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Exhibit 1
EXECUTION COPY
SECURITIES ACQUISITION AND REORGANIZATION
AGREEMENT
BY AND BETWEEN
ENHANCED SERVICES COMPANY, INC., a Colorado Corporation
AND
ZULU-tek, INC., a Utah Corporation
September 9,1998
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SECURITIES ACQUISITION AGREEMENT
TABLE OF CONTENTS
ARTICLE I EXCHANGE OF REORGANIZATION STOCK FOR ZULU-TEK ASSETS................................................... 2
1.01 Exchange........................................................................................ 2
1.02 Fully Paid and Nonassessable Status............................................................. 2
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..................................................................................... 3
2.04 Issuance of Shares.............................................................................. 3
2.05 Receipt of Information.......................................................................... 3
2.06 Sophisticated Investor.......................................................................... 4
2.07 Capital Structure............................................................................... 4
(a) Common Stock........................................................................... 4
(b) 8.6% Preferred......................................................................... 4
(c) 1998 Preferred......................................................................... 4
(d) 1998(B) Preferred...................................................................... 4
(e) 1998(C) Preferred...................................................................... 4
(f) Investor Preferred..................................................................... 5
2.08 Directors and Officers.......................................................................... 5
2.09 Certain Financial Information................................................................... 5
2.10 Litigation...................................................................................... 6
2.11 NASDAQ Matters.................................................................................. 6
2.12 Compliance With Law............................................................................. 6
2.13 Corporate Records............................................................................... 6
2.14 Material Contracts.............................................................................. 6
2.15 Taxes........................................................................................... 6
2.16 ERISA........................................................................................... 7
2.17 Patents, Copyrights, Etc........................................................................ 7
2.18 No Materially Adverse Matters, Etc.............................................................. 7
2.19 No Further Representations and Warranties....................................................... 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF ZULU-TEK........................................................... 8
3.01 Organization of ZULU-tek........................................................................ 8
3.02 Corporate Power and Authority................................................................... 8
3.03 No Conflict..................................................................................... 9
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3.04 Capital Structure of ZULU-tek.................................................................. 9
(a) ZULU-tek Common Stock................................................................. 9
(b) Series A Preferred Stock.............................................................. 9
(c) Series B Preferred Stock.............................................................. 9
(d) Series C Preferred Stock.............................................................. 9
(e) Series D Preferred Stock.............................................................. 9
3.05 Directors and Officers......................................................................... 10
3.06 Compliance With Law............................................................................ 10
3.07 Corporate Records.............................................................................. 10
3.08 Status of Subsidiaries......................................................................... 10
3.09 Restricted Securities.......................................................................... 10
3.10 Receipt of Information......................................................................... 11
3.11 Sophisticated Investor......................................................................... 11
3.12 Legends........................................................................................ 11
3.13 Material Contracts............................................................................. 11
3.14 Taxes.......................................................................................... 11
3.15 ERISA.......................................................................................... 12
3.16 Patents, Copyrights, Etc....................................................................... 12
3.17 Litigation..................................................................................... 12
3.18 No Materially Adverse Contracts, Etc........................................................... 12
3.19 No Further Representations and Warranties...................................................... 13
ARTICLE IV REGISTRATION RIGHTS.................................................................................. 13
4.01 Registration Rights............................................................................ 13
4.02 Reporting Requirements Under The Securities Exchange Act of 1934............................... 13
4.03 Expenses....................................................................................... 13
4.04 Indemnification; Contribution.................................................................. 13
4.05 Obligations of ENHANCED........................................................................ 15
(a) Filing................................................................................ 15
(b) Amendments............................................................................ 15
(c) Prospective Delivery.................................................................. 15
(d) Blue Sky.............................................................................. 16
ARTICLE V CLOSING AND POST-CLOSING MATTERS...................................................................... 16
5.01 Closing........................................................................................ 16
5.02 Closing Documents.............................................................................. 16
(a) ENHANCED Deliveries................................................................... 16
(b) ZULU-tek Deliveries................................................................... 16
5.03 Post-Closing Matters........................................................................... 17
5.04 Satisfaction of Conditions..................................................................... 19
ARTICLE VI TERMINATION.......................................................................................... 19
6.01 Termination.................................................................................... 19
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ARTICLE VII BROKERAGE AND SIMILAR FEES.......................................................................... 19
7.01 No Other Fee Agreements........................................................................ 19
ARTICLE VIII CONFIDENTIALITY.................................................................................... 20
8.01 Maintenance of Confidential Information........................................................ 20
8.02 Remedies on Breach............................................................................. 20
ARTICLE IX MISCELLANEOUS PROVISIONS............................................................................. 20
9.01 Representation of Multiple Parties............................................................. 20
9.02 Amendment and Waiver........................................................................... 21
9.03 Severability................................................................................... 21
9.04 Expenses....................................................................................... 21
9.05 Press Releases................................................................................. 21
9.06 Notices........................................................................................ 21
9.07 Entire Agreement............................................................................... 22
9.08 Assignment..................................................................................... 22
9.09 Third Parties.................................................................................. 23
9.10 Section and Other Headings..................................................................... 23
9.11 Counterparts; Facsimile Signatures............................................................. 23
9.12 Governing Law; Venue; Jurisdiction............................................................. 23
9.13 Further Assurances............................................................................. 23
9.14 Survival of Representations and Warranties..................................................... 23
9.15 Pronouns....................................................................................... 23
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EXHIBIT LIST
EXHIBIT 1.01(a) ZULU-tek LIABILITIES
EXHIBIT 1.01(b) ZULU-TEK ASSETS
EXHIBIT 2.01 SUBSIDIARIES OF ENHANCED
EXHIBIT 2.07 OUTSTANDING OPTIONS AND WARRANTS
EXHIBIT 2.08 CURRENT DIRECTORS AND OFFICERS OF ENHANCED
EXHIBIT 2.09 FINANCIAL INFORMATION OF ENHANCED INCLUDING
ENHANCED OBLIGATIONS
EXHIBIT 2.10 PENDING LITIGATION OR PROCEEDINGS OF ENHANCED
EXHIBIT 2.14 ENHANCED MATERIAL CONTRACTS
EXHIBIT 2.16 ERISA MATTERS OF ENHANCED
EXHIBIT 2.17 PATENTS, COPYRIGHTS, ETC. OF ENHANCED
EXHIBIT 3.01 SUBSIDIARIES OF ZULU-TEK
EXHIBIT 3.04 CAPITAL STRUCTURE OF ZULU-TEK
EXHIBIT 3.05 CURRENT OFFICERS AND DIRECTORS OF ZULU-TEK
EXHIBIT 3.13 ZULU-TEK MATERIAL CONTRACTS
EXHIBIT 3.14 ZULU-TEK TAX MATTERS
EXHIBIT 3.15 ERISA MATTERS OF ZULU-TEK
EXHIBIT 3.16 PATENTS, COPYRIGHTS, ETC. OF ZULU-TEK
EXHIBIT 3.17 ZULU-TEK LITIGATION
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SECURITIES ACQUISITION AND REORGANIZATION AGREEMENT
This SECURITIES ACQUISITION AND REORGANIZATION AGREEMENT ("Agreement")
dated as of September 9, 1998 is made by and between ENHANCED Services Company,
Inc., a Colorado corporation ("ENHANCED") and ZULU-tek, Inc., a Utah corporation
("ZULU-tek"), both with offices at 3415 Sepulveda Blvd., Suite 500, Los Angeles,
California 90034.
WHEREAS, ENHANCED desires to exchange (the "Exchange") 520,000 of its
newly authorized 1998(B) Preferred Stock $.001 par value ("1998(B) Preferred")
and up to 10,209 shares of its newly authorized 1998(C) Preferred Stock
("1998(C) Preferred," and collectively the "Reorganization Stock") and up to
$374,800 for substantially all of the assets and the assumption by ENHANCED of
all of the Zulu-tek liabilities, and Zulu-tek desires to acquire the
Reorganization Stock from ENHANCED upon the terms and subject to the conditions
hereinafter set forth; and
WHEREAS, ZULU-tek and ENHANCED intend to cooperate in obtaining the
consent of the holders of the ZULU-tek Series C Preferred Stock to exchange
those shares for the 1998(C) Preferred; and
WHEREAS, ENHANCED will submit to its Annual Meeting of Stockholders,
which is expected to be scheduled in mid-November, 1998, a proposal to convert
the 1998(B) Preferred into 5,200,000 shares of ENHANCED Common Stock (as defined
below); and
WHEREAS, ZULU-tek intends to convene a shareholders meeting to seek
approval to liquidate the corporation and to distribute the ENHANCED Common
Stock underlying the 1998(B) Preferred to its stockholders in liquidation; and
WHEREAS, ZULU-tek and ENHANCED intend that the transaction as set out
in this Agreement constitute a tax free reorganization to ZULU-tek, to the
ZULU-tek stockholders and to ENHANCED under Sections 354 and 368 (a)(1)(D) of
the Internal Revenue Code of 1986, as amended (the "Code").
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:
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ARTICLE I
EXCHANGE OF REORGANIZATION STOCK FOR ZULU-TEK ASSETS
1.01 Exchange. In reliance on the representations and warranties set
forth herein, at the Closing (as hereinafter defined), ENHANCED shall issue and
deliver the Reorganization Stock, and shall assume the liabilities of ZULU-tek
set out on Exhibit 1.01(a). ZULU-tek shall transfer the assets set out on
Exhibit 1.01(b) to ENHANCED (the assets listed in 1.01(b) 1-3 shall be referred
to as "Acquired Stock").
1.02 Fully Paid and Nonassessable Status. All of the shares of
Reorganization Stock to be issued and delivered by ENHANCED pursuant to this
Agreement, when issued 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.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ENHANCED
ENHANCED hereby represents and warrants to ZULU-tek as follows:
2.01 Organization. As of the date of this Agreement 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. In connection with the
Annual Meeting of Stockholders, ENHANCED will seek the approval of its
stockholders to change its state of incorporation from Colorado to Delaware
through a merger with a newly organized Delaware corporation.
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
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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, the violation of which would have a material adverse
effect on the financial conditions of 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 Reorganization Stock to be delivered
pursuant to this Agreement is authorized but unissued capital stock and the
articles of amendment to effect such issuance have not yet been filed by
ENHANCED but will be filed prior to Closing. Subsequent to the filing of the
applicable Certificates of Designation for the Reorganization Stock, and the
increase in its authorized capital stock needed to effect the conversion of such
Reorganization Stock, ENHANCED has full power and authority to issue and deliver
the Reorganization Stock, and has obtained and provided all notices and consents
required under the ENHANCED Articles of Incorporation, the ENHANCED Bylaws and
the applicable rules of the National Association of Securities Dealers ("NASD")
or as a corporation listed on the NASDAQ SmallCap ("NASDAQ") Stock Market
(collectively, the "NASDAQ Rules").
2.05 Receipt of Information. ENHANCED and its representatives have
received and reviewed this Agreement, all Exhibits hereto, and all other
documents and materials that ZULU-tek has 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 ZULU-tek and have been given an opportunity
to ask such questions of 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 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.
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2.06 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 transactions contemplated hereby.
2.07 Capital Structure. The authorized capital stock of ENHANCED
currently consists of 20,000,000 shares of capital stock of which 15,000,000 are
shares of Common Stock, par value $.001 per share ("ENHANCED Common Stock") and
5,000,000 are preferred shares to be 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. 3,245,118 shares are issued and outstanding as of August
11, 1998 and as of August 31, 1998, 1,161,250 shares were reserved for
issuance on exercise of outstanding options and warrants;
(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 1998 Preferred Stock consisting of 1,000,000
shares, par value $3.00, issued to Netvest Capital Partners LP, a Delaware
limited partnership, in transactions implemented on March 6, 1998, which
shares are convertible into 5,543,600 shares of ENHANCED Common Stock
solely at the option of ENHANCED after receipt of stockholder approval at
the ENHANCED Annual Meeting of Stockholders convened in accordance with the
NASDAQ Rules and the requirements of the Securities & Exchange Commission
(the "SEC");
(d) 1998(B) Preferred. The 1998(B) Preferred Stock consisting of 520,000
shares to be issued to ZULU-tek in connection with the transactions
contemplated hereby and which shares shall be convertible into 5,200,000
shares of ENHANCED Common Stock, subject to adjustment in the event of any
stock splits, stock dividend, reclassifications or other capital
transactions, as applicable, after receipt of stockholder approval at the
ENHANCED Annual Meeting of Stockholders and there is an effective SEC
registration statement allowing for the distribution of the Common Stock to
the stockholders of ZULU-tek;
(e) 1998(C) Preferred. The 1998(C) Preferred Stock consisting of 15,000
shares, stated value $1,000 per share, which shall be exchanged on a share
for share basis for the outstanding ZULU-tek Series C Preferred Stock held
by Softbank Holdings, Inc., Ozemail, Inc. and certain individuals in
connection with the liquidation of ZULU-tek, subject to adjustment in the
event of any stock splits, stock dividend, reclassifications or other
capital transactions, as applicable, and subject to such terms and
conditions as shall be negotiated with the holders and reflected in the
proxy materials for the ENHANCED Annual Meeting of Stockholders; and
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(f) Investor Preferred. The Investor Preferred Stock ("Investor
Preferred") consisting of up to 500,000 shares, stated value $10 per share, to
be issued by ENHANCED to certain investors at a purchase price of $10.00 per
share, to be issued on or prior to December 31, 1998 and to be convertible into
ENHANCED Common Stock on the basis of 10 shares of ENHANCED Common Stock for
each share of Investor Preferred, subject to adjustment in the event of any
stock splits, stock dividend, reclassifications or other capital transactions,
as applicable. To the extent required by the NASDAQ Rules, the Investor
Preferred will be convertible only after receipt of stockholder approval at the
ENHANCED Annual Meeting of Stockholders (including approval of an increase in
the number of authorized shares). If requested by the holders, ENHANCED will
file a registration statement with the SEC covering the resale of the ENHANCED
Common Stock to be issued upon the conversion of the Investor Preferred.
The ENHANCED Common Stock entitles each holder to one vote for each
share held. Except as set forth on Exhibit 2.07, 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.
No other classes of preferred shares have been designated or issued and, except
as set forth herein with respect to the Reorganization Stock to be issued to
ZULU-tek and upon any exercise of outstanding options and warrants, no
additional shares of the capital stock of ENHANCED will be issued or reserved
for issuance at or prior to the Closing. The Certificates of Designation to be
filed in the State of Colorado will correctly set forth the terms of the
ENHANCED 1998(B) and the Investor Preferred and the 1998(C) Preferred Stock.
2.08 Directors and Officers. The current directors and officers of
ENHANCED are set forth on Exhibit 2.08 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.
2.09 Certain Financial Information. The audited and unaudited financial
statements of ENHANCED, filed with the SEC for all periods through May 31, 1998,
fairly 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 2.09 (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 2.09, FCA Investment Company, a
Delaware corporation ("FCAIC"), has advanced $500,000.00 to ENHANCED as working
capital.
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2.10 Litigation. Except as set forth on Exhibit 2.10, as of the date of
this Agreement, there is no litigation or proceedings 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 such claims or
litigation shall be initiated or threatened with respect to this transaction or
any actions of ENHANCED, it shall promptly advise ZULU-tek thereof.
2.11 NASDAQ Matters. ENHANCED will submit an application to NASDAQ to
list the ENHANCED Common Stock underlying the Reorganization Stock and the
Investor Preferred on NASDAQ to allow for listing extemporaneously with the
conversion of such stock. 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 ZULU-tek acknowledges receipt of
correspondence between NASDAQ and ENHANCED pertaining to ENHANCED's NASDAQ
listing. ZULU-tek agrees to accept the Reorganization 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.
ZULU-tek agrees to cooperate, at the request of ENHANCED, in ENHANCED's efforts
to maintain such listing, but makes no representation with respect to its
capacity to effect the continued listing of the ENHANCED Common Stock.
2.12 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.
2.13 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 ZULU-tek.
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.
2.14 Material Contracts. Exhibit 2.14 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 $50,000, and the status of the same at the date
hereof.
2.15 Taxes. ENHANCED has filed all federal, state and other tax returns
required to be filed, and all taxes, assessments and other governmental charges
due from ENHANCED have been fully paid. ENHANCED has established on its books
reserves adequate for the payment of all federal, state and other tax
liabilities.
2.16 ERISA. Except as set forth on Exhibit 2.16, ENHANCED is in
compliance in all material respects with the applicable provisions of ERISA and
has not incurred any liability to
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the Pension Benefit Guaranty Corporation or a plan under Title IV of ERISA; and
no "prohibited transaction" or "reportable event" (as such terms are defined in
ERISA) has occurred with respect to any plan.
2.17 Patents, Copyrights, Etc. Exhibit 2.17 sets forth an accurate and
complete list of all patents, copyrights, trademarks, trade names, trademark
registrations, service names, service marks, domain names, licenses, formulas
and applications therefor owned by ENHANCED or its subsidiaries or used or
required by ENHANCED in the operation of its business, title to each of which
is, except as set forth in Exhibit 2.17, held by ENHANCED free and clear of all
adverse claims, liens, security agreements, restrictions or other encumbrances.
Except as set forth in Exhibit 2.17, ENHANCED owns or possesses adequate
licenses or other rights to use all patents, trademarks, trade names, service
marks, domain names, trade secrets or other intangible property rights and
know-how necessary to entitle ENHANCED to conduct its business as presently
being conducted. There is no infringement action, lawsuit, claim, or complaint
or any written notice to ENHANCED which asserts that ENHANCED's operations
violate or infringe the rights or the trade names, trademarks, trademark
registrations, service names, service marks, domain names or copyrights, and
ENHANCED is not in any way making use of any confidential information or trade
secrets of any person, except with the consent of such person. Except as set
forth in Exhibit 2.17, ENHANCED has taken reasonable steps to protect its
proprietary information (except disclosure of source codes pursuant to licensing
agreements) and is the lawful owner of the proprietary information free and
clear of any claim of any third party. ENHANCED's proprietary rights are
adequate of the conduct of its business substantially as now conducted without
known conflict with any rights of others. ENHANCED will provide to ZULU-tek upon
ZULU-tek's request a copy of all filings, registrations and other documents
relating to any of the foregoing franchises, patents, copyrights, trademarks,
trade names, trademark registrations, service names, service marks, domain
names, licenses, formulas and applications.
2.18 No Materially Adverse Matters, Etc. ENHANCED is not subject to any
charge, corporate or other legal restriction, or any judgment, decree, order,
rule or regulation that has or is expected in the future to have a materially
adverse effect on the business, assets or financial condition of ENHANCED.
ENHANCED is not a party to any contract or agreement that has or is expected, in
the judgment of ENHANCED's officers, to have any materially adverse effect on
the business of ENHANCED.
2.19 No Further Representations and Warranties. ZULU-tek acknowledges
that no other representations or warranties have been made by ENHANCED or relied
upon by ZULU-tek except as set out in this Agreement.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ZULU-TEK
ZULU-tek represents and warrants to ENHANCED, on its own behalf and
with respect to material transactions by its material subsidiaries (all of which
are collectively referred to as "ZULU-tek" solely for purposes of Sections 3.03,
3.06, 3.07 and 3.13 to 3.18), as follows:
3.01 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 3.01 is a list of all of the entities in which ZULU-tek
directly or indirectly holds any shares, options or other rights (the "ZULU
Subsidiaries").
3.02 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
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. Notwithstanding the same, the parties
acknowledge that it is unclear whether Star Medical, Inc. (the predecessor to
ZULU-tek), which was organized in 1985 has, since 1992, adopted the resolution,
required by Sections 16-10a-704 and 16-10a-1704 of the Business Corporations Act
of Utah (as newly adopted in 1992) to allow for written consent by stockholders,
even though it would appear that such a resolution had been adopted since Star
Medical, Inc., took action by written consent of its stockholders subsequent to
such date and, consistent with such practice, a written consent of a majority of
the holders of the Common Stock of ZULU-tek has been sought and received with
respect to the transactions contemplated hereby. However, to assure compliance
and resolve any possible ambiguities, ZULU-tek intends to seek ratification of
certain transactions, including the ones covered by this Agreement, at a Special
Meeting of Stockholders (as described in Article V). In addition, consent to the
transaction from a holder of the ZULU-tek Series A Preferred is pending. Subject
to the proceeding and 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.
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3.03 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, the violation of which would 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.
3.04 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 51,917,263 were issued
and outstanding at August 10, 1998;
(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
were 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) but which are no longer
convertible on the date hereof;
(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 issuance to former
stockholders of Softbank Interactive Media, Inc. ("SIM") as
listed on Exhibit 3.04; and
(e) Series D Preferred Stock. 1,000,000 shares of ZULU-tek
Preferred Stock par value $.01 per share issued to and held by
ENHANCED in connection with the March Transaction.
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. 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. The
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Certificates 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.
Except as set forth on Exhibit 3.04 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.
3.05 Directors and Officers. The current directors and officers of
ZULU-tek are set forth on Exhibit 3.05 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.
3.06 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.
3.07 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 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.
3.08 Status of Subsidiaries. Exhibit 3.01 sets forth the names, state
of organization, corporate status and ownership of each of the ZULU-tek
Subsidiaries, which information ZULU-tek represents to be accurate as of the
date shown. To the extent that any of the ZULU-tek Subsidiaries are not
currently in good standing, ZULU-tek shall use its best efforts, at its expense,
to cure any deficiencies and to insure the good standing of such subsidiaries on
or prior to September 30, 1998.
3.09 Restricted Securities. ZULU-tek acknowledges that the shares of
the Reorganization Stock have not been registered under the 1933 Act or
registered or qualified under any state securities laws on the grounds that such
shares of Reorganization Stock are being issued in a transaction exempt from the
registration requirements of the 1933 Act. ZULU-tek acknowledges that the shares
of Reorganization Stock must be held indefinitely unless such shares of
Reorganization 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 Reorganization Stock cannot be transferred.
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3.10 Receipt of Information. ZULU-tek 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. ZULU-tek 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
Reorganization 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 requested, in order to make an independent and
informed evaluation of the merits and risks of the investment in the ENHANCED
Stock contemplated herein.
3.11 Sophisticated Investor. ZULU-tek 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.
3.12 Legends. ZULU-tek acknowledges that each certificate or other
document evidencing the Reorganization 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 ENHANCED Common Stock, the legend
required by such state authority.
3.13 Material Contracts. Exhibit 3.13 sets forth all employment
agreements, stock option plans and agreements, insurance plans, employee benefit
plans and all contracts of ZULU-tek, in effect on the date hereof, which
require annual payments of more than $50,000, and the status of the same at the
date hereof.
3.14 Taxes. Except as set forth on Exhibit 3.14, ZULU-tek has filed all
federal, state and other tax returns required to be filed, and all taxes,
assessments and other governmental charges due from ZULU-tek have been fully
paid. ZULU-tek has established on its books reserves adequate for the payment of
all federal, state and other tax liabilities.
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3.15 ERISA. ZULU-tek does not maintain any plans subject to the
provisions of ERISA. Except as set forth on Exhibit 3.15, ZULU-tek has not
incurred any liability to the Pension Benefit Guaranty Corporation or a plan
under Title IV of ERISA; and no "prohibited transaction" or "reportable event"
(as such terms are defined in ERISA) has occurred with respect to any plan.
3.16 Patents, Copyrights, Etc. Exhibit 3.16 sets forth an accurate and
complete list of all patents, copyrights, trademarks, trade names, trademark
registrations, service names, service marks, domain names, licenses, formulas
and applications therefor owned by ZULU-tek or its subsidiaries or used or
required by ZULU-tek in the operation of its business, title to each of which
is, except as set forth in Exhibit 3.16, held by ZULU-tek free and clear of all
adverse claims, liens, security agreements, restrictions or other encumbrances.
Except as set forth in Exhibit 3.16, ZULU-tek owns or possesses adequate
licenses or other rights to use all patents, trademarks, trade names, service
marks, domain names, trade secrets or other intangible property rights and
know-how necessary to entitle ZULU-tek to conduct its business as presently
being conducted. There is no infringement action, lawsuit, claim, or complaint
or any written notice to ZULU-tek which asserts that ZULU-tek's operations
violate or infringe the rights or the trade names, trademarks, trademark
registrations, service names, service marks, domain names or copyrights, and
ZULU-tek is not in any way making use of any confidential information or trade
secrets of any person, except with the consent of such person. Except as set
forth in Exhibit 3.16, ZULU-tek has taken reasonable steps to protect its
proprietary information (except disclosure of source codes pursuant to licensing
agreements) and is the lawful owner of the proprietary information free and
clear of any claim of any third party. ZULU-tek's proprietary rights are
adequate of the conduct of its business substantially as now conducted without
known conflict with any rights of others. ZULU-tek will provide to ENHANCED upon
ENHANCED's request a copy of all filings, registrations and other documents
relating to any of the foregoing franchises, patents, copyrights, trademarks,
trade names, trademark registrations, service names, service marks, domain
names, licenses, formulas and applications.
3.17 Litigation. Except as set forth on Exhibit 2.10, as of the date of
this Agreement, there is no litigation or proceedings pending or, to the best of
the knowledge of ZULU-tek's stockholders and ZULU-tek's directors and officers,
threatened against ZULU-tek or any of its assets or properties. To the extent
that after the date hereof ZULU-tek shall become aware that such claims or
litigation shall be initiated or threatened with respect to this transaction or
any actions of ZULU-tek, it shall promptly advise ENHANCED thereof.
3.18 No Materially Adverse Contracts, Etc. ZULU-tek is not subject to
any charge, corporate or other legal restriction, or any judgment, decree,
order, rule or regulation that has or is expected in the future to have a
materially adverse effect on the business, assets or financial condition of
ZULU-tek. ZULU-tek is not a party to any contract or agreement that has or is
expected, in the judgment of ZULU-tek's officers, to have any materially adverse
effect on the business of ZULU-tek.
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3.19 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
REGISTRATION RIGHTS
4.01 Registration Rights. ENHANCED shall file a registration statement
on Form S-3, S-4 or at its option, on Form S-1, Form SB-1 or any other
appropriate registration statement form available under the 1933 Act covering
the registration of the ENHANCED Common Stock to be issued upon a conversion of
the Reorganization Stock.
4.02 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"), and 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
the ENHANCED Common 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. 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; a copy of the most recent annual or
quarterly report of ENHANCED and such other reports and documents as a holder of
its Common Stock may reasonably request in availing itself of any rule or
regulation of the SEC allowing the sale of any such securities without
registration.
4.03 Expenses. All expenses incident to ENHANCED's performance of or
compliance with its undertaking in this Article IV, including, without
limitation, all registration and filing fees, printing expenses, messenger and
delivery expenses, and fees and disbursements of counsel for ENHANCED,
independent certified public accountants, underwriters (excluding 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.
4.04 Indemnification; Contribution.
(a) In the event of any registration of any ENHANCED Common Stock
under the 1933 Act pursuant to this agreement, ENHANCED shall
indemnify and hold harmless ZULU-tek, the holders and
recipients of the ENHANCED Common
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Stock, and the directors, officers, employees, agents and
consultants of ENHANCED, ZULU-tek and of the holders of the
ENHANCED Common Stock (collectively, the "Indemnified
Persons"), to the full extent permitted by law and without
limitation as to time, 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 of an
Indemnified Person for use in the preparation thereof; and
provided further that the indemnity agreement contained in
this Section 4.03 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 Common 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.
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(b) Promptly after receipt, by a party entitled to indemnification
under this Article IV, of notice of the commencement of any
action, such Indemnified Person will, if a claim in respect
thereof is to be made against the indemnifying party under
either of such Sections, notify the Indemnifying Person in
writing of the commencement thereof. In case any such action
is brought against an Indemnified Person and it shall so
notify the Indemnifying Person of the commencement thereof,
the indemnifying party shall assume the defense thereof with
counsel reasonably satisfactory to such Indemnified Person;
provided, however, that if the -------- ------- Indemnifying
Person fails to take reasonable steps necessary to diligently
defend such claim within 20 days after receiving notice from
the Indemnified Person that the Indemnified Person believes
the Indemnifying Person has failed to take such steps, the
Indemnified Person may assume its own defense and the
Indemnifying Person shall be liable for any expenses therefor.
The indemnity agreements in this Section 4.04 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 4.04 such
provision in the underwriting agreement shall determine
ENHANCED's and the Indemnified Persons' rights in respect
thereof.
4.05 Obligations of ENHANCED. Whenever required to effect the
registration of any ENHANCED Common 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 Common 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.
(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 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 may be reasonably requested in order to
facilitate the disposition of the ENHANCED Common 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
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effect, to include an 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 appropriate, 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.
ARTICLE V
CLOSING AND POST-CLOSING MATTERS
5.01 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
p.m. PST on the date hereof or on such other date as the parties determine, but
no later than September 15, 1998.
5.02 Closing Documents. At the Closing the parties shall deliver or
exchange the following:
(a) ENHANCED Deliveries. At the Closing, ENHANCED shall deliver to
ZULU-tek:
(i) An executed copy of this Agreement
(ii) Certified Resolutions of the Board of Directors of
ENHANCED approving the transactions contemplated
hereby;
(iii) Officer's and director's certificates in form
reasonably satisfactory to ZULU-tek;
(iv) Certificate of Status and good standing certificate
from Colorado; and
(v) Such other documents, consents, instruments, opinions
and certificates as ZULU-tek may reasonably request;
and
(b) ZULU-tek Deliveries. At the Closing, ZULU-tek shall deliver to
ENHANCED:
(i) An executed copy of this Agreement
(ii) Certified Resolutions of the Board of Directors of
ZULU-tek, approving the transactions contemplated
hereby and written consent to the
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transaction approved by a majority of the outstanding
Common Stock of ZULU-tek;
(iii) Officer's and director's certificates in form
reasonably acceptable to ENHANCED;
(iv) Certificate of Status and good standing certificate
from Utah; and
(v) Stock certificates representing the Acquired Stock
owned by ZULU-tek 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; and
(vi) Such other documents, consents, instruments, opinion
and certificates as ENHANCED may reasonably request.
5.03 Post-Closing Matters. Immediately following the Closing, the
parties undertake to complete the following post-Closing documentation and
delivery matters and shall exchange the same, as received, from time to time
after the Closing date; provided however that in the event all such post-Closing
matters, other than items 5.03(b)(v) and (c)(v), shall not have been completed
on or October 15, 1998, the party that has not yet received the items due from
the other, may upon 20 days written notice, at its option, terminate the
transactions contemplated hereby in which event the parties will take what other
actions may be required to return, on or before December 30, 1998, the
Reorganization Stock and the Acquired Stock and the assets and liabilities to
the parties holding them prior to Closing and to take all other reasonable
actions to return the parties to the status of such party prior to a Closing.
(a) 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.
(b) ENHANCED shall:
(i) File the Certificates of Designations for 1998(B) and
1998(C) Preferred and provide ZULU-tek with copies of
such Certificates and evidence of filing and
effectiveness in Colorado;
(ii) Immediately after filing of the Certificates of
Designation, issue certificates for the
Reorganization Stock which shall be issued as fully
paid and non-assessable and free of all claims, liens
and encumbrances whatsoever;
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(iii) Execute and deliver Assumption Agreements and similar
documents assuming the obligations of ZULU-tek set
out on Exhibit 1.01(a), to the extent such assumption
agreements or similar documents are necessary to
effect the same;
(iv) To the extent required, deliver the cash necessary to
acquire the shares of the ZULU-tek Series A Preferred
Stock which ZULU-tek must redeem at the request of
the holder; and
(v) Take appropriate action to call and convene the
Annual Meeting of its Stockholders to consider and
vote upon the transactions contemplated hereby 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.
(c) ZULU-tek shall or shall cause its subsidiaries to:
(i) Take such actions as may reasonably be required to
assure that each of the ZULU-tek Subsidiaries is in
good standing in the jurisdiction in which it is
incorporated as soon as practicable, but in no event
later than September 30, 1998;
(ii) Deliver the Certificates representing all of the
Acquired Stock, properly endorsed for transfer free
and clear of all claims, liens and encumbrances,
whatsoever;
(iii) Deliver or transfer any other assets as contemplated
by Exhibit 1.01 (b), along with such Bills of Sale
and other documents of transfer as may be required to
transfer title to ENHANCED, free of all claims, liens
and encumbrances whatsoever, except those set forth
on Exhibit 1.01(a) or which ENHANCED shall agree to
assume;
(iii) Execute and deliver Assignment Agreements and similar
documents transferring the obligations and
liabilities of ZULU-tek set out on Exhibit 1.01(a),
to the extent such Assignment Agreements or similar
documents are necessary to effect the same;
(iv) Take appropriate action to call and convene a special
meeting of its Stockholders to ratify the
transactions contemplated hereby and to
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consider and vote upon the liquidation of ZULU-tek,
with any such matters to be submitted supported by a
recommendation for approval by its Board of
Directors. ZULU-tek shall solicit the approval
thereof by its stockholders by mailing or delivering
to each such stockholder a proxy statement and proxy;
and
(v) Cause to be prepared and delivered, for inclusion in
the Proxy solicitation materials of ZULU-tek and
ENHANCED, a tax opinion of counsel with respect to
the Reorganization.
5.04 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 VI
TERMINATION
6.01 Termination. Unless otherwise agreed to by the parties, either
party hereto may terminate this Agreement upon ten (10) days written notice if:
(i) approval of the stockholders of ENHANCED for the conversion of the 1998
Preferred and 1998(B) Preferred is not obtained by ENHANCED on or prior to
December 30, 1998; (ii) a lawsuit is filed seeking to enjoin the parties from
completing the Exchange; or (iii) a registration statement does not become
effective with the SEC on or prior to January 31, 1999.
ARTICLE VII
BROKERAGE AND SIMILAR FEES
7.01 No Other Fee Agreements. ENHANCED, 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.
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.
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ARTICLE VIII
CONFIDENTIALITY
8.01 Maintenance of Confidential Information. From the date hereof and
continuing until December 30, 1999 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 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.
8.02 Remedies on Breach. The parties hereto acknowledge and agree that
the breach of this Article VIII 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 VIII 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 IX
MISCELLANEOUS PROVISIONS
9.01 Representation of Multiple Parties. ENHANCED and ZULU-tek each
acknowledge that the transactions contemplated hereby have been negotiated and
structured by their management of the parties and by their respective advisors
and that, at their election, they
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have agreed not to retain independent counsel for each of the parties with
respect to the negotiation, documentation and implementation of the transactions
set forth herein. ENHANCED and ZULU-tek each acknowledge that they have
requested that Brand Farrar & Buxbaum LLP document the transaction jointly for
both parties with the knowledge that, as a result, they each are hereby giving
their informed, written consent pursuant to California Rule of Professional
Conduct 30310(C) to the representation by Brand Farrar & Buxbaum LLP of more
than one party in transactions in which the interests of the parties potentially
conflict. In addition, by execution hereof, they confirm that their election to
forego independent counsel constitutes a waiver of any conflict that might arise
under any other applicable professional rules, code and other provisions,
including provisions of attorney/client privilege, as the same are applicable to
Brand Farrar & Buxbaum LLP, in its capacity of documenting the transactions
contemplated hereby and of providing Federal income tax advice with respect to
the tax effects of the Reorganization. In the event that an actual conflict
arises between the interests of the parties, each of the parties agree and
hereby give their informed written consent that Brand Farrar & Buxbaum LLP shall
be entitled to elect which, if either, of the parties it shall continue to
represent.
9.02 Amendment and Waiver. This Agreement shall not be altered or
amended except by a written instrument executed by ENHANCED, and ZULU-tek. 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.
9.03 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.
9.04 Expenses. Except as otherwise provided herein, the parties hereto
shall be responsible for their own fees and expenses incurred in connection with
this Agreement.
9.05 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 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.
9.06 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
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personal delivery, by overnight courier or by registered or certified mail,
postage prepaid, or by confirmed facsimile to the parties as follows:
If to ENHANCED: ENHANCED Services Company, Inc.
3415 Sepulveda Boulevard, Suite 500
Los Angeles, CA 90034
Telecopy: (310) 563-0555
with a copy to: Robert Smith
3415 Sepulveda Boulevard, Suite 500
Los Angeles, CA 90034
Telecopy: (310) 563-0555
If to ZULU-tek: ZULU-TEK, Inc.
c/o ZULU Media, Inc.
3415 Sepulveda Boulevard, Suite 500
Los Angeles, CA 90034
Telecopy: (310) 563-0555
with a copy to: Paul Messina
935 West San Marcos Boulevard, #101
San Marcos, California 92069
In all cases, copies Brand Farrar & Buxbaum LLP
to ENHANCED or to 515 South Flower Street, Suite 3500
ZULU-tek shall also Los Angeles, California 90071
be directed to: 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 9.06. 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.
9.07 Entire Agreement. This Agreement, the Exhibits hereto and the
other documents delivered by the parties at Closing pursuant to Article V
hereof, constitute the entire agreement among the parties hereto with respect to
the subject matter hereof.
9.08 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 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.
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9.09 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.
9.10 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.
9.11 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 date first written above, when each party
hereto shall have received a counterpart hereof signed by each other party
hereto.
9.12 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.
9.13 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.
9.14 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.
9.15 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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SIGNATURE PAGE FOR ACQUISITION AND REORGANIZATION 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: /s/ Keith C. Montgomery By: /s/ Justin Walker
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