EXHIBIT 2.4
-----------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
BRIDGELINE SOFTWARE, INC.,
LEAD DOG DIGITAL, INC.,
AND
CERTAIN SHAREHOLDERS OF LEAD DOG DIGITAL, INC.
FEBRUARY 26, 2002
INDEX
-----
ARTICLE I THE MERGER......................................................2
1.1 THE MERGER......................................................2
1.2 OFFICERS AND DIRECTORS..........................................2
1.3 CONVERSION OF SHARES; EXCHANGE PROCEDURES.......................3
1.4 TREATMENT OF OUTSTANDING STOCK OPTIONS..........................5
1.5 EARN-OUT CONSIDERATION..........................................6
1.6 REPAYMENT OF CORPORATION DEBT AND OTHER OBLIGATIONS.............8
1.7 MAXIMUM TOTAL CONSIDERATION.....................................9
1.8 TAX-FREE REORGANIZATION........................................10
1.9 CLOSING........................................................10
1.10 OTHER AGREEMENTS...............................................10
1.11 ADDITIONAL EMPLOYEE STOCK OPTIONS..............................10
1.12 POST-CLOSING PERFORMANCE OF LDD BUSINESS.......................11
1.13 ADDITIONAL ACTIONS.............................................13
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE
PRINCIPAL SHAREHOLDERS.........................................14
2.1 OWNERSHIP OF SHARES............................................14
2.2 ORGANIZATION AND CORPORATE POWER...............................14
2.3 AUTHORIZATION..................................................15
2.4 NO CONFLICTS...................................................15
2.5 GOVERNMENT APPROVALS...........................................16
2.6 AUTHORIZED AND OUTSTANDING STOCK...............................16
2.7 SUBSIDIARIES...................................................16
2.8 FINANCIAL INFORMATION/ACCOUNTS PAYABLE/PROJECTIONS.............16
2.9 EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS......17
2.10 LITIGATION.....................................................18
2.11 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS.....................18
2.12 TAXES..........................................................18
2.13 REAL PROPERTY..................................................18
2.14 ENVIRONMENTAL MATTERS..........................................19
2.15 PERSONAL PROPERTY/CAPITAL EQUIPMENT............................19
2.16 PATENTS, TRADEMARKS, ETC.......................................20
2.17 AGREEMENTS OF DIRECTORS, OFFICERS, EMPLOYEES AND CONSULTANTS...20
2.18 GOVERNMENTAL LICENSES..........................................21
2.19 LIST OF MATERIAL CONTRACTS AND COMMITMENTS.....................21
2.20 ACCOUNTS RECEIVABLE............................................21
2.21 SECURITIES ACTS................................................22
2.22 INSURANCE COVERAGE.............................................22
2.23 EMPLOYEE MATTERS...............................................22
2.24 SUPPLIERS AND CUSTOMERS........................................24
2.25 NO BROKERS OR FINDERS..........................................24
2.26 TRANSACTIONS WITH INSIDERS.....................................25
2.27 ASSUMPTIONS, GUARANTEES........................................25
2.28 BANK ACCOUNTS, SIGNING AUTHORITY, POWERS OF ATTORNEY...........25
2.29 CORPORATE BOOKS................................................25
2.30 SIMPLE XXX PLAN................................................25
ARTICLE III REPRESENTATINS, COVENANTS AND RIGHTS OF PRINCIPAL
SHAREHOLDERS...................................................25
3.1 PRINCIPAL SHAREHOLDERS' REPRESENTATIONS........................25
3.2 AGREEMENTS REQUIRED IN A PUBLIC OFFERING.......................26
3.3 REGISTRATION RIGHTS............................................27
3.4 TAG-ALONG RIGHTS...............................................27
3.5 SURVIVAL.......................................................27
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE ACQUIRER.................27
4.1 ORGANIZATION AND QUALIFICATION.................................27
4.2 AUTHORITY......................................................27
4.3 NO CONFLICTS...................................................28
4.4 GOVERNMENT APPROVALS...........................................28
4.5 LITIGATION.....................................................28
4.6 AUTHORIZED AND OUTSTANDING STOCK...............................28
4.7 CAPITAL........................................................29
4.8 SUBSIDIARIES...................................................29
4.9 FINANCIAL INFORMATION/ACCOUNTS PAYABLE.........................29
-ii-
4.10 EVENTS SUBSEQUENT TO THE DATE OF THE FINANCIAL STATEMENTS......30
4.11 COMPLIANCE WITH LAWS AND OTHER INSTRUMENTS.....................30
4.12 TAXES..........................................................30
4.13 REAL PROPERTY..................................................31
4.14 ENVIRONMENTAL MATTERS..........................................31
4.15 PERSONAL PROPERTY/CAPITAL EQUIPMENT............................31
4.16 PATENTS, TRADEMARKS, ETC.......................................31
4.17 AGREEMENTS OF DIRECTORS, OFFICERS, EMPLOYEES AND CONSULTANTS...32
4.18 GOVERNMENTAL LICENSES..........................................32
4.19 SECURITIES ACTS................................................32
4.20 INSURANCE COVERAGE.............................................33
4.21 EMPLOYEE MATTERS...............................................33
4.22 SUPPLIERS AND CUSTOMERS........................................34
4.23 NO BROKERS OR FINDERS..........................................35
4.24 TRANSACTIONS WITH INSIDERS.....................................35
4.25 ASSUMPTIONS, GUARANTEES........................................35
4.26 BANK ACCOUNTS, SIGNING AUTHORITY, POWERS OF ATTORNEY...........35
4.27 CORPORATE BOOKS................................................35
ARTICLE V CONDITIONS TO THE OBLIGATIONS OF THE ACQUIRER AT THE CLOSING...36
5.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.....................36
5.2 PERFORMANCE....................................................36
5.3 OPINION OF COUNSEL.............................................36
5.4 NO LITIGATION..................................................36
5.5 CERTIFICATE AS TO OFFICERS' INCUMBENCY AND CORPORATE
AUTHORIZATION..................................................37
5.6 OTHER AGREEMENTS...............................................37
5.7 STOCK PLEDGE AGREEMENT AND PLEDGED SHARES......................37
5.8 SIMPLE XXX PLAN................................................37
5.9 THIRD PARTY CONSENTS...........................................37
5.10 OTHER MATTERS..................................................37
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE CORPORATION...............38
6.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES.....................38
-iii-
6.2 PERFORMANCE....................................................38
6.3 OPINION OF COUNSEL.............................................38
6.4 NO LITIGATION..................................................38
6.5 OTHER AGREEMENTS...............................................38
6.6 CERTIFICATE AS TO OFFICERS' INCUMBENCY AND CORPORATE
AUTHORIZATION..................................................39
6.7 STOCK CERTIFICATES.............................................39
6.8 REPAYMENT OF DEBT..............................................39
6.9 BOARD OF DIRECTORS.............................................39
6.10 PRIVATE PLACEMENT..............................................39
6.11 OTHER MATTERS..................................................39
ARTICLE VII LICENSE........................................................39
ARTICLE VIII GENERAL RELEASE AND INDEMNIFICATIONS...........................40
8.1 PRINCIPAL SHAREHOLDERS' RELEASES...............................40
8.2 PRINCIPAL SHAREHOLDERS' INDEMNIFICATION........................40
8.3 ACQUIRER'S INDEMNIFICATION.....................................40
8.4 THIRD PARTY CLAIMS.............................................41
8.5 LIMITATIONS OF LIABILITY.......................................41
8.6 EXPENSES, REIMBURSEMENT........................................43
8.7 NOTICE.........................................................43
8.8 SURVIVAL.......................................................43
8.9 COLLATERAL FOR PRINCIPAL SHAREHOLDERS' INDEMNIFICATION
OBLIGATION.....................................................43
ARTICLE IX SURVIVAL OF REPRESENTATIONS AND WARRANTIES.....................43
ARTICLE X MISCELLANEOUS..................................................44
10.1 CROSS DISCLOSURE..............................................44
10.2 PARTIES IN INTEREST............................................44
10.3 AMENDMENTS AND WAIVERS.........................................44
10.4 NOTICES........................................................44
10.5 EXPENSES.......................................................45
10.6 SEVERABILITY...................................................45
10.7 COUNTERPARTS...................................................45
-iv-
10.8 EFFECT OF HEADINGS/GENDER REFERENCES...........................45
10.9 GOVERNING LAW..................................................46
10.10 PRESS RELEASES AND PUBLIC ANNOUNCEMENTS........................46
10.11 POST-CLOSING TAX MATTERS.......................................46
10.12 BENEFIT PLAN COVENANTS.........................................46
-v-
EXHIBITS AND SCHEDULES
----------------------
Exhibit A Form of Hypnotic Note
Exhibit B Form of Employment Agreement
Exhibit C Form of Non-Principal Shareholder's Letter
Exhibit D Form of Remainder Debt Note
Exhibit E Form of Noncompetition Agreement
Exhibit F Form of Stock Pledge Agreement
Schedule 1.3(a) Shareholders, Shares, Percentage Interest
Schedule 1.4 Corporation Options
Schedule 1.5(b) Earn-Out Computation
Schedule 1.6 Debt
Schedule 1.10 List of Key Employees of the Corporation
Schedule 1.11 List of Acquirer Options to be Issued to Employees of the
Corporation
Schedule 3.1 List of Shareholders who are not "accredited investors"
Schedule 7.0 List of LDD Domain Names
Schedule 8.5(d) Principal Shareholders' Relative Ownership of Shares and
Proportional Share of Indemnification Obligations
Schedules Relating to Representations and Warranties of the Corporation and the
-------------------------------------------------------------------------------
Shareholders
------------
Schedule 2.2 Jurisdictions Qualified To Do Business
Schedule 2.6 Outstanding Warrants, Options and Other Related Commitments
Schedule 2.7 Subsidiaries
Schedule 2.8 Accounts Payable and Projections
Schedule 2.9 Changes in Financial Condition and Subsequent Events
Schedule 2.10 Litigation
Schedule 2.12 Taxes
Schedule 2.13 Real Property and Related Matters
Schedule 2.14 Environmental Matters
Schedule 2.15 Personal Property and Capital Equipment
Schedule 2.16 Intellectual Property
Schedule 2.17 Officers and Directors and Related Matters
Schedule 2.19 Material Contracts
Schedule 2.20 Accounts Receivable
Schedule 2.22 Insurance Policies
Schedule 2.23 Employee Matters
Schedule 2.24 Suppliers and Customers
Schedule 2.26 Transactions with Insiders
Schedule 2.27 Guaranteed Obligations
Schedule 2.28 Bank Accounts and Related Matters
Schedules Relating to Representations and Warranties of the Acquirer
--------------------------------------------------------------------
Schedule 4.8 Subsidiaries
Schedule 4.9 Accounts Payable
Schedule 4.10 Changes in Financial Condition and Subsequent Events
Schedule 4.12 Taxes
Schedule 4.13 Real Property and Related Matters
Schedule 4.14 Environmental Matters
Schedule 4.15 Personal Property and Capital Equipment
Schedule 4.16 Intellectual Property
Schedule 4.17 Officers and Directors and Related Matters
Schedule 4.20 Insurance Policies
Schedule 4.21 Employee Matters
Schedule 4.22 Suppliers and Customers
Schedule 4.24 Transactions with Insiders
Schedule 4.25 Guaranteed Obligations
Schedule 4.26 Bank Accounts and Related Matters
-ii-
INDEX OF DEFINED TERMS
----------------------
TERM SECTION
---- -------
Acquirer Introductory Paragraph
Acquirer Financial Statements 4.9
Acquirer Options 1.11
Acquirer Stock Recitals
Act 2.6
Additional Acquirer Stock 1.12(a)
Agreement Introductory Paragraph
Audited Financial Statements 2.8
Buyer Benefit Plans or Buyer Plan 4.21
CERCLA 2.14(c)
Certificate 1.3(b)
Certificate of Merger 1.1
Closing 1.9
Closing Date 1.9
Code Recitals
Common Stock 2.6
Conversion Ratio 1.3(a)
Corporation Introductory Paragraph
Corporation Executive Officers 1.10
Corporation Options 1.4
Debt 1.6(a)
DGCL 1.1
Earn-out 1.5(a)
Earn-out Amount 1.5(b)
Earn-out I.A.F. Fee 1.5(e)
Earn-out Notice 1.5(b)
Earn-out Period or Periods 1.5(b)
Earn-out Portion 1.5(d)
EBITDA 1.5(b)
TERM SECTION
---- -------
Effective Time 1.1
Employment Agreements 1.10
Environmental Law 2.14(c)
ERISA 2.23
ERISA Affiliate 2.23
GAAP 1.5(b)
Hazardous Substances 2.14(b)
Xxxxxxxxx 1.2(b)
Xxxxxxxxx Proportion 1.6(a)
Xxx 1.6(a)
Hypnotic 1.6(b)
Hypnotic Notes 1.6(b)
Hypnotic Settlement Payment 1.6(b)
Income Statement 1.5(b)
Indemnitee 8.4
Indemnitor 8.4
Independent Accounting Firm 1.5(e)
Intellectual Property 2.16
IPO 1.2(b)
Key Employee 1.10
LDD Introductory Paragraph
LDD Business 1.5(b)
LDD Domain Names Article VII
LDD Holders 1.3(a)
LDD Representative 1.5(b)
LDD Stock Option Plan 1.4
Loss or Losses 8.2
Xxxxxx 3.3
material adverse effect 2.2
material contract 2.19
Matteo 1.2(b)
-2-
TERM SECTION
---- -------
Matteo Proportion 1.6(a)
Maximum Earn-out 1.5(a)
Merger 1.1
Noncompetition Agreements 1.10
Non-Principal Shareholder's Letters 1.10
NYBCL 1.1
OGFRW 1.6(b)
Permitted Transfer 3.5
Pledged Shares 8.9
Principal Shareholders Introductory Paragraph
Projections 2.8
RCRA 2.14(c)
Remainder Debt 1.6(a)
Remainder Debt Notes 1.10
Remaining Settlement Balance 1.6(b)
Representation Expiration Date 8.5(d)
XXXX 2.14(c)
Seller Benefit Plan or Seller Plan 2.23
Shares Recitals
Stock Pledge Agreement 8.9
Subsidiary 2.7
Surviving Corporation 1.1
tax 2.12
Third Party Claim 8.4
Transaction Documents 2.3(a)
2002 Income Statement 1.12(b)
2002 Performance I.A.F. Fee 1.12(g)
2002 Performance Notice 1.12(b)
Unaudited Financial Statements 2.8
-3-
AGREEMENT AND PLAN OF MERGER
----------------------------
This Agreement and Plan of Merger (this "Agreement") is made this 27th
day of February, 2002 by and among Bridgeline Software, Inc., a Delaware
corporation, with a principal place of business at 000 Xxx Xxxxxx Xxxxxx,
Xxxxxx, Xxxxxxxxxxxxx 00000 (the "Acquirer"), Lead Dog Digital, Inc., a New York
corporation, with a principal place of business at 000 X. 00xx Xxxxxx, Xxx Xxxx,
XX 00000 (the "Corporation" or "LDD"), and those shareholders of the Corporation
who are parties hereto (collectively, the "Principal Shareholders" and each
individually, a "Principal Shareholder"), each with a mailing address as set
forth under his or her respective name on Schedule 1.3(a) attached hereto.
RECITALS
WHEREAS, the Principal Shareholders own, collectively, Eighty-two and
03/100 percent (82.03%) of the issued and outstanding shares of the common
stock, par value $0.001 per share, of the Corporation (such issued and
outstanding shares being the "Shares"); and
WHEREAS, the Boards of Directors of each of the Acquirer and the
Corporation have, in accordance with the laws of the State of Delaware and the
State of New York, respectively, approved the merger of the Corporation with and
into the Acquirer, pursuant to which all of the Shares will be converted into
common stock of the Acquirer, $0.001 par value per share (the "Acquirer Stock")
and the Corporation will merge with and into the Acquirer, with the Acquirer
being the surviving corporation; and;
WHEREAS, it is the intention of the parties that the merger shall
qualify as a reorganization within the meaning of Section 368(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and that this Agreement shall
constitute a "plan of reorganization" for the purposes of Section 368 of the
Code;
WHEREAS, each of the parties to the Agreement desires to make certain
representations, warranties, and agreements in connection with the transaction
between the parties and to prescribe various conditions thereto; and
WHEREAS, the shareholders of the Corporation who are not the Principal
Shareholders have executed, effective this date, certain Non-Principal
Shareholder's Letters (as such term is defined further below), which incorporate
by reference this Agreement and in which such shareholders agree to be bound by
this Agreement and assert their right to enjoy the benefits of this Agreement,
each as pursuant to the terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE MERGER
----------
1.1 The Merger. Subject to and upon the terms and conditions of this
Agreement, at the effective time of the merger of the Corporation with and into
the Acquirer, and pursuant to the Delaware General Corporation Law ("DGCL") and
the New York Business Corporation Law ("NYBCL"), the Corporation will be merged
with and into the Acquirer (the "Merger") and the separate existence of the
Corporation shall thereupon cease, in accordance with the applicable provisions
of the DGCL and the NYBCL. As a result of the Merger, the Acquirer will be the
surviving corporation (sometimes referred to herein as the "Surviving
Corporation"). The Certificate of Incorporation and Bylaws of the Surviving
Corporation shall be those of the Acquirer as they are in existence immediately
prior to the Merger. The separate corporate existence of the Acquirer with all
its rights, privileges, powers, and franchises shall continue unaffected by the
Merger. The name of the Surviving Corporation shall continue to be "Bridgeline
Software, Inc." On the Closing Date (as such term is defined below), the parties
shall cause a Certificate of Merger, meeting the requirements of Section 252 of
the DGCL and Section 907 of the NYBCL, respectively (the "Certificate of
Merger"), to be promptly executed and filed with each of the Secretaries of
State of the State of Delaware and the State of New York. The Merger shall
become effective (the "Effective Time") upon the close of business on the date
that the filing of the Certificate of Merger with the Secretaries of State of
the State of Delaware and the State of New York has been completed or at such
other time or date than may otherwise be indicated in the Certificate of Merger.
1.2 Officers and Directors.
(a) The officers and directors of the Acquirer immediately prior to the
Effective Time shall be the officers and directors of the Surviving Corporation,
except that Xxxxxx Xxxxxxxxx and Xxxxxxx Xxxxxx (pursuant to appropriate actions
by the shareholders and/or Board of Directors of the Acquirer, effective upon
the Effective Time) shall each become a member of the Board of Directors of the
Surviving Corporation at the Effective Time, subject to the conditions set forth
in Section 1.2(b) below. All officers and directors incumbent immediately after
the Effective Time will hold office until their successors are duly elected and
qualified in the manner provided in Section 1.2(b), in the Certificate of
Incorporation and Bylaws of the Acquirer, or as otherwise provided by law, or
until their earlier death, resignation, or removal.
(b) Xxxxxx Xxxxxxxxx ("Xxxxxxxxx"), and each of his successors (each as
appointed by him or any such successor and reasonably acceptable to the
Acquirer), shall be entitled to hold a seat on the Board of Directors of the
Acquirer until the earlier of (i) such time as the Acquirer completes its first
underwritten public offering involving the sale of Acquirer Stock pursuant to an
effective registration statement under the Securities Act of 1933, as amended
(an "IPO"), or (ii) such time as the Principal Shareholders collectively have
sold, transferred or otherwise disposed of fifty percent (50%) or more of the
shares of Acquirer Stock issued to the Principal Shareholders at the Effective
Time pursuant to the terms of the Merger, other than in connection
-2-
with any Permitted Transfers (as such term is defined in Section 3.5 below).
Xxxxxxx Xxxxxx ("Matteo"), and each of his successors (each as appointed by him
or any such successor and reasonably acceptable to the Acquirer), shall be
entitled to hold a seat on the Board of Directors of the Acquirer until the
earlier of (i) May 26, 2003, (ii) the completion by the Acquirer of an IPO or
(iii) such time as the Principal Shareholders collectively have sold,
transferred or otherwise disposed of fifty percent (50%) or more of the shares
of Acquirer Stock issued to the Principal Shareholders at the Effective Time
pursuant to the terms of the Merger, other than in connection with any Permitted
Transfers. The Acquirer hereby covenants and agrees that during the period in
which Matteo (or any successor) shall be entitled to hold a seat on the
Acquirer's Board of Directors hereunder, the size of such Board of Directors
shall not be increased beyond six (6) in number without the consent of both
Xxxxxxxxx and Matteo (or any successors). The rights of Xxxxxxxxx and Matteo (or
any successors) to hold seats on the Acquirer's Board of Directors as provided
hereunder shall remain subject to the Board of Directors' fiduciary duties, the
applicable provisions of the Acquirer's Certificate of Incorporation and By-laws
and applicable law, including without limitation any rights of the Board of
Directors or shareholders to remove a director for cause.
1.3 Conversion of Shares; Exchange Procedures.
(a) By virtue of the Merger, automatically and without any
action on the part of the holders thereof, the Shares outstanding immediately
prior to the Effective Time (other than any shares held as treasury stock by the
Corporation, which shall be cancelled, retired and cease to exist, and for which
no payment hereunder shall be made) shall become and be converted into and
become exchangeable for (x) the number of shares of Acquirer Stock, rounded to
the nearest whole share, equal to the product of the number of such Shares and
the Conversion Ratio (as such term is defined below) and (y) the right to
receive, to the extent earned, the Earn-out (as such term is defined in Section
1.5 below), such right not being evidenced by any separate instrument other than
this Agreement. The term "Conversion Ratio" shall mean the quotient obtained by
dividing (i) 2,933,000 by (ii) the sum of the total number of Shares issued and
outstanding immediately prior to the Effective Time plus the maximum total
number of shares of the Corporation's common stock that may be issued upon the
exercise of Corporation Options (as such term is defined in Section 1.4 below)
outstanding immediately prior to the Effective Time (whether or not such
Corporation Options are then exercisable). The total number of shares of
Acquirer Stock that shall be issued at the Effective Time in connection with the
conversion and exchange of the Shares outstanding immediately prior to the
Effective Time shall be allocated among all of the holders of such Shares
(collectively, the "LDD Holders" and each, individually, an "LDD Holder") on the
basis of each LDD Holder's respective percentage ownership of the total number
of such Shares. The number of Shares held by each LDD Holder and the
corresponding percentage ownership of the Corporation by each, as well as the
name and address of each such LDD Holder, is set forth in Schedule 1.3(a).
(b) Each certificate that immediately prior to the Effective
Time represents any outstanding Shares (each, a "Certificate") shall, on and
after the Effective Time (i) be deemed for all purposes to represent each of (A)
the number of shares of Acquirer Stock into which the Shares represented by such
Certificate shall have been converted pursuant to Section 1.3(a), and (B) the
right to receive the appropriate Earn-out Portion (as such term is defined in
-3-
Section 1.5(f) below), and (ii) be exchangeable by the holder thereof in the
manner provided in Section 1.3(c) below for a new certificate representing the
shares of Acquirer Stock into which the Shares represented by such Certificate
have been converted pursuant to Section 1.3(a).
(c) The Corporation shall cause to be delivered to the
Acquirer on the Closing Date the Certificates representing all of the Shares
outstanding immediately prior to the Effective Time, as evidenced by the stock
ledger and stock transfer records of the Corporation. Upon surrender of a
Certificate for exchange and cancellation to the Acquirer, the holder of such
Certificate shall be entitled to receive in exchange therefor a certificate
representing the number of shares of Acquirer Stock, rounded up or down to the
nearest whole share on a basis that is mutually agreed upon by the parties, that
such holder is entitled to receive under Section 1.3(a) above and such
Certificate shall forthwith be cancelled.
(d) No dividend or other distribution payable after the
Effective Time with respect to the Acquirer Stock shall be paid to the holder of
any unsurrendered Certificate until the holder thereof surrenders such
Certificate, at which time such holder shall receive all dividends and
distributions, without interest thereon, previously payable but withheld from
such holder pursuant hereto. After the Effective Time, there shall be no
transfers of any shares of capital stock on the stock transfer books of the
Corporation. If, after the Effective Time, any Certificates are presented for
transfer to the Surviving Corporation, they shall be cancelled in exchange for
the shares of Acquirer Stock deliverable in respect thereof pursuant to Section
1.3(a) above.
(e) After the Effective Time, the holders of any shares of the
capital stock of the Corporation shall cease to be, and shall have no rights as,
stockholders of the Corporation, other than to receive the consideration into
which such shares have been converted pursuant to the provisions hereof.
(f) Notwithstanding the foregoing, neither the Acquirer nor
the Corporation or any other person shall be liable to any former holder of
shares of any capital stock of the Corporation for any shares or any dividends
or distributions with respect thereto properly delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(g) In the event any Certificate shall have been lost, stolen
or destroyed, upon receipt of appropriate evidence as to such loss, theft or
destruction and to the ownership of such Certificate by the person claiming such
Certificate to be lost, stolen or destroyed, and the receipt by the Acquirer of
appropriate and customary indemnification, the Acquirer will cause to be
delivered in exchange for such lost, stolen or destroyed Certificate the shares
of Acquirer Stock deliverable in respect thereof as determined in accordance
with Section 1.3(a) above.
(h) If any certificate representing shares of Acquirer Stock
is to be issued in a name other than that in which the Certificate surrendered
and exchanged therefor is registered, it shall be a condition of the issuance
thereof that the Certificate so surrendered shall be properly endorsed (or
accompanied by an appropriate instrument of transfer) and otherwise in proper
form for transfer (including, but not limited to, that the signature of the
transferor shall be properly guaranteed by a commercial bank, trust company,
member firm of a national or regional
-4-
securities exchange or other eligible guarantor institution), and that the
person requesting such exchange shall pay to the Acquirer in advance any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of Acquirer Stock in any name other than that of the
registered holder of the Certificate surrendered, or required for any other
reason, or shall establish to the satisfaction of the Acquirer that such tax has
been paid or is not payable.
1.4 Treatment of Outstanding Stock Options.
(a) At the Effective Time, each option to purchase shares of
the Corporation's common stock, as set forth in Schedule 1.4 (each, a
"Corporation Option" and collectively, the "Corporation Options"), which has
been issued under the Corporation's 2001 Stock Option Plan (the "LDD Stock
Option Plan") or has been otherwise issued pursuant to a separate agreement
outside of the LDD Stock Option Plan, whether or not such option is then
exercisable thereunder, shall cease to represent an option to purchase shares of
the Corporation's common stock and shall be converted automatically into an
option to purchase shares of Acquirer Stock, and the Acquirer shall assume each
Corporation Option, in accordance with the terms of the LDD Stock Option Plan
(as applicable) and the related stock option agreement executed by the
Corporation and holder by which it is evidenced, including, without limitation,
any such terms pertaining to the acceleration and vesting of the holder's
exercise rights thereunder, except that from and after the Effective Time, (i)
the Acquirer and its Board of Directors and/or any committee appointed by the
Acquirer's Board of Directors shall be substituted for the Corporation and the
Corporation's Board of Directors (including, if applicable, any committee
appointed by such Board of Directors) administering the LDD Stock Option Plan
(as applicable), (ii) each Corporation Option assumed by the Acquirer may be
exercised solely for shares of Acquirer Stock, (iii) the number of shares of
Acquirer Stock subject to such Corporation Option shall be equal to the number
of the Corporation's common stock subject to such Corporation Option immediately
prior to the Effective Time multiplied by the Conversion Ratio, provided that
any fractional shares of Acquirer Stock resulting from such multiplication shall
be rounded down to the nearest share, and (iv) the per-share exercise price
under each such Corporation Option shall be adjusted by dividing the per-share
exercise price under each such Corporation Option by the Conversion Ratio,
provided that such exercise price shall be rounded up to the nearest cent.
Notwithstanding clauses (iii) and (iv) of the preceding sentence, each
Corporation Option which is an "incentive stock option" under the Code shall be
adjusted as required by Section 424 of the Code and the regulations promulgated
thereunder, so as not to constitute a modification, extension or renewal of the
option within the meaning of Section 424(h) of the Code.
(b) In the event that any Corporation Option held by an
employee who is not an LDD Holder at the Effective Time shall become void or is
otherwise forfeited or cancelled under the LDD Stock Option Plan or any
applicable agreement upon or following the termination of such employee's
employment with the Acquirer at any time within twenty-four (24) months
following the Closing Date, then the Acquirer's Board of Directors (or the
committee thereof that is responsible for administering the LDD Stock Option
Plan following the Effective Time) shall grant a new option or options under the
LDD Stock Option Plan to purchase such number of shares of Acquirer Stock in the
aggregate as such former employee had a right to purchase under the terms of
such void or otherwise forfeited or cancelled option, such new option or options
to be granted to such current employee or employees of the Acquirer who then
hold(s)
-5-
validly outstanding options previously granted under the LDD Stock Option Plan
as may be reasonably recommended by Xxxxxxxxx and Matteo. The terms of any such
new option, including without limitation the vesting schedule and exercise
price, shall be determined by the Acquirer's Board of Directors (or such
applicable committee) and in accordance with the terms of the LDD Stock Option
Plan.
(c) The Corporation and the Acquirer agree to take all
necessary steps to effect the foregoing provisions of Sections 1.4(a) and 1.4(b)
above.
1.5 Earn-Out Consideration.
(a) The LDD Holders shall be entitled to earn additional cash
consideration (collectively, the "Earn-out") in an aggregate amount of up to
Three Hundred Forty-two Thousand Three Hundred Ninety-nine and 06/100 Dollars
($342,399.06) (the "Maximum Earn-out") in accordance with the terms and
conditions of this Section 1.5 and subject to the prior repayment of the
Remainder Debt to Xxxxxxxxx and Matteo pursuant to Section 1.6(a) below and the
Principal Shareholders' indemnification obligations contained in Article VIII
below.
(b) Within thirty (30) calendar days after the end of each
calendar quarter (i.e., the three (3) months ended March 31, June 30, September
30 and December 31 of each relevant calendar year) or portion thereof that is
included within the thirty-six (36) month period beginning on the first calendar
day following the Closing Date (the "Earn-out Periods" and each individually, an
"Earn-out Period"), the Acquirer shall prepare an income statement reflecting
solely the business and operations associated exclusively with the Corporation
following the completion of the Merger independent of the remaining business and
operations of the Acquirer (the "LDD Business") calculated in accordance with
generally accepted accounting principles ("GAAP") for such Earn-out Period, and
a related calculation of the Earnings Before Interest, Taxes, Depreciation and
Amortization ("EBITDA") of the LDD Business for such Earn-out Period, such
calculation of EBITDA to be completed in accordance with GAAP and to reflect as
closely as reasonably possible the EBITDA that would have been achieved by the
Corporation during such Earn-out Period if the Merger had not occurred (each
such income statement and EBITDA calculation are collectively referred to herein
as the "Income Statement"). Promptly following the Acquirer's determination of
such EBITDA for an Earn-out Period, the Acquirer shall deliver to Xxxxxxxxx, as
the representative duly authorized by, and acting on behalf of, the LDD Holders
(or his successor(s) as duly elected by a majority in interest of the LDD
Holders) (referred to in this capacity as the "LDD Representative"), the Income
Statement, which shall include a statement of the total amount owed collectively
to the LDD Holders, if any, based on the calculations set forth on Schedule
1.5(b) hereto (the "Earn-out Amount") (each Income Statement and each such
accompanying statement of the Earn-out Amount, if any, are collectively referred
to herein as the "Earn-out Notice").
(c) The LDD Representative shall have ten (10) business days
from the date of his receipt of an Earn-out Notice to either (i) accept the
calculations and conclusions made in the Earn-out Notice or (ii) give notice to
the Acquirer in writing that the LDD Representative intends to dispute the
amounts included in the Earn-out Notice, and such notice shall set forth in
-6-
reasonable detail the disputed amount and the basis for such dispute. Any such
dispute by the LDD Representative must be reasonable and made in good faith.
(d) If, within the 10-business day period provided for in
Section 1.5(c), the LDD Representative either affirmatively notifies the
Acquirer that he accepts the calculations and conclusions made in the Earn-out
Notice or does not otherwise give notice to the Acquirer in writing that he
intends to dispute the amounts included in the Earn-out Notice, then within ten
(10) business days following the expiration of such ten-business day period
provided for in Section 1.5(c) or, if earlier, the date of the Acquirer's
receipt of such affirmative notice of the LDD Representative's acceptance of the
calculations and conclusions made in the Earn-out Notice, the Acquirer shall pay
the relevant Earn-out Amount, if any, to the LDD Holders.
(e) (i) If the LDD Representative notifies the Acquirer
that he intends to dispute the amounts included in the Earn-out Notice in
accordance with Section 1.5(c)(ii) above, then the Acquirer and the LDD
Representative shall negotiate in good faith to resolve the dispute. If the
Acquirer and the LDD Representative are unable to reach a resolution within ten
(10) business days after receipt by the Acquirer of the LDD Representative's
written notice of dispute, then the Acquirer and the LDD Representative shall
submit the matter to a mutually acceptable independent public accounting firm of
international reputation (the "Independent Accounting Firm"), which shall,
within thirty (30) calendar days after such submission, determine the Earn-out
Amount, if any. The determination of the Earn-out Amount by the Independent
Accounting Firm shall be final, non-appealable and binding on the parties hereto
and, under the Non-Principal Shareholder's Letters, each other LDD Holder.
(ii) In the event that the Independent Accounting
Firm determines that the Earn-out Amount stated by the Acquirer under Section
1.5(b) is accurate and correct in all material respects, then (A) the LDD
Holders shall pay all costs and expenses charged by the Independent Accounting
Firm (the "Earn-out I.A.F. Fee") and (B) if an Earn-out Amount is due under such
Earn-out Notice, within ten (10) business days of the parties' receipt of such
report by the Independent Accounting Firm, the Acquirer shall pay such Earn-out
Amount to the LDD Holders (which payment may be in an amount net of the Earn-out
I.A.F. Fee otherwise due from the LDD Holders to the Independent Accounting
Firm, if the Acquirer chooses in its sole discretion to pay directly to the
Independent Accounting Firm the Earn-out I.A.F. Fee due from the LDD Holders).
(iii) In the event that the Independent Accounting
Firm determines that the Acquirer's calculations and conclusions made in the
Earn-out Notice are inaccurate or misstated such that the Earn-out Notice
includes no Earn-out Amount or otherwise references an Earn-out Amount lower
than the accurate Earn-out Amount, then (A) the Acquirer shall pay the Earn-out
I.A.F. Fee and (B) within ten (10) business days of the parties' receipt of such
report by the Independent Accounting Firm, the Acquirer shall pay to the LDD
Holders the Earn-out Amount determined by the Independent Accounting Firm.
(f) Notwithstanding any of the foregoing contained in this
Section 1.5, and subject to Section 1.6(a), in no event shall any Earn-out
Amount for any one Earn-out Period exceed the aggregate amount of Thirty-seven
Thousand Five Hundred Dollars ($37,500.00). All
-7-
Earn-out Amounts that may be paid to the LDD Holders hereunder shall be divided
and allocated among the LDD Holders on the basis of their respective percentage
ownership of the Shares immediately prior to the Effective Time, as set forth in
Schedule 1.3(a) (with respect to each LDD Holder, the "Earn-out Portion").
(g) In the event that the LDD Holders are not paid the Maximum
Earn-out during the collective Earn-out Periods, the LDD Representative may
elect to extend the period during which the Earn-out may be paid for an
additional twelve (12) months by providing to the Acquirer a written notice of
such election at least ninety (90) days prior to the third anniversary of the
Closing Date.
1.6 Repayment of Debt and Other Obligations.
(a) At the Effective Time, the Acquirer will assume the
obligation of the Corporation for the repayment of the principal amount plus
accrued interest (as calculated as of the Effective Time) of certain
indebtedness owed by the Corporation to Xxxxxxxxx, Xxxxxx and Xxxxxx Xxx
("Xxx"), the principal and interest with respect to which totals (as of the
Effective Time) Seven Hundred Seven Thousand Six Hundred and 94/100 Dollars
($707,600.94) (the "Debt"). The Debt, with respect to Xxxxxxxxx, Xxxxxx and Xxx,
is set forth in Schedule 1.6. At the Effective Time, the Acquirer shall pay Six
Hundred Thousand Dollars ($600,000) in the aggregate to Xxxxxxxxx, Xxxxxx and
Xxx as repayment of the Debt, which payment shall be made on the basis of the
individual amounts set forth in Schedule 1.6 (it being acknowledged and agreed
to by the parties that the portion of the Debt owed to Xxx shall be paid in full
at the Effective Time). After the Effective Time, the remaining amount of the
Debt, totaling One Hundred Seven Thousand Six Hundred and 94/100 Dollars
($107,600.94) in the aggregate (the "Remainder Debt"), shall be payable by the
Acquirer to Xxxxxxxxx and Matteo at the end of each calendar quarter; provided,
however, that in each calendar quarter during which the Remainder Debt is repaid
the maximum payment of such debt shall be the Earn-out Amount (if any)
calculated with respect to that calendar quarter under Section 1.5. The
Remainder Debt shall be paid to Xxxxxxxxx and Matteo, if at all in accordance
with the terms hereof, on the basis of the following relative percentages: with
respect to Xxxxxxxxx, 77.507% or 0.77507 expressed as a decimal (the "Xxxxxxxxx
Proportion"), and with respect to Matteo, 22.493% or 0.22493 expressed as a
decimal (the "Matteo Proportion"). The parties acknowledge and agree that
payment (if any) of the Remainder Debt hereunder shall have the effect of
delaying the commencement of the payment (if any) of Earn-out Amounts until the
Remainder Debt is repaid in full. No additional interest on the Remainder Debt
shall accrue or be paid with respect to any period following the Effective Time.
The parties hereto acknowledge that payment of the Remainder Debt is dependent
upon the performance of the LDD Business following the Effective Time and that
therefore it is possible that the Remainder Debt may be repaid only in part or
not at all.
(b) The parties acknowledge and agree that the Corporation is
currently engaged in negotiating a settlement of claims between the Corporation
and Hypnotic, Inc. ("Hypnotic"), which will be completed after the Closing Date.
In connection with such settlement, Hypnotic will pay an aggregate amount of One
Hundred Thousand Dollars ($100,000) (the "Hypnotic Settlement Payment") to
Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx &
-8-
Wolosky, LLP, as counsel to the Corporation in connection with the Corporation's
negotiation and completion of such settlement ("OGFRW"). The Corporation has
agreed with OGFRW that, upon OGFRW's receipt of the Hypnotic Settlement Payment,
OGFRW shall retain a portion of the Hypnotic Settlement Payment as payment for
prior services provided by OGFRW to the Corporation, including services provided
in connection with such settlement and other services provided to the
Corporation prior to the Effective Time, and shall remit the remaining portion
of the Hypnotic Settlement Payment directly to the Acquirer. The Acquirer shall
promptly pay to Xxxxxxxxx and Matteo any amount remaining from the portion of
the Hypnotic Settlement Payment received by the Acquirer from OGFRW after
deducting (i) the amount of any state and federal taxes that the Acquirer shall
be required to pay with respect to the Hypnotic Settlement Payment and (ii) the
portion of the Hypnotic Settlement Payment that the Corporation and Hypnotic
have agreed under the terms of such settlement constitutes payment by Hypnotic
for future services to be provided to Hypnotic by the Corporation (any such
remaining balance that may be paid to Xxxxxxxxx and Matteo, the "Remaining
Settlement Balance"). At the time of the Acquirer's payment to Xxxxxxxxx and
Matteo of the Remaining Settlement Balance, and if there is no Remaining
Settlement Balance to be paid to Xxxxxxxxx and Matteo after taking into account
the deductions specified in the immediately preceding sentence, then promptly
following any such determination by the Acquirer that there is no Remaining
Settlement Balance, the Acquirer shall execute and deliver to each of Xxxxxxxxx
and Matteo a promissory note, in substantially the form included as Exhibit A
hereto (each, a "Hypnotic Note" and together, the "Hypnotic Notes"), in
consideration and in full satisfaction of certain additional indebtedness owed
by the Corporation to Xxxxxxxxx and Matteo at the Effective Time, under the
terms of which the Acquirer shall agree to pay to Xxxxxxxxx and Matteo, in four
equal quarterly installments and without interest, an aggregate amount equal to
the difference between the Remaining Settlement Balance, if any, and Eighty-five
Thousand Dollars ($85,000); provided, however, that in no event shall the
aggregate principal amount under both of the Hypnotic Notes combined exceed
Sixty-five Thousand Dollars ($65,000). The allocation between Xxxxxxxxx and
Matteo of any aggregate amount to be paid by the Acquirer to Xxxxxxxxx and
Matteo under this Section 1.6(b), including without limitation pursuant to the
Hypnotic Notes, shall be calculated on the basis of the Xxxxxxxxx Proportion and
the Matteo Proportion, respectively.
1.7 Maximum Total Consideration. The parties acknowledge and agree that
the total maximum consideration that may be paid by the Acquirer in connection
with the Merger pursuant to the terms of this Agreement, including in connection
with the conversion of the Shares into shares of Acquirer Stock pursuant to
Section 1.3 above, the Acquirer's assumption of the Corporation Options as
options to acquire additional shares of Acquirer Stock in accordance with the
terms thereof pursuant to Section 1.4 above, the payment of the Earn-out
pursuant to Section 1.5 above, the repayment of the Debt and certain additional
obligations of the Corporation pursuant to Section 1.6 above, the granting of
the Acquirer Options pursuant to Section 1.11 below and the issuance of the
Additional Acquirer Stock pursuant to Section 1.12 below, shall be (i) up to
4,142,500 shares of Acquirer Stock (of which not less than 2,636,806 shall be
issued at the Effective Time upon the conversion of the Shares outstanding
immediately prior to the Effective Time, up to 296,194 of which may be issued
upon the exercise, if any, of Corporation Options after the Effective Time, up
to 267,500 of which may be issued upon the exercise, if any, of the Acquirer
Options after the Effective Time and up to 942,000 of which may be issued as
Additional Acquirer Stock after the Effective Time), (ii) up to Three Hundred
-9-
Forty-two Thousand Three Hundred Ninety-nine and 06/100 Dollars ($342,399.06) in
cash that may be paid as Earn-out following the Effective Time under Section
1.5, (iii) up to Seven Hundred Seven Thousand Six Hundred and 94/100 Dollars
($707,600.94) in cash as repayment of the Debt (of which Six Hundred Thousand
Dollars ($600,000) shall be paid at the Effective Time and some or all of the
Remainder Debt may be paid following the Effective Time as set forth in Section
1.6(a)), and (iv) the Remaining Settlement Balance, if any, together with an
amount of up to Sixty-five Thousand Dollars ($65,000) under the Hypnotic Notes
pursuant to Section 1.6(b).
1.8 Tax-Free Reorganization. It is the intention of the parties hereto
that the Merger shall qualify as a "reorganization" within the meaning of
Section 368(a) of the Code and that this Agreement shall constitute a "plan of
reorganization" for the purposes of Section 368 of the Code. All aspects of the
transactions contemplated by this Agreement shall be implemented in a manner
consistent with this intent.
1.9 Closing. The closing (the "Closing") of the transactions
contemplated by this Agreement shall take place at the offices of Xxxxxxx &
Xxxxxx, LLP at 000 Xxxxxxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx, xx as otherwise
mutually agreed upon by the parties. The Closing shall occur on the date of this
Agreement or such other time as shall be mutually agreed upon by the parties
(the "Closing Date").
1.10 Other Agreements. At the Closing, (i) the Acquirer will enter into
an employment agreement with each of Heffernan, Matteo, Xxxxxx Xxxxxx and Xxxxx
Xxxxxx (collectively, the "Corporation Executive Officers"), each such agreement
to be substantially in the form included as Exhibit B hereto (collectively, the
"Employment Agreements"), (ii) each LDD Holder who is not a Principal
Shareholder will execute and deliver to the Acquirer a Non-Principal
Shareholder's Letter in substantially the form included as Exhibit C hereto
(collectively, the "Non-Principal Shareholder's Letters), and (iii) the Acquirer
will enter into an accord and satisfaction with each of Xxxxxxxxx and Matteo,
under the terms of which each loan agreement, promissory note and any other
instrument evidencing the Debt will be surrendered by the holders thereof and
cancelled in consideration for the Acquirer's agreement to repay to Xxxxxxxxx
and Matteo the Remainder Debt in accordance with the terms and conditions of
Section 1.6 above, each such accord and satisfaction to be substantially in the
form included as Exhibit D hereto (collectively, the "Remainder Debt Notes").
The Acquirer shall require each employee of the Corporation listed on Schedule
1.10 attached hereto (each, a "Key Employee") to enter into a nondisclosure and
noncompete agreement in substantially the form included as Exhibit E hereto
(collectively, the "Noncompetition Agreements") within a reasonable period of
time following the Effective Time. The Principal Shareholders shall use their
best efforts to cause each Key Employee to enter into a Noncompetition Agreement
within such reasonable period of time.
1.11 Additional Employee Stock Options. In addition to the Corporation
Options that shall be assumed by Acquirer at the Effective Time and shall
thereafter be options to purchase shares of Acquirer Stock pursuant to Section
1.4 above, the Acquirer hereby agrees that it shall grant additional options to
purchase shares of Acquirer Stock (the "Acquirer Options") to certain employees
of the Corporation, which employees and which number and nature of options are
set forth in Schedule 1.11 hereto. The Acquirer Options shall be granted under
the Acquirer's 2000
-10-
Stock Option Plan, and shall be granted in each case for the number of shares
and on such other terms, including without limitation vesting schedules, as
indicated on Schedule 1.11. The Corporation shall take all necessary actions to
complete the granting of the Acquirer Options within thirty (30) calendar days
after the Closing Date. Acquirer shall take all actions reasonably necessary to
assure that at all times there are sufficient authorized shares of Acquirer
Stock to enable the exercise of all options to purchase Acquirer Stock that are
issued and effective (whether or not immediately exercisable) after the
Effective Time and after the date of the granting of the Acquirer Options.
1.12 Post-closing Performance of LDD Business.
(a) As set forth in this Section 1.12, depending upon the
financial performance of the LDD Business for the calendar year ending on
December 31, 2002 (including that portion of the year from and including January
1, 2002 through and including the Closing Date), the Principal Shareholders may
be entitled to receive additional shares of Acquirer Stock, up to a maximum
number in the aggregate of 942,000 additional shares (the "Additional Acquirer
Stock"), or may be required to transfer some or all of the Pledged Shares (as
such term is defined in Section 8.9 below) back to the Acquirer for no
additional consideration to any of the Principal Shareholders.
(b) Within ninety (90) calendar days after the end of the
calendar year ending on December 31, 2002, the Acquirer shall prepare an income
statement reflecting solely the LDD Business, independent of the remaining
business and operations of the Acquirer, calculated in accordance with GAAP for
such calendar year, and a related calculation of the EBITDA of the LDD Business
for such calendar year, such calculation of EBITDA to be completed in accordance
with GAAP and to reflect as closely as reasonably possible the EBITDA that would
have been achieved by the Corporation during such calendar year if the Merger
had not occurred (such income statement and EBITDA calculation are collectively
referred to herein as the "2002 Income Statement"). Promptly following the
Acquirer's completion of the 2002 Income Statement, the Acquirer shall deliver
the 2002 Income Statement, together with an accompanying calculation of the
required number of Pledged Shares, if any, to be transferred back to the
Acquirer pursuant to Section 1.12(c) below or the required number of shares of
Additional Acquirer Stock, if any, to be issued and delivered to the Principal
Shareholders pursuant to Section 1.12(d) below, as the case may be (the 2002
Income Statement and such accompanying calculation referred to herein as the
"2002 Performance Notice"), to the LDD Representative.
(c) If the 2002 Income Statement shows gross revenue of less
than $2,700,000.00 for the LLD Business for the calendar year ended December 31,
2002, then a number of the Pledged Shares shall be transferred from the
Principal Shareholders back to the Acquirer, such number of shares to equal the
product of (i) the difference between $2,700,000.00 and the actual dollar amount
of the gross revenue of the LDD Business shown on the 2002 Income Statement and
(ii) 1.4752, rounded to the nearest whole share, up to a maximum number of
shares equal to the total number of Pledged Shares then held by the Acquirer
pursuant to Section 8.9 below. In the event that the Principal Shareholders are
required to transfer any of the Pledged Shares back to the Acquirer under this
Section 1.12(c), the number of Pledged Shares to be so transferred by each
Principal Shareholder shall be determined on the basis of the relative
-11-
percentage ownership of the Shares among the Principal Shareholders as set forth
in Schedule 8.5(d) hereto. In no event shall any Principal Shareholder receive
any additional consideration from the Acquirer or otherwise for any Pledged
Shares that are required to be transferred back to the Acquirer in accordance
with this Section 1.12(c).
(d) If the 2002 Income Statement shows both gross revenue of
greater than $2,700,000.00 and EBITDA of $100,000.00 or more for the LDD
Business for the calendar year ended December 31, 2002, then the Acquirer shall
issue and deliver to the Principal Shareholders shares of the Additional
Acquirer Stock, for no additional consideration on the part of any of the
Principal Shareholders, as follows: (i) for gross revenue greater than
$2,700,000.00 and less than or equal to $3,000,000.00, the Acquirer shall issue
and deliver an aggregate number of shares of Additional Acquirer Stock, rounded
to the nearest whole share, equal to the product of (A) the difference between
the actual dollar amount of the gross revenue of the LDD Business shown on the
2002 Income Statement and $2,700,000.00 and (B) 1.4733 (such that a maximum
number of 442,000 shares of Additional Acquirer Stock in the aggregate shall be
issued and delivered to the Principal Shareholders if the gross revenue of the
LDD Business shown on the 2002 Income Statement equals $3,000,000.00); and (ii)
for gross revenue greater than $3,000,000.00, the Acquirer shall issue and
deliver, in addition to the shares required in accordance with the foregoing
clause (i), an aggregate number of shares of Additional Acquirer Stock equal to
the product of (A) the difference between the actual dollar amount of the gross
revenue of the LDD Business shown on the 2002 Income Statement and $3,000,000.00
and (B) 1.00, up to a maximum number of 500,000 additional shares (such that a
maximum number of 942,000 shares of Additional Acquirer Stock in the aggregate
shall be issued and delivered to the Principal Shareholders if the gross revenue
of the LDD Business shown on the 2002 Income Statement is equal to or greater
than $3,500,000.00). In the event that the Principal Shareholders are entitled
to receive shares of Additional Acquirer Stock under this Section 1.12(d), the
number of shares of Additional Acquirer Stock to be issued and delivered by the
Acquirer to each Principal Shareholder shall be determined on the basis of the
relative percentage ownership of the Shares among the Principal Shareholders as
set forth in Schedule 8.5(d) hereto.
(e) The LDD Representative shall have ten (10) business days
from the date of his receipt of the 2002 Performance Notice to either (i) accept
the calculations and conclusions made in the 2002 Performance Notice or (ii)
give notice to the Acquirer in writing that the LDD Representative intends to
dispute the amounts included in the 2002 Performance Notice, and such notice
shall set forth in reasonable detail the disputed amount and the basis for such
dispute. Any such dispute by the LDD Representative must be reasonable and made
in good faith.
(f) If, within the 10-business day period provided for in
Section 1.12(e), the LDD Representative either affirmatively notifies the
Acquirer that he accepts the calculations and conclusions made in the 2002
Performance Notice or does not otherwise give notice to the Acquirer in writing
that he intends to dispute the amounts included in the 2002 Performance Notice,
then within ten (10) business days following the expiration of such ten-business
day period provided for in Section 1.12(e) or, if earlier, the date of the
Acquirer's receipt of such affirmative notice of the LDD Representative's
acceptance of the calculations and conclusions made in the 2002 Performance
Notice, the required number of Pledged Shares, if any, shall be
-12-
transferred back to the Acquirer or the required number of shares of Additional
Acquirer Stock, if any, shall be issued and delivered to the Principal
Shareholders, as the case may be.
(g) (i) If the LDD Representative notifies the Acquirer that
he intends to dispute the amounts included in the 2002 Performance Notice in
accordance with Section 1.12(e)(ii) above, then the Acquirer and the LDD
Representative shall negotiate in good faith to resolve the dispute. If the
Acquirer and the LDD Representative are unable to reach a resolution within ten
(10) business days after receipt by the Acquirer of the LDD Representative's
written notice of dispute, then the Acquirer and the LDD Representative shall
submit the matter to the Independent Accounting Firm, which shall, within thirty
(30) calendar days after such submission, determine the gross revenue and EBITDA
of the LDD Business for the calendar year ended December 31, 2002 and the
required number of Pledged Shares, if any, to be transferred back to the
Acquirer or the required number of shares of Additional Acquirer Stock, if any,
to be issued and delivered to the Principal Shareholders, as the case may be.
The determinations made by the Independent Accounting Firm with respect to the
2002 Performance Notice shall be final, non-appealable and binding on the
parties hereto.
(ii) In the event that the Independent Accounting Firm
determines that the calculations and conclusions made by the Acquirer in the
2002 Performance Notice were accurate and correct in all material respects, then
(A) the Principal Shareholders shall pay all costs and expenses charged by the
Independent Accounting Firm (the "2002 Performance I.A.F. Fee") and (B) within
ten (10) business days of the parties' receipt of such report by the Independent
Accounting Firm, the required number of Pledged Shares, if any, shall be
transferred back to the Acquirer or the required number of shares of Additional
Acquirer Stock, if any, shall be issued and delivered to the Principal
Shareholders, as the case may be (which required number of Pledged Shares or
shares of Additional Acquirer Stock, as the case may be, may be appropriately
adjusted to reflect the amount of the 2002 Performance I.A.F. Fee otherwise due
from the Principal Shareholders to the Independent Accounting Firm, if the
Acquirer chooses in its sole discretion to pay directly to the Independent
Accounting Firm the Performance I.A.F. Fee due from the Principal Shareholders).
(iii) In the event that the Independent Accounting Firm
determines that the Acquirer's calculations and conclusions made in the 2002
Performance Notice were inaccurate or misstated such that the purportedly
required number of Pledged Shares, if any, to be transferred back to the
Acquirer or the purportedly required number of shares of Additional Acquirer
Stock, if any, to be issued and delivered to the Principal Shareholders, as the
case may be, reflected in the 2002 Performance Notice as prepared and delivered
by the Acquirer were incorrect, then (A) the Acquirer shall pay the 2002
Performance I.A.F. Fee and (B) within ten (10) business days of the parties'
receipt of such report by the Independent Accounting Firm, the required number
of Pledged Shares, if any, as determined by the Independent Accounting Firm,
shall be transferred back to the Acquirer or the required number of shares of
Additional Acquirer Stock, if any, as determined by the Independent Accounting
Firm, shall be issued and delivered to the Principal Shareholders, as the case
may be.
1.13 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or
-13-
any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of the
Corporation acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger or to otherwise carry out the purpose and
intent of this Agreement, the officers and directors of the Surviving
Corporation shall and will be authorized to execute and deliver, in the name and
on behalf of the Corporation or the Acquirer or otherwise, all such deeds, bills
of sale, assignments and assurances and to take and do, in the name and on
behalf of the Corporation or the Acquirer or otherwise, all such other actions
and things as may be necessary or desirable to vest, perfect or confirm any and
all right, title and interest in, to and under such rights, properties or assets
in the Surviving Corporation or to otherwise carry out the purpose and intent of
this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION AND THE PRINCIPAL SHAREHOLDERS
--------------------------------------------------------------------------------
In order to induce the Acquirer to enter into this transaction, the
Corporation and each Principal Shareholder makes the following representations
and warranties.
2.1 Ownership of Shares. Each Principal Shareholder has valid title to
and owns beneficially and of record all of the Shares set forth opposite his
name on Schedule 1.3(a) attached hereto, and has good and marketable title to
such Shares, free and clear of any and all restrictive legends, options, liens,
claims, pledges, voting trusts and agreements, security interests, charges and
other restrictions or encumbrances of any kind. The Corporation and each such
Principal Shareholder has the absolute and unconditional right, power, authority
and capacity to execute and perform this Agreement and any of the Transaction
Documents (as such term is defined below) to which it is a party and to
consummate the transactions contemplated hereby and thereby. Neither the
Corporation nor any such Principal Shareholder has granted any option, other
than, in the case of the Corporation, the Corporation Options, or other
commitment or is otherwise a party to or bound by any agreement obligating the
Corporation or any such Principal Shareholder to sell, pledge or otherwise grant
any interest in the Shares to any person or entity, except the Acquirer.
2.2 Organization and Corporate Power. LDD is a corporation duly
organized, validly existing and in good standing under the laws of the State of
New York and has the corporate power and authority to carry on its business as
presently conducted. LDD is duly licensed or qualified to do business as a
foreign corporation in each jurisdiction set forth on Schedule 2.2 attached
hereto and there is no other jurisdiction wherein the character of its property,
or the nature of the activities presently conducted by it, makes such
qualification necessary, except where the failure to be so qualified will not
have a material adverse effect on the Corporation. For purposes of this
Agreement, the term "material adverse effect", when used with respect to
-14-
any entity, means a material adverse effect upon the operations, results of
operations, financial condition, assets, properties or business of such entity,
taken as a whole.
2.3 Authorization.
(a) The Corporation. The Corporation has the right, power and
legal capacity and has taken all necessary corporate action required for the due
authorization, execution, delivery and performance by the Corporation of this
Agreement and any other agreement or instrument executed by the Corporation in
connection herewith (collectively, the "Transaction Documents"), and the
consummation of the transactions contemplated herein or therein. This Agreement
is, and to the extent that the Corporation is a party thereto, each of the
Transaction Documents is, a valid and binding obligation of the Corporation
enforceable in accordance with its respective terms, except to the extent that
such enforcement may be subject to applicable bankruptcy, reorganization,
insolvency, fraudulent conveyance or other laws affecting creditors' rights
generally and to the application of general equitable principles.
(b) Principal Shareholders. The Transaction Documents shall
include all documents executed and delivered at the Closing to which the
Principal Shareholders (or any of them) are parties. This Agreement and each of
the Transaction Documents to which the Principal Shareholders are a party have
been duly executed and delivered by each Principal Shareholder and constitute
the valid and binding obligations of each Principal Shareholder enforceable
against each Principal Shareholder in accordance with its respective terms,
except to the extent that such enforcement may be subject to applicable
bankruptcy, reorganization, insolvency, fraudulent conveyance or other laws
affecting creditors' rights generally and to the application of general
equitable principles.
2.4 No Conflicts. The execution, delivery and performance of this
Agreement and the Transaction Documents and the consummation of the transactions
contemplated hereby and thereby by the Corporation and the Principal
Shareholders do not and will not violate, conflict with, result in a breach of
or constitute a default under (or which with notice or lapse of time, or both,
would constitute a breach of or default under), or result in the creation of any
lien, security interest or other encumbrance under (a) any note, agreement,
contract, license, instrument, lease or other obligation to which the
Corporation or the Principal Shareholders are a party or by which the
Corporation or the Principal Shareholders are bound and for which the
Corporation or the Principal Shareholders have not previously obtained a written
waiver of such breach or default, which waiver has been delivered to the
Acquirer, (b) any judgment, order, decree, ruling or injunction known and
applicable to the Corporation or the Principal Shareholders, (c) any statute,
law, regulation or rule of any governmental agency or authority, or (d) the
Corporation's Certificate of Incorporation or Bylaws. Neither the Corporation
nor any Principal Shareholder has any reason to believe that the execution,
delivery or performance of this Agreement or any of the Transaction Documents or
the consummation of the transactions contemplated hereby or thereby, will cause
the Corporation to lose the benefit of any right or privilege it presently
enjoys. This Agreement and the transactions contemplated hereby, including
without limitation the Merger, have been unanimously approved by the
Corporation's Board of Directors and unanimously approved by all holders of the
Shares and do not require any further corporate
-15-
action or authorization, and are not and will not be subject to any right of
first refusal, put, call or similar right.
2.5 Government Approvals. No consent, approval, license or
authorization, governmental or otherwise, or designation, declaration or filing
with, any court or governmental authority is or will be required on the part of
the Principal Shareholders or the Corporation in connection with the execution,
delivery and performance of this Agreement, any of the Transaction Documents and
any other agreements or instruments executed by the Corporation or the Principal
Shareholders in connection herewith or therewith, other than the filing of the
Certificate of Merger with the Secretaries of State of the State of Delaware and
the State of New York.
2.6 Authorized and Outstanding Stock. Before giving effect to the
transactions to be consummated at the Effective Time, the authorized capital
stock of the Corporation consists of 10,000,000 shares of common stock, par
value $0.001 per share ("Common Stock"), of which 3,139,620 shares are validly
issued and outstanding and held of record and owned beneficially as set forth in
Schedule 1.3(a) attached hereto. The Shares are all of the issued and
outstanding shares of capital stock of the Corporation, and the Shares are duly
and validly authorized, validly issued and fully paid and non-assessable and
free from any restrictions on transfer, except for restrictions imposed by
federal or state securities or "blue-sky" laws. The Common Stock is the only
class of capital stock authorized by the Corporation. Except as set forth in
Schedule 2.6, there are no outstanding warrants, options, commitments,
preemptive rights, rights to acquire or purchase, conversion rights or demands
of any character relating to the capital stock or other securities of the
Corporation, other than the Corporation Options. All of the Corporation Options
and their terms, including the identity of the holders thereof, the number of
shares of Common Stock that may be issued by the Corporation upon the exercise
thereof, and the extent to which such options are presently exercisable, are
disclosed in Schedule 1.4 attached hereto. There are no voting agreements,
voting trusts, registration rights, rights of first refusal, preemptive rights,
buy-sell agreements, co-sale rights, or other restrictions applicable to any
capital stock or other securities of the Corporation. All issued and outstanding
shares of capital stock of the Corporation were issued (i) in transactions
complying with or exempt from the registration provisions of the Securities Act
of 1933, as amended (the "Act"), and (ii) in compliance with or in transactions
exempt from the registration provisions of applicable state securities or
"blue-sky" laws.
2.7 Subsidiaries. Except as set forth on Schedule 2.7, the Corporation
does not have, and at no time during its existence has it had, any subsidiaries.
Except as set forth in Schedule 2.7, the Corporation does not have any
investment or other interest in, or any outstanding loan or advance to or from,
any person or entity, including, without limitation, any officer, director or
shareholder. "Subsidiary" of an entity means a corporation or other business
entity in which such entity owns, directly or indirectly, at least a 50%
interest or that is otherwise, directly or indirectly, controlled by such
entity.
2.8 Financial Information/Accounts Payable/Projections. Schedule 2.8
sets forth a full and complete list of the Corporation's accounts payable as of
December 31, 2001. The Corporation has previously delivered to the Acquirer the
audited balance sheets of the Corporation at both December 31, 1998 and December
31, 1999 and the related statements of
-16-
earnings for the years ending December 31, 1998, and December 31, 1999 (the
"Audited Financial Statements"). In addition, the Corporation has previously
delivered to the Acquirer the unaudited balance sheet of the Corporation at
December 31, 2001, and the related statements of earnings for the twelve (12)
months ended December 31, 2001 (the "Unaudited Financial Statements"). The
Unaudited Financial Statements present fairly, in all material respects, the
financial condition and results of operations of the Corporation in accordance
with GAAP applied on a basis consistent with prior periods. Except as set forth
in Schedule 2.9, the Unaudited Financial Statements do not contain footnotes and
are subject to normal year-end adjustments, which adjustments are neither
individually nor in the aggregate material. The Corporation has no liability,
contingent or otherwise, which is not adequately reflected in or reserved
against in the Unaudited Financial Statements (subject to normal year-end
adjustments) that could materially and adversely affect the financial condition
of the Corporation. Except as set forth in the Unaudited Financial Statements or
Schedule 2.9, since December 31, 2001 (i) there has been no change in the
business, property, assets, liabilities, condition (financial or otherwise),
operations, results of operations, affairs or prospects of the Corporation
except for changes in the ordinary course of business which, in the aggregate,
would not have a material adverse effect, and (ii) none of the business,
property, assets, liabilities, condition (financial or otherwise), operations,
result of operations, affairs or prospects of the Corporation have been
materially adversely affected by any occurrence or development, in the
aggregate, whether or not insured against. Set forth in Schedule 2.8 are
projections of the future performance of the LDD Business for the three (3)
month period ending March 31, 2002, including monthly income, net profits, cash
flows and future "pipeline" sales forecasts for such period (the "Projections").
The Projections have been prepared in good faith and are based on what the
Corporation and its management believe to be a reasonable assessment of the
future performance of the LDD Business. All material assumptions used in the
preparation of the Projections are set forth in the footnotes or narrative
thereto.
2.9 Events Subsequent to the Date of the Financial Statements. Except
as set forth on Schedule 2.9, or in the Unaudited Financial Statements, since
December 31, 2001, the Corporation has not (i) issued any stock, bond or other
corporate security, (ii) borrowed any amount or incurred or become subject to
any material liability (absolute, accrued or contingent), except liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Unaudited Financial Statements and incurred in the
ordinary course of business, (iv) declared or made any payment, other than
ordinary payments of compensation in amounts consistent with the historic
levels, or distribution to stockholders or purchased or redeemed any shares of
its capital stock or other securities, (v) mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold, assigned or transferred any
of its tangible assets except in the ordinary course of business, or canceled
any material debt or claim, except in the ordinary course of business, (vii)
sold, assigned, transferred or granted any license with respect to any patent,
trademark, trade name, service xxxx, copyright, trade secret or other intangible
asset, except pursuant to license or other agreements entered into in the
ordinary course of business, (viii) suffered any material loss of property or
waived any right of substantial value whether or not in the ordinary course of
business, (ix) made any change in officer compensation, (x) made any material
change in the manner of business or operations of the
-17-
Corporation, (xi) entered into any transaction except in the ordinary course of
business or as otherwise contemplated hereby, or (xii) entered into any
commitment (contingent or otherwise) to do any of the foregoing.
2.10 Litigation. Except as otherwise set forth on Schedule 2.10, there
is no litigation or governmental proceeding or investigation, pending or
threatened, against the Corporation or affecting any of the Corporation's
properties or assets, or against any officer, key employee, shareholder or
former shareholder of the Corporation in his capacity as such, nor has there
occurred any event or does there exist any condition on the basis of which any
litigation, proceeding or investigation might properly be instituted. Except as
set forth on Schedule 2.10, each incident or proceeding described on Schedule
2.10 is fully covered by insurance. Neither the Corporation nor any officer, key
employee or shareholder of the Corporation in his capacity as such is in default
with respect to any order, writ, injunction, decree, ruling or decision of any
court, commission, board or other government agency.
2.11 Compliance with Laws and Other Instruments. The Corporation is in
compliance with all of the provisions of this Agreement, its Certificate of
Incorporation and Bylaws, and in all material respects with the provisions of
each mortgage, indenture, lease, license, other agreement or instrument,
judgment, decree, judicial order, statute and regulation by which it is bound or
to which its properties are subject.
2.12 Taxes. The Corporation has filed all federal, state, local and
foreign tax returns (including statements of estimated taxes owed) required to
be filed within the applicable periods for such filings, such filings are
complete and accurate in all material respects, and the Corporation has paid all
taxes required to be paid, and has established adequate accrual reserves (net of
estimated tax payments already made) for the payment of all taxes payable in
respect to the period subsequent to the last periods covered by such returns.
Except as set forth on Schedule 2.12, no deficiencies for any tax are currently
assessed against the Corporation, and no tax returns of the Corporation have
been audited during the last three (3) years, and, to the best knowledge of the
Corporation and the Principal Shareholders, there is no such audit pending or
contemplated or any reasonable basis for the assessment of additional tax
against the Corporation. There is no tax lien, whether imposed by any federal,
state or local taxing authority, outstanding against the assets, properties or
business of the Corporation. For the purposes of this Agreement, the term "tax"
shall include all federal, state and local taxes, including income, franchise,
property, sales, use, withholding, payroll and employment taxes and all deposits
required to be made by each party hereto with the Internal Revenue Service on
account of such party's election to utilize a fiscal year end.
2.13 Real Property.
(a) Schedule 2.13 sets forth the addresses and uses of all
real property that the Corporation owns, leases or subleases, and any lien or
encumbrance on any such owned real property or the Corporation's leasehold
interest therein, specifying in the case of each such lease or sublease, the
name of the lessor or sublessor, as the case may be, the lease term and the
rental obligations of the lessee thereunder.
-18-
(b) Except as set forth on Schedule 2.13, to the best
knowledge of the Corporation and the Principal Shareholders, there is no
material violation of any law, regulation or ordinance (including without
limitation laws, regulations or ordinances relating to zoning, environmental,
city planning or similar matters) relating to any real property owned by the
Corporation.
(c) There are no defaults by the Corporation under any
existing leases, subleases or other contractual obligations pertaining to real
property that the Corporation owns, leases or subleases, and to the best
knowledge of the Corporation and the Principal Shareholders, by any other party,
which might curtail in any material respect the present use of the Corporation's
property listed on Schedule 2.13.
2.14 Environmental Matters.
(a) Except as set forth on Schedule 2.14, to the best
knowledge of the Corporation and the Principal Shareholders, the Corporation:
(1) has not caused any releases of any Hazardous Substance (as such term is
defined in Subsection 2.14(b), below) anywhere which requires remediation or
clean-up pursuant to any applicable Environmental Law (as such term is defined
in Subsection 2.14(c), below), and (2) has not disposed of Hazardous Substances
anywhere except in compliance in all material respects with applicable
Environmental Laws, and (3) has not received any notice from any governmental
authority of any violation of any Environmental Law. The Corporation has not
conducted or engaged in any operation or activity involving the use, storage or
disposal of any Hazardous Substance except as authorized by and fully in
accordance with applicable Environmental Laws. There is no pending or, to the
Corporation's or the Principal Shareholders' best knowledge, threatened,
lawsuit, action, claim or proceeding by any third party alleging or asserting
that the Corporation has violated or is about to violate any applicable
Environmental Law.
(b) "Hazardous Substances" means and shall include any
hazardous waste, as defined by 42 U.S.C. ss. 6903(5), any hazardous substance as
defined by 42 U.S.C. ss. 9601(14), any pollutant or contaminant as defined by 42
U.S.C. ss. 9601(33) or any toxic substance, oil or hazardous material or other
chemical or substance regulated by any Environmental Laws.
(c) "Environmental Law" means and shall include any judgment,
decree, order, law, license, permit, rule or regulation pertaining to
environmental matters, including, without limitation, those arising under the
Resource Conservation and Recovery Act ("RCRA"), the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Superfund Amendments and Reauthorization Act of 1986 ("XXXX"), the Federal Water
Pollution Control Act, the Solid Waste Disposal Act, as amended, the Federal
Clean Water Act, the Federal Clean Air Act, the Toxic Substances Control Act, or
any applicable state or local statute, regulation, ordinance, order or decree
relating to health, safety or the environment.
2.15 Personal Property/Capital Equipment. Schedule 2.15 sets forth a
full and complete list of all personal property, including capital equipment,
owned or leased by the Corporation. Except as set forth on Schedule 2.15, and
except for property sold or otherwise
-19-
disposed of in the ordinary course of business, the Corporation has good and
marketable title, free and clear of any lien, charge, restriction or
encumbrance, to all of such personal property. All material items of such
personal property used in the operation of the business of the Corporation are
in good operating condition, normal wear and tear excepted.
2.16 Patents, Trademarks, etc Set forth on Schedule 2.16 is a list of
all patents, patent rights, patent applications, trademarks, trademark
applications, service marks, service xxxx applications, trade names, domain
names, technology, customer lists, proprietary processes and registered
copyrights, and all applications for such that are in the process of being
prepared, owned by or registered in the name of the Corporation, or of which the
Corporation is a licensor or licensee or in which the Corporation has any right,
and in each case a brief description of the nature of such right. The
Corporation owns or possesses adequate licenses or other rights to use all the
items set forth on Schedule 2.16, manufacturing processes, formulae, trade
secrets, source and object code, algorithms, inventions, development tools and
all documentation and media constituting, describing or relating to the above
and all know how (collectively, the "Intellectual Property") necessary to the
conduct of its business as conducted and as proposed to be conducted, and no
claim is pending or, to the best knowledge of the Corporation and the Principal
Shareholders, threatened to the effect that the operations of the Corporation,
its products or services, infringe, or have infringed, upon or conflict with the
asserted rights of any other person or entity under any Intellectual Property,
and there is no known basis for any such claim (whether or not pending or
threatened). No claim is pending or, to the best knowledge of the Corporation
and the Principal Shareholders, threatened to the effect that any such
Intellectual Property owned or licensed by the Corporation, or which the
Corporation otherwise has the right to use, is invalid or unenforceable by the
Corporation, and there is no known basis for any such claim (whether or not
pending or threatened). Except in the ordinary course of business, the
Corporation has not granted or assigned to any other person or entity any right
to manufacture, assemble or sell the products or proposed products or to provide
the services or proposed services of the Corporation. No current or former
stockholder, employee, officer or director of the Corporation has (directly or
indirectly) any right, title or interest in any of the rights described on
Schedule 2.16 other than such right which such person or entity may enjoy as a
stockholder of the Corporation.
2.17 Agreements of Directors, Officers, Employees and Consultants. No
current or former director, officer or employee of or consultant to the
Corporation is in violation of any term of any employment contract,
non-competition agreement, non-disclosure agreement, patent disclosure or
assignment agreement or other contract or agreement containing restrictive
covenants relating to the conduct of any such current or former director,
officer, employee, or consultant or otherwise relating to the use of trade
secrets or proprietary information of others by any such person. Schedule 2.17
hereto sets forth the name and address of each person currently serving as an
officer or a director of the Corporation, and each person listed on Schedule
2.17 was duly elected and is presently serving as such officer or director. Set
forth on Schedule 2.17 is a list of all current or former employees and
consultants of the Corporation who have (i) executed a non-disclosure agreement
with the Corporation or (ii) executed a non-competition agreement with the
Corporation. Except as disclosed in Schedule 2.17, since December 31, 2001, the
Corporation has not paid or become committed to pay any bonus or similar
additional compensation to any officer, director or employee of the Corporation.
-20-
2.18 Governmental Licenses. The Corporation has all the material
permits, licenses, orders, franchises and other rights and privileges of all
federal, state, local or foreign governmental or regulatory bodies necessary for
the Corporation to conduct its business as presently conducted. All such
permits, licenses, orders, franchises and other rights and privileges are in
full force and effect and no suspension or cancellation of any of them is
threatened, and none of such permits, licenses, orders, franchises or other
rights and privileges will be affected by the consummation of the transactions
contemplated by this Agreement or any of the Transaction Documents.
2.19 List of Material Contracts and Commitments. Schedule 2.19 sets
forth a complete and accurate list of all material contracts to which the
Corporation is a party or by or to which any of its assets or properties is
bound or subject. As used in this Section 2.19, the phrase "material contract"
means and includes every material agreement or material understanding of any
kind, written or oral, which is legally enforceable by or against the
Corporation, and specifically includes without limitation (a) contracts and
other agreements with any current or former officer, director, employee,
consultant or shareholder or any partnership, corporation, joint venture or any
other entity in which any such person or entity has an interest; (b) agreements
with any labor union or association representing any employee; (c) contracts and
other agreements for the provision of services other than by employees of the
Corporation which entail a reasonably foreseeable financial consequence to any
contracting party of at least Twenty-five Thousand Dollars ($25,000); (d) bonds
or other security agreements provided by any party in connection with the
business of the Corporation; (e) contracts and other agreements for the sale of
any of the assets or properties of the Corporation other than in the ordinary
course of business or for the grant to any person or entity of any preferential
rights to purchase any of said assets or properties; (f) joint venture
agreements relating to the assets, properties or business of the Corporation or
by or to which any of its assets or properties are bound or subject; (g)
contracts or other agreements under which the Corporation agrees to indemnify
any party, to share tax liability of any party, or to refrain from competing
with any party; (h) any contracts or other agreements with regard to any
indebtedness of the Corporation; or (i) any other contract or other agreement
whether or not made in the ordinary course of business and involving a
reasonably foreseeable financial consequence to any contracting party of at
least Twenty-five Thousand Dollars ($25,000). The Corporation has delivered to
the Acquirer true, correct and complete copies of all such contracts, together
with all modifications and supplements thereto. Except as set forth on Schedule
2.19, each of the contracts listed on Schedule 2.19 is in full force and effect.
The Corporation is not in breach of any of the material provisions of any such
contract, nor, to the best knowledge of the Corporation and the Principal
Shareholders, is any other party to any such contract in default thereunder, nor
does any event or condition exist which with notice or the passage of time or
both would constitute a default of a material provision thereunder, except for
any such breach or default that individually and in the aggregate would not have
a material adverse effect to the business of the Corporation. The Corporation
has performed in all material respects all obligations required to be performed
by it under each such contract as of the Effective Time.
2.20 Accounts Receivable. Schedule 2.20 sets forth a full and complete
list of the Corporation's accounts receivable and accounts receivable reserve as
of December 31, 2001. Except as set forth in Schedule 2.20, all accounts and
notes receivable reflected on the
-21-
Corporation's balance sheets provided to the Acquirer, and all accounts and
notes receivable arising subsequent to the date of such balance sheets, have
arisen in the ordinary course of business and represent valid obligations owing
to the Corporation. To the best knowledge of the Corporation and the Principal
Shareholders, none of the Corporation's receivables is subject to any claim of
offset, recoupment, setoff or counterclaim and neither the Corporation nor any
Principal Shareholder has knowledge of any specific facts or circumstances
(whether asserted or unasserted) that could give rise to any such claim. No
material amount of receivables are contingent upon the performance by the
Corporation of any obligation or contract other than normal warranty repair and
replacement. No person has any lien on any such receivables and no agreement for
deduction or discount has been made with respect to any such receivables. Except
as set forth in Schedule 2.20, to the best knowledge of the Corporation and the
Principal Shareholders, all of the Corporation's accounts and notes receivable
reflected on the Corporation's balance sheets provided to the Acquirer and all
accounts and notes receivable arising subsequent to the date of such balance
sheets are collectible in full by the Corporation in the ordinary course of
business.
2.21 Securities Acts. The Corporation and the Principal Shareholders
have materially complied with all applicable federal or state securities laws in
connection with the transactions contemplated by this Agreement. Neither the
Principal Shareholders nor, to the Corporation's and the Principal Shareholders'
best knowledge, anyone acting on their behalf has offered any of the Shares, or
similar securities, or solicited any offer to purchase any of such securities,
so as to bring this transaction within the scope of the registration provisions
of the Act.
2.22 Insurance Coverage. Schedule 2.22 hereto contains an accurate
summary of the insurance policies currently maintained by the Corporation.
Except as described on Schedule 2.22, there are currently no claims pending
against the Corporation pursuant to any insurance policy currently in effect and
covering the property, the business or the employees of the Corporation. All
such policies (a) are in full force and effect and (b) are sufficient for
compliance by the Corporation with all requirements of all agreements to which
the Corporation is a party. All premiums due and payable under all such policies
have been timely paid and the Corporation is not in default in any material
respect with respect to its obligations pursuant to any of such insurance
policies and has not received any notification of cancellation of any such
insurance policies.
2.23 Employee Matters. Except as set forth on Schedule 2.23:
(a) The Corporation has in effect no employment agreements or
consulting agreements.
(b) The Corporation has no deferred compensation, pension or
retirement agreement or arrangement, bonus, incentive or profit-sharing plan or
arrangement, termination, severance, stock option, stock appreciation right,
restricted stock, post-retirement benefits or other fringe benefits plan or
arrangement, or labor or collective bargaining agreement, written or oral,
providing benefits to any present or former employee or director of the
Corporation or any Subsidiary or any ERISA Affiliate or any beneficiary or
dependent thereof that is or has been maintained, administered or contributed to
by the Corporation or any ERISA Affiliate at any
-22-
time or for which any of them has any obligation or liability (collectively the
"Seller Benefit Plans" and each a "Seller Plan").
(c) Neither the Corporation nor the Principal Shareholders
have any knowledge that any of the officers, other key employees, directors or
any significant number of employees of the Corporation presently intends to
terminate his, her or their employment, whether before or after the Effective
Time.
(d) The Corporation is in compliance in all material respects
with all applicable laws and regulations relating to labor, employment, fair
employment practices, terms and conditions of employment, and wages and hours.
(e) The Corporation is in compliance in all material respects
with the terms of all plans, programs and agreements listed on Schedule 2.23,
and each such plan, program or agreement is in compliance in all material
respects with all of the requirements and provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA").
(f) No Seller Benefit Plan is (i) a multiemployer plan within
the meaning of Section 3(37) or 4001(a)(3) of ERISA, (ii) a plan subject to
Title IV of ERISA, or (iii) subject to the minimum funding rules of Section 302
of ERISA or Section 412 of the Code, and neither the Corporation or any
Subsidiary nor any ERISA Affiliate has ever contributed to, sponsored or
maintained or ever been obligated to sponsor, maintain or contribute to, any
such plan.
(g) The Corporation does not maintain or contribute to any
plan that provides health benefits to an employee or beneficiary thereof after
the employee's termination of employment or retirement, except as required under
Section 4980B of the Code or ERISA or applicable state law.
(h) There are no investigations by any governmental authority,
termination proceedings or other claims (except for claims for benefits payable
in the normal operation of the Seller Benefit Plan), suits or proceedings
pending, or to the Corporation's or Principal Shareholder's knowledge,
threatened or anticipated, against or involving any Seller Benefit Plan, any
employer who is participating (or has participated) in any Seller Benefit Plan
or any fiduciary (as defined in Section 3(21) of ERISA) or asserting any rights
or claims to benefits under Seller Benefit Plan.
(i) No liability currently exists and no event has occurred
and no condition exists, which could subject the Corporation, directly or
indirectly (through an indemnification agreement or otherwise) to any liability,
including, without limitation, breach of fiduciary duty under Title I of ERISA
or any liability under Title IV of ERISA (including, but not limited to, Section
409 or 502(i) of ERISA) or Section 4971, 4975, 4976, 4977, 4979 or 4980B of the
Code.
(j) With respect to each plan listed on Schedule 2.23, all
required filings, including all filings required to be made with the United
States Department of Labor and Internal Revenue Service, have been timely filed.
-23-
(k) Neither the execution and delivery of this Agreement nor
the consummation of the Merger will (i) result in any material payment
(including, without limitation, severance, unemployment compensation, golden
parachute or otherwise) becoming due from the Corporation or any subsidiary,
(ii) materially increase any benefits otherwise payable under any Seller Benefit
Plan or (iii) accelerate the time of payment or vesting, or increase the amount
of, any compensation due to any employee.
(l) No Seller Benefit Plan will, individually or in the
aggregate, give rise to the payment by the Corporation, solely as a result of
the transactions contemplated by this Agreement, to any current or former
employee or director of the Corporation or any Subsidiary of any amount that
would constitute an "excess parachute payment" within the meaning of Section
280G of the Code.
(m) All expenses and liabilities relating to all Seller
Benefit Plans have been, and will be on the Effective Time, fully and properly
accrued on the Corporation's books and records and disclosed in the
Corporation's financial statements in accordance with GAAP, consistent with the
Corporation's past practices.
(n) All contributions required to be made to each Seller
Benefit Plan have been made as and when required by the terms of the applicable
Seller Benefit Plan.
(o) All insurance premiums have been paid in full, subject
only to normal retrospective adjustments in the ordinary course, with regard to
the Seller Benefit Plans for plan years ending on or before the Effective Time.
2.24 Suppliers and Customers. Except as set forth in Schedule 2.24:
(a) The relationships of the Corporation with its significant
suppliers and customers are good commercial working relationships and no
significant supplier or customer of the Corporation has canceled or otherwise
terminated, or to the Corporation's and the Principal Shareholders' best
knowledge, threatened to cancel or otherwise to terminate its relationship with
the Corporation, or has during the last twelve (12) months decreased materially,
or threatened to decrease or limit materially, its services, supplies or
materials for use by the Corporation or its usage or purchase of the services or
products of the Corporation except for normal cyclical changes related to
customers' businesses and except for changes which have not had a material
adverse effect on the Corporation.
(b) No supplier or customer has notified the Corporation that
it intends to cancel or otherwise substantially modify its relationship with the
Corporation or to decrease materially or limit its services, supplies or
materials to the Corporation, or its usage or purchase of the services of the
Corporation, and, to the best knowledge of the Corporation and the Principal
Shareholders, the consummation of the transactions contemplated hereby will not
materially adversely affect the relationship of the Acquirer with any such
supplier or customer.
2.25 No Brokers or Finders. No person or entity has or will have, as a
result of the actions of the Corporation or any Principal Shareholder, any
right, interest or claim against or
-24-
upon the Corporation or the Acquirer for any commission, fee or other
compensation as a finder or broker arising from the transactions contemplated by
this Agreement.
2.26 Transactions with Insiders. Except as set forth on Schedule 2.26,
there are no loans, leases or other contracts between the Corporation and any
officer or director of the Corporation, or any person or entity owning five
percent (5%) or more of the total number of Shares, or any respective family
member or affiliate of any such officer, director or shareholder.
2.27 Assumptions, Guarantees. Except as set forth on Schedule 2.27, the
Corporation has not assumed, guaranteed, endorsed or otherwise become directly
or contingently liable on or for any indebtedness of any other person or entity,
except guarantees by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
2.28 Bank Accounts, Signing Authority, Powers of Attorney. Except as
set forth on Schedule 2.28, the Corporation has no account or safe deposit box
in any bank and no person or entity has any power, whether singly or jointly, to
sign any checks on behalf of the Corporation, to withdraw any money or other
property from any bank, brokerage or other account of the Corporation, or to act
pursuant to any power of attorney granted by the Corporation at any time for any
purpose.
2.29 Corporate Books. The books and records of the Corporation made
available to the Acquirer for inspection include copies of its Certificate of
Incorporation and Bylaws as currently in effect and accurately record therein in
all material respects all actions, proceedings, consents and meetings of the
Board of Directors and shareholders of the Corporation and any committees
thereof. The books and records of the Corporation have been, and are being,
maintained in accordance with any applicable legal and regulatory requirements
and reflect only actual transactions.
2.30 SIMPLE XXX Plan. The Corporation has taken all necessary actions
required to authorize the termination of the Corporation's SIMPLE XXX Plan,
subject to the consummation of the Merger, including without limitation the
adoption of appropriate Board of Directors' resolutions, the preparation of
appropriate notices to plan participants (to be delivered to such participants
promptly following the Effective Time) and the sending of an appropriate notice
to the plan sponsor, and the Corporation has funded, or made adequate reserves
for, the full amounts of the employer contributions that are required under the
terms of said plan to be paid by the Corporation with respect to the year ended
December 31, 2001 and the period from and including January 1, 2002 through and
including the Closing Date.
ARTICLE III
REPRESENTATIONS, COVENANTS AND RIGHTS OF PRINCIPAL SHAREHOLDERS
---------------------------------------------------------------
3.1 Principal Shareholders' Representations. Each Principal Shareholder
represents that his present intention is to acquire the shares of Acquirer Stock
to be issued thereto in connection with the Merger for his own account and that
such shares of Acquirer Stock are being and will be acquired for the purpose of
investment and not with a view to distribution or resale
-25-
thereof. Each Principal Shareholder represents that he has had an opportunity to
ask questions of and receive answers from the authorized representatives of the
Acquirer and to review any relevant documents and records concerning the
business of the Acquirer and the terms and conditions of this investment and
that any such questions have been answered to each Principal Shareholder's full
satisfaction. Each Principal Shareholder acknowledges that it has been called to
his attention that this investment involves a high degree of risk and that the
Acquirer is in a start up stage and has limited operating history. Each
Principal Shareholder acknowledges that he can bear the economic risks of his
investment in the Acquirer Stock and that he has such knowledge and experience
in financial or business matters that he is capable of evaluating the merits and
risks of this investment in the Acquirer Stock and protecting his own interests
in connection with this investment. Except as set forth on Schedule 3.1 attached
hereto, each Principal Shareholder hereby represents and warrants to the
Acquirer that he is an "accredited investor" as such term is defined under
Section 501(a) of Regulation D promulgated under the Act. Each Principal
Shareholder understands and acknowledges that no federal or state agency has
passed upon or made any recommendation or endorsement with respect to the shares
of Acquirer Stock being sold to each Principal Shareholder herein. Each
Principal Shareholder understands that the shares of Acquirer Stock to be issued
in connection with the Merger have not been registered under the Act and that
such shares must be held indefinitely unless a subsequent disposition thereof is
permitted under the Act or is exempt from such registration. Each Principal
Shareholder further represents that he understands and agrees that until
transferred as herein provided, or transferred pursuant to the provisions of
Rule 144, all certificates evidencing the shares of Acquirer Stock to be issued
in connection with the Merger, whether upon initial issuance or upon transfer
thereof, shall bear a legend (and the Acquirer will make a notation on its
transfer books to such effect) prominently stamped or printed thereon reading
substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
NOT WITH A VIEW TO DISTRIBUTION OR RESALE AND MAY NOT BE SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNLESS AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
3.2 Agreements Required in a Public Offering. Each Principal
Shareholder agrees that upon request by any underwriter managing a public
offering of shares of Acquirer Stock, such Principal Shareholder will agree to
any lockup or other provisions affecting the transferability of the shares of
Acquirer Stock owned by the Principal Shareholder, which are usual and customary
and generally imposed on other similarly situated holders of shares of the
Acquirer, taking into account the number and class of shares and the
relationship of each Principal Shareholder to the Acquirer, and will provide
such underwriter and its counsel with such information with respect to the
Principal Shareholder as is reasonably required to carry out such public
offering.
-26-
3.3 Registration Rights. If, at any time after the Closing Date, the
Acquirer plans or intends to file a registration statement with the Securities
and Exchange Commission with respect to any of the shares of Acquirer Stock held
by Xxxxxx X. Xxxxxx ("Xxxxxx"), the Acquirer shall include under any such
registration statement, with respect to each LDD Holder who so requests, an
amount of shares of Acquirer Stock that is of the same proportion to the number
of shares of Xxxxxx'x Acquirer Stock being registered as the total number of
shares of Acquirer Stock held by such LDD Holder is to the total number of
shares of Acquirer Stock held by Xxxxxx. This Section 3.3 shall be of no further
force or effect upon the completion of an IPO.
3.4 Tag-Along Rights. If, at any time after the Closing Date, Xxxxxx
shall intend or negotiate to sell any of his shares of Acquirer Stock, other
than in connection with a Permitted Transfer (as defined below), then each LDD
Holder who so requests shall have the right to include in such sale an amount of
shares of Acquirer Stock that is of the same proportion to the number of shares
of Xxxxxx'x Acquirer Stock being sold as the total number of shares of Acquirer
Stock held by such LDD Holder is to the total number of shares of Acquirer Stock
held by Xxxxxx at the same time and under the same terms as such sale by Xxxxxx.
This Section 3.4 shall be of no further force or effect upon the completion of
an IPO. A "Permitted Transfer" as described herein with respect to any holder of
shares of Acquirer Stock is any transfer made to an immediate family member of
such holder or to a trust or other estate-planning vehicle established by or for
the benefit of such holder and/or members of such holder's immediate family. The
term "immediate family" as used herein shall have the meaning ascribed thereto
in paragraph (e) of Rule 16a-1 of the Securities and Exchange Commission.
3.5 Survival. The obligations of the parties under this Article III
shall survive and continue in effect following the Effective Time in accordance
with the terms thereof.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE ACQUIRER
----------------------------------------------
References to the "Acquirer" in this Article IV shall mean the Acquirer
and the sole subsidiary thereof, as set forth in Schedule 4.8 hereto (the
"Sub"), except where the context reasonably contemplates a reference solely to
the Acquirer, on its own.
4.1 Organization and Qualification. The Acquirer is a corporation duly
organized, validly existing and in corporate good standing in the State of
Delaware. The Acquirer is duly qualified to do business and is in good standing
in all jurisdictions in which its ownership of property or the character of its
business requires such qualification, except where the failure to be so
qualified will not have a material adverse effect on the Acquirer. The Sub is a
corporation duly organized, validly existing and in corporate good standing in
the Commonwealth of Massachusetts.
4.2 Authority. This Agreement has been duly authorized, executed and
delivered by the Acquirer and constitutes a legal, valid and binding obligation
of the Acquirer, enforceable
-27-
against it in accordance with its terms. The Acquirer has the right, power and
authority to enter into this Agreement and to carry out the terms and provisions
of this Agreement, and to enter into and carry out the terms of all agreements
and instruments required to be delivered by the Acquirer by the terms of this
Agreement, without obtaining the consent of any third parties or authorities.
This Agreement and the transactions contemplated hereby have been unanimously
approved by the Board of Directors of the Acquirer and approved by the holders
of not less than a majority of the outstanding shares of capital stock of the
Acquirer entitled to vote thereon and no additional corporate action or
authorization is required by the Acquirer in connection with the consummation of
the transactions contemplated by this Agreement.
4.3 No Conflicts. The execution and delivery of this Agreement, and the
consummation of the transactions contemplated hereby, and compliance with the
provisions hereof, will not: (a) violate, conflict with or result in a breach of
any provision or constitute a default under (i) the Certificate of Incorporation
or Bylaws of the Acquirer, or (ii) any contract or agreement to which the
Acquirer is a party or to which the assets or business of the Acquirer may be
subject; or (b) violate any judgment, ruling, order, writ, injunction, award,
decree, statute, law, ordinance, code, rule or regulation of any court or
foreign, federal, state, county or local government or any other governmental,
regulatory or administrative agency or authority which is applicable to the
assets, properties or business of the Acquirer.
4.4 Government Approvals. No consent, approval, license or
authorization, governmental or otherwise, or designation, declaration or filing
with, any court or governmental authority is or will be required on the part of
the Acquirer in connection with the execution, delivery and performance of this
Agreement and any other agreements or instruments executed by the Acquirer in
connection herewith or therewith, other than the filing of the Certificate of
Merger with the Secretaries of State of the State of Delaware and the State of
New York.
4.5 Litigation. There are no outstanding judgments, rulings, orders,
writs, injunctions, awards or decrees of any court or any foreign, federal,
state, county or local government or any other governmental, regulatory or
administrative agency or authority or arbitral tribunal against or involving the
Acquirer, and the Acquirer is not a party to, or, to its knowledge, threatened
with, any litigation or judicial, governmental, regulatory, administrative or
arbitration proceeding which, (a) if decided adversely, could have a material
adverse effect on the business of the Acquirer or (b) relate to the transactions
contemplated by this Agreement.
4.6 Authorized and Outstanding Stock. Before giving effect to the
transactions to be consummated at the Effective Time or the sale of Acquirer
Stock contemplated by Section 4.7 below, the authorized capital stock of the
Acquirer consists of 15,000,000 shares of common stock, par value $.001 per
share, of which 4,890,000 shares are validly issued and outstanding. There are
no outstanding warrants, options, commitments, preemptive rights, rights to
acquire or purchase, conversion rights or demands of any character relating to
the capital stock or other securities of the Acquirer, except that the Acquirer
has granted options to purchase up to 725,000 shares of Acquirer Stock to
various employees and directors of the Acquirer and the Acquirer has granted a
warrant to the broker assisting on the current private placement referenced in
Section 4.7 below to purchase a number of shares of Acquirer Stock equal to ten
percent (10%) of the total number of shares of Acquirer Stock sold and issued in
such private placement. There
-28-
are no voting trusts or voting agreements with respect to any shares of Acquirer
Stock. The authorized capital stock of the Sub consists of 200,000 shares of
common stock, of which 100 shares are validly issued and outstanding. The
Acquirer is the sole owner of all capital stock of the Sub. There are no
outstanding warrants, options, commitments, preemptive rights, rights to acquire
or purchase, conversion rights or demands of any character relating to the
capital stock or other securities of the Sub. There are no voting trusts or
voting agreements with respect to any shares of the Sub.
4.7 Private Placement. The Acquirer currently is engaging in a private
placement of common stock to raise up to One Million Five Hundred Thousand
Dollars ($1,500,000), for which it will issue shares of its common stock at a
purchase price of $1.00 per share. Only "accredited investors" (as defined under
the Act) are being solicited to invest in the Acquirer pursuant to such private
placement. Acquirer has made available to the Corporation a true and correct
copy of the offering-related documentation provided to offerees under such
private placement, as well as documentation by which investors have made
investments or have made commitments to invest. As of the date of this
Agreement, in connection with such private placement, the Acquirer has received
investments totaling, and/or has received written commitments to make
investments totaling, at least One Million Dollars ($1,000,000). This private
placement is being conducted pursuant to Rule 506 under Regulation D promulgated
under the Act.
4.8 Subsidiaries. Except as set forth on Schedule 4.8, the Acquirer
does not have, and at no time during its existence has it had, any Subsidiaries.
Except as set forth in Schedule 4.8, the Acquirer does not have any investment
or other interest in, or any outstanding loan or advance to or from, any person
or entity, including, without limitation, any officer, director or shareholder.
4.9 Financial Information/Accounts Payable. Schedule 4.9 sets forth a
full and complete list of the Corporation's accounts payable as of December 31,
2001. The Acquirer has previously delivered the audited balance sheets of the
Acquirer as of December 31, 2000 and the related statements of earnings for the
year ending December 31, 2000, as well as the unaudited balance sheet of the
Acquirer at December 31, 2001, and the related statements of earnings for the
twelve (12) month period ending December 31, 2001 (collectively, the "Acquirer
Financial Statements"). The Acquirer Financial Statements present fairly, in all
material respects, the financial condition and results of operations of the
Acquirer in accordance with GAAP applied on a basis consistent with prior
periods, if any. The Acquirer Financial Statements at and for the year ended
December 31, 2001 do not contain footnotes and are subject to normal year-end
adjustments, which adjustments are neither individually nor in the aggregate
material. The Acquirer has no liability, contingent or otherwise, which is not
adequately reflected in or reserved against in the Acquirer Financial Statements
(subject to normal year-end adjustments) that could materially and adversely
affect the financial condition of the Acquirer. Except as set forth in the
Acquirer Financial Statements or Schedule 4.10, since December 31, 2001 (i)
there has been no change in the business, property, assets, liabilities,
condition (financial or otherwise), operations, results of operations, affairs
or prospects of the Acquirer except for changes in the ordinary course of
business which, in the aggregate, would not have a material adverse effect, and
(ii) none of the business, property, assets, liabilities, condition (financial
or
-29-
otherwise), operations, result of operations, affairs or prospects of the
Acquirer have been materially adversely affected by any occurrence or
development, in the aggregate, whether or not insured against.
4.10 Events Subsequent to the Date of the Financial Statements. Except
as set forth on Schedule 4.10, or in the Acquirer Financial Statements, since
December 31, 2001, the Acquirer has not (i) issued any stock, bond or other
corporate security, (ii) borrowed any amount or incurred or become subject to
any material liability (absolute, accrued or contingent), except liabilities
under contracts entered into in the ordinary course of business, (iii)
discharged or satisfied any lien or encumbrance or incurred or paid any
obligation or liability (absolute, accrued or contingent) other than current
liabilities shown on the Acquirer Financial Statements and incurred in the
ordinary course of business, (iv) declared or made any payment, other than
ordinary payments of compensation in amounts consistent with the historic
levels, or distribution to stockholders or purchased or redeemed any shares of
its capital stock or other securities, (v) mortgaged, pledged or subjected to
lien any of its assets, tangible or intangible, other than liens of current real
property taxes not yet due and payable, (vi) sold, assigned or transferred any
of its tangible assets except in the ordinary course of business, or canceled
any material debt or claim, except in the ordinary course of business, (vii)
sold, assigned, transferred or granted any license with respect to any patent,
trademark, trade name, service xxxx, copyright, trade secret or other intangible
asset, except pursuant to license or other agreements entered into in the
ordinary course of business, (viii) suffered any material loss of property or
waived any right of substantial value whether or not in the ordinary course of
business, (ix) made any change in officer compensation, (x) made any material
change in the manner of business or operations of the Acquirer, (xi) entered
into any transaction except in the ordinary course of business or as otherwise
contemplated hereby, or (xii) entered into any commitment (contingent or
otherwise) to do any of the foregoing.
4.11 Compliance with Laws and Other Instruments. The Acquirer is in
compliance with all of the provisions of this Agreement, its Certificate of
Incorporation and Bylaws, and in all material respects with the provisions of
each mortgage, indenture, lease, license, other agreement or instrument,
judgment, decree, judicial order, statute and regulation by which it is bound or
to which its properties are subject.
4.12 Taxes. The Acquirer has filed all federal, state, local and
foreign tax returns (including statements of estimated taxes owed) required to
be filed within the applicable periods for such filings, such filings are
complete and accurate in all material respects, and the Acquirer has paid all
taxes required to be paid, and has established adequate accrual reserves (net of
estimated tax payments already made) for the payment of all taxes payable in
respect to the period subsequent to the last periods covered by such returns.
Except as set forth on Schedule 4.12, no deficiencies for any tax are currently
assessed against the Acquirer, and no tax returns of the Acquirer have been
audited during the last two (2) years, and, to the best knowledge of the
Acquirer, there is no such audit pending or contemplated or any reasonable basis
for the assessment of additional tax against the Corporation. There is no tax
lien, whether imposed by any federal, state or local taxing authority,
outstanding against the assets, properties or business of the Acquirer.
-30-
4.13 Real Property.
(a) Schedule 4.13 sets forth the addresses and uses of all
real property that the Acquirer owns, leases or subleases, and any lien or
encumbrance on any such owned real property or the Acquirer's leasehold interest
therein, specifying in the case of each such lease or sublease, the name of the
lessor or sublessor, as the case may be, the lease term and the rental
obligations of the lessee thereunder.
(b) Except as set forth on Schedule 4.13, to the best
knowledge of the Acquirer, there is no material violation of any law, regulation
or ordinance (including without limitation laws, regulations or ordinances
relating to zoning, environmental, city planning or similar matters) relating to
any real property owned by the Acquirer.
(c) There are no defaults under any existing leases, subleases
or other contractual obligations pertaining to real property that the Acquirer
owns, leases or subleases, and to the best knowledge of the Acquirer, by any
other party, which might curtail in any material respect the present use of the
Acquirer's property listed on Schedule 4.13.
4.14 Environmental Matters.
(a) Except as set forth on Schedule 4.14, to the best
knowledge of the Acquirer, the Acquirer: (1) has not caused any releases of any
Hazardous Substance anywhere which requires remediation or clean-up pursuant to
any applicable Environmental Law, and (2) has not disposed of Hazardous
Substances anywhere except in compliance in all material respects with
applicable Environmental Laws, and (3) has not received any notice from any
governmental authority of any violation of any Environmental Law. The Acquirer
has not conducted or engaged in any operation or activity involving the use,
storage or disposal of any Hazardous Substance except as authorized by and fully
in accordance with applicable Environmental Laws. There is no pending or, to the
Acquirer's best knowledge, threatened, lawsuit, action, claim or proceeding by
any third party alleging or asserting that the has violated or is about to
violate any applicable Environmental Law.
4.15 Personal Property/Capital Equipment. Schedule 4.15 sets forth a
full and complete list of all personal property, including capital equipment,
owned or leased by the Acquirer. Except as set forth on Schedule 4.15, and
except for property sold or otherwise disposed of in the ordinary course of
business, Acquirer has good and marketable title, free and clear of any lien,
charge, restriction or encumbrance, to all of such personal property. All
material items of such personal property used in the operation of the business
of the Acquirer are in good operating condition, normal wear and tear excepted.
4.16 Patents, Trademarks, etc. Set forth on Schedule 4.16 is a list of
all patents, patent rights, patent applications, trademarks, trademark
applications, service marks, service xxxx applications, trade names, domain
names, technology, customer lists, proprietary processes and registered
copyrights, and all applications for such that are in the process of being
prepared, owned by or registered in the name of the Acquirer, or of which the
Acquirer is a licensor or licensee or in which the Acquirer has any right, and
in each case a brief description of the nature
-31-
of such right. The Acquirer owns or possesses adequate Intellectual Property
necessary to conduct its business as conducted and as proposed to be conducted,
and no claim is pending or, to the best knowledge of the Acquirer, threatened to
the effect that the operations of the Acquirer, its products or services,
infringe, or have infringed, upon or conflict with the asserted rights of any
other person or entity under any Intellectual Property, and there is no known
basis for any such claim (whether or not pending or threatened). No claim is
pending or, to the best knowledge of the Acquirer, threatened to the effect that
any such Intellectual Property owned or licensed by the Acquirer, or which the
Acquirer otherwise has the right to use, is invalid or unenforceable by the
Acquirer, and there is no known basis for any such claim (whether or not pending
or threatened). Except in the ordinary course of business, the Acquirer has not
granted or assigned to any other person or entity any right to manufacture,
assemble or sell the products or proposed products or to provide the services or
proposed services of the Acquirer. No current or former stockholder, employee,
officer or director of the Acquirer has (directly or indirectly) any right,
title or interest in any of the rights described on Schedule 4.16 other than
such right which such person or entity may enjoy as a stockholder of the
Acquirer.
4.17 Agreements of Directors, Officers, Employees and Consultants. No
current or former director, officer or employee of or consultant to the Acquirer
is in violation of any term of any employment contract, non-competition
agreement, non-disclosure agreement, patent disclosure or assignment agreement
or other contract or agreement containing restrictive covenants relating to the
conduct of any such current or former director, officer, employee, or consultant
or otherwise relating to the use of trade secrets or proprietary information of
others by any such person. Schedule 4.17 hereto sets forth the name and address
of each person currently serving as an officer or a director of the Acquirer,
and each person listed on Schedule 4.17 was duly elected and is presently
serving as such officer or director. Set forth on Schedule 4.17 is a list of all
current or former employees and consultants of the Acquirer who have (i)
executed a non-disclosure agreement with the Acquirer or (ii) executed a
non-competition agreement with the Acquirer. Except as disclosed in Schedule
4.17, since December 31, 2001, the Acquirer has not paid or become committed to
pay any bonus or similar additional compensation to any officer, director or
employee of the Acquirer.
4.18 Governmental Licenses. The Acquirer has all the material permits,
licenses, orders, franchises and other rights and privileges of all federal,
state, local or foreign governmental or regulatory bodies necessary for the v to
conduct its business as presently conducted. All such permits, licenses, orders,
franchises and other rights and privileges are in full force and effect and no
suspension or cancellation of any of them is threatened, and none of such
permits, licenses, orders, franchises or other rights and privileges will be
affected by the consummation of the transactions contemplated by this Agreement.
4.19 Securities Acts. The Acquirer has complied with all applicable
federal or state securities laws in connection with the transactions
contemplated by this Agreement. Neither the Acquirer nor anyone acting on its
behalf has offered any of its shares, or similar securities, or solicited any
offer to purchase any of such securities, so as to bring this transaction within
the scope of the registration provisions of the Act.
-32-
4.20 Insurance Coverage. Schedule 4.20 hereto contains an accurate
summary of the insurance policies currently maintained by the Acquirer. Except
as described on Schedule 4.20, there are currently no claims pending against the
Acquirer pursuant to any insurance policy currently in effect and covering the
property, the business or the employees of the Acquirer. All such policies (a)
are in full force and effect and (b) are sufficient for compliance by the
Acquirer with all requirements of all agreements to which the Acquirer is a
party. All premiums due and payable under all such policies have been timely
paid and the Acquirer is not in default in any material respect with respect to
its obligations pursuant to any of such insurance policies and has not received
any notification of cancellation of any such insurance policies.
4.21 Employee Matters. Except as set forth on Schedule 4.21:
(a) The Acquirer has in effect no employment or consulting
agreements.
(b) The Acquirer has no deferred compensation, pension or
retirement agreement or arrangement, bonus, incentive or profit-sharing plan or
arrangement, termination, severance, stock option, stock appreciation right,
restricted stock, post-retirement benefits or other fringe benefits plan or
arrangement, or labor or collective bargaining agreement, written or oral,
providing benefits to any present or former employee or director of the Acquirer
or any Subsidiary or any ERISA Affiliate or any beneficiary or dependent thereof
that is or has been maintained, administered or contributed to by the Acquirer
or any ERISA Affiliate at any time or for which any of them has any obligation
or liability (collectively the "Buyer Benefit Plans" and each a "Buyer Plan").
(c) The Acquirer has no knowledge that any of the officers,
other key employees, directors or any significant number of employees of the
Acquirer presently intends to terminate his, her or their employment, whether
before or after the Effective Time.
(d) The Acquirer is in compliance in all material respects
with all applicable laws and regulations relating to labor, employment, fair
employment practices, terms and conditions of employment, and wages and hours.
(e) The Acquirer is in compliance in all material respects
with the terms of all plans, programs and agreements listed on Schedule 4.21,
and each such plan, program or agreement is in compliance in all material
respects with all of the requirements and provisions of ERISA.
(f) No Buyer Benefit Plan is (i) a multiemployer plan within
the meaning of Section 3(37) or 4001(a)(3) of ERISA, (ii) a plan subject to
Title IV of ERISA, or (iii) subject to the minimum funding rules of Section 302
of ERISA or Section 412 of the Code, and neither the Acquirer or any Subsidiary
nor any ERISA Affiliate has ever contributed to, sponsored or maintained or ever
been obligated to sponsor, maintain or contribute to, any such plan.
(g) The Acquirer does not maintain or contribute to any plan
that provides health benefits to an employee or beneficiary thereof after the
employee's termination of employment or retirement, except as required under
Section 4980B of the Code or ERISA or applicable state law.
-33-
(h) There are no investigations by any governmental authority,
termination proceedings or other claims (except for claims for benefits payable
in the normal operation of the Buyer Benefit Plan), suits or proceedings
pending, or to the Acquirer's knowledge, threatened or anticipated, against or
involving any Buyer Benefit Plan, any employer who is participating (or has
participated) in any Buyer Benefit Plan or any fiduciary (as defined in Section
3(21) of ERISA) or asserting any rights or claims to benefits under Buyer
Benefit Plan.
(i) No liability currently exists and no event has occurred
and no condition exists, which could subject the Acquirer, directly or
indirectly (through an indemnification agreement or otherwise) to any liability,
including, without limitation, breach of fiduciary duty under Title I of ERISA
or any liability under Title IV of ERISA (including, but not limited to, Section
409 or 502(i) of ERISA) or Section 4971, 4975, 4976, 4977, 4979 or 4980B of the
Code.
(j) With respect to each plan listed on Schedule 4.21, all
required filings, including all filings required to be made with the United
States Department of Labor and Internal Revenue Service, have been timely filed.
(k) Neither the execution and delivery of this Agreement nor
the consummation of the transactions contemplated hereby will (i) result in any
material payment (including, without limitation, severance, unemployment
compensation, golden parachute or otherwise) becoming due from the Acquirer or
any Subsidiary, (ii) materially increase any benefits otherwise payable under
any Buyer Benefit Plan or (iii) accelerate the time of payment or vesting, or
increase the amount of, any compensation due to any employee.
(l) No Buyer Benefit Plan will, individually or in the
aggregate, give rise to the payment by the Acquirer, solely as a result of the
transactions contemplated by this Agreement, to any current or former employee
or director of the Acquirer or any Subsidiary of any amount that would
constitute an "excess parachute payment" within the meaning of Section 280G of
the Code.
(m) All expenses and liabilities relating to all Buyer Benefit
Plans have been, and will be on the Effective Time, fully and properly accrued
on the Acquirer`s books and records and disclosed in the Acquirer's financial
statements in accordance with GAAP, consistent with the Acquirer's past
practices.
(n) All contributions required to be made to each Buyer
Benefit Plan have been made as and when required by the terms of the applicable
Buyer Benefit Plan.
(o) All insurance premiums have been paid in full, subject
only to normal retrospective adjustments in the ordinary course, with regard to
the Buyer Benefit Plans for plan years ending on or before the Effective Time.
4.22 Suppliers and Customers. Except as set forth in Schedule 4.22:
-34-
(a) The relationships of the Acquirer with its significant
suppliers and customers are good commercial working relationships and no
significant supplier or customer of the Acquirer has canceled or otherwise
terminated, or to the Acquirer's best knowledge, threatened to cancel or
otherwise to terminate its relationship with the Acquirer, or has during the
last twelve (12) months decreased materially, or threatened to decrease or limit
materially, its services, supplies or materials for use by the Acquirer or its
usage or purchase of the services or products of the Acquirer except for normal
cyclical changes related to customers' businesses and except for changes which
have not had a material adverse effect on the Acquirer.
(b) No supplier or customer has notified the Acquirer that it
intends to cancel or otherwise substantially modify its relationship with the
Acquirer or to decrease materially or limit its services, supplies or materials
to the Acquirer, or its usage or purchase of the services of the Acquirer, and,
to the best knowledge of the Acquirer, the consummation of the transactions
contemplated hereby will not materially adversely affect the relationship of the
Acquirer with any such supplier or customer.
4.23 No Brokers or Finders. No person or entity has or will have, as a
result of the actions of the Acquirer, any right, interest or claim against or
upon the Principal Shareholders, the Corporation or the Acquirer for any
commission, fee or other compensation as a finder or broker arising from the
transactions contemplated by this Agreement.
4.24 Transactions with Insiders. Except as set forth on Schedule 4.24,
there are no loans, leases or other contracts between the Acquirer and any
officer or director of the Acquirer, or any person or entity owning five percent
(5%) or more of the total number of shares of the Acquirer or any respective
family member or affiliate of any such officer, director or shareholder.
4.25 Assumptions, Guarantees. Except as set forth on Schedule 4.25, the
Acquirer has not assumed, guaranteed, endorsed or otherwise become directly or
contingently liable on or for any indebtedness of any other person or entity,
except guarantees by endorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of business.
4.26 Bank Accounts, Signing Authority, Powers of Attorney. Except as
set forth on Schedule 2.26, the Acquirer has no account or safe deposit box in
any bank and no person or entity has any power, whether singly or jointly, to
sign any checks on behalf of the Acquirer, to withdraw any money or other
property from any bank, brokerage or other account of the Acquirer, or to act
pursuant to any power of attorney granted by the Acquirer at any time for any
purpose.
4.27 Corporate Books. The books and records of the Acquirer made
available to the Corporation and the Principal Shareholders for inspection
include copies of its Certificate of Incorporation and Bylaws as currently in
effect and accurately record therein in all material respects all actions,
proceedings, consents and meetings of the Board of Directors and shareholders of
the Acquirer and any committees thereof. The books and records of the Acquirer
have been, and are being, maintained in accordance with any applicable legal and
regulatory requirements and reflect only actual transactions.
-35-
ARTICLE V
CONDITIONS TO THE OBLIGATIONS
OF THE ACQUIRER AT THE CLOSING
------------------------------
The obligation of the Acquirer to consummate the Merger is subject to
the fulfillment, or the waiver by the Acquirer, of each of the following
conditions on or before the Effective Time:
5.1 Accuracy of Representations and Warranties. The representations and
warranties of the Corporation and the Principal Shareholders contained in
Article II shall be true and correct on and as of the Closing Date in all
material respects.
5.2 Performance. The Corporation and the Principal Shareholders shall
have performed and complied with all agreements and conditions contained herein
and required to be performed or complied with by the Corporation and/or the
Principal Shareholders prior to or at the Effective Time.
5.3 Opinion of Counsel. The Acquirer shall have received an opinion, in
form and substance reasonably satisfactory to the Acquirer and its counsel, from
Williams, Mullen, Xxxxx & Xxxxxxx, P.C., counsel for the Corporation and the
Principal Shareholders, dated as of the Closing Date and addressed to the
Acquirer, as to (i) the due organization, valid existence and good standing of
the Corporation, (ii) the due authority of the Corporation and the Principal
Shareholders to execute and deliver this Agreement and any Transaction Documents
to which they are a party and to consummate the transactions contemplated hereby
and thereby and (iii) the capital structure of the Corporation, including
without limitation the number and class of all authorized shares of capital
stock of the Corporation and, to the knowledge of such counsel, the number and
class of all issued and outstanding shares of capital stock of the Corporation
and, to the knowledge of such counsel, the maximum number and class of shares of
capital stock that may be required to be issued by the Corporation under the
terms of any outstanding warrants, options, commitments or other agreements of
the Corporation. With respect to the opinions contemplated by clause (i) above,
counsel may rely on certificates of governmental agencies. With respect to the
opinions contemplated by clauses (ii) and (iii), however, counsel must base its
opinions on its actual review of the appropriate corporate books and records and
any other relevant documents.
5.4 No Litigation. There shall be no action, suit, investigation or
proceeding pending, or to the best knowledge of the Corporation and the
Principal Shareholders, threatened, which seeks to restrain, enjoin or prevent
the consummation of the transactions contemplated by this Agreement or any
Transaction Document or which challenges the validity of, or seeks to recover
damages or to obtain other relief in connection with the transactions
contemplated by such agreements.
-36-
5.5 Certificate as to Officers' Incumbency and Corporate Authorization.
The Corporation shall have delivered to the Acquirer a certificate, dated the
Closing Date, certifying as to the incumbency of the Corporation's principal
officers and the adoption and continuing effect of the Corporation's Board of
Directors' and stockholders' actions required to authorize the Corporation's
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby.
5.6 Other Agreements. The following agreements, instruments and/or
documents shall have been executed and delivered by the parties thereto:
(i) The Employment Agreements between each Corporation
Executive Officer and the Acquirer;
(ii) The Non-Principal Shareholder's Letters between each LDD
Holder other than a Principal Shareholder and the Acquirer; and
(iii) The Remainder Debt Notes between each of Xxxxxxxxx and
Matteo and the Acquirer.
5.7 Stock Pledge Agreement and Pledged Shares. The Principal
Shareholders shall have executed and delivered the Stock Pledge Agreement and
delivered the Pledged Shares (as such terms are defined in Section 8.9 below) to
the Acquirer.
5.8 SIMPLE XXX Plan. The Corporation's Board of Directors shall have
taken all necessary actions required to authorize the termination of the
Corporation's SIMPLE XXX Plan, including without limitation the adoption of
appropriate Board of Directors' resolutions, the preparation of appropriate
notices to plan participants (to be delivered to such participants promptly
following the Effective Time) and the sending of an appropriate notice to the
plan sponsor, and the Corporation shall have funded, or made adequate reserves
for, the full amounts of the employer contributions required under the terms of
said plan to be paid by the Corporation with respect to the year ended December
31, 2001 and the period from and including January 1, 2002 through and including
the Closing Date.
5.9 Third Party Consents. All notices, consents, waivers, approvals or
other actions of third parties required to be obtained or otherwise made by the
Corporation in connection with the consummation of the Merger with respect to
any contracts, agreements, commitments or other obligations to which the
Corporation is a party or by which the Corporation's property or assets are
bound or affected, including without limitation with respect to the
Corporation's office lease obligations, shall have been obtained or otherwise
made by the Corporation and shall be in full force and effect.
5.10 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Acquirer and its counsel, and the Acquirer and its
counsel shall have received all such originals or certified or other copies of
such additional documents, records or certificates as they may reasonably
request
-37-
to establish the fulfillment of all of the conditions to the obligation of the
Acquirer to consummate the Merger on or prior to the Closing Date.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE CORPORATION
------------------------------------------------
The obligations of the Corporation to consummate the Merger are subject
to the fulfillment, or waiver by the Corporation, of each of the following
conditions on or before the Effective Time:
6.1 Accuracy of Representations and Warranties. The representations and
warranties of the Acquirer contained in Article IV shall be true and correct on
and as of the Closing Date in all material respects.
6.2 Performance. The Acquirer shall have performed and complied with
all agreements and conditions contained herein to be performed or complied with
by the Acquirer prior to or at the Effective Time.
6.3 Opinion of Counsel. The Corporation and the Principal Shareholders
shall have received an opinion, in form and substance reasonably satisfactory to
the Corporation and the Principal Shareholder and their counsel, from Xxxxxxx &
Xxxxxx, LLP, counsel for the Acquirer, dated as of the Closing Date and
addressed to the Corporation and the Principal Shareholders, as to (i) the due
organization, valid existence and good standing of the Acquirer, (ii) the due
authority of the Acquirer to execute and deliver this Agreement and any
Transaction Document to which it is a party and to consummate the transactions
contemplated hereby and thereby and (iii) the capital structure of the Acquirer,
including without limitation the number and class of all authorized shares of
capital stock of the Acquirer and, to the knowledge of such counsel, the number
and class of all issued and outstanding shares of capital stock of the Acquirer
and, to the knowledge of such counsel, the maximum number and class of shares of
capital stock that may be required to be issued by the Acquirer under the terms
of any outstanding warrants, options, commitments or other agreements of the
Corporation. With respect to the opinion contemplated by clause (i) above,
counsel may rely on certificates of governmental agencies. With respect to the
opinions contemplated by clauses (ii) and (iii), however, counsel must base its
opinions on its actual review of the appropriate corporate books and records and
any other relevant documents.
6.4 No Litigation. There shall be no action, suit, investigation or
proceeding pending, or to the knowledge of the Acquirer threatened, which seeks
to restrain, enjoin or prevent the consummation of the transactions contemplated
by this Agreement or which challenges the validity of, or seeks to recover
damages or to obtain other relief in connection with the transactions
contemplated by such agreements.
6.5 Other Agreements. The following agreements, instruments and/or
documents shall have been executed and delivered by the parties thereto:
-38-
(i) The Employment Agreements between each Corporation
Executive Officer and the Acquirer; and
(ii) The Remainder Debt Notes between each of Xxxxxxxxx and
Matteo and the Acquirer.
6.6 Certificate as to Officers' Incumbency and Corporate Authorization.
The Acquirer shall have delivered to the Corporation and the Principal
Shareholders a certificate, dated the Closing Date, certifying as to the
incumbency of the Acquirer's principal officers and the adoption and continuing
effect of the Acquirer's Board of Directors' and stockholders' actions required
to authorize the Acquirer's execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
6.7 Stock Certificates. The Acquirer shall have delivered to the LDD
Representative, acting on behalf of all of the Corporation's stockholders, the
certificates representing the shares of Acquirer Stock that shall have been
issued upon the conversion and exchange of the Shares outstanding immediately
prior to the Effective Time pursuant to the terms of the Merger.
6.8 Repayment of Debt. The Acquirer shall have paid to Xxxxxxxxx,
Xxxxxx and Xxx Six Hundred Thousand Dollars ($600,000) in the aggregate as set
forth in Schedule 1.6.
6.9 Board of Directors. Xxxxxxxxx and Matteo shall have been duly
elected to the Board of Directors of the Acquirer.
6.10 Private Placement. The Acquirer shall have closed on an aggregate
investment of at least One Million Dollars ($1,000,000) in connection with the
private placement described in Section 4.7 above.
6.11 Other Matters. All corporate and other proceedings in connection
with the transactions contemplated by this Agreement and all documents and
instruments incident to such transactions shall be reasonably satisfactory in
substance and form to the Corporation, the Principal Shareholder and their
counsel, and the Corporation and the Principal Shareholder and their counsel
shall have received all such originals or certified or other copies of such
additional documents, records or certificates as they may reasonably request to
establish the fulfillment of all of the conditions to the obligation of the
Corporation to consummate the Merger on or prior to the Closing Date.
ARTICLE VII
LICENSE
-------
The Corporation and the Principal Shareholders hereby represent and
warrant to the Acquirer that Xxxxxxxxx, personally, owns all rights under, title
to, and interest in the domain names set forth in Schedule 7.0 hereto (the "LDD
Domain Names"), free and clear of any liens, encumbrances, charges, rights or
claims of any other parties. For a period of eighteen (18) months after the
Closing Date, Xxxxxxxxx hereby grants to the Acquirer an exclusive,
-39-
nontransferable, nonsublicensable, royalty-free, irrevocable right to use the
LDD Domain Names. After the Closing Date and during the term of this license
grant, Xxxxxxxxx shall pay all annual maintenance, registration, filing and/or
other fees in connection with the LDD Domain Names. Xxxxxxxxx shall have the
right, but shall not be obligated, to prosecute at his own expense any
infringements on the use of the LDD Domain Names and, in furtherance of such
right, the Acquirer hereby agrees that Xxxxxxxxx may join the Acquirer as a
party plaintiff in any infringement suit, without expense to the Acquirer. The
total cost of any infringement action commenced or defended solely by Xxxxxxxxx
shall be borne by Xxxxxxxxx and Xxxxxxxxx shall keep any recovery or damages for
past infringement derived therefrom. The obligations of the Acquirer and
Xxxxxxxxx under this Article VII shall survive and continue in effect following
the Effective Time. The aforementioned license shall expire on the date eighteen
(18) months after the Closing Date.
ARTICLE VIII
GENERAL RELEASE AND INDEMNIFICATIONS
------------------------------------
8.1 Principal Shareholders' Releases. Except for the obligations of the
Corporation with respect to the Debt and such other specified obligations as
provided in Section 1.6 above, the Principal Shareholders, effective at the
Effective Time, hereby release and discharge the Corporation from and against
any and all claims, demands and liabilities which they may have against the
Corporation immediately prior to the Effective Time, and specifically agree to
indemnify, defend and hold the Corporation harmless, jointly and severally,
against any and all obligations, debts, bills, liabilities, causes of action and
claims of every nature of the Principal Shareholders against the Corporation
which accrue or have arisen prior to the Effective Time.
8.2 Principal Shareholders' Indemnification. Subject to the limitations
set forth in Section 8.5 below, the Principal Shareholders agree to indemnify
and hold harmless the Acquirer and its respective officers, directors, agents
and employees to the fullest extent lawful, from and against any and all
actions, suits, claims, proceedings, costs, losses, damages, judgments, amounts
paid in settlement and reasonable expenses (including, without limitation,
reasonable attorneys' fees and disbursements) (hereinafter collectively referred
to as a "Loss" or "Losses") suffered or incurred by the Acquirer to the extent
relating to or arising out of (a) any inaccuracy in or breach, violation or
nonobservance of the representations, warranties, covenants or other agreements
made by the Corporation or the Principal Shareholders herein or failure of any
certificate, document or instrument delivered by or on behalf of the Corporation
or the Principal Shareholders pursuant hereto or in connection herewith to be
true and correct as of the Effective Time, (b) any of the matters specifically
set forth in Schedule 2.10, or (c) any of the obligations of Xxxxxxxxx and
Matteo under Section 1.6(b).
8.3 Acquirer's Indemnification. Subject to the limitations set forth in
Section 8.5 below, the Acquirer agrees to indemnify and hold harmless the
Principal Shareholders, and each of them, to the fullest extent lawful, from and
against any and all Losses suffered or incurred by any of the Principal
Shareholders to the extent relating to or arising out of any inaccuracy in or
breach, violation or nonobservance of the representations, warranties, covenants
or other agreements made by the Acquirer herein or failure of any certificate,
document or instrument
-40-
delivered by or on behalf of the Acquirer pursuant hereto or in connection
herewith to be true and correct as of the Effective Time.
8.4 Third Party Claims. In the event that a party (the "Indemnitee")
desires to make a claim against another party (the "Indemnitor") hereunder in
connection with any action, suit, proceeding or demand at any time instituted
against or made upon the Indemnitee by any third party for which the Indemnitee
may seek indemnification hereunder (a "Third Party Claim"), the Indemnitee shall
promptly notify the Indemnitor of such Third Party Claim and of the Indemnitee's
claim of indemnification with respect thereto. The Indemnitor shall have thirty
(30) days after receipt of such notice to notify the Indemnitee if he or it has
elected to assume the defense of such Third Party Claim. If the Indemnitor
elects to assume the defense of such Third Party Claim, the Indemnitor shall be
entitled at his or its own expense to conduct and control the defense and
settlement of such Third Party Claim through counsel of his or its own choosing;
provided, however, that the Indemnitee may participate in the defense of such
Third Party Claim with his or its own counsel at his or its own expense and the
Indemnitor may not settle any Third Party Claim without the Indemnitee's
consent, which shall not be unreasonably withheld. If the Indemnitor fails to
notify the Indemnitee within thirty (30) days after receipt of the Indemnitee's
notice of a Third Party Claim, the Indemnitee shall be entitled to assume the
defense of such Third Party Claim at the expense of the Indemnitor; provided,
however, that the Indemnitee may not settle any Third Party Claim without the
Indemnitor's consent, which shall not be unreasonably withheld.
8.5 Limitations of Liability.
(a) Notwithstanding anything in this Agreement to the
contrary, other than in connection with claims made against an Indemnitee (as
such term is defined in Section 8.4 above) by any third party, in no event shall
the terms "Loss" or "Losses" include, with respect to any party hereto, any lost
profits, diminution in value or other incidental, punitive, exemplary, special
or consequential damages. In determining any inaccuracy in or breach or
violation of any representation or warranty of any party hereto contained in
this Agreement or in determining the failure of any certificate, document or
instrument delivered by or on behalf of any party hereto pursuant to this
Agreement or in connection herewith to be true and correct as of the Effective
Time, such determination shall be made without regard to any "materiality" or
"knowledge" qualifier, including without limitation any reference to a "material
adverse effect" on such party or to the "best knowledge" of such party, which
may be contained in any such representation, warranty, certificate, document or
instrument.
(b) The aggregate Losses payable by the Principal Shareholders
collectively under Section 8.2 above or by the Acquirer under Section 8.3 above,
with respect to all claims for indemnification by the other party hereunder,
shall not exceed One Million Fifty Thousand Dollars ($1,050,000) in the
aggregate; provided, however, that this limitation shall not apply to any Losses
incurred by the Acquirer as a result of or with respect to (i) any breach of the
Corporation's and the Principal Shareholders' representations contained in
Sections 2.1 and 2.12, (ii) any of the matters specifically set forth in
Schedule 2.10, or (iii) any of the obligations of Xxxxxxxxx or Matteo under
Section 1.6(b) or to any Losses incurred by the Principal Shareholders as a
result of or with respect to any breach of the Acquirer's representations
contained in Section 4.12.
-41-
(c) Neither any Principal Shareholders, on the one hand, nor
the Acquirer, on the other hand, shall have any obligation to make any
indemnification payments hereunder unless and to the extent that the Losses
incurred by the Acquirer or the Principal Shareholders (collectively), as the
case may be, shall exceed in the aggregate Seventy-five Thousand Dollars
($75,000); provided, however, that this limitation shall not apply to any Losses
incurred by the Acquirer as a result of or with respect to (i) any breach of the
representations contained in Sections 2.1 and 2.12, (ii) any of the matters
specifically set forth in Schedule 2.10, or (iii) any of the obligations of
Xxxxxxxxx or Matteo under Section 1.6(b) or to any Losses incurred by the
Principal Shareholders as a result of or with respect to any breach of the
representations contained in Section 4.12.
(d) To the extent claims for indemnification are made against
the Principal Shareholders, the limitations set forth in Section 8.5(b) and
Section 8.5(c) shall apply to the Principal Shareholders in the proportions set
forth in Schedule 8.5(d), it being acknowledged that such liability shall be
collective and not individual or joint and several. In any situation in which an
indemnification payment is due from the Principal Shareholders hereunder, the
Acquirer shall seek to satisfy such obligation, in whole or in part, in any of
the following manners or any combination thereof, solely in the Acquirer's
discretion (except as is set forth in the next sentence): (i) by withholding or
setting off the amount of any repayments of Remainder Debt, any payment of the
Remaining Settlement Balance or any payments under the Hypnotic Notes, in each
case as may then be due or may subsequently become payable to Xxxxxxxxx or
Matteo; (ii) by withholding or setting off the amount of Earn-out payments that
may then be due or may subsequently become payable to the LDD Holders; (iii) by
exercising its rights under the Stock Pledge Agreement (as such term is defined
in Section 8.9 below); or (iv) by acceptance of a cash payment in the proper
amount. Notwithstanding the immediately preceding sentence, each Principal
Shareholder shall retain the right at all times to satisfy any indemnification
obligation hereunder, in whole or in part, by payment of cash or transfer to the
Acquirer of shares of Acquirer Stock, whether Pledged Shares or otherwise, and
shall have the choice of the method(s) of such satisfaction. In the case of any
transfer by any Principal Shareholder of any pledged or unpledged shares of
Acquirer Stock hereunder to the Acquirer, the value of such shares of Acquirer
Stock shall in all cases be deemed to be the higher of (i) the then-current fair
market value of such shares, as determined by a then-current bona fide offer, if
any, to purchase such shares by a third party unaffiliated with any of the
Acquirer, any of the Acquirer's shareholders or any Principal Shareholder, or
(ii) $1.00 per share (adjusted for any subsequent stock splits).
(e) No action or claim for Losses pursuant to this Article
VIII shall be brought or asserted after the relevant date referred to in Article
IX hereof (the "Representation Expiration Date").
(f) The Acquirer and the Principal Shareholders acknowledge
and agree that, except as to fraud, their sole remedy against the other for any
matter arising out of a breach, violation or nonobservance of any
representation, warranty, covenant or other agreement contained in this
Agreement is set forth in this Article VIII, and that except to the extent a
party has asserted a claim for indemnification prior to the Representation
Expiration Date, neither party shall have any remedy against the other party for
any breach, violation or nonobservance of
-42-
a representation, warranty, covenant or other agreement made by such other party
in this Agreement. The parties acknowledge that this Section 8.5 has been
negotiated fully by the parties and that neither party would have entered into
this Agreement but for the inclusion of this Section 8.5.
8.6 Expenses, Reimbursement. Subject to the limitations set forth in
Section 8.5 above, an Indemnitor hereunder promptly shall reimburse the
Indemnitee for all Losses constituting reasonable expenses (including reasonable
attorneys' fees and disbursements) as they are incurred in connection with
investigating, preparing to defend or defending any such action, suit, claim or
proceeding (including any inquiry or investigation) for which indemnity is
available under either Section 8.2 or Section 8.3 as applicable.
8.7 Notice. Each party shall provide written notice to the other of any
claim with respect to which it seeks indemnification promptly after the
discovery of any matters giving rise to a claim for indemnification; provided,
however, that the failure of such party to give notice as provided herein shall
not relieve the Indemnitor of its obligations under this Article VIII, except if
and to the extent that the Indemnitor has been materially prejudiced thereby.
8.8 Survival. Subject to the provisions of Article IX below, the
obligations of the Acquirer and the Principal Shareholders under this Article
VIII shall survive and continue in effect following the Effective Time.
8.9 Collateral for Principal Shareholders' Indemnification Obligation.
At the Effective Time, the Principal Shareholders shall deliver to the Acquirer
stock certificates representing 586,500 shares of Acquirer Stock received by the
Principal Shareholders in connection with the Merger (the "Pledged Shares"),
together with stock powers duly executed in blank by the Principal Shareholders.
The number of Pledged Shares to be delivered by each Principal Shareholder
hereunder shall be determined on the basis of the relative percentage ownership
of the Shares set forth in Schedule 8.5(d). The Pledged Shares shall be held by
the Acquirer as collateral to secure the Principal Shareholders' indemnification
obligations under this Article VIII in accordance with the terms and conditions
of a stock pledge agreement to be executed and delivered by and among the
Acquirer and the Principal Shareholders on the Closing Date in substantially the
form included as Exhibit F to this Agreement (the "Stock Pledge Agreement"). In
addition to serving as collateral to secure the Principal Shareholders'
indemnification obligations under this Article VIII, the Pledged Shares shall
also be subject to transfer back to the Acquirer from the Principle Shareholders
pursuant to the terms of Section 1.12(c) above.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS AND WARRANTIES
------------------------------------------
Except as provided herein, all representations, warranties, covenants
and other agreements of the parties contained herein shall survive the execution
and delivery of this Agreement and continue in effect following the Effective
Time for a period commencing on the Closing Date and ending on the later of the
date that is three (3) years after the Closing Date or
-43-
three (3) years after the date on which any such covenant or other agreement was
required to have been satisfied or fulfilled hereunder, except that the
representations set forth in Section 2.1 with respect to the Principal
Shareholders' ownership of the Shares shall survive and continue in effect
indefinitely after the Effective Time and the representations set forth in
Section 2.12 and 4.12 with respect to taxes shall survive until the expiration
of the statute of limitations relating to any applicable tax return referred to
therein.
ARTICLE X
MISCELLANEOUS
-------------
10.1 Cross Disclosure. Any matter disclosed on any of the Schedules
hereto shall be deemed to be disclosed on each other Schedule hereto relating to
such matters.
10.2 Parties in Interest. Except as otherwise set forth herein, all
covenants, agreements, representations, warranties and undertakings contained in
this Agreement shall be binding on and shall inure to the benefit of the
respective heirs, successors and assigns of the parties hereto (including
permitted transferees of any of the Shares). Except as may be required to be
disclosed by order of a court or otherwise required by law, the parties agree to
maintain in confidence the terms of this Agreement, except that the parties
hereto may disclose such terms to its accountants, lawyers, bankers and advisors
in the ordinary course. Except as otherwise specifically provided herein or as
set forth in the Non-Principal Shareholder's Letters, this Agreement shall not
confer any rights or remedies upon any person other than the parties hereto and
their respective heirs, successors and assigns.
10.3 Amendments and Waivers. Amendments or additions to this Agreement
may be made and compliance with any term, covenant, agreement, condition or
provision set forth herein may be omitted or waived (either generally or in a
particular instance and either retroactively or prospectively) upon the written
consent of the parties hereto. This Agreement (including the Schedules and
Exhibits annexed hereto, which are an integral part of this Agreement)
constitutes the full and complete agreement of the parties with respect to the
subject matter hereof.
10.4 Notices. All notices, requests, consents, reports and demands
shall be in writing and shall be hand delivered, sent by facsimile or other
electronic medium, or sent by Federal Express or other overnight courier service
providing proof of delivery, to the Acquirer or to the LDD Representative, on
behalf of all of the Principal Shareholder, at the addresses set forth below or
to such other address for any such party as may be furnished in writing to the
other parties hereto:
The Acquirer: Xxxxxx X. Xxxxxx, President
Bridgeline Software, Inc.
000 Xxx Xxxxxx Xxxxxx
Xxxxxx, XX 00000
Facsimile No.: 000-000-0000
-44-
With copy to: Xxxxxxx X. Xxxxxx, Esq.
Xxxxxxx & Xxxxxx, LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Facsimile No.: 000-000-0000
The LDD Representative: The address set forth with respect to the LDD
Representative in Schedule 1.3(a) to this Agreement.
With copy to: Xxxxxx XxXxx, Esq.
Xxxxx X. Xxxxxx, Esq.
Williams, Mullen, Xxxxx & Xxxxxxx
0000 X Xxxxxx, X.X., Xxxxx 0000
Xxxxxxxxxx, XX 00000
Facsimile No: 000-000-0000
10.5 Expenses. Each party hereto will pay its own expenses in
connection with the transactions contemplated hereby; provided, however, that
the total costs and expenses to be incurred by the Corporation in connection
with legal services provided by Xxxxxxxx Xxxxxx Xxxxx & Xxxxxxx, P.C. to the
Corporation in connection with the parties' negotiation, execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
shall not exceed a maximum of Twenty-five Thousand Dollars ($25,000) in the
aggregate, it being acknowledged and agreed to by the parties that the Principal
Shareholders shall be personally responsible for any expenses of the Corporation
exceeding this limit. Upon delivery of a reasonably detailed and itemized
invoice, Xxxxxxxx Xxxxxx Xxxxx & Xxxxxxx, P.C shall be paid up to a maximum of
Twenty-Five Thousand Dollars ($25,000) by the Acquirer within thirty (30)
calendar days following the Closing Date for its legal fees and expenses with
respect to the transactions contemplated by this Agreement.
10.6 Severability. All agreements and covenants contained in this
Agreement are severable, and in the event that any of them shall be held to be
invalid or unenforceable by any court of competent jurisdiction, then this
Agreement shall be interpreted as if such invalid agreements or covenants were
not contained herein.
10.7 Counterparts. This Agreement and any exhibit hereto may be
executed in multiple counterparts, each of which shall constitute an original,
but all of which shall constitute but one and the same instrument. One or more
counterparts of this Agreement or any exhibit hereto may be delivered via
telecopier, with the intention that they shall have the same effect as an
original counterpart hereof.
10.8 Effect of Headings/Gender References. The article and section
headings herein are for convenience only and shall not affect the construction
or interpretation hereof. The use of any gender in the Agreement shall be deemed
to include the other genders, and the use of the singular in this Agreement
shall be deemed to include the plural (and vice versa), wherever appropriate.
-45-
10.9 Governing Law. This Agreement shall be deemed a contract made
under the laws of the Commonwealth of Massachusetts and together with the rights
and obligations of the parties hereunder, shall be construed under and governed
by the laws of such state.
10.10 Press Releases and Public Announcements. No party hereto shall
issue any press release or make any public announcement relating to the subject
matter of this Agreement without the prior written approval of the other party,
which approval shall not be unreasonably withheld.
10.11 Post-Closing Tax Matters. The Acquirer agrees that it will
cooperate with the preparation of all tax returns of the Corporation for the
period up to the Effective Date. The Principal Shareholders shall cause such tax
returns to be prepared at their sole expense, and agree that such tax returns
shall be prepared in a manner consistent with the Corporation's historical
practices.
10.12 Benefit Plan Covenants. The Acquirer will, from and after the
Effective Time:
(a) Comply with the Benefit Plans of the Corporation (the
"Corporation Benefit Arrangements") in accordance with their terms, and continue
to provide such Corporation Benefits Arrangements until such time as the
continuing employees of Corporation become participants in the Acquirer's
Benefit Plans (the "Acquirer Benefit Arrangements");
(b) Provide continuing employees of the Corporation no less
favorable participation and benefits under the Acquirer Benefit Arrangements
than is provided to similarly-situated employees of Acquirer;
(c) Provide continuing employees of the Corporation full
credit for their respective years of service (hours of service, or period of
service) with the Corporation (or any of its subsidiaries or predecessors)
before the Effective Time, for purposes of determining eligibility,
participation, entry and vesting under the Acquirer Benefit Arrangements
(provided that there will be no double counting of any prior service or any
recognition of any such prior service for purposes of benefit accrual under any
qualified or non-qualified defined benefit pension plan of the Acquirer);
(d) Cause any and all pre-existing condition limitations (to
the extent such limitations did not apply to a pre-existing condition under the
comparable Corporation Benefit Arrangement) and eligibility waiting periods
under group health plans of the Acquirer, as applicable, to be waived with
respect to continuing employees of the Corporation (and their eligible
dependents); and
(e) Cause to be credited any deductibles or out-of-pocket
expenses incurred by employees of the Corporation (and their beneficiaries and
dependents) during the portion of the applicable benefit plan year before their
subsequent participation in the Acquirer Benefit Arrangements, with the
objective that there be no double counting, during the year in which they first
participate in such Acquirer Benefit Arrangements, of such deductibles or
out-of-pocket expenses.
-46-
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date written above.
BRIDGELINE SOFTWARE, INC.
By: /S/ XXXXXX X. XXXXXX
---------------------------
Xxxxxx X. Xxxxxx, President and
Chief Executive Officer
/S/ XXXXXX X. XXXXXX
---------------------------
Xxxxxx X. Xxxxxx
(for purposes of Section 3.4 hereof only)
LEAD DOG DIGITAL, INC.
By: /S/ XXXXXXX XXXXXX
---------------------------
Xxxxxxx Xxxxxx, Chief Executive Officer
PRINCIPAL SHAREHOLDERS
/S/ XXXXXX XXXXXXXXX
---------------------------
Xxxxxx Xxxxxxxxx
/S/ XXXXX XXXXXXXXX
---------------------------
Xxxxx Xxxxxxxxx
/S/ XXXXXXX XXXXXX
---------------------------
Xxxxxxx Xxxxxx
/S/ XXXXXX XXXXXX
---------------------------
Xxxxxx Xxxxxx
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
