STOCK EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION
THIS STOCK EXCHANGE AGREEMENT AND PLAN OF REORGANIZATION (this
"AGREEMENT") is made and entered into as of December 16, 1999, by and among
JENKON INTERNATIONAL, INC., a Delaware corporation ("JENKON"), MULTIMEDIA K.I.D.
- - INTELLIGENCE IN EDUCATION, LTD., an Israeli corporation (the "COMPANY"), and
the holders of all of the outstanding capital stock of the Company listed in
EXHIBIT A to this Agreement (the "STOCKHOLDERS").
RECITALS
WHEREAS, each Stockholder is the record and beneficial owner
of that number of shares of the Common Stock of the Company set forth next to
such Stockholders's name on EXHIBIT A (the "STOCKHOLDER'S SHARES");
WHEREAS, Jenkon desires to acquire all of the outstanding
Common Stock of the Company ("COMPANY COMMON STOCK") in exchange for shares of
capital stock of Jenkon;
WHEREAS, Jenkon is willing to issue to each Stockholder, and
each Stockholder is willing to acquire from Jenkon, shares of capital stock of
Jenkon in exchange for such Stockholder's Shares so that: (i) the current
stockholders of the Company will be issued an aggregate of (a) 840,000 shares of
Jenkon Common Stock, $.001 par value ("JENKON COMMON STOCK"), of Jenkon, (b)
1,208,000 shares of Jenkon Series B Preferred Stock, $.001 par value ("SERIES B
PREFERRED"), and (c) 1,208,000 shares of Jenkon Series C Preferred Stock, $.001
par value ("SERIES C PREFERRED"); and (ii) Jenkon will acquire and own all of
the capital stock of the Company;
WHEREAS, the Board of Directors of Jenkon and the
Stockholders, deeming the above-described exchange in the manner contemplated
herein to be desirable and in the best interests of each of their corporations,
have authorized and approved such exchange subject to the terms and conditions
set forth herein and the execution and delivery of this Agreement by Jenkon and
each of the Stockholders; and
NOW, THEREFORE, in consideration of the promises and the
mutual covenants, representations, warranties and agreements set forth herein,
the parties hereto agree as follows:
ARTICLE I.
TERMS OF THE EXCHANGE OF STOCK
1.1 THE EXCHANGE OF STOCK. At the Closing (as defined below),
Jenkon shall
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convey, transfer, issue and deliver to each Stockholder the number of shares of
(i) Jenkon Common Stock, (ii) Series B Preferred, and (iii) Series C Preferred
set forth next to such Stockholder's name on EXHIBIT A in exchange for all of
the Stockholder's Shares set forth next to such Stockholder's name on EXHIBIT A,
and each Stockholder shall severally convey, transfer, assign and deliver to the
Company all of such Stockholder's Shares in exchange therefor (the "STOCK
EXCHANGE"). The Stockholder's Shares set forth on EXHIBIT A constitute all of
the issued and outstanding capital stock of the Company. Following such
exchange, no Stockholder or any other person or entity other than Jenkon shall
own any equity interest in the Company. At the Closing each of the Stockholders
shall deliver to Jenkon a photocopy of Deed of Transfer and the Notice of Share
Allotment evidencing the assignment of the shares of Company Common Stock owned
by such Stockholder; provided, however, that if no such document is delivered
despite such requirement, execution by the Stockholder of this Agreement shall
be deemed to be sufficient evidence of the assignment and transfer of such
Stockholders's shares of the Company to Jenkon. Promptly following the Closing,
Jenkon, the Company and the Stockholders shall cause a filing to be made with
the Registrar of Companies in Israel evidencing transfer of ownership of all
Company Shares to Jenkon. Within three (3) business days of receipt written
confirmation to Jenkon from the Company's Israeli counsel that all requisite
filings have been made with the Registrar of Companies to reflect that Jenkon is
the record owner of 5,375 ordinary shares of the Company, Jenkon shall deliver
to The Law Offices of Oscar Folger, as agent for the Stockholders ("STOCKHOLDERS
AGENT"), the certificates evidencing the shares of Jenkon Common Stock, Series B
Preferred and Series C Preferred to be issued to the Stockholders under this
Agreement. The Stockholders Agent shall promptly distribute such certificates to
the Stockholders; provided, however, that Jenkon's obligation to deliver such
stock to the Stockholders shall be deemed satisfied in full by delivery thereof
to the Stockholders Agent and each Stockholder agrees that Jenkon shall have no
liability to any Stockholder for the failure or delay of Stockholder Agent to
deliver the certificates to the Stockholders.
1.2 AMOUNT OF CONSIDERATION.
(a) In consideration for all of the outstanding
capital stock of the Company, Jenkon shall issue to the Stockholders an
aggregate of: (i) 840,000 shares of Jenkon Common Stock, (ii) 1,208,000 shares
of Series B Preferred, and (iii) 1,208,000 shares of Series C Preferred Stock
(the "CONSIDERATION"), which Consideration shall be distributed to the
Stockholders in accordance with EXHIBIT A. In no event shall Jenkon be required
to issue to securityholders of the Company (including the Stockholders) a number
of shares in excess of the Consideration. In the event that, for any reason, the
Stockholders are not owners of all of the capital stock and options or warrants
to acquire capital stock of the Company (1) the Consideration shall not be
increased but shall be allocated among the Stockholders and such additional
holders in accordance with their relative ownership percentages (calculated on
an as-converted basis) and (2) Jenkon shall have the right, without obtaining
the consent of any Stockholder, to issue stop-transfer instructions and/or
cancel certificates issued as Consideration and reissue new certificates
representing the correct ownership of shares.
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(b) The sum of the 840,000 shares of Jenkon Common
Stock issued to the Stockholders and the maximum number of shares of Jenkon
Common Stock issuable upon conversion of the Series B Preferred and the Series C
Preferred issued to the Stockholders shall be 25,000,000 shares of Jenkon Common
Stock, which shall represent no less than seventy-nine percent (79%) of the
total number of shares of Jenkon Common Stock issued and outstanding on a
fully-diluted basis immediately following the Closing. However, for purposes of
calculating such ownership percentage, the total number of shares of Jenkon
Common Stock issued and outstanding on a fully-diluted basis immediately
following the Closing shall not include the shares of Jenkon Common Stock issued
or to be issued upon conversion of the convertible debt described in Section 7.1
below.
1.3 PREFERRED STOCK. Attached hereto as Exhibits B and C
respectively are the Certificate of Designation, Preferences and Rights for the
Series B Preferred and the Series C Preferred, each as filed with the Delaware
Secretary of State and currently in effect. Such Certificates of Designation are
sometimes referred to herein a "CERTIFICATE OF DESIGNATION" and collectively as
the "CERTIFICATES OF DESIGNATION."
1.4 POST-CLOSING STRUCTURE OF ENTITIES. Immediately following
the Closing, the Company shall be a wholly-owned subsidiary of Jenkon and from
and after the Closing shall be maintained as a separate operating unit of
Jenkon. From and after the Closing, Jenkon's existing business shall be
maintained as a separate operating unit through Jenkon's existing operating
subsidiary, Jenkon International, Inc., a Washington corporation.
1.5 CLOSING. Subject to the terms and conditions of this
Agreement, the closing of the transactions contemplated by this Agreement (the
"CLOSING") shall take place (a) at the offices of Jeffer, Mangels, Butler &
Marmaro LLP, 2121 Avenue of the Stars, 10th Floor, Los Angeles, California at
8:00 a.m., local time, on December 16, 1999 or on such later date as the last
condition to Closing specified in this Agreement shall have been satisfied or
waived, or (b) at such later place, time, date or method as Jenkon and the
Company shall mutually agree. The date on which the Closing occurs is
hereinafter referred to as the "CLOSING DATE".
1.6 APPOINTMENT OF STOCKHOLDERS AGENT. By executing this
Agreement, each Stockholder hereby designates and appoints the Stockholders
Agent as such Stockholder's representative and attorney-in-fact for and on
behalf of such Stockholder with full power of substitution to: (i) receive and
accept service of any and all notices under this Agreement on such Stockholder's
behalf, (ii) waive on behalf of such Stockholder any of the conditions to
Closing set forth in Article VIII hereof and (iii) to receive and accept stock
certificates representing the Consideration or any shares of Common Stock into
which any portion of such Consideration may be converted.
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ARTICLE II.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby makes the following representations and
warranties to and for the benefit of Jenkon, subject to the exceptions set forth
in the Company's Disclosure Schedules (which exceptions shall specifically
identify a Section, Subsection or clause of a single Section or Subsection
hereof and which specific exceptions shall only apply to such identified
Section, Subsection or clause) that:
2.1 ORGANIZATION AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and is current in all filings
relating to its corporate existence under the laws of Israel. The Company has
the corporate power to own, lease and operate its properties and to carry on its
business as now being conducted. The Company is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have, or would reasonably be expected to have,
a material adverse effect on the business, financial condition, results of
operations, assets (including intangible assets), liabilities or prospects of
the Company (hereinafter referred to as a "MATERIAL ADVERSE EFFECT").
2.2 ARTICLES OF INCORPORATION; BYLAWS. The Company has
furnished or made available to Jenkon complete and correct copies (with English
translations) of the Articles of Incorporation and the Bylaws or the equivalent
organizational documents, in each case as amended or restated to the date
hereof, of the Company. The Company is not in violation of any of the provisions
of its Articles of Incorporation or Bylaws or equivalent organizational
documents.
2.3 CAPITALIZATION.
(a) The authorized capital stock of the Company
consists entirely of (i) 23,000 registered ordinary shares of the Company, 1 NIS
par value ("COMPANY SHARES"), of which 5,375 shares are to be issued and
outstanding immediately following the Closing Date. The Stockholder's Shares
constitute all of the issued and outstanding Company Shares. The outstanding
Company Shares are held of record by the Stockholders, with the addresses of
record and in the amounts set forth in EXHIBIT A. The Stockholders are the only
stockholders of record of the Company and all transfers or issuances of Company
Shares occurring prior to the Closing Date have been reported to and recorded by
the Israeli Registrar of Companies. All outstanding Company Shares are duly
authorized, validly issued, fully paid and non-assessable and not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws,
or equivalent organizational documents, of the Company, or any agreement to
which the Company is a party or by which it is bound.
(b) No Company Shares or other securities of the
Company are
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reserved for issuance, and there are no contracts, agreements, commitments or
arrangements obligating the Company to offer, sell, issue or grant any shares
of, or any options, warrants or rights of any kind to acquire any shares of, or
any securities that are convertible into or exchangeable for any shares of,
capital stock of the Company, to redeem, purchase or acquire, or offer to
purchase or acquire, any outstanding shares of, or any outstanding options,
warrants or rights of any kind to acquire any shares of, or any outstanding
securities that are convertible into or exchangeable for any shares of, capital
stock of the Company or to grant any mortgage, pledge, security interest,
attachment, encumbrance, lien, claim or charge of any kind (collectively,
"LIENS") on any shares of capital stock of the Company.
(c) Immediately following the Closing, Jenkon shall
be the beneficial and record owner of 5,375 ordinary shares of the Company, free
and clear of any and all Liens.
2.4 SUBSIDIARIES. The Company does not have and has never had
any subsidiaries or affiliated companies and does not otherwise own and has
never otherwise owned any shares of capital stock or any interest in, or
control, directly or indirectly, any other corporation, partnership,
association, joint venture or other business entity.
2.5 AUTHORITY.
(a) The Stockholders have unanimously approved the
Stock Exchange and this Agreement, and the Company has all requisite corporate
power and authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of the Company. The
Company's Board of Directors has unanimously approved the Stock Exchange and
this Agreement and has executed all necessary Protocols or other consents
required in order to evidence such approval. This Agreement has been duly
executed and delivered by the Company and constitutes the valid and binding
obligation of the Company, enforceable in accordance with its terms except (i)
as limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other laws of general application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies.
(b) Except as set forth on SCHEDULE 2.5(b), the
execution and delivery of this Agreement by the Company does not, and, as of the
Closing Date, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit under (any
such event, a "CONFLICT") (i) any provision of the Articles of Incorporation or
Bylaws, or equivalent organizational documents, of the Company, or (ii) any
mortgage, indenture, lease, contract or other agreement or instrument, permit,
concession, franchise,
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license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets, except with respect to
the preceding clause (ii) for any Conflict which could not reasonably be
expected to have a Material Adverse Effect. No consent, waiver, approval, order
or authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other domestic or foreign governmental
authority, instrumentality, agency or commission ("GOVERNMENTAL ENTITY") or any
third party (so as not to trigger any Conflict) is required by or with respect
to the Company in connection with the execution and delivery of this Agreement
or the consummation of the transactions contemplated hereby, except for (i) such
consents, waivers, authorizations, filings, approvals and registrations which
are set forth on SCHEDULE 2.5(b), and (ii) where the failure to obtain or make
any such consent, waiver, approval, order, authorization, registration,
declaration or filing could not reasonably be expected to have a Material
Adverse Effect.
2.6 COMPANY FINANCIAL STATEMENTS.
(a) SCHEDULE 2.6 sets forth the Company's audited
balance sheets as of December 31, 1997 and December 31, 1998 (the "BALANCE
SHEETS") and the related audited statements of operations, shareholders' equity
and cash flows for the twelve-month periods then ended and the footnotes thereto
as well as the Company's unaudited balance sheet as of June 30, 1999 (the
"INTERIM BALANCE SHEET") and the related unaudited statements of operations for
the six-month period then ended (collectively, the "COMPANY FINANCIALS"). The
Company Financials are correct in all material respects and have been prepared
in accordance with Israel generally accepted accounting principles ("ISRAEL
GAAP") applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject to normal year-end adjustments in the case of
unaudited financial statements, which such adjustments will not be material in
amount or significance.
(b) The Company maintains a system of internal
accounting control sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with United States generally accepted
accounting principles ("US GAAP") and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with management's general
or specific authorization; (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action is
taken with respect to any differences; and (v) the Company's financial
statements can be audited, without unreasonable effort or expense, by an
independent public accountant in accordance with US GAAP and the requirements of
the Securities and Exchange Commission with respect to reporting companies under
the Securities Exchange Act of 1934, as amended.
2.7 NO UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 2.7, as of
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the Closing Date the Company does not have any liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of any type,
whether accrued, absolute, contingent, matured, unmatured or other (which would
be required to be reflected in financial statements in accordance with US GAAP),
which individually or in the aggregate, has not been reflected in the Interim
Balance Sheet.
2.8 NO CHANGES. Except as set forth in SCHEDULE 2.8, since the
date of the Interim Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary
course of business as conducted on the date of the Interim Balance Sheet and
consistent with past practices;
(b) amendments or changes to the Articles of
Incorporation or Bylaws, or equivalent organizational documents, of the Company;
(c) capital expenditure or commitment by the Company,
either individually or in the aggregate, exceeding $50,000;
(d) destruction of, damage to or loss of any material
assets, business or customer of the Company (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or
other unlawful labor practice or action;
(f) change in accounting methods or practices
(including any change in depreciation or amortization policies or rates) by the
Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside or payment of a
dividend or other distribution with respect to the capital stock of the Company,
or any direct or indirect redemption, purchase or other acquisition by the
Company of any capital stock, or any split, combination or reclassification in
respect of any shares of capital stock, or any issuance or authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock;
(i) increase in the salary or other compensation
payable or to become payable by the Company to any of its officers, directors,
employees or advisors, or the declaration, payment or commitment or obligation
of any kind for the payment of a bonus or other additional salary or
compensation to any such person except as otherwise contemplated by this
Agreement;
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(j) sale, lease, license or other disposition of any
of the assets or properties of the Company, except in the ordinary course of
business as conducted on that date and consistent with past practices;
(k) amendment or termination of any material
contract, agreement or license to which the Company is a party or by which it is
bound;
(l) loan by the Company to any person or entity,
incurrence by the Company of any indebtedness, guaranteeing by the Company of
any indebtedness, issuance or sale of any debt securities of the Company or
guaranteeing of any debt securities of others, or creation of any security
interest in any of the Company's assets or properties, except for advances to
employees for travel and business expenses in the ordinary course of business,
consistent with past practices;
(m) waiver or release of any right or claim of the
Company, including any write-off or other compromise of any account receivable
of the Company;
(n) commencement or notice or threat of commencement
of any lawsuit or proceeding against or investigation of the Company or its
affairs, or any reasonable basis for any of the foregoing;
(o) notice of any claim or potential claim of
ownership by a third party of Company Intellectual Property Rights (as defined
in Section 2.12 below) or of infringement by the Company of any third party's
intellectual property rights;
(p) change in pricing or royalties set or charged by
the Company to its customers or licensees or in pricing or royalties set or
charged by persons who have licensed Company Intellectual Property Rights to the
Company;
(q) event or condition of any character that has or
could be reasonably expected to have a Material Adverse Effect on the Company;
or
(r) negotiation or agreement by the Company or any
officer or employees thereof to do any of the things described in the preceding
clauses (a) through (q) (other than negotiations with Jenkon and its
representatives regarding the transactions contemplated by this Agreement).
2.9 TAX AND OTHER RETURNS AND REPORTS.
(a) DEFINITION OF TAXES. For the purposes of this
Agreement, "TAX" or, collectively, "TAXES", means any and all Israeli or United
States (federal, state, and/or local) and foreign taxes, assessments and other
governmental charges, duties, impositions and liabilities, including taxes based
upon or measured by gross receipts, income, profits, sales,
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use and occupation, and value added, ad valorem, transfer, franchise,
withholding, payroll, recapture, employment, excise and property taxes, together
with all interest, penalties and additions imposed with respect to such amounts
and any obligations under any agreements or arrangements with any other person
with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) TAX RETURNS AND AUDITS.
(i) The Company, as of the Closing Date,
will have prepared and filed all required domestic and foreign returns,
estimates, information statements and reports (collectively, "RETURNS") relating
to any and all Taxes concerning or attributable to the Company or its operations
and such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) The Company, as of the Closing Date:
(A) will have paid or accrued all Taxes it is required to pay or accrue and (B)
will have withheld with respect to its employees all Taxes required to be
withheld.
(iii) The Company has not been delinquent in
the payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Company, nor has the Company executed any waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) To the best of the Company's knowledge,
no audit or other examination of any Return of the Company is currently in
progress, nor has the Company been notified of any request for such an audit or
other examination.
(v) To the best of the Company's knowledge
the Company does not have any liabilities for unpaid Taxes which have not been
accrued or reserved against on the Balance Sheet, whether asserted or
unasserted, contingent or otherwise, and the Company does not have any knowledge
of any basis for the assertion of any such liability attributable to the
Company, or its assets or operations.
(vi) There are (and as of immediately
following the Closing Date will be) no Liens on the assets of the Company
relating to or attributable to Taxes.
(vii) The Company does not have any
knowledge of any basis for the assertion of any claim relating or attributable
to Taxes which, if adversely determined, would result in any Lien on the assets
of the Company.
2.10 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no
agreement (non-compete or otherwise), commitment, judgment, injunction, order or
decree to which the Company is a party or otherwise binding upon the Company
which has or reasonably could be
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expected to have the effect of prohibiting or impairing any business practice
of the Company, any acquisition of property (tangible or intangible) by the
Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any
of its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.11 TITLE TO PROPERTIES; ABSENCE OF LIENS.
(a) The Company does not own real property, nor has
the Company ever owned any real property. Except as described in the notes to
the Company Financials, the Company does not lease any real property. The
description of the terms of any Company leases contained in the notes to the
Company Financials are complete and accurate in all material respects. All such
leases are in full force and effect, are valid and effective in accordance with
their respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company has good and valid title to, or, in
the case of leased properties and assets, valid leasehold interests in, all of
its tangible properties and assets, real, personal and mixed, used or held for
use in its business, free and clear of any Liens, except as reflected in the
Company Financials and except for Liens for taxes not yet due and payable and
such imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not materially detract from the value,
or materially interfere with the present use, of the property subject thereto or
affected thereby.
2.12 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following
terms have the following definitions:
"INTELLECTUAL PROPERTY" means any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States,
Israeli, international and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether or not patentable or
patented), invention disclosures, improvements, trade secrets, proprietary
information, know-how, technology, technical data and customer lists; (iii) all
copyrights, copyrights registrations and applications therefor and all other
rights corresponding thereto throughout the world; (iv) all industrial designs
and any registrations and applications therefor throughout the world; (v) all
trade names, logos, common law trademarks and service marks; (vi) all trademark
and service mark registrations and applications therefor and all goodwill
associated therewith throughout the world; (vii) all domain names, uniform
resource locators and other Internet or similar addresses or identifiers
("DOMAIN NAMES"); (viii) all databases and data
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collections and all rights therein throughout the world; and (ix) all computer
software including all source code, object code, firmware, development tools,
files, records and data, all media on which any of the foregoing is recorded;
(x) any similar, corresponding or equivalent rights to any of the foregoing and
(xi) all documentation related to any of the foregoing.
"COMPANY INTELLECTUAL PROPERTY" shall mean any Intellectual
Property that (i) is owned by (ii) is exclusively licensed to or (iii) was
developed or created by the Company.
"REGISTERED INTELLECTUAL PROPERTY" shall mean all United
States, Israeli, international and foreign: (i) patents and patent applications
(including provisional applications); (ii) registered trademarks or service
marks, applications to register trademarks or service marks, intent-to-use
applications, or other registrations or applications related to trademarks or
service marks; (iii) registered copyrights and applications for copyright
registration; (iv) Domain Name registrations and other registrations,
subscriptions and memberships related to the Internet; and (v) any other Company
Intellectual Property that is subject of an application, certificate, filing,
registration or other document issued by, filed with, or recorded by, any
domestic or foreign regulatory, standards, government or other public or private
legal authority.
(b) SCHEDULE 2.12(b) lists all Registered
Intellectual Property owned by, or filed in the name of, the Company (the
"COMPANY REGISTERED INTELLECTUAL PROPERTY") and lists (i) any proceedings or
actions before any domestic or foreign court, tribunal (including the United
States Patent and Trademark Office (the "PTO"), Internet registration authority
or equivalent authority anywhere in the world related to any of the Company
Registered Intellectual Property and (ii) the date on which such registrations
will expire or by which time the rights in the Intellectual Property related to
such registrations will have to be renewed or extended to prevent expiration,
lapse or other loss.
(c) Each item of Company Intellectual Property,
including all Company Registered Intellectual Property, is free and clear of any
Liens. To the best of Company's knowledge, the Company (i) is the exclusive
owner of, and has the right to use exclusively, all Trademarks and Domain Names,
used in connection with the operation or conduct of the business of the Company,
including the sale of any products or technology or the provision of any
services by the Company and (ii) owns exclusively, and has good title to, (x)
all copyrighted works that are Company products (including all copyrights
related to any World Wide Web other similar Internet sites operated by or on
behalf of the Company) or (y) other works of authorship that the Company
otherwise purports to own.
(d) To the extent that any Intellectual Property
(including any software, Internet sites or other products or materials of the
Company) has been developed or created by any person other than the Company for
which the Company has, directly or indirectly, paid, the Company has a written
agreement with such person with respect thereto
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and the Company thereby has obtained ownership of, and is the exclusive owner
of, all such Intellectual Property. To the extent that the Company has acquired
any Intellectual Property from a third party, to the maximum extent provided for
by, and in accordance with, applicable laws and regulations, the Company has
recorded each such assignment with the relevant authorities.
(e) The Company has not transferred ownership of or
granted any license of or right to use or authorized the retention of any rights
to use any Intellectual Property that is or was Company Intellectual Property,
to any other person.
(f) Other than "shrink-wrap" and similar widely
available commercial end-user licenses, the contracts, licenses and agreements
listed in SCHEDULE 2.12(f) include all contracts, licenses and agreements, to
which the Company is a party and which are reasonably necessary for the conduct
of the Company's business, with respect to any Intellectual Property of any
person other than the Company. No person other than the Company has ownership
rights to improvements made by the Company in Intellectual Property which has
been licensed to the Company.
(g) SCHEDULE 2.12(g) lists all contracts, licenses
and agreements between the Company and any other person wherein or whereby the
Company has agreed to, or assumed, any material obligation or duty to warrant,
indemnify, reimburse, hold harmless, guaranty or otherwise assume or incur any
material obligation or liability or provide a right of rescission with respect
to the infringement or misappropriation by the Company or such other person of
the Intellectual Property of any person other than the Company.
(h) To the best of the Company's knowledge, the
operation of the business of the Company as such business is currently conducted
or is reasonably contemplated to be conducted (including, without limitation,
products, technology or services currently under development and the design,
development, manufacture, use, import and sale of the products, technology and
services of the Company) does not, and the Company has not received notice that
the operation of the business of the Company as such is currently conducted
(including, without limitation, products, technology or services currently under
development and the design, development, manufacture, use, import and sale of
the products, technology and services of the Company), infringes or
misappropriates the Intellectual Property of any person, violate the rights of
any person or entity (including rights to privacy or publicity), constitute
unfair competition or trade practices under the laws of any jurisdiction, or
violate the laws or regulations of any jurisdiction. To the best of the
Company's knowledge, none of the advertising or other similar activities of the
Company violates any public or private codes or regulations governing such
activities.
(i) There are neither contracts, licenses nor
agreements between the Company on one hand and any other person on the other
with respect to Company Intellectual Property under which there is any dispute
known to the Company regarding the scope of such
12
agreement or performance under such agreement including with respect to any
payments to be made or received by the Company thereunder.
(j) To the Company's knowledge, no person is
infringing or misappropriating any Company Intellectual Property.
(k) The Company has taken reasonable steps in
accordance with normal industry practice to protect the Company's rights in
confidential information and trade secrets of the Company or provided by any
other person to the Company.
(l) No Company Intellectual Property or product,
technology or service of the Company is subject to any proceeding or outstanding
decree, order, judgment, agreement or stipulation that restricts in any manner
the use, transfer or licensing thereof by the Company or may affect the
validity, use or enforceability of such Company Intellectual Property.
(m) To the knowledge of the Company, no (i) product,
technology, service or publication of the Company, (ii) material published or
distributed by the Company or (iii) conduct or statement of the Company,
constitutes obscenity, defames any person, constitutes false advertising or
otherwise violates any law or regulation.
(n) The Company has not used or accessed (including
by hyperlinks or framing) the content or materials of any third party, including
a third party's Internet site, in manner that violates any laws or regulations
or misappropriates or infringes the Intellectual Property of such third party.
(o) The Company has taken reasonable steps to ensure
that its products (including existing products and technology and products and
technology currently under development) will accurately record, store, process,
calculate and present calendar dates falling on and after (and if applicable,
spans of time including) January 1, 2000, and will calculate any information
dependent on or relating to such dates in the same manner, and with the same
functionality, data integrity and performance, as the products record, store,
process, calculate and present calendar dates on or before December 31, 1999, or
calculate any information dependent on or relating to such dates (collectively,
"YEAR 2000 COMPLIANT"). The Company has taken reasonable steps to ensure that
its products (i) will lose no functionality with respect to the introduction of
records containing dates falling on or after January 1, 2000 and (ii) will be
interoperable with other products used and distributed by Jenkon that may
reasonably deliver records to the Company's products or receive records from the
Company's products, or interact with the Company's products, including but not
limited to back-up and archived data. All of the Company's internal computer and
technology products and systems are Year 2000 Compliant.
2.13 AGREEMENTS, CONTRACTS AND COMMITMENTS.
13
(a) Except as set forth on SCHEDULE 2.13(a) or as
specifically set forth in the Company Financials (including the notes thereto),
the Company does not have, is not a party to and is not bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that
contain any severance pay or post-employment liabilities or obligations,
(iii) any bonus, deferred compensation,
pension, profit sharing or retirement plans, or any other employee benefit plans
or arrangements,
(iv) any employment or consulting agreement,
contract or commitment (excluding "at will" employee relationships) with an
employee or individual consultant or salesperson or any consulting or sales
agreement, contract or commitment under which any firm or other organization
provides services to the Company,
(v) any agreement or plan, including,
without limitation, any stock option plan, stock appreciation rights plan or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of benefits of which will be accelerated, by the occurrence of any of
the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement,
(vi) any lease of personal property having a
value individually in excess of $25,000,
(vii) any agreement of indemnification or
guaranty,
(viii) any agreement, contract or commitment
containing any covenant limiting the freedom of the Company to engage in any
line of business or to compete with any person,
(ix) any agreement, contract or commitment
relating to capital expenditures and involving future payments in excess of
$25,000,
(x) any agreement, contract or commitment
relating to the disposition or acquisition of assets or any interest in any
business enterprise outside the ordinary course of the Company's business,
(xi) any mortgages, indentures, loans or
credit agreements, security agreements or other agreements or instruments
relating to the borrowing of money or extension of credit, including guaranties,
14
(xii) any other agreement, contract or commitment that
involves $25,000 or more or is not cancelable without penalty within thirty
(30) days.
(b) The Company has not breached, violated or defaulted
under, or received notice that it has breached, violated or defaulted under,
any of the terms or conditions of any agreement, contract or commitment
required to be set forth on SCHEDULE 2.13(a) or SCHEDULE 2.12(b) (any such
agreement, contract or commitment, a "CONTRACT"). Each Contract is in full
force and effect and is not subject to any material default thereunder, of
which the Company has knowledge, by any party obligated to the Company pursuant
thereto. Following the Closing Date, the Company will be permitted to exercise
all of the Company's rights under the Contracts without the payment of any
additional amounts or consideration other than ongoing fees, royalties or
payments which the Company would otherwise be required to pay had the
transactions contemplated by this Agreement not occurred.
2.14 INTERESTED PARTY TRANSACTIONS. Except as specifically
disclosed in the notes to the Company Financials, no officer, director or
Stockholder of the Company (nor any ancestor, sibling, descendant or spouse of
any of such persons, or any trust, partnership or corporation in which any of
such persons has or has had an interest), has or has had, directly or
indirectly, (i) an economic interest in any entity which furnished or sold, or
furnishes or sells, services or products that the Company furnishes or sells,
or proposes to furnish or sell, (ii) an economic interest in any entity that
purchases from or sells or furnishes to, the Company, any goods or services or
(iii) a beneficial interest in any Contract.
2.15 COMPLIANCE WITH LAWS. The Company has not received any notices
of violation with respect to any foreign or domestic statute, law or regulation
and, to the Company's knowledge, has complied in all material respects with
such statutes, laws and regulations.
2.16 LITIGATION. There is no action, suit or proceeding of any
nature pending, or to the Company's knowledge, threatened against the Company,
its properties or any of its officers or directors, in their respective
capacities as such. To the Company's knowledge, there is no investigation
pending or threatened against the Company, its properties or any of its
officers or directors by or before any Governmental Entity. No Governmental
Entity has at any time challenged or questioned the legal right of the Company
to manufacture, offer or sell any of its products in the present manner or
style thereof.
2.17 INSURANCE. The Company maintains valid and enforceable
insurance policies and fidelity bonds covering the assets, business, equipment,
properties, operations, employees, officers and directors of the Company, and
such insurance policies and fidelity bonds contain provisions which are
reasonable and customary in the Company's industry, and there is no claim by
the Company pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums due and payable under all such policies and bonds have been
paid and
15
the Company is otherwise in material compliance with the terms of such policies
and bonds (or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.18 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor
will it incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or any similar charges in connection with this
Agreement or any transaction contemplated hereby.
2.19 EMPLOYMENT MATTERS. The Company (i) to Company's knowledge, is
in compliance in all material respects with all applicable foreign, federal,
state and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in each
case, with respect to its employees; (ii) has withheld all amounts required by
law or by agreement to be withheld from the wages, salaries and other payments
to employees; (iii) is not liable for any arrears of wages or any taxes or any
penalty for failure to comply with any of the foregoing; and (iv) is not liable
for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the normal course of business and consistent
with past practice). To the Company's knowledge, no employee of the Company (i)
is in violation of any term of any employment contract, patent disclosure
agreement, non-competition agreement, or any restrictive covenant to a former
employer relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or presently proposed
to be conducted by the Company or to the use of trade secrets or proprietary
information of others and (ii) has given notice to the Company, nor is the
Company otherwise aware, that any employee intends to terminate his or her
employment with the Company. No employee has any claim or right to any
ownership interest in or royalties from any Company Intellectual Property.
2.20 GOVERNMENTAL AUTHORIZATIONS AND LICENSES. The Company
possesses all material consents, licenses, permits, grants or other
authorizations issued to the Company by a Governmental Entity (i) pursuant to
which the Company currently operates or holds any interest in any of its
properties or (ii) which is required for the operation of its business or the
holding of any such interest therein (collectively, "COMPANY AUTHORIZATIONS"),
which Company Authorizations are in full force and effect and constitute all
Company Authorizations required to permit the Company to operate or conduct its
business or hold any interest in its properties or assets.
2.21 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by the Company in this Agreement (as modified by the Company's
Disclosure Schedules), nor any statement made in any schedule or certificate
furnished by the Company pursuant to this Agreement, or furnished in or in
connection with documents mailed or
16
delivered to the Stockholders in connection with soliciting their consent to
this Agreement and the Stock Exchange, contains or will at the Closing Date
contain, any untrue statement of a material fact, or omits or will omit at the
Closing Date to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES OF
THE STOCKHOLDERS
Each Stockholder, severally but not jointly, represents and warrants
to, and agrees with, Jenkon that:
3.1 TITLE TO THE SHARES. Each Stockholder is the owner of,
beneficially and of record, and has good and marketable title to the number of
Stockholder's Shares set forth after such Stockholder's name in EXHIBIT A; such
shares will be transferred and conveyed to Jenkon pursuant hereto, free and
clear of any and all covenants, conditions, restrictions, security agreements,
equities, voting trust arrangements, Liens, options and adverse claims or
rights whatsoever, and the Stockholder owns no other stock or other equity
interest, or right to any equity interest, in the Company.
3.2 AUTHORITY. Stockholder has the full right, power and authority
to enter into this Agreement to transfer the Stockholder's Shares to Jenkon
hereunder, and upon consummation of the exchange contemplated hereby, Jenkon
will acquire from the Stockholder good and marketable title to the
Stockholder's Shares, free and clear of any and all covenants, conditions,
restrictions, security agreements, equities, voting trust arrangements, Liens,
options and adverse claims or rights whatsoever. This Agreement constitutes a
valid and legally binding obligation of Stockholder, enforceable in accordance
with its terms.
3.3 NO LEGAL BAR. Stockholder is not a party to, subject to or
bound by any agreement or judgment, order, writ, prohibition, injunction or
decree of any court or other governmental body which would prevent, prohibit,
condition or limit the execution, delivery or consummation of this Agreement by
the Stockholder to Jenkon or the transfer of the Stockholder's Shares to be
conveyed by the Stockholder to Jenkon pursuant hereto.
3.4 BROKERS' FEES AND FINDERS' FEES. Stockholder has not incurred,
nor will it incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or any transaction contemplated hereby.
3.5 NO CLAIMS AGAINST THE COMPANY. Stockholder has no claims for
17
payment or reimbursement or any other claim against the Company other than those
claims specifically set forth in the Company Financials.
3.6 INVESTOR REPRESENTATIONS.
(a) Stockholder is acquiring the Jenkon Common Stock, Series
B Preferred and Series C Preferred (collectively, the "JENKON SECURITIES") for
Stockholder's own account as principal, not as a nominee or agent, for
investment purposes only, and not with a view to, or for, resale, distribution
thereof in whole or in part (except as such resale may be permitted under
applicable securities laws), and no other person has a direct or indirect
beneficial interest in such shares. Further, Stockholder does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant an interest in all or any portion of the Jenkon Securities to
any third person.
(b) Stockholder understands that the issuance of the Jenkon
Securities pursuant to this Agreement is intended to be exempt from
registration under the Securities Act of 1933, as amended (the "SECURITIES
ACT") by virtue of Section 4(2) of the Securities Act and the provisions of
Regulation D promulgated thereunder ("REGULATION D"). In furtherance thereof,
Stockholder represents and warrants to and agrees with the Jenkon and its
affiliates as follows:
(i) Stockholder realizes that the basis for the
exemption may not be present if, notwithstanding such representations,
Stockholder has in mind merely acquiring the Jenkon Securities for a fixed or
determinable period in the future, or with a view towards sale of such shares
or a portion thereof;
(ii) Stockholder has the financial ability to bear the
economic risk of his investment, has adequate means for providing for his
current needs and personal contingencies and has no need for liquidity with
respect to Stockholder's investment in the Jenkon;
(iii) Stockholder has such knowledge and experience in
financial and business matters, including experience in, familiarity with, and
knowledge of (i) the software industry, (ii) the business and affairs of Jenkon
and its affiliates, and (iii) investment and other securities matters, as to be
capable of evaluating the merits and risks of the prospective investment; and
(iv) Stockholder represents that he is an "accredited
investor" as that term is defined in Rule 501(a) promulgated under Regulation D.
(c) Stockholder has been given the opportunity for a
reasonable time prior to the date hereof to ask questions of, and receive
answers from Jenkon concerning Jenkon and the Stockholder's investment in
Jenkon, and has been given the opportunity for a
18
reasonable time prior to the date hereof to obtain such additional information
necessary in order for him to evaluate the merits and risk of purchase of the
Jenkon Securities to be issued to such Stockholder hereunder. In this regard,
the Stockholder has been provided the opportunity to review a copy of that
certain Confidential Private Placement Memorandum of Jenkon, dated September 10,
1999, relating to the private placement described in Section 7.1 below (the
"PPM"), a copy of which has been provided to the Stockholders Agent. Stockholder
has reviewed the section of the PPM entitled "Risk Factors."
(d) Stockholder understands that investment in Jenkon is an
illiquid investment. In particular, Stockholder recognizes that he may not and
represents, warrants and agrees that he will not sell or otherwise transfer any
Jenkon Securities or shares of Jenkon Common Stock issuable upon conversion of
any shares of Series C Preferred or Series B Preferred without registration
under the Securities Act or an exemption therefrom and a favorable opinion of
counsel for Jenkon to that effect is obtained (if requested by Jenkon). The
Stockholder fully understands and agrees that he must bear the economic risk of
his purchase because, among other reasons, neither the Jenkon Securities nor
the shares of Jenkon Common Stock underlying such securities, have not been
registered under the Securities Act or under the securities laws of any state
and, therefore, cannot be resold, pledged, assigned or otherwise disposed of
unless such shares is subsequently registered under the Securities Act and
under the applicable securities laws of such states or an exemption from such
registration is available. Stockholder agrees that the certificates
representing the Jenkon Securities and any shares of Jenkon Common Stock
issuable upon conversion thereof shall bear such restrictive legend(s) as
Jenkon deems necessary or desirable to reflect the restrictions on transfer
under applicable law or this Agreement.
3.7 LIMITATION ON STOCKHOLDER LIABILITY. Notwithstanding anything
to the contrary contained herein, each Stockholder shall be liable for a breach
of the representations, warranties and covenants of such Stockholder contained
in this Agreement only for an amount not exceeding the value of the Jenkon
Securities received by such Stockholder (valued at the fair market value of
such shares on the Closing Date which determination shall be made on an
as-converted basis based upon the last sale price of Jenkon Common Stock on The
Nasdaq Small Cap Market on the Closing Date).
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF JENKON
Jenkon represents and warrants to and for the benefit of each of the
Stockholders as follows:
4.1 ORGANIZATION AND QUALIFICATION. Jenkon is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Jenkon has the corporate power to own, lease and operate its
properties and to carry on its business as now
19
being conducted. Jenkon is duly qualified to do business and is in good standing
as a foreign corporation in each jurisdiction in which the failure to be so
qualified would have a material adverse effect on Jenkon as a whole.
4.2 AUTHORITY. Jenkon has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of Jenkon. This Agreement has
been duly executed and delivered by Jenkon and constitutes the valid and
binding obligations of Jenkon, enforceable in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting enforcement of creditors'
rights generally and (ii) as limited by laws relating to the availability of
specific performance, injunctive relief or other equitable remedies. The
execution and delivery of this Agreement by Jenkon does not, and, as of the
Closing Date, the consummation of the transactions contemplated hereby will
not, constitute a Conflict with (i) any provision of the Certificate of
Incorporation or Bylaws of Jenkon, or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Jenkon or its properties or assets, except, with respect to the
preceding clause (ii), for any Conflict which could not reasonably be expected
to have a material adverse effect on the business, financial condition, results
of operations, assets (including intangible assets), liabilities or prospects
of Jenkon (hereinafter referred to as a "JENKON MATERIAL ADVERSE EFFECT"). No
consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity or any third party (so as
not to trigger any Conflict) is required by or with respect to Jenkon in
connection with Jenkon's execution and delivery of this Agreement or its
consummation of the transactions contemplated hereby, except such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws,
and (iii) where the failure to obtain or make any such consent, waiver,
approval, order, authorization, registration, declaration or filing could not
reasonably be expected to have a Jenkon Material Adverse Effect.
4.3 CAPITALIZATION.
(a) As of the date of this Agreement, the authorized capital
stock of Jenkon consists of (i) 20,000,000 shares of Common Stock, par value
$.001 per share, of which 4,537,836 shares were issued and outstanding as of
December 13, 1999, (ii) 1,500,000 shares of Series A Preferred Stock, par value
$.001 per share, none of which are issued and outstanding. In addition (i)
150,000 shares of Jenkon Common Stock are subject to issuance upon the exercise
of warrants issued the underwriters of Jenkon's initial public offering in
1998, (ii) 117,321 shares of Jenkon Common Stock are subject to issuance upon
the exercise of warrants issued in connection with a 1998 private placement,
(iii) 161,760 shares of Jenkon Common Stock are subject to issuance upon the
exercise of warrants issued in connection with
20
a 1996 private placement, and (iv) 1,000,000 shares are reserved for issuance
upon the exercise of options granted under Jenkon's Stock Option Plan of which
options to purchase approximately 700,000 shares of Jenkon Common Stock are
currently outstanding. All of the outstanding shares of Jenkon Common Stock are
validly issued, fully paid, nonassessable and free of preemptive rights.
(b) The shares of Jenkon Common Stock, Series B Preferred
and Series C Preferred to be issued pursuant to the Stock Exchange, when
issued, will be duly authorized, validly issued, fully paid and non-assessable,
and free of preemptive rights.
4.4 SEC DOCUMENTS; JENKON FINANCIAL STATEMENTS. Jenkon has
furnished or made available to the Company true and complete copies of all
reports or registration statements filed by it with the United States
Securities and Exchange Commission (the "SEC") under the Securities Exchange
Act of 1934 (the "EXCHANGE ACT") for all periods since the date of its initial
public offering, all in the form so filed (all of the foregoing being
collectively referred to as the "SEC DOCUMENTS"). As of their respective filing
dates, the SEC Documents complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
none of the SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a document
subsequently filed with the SEC. Jenkon has filed all SEC Documents required to
be filed under the Securities Act or Exchange Act, as the case may be. The
financial statements of Jenkon, including the notes thereto, included in the
SEC Documents (the "JENKON FINANCIAL STATEMENTS") comply as to form in all
material respects with applicable accounting requirements and with the
published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with US GAAP consistently applied (except as may be
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC) and present fairly the consolidated
financial position of Jenkon at the dates thereof and the consolidated results
of its operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal audit adjustments). There has been no
change in Jenkon accounting policies except as described in the notes to the
Jenkon Financial Statements.
4.5 NO MATERIAL ADVERSE CHANGE. Since the date of the balance sheet
included in Jenkon's most recently filed report on Form 10-QSB or Form 10-KSB,
Jenkon has conducted its business in the ordinary course and there has not
occurred: (a) any amendment or change in the Certificate of Incorporation or
Bylaws of Jenkon (other than any amendment to the Certificate of Incorporation
necessary to give effect to the Certificates of Designation, Preferences and
Rights for the Series B Preferred and the Series C Preferred), or (b) any
damage to, destruction or loss of any assets of the Jenkon (whether or not
covered by insurance) that materially and adversely affects the financial
condition or business of Jenkon. Jenkon has incurred significant losses in
fiscal the fiscal year ended June 30, 1999 and the first quarter of fiscal 2000
and expects to report significant losses in at least the second and third
21
quarters of fiscal 2000. In addition, absent the proceeds of the private
placement contemplated by Section 7.1 of this Agreement, Jenkon lacks the
financial resources to continue its operations significantly beyond December 15,
1999. Accordingly, Jenkon makes no representation or warranty to the
Stockholders as to its current financial condition. The Stockholders acknowledge
and agree that, notwith
