Sideware Contacts: Filed by Sideware Systems, Inc.
Jim Speros, 703/437-9002 Pursuant to Rule 425 Under the
Jennifer Burke, 604/669-2101 x. 224 Securities Act of 1933 and deemed
filed pursuant to Rule 14a-12
KnowledgeMax, Inc: Contact: under the Securities Act of 1933.
Lin Pearce, 301/468-8000 ext. 109 Subject companies: Sideware Systems
December 13, 2001 Inc. [Exchange Act File No. 000-29974]
and KnowledgeMax Inc.
A registration statement on Form S-4 will be filed with the
Securities and Exchange Commission in connection with the
proposed transaction. The registration statement will include a
proxy statement/prospectus which will be sent to the shareholders
of Sideware Systems Inc. seeking their approval of the proposed
transaction. Investors and security holders are urged to read the
registration statement and proxy statement/prospectus because
they will contain important information. When filed, these
documents may be obtained free of charge at the website
maintained by the Securities Exchange Commission at
``www.sec.gov.'' These documents may also be obtained free of
charge by requesting them in writing from Jennifer Burke,
Sideware Investor Relations, Suite 1600, 777 Dunsmuir Street,
Vancouver, BC Canada V7Y1K4.
Sideware, its directors, and executive officers may be deemed
participants in the solicitation of proxies from the stockholders
of Sideware in connection with the transaction. Information about
these participants is set forth in Sideware's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000 and in
other SEC filings. Stockholders and investors may obtain
additional information regarding the interests of such
participants, as well as the directors and executive officers of
KnowledgeMax, by reading the proxy statement/prospectus regarding
the transaction when it becomes available.
Safe Harbor Statement Under the Private Securities Litigation
Reform Act of 1995:
This document contains forward-looking statements that involve
risks, uncertainties and assumptions. All statements other than
statements of historical fact are statements that could be deemed
forward-looking statements. For example, statements of expected
synergies, growth and revenue opportunities, timing of closing,
management and organizational structure are all forward-looking
statements. Risks, uncertainties and assumptions include the
possibility that the market for the sale of certain products and
services may not develop as expected; that development of these
products and services may not proceed as planned; that the
KnowledgeMax transaction does not close or that the companies may
be required to modify aspects of the transaction to achieve
regulatory approval; or that prior to the closing of the proposed
merger, the businesses of the companies suffer due to
uncertainty; that the parties are unable to transition or obtain
customers, successfully execute their integration strategies, or
achieve planned synergies; other risks that are described from
time to time in Sideware's Securities and Exchange Commission
reports (including but not limited to the annual report on Form
10-K for the year ended December 31, 2000, and subsequently filed
reports). If any of these risks or uncertainties materialize or
any of these assumptions prove incorrect, Sideware's results
could differ materially from Sideware's expectations in these
statements. For further discussion of important risk factors that
may materially affect management's estimates, Sideware's or
KnowledgeMax's results, and the forward-looking statements
herein, please see the risk factors contained in Sideware's SEC
filings.
Set forth below is the Agreement and Plan of Merger and Reorganization
between Sideware Systems Inc., KnowledgeMax, Inc., and KM
Acquisition Corp.
AGREEMENT AND PLAN
OF MERGER AND REORGANIZATION
THIS AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
("Agreement") is made and entered into as of December
7, 2001, by and among: SIDEWARE SYSTEMS,INC., a British
Columbia, Canada corporation ("Parent"); KM ACQUISITION
CORP., a Delaware corporation and a wholly owned subsidiary
of Parent ("Merger Sub") and KNOWLEDGEMAX, INC., a Delaware
corporation (the "Company"). The Parent, Company and Merger
Sub are sometimes referred to in this agreement individually
as a "Party" and collectively as the "Parties." Certain
other capitalized terms used in this Agreement are defined
in Exhibit A.
RECITALS
A. Parent, Merger Sub and the Company intend to effect a
merger (the "Merger") of Merger Sub into the Company in
accordance with this Agreement and the Delaware General
Corporation Law (the "DGCL"). Upon consummation of the
Merger, Merger Sub will cease to exist, and the Company
will become a wholly owned subsidiary of Parent.
B. It is intended that the Merger qualify as a tax-free
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
C. This Agreement has been approved by the respective
boards of directors of Parent, Merger Sub and the Company.
D. In connection with the execution of this Agreement,
certain stockholders of the Parent and the Company will
enter into a Voting Agreement pursuant to which such
stockholders have agreed to vote their shares in favor of
the Merger and the transactions contemplated herein.
AGREEMENT
The Parties agree as follows:
SECTION 1. DESCRIPTION OF TRANSACTION
1.1 MERGER OF MERGER SUB INTO THE COMPANY. Upon the
terms and subject to the conditions set forth in this Agreement,
at the Effective Time (as defined in Section 1.2), Merger Sub
shall be merged with and into the Company, and the separate
existence of Merger Sub shall cease. The Company will continue
as the surviving corporation in the Merger (the "Surviving
Corporation") and shall succeed to and assume all the rights
and obligations of Merger Sub in accordance with the DGCL.
The Merger shall have the effects set forth in this Agreement
and in Section 259 of the DGCL.
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1.2 CLOSING; EFFECTIVE TIME.
(A) CLOSING. The closing of the Merger (the "Closing") will
take place at 10:00 a.m. on a date to be specified by the
parties, which shall be no later than the second business day
after satisfaction or waiver of all conditions set forth in
Sections 5, 6 and 7 (as such date may be extended, by mutual
agreement of the Parent and the Company) (the "Closing Date"),
at the offices of Cooley Godward LLP, One Freedom Square,
Reston Town Center, 11951 Freedom Drive, Reston, Virginia
20190-5601, unless another date or place is agreed to in writing
by the parties hereto.
(B) EFFECTIVE TIME. Subject to the provisions of this
Agreement, on the Closing Date, the parties shall file with
the Delaware Secretary of State a certificate of merger (the
"Certificate of Merger") executed in accordance with Section
251(c) of the DGCL. The Merger shall become effective at such
time as the Certificate of Merger is duly filed with the Delaware
Secretary of State, or at such other time as Parent and the Company
shall agree should Be specified in the Certificate of Merger (the
Time the Certificate of Merger is filed being the "Effective Time").
1.3 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS
AND OFFICERS.
Unless otherwise determined by Parent and the Company prior
to the Effective Time:
(A) CERTIFICATE OF INCORPORATION. The Certificate of
Incorporation of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law, except that the name of
the Surviving Corporation in such Certificate of Incorporation
will be changed to a name other than KnowledgeMax, Inc.
(B) BYLAWS. The Bylaws of the Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of
the Surviving Corporation until thereafter changed or amended as
provided therein or by applicable law, except that the name of
the Surviving Corporation in such Bylaws will be changed to a
name other than KnowledgeMax, Inc.
(C) DIRECTORS. The individuals to be identified prior to
Closing by Parent and the Company shall be the directors of
The Surviving Corporation, until the earlier of their resignation
or removal or until their respective successors are duly elected
and qualified, as the case may be.
(D) OFFICERS. The individuals listed on Exhibit B hereto shall
be the officers of the Surviving Corporation, until the earlier of
their resignation or removal or until their respective successors
are duly elected and qualified, as the case may be.
1.4 CONVERSION OF SHARES
(A) Subject to Sections 1.4(e), 1.8(c) and 1.9, at the Effective
Time, by virtue of the Merger and without any further action on
the part of Parent, Merger Sub and the Company:
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(i) each share of common stock, par value of $0.01
per share, of the Company ("Company Common Stock")
other than Dissenting Shares (as defined below)
outstanding immediately prior to the Effective Time
shall be converted into the right to receive a number
of shares of the common sock, par value $0.01 per share,
of the Parent ("Parent Common Stock") equal to the
Conversion Ratio (as defined below);
(ii) each share of the capital stock of Merger Sub
outstanding immediately prior to the Effective Time
shall be converted into one share of common stock, par
value $0.001 per share, of the Surviving Corporation;
and
(iii) each share of Company Common Stock that is held by the
Company in treasury shall automatically be canceled and
retired and shall cease to exist, and no Parent Common
Stock or other consideration shall be delivered in
exchange therefor.
(B) The "Conversion Ratio" shall be equal to the quotient
obtained by dividing the Parent Stock Issuance Amount (as
defined below) by the Fully Diluted Company Stock Number (as
defined below).
(C) The "Parent Stock Issuance Amount" shall be equal to
the product of (i) the ratio of 55 divided by 45, multiplied
by (ii) the Fully Diluted Parent Stock Number. The "Fully
Diluted Parent Stock Number" shall be equal to the sum of (a)
the number of shares of Parent Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares held
in the Parent's treasury), (b) subject to the following provisos,
the number of shares of Parent Common Stock issuable upon the
exercise of all stock options to acquire Parent Common Stock
outstanding immediately prior to the Effective Time and (c) subject
to the following provisos, the number of shares of Parent Common
Stock issuable upon the exercise or conversion of all other
securities and instruments exercisable for or convertible into
shares of Parent Common Stock outstanding immediately prior to the
Effective Time, provided, that notwithstanding the foregoing, all
stock options and warrants of Parent outstanding immediately
prior to the Effective Time with an effective exercise price per
share of Parent Common Stock at such time that is "out of the money"
(i.e., greater than the closing price for a share of Parent Common
Stock on the Nasdaq OTC System on the immediately preceding
business day) shall not be included in such sum; but provided,
further, that (1) all stock options granted to Parent employees
on the date that this Agreement is initially approved by the
Parent's Board of Directors shall be included in such sum, whether
such stock options are "in the money" or "out of the money"
immediately prior to the Effective Time and (2) all stock options
granted to employees and contractors of The Chalk Group on the date
that this Agreement is initially approved by the Parent's Board of
Directors shall not be included in such sum unless, and only to the
extent, that any such stock options are exercised prior to the
Effective Date.
(D) The "Fully Diluted Company Stock Number" shall be equal to
the sum of (i) the number of shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time (other
than shares held in the Company's treasury), (ii) the number of
shares of Company Common Stock issuable upon the exercise of all
Company Options (as defined below) outstanding immediately prior
to the Effective Time and (iii) the number of shares of Company
Common Stock issuable upon the exercise or conversion of all
other
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securities and instruments exercisable for or convertible
into shares of Company Common Stock outstanding immediately prior
to the Effective Time.
(E) The parties acknowledge that, as a condition to Closing,
all outstanding shares of the Company's Series A Convertible
Preferred Stock, par value $0.01 per share ("Series A Preferred
Stock") and Series B Convertible Preferred Stock, par value
$0.01 per share ("Series B Preferred Stock" and, collectively
with the Series A Preferred Stock, the "Company Preferred Stock")
shall be converted into shares of Company Common Stock (the
"Company Preferred Stock Conversion") and, for purposes of this
Section 1.4, such conversion shall in any event be deemed to have
occurred immediately prior to the calculation of the Fully Diluted
Company Stock Number (or such earlier time as the conversion may
have actually occurred).
1.5 EMPLOYEE STOCK OPTIONS. At the Effective Time, each stock
option that is then outstanding under the Company's 2000 Equity
Incentive Plan (the "Plan"), whether vested or unvested (a
"Company Option"), and the Plan, shall be assumed by Parent in
accordance with the terms of the Plan and the stock option
agreement by which such Company Option is evidenced. All rights
with respect to Company Common Stock under outstanding Company
Options shall thereupon be converted into rights with respect to
Parent Common Stock. Accordingly, from and after the Effective
Time, (a) each Company Option assumed by Parent may be exercised
solely for shares of Parent Common Stock, (b) the number of shares
of Parent Common Stock subject to each such assumed Company Option
shall be equal to the number of shares of Company Common Stock
that were subject to such Company Option immediately prior to the
Effective Time multiplied by the Conversion Ratio, rounded down
to the nearest whole number of shares of Parent Common Stock, (c)
the per share exercise price for the Parent Common Stock issuable
upon exercise of each such assumed Company Option shall be
determined by dividing the exercise price per share of Company
Common Stock subject to such Company Option, as in effect
immediately prior to the Effective Time, by the Conversion Ratio,
and rounding the resulting exercise price up to the nearest whole
cent, and (d) all restrictions on the exercise of each such assumed
Company Option shall continue in full force and effect, and the
term, exercisability, vesting schedule and other provisions of such
Company Option shall otherwise remain unchanged; provided, however,
that each such assumed Company Option shall, in accordance with its
terms, be subject to further adjustment as appropriate to reflect
any stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction effected by Parent
after the Effective Time. The Company and Parent shall take all
action that may be necessary (under the Company's Plan and
otherwise) to effectuate the provisions of this Section 1.5.
Following the Closing, Parent will send to each holder of an assumed
Company Option a written notice setting forth (i) the number of
shares of Parent Common Stock subject to such assumed Company Option,
and (ii) the exercise price per share of Parent Common Stock issuable
upon exercise of such assumed Company Option. Promptly after the
Closing Date, Parent shall file with the SEC, a registration
statement on Form S-8 to register the exercise of the Company Options
assumed by Parent pursuant to this Section 1.5.
1.6 COMPANY WARRANTS. All warrants to acquire capital stock of
the Company outstanding as of the Effective Time shall be terminated,
to the extent that any such warrants remain unexercised or otherwise
outstanding as of the Effective Time.
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1.7 CLOSING OF THE COMPANY'S TRANSFER BOOKS. At the Effective
Time, holders of certificates representing shares of the Company's
capital stock that were outstanding immediately prior to the
Effective Time shall cease to have any rights as shareholders of
the Company, and the stock transfer books of the Company shall be
closed with respect to all shares of such capital stock outstanding
immediately prior to the Effective Time. No further transfer of any
such shares of the Company's capital stock shall be made on such
stock transfer books after the Effective Time. If, after the
Effective Time, a valid certificate previously representing any of
such shares of the Company's capital stock (a "Company Stock
Certificate") is presented to the Surviving Corporation or Parent,
such Company Stock Certificate shall be canceled and shall be
exchanged as provided in Section 1.8.
1.8 EXCHANGE OF CERTIFICATES
(A) At or as soon as practicable after the Effective Time,
Parent will send, or cause to be sent, to the holders of Company
Stock Certificates (i) a letter of transmittal in customary form
and containing such provisions as Parent may reasonably specify,
and (ii) instructions for use in effecting the surrender of
Company Stock Certificates in exchange for certificates
representing Parent Common Stock. Upon surrender of a Company
Stock Certificate to Parent for exchange, together with a duly
executed letter of transmittal and such other documents as may
be reasonably required by Parent, the holder of such Company
Stock Certificate shall be entitled to receive in exchange
therefor a certificate representing the number of whole shares
of Parent Common Stock that such holder has the right to receive
pursuant to the provisions of this Section 1, and the Company
Stock Certificate so surrendered shall be canceled. Until
surrendered as contemplated by this Section 1.8, each Company
Stock Certificate shall be deemed, from and after the Effective
Time, to represent only the right to receive upon such surrender
a certificate representing shares of Parent Common Stock as
contemplated by this Section 1. If any Company Stock Certificate
shall have been lost, stolen or destroyed, Parent may, in its
discretion and as a condition precedent to the issuance of any
certificate representing Parent Common Stock, require the owner
of such lost, stolen or destroyed Company Stock Certificate
to provide an appropriate affidavit and to deliver a bond (in
such sum as Parent may reasonably direct) as indemnity against
any claim that may be made against Parent or the Surviving
Corporation with respect to such Company Stock Certificate.
(B) No dividends or other distributions declared or made with
respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered
Company Stock Certificate with respect to the shares of Parent
Common Stock represented thereby, until such holder surrenders
such Company Stock Certificate in accordance with this Section
1.8 (at which time such holder shall be entitled to receive all
such dividends and distributions).
(C) No fractional shares of Parent Common Stock shall be
issued in connection with the Merger, and no certificates for
any such fractional shares shall be issued. Any holder of
Company Common Stock who would otherwise be entitled to
receive a fraction of a share of Parent Common Stock (after
aggregating all fractional shares of Parent Common Stock
issuable to such holder) shall, upon surrender of such
holder's Company Stock Certificate(s), be entitled to
receive one whole share of Parent Common Stock instead
of a fractional share or cash in lieu of such fractional
share.
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(D) Parent and the Surviving Corporation shall be entitled
to deduct and withhold from any consideration payable or
otherwise deliverable to any holder or former holder of
apital stock of the Company pursuant to this Agreement such
amounts as Parent or the Surviving Corporation may be
required to deduct or withhold therefrom under the Code or
under any provision of state, local or foreign tax law.
To the extent such amounts are so deducted or withheld,
such amounts shall be treated for all purposes under this
Agreement as having been paid to the Person to whom such
amounts would otherwise have been paid.
(E) Neither Parent nor the Surviving Corporation shall be
liable to any holder or former holder of capital stock of
the Company for any shares of Parent Common Stock (or
dividends or distributions with respect thereto), or for
any cash amounts, delivered to any public official pursuant
to any applicable abandoned property, escheat or similar law.
1.9 DISSENTING SHARES.
(A) For purposes of this Agreement, "Dissenting Shares"
means shares of Company Common Stock held as of the Effective
Time by a stockholder of the Company (a "Company Stockholder")
who has not voted such Company Common Stock, or pre-conversion
corresponding shares of Company Preferred Stock, as
applicable, in favor of the adoption of this Agreement and
with respect to which appraisal rights shall have been duly
demanded and perfected in accordance with Section 262 of the
DGCL and not effectively withdrawn or forfeited prior to the
Effective Time. Dissenting Shares shall not be converted into
or represent the right to receive the Parent Common Stock which
the Company Stockholders are entitled to receive pursuant to
Section 1.4, unless such Company Stockholder shall have forfeited
his, her or its right to appraisal under the DGCL or properly
withdrawn his, her or its demand for appraisal. If such Company
Stockholder has so forfeited or withdrawn his, her or its right
to appraisal of Dissenting Shares, then, (i) as of the occurrence
of such event, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the
right to receive the Parent Common Stock pursuant to Section 1.4,
and (ii) promptly following the occurrence of such event, the
Parent or the Surviving Corporation shall deliver to such Company
Stockholder a payment of the Parent Common Stock to which such
holder is entitled pursuant to Section 1.4.
(B) The Company shall give the Parent (i) prompt notice of
any written demands for appraisal of any Company Common Stock,
withdrawals of such demands, and any other instruments that
relate to such demands received by the Company and (ii) the
opportunity to participate in all negotiations and proceedings
with respect to demands for appraisal under the DGCL. The
Company shall not, except with the prior written consent of
the Parent, make any payment with respect to any demands for
appraisal of Company Common Stock or offer to settle or settle
any such demands.
1.10 PARENT/SURVIVING CORPORATION MERGER. Promptly after
the Effective Time, at such time that management of the Parent
determines that it is appropriate (and in any event, promptly
after receipt of all third-party consents that may be required),
the Surviving Corporation shall be merged with and into the
Parent, with the Parent surviving such merger, in accordance
with the DGCL.
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1.11 TAX CONSEQUENCES. For federal income tax purposes,
the Merger is intended to constitute a reorganization within the
meaning of Section 368 of the Code. The parties to this Agreement
hereby adopt this Agreement as a "plan of reorganization" within
the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Treasury Regulations.
1.12 FURTHER ACTIONS. If, at any time after the Effective Time,
any further action is determined by Parent to be necessary or
desirable to carry out the purposes of this Agreement or to vest
the Surviving Corporation or Parent with full right, title and
possession of and to all rights and property of Merger Sub and
the Company, the officers and directors of the Surviving
Corporation and Parent shall be fully authorized (in the name of
Merger Sub, in the name of the Company and otherwise) to take such
action.
1.13 PARENT CORPORATE NAME. At the Effective Time, Parent shall
amend its Certificate of Incorporation and take all other action
as may be necessary to change its corporate name to "KnowledgeMax,
Inc."
SECTION 2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the disclosure schedule delivered by the
Company to the Parent prior to the execution of this Agreement
(the "Company Disclosure Schedule"), the Company represents and
warrants to the Parent and Merger Sub as follows:
2.1 DUE ORGANIZATION; NO SUBSIDIARIES
(A) ORGANIZATION, STANDING AND CORPORATE POWER. The Company is
a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation and has all
requisite corporate power and authority to carry on its business as
now being conducted. The Company is duly qualified or licensed to
do business and is in good standing (with respect to jurisdictions
that recognize such concept) in each jurisdiction in which the
nature of its business or the ownership, leasing or operation of
its properties makes such qualification or licensing necessary,
other than in such jurisdictions where the failure to be so
qualified or licensed individually or in the aggregate would not
have a Material Adverse Effect (as defined on Exhibit A) on the
Company. The Company has delivered to Parent complete and correct
copies of its Certificate of Incorporation and Bylaws, in each case
as amended to the date hereof.
(B) SUBSIDIARIES. The Company has no subsidiaries, does not own,
directly or indirectly, beneficially or of record, any shares of
capital stock or other equity or profit and loss interest in any
other Entity, and has no investment in any other Entity.
2.2 AUTHORITY; BINDING NATURE. The Company has the requisite
corporate power and authority to enter into this Agreement and,
subject to (a) the approval of the Company Preferred Stock
Conversion by the holders of a majority of the outstanding shares
of Company Preferred Stock, voting together as a single class (the
"Requisite Company Preferred Stock Conversion Vote") and (b) the
adoption of this Agreement by the holders of a majority of the
shares of Company Common Stock and Company Preferred Stock, voting
together as a single class on an as converted basis (the "Requisite
Company Stockholder Vote"), to consummate the transactions
contemplated by
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this Agreement. The execution and delivery of this
Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly
authorized by all necessary corporate action on the part of the
Company, subject to the Requisite Company Preferred Stock Conversion
Vote and the Requisite Company Stockholder Vote. This Agreement
has been duly executed and delivered by the Company and, assuming
the due authorization, execution, and delivery of this Agreement by
Parent and Merger Sub, constitutes a valid and binding obligation
of the Company, enforceable against the Company in accordance with
its terms, except as enforcement thereof may be limited by (i)
bankruptcy, insolvency, reorganization, moratorium and similar laws,
both state and federal, affecting the enforcement of creditors'
rights or remedies in general as from time to time in effect or
(ii) the exercise by courts of equity powers.
2.3 NONCONTRAVENTION. Assuming the receipt of the Requisite
Company Preferred Stock Conversion Vote and the Requisite Company
Stockholder Vote, the execution and delivery of this Agreement by
the Company do not, and the consummation by the Company of the
transactions contemplated by this Agreement and compliance by the
Company with the provisions of this Agreement will not, conflict
with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right
of termination, cancellation or acceleration of any obligation
or to loss of a material benefit under, or result in the
creation of any pledge, adverse claim, lien, charge, encumbrance
or security interest of any kind or nature whatsoever
(collectively, "Liens") in or upon any of the properties or
assets of the Company under any provision of (i) the Certificate
of Incorporation or Bylaws of the Company, as each has been
amended, (ii) any loan or credit agreement, note, bond,
mortgage or indenture, or any material lease or other material
agreement, instrument, Permit, concession, franchise or license
applicable to the Company or its properties or assets and to which
the Company is a party or by which the Company is otherwise bound
or (iii) subject to the governmental filings and other matters
referred to in the following sentence, any (A) statute, law,
ordinance, rule or regulation applicable to the Company or (B)
judgment, order or decree applicable to the Company or its
properties or assets, other than, in the case of clause (iii)(A),
any such conflicts, violations, defaults or Liens that
individually or in the aggregate would not (x) have a Material
Adverse Effect on the Company, (y) impair in any material respect
the ability of the Company to perform its obligations under this
Agreement, or (z) prevent or materially delay the consummation
of any of the transactions contemplated by this Agreement.
To the Company's knowledge, no consent, approval, order or
authorization of, or registration, declaration or filing with,
any third party, including any Governmental Body, is required
to be made or obtained by the Company at or before the Effective
Time in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of
the transactions contemplated by this Agreement, except for (1)
the receipt of the Requisite Company Preferred Stock Conversion
Vote and the Requisite Company Stockholder Vote, (2) the filing
of the Certificate of Merger with the Delaware Secretary of State
and appropriate documents with the relevant authorities of other
states in which the Company is qualified to do business, and (3)
such other consents, approvals, orders, authorizations,
registrations, declarations and filings, which if not obtained
or made, would not, individually or in the aggregate, have a
Material Adverse Effect on the Company or prevent or materially
delay the consummation of any of the transactions contemplated
by this Agreement.
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2.4 CAPITALIZATION, ETC.
(A) The authorized capital stock of the Company consists
of: (i) 15,000,000 shares of Company Common Stock, of which
2,111,268 shares have been issued and are outstanding as of
the date of this Agreement; and (ii) 5,000,000 shares of
Preferred Stock, $0.01 par value per share, of which (A)
330,000 have been designated "Series A Preferred Stock,"
of which 328,610 shares have been issued and are outstanding
as of the date of this Agreement; and (B) as of the date
of this Agreement, 775,000 have been designated "Series B
Preferred Stock," of which 792,307 shares have been issued
and are outstanding as of the date of this Agreement. Each
outstanding share of Company Preferred Stock is convertible
into one share of Company Common Stock. All of the
outstanding shares of Company Common Stock and Company
Preferred Stock have been duly authorized and validly issued,
and are fully paid and non-assessable.
(B) As of the date of this Agreement, the Company has
reserved 550,000 shares of Company Common Stock for issuance
under the Plan, of which options to purchase 594,656 shares
are outstanding as of the date of this Agreement. The Company
Disclosure Schedule accurately sets forth, with respect to
each Company Option that is outstanding as of the date of
this Agreement: (i) the name of the holder of such Company
Option; (ii) the total number of shares of Company Common
Stock that are subject to such Company Option and the
number of shares of Company Common Stock with respect to
which such Company Option is immediately exercisable; (iii)
the date on which such Company Option was granted and the
term of such Company Option; (iv) the vesting schedule
or such Company Option; (v) the exercise price per share
of Company Common Stock purchasable under such Company
Option; and (vi) whether such Company Option has been
designated an "incentive stock option" as defined in
Section 422 of the Code. Except as set forth in the
Company Disclosure Schedule, there is no: (i) outstanding
subscription, option, call, warrant or right (whether or not
currently exercisable) to acquire any shares of the capital
stock or other securities of the Company; (ii) outstanding
security, instrument or obligation that is or may become
convertible into or exchangeable for any shares of the
capital stock or other securities of the Company;
(iii) Contract under which the Company is or may become
obligated to sell or otherwise issue any shares of its
capital stock or any other securities; or (iv) to the
best of the knowledge of the Company, condition or
circumstance that may give rise to or provide a basis
for the assertion of a claim by any Person to the effect
that such Person is entitled to acquire or receive
any shares of capital stock or other securities of the
Company.
2.5 FINANCIAL STATEMENTS
(A) The Company has delivered to Parent the following
financial statements and notes (collectively, the "Company
Financial Statements"):
(i) The unaudited balance sheets of the Company as of
December 31, 2000, and the related unaudited
income statements, statements of stockholders'
equity and statements of cash flows of the Company
for the years ended December 31, 2000 and December
31, 1999, together with the notes thereto; and
9
(ii) the unaudited balance sheet of the Company as of
October 31, 2001 (the "Unaudited Interim Balance
Sheet"), and the related unaudited income statement,
statement of stockholders' equity and statement of
cash flows of the Company for the ten months then
ended.
(B) The Company Financial Statements are accurate and complete
in all material respects and present fairly the financial
position of the Company as of the respective dates thereof and
the results of operations and changes in stockholders' equity
and cash flows of the Company for the periods covered thereby.
The Company Financial Statements have been prepared in accordance
with U.S. generally accepted accounting principles applied on a
consistent basis throughout the periods covered (except that the
Company Financial Statements do not contain footnotes required by
U.S. generally accepted accounting principles and are subject to
normal and recurring year-end audit adjustments, which will not,
individually or in the aggregate, be material in magnitude).
2.6 COMPLIANCE WITH LAWS. The Company is in compliance with
all statutes, laws, ordinances, regulations, rules, judgments,
decrees and orders of any Governmental Body (collectively,
"Legal Provisions") applicable to its business, operations,
properties and assets except for instances of possible
noncompliance that, individually or in the aggregate, would not
have a Material Adverse Effect on the Company or prevent or
materially delay the consummation of the Merger. The Company
has in effect all material federal, state, local and foreign
governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits"),
necessary for it to own, lease or operate its properties and
assets and to carry on its business substantially as now
conducted, and there currently exists no material default
under, or material violation of, any such Permit, and the
consummation of the transactions contemplated hereby will not
adversely affect any such Permit.
2.7 INTELLECTUAL PROPERTY. The Company owns, or is validly
licensed or otherwise has the right to use, all patents,
patent rights, trademarks, trademark rights, trade names,
trade name rights, domain names, domain name rights, service
marks, service mark rights, copyrights and other proprietary
intellectual property rights and computer programs (other
than commercially available, off-the-shelf software)
(collectively, "Intellectual Property Rights") which are
material to the conduct of the business of the Company. The
Company Disclosure Schedule contains an accurate and
complete list of all material Intellectual Property Rights of
the Company. As of the date of this Agreement, no claims,
suits, actions or proceedings are pending, and to the best
knowledge of the Company, no Person or Entity has threatened
to commence any suit, action or proceeding, alleging that the
Company is infringing the rights of any Person or Entity with
regard to any Intellectual Property Right. To the knowledge
of the Company, the Company's Intellectual Property Rights do
not infringe on the rights of any other Person or Entity, and
no Person or Entity is infringing the rights of the Company
with respect to any Intellectual Property Right, except for
infringements which individually or in the aggregate, would
not have a Material Adverse Effect on the Company. The Company
is not licensing, or otherwise granting, to any third party,
any rights in or to any Intellectual Property Rights which
would have a Material Adverse Effect on the Company. The
Company's Intellectual Property Rights will not be limited or
otherwise adversely affected by virtue of the consummation of
the transactions contemplated hereby.
10
2.8 CONTRACTS. The Company is not in violation of or in
default under (nor does there exist any condition which upon
the passage of time or the giving of notice or both would
cause such a violation of or default under) any material
Contract to which it is a party or by which its properties
or assets is bound. The Company has delivered to Parent a
complete and correct copy of each material written Contract
to which the Company is a party or by which the Company's
properties or assets is bound. With respect to each such
Contract: (1) the Contract is legal, valid, binding,
enforceable, and in full force and effect; (2) the Contract
will not be adversely affected by virtue of the consummation
of the transactions contemplated by this Agreement; (3) no
party is in violation of or in default under (nor does there
exist any condition which upon the passage of time or the
giving of notice or both would cause such a violation of or
default under) such Contract; and (4) no party has repudiated
any provision of the Contract.
2.9 TAX MATTERS. All Tax Returns required to be filed by or
on behalf of the Company with any Governmental Body with
respect to any taxable period ending on or before the Closing
Date (the "Company Returns") (i) have been or will be filed
on or before the applicable due date (including any
extensions of such due date), and (ii) have been, or will be
when filed, accurately and completely prepared in all material
respects in compliance with all applicable Legal Requirements.
All amounts shown on the Company Returns to be due on or
before the Closing Date have been or will be paid on or before
the Closing Date.
2.10 LITIGATION. As of the date of this Agreement, there
are no actions, suits, claims, governmental investigations or
proceedings pending or, to the best knowledge of the Company,
threatened, against the Company or any of its assets or
properties, or against any officer or director of the Company
acting in such capacity, involving a monetary amount in excess
of $25,000 or a request for specific performance, injunctive
relief or other equitable relief.
2.11 LABOR MATTERS. There are no collective bargaining
agreements or other labor union agreements to which the Company
is a party, or by which it is bound. The Company is in compliance
in all material respects with all federal, state and local laws
respecting employment and employment practices, terms and
conditions of employment and wages and hours, and is not
engaged in any unfair labor practice. As of the date of this
Agreement, there is no unfair labor practice complaint against
the Company pending or, to the best knowledge of the Company,
threatened, to commence any unfair labor practices complaint
before the National Labor Relations Board or the United States
Department of Labor against the Company. There is no labor
strike, slowdown or stoppage in progress, and no person has
overtly threatened in a writing delivered to the Company to
commence any strike, slowdown or stoppage, against or involving
the Company. No written Contract restricts the Company from
relocating, closing or terminating any of its operations or
facilities. The Company has not in the past three years,
experienced any labor strike, slowdown or stoppage.
2.12 RELATED PARTY TRANSACTIONS. To the best of the
Company's knowledge: (a) no Company Related Party (as
defined below) has, and no Company Related Party has at
any time since December 31, 2000 had, any direct or indirect
interest in any material asset used in or otherwise relating
to the business of the Company; (b) no Company Related Party
is, or has at any time since December 31, 2000 been, indebted
to the Company; (c) since December 31, 2000, no Company
Related Party has entered into, or has had any direct or
indirect financial interest in, any material Contract,
transaction or business dealing involving the Company; (d)
no
11
Company Related Party is competing, or has at any time
since December 31, 2000 competed, directly or indirectly,
with the Company; and (e) no Company Related Party has any
claim or right against the Company (other than rights under
Company Options and rights to receive compensation for
services performed as an employee of the Company). (For
purposes of this Section 2.12 each of the following shall be
deemed to be a "Company Related Party": (i) each individual
who is, or who has at any time since December 31, 2000 been,
an officer of the Company; (ii) each member of the immediate
family of the individuals referred to in clause "(i)" above;
and (iii) any trust or other Entity (other than the Company)
in which any one of the individuals referred to in clause
"(i)" and "(ii)" above holds (or in which more than one of
such individuals collectively hold), beneficially or
otherwise, a material voting, proprietary or equity
interest.)
2.13 BROKERS. No broker, investment banker, financial
advisor or other person, is entitled to any broker's,
finder's or financial advisor's fee or commission in
connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf
of the Company.
2.14 INSURANCE. The Company has general commercial,
product liability, fire and casualty insurance policies
with coverage customary for similarly situated companies.
2.15 INDEMNIFICATION. To the best knowledge of the
Company, no action or failure to take action by any
present or former director, officer or employee of
the Company has occurred which would give rise to a
claim or a potential claim by any such person for
indemnification from the Company.
2.16 NO UNDISCLOSED LIABILITIIES. The Company has
no accrued, contingent or other liabilities of any
nature, matured or unmatured, with a value
individually in excess of $25,000 except for (a)
liabilities set forth or reserved against in the
balance sheet included in the Company Financial
Statements as of December 31, 2000 or the notes
thereto, (b) liabilities and obligations described
in the Company Disclosure Schedule and (c)
liabilities and obligations occurring in the ordinary
course of business since December 31, 2000 or relating
to the transactions contemplated by this Agreement.
1.1 DISCLOSURE. As of the date of this Agreement,
none of the representations and warranties of the Company
set forth in this Agreement contain an untrue statement of
material fact.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF PARENT
AND MERGER SUB
Except as set forth on the disclosure schedule delivered
by the Parent to the Company prior to the execution of
this Agreement (the "Parent Disclosure Schedule"), the
Parent and Merger Sub jointly and severally represent
and warrant to the Company as follows. The Parties
acknowledge that, except with respect to Sections 3.2(b),
3.4 and 3.17(b) below, Parent and Merger Sub make no
representations about The Chalk Group and The Chalk Group
will not be deemed to be a subsidiary of Parent for
purposes of any of the representations made by Parent
about any of its subsidiaries.
12
3.1 SEC FILINGS; FINANCIAL STATEMENTS
(a) Parent has delivered to the Company accurate and
complete copies (excluding copies of exhibits) of
each report, registration statement (on a form other
than Form S-8) and definitive proxy statement filed
by Parent with the SEC and any similar documents
required to be filed with the applicable securities
commission in Canada (the "Canadian SEC") since
January 1, 2001 (collectively, the "Parent Securities
Documents"). To the best knowledge of the Parent, as
of the time it was filed with the SEC and the Canadian
SEC (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such
filing): (i) each of the Parent Securities Documents
complied in all material respects with the applicable
requirements of the Securities Act or the Exchange
Act or any applicable securities laws promulgated by
the Canadian SEC or other Canadian law applicable to
the Parent Securities Documents (such Canadian laws
hereinafter referred to as the "Canadian Laws") (as
the case may be); and (ii) none of the Parent Securities
Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading.
(b) The consolidated financial statements contained in
the Parent Securities Documents: (i) complied as to
form in all material respects with the published rules
and regulations of the SEC and the Canadian SEC
applicable thereto; (ii) were prepared in accordance
with U.S. generally accepted accounting principles
applied on a consistent basis throughout the periods
covered, except as may be indicated in the notes to
such financial statements and (in the case of unaudited
statements) as permitted by Form 10-Q of the SEC, and
except that unaudited financial statements may not
contain footnotes and are subject to year-end audit
Adjustments; and (iii) fairly present the consolidated
financial position of Parent and its subsidiaries as of
the respective dates thereof and the consolidated
results of operations of Parent and its subsidiaries
for the periods covered thereby.
3.2 DUE ORGANIZATION; NO SUBSIDIARIES
(a) ORGANIZATION, STANDING AND CORPORATE POWER. The
Parent and each of its subsidiaries is a corporation or
other legal entity duly organized, validly existing and
in good standing (with respect to jurisdictions that
recognize such concept) under the laws of the
jurisdiction of its incorporation or organization and
has all requisite corporate power and authority to carry
on its business as now being conducted. The Parent and
each of its subsidiaries is duly qualified or licensed
to do business and is in good standing (with respect to
jurisdictions that recognize such concept) in each
jurisdiction in which the nature of its business or the
ownership, leasing or operation of its properties makes
such qualification or licensing necessary, other than
In such jurisdictions where the failure to be so
qualified or licensed individually or in the aggregate
would not have a Material Adverse Effect on the Parent.
The Parent has delivered to the Company complete and
correct copies of the Articles or Certificate of
Incorporation and Bylaws of Parent and Merger Sub, in
each case as amended to the date hereof.
(b) SUBSIDIARIES. Except for the Merger Sub and
except as set forth on the Parent Disclosure Schedule,
the Parent has no subsidiaries, does not own, directly
or indirectly, beneficially or of record, any shares
of capital stock or other equity or profit and loss
interest in
13
any other Entity, and has no investment
in any other Entity. Merger Sub was formed solely
for the purpose of engaging in the transactions
contemplated hereby, has engaged in no other business
activities and has conducted its operations only as
contemplated hereby.
3.3 AUTHORITY; BINDING NATURE. Each of the Parent and
the Merger Sub has the requisite corporate power and
authority to enter into this Agreement and, subject to
the adoption of this Agreement by the holders of the
requisite number of the shares of Parent Common Stock
(the "Requisite Parent Stockholder Vote"), to consummate
the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by the Parent
and Merger Sub and the consummation by the Parent and
Merger Sub of the transactions contemplated by this
Agreement have been duly authorized by all necessary
corporate action on the part of each of the Parent
and the Merger Sub, subject to the receipt of the
Requisite Parent Stockholder Vote. This Agreement
has been duly executed and delivered by the Parent and
the Merger Sub and, assuming the due authorization,
execution, and delivery of this Agreement by the Company,
constitutes a valid and binding obligation of each of the
Parent and the Merger Sub, enforceable against the Parent
and Merger Sub in accordance with its terms, except as
enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, moratorium and similar laws,
both state and federal, affecting the enforcement of
creditors' rights or remedies in general as from time to
time in effect or (ii) the exercise by courts of equity
powers. Parent has all requisite corporate power and
authority to complete the Yukon reorganization referred
to in Section 5.1.
3.4 NONCONTRAVENTION. Assuming the receipt of the
Requisite Parent Stockholder Vote, the execution and
delivery of this Agreement by each of the Parent and the
Merger Sub do not, and the consummation by the Parent and
Merger Sub of the transactions contemplated by this
Agreement and compliance by the Parent and Merger Sub with
the provisions of this Agreement will not, conflict with,
or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or
result in the creation of any Liens in or upon any of the
properties or assets of the each of the Parent and Merger
Sub under any provision of (i) the Articles or Certificate
of Incorporation or Bylaws of each of the Parent and Merger
Sub, as each has been amended, (ii) any loan or credit
agreement, note, bond, mortgage or indenture, or any
material lease or other agreement, instrument, Permit,
concession, franchise or license applicable to each of the
Parent and Merger Sub or its properties or assets and to
which either the Parent or Merger Sub is a party as or by
which either is otherwise bound or (iii) subject to the
governmental filings and other matters referred to in the
following sentence, any (A) statute, law, ordinance, rule
or regulation applicable to each of the Parent and Merger
Sub or (B) judgment, order or decree applicable to either
the Parent or Merger Sub or its properties or assets, other
than, in the case of clause (iii)(A), any such conflicts,
violations, defaults or Liens that individually or in the
aggregate would not (x) have a Material Adverse Effect on
either the Parent or Merger Sub, (y) impair in any material
respect the ability of either the Parent or Merger Sub to
perform its obligations under this Agreement, or (z) prevent
or materially delay the consummation of any of the
transactions contemplated by this Agreement. To the Parent's
knowledge no consent, approval, order or authorization of, or
registration, declaration or filing with, any third party,
including any Governmental Body is required to be made or
obtained by either the Parent or Merger Sub at or before the
Effective Time in connection with the execution and delivery
of this Agreement by the Parent and Merger Sub or the
consummation by the Parent and Merger Sub of the transactions
contemplated by this Agreement, except for (1) the receipt
of
14
the Requisite Parent Stockholder Vote, (2) the filing with
and clearance by the SEC of the Form S-4 inclusive of the
Proxy Statement (as defined below), (3) the filing of the
Certificate of Merger with the Delaware Secretary of State
and appropriate documents with the relevant authorities of
other states in which either the Parent or Merger Sub is
qualified to do business, (4) consents or approvals from the
Toronto Stock Exchange, the corporations registry of British
Columbia, the corporations registry of the Yukon Territory, the
British Columbia Securities Commission, the Alberta Securities
Commission and the Ontario Securities Commission, and (5) such
other consents, approvals, orders, authorizations, registrations,
declarations and filings, which if not obtained or made, would
not, individually or in the aggregate, have a Material Adverse
Effect on either the Parent or Merger Sub or prevent or
materially delay the consummation of any of the transactions
contemplated by this Agreement.
3.5 CAPITALIZATION, ETC.
(a) The authorized capital stock of the Parent consists
of 198,978,997 shares of Parent Common Stock, of which
68,086,965 shares have been issued and are outstanding as
of the date of this Agreement. All of the outstanding
shares of Parent Common Stock have been duly authorized
and validly issued and are fully paid and non-assessable. Each
share of Parent Common Stock to be issued in accordance with
this Agreement will be duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights.
(b) Parent has reserved 14,000,000 shares of Parent Common
Stock for issuance under its 2000 and 2001 Stock Option Plans,
as amended, of which options to purchase not more than
9,000,000 shares are outstanding as of the date of this
Agreement (exclusive of any options described in Section 4.14).
In addition, (i) options to purchase not more than 3,500,000
shares of Parent Common Stock outside the 2000 and 2001 Stock
Option Plans are outstanding as of the date hereof and (ii)
share purchase warrants to purchase not more than 9,522,461
shares of Parent Common Stock are outstanding as of the date
hereof (exclusive of any warrants described in Section 4.14).
Except as set forth above or in the Parent Disclosure Schedule,
there is no: (1) outstanding subscription, option, call,
warrant or right (whether or not currently exercisable) to
acquire any shares of the capital stock or other securities of
the Parent or Merger Sub; (2) outstanding security, instrument
or obligation that is or may become convertible into or
exchangeable for any shares of the capital stock or other
securities of the Parent or Merger Sub; (3) Contract under
which the Parent or Merger Sub is or may become obligated to
sell or otherwise issue any shares of its capital stock or any
other securities; or (4) to the best of the knowledge of the
Parent and the Merger Sub, condition or circumstance that may
give rise to or provide a basis for the assertion of a claim by
any Person to the effect that such Person is entitled to acquire
or receive any shares of capital stock or other securities of the
Parent or Merger Sub.
(c) The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, $0.01 par value per share, all
of which are issued and outstanding, all of which are held
beneficially and of record by Parent.
3.6 COMPLIANCE WITH LAWS. The Parent and each of its
subsidiaries is in compliance with all Legal Provisions
applicable to their businesses, operations, properties and
assets, except for instances of possible noncompliance that,
individually or in the aggregate, would not have a
15
Material Adverse Effect on the Parent or prevent or
materially delay the consummation of the Merger. The
Parent and each of its subsidiaries has in effect all
material Permits necessary for them to own, lease or operate
their properties and assets and to carry on their business
substantially as now conducted, and there currently exists
no material default under, or material violation of, any
such Permit, and the consummation of the transactions
contemplated by this Agreement will not adversely affect
any such Permit.
3.7 INTELLECTUAL PROPERTY. The Parent and each of its
subsidiaries owns, or is validly licensed or otherwise has
the right to use all Intellectual Property Rights which are
material to the conduct of the business of the Parent and
its subsidiaries taken as a whole. As of the date of this
Agreement, no suits, actions or proceedings are pending,
and, to the best knowledge of the Parent, no Person or
Entity has threatened to commence any suit, action or
proceeding, alleging that the Parent or any of its
subsidiaries is infringing the rights of any person with
regard to any Intellectual Property Right. To the
knowledge of the Parent, the Intellectual Property
Rights of the Parent and its subsidiaries do not
infringe on the rights of any other Person or Entity,
and no Person or Entity is infringing the rights of the
Parent or any of its subsidiaries with respect to any
Intellectual Property Right, except for infringements
which individually or in the aggregate, would not have
a Material Adverse Effect on the Parent or any of its
subsidiaries. Neither the Parent nor any of its
subsidiaries is licensing, or otherwise granting, to
any third party, any rights in or to any Intellectual
Property Rights which would have a Material Adverse
Effect on the Parent or any of its subsidiaries. The
Intellectual Property Rights of the Parent and its
subsidiaries will not be limited or otherwise adversely
affected by virtue of the consummation of the
transactions contemplated hereby.
3.8 CONTRACTS. Neither Parent nor any of its
subsidiaries is in violation of or in default under
(nor does there exist any condition which upon the passage
of time or the giving of notice or both would cause such
a violation of or default under) any material Contract to
which any of them is a party or by which any of their
properties or assets is bound. The Parent has delivered
to the Company a complete and correct copy of each material
written Contract to which the Parent or any of its
subsidiaries is a party or by which any of their properties
or assets is bound. With respect to each such Contract:
(1) the Contract is legal, valid, binding, enforceable,
and in full force and effect; (2) the Contract will not be
adversely affected by virtue of the consummation of the
transactions contemplated by this Agreement; (3) no party
is in violation of or in default under (nor does there exist
any condition which upon the passage of time or the giving
of notice or both would cause such a violation of or default
under) such Contract; and (4) no party has repudiated any
provision of the Contract.
3.9 TAX MATTERS. All Tax Returns required to be filed
by or on behalf of the Parent or any of its subsidiaries
with any Governmental Body with respect to any taxable period
ending on or before the Closing Date (the "Parent Returns")
(i) have been or will be filed on or before the applicable due
date (including any extensions of such due date), and (ii)
have been, or will be when filed, accurately and completely
prepared in all material respects in compliance with all
applicable Legal Requirements. All amounts shown on the
Parent Returns to be due on or before the Closing Date have
been or will be paid on or before the Closing Date.
3.10 LITIGATION. As of the date of this Agreement, there
are no actions, suits, claims, governmental investigations or
proceedings pending or, to the best knowledge of the Parent,
threatened, against the Parent,
16
any of its subsidiaries, or any of their respective assets
or properties, or against any officer or director of the
Company acting in such capacity, involving a monetary amount
in excess of $25,000 or a request for specific performance,
injunctive relief or other equity relief.
3.11 LABOR MATTERS . There are no collective bargaining
agreements or other labor union agreements to which the Parent
or any of its subsidiaries is a party, or by which they are
bound. The Parent and its subsidiaries are in compliance in
all material respects with all federal, state and local laws
respecting employment and employment practices, terms and
conditions of employment and wages and hours, and are not
engaged in any unfair labor practice. As of the date of this
Agreement, there is no unfair labor practice complaint against
the Parent or any of its subsidiaries pending or, to the best
knowledge of the Parent, threatened, to commence any unfair
labor practices complaint before the National Labor Relations
Board or the United States Department of Labor against the
Parent or any of its subsidiaries. There is no labor strike,
slowdown or stoppage in progress, and no person has overtly
threatened in a writing delivered to the Parent or any of its
subsidiaries to commence any strike, slowdown or stoppage,
against or involving the Parent or any of its subsidiaries.
No written Contract restricts the Parent or any of its
subsidiaries from relocating, closing or terminating any of
its operations or facilities. Neither the Parent nor any of
its subsidiaries has in the past three years, experienced
any labor strike, slowdown or stoppage.
3.12 RELATED PARTY TRANSACTIONS. To the best of the
Parent's knowledge, (a) no Parent Related Party (as defined
below) has, and no Parent Related Party has at any time
since December 31, 2000 had, any direct or indirect interest
in any material asset used in or otherwise relating to the
business of the Parent or any of its subsidiaries; (b) no
Parent Related Party is, or has at any time since December
31, 2000 been, indebted to the Parent or any of its
subsidiaries; (c) since December 31, 2000, no Parent
Related Party has entered into, or has had any direct or
indirect financial interest in, any material Contract,
transaction or business dealing involving the Parent or any
of its subsidiaries; (d) no Parent Related Party is competing,
or has at any time since December 31, 2000 competed, directly
or indirectly, with the Parent or any of its subsidiaries;
and (e) no Parent Related Party has any claim or right
against the Parent or any of its subsidiaries (other than
rights under stock option plans and rights to receive
compensation for services performed as an employee of the
Parent or any of its subsidiaries). (For purposes of the
Section 3.12 each of the following shall be deemed to be a
"Parent Related Party": (i) each individual who is, or who
has at any time since December 31, 2000 been, an officer or
director; (ii) each member of the immediate family of each of
the individuals referred to in clause "(i)" above; and (iii)
any trust or other Entity (other than the Parent) in which
any one of the individuals referred to in clauses "(i)" and
"(ii)" above holds (or in which more than one of such
individuals collectively hold), beneficially or otherwise, a
material voting, proprietary or equity interest.)
3.13 BROKERS. No broker, investment banker, financial
advisor or other person, is entitled to any broker's,
finder's or financial advisor's fee or commission in
connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of
Parent.
17
3.14 ISSUANCE OF PARENT COMMON STOCK. The Parent Common
Stock to be issued in connection with the Merger will be
freely tradable under the Securities Act and the rules and
regulations promulgated by the SEC thereunder, except for
restrictions on transfer applicable to affiliates of the
Company. Without limiting the generality of the foregoing,
and subject to the provisions of Rule 145 under the Securities
Act, none of the shares of Parent Common Stock to be issued
in connection with the Merger will constitute "restricted
securities" within the meaning of Rule 144 under the
Securities Act.
3.15 INSURANCE. The Parent and each of its subsidiaries
has general commercial, product liability, fire and casualty
insurance policies with coverage customary for similarly
situated companies.
3.16 INDEMNIFICATION. To the best knowledge of the Parent,
no action or failure to take action by any present or former
director, officer or employee of the Parent or any of its
subsidiaries has occurred which would give rise to a claim
or a potential claim by any such person for indemnification
from the Parent or any of its subsidiaries.
3.17 NO UNDISCLOSED LIABILITIES.
(A) Parent and its subsidiaries have no accrued, contingent
or other liabilities of any nature, matured or unmatured,
with a value individually in excess of $25,000, except for
(a) liabilities set forth or reserved against in the Parent's
consolidated balance sheet as of December 31, 2000 or the
notes thereto contained in the Parent Securities Documents,
(b) liabilities and obligations described in the Parent
Disclosure Schedule and (c) liabilities and obligations
occurring in the ordinary course of business since December
31, 2000 or relating to the transactions contemplated by
this Agreement.
(B) Neither Parent nor any of its subsidiaries other than
The Chalk Group are liable for any of the obligations or
liabilities of The Chalk Group.
3.18 CASH ON HAND. As of the date of this Agreement,
Parent has at least $400,000 of available, unrestricted,
uncommitted cash on hand.
3.19 DISCLOSURE. As of the date of this Agreement,
none of the representations and warranties of the
Parent or the Merger Sub set forth in this Agreement
contain an untrue statement of material fact.
SECTION 4. COVENANTS OF THE PARTIES
4.1 CLOSING EFFORTS. Each of the Parent, the Merger
Sub and the Company, shall use its best efforts, to the
extent commercially reasonable ("Reasonable Best Efforts"),
to take all actions and to do all things necessary, proper
or advisable to consummate the transactions contemplated
by this Agreement, including without limitation using its
Reasonable Best Efforts to ensure that (i) its
representations and warranties remain true and correct in
all material respects through the Closing Date (giving
effect to the Parent Reorganization contemplated under
Section 4.18 and Section 5.1) and (ii) the conditions to
the obligations of the Parties to consummate the Merger
are satisfied on a timely basis.
18
4.2 ACCESS AND INVESTIGATION. During the period from the
date of this Agreement through the Effective Time (the
"Pre-Closing Period"), each Party shall, and shall cause
its Representatives to: (a) provide the other Party and
the other Party's Representatives with reasonable access
to such Party's Representatives, personnel and assets and
to all existing books, records, Tax Returns, work papers
and other documents and information relating to the such
Party; and (b) provide the other Party and the other
Party's Representatives with copies of such existing
books, records, Tax Returns, work papers and other
documents and information relating to such Party, and
with such additional financial, operating and other data
and information regarding such Party, as the other Party
may reasonably request. All information provided by a
Party to another Party or its Representatives, either
prior to or after the date hereof, shall be subject to
the terms of the NDA.
4.3 CONDUCT OF BUSINESS BY PARENT AND COMPANY.
(a) CONDUCT OF BUSINESS BY PARENT. During the
Pre-Closing Period and except (i) to the extent the
Company shall otherwise consent in writing (which
consent will not be unreasonably withheld), (ii) as
set forth in the Parent Disclosure Schedule or (iii)
as contemplated or permitted by or not inconsistent
with this Agreement, Parent shall carry on its business
solely in the ordinary course consistent with the
manner as heretofore conducted and, to the extent consistent
therewith, use Reasonable Best Efforts to preserve intact
its current business organization, keep available the
services of its current officers and employees and preserve
its relationships with customers, suppliers, licensors,
licensees, distributors and others having business dealings
with it. Without limiting the generality of the foregoing,
except (x) as set forth in the Parent Disclosure Schedule,
or (y) in furtherance of the Parent Reorganization as
contemplated under Section 4.18 and Section 5.1, the
Financing as contemplated under Section 7.6, or the
Subsidiary Sale as contemplated under Section 7.7, or (z) as
otherwise contemplated or permitted by or not inconsistent
with this Agreement, Parent shall not, without the written
consent of the Company (which consent will not be
unreasonably withheld):
(i) (x) declare, set aside or pay any dividends
on, or make any other distributions in respect of,
any of its capital stock, (y) split, combine or
reclassify any of its capital stock or issue or
authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares
of its capital stock, or (z) purchase, redeem or
otherwise acquire any shares of capital stock of Parent
or any other securities thereof or any rights, warrants
or options to acquire any such shares or other securities;
(ii) amend its Articles or Certificate of Incorporation
or Bylaws;
(iii) issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting
securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares,
voting securities or convertible securities (other than
the issuance of shares upon the valid exercise of options
and warrants outstanding as of the date of this Agreement);
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets
of, or by any other manner (including
19
through any of its subsidiaries), any business or any
corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its
(or any of its subsidiaries') material properties, assets
or business, except sales made in the ordinary course of
business;
(vi) make any material payments for purposes of settling any
dispute;
(vii) allow Parent or any of its subsidiaries, or any significant
portion of their respective businesses or assets, to be
acquired (by merger, tender offer, purchase or otherwise);
(viii) enter into (directly or through any subsidiary)
any material transaction outside the ordinary course of
business or enter into any material Contract;
(ix) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person
(other than a subsidiary of the Parent), issue or sell any
debt securities or warrants or other rights to acquire any
debt securities of the Parent, guarantee any debt securities
of another person (other than a subsidiary of the Parent),
enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter
into any arrangement having the economic effect of any of
the foregoing, except for short-term borrowings incurred in
the ordinary course of business consistent with past
practice;
(x) form any subsidiary or acquire any equity interest or
other interest in any other Entity;
(xi) make any material capital expenditure; or
(xii) authorize any of, or commit or agree to take any
of, or allow any of its subsidiaries to commit to taking
any of the foregoing actions.
(b) CONDUCT OF BUSINESS BY COMPANY. During the Pre-Closing
Period and except (i) to the extent the Parent shall otherwise
consent in writing (which consent will not be unreasonably
withheld), (ii) as set forth in the Company Disclosure Schedule
or (iii) as contemplated or permitted by or not inconsistent with
this Agreement, Company shall carry on its business solely in the
ordinary course consistent with the manner as heretofore conducted
and, to the extent consistent therewith, use reasonable efforts to
preserve intact its current business organization, keep available
the services of its current officers and employees and preserve
its relationships with customers, suppliers, licensors, licensees,
distributors and others having business dealings with it. Without
limiting the generality of the foregoing, except as set forth in
the Company Disclosure Schedule, or as otherwise contemplated or
permitted by or not inconsistent with this Agreement, during the
Pre-Closing Period, Company shall not, without the written
consent of the Parent (which consent will not be unreasonably
withheld):
(i) (x) declare, set aside or pay any dividends on,
or make any other distributions in respect of,
any of its capital stock, (y) split, combine or
reclassify any of
20
its capital stock or issue or authorize the issuance
of any other securities in respect of, in lieu of or
in substitution for shares of its capital stock,
or (z) purchase, redeem or otherwise acquire any
shares of capital stock of Company or any other
securities thereof or any rights, warrants or
options to acquire any such shares or other
securities;
(ii) amend its Certificate of Incorporation or Bylaws;
(iii) issue, deliver, sell, pledge or otherwise encumber
any shares of its capital stock, any other voting
securities or any securities convertible into, or
any rights, warrants or options to acquire, any
such shares, voting securities or convertible
securities (other than the issuance of shares upon
the valid exercise of options and warrants
outstanding as of the date of this Agreement or
as contemplated in the Company Disclosure Schedule);
(iv) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the
assets of, or by any other manner, any business or any
corporation, partnership, joint venture, association or
other business organization or division thereof;
(v) sell, lease, license, mortgage or otherwise encumber
or subject to any Lien or otherwise dispose of any of its
material properties, assets or business, except sales made
in the ordinary course of business;
(vi) make any material payments for purposes of settling
any dispute;
(vii) allow the Company, or any significant portion of its
business or assets, to be acquired (by merger, tender
offer, purchase or otherwise);
(viii) enter into (directly or through any subsidiary)any
material transaction outside the ordinary course of
business or enter into any material Contract;
(ix) incur any indebtedness for borrowed money or
guarantee any such indebtedness of another Person
(other than a subsidiary of the Parent), issue or sell
any debt securities or warrants or other rights to
acquire any debt securities of the Parent, guarantee
any debt securities of another person (other than a
subsidiary of the Parent), enter into any "keep well"
or other agreement to maintain any financial statement
condition of another person or enter into any arrangement
having the economic effect of any of the foregoing,
except for short-term borrowings incurred in the
ordinary course of business consistent with past
practice;
(x) form any subsidiary or acquire any equity interest or
other interest in any other Entity;
(xi) make any material capital expenditures; or
(xii) authorize any of, or commit or agree to take any
of, the foregoing actions.
21
4.4 NOTIFICATOIN; UPDATES TO DISCLOSURE SCHEDULE.
(a) During the Pre-Closing Period, each of the Parties
shall promptly notify the other Party in writing of:
(i) the discovery by a Party of any event, condition,
fact or circumstance that occurred or existed on or
prior to the date of this Agreement and that caused
or constitutes an inaccuracy in or breach of any
representation or warranty made by such Party in this
Agreement;
(ii) any event, condition, fact or circumstance that
occurs, arises or exists after the date of this
Agreement and that would cause or constitute an
inaccuracy in or breach of any representation or
warranty made by such notifying Party in this
Agreement if (A) such representation or warranty
had been made as of the time of the occurrence,
existence or discovery of such event, condition,
fact or circumstance, or (B) such event, condition,
fact or circumstance had occurred, arisen or existed
on or prior to the date of this Agreement (other than
such event, condition, fact or circumstance occurring
pursuant to the obligations of the Parent under
Sections 4.18, 5.1, 7.6 and 7.7 hereof);
(iii) any breach of any covenant or obligation of the
notifying Party; and
(iv) any event, condition, fact or circumstance that
would make the timely satisfaction of any of the
conditions set forth in Sections 5, 6 or 7
impossible or unlikely.
(b) If any event, condition, fact or circumstance that is
required to be disclosed pursuant to Section 4.4(a) requires
any change in a Party's respective Disclosure Schedule, or if
any such event, condition, fact or circumstance would require
such a change assuming the Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event,
condition, fact or circumstance, then the notifying Party shall
promptly deliver to the other Party an update to such Disclosure
Schedule specifying such change. No such update shall be deemed
to supplement or amend such Disclosure Schedule for the purpose
of (i) determining the accuracy of any of the representations
and warranties made by such notifying Party in this Agreement,
or (ii) determining whether any of the conditions set forth in
Sections 5, 6 or 7 have been satisfied.
4.5 EXCLUSIVITY. During the Pre-Closing Period, each Party
shall not, and each Party shall require each of its
Representatives not to, directly or indirectly, except as
otherwise expressly contemplated in this Agreement, (i)
initiate, solicit or encourage any inquiry, proposal, offer or
discussion with any party concerning any merger, reorganization,
consolidation, recapitalization, business combination,
liquidation, dissolution, share exchange, sale of stock, sale of
material assets or similar business transaction involving such
Party or any division or subsidiary of such Party, (ii) furnish
any non-public information concerning the business, properties or
assets of such Party or any division of such Party to any party
in contemplation of a transaction described by Section 4.5(i) or
(iii) engage in discussions or negotiations with any party
concerning any such transaction, provided, however, in the case
of clauses (ii) and (iii), a Party may provide information to or
engage in discussions or negotiations with another Person or
22
Entity if its Board of Directors determines in good faith (after
consultation with and receipt of advice from outside counsel)
that the failure to do so would constitute a breach of its
fiduciary duties to that Party's stockholders under applicable
law; provided, further, that in such event, the Party will
immediately notify the other Parties prior to such furnishing of
information, discussions or negotiations. On the date of this
Agreement, each Party shall immediately notify any Party with
which discussions or negotiations of the nature described above
were pending that such Party is terminating such discussions or
negotiations. If a Party receives any inquiry, proposal or offer of
the nature described above, after the date hereof, such Party shall,
within one business day after such receipt, notify the other Party
of such inquiry, proposal or offer, including the identity of the
other party and the terms of such inquiry, proposal or offer. In no
event will a Party be permitted to provide information to another
Person or Entity that was never provided to the other Parties.
4.6 FILINGS AND CONSENTS. As promptly as practicable after the
execution of this Agreement, each Party (a) shall make all filings
(if any) and give all notices (if any) required to be made and
given by such party in connection with the Merger and the other
transactions contemplated by this Agreement, and (b) shall use all
Reasonable Best Efforts to obtain all Consents (if any) required
to be obtained (pursuant to any applicable Legal Requirement or
Contract, or otherwise) by such Party in connection with the Merger
and the other transactions contemplated by this Agreement. Each
Party shall (upon request) promptly deliver to the other Party a
copy of each such filing made, each such notice given and each such
Consent obtained during the Pre-Closing Period.
4.7 PREPARATION OF FORM S-4, PROXY STATEMENT AND CANADIAN
SECURITIES DOCUMENTS; STOCKHOLDERS MEETINGS
(a) As soon as practicable following the date of this
Agreement, (i) the Company and Parent shall prepare, and the
Parent shall file with the SEC, a proxy statement relating to
the adoption by the Parent's stockholders of this Agreement
(as amended or supplemented from time to time, the "Proxy
Statement"), and Parent shall prepare and file with the SEC
the Form S-4, in which the Proxy Statement will be included
as a prospectus and (ii) the Company and Parent shall prepare,
and the Parent shall file with the applicable securities
exchange commission of Canada (the "Canadian SEC"), any
documents required by the Canadian SEC or under any Canadian
Laws to effect the Merger (hereinafter the "Canadian Securities
Documents"). Each of the Parent and the Company shall ensure
that the Proxy Statement, Form S-4 and the Canadian Securities
Documents, as applicable, do not contain any untrue statement
of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the
circumstances under which they were made, not misleading
(provided that a Party shall not be responsible for the accuracy
or completeness of any information relating to the other Party or
furnished by the other Party in writing for inclusion in the
Proxy Statement, Form S-4 and the Canadian Securities Documents).
Each of the Company and Parent shall use all Reasonable Best
Efforts to have the Form S-4 declared effective under the
Securities Act and any Canadian Securities Documents declared
effective under the Canadian Laws as promptly as practicable
after such filings are made. The Parent will use its Reasonable
Best Efforts to cause the Proxy Statement to be mailed to the
Parent's stockholders as promptly as practicable after the Form
S-4 is declared effective under the Securities Act. Parent
shall also take any action (other than qualifying to do business
in any jurisdiction in which it is not now so
23
qualified) required to be taken under any applicable state
securities laws or other applicable laws, rules or regulations
(including Canadian Laws) in connection with the issuance of
Parent Common Stock pursuant to this Agreement and under the
Plan. Each of Parent and the Company shall furnish all
information concerning itself to the other as may be reasonably
requested in connection with any such action and the preparation,
filing and distribution of the Proxy Statement or any Canadian
Securities Documents.
(b) At or prior to filing of the Form S-4 the Company and
Parent shall execute and deliver to legal counsel for Parent tax
representation letters in customary form. Following delivery
of these tax representation letters, the Parties shall use their
Reasonable Best Efforts to cause such legal counsel to deliver a
tax opinion satisfying the requirements of Item 601 of Regulation
S-K promulgated under the Securities Act. In rendering such
opinion, such counsel shall be entitled to rely on the tax
representation letters referred to in this Section 4.7(b).
(c) The Company will, as soon as reasonably practicable
following the date of this Agreement, establish a record date
(which will be as soon as practicable following the date of
this Agreement) for, and, to the extent that convening and
holding a meeting would not violate or otherwise be inconsistent
with applicable law, duly call, give notice of, convene and
hold a meeting of its stockholders (the "Company Stockholders
Meeting") for the purposes of (i) having the holders of Company
Preferred Stock approve the Company Preferred Stock Conversion
and (ii) having the holders of Company Common Stock and Company
Preferred Stock adopt this Agreement; provided, that the
Company may also seek approval of the Company Preferred Stock
Conversion and adoption of this Agreement via written consent
of its stockholders to the extent permitted by the DGCL. The
Company will, through its Board of Directors, recommend to its
stockholders approval and adoption of the Company Preferred
Stock Conversion and this Agreement.
(d) The Parent will, as soon as reasonably practicable
following the date of this Agreement, establish a record
date (which will be as soon as practicable following the
date of this Agreement) for, and, to the extent that convening
and holding a meeting would not violate or otherwise be
inconsistent with applicable law, duly call, give notice of,
convene and hold a meeting of its stockholders (the "Parent
Stockholders Meeting") for the purpose of adopting this
Agreement. The Parent will, through its Board of Directors,
recommend to its stockholders approval and adoption of this
Agreement; provided, however, that if the Board of Directors
of the Parent concludes in good faith (after consultation with
and upon receipt of advice from its outside counsel) that the
making of (or continuing to make) a favorable recommendation
would violate its fiduciary duties to the Parent's stockholders
under applicable law, then the Board of Directors shall not
be required to make such recommendation, or, if such
recommendation has already been made, it may withdraw, modify
or change such recommendation.
4.8 PUBLIC ANNOUNCEMENTS . During the Pre-Closing Period, (a)
no Party shall (and each Party shall not permit any of its
Representatives to) issue any press release or make any public
statement regarding this Agreement or the Merger, or regarding
any of the other transactions contemplated by this Agreement,
without the other Party's prior written consent, except that
Parent may make any disclosure required to comply with
applicable law or the requirements of the Nasdaq National
Market or the Toronto Stock Exchange applicable to Parent,
provided that Parent shall consult with the Company and seek
and incorporate the
24
Company's reasonable input regarding such disclosure prior
to making such disclosure, and (b) each Party will use
reasonable efforts to consult with the other Party prior
to issuing any press release or making any public statement
regarding the Merger.
4.9 LISTING OF PARENT COMMON STOCK. Parent shall use its
Reasonable Best Efforts to cause the shares of Parent Common
Stock to be issued under the Agreement and pursuant to the
Plan to be approved for listing on the Nasdaq OTC System,
subject to official notice of issuance, on the Closing Date.
If Parent Common Stock is listed on the Toronto Stock
Exchange immediately prior to the Closing Date, Parent shall
also use its Reasonable Best Efforts to cause the shares of
Parent Common Stock to be issued under the Agreement and
pursuant to the Plan to be approved for listing on the
Toronto Stock Exchange, subject to official notice of
issuance, on the Closing Date.
4.10 INDEMNIFCATION
(a) For a period of six years from and after the
Effective Time, Parent will cause the Surviving Corporation
to fulfill and honor in all respects the obligations of the
Company pursuant to (i) each indemnification agreement
currently in effect between the Company and each person
who is or was a director or officer of the Company at or
prior to the Effective Time and (ii) any indemnification
provision under the Company's Certificate of Incorporation
or Bylaws as each is in effect on the date hereof (the
persons to be indemnified pursuant to the agreements or
provisions referred to in clauses (i) and (ii) of this
Section 4.10(a) shall be referred to as, collectively, the
"Indemnified Parties"). The Certificate of Incorporation
and Bylaws of the Surviving Corporation shall contain the
provisions with respect to indemnification and exculpation
from liability set forth in the Company's Restated
Certificate of Incorporation and Bylaws on the date of this
Agreement, which provisions shall not be amended, repealed or
otherwise modified for a period of six years after the
Effective Time in any manner that would adversely affect the
rights thereunder of any Indemnified Party.
(b) For a period of six years from and after the
Effective Time, the Parent does hereby unconditionally
guarantee performance of the Surviving Corporation's
obligations under Section 4.10(a).
(c) Parent and the Surviving Corporation jointly and
severally agree to pay all expenses, including attorneys'
fees, that may be incurred by the Indemnified Parties in
enforcing the indemnity and other obligations provided for
in this Section 4.10.
(d) This Section 4.10 shall survive the consummation of
the Merger and the Effective Time, is intended to benefit
and may be enforced by the Indemnified Parties, and shall
be binding on all successors and assigns of Parent and the
Surviving Corporation.
4.11 FINANCING FOR OPERATIONS OF THE COMPANY. Parent will
make all money raised by Parent pursuant to the Financing
contemplated by Section 7.6 available to fund the operations
of the Company and the Parent during the Pre-Closing Period.
Advances of such funds during the Pre-Closing Period to the
Parent and the Company in this respect will be made in
accordance with a written budget approved in writing by the
Chief Executive Officer of the Parent and the Chief Executive
Officer of the Company. Advances made by Parent to the Company
will be
25
made on a bi-weekly basis in accordance with this budget.
Parent will deposit an amount equal to the amount allocated to
the Company in such budget in an interest-bearing account and
will not expend such funds except pursuant to advances to the
Company. Any advances to the Company will be made in the form
of an unsecured loan (the "Working Capital Loan") to the
Company (or such other form mutually agreed upon by Parent and
the Company). The definitive documentation for such loan
will be negotiated and executed promptly after the date of this
Agreement by the Parties, but will incorporate the applicable
provisions of Section 8.3. Any monies received by Parent
resulting from the exercise of options, warrants or other
instruments to purchase Parent's common stock shall be used by
Parent for its operations and may be advanced to Company at the
Parent's sole discretion.
4.12 YUKON REINCORPORATION. Prior to the Parent
Reorganization, the Parent may reincorporate
in or redomesticate itself to Yukon, Canada.
4.13 ACQUISITION OF ADDITIONAL INTEREST IN CHALK GROUP. In
order to facilitate the Subsidiary Sale as contemplated by
Section 7.7, the Parent may, prior to such sale, acquire up
to an additional 14% of The Chalk Group in exchange for the
issuance of up to 3,300,000 shares of Parent Common Stock and
share purchase warrants to purchase up to 700,000 shares of
Parent Common Stock.
4.14 GRANT OF NEW STOCK OPTIONS BY PARENT. During the
Pre-Closing Period, the Company may issue stock options to
acquire up to 1,300,000 shares of Parent Common Stock and
stock options to acquire up to 3,000,000 shares of The Chalk
Group to key management and other key employees and
contractors of The Chalk Group to assure their continuity of
service in connection with the Subsidiary Sale. In addition,
during the Pre-Closing Period, the Parent may issue options
to its employees to acquire up to 2,500,000 shares of Parent
Common Stock to satisfy the Parent's previous commitment in
August 2001 to provide options to induce such employees to
(a) defer current compensation, (b) significantly reduce
the Parent's contractual severance obligations to them and
(c) continue their employment with Parent and forego other
opportunities. In the event of any discrepancy in these
permitted amounts between this Section 4.14 and the Parent
Disclosure Schedule, the Parent Disclosure Schedule shall
govern with respect to permitted amounts.
4.15 ISSUANCE OF PARENT COMMON STOCK IN THE FINANCING.
During the Pre-Closing Period, Parent shall be permitted
to issue shares of Parent Common Stock to effect the
Financing contemplated by Section 7.6.
4.16 PARENT D&O INSURANCE TAIL POLICY. Parent shall be p
ermitted to obtain runoff D&O insurance for a three year
tail period following the Closing Date with coverage of up
to $2 million, provided, that the Parent may not pay more than
$100,000 for the premiums for such insurance, and any amounts
in excess thereof shall have been paid by parties other than
the Parent.
4.17 COMPANY PRODUCT SALES. Promptly after the date hereof,
Parent and the Company shall negotiate and execute an agreement
pursuant to which Parent will act as a distributor of the
Company's products during the Pre-Closing Period.
26
4.18 DELAWARE REINCORPORATION. Promptly after the date
hereof, Parent shall use its Reasonable Best Efforts to
reincorporate itself into Delaware as a Delaware corporation
in accordance with the applicable provisions of the DGCL,
with terms reasonably acceptable to the Company. For purposes
of this Agreement, such transactions relating to the
reorganization into Delaware shall be referred to as the "Parent
Reorganization."
SECTION 5. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER.
The respective obligations of each Party to effect the
Merger and otherwise consummate the transactions contemplated
by this Agreement are subject to the satisfaction or written
waiver, at or prior to the Closing, of each of the following
onditions:
5.1 STOCKHOLDER APPROVAL AND REOGANIZATION. The Requisite
Company Stockholder Vote and the Requisite Parent Stockholder
Vote shall have been obtained. Parent shall have completed the
Parent Reorganization. The parties acknowledge that Parent may
reorganize or redomesticate itself as a Yukon, Canada corporation
prior to the Parent Reorganization.
5.2 NO INJUNCTIONS OR RESTRAINTS. No temporary restraining
order, preliminary or permanent injunction or other order issued
by any Canadian and/or U.S. federal or state court of competent
jurisdiction or other material legal restraint or prohibition
issued or promulgated by a Canadian and/or U.S. federal or state
Governmental Body preventing the consummation of the Merger shall
be in effect.
5.3 FORM S-4 AND CANADIAN SECURITIES DOCUMENTS. The Form
S-4 shall have become effective under the Securities Act and
any Canadian Securities Documents shall have become effective
under Canadian Laws and neither shall be the subject of any
stop order or proceedings seeking a stop order.
5.4 DISSENTERS' RIGHTS. The number of Dissenting Shares
shall not exceed 3% of the number of outstanding shares of
Company Common Stock as of the Effective Time (calculated
after giving effect to the conversion into Company Common
Stock of all outstanding shares of Company Preferred Stock),
and the number of shares of Parent that have preserved
appraisal or dissenters' rights under applicable law with
respect to the transactions contemplated hereby shall not
exceed 3% of the number of outstanding shares of Parent
Common Stock as of the Effective Time. Notwithstanding the
foregoing, in the event that one percentage referenced above
is less than 3% and the other percentage is greater than 3%,
as long as the sum of the two percentages does not exceed 6%,
this condition will be deemed satisfied.
SECTION 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARENT
AND MERGER SUB
The obligations of Parent and Merger Sub to effect the
Merger and otherwise consummate the transactions contemplated
by this Agreement are subject to the satisfaction or written
waiver, at or prior to the Closing, of each of the following
conditions:
6.1 ACCURACY OF REPRESENTATIONS. Each of the representations
and warranties made by the Company in this Agreement shall have
been accurate in all respects as of the date of this
27
Agreement, and (excluding any representations or warranties
that refer to the date of this Agreement or any date other
than the Closing Date) shall continue to be accurate in all
material respects as of the Closing Date as if made at the
Closing Date.
6.2 PERFORMANCE OF COVENANTS. All of the covenants and
obligations that the Company is required to comply with or to
perform at or prior to the Closing shall have been complied
with and performed in all material respects.
6.3 CONSENTS. All material Consents required to be
obtained by the Company in connection with the Merger and
the other transactions contemplated by this Agreement
(including any Consents required in order to cause all
material Contracts of the Company to remain in full force
and effect after the Closing) shall have been obtained and
shall be in full force and effect.
6.4 OFFICER'S CERTIFICATE. The Company shall have delivered
to the Parent and the Merger Sub a certificate issued by
the Company's Chief Executive Officer to the effect that
each of the conditions specified in Sections 5.1 (other than
the Requisite Company Stockholder Vote), 6.1, 6.2, 6.3, 6.5,
6.6, 6.8 and 6.9 have been satisfied.
6.5 CONVERSION OF COMPANY PREFERRED STOCK. All outstanding
shares of Company Preferred Stock shall have been converted
into shares of Company Common Stock.
6.6 COMPANY WARRANTS. All warrants to acquire shares of
capital stock of the Company shall have been exercised,
converted or otherwise terminated.
6.7 AUDIT. Parent's independent accountant shall have
completed an audit of the Company's financial statements as
of and for the periods ending December 31, 1998, 1999 and
2000. It is anticipated that such audit shall be completed
by December 31, 2001.
6.8 CLAIMS OR LITIGATION. There shall be no actions,
suits, claims, governmental investigations or proceedings
pending or threatened in writing against the Company or any
of its assets or properties, or against any of its officers,
directors or employees acting in such capacity, that are
reasonably likely, individually or in the aggregate, to
result in material monetary exposure to the Company or
significant or material limitations on the manner in which
the Company may conduct its business, including, without
limitation, any significant or material limitation on any
material Intellectual Property Rights of the Company.
6.9 NO MATERIAL ADVERSE CHANGE. There shall have been
no material adverse change in the business, condition,
assets, liabilities, or results of operations of the
Company since the date of this Agreement; provided, however,
that for purposes of determining whether there has been any
such material adverse change, (i) any adverse change resulting
from or relating to general business or economic conditions
shall be disregarded, (ii) any adverse change resulting from or
relating to conditions generally affecting the industry in which
the Company competes shall be disregarded, (iii) any adverse
change resulting from or relating to the announcement or pendency
of the Merger or any of the other transactions contemplated by
this Agreement shall be disregarded and (iv) any adverse change
resulting from or relating to the taking of any action
contemplated by this Agreement shall be disregarded.
28
6.10 VOTING AGREEMENT. The Company shall have provided the
Parent with stockholder signatures to the Voting Agreement
representing a reasonably acceptable number of shares of
the Company within 10 working days from the date of this
Agreement.
SECTION 7. CONDITIONS PRECEDENT TO OBLIGATIONS OF THE
COMPANY
The obligations of the Company to effect the Merger and
otherwise consummate the transactions contemplated by this
Agreement are subject to the satisfaction or written waiver,
at or prior to the Closing, of the following conditions:
7.1 ACCURACY OF REPRESENTATIONS. Each of the
representations and warranties made by Parent and Merger
Sub in this Agreement shall have been accurate in all respects
as of the date of this Agreement, and (except for the changes
contemplated in Sections 4.18, 5.1, 7.6 and 7.7, and excluding
any representations or warranties that refer to the date of
this Agreement or any date other than the Closing Date) shall
be accurate in all material respects as of the Closing Date
as if made at the Closing Date.
7.2 PERFORMANCE OF COVENANTS. All of the covenants and
obligations that Parent and Merger Sub are required to comply
with or to perform at or prior to the Closing shall have been
complied with and performed in all material respects.
7.3 CONSENTS. All material Consents required to be
obtained by Parent and Merger Sub in connection with the
Merger and the other transactions contemplated by this
Agreement (including any Consents required in order to cause
all material Contracts of the Parent and its subsidiaries to
remain in full force and effect after the Closing) shall have
been obtained and shall be in full force and effect.
7.4 OFFICER'S CERTIFICATE. Parent shall have delivered to
the Company a certificate issued by the Parent's Chief
Executive Officer to the effect that each of the conditions
specified in Sections 5.1 (other than the Requisite Company
Stockholder vote), 7.1, 7.2, 7.3, 7.6, 7.7, 7.8, 7.9, 7.10
and 7.12 have been satisfied.
7.5 [INTENTIONALLY OMITTED BY THE PARTIES ]
7.6 FINANCING. Parent shall have raised at least U.S.
$1,000,000 in an equity financing with terms reasonably
acceptable to the Company. For purposes of this Agreement,
such equity financing shall be referred to herein as the
"Financing."
7.7 SUBSIDIARY SALE. Parent shall have entered into a
binding sale agreement with a third party, with terms reasonably
acceptable to the Company, for the sale of some of the interest
of Parent in its subsidiary, The Chalk Group (the "Subsidiary
Sale"), such agreement to provide for (i) consideration of not
less than U.S.$2,000,000 in cash to be paid to Parent, and (ii)
the sale transaction to close not later than the later of (A)
January 14, 2002 and (B) 14 days after the Closing Date. In
addition, not less than U.S.$2,000,000 shall have been paid
into escrow on account of the purchase price for this sale
prior to Closing.
7.8 CLAIMS OR LITIGATION. There shall be no actions,
suits, claims, governmental investigations or proceedings
pending or threatened in writing against the Parent or any
of its
29
subsidiaries or any of their assets or properties,
or against any of their officers, directors or employees
acting in such capacity, that are reasonably likely,
individually or in the aggregate, to result in material
monetary exposure to the Parent or any of its subsidiaries
or significant or material limitations on the manner in
which the Parent or its subsidiaries may conduct their
business, including, without limitation, any significant
or material limitation on any material Intellectual Property
Rights of the Parent or any of its subsidiaries.
7.9 NO MATERIAL ADVERSE CHANGE. There shall have been no
material adverse change in the business, condition, assets,
liabilities, or results of operations of the Parent and its
subsidiaries since the date of this Agreement; provided,
however, that for purposes of determining whether there has
been any such material adverse change, (i) any adverse change
resulting from or relating to general business or economic
conditions shall be disregarded, (ii) any adverse change
resulting from or relating to conditions generally affecting
the industry in which the Parent and its subsidiaries compete
shall be disregarded, (iii) any adverse change resulting from
or relating to the announcement or pendency of the Merger or
any of the other transactions contemplated by this Agreement
shall be disregarded and (iv) any adverse change resulting
from or relating to the taking of any action contemplated
by this Agreement shall be disregarded.
7.10 DIRECTORS AND OFFICERS. The Parent shall provide
evidence that the individuals listed on Exhibit B shall have
been elected or appointed to serve as officers and directors
of the Parent (as specified on Exhibit B), until their
successors are duly elected and qualified, provided that such
election and/or appointment shall be conditioned upon
consummation of the Merger and shall not take effect until
the Effective Time; provided, that either party may substitute
an individual for those directors specified on Exhibit B prior
to Closing if any listed individual does not consent
to serve as a director of Parent at the Effective Time. In
this regard, Parent shall also provide evidence that any
individual not listed as a director on Exhibit B shall have
resigned as a director of Parent at or prior to the Effective
Time. The directors listed on Exhibit B shall serve from the
Effective Time until the Parent's next succeeding annual
meeting of stockholders.
7.11 LISTING OF PARENT COMMON STOCK. The shares of Parent Common
Stock to be issued under the Agreement and the Plan shall have
been approved for listing on the Nasdaq OTC System, subject to
official notice of issuance. If Parent Common Stock is listed
on the Toronto Stock Exchange immediately prior to the Closing
Date, the shares of Parent Common Stock to be issued under this
Agreement and the Plan shall have been approved for listing on
the Toronto Stock Exchange, subject to official notice of issuance.
7.12 EMPLOYMENT CONTRACTS. No employee of Parent shall be
entitled to severance of more than 12 months base salary plus
any earned but unpaid bonus upon termination of employment.
7.13 VANCOUVER LEASES. Parent shall have provided the
Company with evidence showing that beginning the later of April 1,
2002 or the Closing date, another party shall have assumed the
liability of Parent's Vancouver office lease subject to the
approval of the landlord. Nothing in the foregoing is
intended to require Parent to be released from the lease of its
Vancouver office.
30
7.14 2000 TAX RETURN. The Parent shall have filed its 2000
income tax return on or before December 31, 2001, and said
tax return shall not provide for the payment of any material
taxes for year 2000 for the Parent or any of its subsidiaries
other than for the payment of Canadian provincial taxes in an
amount equal to approximately U.S. $38,000.
7.15 VOTING AGREEMENT. The Parent shall have provided the
Company with stockholder signatures to the Voting Agreement
representing a reasonably acceptable number of shares of the
Parent within 10 working days from the date of this Agreement.
SECTION 8. TERMINATION
8.1 TERMINATION EVENTS. This Agreement may be terminated
prior to the Effective Time as follows:
(a) by Parent if Parent reasonably determines that the
timely satisfaction of any condition set forth in Sections
5 or 6 has become impossible (other than as a result of any
failure on the part of Parent or Merger Sub to comply with
or perform any covenant or obligation of Parent or Merger Sub
set forth in this Agreement);
(b) by the Company if the Company reasonably determines
that the timely satisfaction of any condition set forth in
Sections 5 or 7 has become impossible (other than as a result
of any failure on the part of the Company to comply with or
perform any covenant or obligation set forth in this Agreement
or in any other agreement or instrument delivered to Parent);
(c) by Parent by giving written notice to the Company in
the event the Company is in breach of any representation,
warranty or covenant contained in this Agreement, and such
breach, individually or in combination with any other such
breach, (i) would cause the conditions set forth in Section
7.1 and Section 7.2 not to be satisfied and (ii) is not
cured within 15 days following delivery by the Parent
to the Company of written notice of such breach;
(d) by the Company by giving written notice to the Parent
in the event the Parent or the Merger Sub is in breach of any
representation, warranty or covenant contained in this
Agreement, and such breach, individually or in combination
with any other such breach, (i) would cause the conditions
set forth in Section 6.1 and Section 6.2 not to be satisfied
and (ii) is not cured within 15 days following delivery by
the Company to the Parent of written notice of such breach;
(e) by Parent if the Closing has not taken place on or
before July 31, 2002 (other than as a result of any failure
on the part of Parent or Merger Sub to comply with or perform
any covenant or obligation of Parent or Merger Sub set forth
in this Agreement);
(f) by the Company if the Closing has not taken place on
or before July 31, 2002 (other than as a result of the
failure on the part of the Company to comply with or perform
any covenant or obligation set forth in this Agreement);
(g) by Parent if, within five (5) business days after
delivery of the audited financial statements of the Company
as of and for the fiscal years ended December 31, 1998,
31
1999 and 2000, the Parent determines in its reasonable
discretion that the audits demonstrate Material Differences,
provided, that the Parent has given the Company at least
ten (10) days prior written notice of its intention to
terminate pursuant to this Section 8.1(g), and such Material
Differences are not resolved to the Parent's reasonable
satisfaction within ten (10) days following delivery by
the Company to the Parent of such written notice;
(h) by the Company by giving written notice to the Parent
in the event the Board of Directors of the Parent fails to
favorably recommend adoption of this Agreement by the
stockholders of the Parent or withdraws, modifies or changes
such recommendation in any manner that is adverse to the
Company; or
(i) by the mutual consent of Parent and the Company.
8.2 TERMINATION PROCEDURES. If Parent wishes to terminate
this Agreement pursuant to Section 8.1(a), Section 8.1(c),
Section 8.1(e) or Section 8.1(g), Parent shall deliver to the
Company a written notice stating that Parent is terminating this
Agreement and setting forth a brief description of the basis on
which Parent is terminating this Agreement. If the Company wishes
to terminate this Agreement pursuant to Section 8.1(b), Section
8.1(d), Section 8.1(f) or Section 8.1(h), the Company shall
deliver to Parent a written notice stating that the Company is
terminating this Agreement and setting forth a brief description
of the basis on which the Company is terminating this Agreement.
8.3 EFFECT OF TERMINATION. If this Agreement is terminated
pursuant to Section 8.1, all further obligations of the Parties
shall terminate, except as provided below. In addition, upon
any termination of this Agreement, the Parties shall, in all
events, remain bound by and continue to be subject to the
provisions set forth in Section 4.8 and Section 9. The remedies
set forth in this Section 8.3 shall be the sole and exclusive
remedies of the parties with respect to any breach of this
Agreement.
(a) If this Agreement is terminated by the Parent pursuant
to Section 8.1(c) on account of an intentional and material
breach by the Company of any representation made herein or
the willful uncured material breach by the Company of any
covenant or agreement made herein, then upon such termination:
(i) the Company shall pay the Parent cash in the amount of
$1,000,000 in immediately available funds, as agreed upon
liquidated damages and not as a penalty; (ii) all principal
and interest due under the Working Capital Loan as of the
date of such termination (the "Working Capital Indebtedness")
shall be immediately due and payable by the Company to the
Parent; and (iii) the Company shall immediately reimburse
the Parent for $15,000 of the Parent's expenses in procuring
the audit of the Company's financial statements contemplated
in this Agreement.
(b) If this Agreement is terminated by the Parent for any
reason other than as set forth in subsection (a) above, then
upon such termination, the Working Capital Indebtedness shall
be due and payable by the Company to the Parent on the date
six months after the date of such termination. If such
termination is pursuant to Section 8.1(c), then the Company
shall reimburse the Parent for its reasonable fees and expenses
associated with this transaction.
32
(c) In the event of the termination of this Agreement by
the Company pursuant to Section 8.1(d) on account of an
intentional and material breach by the Parent of any
representation made herein or the willful uncured material
breach by the Parent of any covenant or agreement made herein,
then upon such termination: (i) the Parent shall pay the
Company cash in the amount of $1,000,000 in immediately
available funds, as agreed upon liquidated damages and
not as a penalty; and (ii) the Company shall have the right
to set off against the Working Capital Indebtedness, any amounts
due to the Company from the Parent pursuant to this
Section 8.3 (c).
(d) In the event of the termination of this Agreement by the
Company pursuant to Section 8.1(h), then upon such termination:
(i) the Parent shall pay the Company cash in the amount of
$430,000 (which the Parties acknowledge represents
approximately 3% of the value of the consideration to be
delivered to Company stockholders based on currently prevailing
market conditions), in immediately available funds, as agreed
upon liquidated damages and not as a penalty; (ii) the Working
Capital Indebtedness shall be due and payable by the Company to
the Parent on the date six months after the date of such
termination and (iii) the Company shall have the right to
set-off against the Working Capital Indebtedness, any amounts
due to the Company from the Parent pursuant to this Section 8.3 (d).
(e) In the event of the termination of this Agreement by
the Company for any reason other than as set forth in
subsections (c) and (d) above, then upon any such termination,
the Working Capital Indebtedness shall be due and payable by
the Company to the Parent on the date six months after the
date of such termination. If such termination is pursuant to
Section 8.1(d), then the Parent shall reimburse the Company
for its reasonable fees and expenses associated with this
transaction.
SECTION 9. MISCELLANEOUS PROVISIONS
9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES.
None of the representations or warranties contained in this
Agreement or in any certificate or instrument delivered
pursuant hereto shall survive the Effective Time. This
Section 9.1 shall not limit any covenant or agreement of
the Parties which by its terms contemplates performance after
the Effective Time.
9.2 FURTHER ASSURANCES. Each Party shall execute and
cause to be delivered to each other Party hereto such
instruments and other documents, and shall take such other
actions, as such other Party may reasonably request (prior to,
at or after the Closing) for the purpose of carrying out
or evidencing any of the transactions contemplated by
this Agreement.
9.3 FEES AND EXPENSES. Each Party shall bear and pay all
fees, costs and expenses (including legal fees and accounting
fees) that have been incurred or that are incurred by such
Party in connection with the transactions contemplated by this
Agreement, including all fees, costs and expenses incurred by
such party in connection with or by virtue of (a) the
investigation and review conducted by each Party and its
Representatives with respect to the other Party's business
(and the furnishing of information to each Party and its
Representatives in connection with such investigation and
review), (b) the negotiation, preparation and review of
this Agreement (including the Disclosure Schedules) and all
Agreements, certificates, opinions and other instruments and
documents delivered or to be delivered in connection with the
transactions
33
contemplated by this Agreement, (c) the preparation and
submission of any filing or notice required to be made or
given in connection with any of the transactions
contemplated by this Agreement, and the obtaining of any
consent required to be obtained in connection with any of
such transactions, and (d) the consummation of the Merger.
9.4 ATTORNEYS' FEES . If any action or proceeding relating
to this Agreement or the enforcement of any provision of this
Agreement is brought against any Party, the prevailing Party
shall be entitled to recover reasonable attorneys' fees, costs
and disbursements (in addition to any other relief to which
the prevailing Party may be entitled).
9.5 NOTICES . Any notice or other communication required
or permitted to be delivered to any Party under this Agreement
shall be in writing and shall be deemed properly delivered,
given and received when delivered (by hand, by registered
mail, by courier or express delivery service or by facsimile)
to the address or facsimile telephone number set forth beneath
the name of such Party below (or to such other address or
facsimile telephone number as such party shall have specified
in a written notice given to Parties hereto):
IF TO PARENT:
SIDEWARE SYSTEMS, INC.
1810 Samuel Morse Drive,
Reston, VA USA 20190
Fax: (703) 437-9065
Attn: General Counsel
with a copy to:
SILVER, FREEDMAN & TAFF, LLP
1100 New York Avenue, N.W.
Suite 700E
Washington, D.C. 20005
Fax: (202) 682-0354
Attention: Barry P. Taff, Esq.
IF TO THE COMPANY:
KNOWLEDGEMAX, INC.
6110 Executive Boulevard
N. Bethesda, MD 20852
Fax: (301) 468-8978
Attention: E. Linwood Pearce
34
with a copy to:
COOLEY GODWARD LLP
One Freedom Square
Reston Town Center
11951 Freedom Drive
Reston, VA 20190
Fax:(703) 456-8100
Attention: Joseph W. Conroy, Esq.
9.6 CONFIDENTIALITY. Without limiting the generality
of anything contained in Section 4.8, on and at all times
after the Closing Date, each Party shall keep confidential,
and shall not use or disclose to any other Person or Entity,
any non-public document or other non-public information in
such Party's possession that relates to the business of the
Company or Parent (or its subsidiaries) and shall otherwise
continue to comply with the NDA.
9.7 TIME OF THE ESSENCE. Time is of the essence of this
Agreement.
9.8 HEADINGS. The underlined headings contained in this
Agreement are for convenience of reference only, shall
not be deemed to be a part of this Agreement and shall
not be referred to in connection with the construction
or interpretation of this Agreement.
9.9 COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall constitute
an original and all of which, when taken together, shall
constitute one agreement.
9.10 GOVERNING LAW. This Agreement shall be construed
in accordance with, and governed in all respects by, the
internal laws of the State of Delaware (without giving
effect to principles of conflicts of laws).
9.11 SUCCESSORS AND ASSIGNS. Neither this Agreement nor
any of the rights, interests or obligations hereunder may
be assigned, in whole or in part, by operation of law or
otherwise, by any Party without the prior written consent
of the other Parties. Subject to the preceding sentence,
this Agreement shall be binding upon: the Company and its
successors and assigns (if any); the Indemnified Parties
(to the extent set forth in Section 4.10), Parent and its
successors and assigns (if any); and Merger Sub and its
successors and assigns (if any). This Agreement shall inure
to the benefit of: the Company; the Company's stockholders
(to the extent set forth in Section 1.4); the holders of
assumed Company Options (to the extent set forth in Section
1.5); and the respective successors and assigns (if any)
of the foregoing.
9.12 REMEDIES LIMITED; SPECIFIC PERFORMANCE. The rights
and remedies of the Parties are limited as set forth in
Section 8.3. The Parties agree that, in the event of any
breach or threatened breach by any Party of any covenant,
obligation or other provision set forth in this Agreement
for the benefit of any other Party, such other Party shall
be entitled (in lieu of the remedy, if any, available to
it under Section 8.3) to (a) a decree or order of specific
performance
35
or mandamus to enforce the observance and performance of
such covenant, obligation or other provision, and (b) an
injunction restraining such breach or threatened breach.
9.13 WAIVER.
(a) No failure on the part of any Person to exercise any
power, right, privilege or remedy under this Agreement, and
no delay on the part of any Person in exercising any power,
right, privilege or remedy under this Agreement, shall
operate as a waiver of such power, right, privilege or remedy;
and no single or partial exercise of any such power, right,
privilege or remedy shall preclude any other or further
exercise thereof or of any other power, right, privilege or
remedy.
(b) No Person shall be deemed to have waived any claim
arising out of this Agreement, or any power, right, privilege
or remedy under this Agreement, unless the waiver of such
claim, power, right, privilege or remedy is expressly set
forth in a written instrument duly executed and delivered
on behalf of such Person; and any such waiver shall not be
applicable or have any effect except in the specific
instance in which it is given.
9.14 AMENDMENTS. This Agreement may not be amended,
modified, altered or supplemented other than by means of
a written instrument duly executed and delivered on behalf
of all of the Parties hereto.
9.15 SEVERABILITY. In the event that any provision of
this Agreement, or the application of any such provision
to any Person or set of circumstances, shall be determined
to be invalid, unlawful, void or unenforceable to any
extent, the remainder of this Agreement, and the application
of such provision to Persons or circumstances other than
those as to which it is determined to be invalid, unlawful,
void or unenforceable, shall not be impaired or otherwise
affected and shall continue to be valid and enforceable to
the fullest extent permitted by law.
9.16 PARTIES IN INTEREST. Except for the provisions
of Sections 1.4, 1.5 and 4.10, none of the provisions of
this Agreement is intended to provide any rights or
remedies to any Person other than the Parties and their
respective successors and assigns (if any).
9.17 ENTIRE AGREEMENT. This Agreement and the other
agreements referred to herein set forth the entire
understanding of the parties hereto relating to the
subject matter hereof and thereof and supersede all
prior agreements and understandings among or between
any of the parties relating to the subject matter hereof
and thereof (except that the NDA shall continue in full
force and effect).
9.18 CONSTRUCTION.
(a) For purposes of this Agreement, whenever the context
requires: the singular number shall include the plural, and
vice versa; the masculine gender shall include the feminine
and neuter genders; the feminine gender shall include the
masculine and neuter genders; and the neuter gender shall
include the masculine and feminine genders.
36
(b) The parties hereto agree that any rule of construction
to the effect that ambiguities are to be resolved against
the drafting party shall not be applied in the construction
or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and
"including," and variations thereof, shall not be deemed
to be terms of limitation, but rather shall be deemed to
be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this
Agreement to "Sections" and "Exhibits" are intended to refer
to Sections of this Agreement and Exhibits to this Agreement.
[SIGNATURE PAGE FOLLOWS]
37
The parties hereto have caused this Agreement and Plan of
Merger and Reorganization to be executed and delivered as
of the date first written above.
SIDEWARE SYSTEMS, INC., a British
Columbia corporation
By: "James L. Speros"
James L. Speros, President
KM ACQUISITION CORP., a Delaware
corporation
By: "James L. Speros"
Name: James L. Speros
Title: President
KNOWLEDGEMAX, INC., a Delaware
corporation
By: "E. Linwood Pearce"
E. Linwood Pearce, Chairman
and Co-Chief Executive
Officer
AND
By: "Edwin S. Grosvenor"
Edwin S. Grosvenor, Co-
Chief Executive Officer
38
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement (including this Exhibit A):
AGREEMENT. "Agreement" shall mean the Agreement and Plan of
Merger and Reorganization to which this Exhibit A is attached
(including the Disclosure Schedules), as it may be amended
from time to time.
CONSENT. "Consent" shall mean any approval, consent,
ratification, permission, waiver or authorization (including
any authorization by a Government Body).
CONTRACT. "Contract" shall mean any written, oral or other
agreement, contract, subcontract, lease, understanding,
instrument, note, warranty, insurance policy, benefit plan
or legally binding commitment or undertaking of any nature.
DISCLOSURE SCHEDULES. "Disclosure Schedules" shall mean the
Company Disclosure Schedule and Parent Disclosure Schedule
attached to the Agreement (dated as of the date of the Agreement).
ENTITY. "Entity" shall mean any corporation (including any non-
profit corporation), general partnership, limited partnership,
limited liability partnership, joint venture, estate, trust,
company (including any limited liability company or joint
stock company), firm or other enterprise, association,
organization or entity.
EXCHANGE ACT. "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.
GOVERNMENTAL BODY. "Governmental Body" shall mean any: (a)
nation, state, commonwealth, province, territory, county,
municipality, district or other jurisdiction of any nature;
(b) federal, state, local, municipal, foreign or other
government; or (c) governmental or quasi-governmental authority
of any nature (including any governmental division, department,
agency, commission, instrumentality, official, organization,
unit, body or Entity and any court or other tribunal).
LEGAL REQUIREMENT. "Legal Requirement" shall mean any federal,
state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance,
code, edict, decree, rule, regulation, ruling or requirement
issued, enacted, adopted, promulgated, implemented or otherwise
put into effect by or under the authority of any Governmental
Body.
MATERIAL ADVERSE EFFECT. A violation or other matter will be
deemed to have a "Material Adverse Effect" on a Party if such
violation or other matter (considered together with all other
matters that would constitute exceptions to the
representations and warranties of such Party set forth in the
Agreement but for the presence of "Material Adverse Effect"
or other materiality qualifications, or any similar
qualifications, in such representations and warranties)
would have a Material Adverse Effect on the a Party's
business, condition, assets, liabilities, operations,
financial performance or prospects.
MATERIAL DIFFERENCES. "Material Differences" shall mean a 33-
1/3% or more understatement in the Company's total liabilities
as reflected on the balance sheets in the audited financial
statements of the Company delivered in accordance with this
Agreement as compared to the corresponding balance sheets in
the Company Financial Statements referred to in Section 2.5.
NDA. "NDA" shall mean that certain confidentiality agreement
previously entered by Parent and the Company.
PERSON. "Person" shall mean any individual, Entity or
Governmental Body.
REPRESENTATIVES. "Representatives" shall mean officers,
directors, employees, agents, attorneys, accountants,
advisors and representatives.
SEC. "SEC" shall mean the United States Securities and
Exchange Commission.
Securities Act. "Securities Act" shall mean the Securities Act
of 1933, as amended.
TAX. "Tax" shall mean any tax (including any income tax,
franchise tax, capital gains tax, gross receipts tax,
value-added tax, surtax, excise tax, ad valorem tax, transfer
tax, stamp tax, sales tax, use tax, property tax, business tax,
withholding tax or payroll tax), levy, assessment, tariff, duty
(including any customs duty), deficiency or fee, and any related
charge or amount (including any fine, penalty or interest),
imposed, assessed or collected by or under the authority of any
Governmental Body.
TAX RETURN. "Tax Return" shall mean any return (including any
information return), report, statement, declaration, estimate,
schedule, notice, notification, form, election, certificate or
other document or information filed with or submitted to, or
required to be filed with or submitted to, any Governmental Body
in connection with the determination, assessment, collection or
payment of any Tax or in connection with the administration,
implementation or enforcement of or compliance with any Legal
Requirement relating to any Tax.
2
EXHIBIT B
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
BOARD OF DIRECTORS
There shall be 11 board members. Six shall be appointed
by Company and five by Parent. It is anticipated that
the members shall be as follows:
COMPANY DIRECTORS
E. Linwood Pearce (Chairman)
Edwin Grosvenor
Donna Lynn
Edward Gross
Joe Boivin
Alan Sultan
PARENT DIRECTORS
Ken Thornton (Vice Chairman)
James L. Speros
Jay H. Nussbaum
Jack Kemp
John Shoemaker
OFFICERS
E. Linwood Pearce, Chairman & Chief Executive Officer
Ken Thornton, Vice Chairman
James L. Speros, President
Edwin Grosvenor, Founder and Executive Vice President
Donna Lynn, Chief Operating Officer
Alan Sultan, Senior Vice President
Michael Finn, General Counsel
*Chief Financial Officer - to be selected post-merger
*Others to be determined later