisdiction of the state and federal courts in Los Angeles County, California.
11.12 FURTHER ASSURANCES. Each of the parties hereto agrees that it
will, whenever and as often as it shall be reasonably requested so to do by
another party hereto, execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, any and all further instruments as may be necessary
or expedient in order to consummate the transactions provided for in this
Agreement, and do any and all further acts and things as may be necessary or
expedient in order to carry out the purpose and intent of this Agreement.
11.13 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Except as otherwise
specifically provided herein, the respective representations and warranties of
the parties hereto shall survive the Closing for a period expiring on the first
anniversary of the Closing, and shall thereafter terminate and be of no further
force or effect except as they relate to written claims made by any such party
to the others prior to such expiration.
11.14 PRONOUNS. All pronouns and any variations thereof shall be deemed
to refer to masculine, feminine, neuter, singular or plural, except where the
context of the Agreement clearly indicates otherwise.
[signatures continued on next page]
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[signatures continued from previous page]
SIGNATURE PAGE FOR SECURITIES ACQUISITION AGREEMENT
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
ZULU-TEK, INC. ENHANCED SERVICES COMPANY, INC.
By:____________________________ By:____________________________
Neil Miller, President Kenneth M. Duckman, President
NETVEST CAPITAL PARTNERS LP
By: ____________________________
Authorized Signatory for its
General Partner
____________________________