EXHIBIT 10.1
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
ALTERNATIVE ENERGY SOURCES, INC.,
XXXXXX ACQUISITION CORP.
AND
XXXXXX ENERGY, INC.
June 19, 2006
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TABLE OF CONTENTS
ARTICLE I THE MERGER......................................................................1
1.1 The Merger..........................................................................1
1.2 The Closing.........................................................................1
1.3 Actions at the Closing..............................................................2
1.4 Additional Actions..................................................................2
1.5 Conversion of Shares................................................................3
1.6 Dissenting Shares...................................................................3
1.7 Fractional Shares...................................................................4
1.8 Intentionally Omitted...............................................................4
1.9 Escrow..............................................................................4
1.10 Certificate of Incorporation and ByLaws.............................................5
1.11 No Further Rights...................................................................5
1.12 Closing of Transfer Books...........................................................5
1.13 PostClosing Adjustment..............................................................5
1.14 Exemption From Registration.........................................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................................6
2.1 Organization, Qualification and Corporate Power.....................................6
2.2 Capitalization......................................................................7
2.3 Authorization of Transaction........................................................7
2.4 Noncontravention....................................................................8
2.5 Subsidiaries........................................................................9
2.6 Financial Statements................................................................9
2.7 Absence of Certain Changes.........................................................10
2.8 Undisclosed Liabilities............................................................10
2.9 Tax Matters........................................................................10
2.10 Assets.............................................................................12
2.11 Owned Real Property................................................................12
2.12 Real Property Leases...............................................................12
2.13 Contracts..........................................................................13
2.14 Accounts Receivable................................................................14
2.15 Powers of Attorney.................................................................14
2.16 Insurance..........................................................................14
2.17 Litigation.........................................................................14
2.18 Employees..........................................................................15
2.19 Employee Benefits..................................................................15
2.20 Environmental Matters..............................................................18
2.21 Legal Compliance...................................................................19
2.22 Customers and Suppliers............................................................19
2.23 Permits............................................................................19
2.24 Certain Business Relationships With Affiliates.....................................19
2.25 Brokers' Fees......................................................................19
2.26 Books and Records..................................................................20
2.27 Disclosure.........................................................................20
2.28 Duty to Make Inquiry...............................................................20
2.29 Board Actions......................................................................20
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE ACQUISITION SUBSIDIARY....20
3.1 Organization, Qualification and Corporate Power....................................21
3.2 Capitalization.....................................................................21
3.3 Authorization of Transaction.......................................................22
3.4 Noncontravention...................................................................22
3.5 Subsidiaries.......................................................................22
3.6 Exchange Act Reports...............................................................23
3.7 Compliance with Laws...............................................................23
3.8 Financial Statements...............................................................24
3.9 Absence of Certain Changes.........................................................24
3.10 Litigation.........................................................................24
3.11 Undisclosed Liabilities............................................................25
3.12 Tax Matters........................................................................25
3.13 Assets.............................................................................26
3.14 Owned Real Property................................................................26
3.15 Real Property Leases...............................................................26
3.16 Contracts..........................................................................27
3.17 Accounts Receivable................................................................28
3.18 Powers of Attorney.................................................................29
3.19 Insurance..........................................................................29
3.20 Warranties.........................................................................29
3.21 Employees..........................................................................29
3.22 Employee Benefits..................................................................30
3.23 Environmental Matters..............................................................32
3.24 Permits............................................................................32
3.25 Certain Business Relationships With Affiliates.....................................33
3.26 TaxFree Reorganization.............................................................33
3.27 Discontinuance of Operations.......................................................34
3.28 Brokers' Fees......................................................................34
3.29 Disclosure.........................................................................34
3.30 Interested Party Transactions......................................................34
3.31 Duty to Make Inquiry...............................................................34
3.32 Accountants........................................................................35
3.33 Minute Books.......................................................................35
3.34 Board Action.......................................................................35
ARTICLE IV COVENANTS......................................................................35
4.1 Closing Efforts....................................................................35
4.2 Governmental and Thirty Party Notices and Consents.................................35
4.3 Current Report.....................................................................36
4.4 Operation of Business..............................................................36
4.5 Access to Information..............................................................37
4.6 Operation of Business..............................................................38
4.7 Access to Information..............................................................40
4.8 Expenses...........................................................................40
4.9 Indemntification...................................................................40
4.10 Listing of Merger Shares...........................................................41
4.13 Stock Split........................................................................41
ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER...........................................41
5.1 Conditions to Each Party's Obligations.............................................41
5.2 Conditions to Obligations of the Parent and the Acquisition Subsidiary.............41
5.3 Conditions to Obligations of the Company...........................................42
ARTICLE VI INDEMNIFICATION................................................................44
6.1 Indemnification by the Company Stockholders........................................44
6.2 Indemnification by the Parent......................................................44
6.3 Indemnification Claims by the Parent...............................................45
6.4 Survival of Representations and Warranties.........................................48
6.5 Limitations on Parent's Claims for Indemnification.................................48
ARTICLE VII DEFINITIONS....................................................................49
ARTICLE VIII TERMINATION....................................................................51
8.1 Termination by Mutual Agreement....................................................51
8.2 Termination for Failure to Close...................................................51
8.3 Termination by Operation of Law....................................................51
8.4 Termination for Failure to Perform Covenants or Conditions.........................52
8.5 Effect of Termination or Default; Remedies.........................................52
8.6 Remedies; Specific Performance.....................................................52
ARTICLE IX MISCELLANEOUS..................................................................52
9.1 Press Releases and Announcements...................................................52
9.2 No Third Party Beneficiaries.......................................................53
9.3 Entire Agreement...................................................................53
9.4 Succession and Assignment..........................................................53
9.5 Counterparts and Facsimile Signature...............................................53
9.6 Headings...........................................................................53
9.7 Notices............................................................................53
9.8 Governing Law......................................................................54
9.9 Amendments and Waivers.............................................................54
9.10 Severability.......................................................................55
9.11 Submission to Jurisdiction.........................................................55
9.12 Construction.......................................................................55
EXHIBITS
Exhibit A Form Escrow Agreement
Exhibit B Opinion of Counsel to the Company
Exhibit C Opinion of Counsel to the Parent and the Acquisition Subsidiary
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of June 19,
2006, by and among Alternative Energy Sources, Inc., a Delaware corporation (the
"Parent"), Xxxxxx Acquisition Corp., a Delaware corporation (the "Acquisition
Subsidiary") and Xxxxxx Energy, Inc., a Delaware corporation (the "Company").
The Parent, the Acquisition Subsidiary and the Company are each a "Party" and
referred to collectively herein as the "Parties."
WHEREAS, this Agreement contemplates a merger of the Acquisition
Subsidiary with and into the Company, with the Company as the surviving entity
after the merger (the "Merger"), whereby the stockholders of the Company will
receive common stock of the Parent in exchange for their capital stock of the
Company;
WHEREAS, simultaneously with the closing of the Merger, the Parent
shall complete a private placement of up to 10,000,000 units of securities of
the Parent, with the right, in its discretion, to sell an additional 2,000,000
units (the "Private Placement Offering"), at the purchase price of $1.00 per
unit (the "PPO Price"), each unit consisting of one share of the Parent's common
stock and a five year warrant to purchase one share of Parent common stock for
an exercise price of $2.00 per share; and
WHEREAS, Parent, Acquisition Subsidiary, and the Company desire that
the Merger qualifies as a "plan of reorganization" under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and not subject the
holders of equity securities of the Company to tax liability under the Code.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants herein contained, and for other good and valuable consideration the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Parties
hereto, intending legally to be bound, agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Acquisition Subsidiary shall merge with and into the Company at
the Effective Time (as defined below). From and after the Effective Time, the
separate corporate existence of the Acquisition Subsidiary shall cease and the
Company shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"). The "Effective Time" shall be the later to occur of
the time at which a certificate of merger (the "Certificate of Merger") and
other appropriate or required documents prepared and executed in accordance with
the Delaware General Corporation Law (the "GCL") are filed with the Secretary of
State of Delaware. The Merger shall have the effects set forth in Section 259 of
the GCL.
1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Gottbetter &
Partners, LLP in New York, New York commencing at 10:00 a.m. local time on June
19, 2006, or, if all of the conditions to the obligations of the Parties to
consummate the transactions contemplated hereby have not been satisfied or
waived by such date, on such mutually agreeable later date as soon as
practicable (and in any event not later than three (3) business days) after the
satisfaction or waiver of all conditions (excluding the delivery of any
documents to be delivered at the Closing by any of the Parties) set forth in
Article V hereof (the "Closing Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Parent and the Acquisition
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Parent and the Acquisition Subsidiary shall deliver to the
Company the various certificates, instruments and documents referred to in
Section 5.3;
(c) the Surviving Corporation shall file with the Secretary of
State of the State of Delaware the Certificate of Merger;
(d) each of the stockholders of record of the Company immediately
prior to the Effective Time (the "Company Stockholders") shall deliver to the
Parent the certificate(s) representing his, her or its Company Shares (as
defined below);
(e) the Parent shall deliver certificates for the Initial Shares
(as defined below) to each Company Stockholder in accordance with Section 1.5;
(f) the Parent shall deliver to the Company (i) evidence that the
Parent's board of directors is authorized to consist of five individuals, (ii)
the resignations of all individuals who served as directors and/or officers of
the Parent immediately prior to the Closing Date, (iii) evidence of the
appointment of five directors to serve immediately following the Closing Date,
four of whom shall have been designated by the Company and one of whom shall
have been designated by the Parent, and (v) evidence of the appointment of such
executive officers of the Parent to serve immediately following the Closing Date
as shall have been designated by the Company; and
(g) the Parent, Xxxx Xxxxxx (the "Indemnification Representative")
and Gottbetter & Partners, LLP (the "Escrow Agent") shall execute and deliver
the Escrow Agreement in substantially the form attached hereto as Exhibit A (the
"Escrow Agreement") and the Parent shall deliver to the Escrow Agent a
certificate for the Escrow Shares (as defined below) being placed in escrow on
the Closing Date pursuant to Section 1.9.
1.4 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 or assurances or any other acts or things are necessary,
desirable or proper (a) 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, privileges, powers, franchises, properties or assets of either the
Company or Acquisition Subsidiary or (b) otherwise to carry out the purposes of
this Agreement, the Surviving Corporation and its proper officers and directors
or their designees shall be authorized (to the fullest extent allowed under
applicable law) to execute and deliver, in the name and on behalf of either the
Company or Acquisition Subsidiary, all such deeds, bills of sale, assignments
and assurances and do, in the name and on behalf of the Company or Acquisition
Subsidiary, all such other acts and things necessary, desirable or proper to
vest, perfect or confirm its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of the Company or
Acquisition Subsidiary, as applicable, and otherwise to carry out the purposes
of this Agreement.
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1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of common stock, $0.001 par value per share, of the
Company ("Company Shares") issued and outstanding immediately prior to the
Effective Time (other than Company Shares owned beneficially by the Parent or
the Acquisition Subsidiary and Dissenting Shares (as defined below)) shall be
converted into and represent the right to receive (subject to the provisions of
Section 1.9) such number of shares of common stock, $0.0001 par value per share,
of the Parent ("Parent Common Stock") as is equal to the Common Conversion Ratio
(as defined below). An aggregate of 12,900,000 shares of Parent Common Stock
shall be issued to the stockholders of the Company in connection with the
Merger.
(b) The "Common Conversion Ratio" shall be obtained by dividing
(i) 12,900,000 shares of Parent Common Stock by (ii) the total number of
outstanding Company Shares immediately prior to the Effective Time on a diluted
basis after giving effect to the exercise of all outstanding options
("Options"), warrants ("Warrants") and other rights to acquire Company Shares.
Stockholders of record of the Company as of the Closing Date (the "Indemnifying
Stockholders") shall be entitled to receive immediately 95% of the shares of
Parent Common Stock into which their Company Shares were converted pursuant to
this Section 1.5 (the "Initial Shares"); the remaining 5% of the shares of
Parent Common Stock into which their Company Shares were converted pursuant to
this Section 1.5, rounded to the nearest whole number (with 0.5 shares rounded
upward to the nearest whole number) (the "Escrow Shares"), shall be deposited in
escrow pursuant to Section 1.9 and shall be held and disposed of in accordance
with the terms of the Escrow Agreement. The Initial Shares and the Escrow Shares
shall together be referred to herein as the "Merger Shares."
(c) Each issued and outstanding share of common stock, par value
$0.001 per share, of the Acquisition Subsidiary shall be converted into one
validly issued, fully paid and nonassessable share of Surviving Corporation
Common Stock.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Stockholder who has
not voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Section 262 of the GCL and not effectively
withdrawn or forfeited prior to the Effective Time. Dissenting Shares shall not
be converted into or represent the right to receive the Merger Shares, unless
such Company Stockholder's right to appraisal shall have ceased in accordance
with Section 262 of the GCL. If such Company Stockholder has so forfeited or
withdrawn his, her or its right to appraisal of Dissenting Shares, then, (i) as
of the occurrence of such event, such holder's Dissenting Shares shall cease to
be Dissenting Shares and shall be converted into and represent the right to
receive the Merger Shares issuable in respect of such Company Shares pursuant to
Section 1.5, and (ii) promptly following the occurrence of such event, the
Parent shall deliver to such Company Stockholder a certificate representing 95%
of the Merger Shares to which such holder is entitled pursuant to Section 1.5
(which shares shall be considered Initial Shares for all purposes of this
Agreement) and shall deliver to the Escrow Agent a certificate representing the
remaining 5% of the Merger Shares to which such holder is entitled pursuant to
Section 1.5 (which shares shall be considered Escrow Shares for all purposes of
this Agreement).
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(b) The Company shall give the Parent prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company. The
Company shall not, except with the prior written consent of the Parent, make any
payment with respect to any demands for appraisal of Company Shares or offer to
settle or settle any such demands.
1.7 Fractional Shares. No certificates or scrip representing fractional
Initial Shares shall be issued to Company Stockholders on the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Company Shares converted into Merger Shares pursuant to Section 1.5
("Certificates") and such Company Stockholders shall not be entitled to any
voting rights, rights to receive any dividends or distributions or other rights
as a stockholder of the Parent with respect to any fractional Initial Shares
that would have otherwise been issued to such Company Stockholders. In lieu of
any fractional Initial Shares that would have otherwise been issued, each former
Company Stockholder that would have been entitled to receive a fractional
Initial Share shall, on proper surrender of such person's Certificates, receive
such whole number of Initial Shares as is equal to the precise number of Initial
Shares to which such Company Stockholder would be entitled, rounded up or down
to the nearest whole number (with a fractional interest equal to 0.5 rounded
upward to the nearest whole number); provided that each such Company Stockholder
shall receive at least one Initial Share.
1.8 Intentionally Omitted.
1.9 Escrow. On the Closing Date, the Parent shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5, for the purpose of
securing the indemnification obligations of the Indemnifying Stockholders set
forth in this Agreement. The Escrow Shares shall be held by the Escrow Agent
pursuant to the Escrow Agreement, in substantially the form set forth in Exhibit
A attached hereto. The Escrow Shares shall be held as a trust fund and shall not
be subject to any lien, attachment, trustee process or any other judicial
process of any creditor of any Party, and shall be held and disbursed solely for
the purposes and in accordance with the terms of the Escrow Agreement.
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1.10 Certificate of Incorporation and Bylaws.
(a) The certificate of incorporation of the Company in effect
immediately prior to the Effective Time shall be the certificate of
incorporation of the Surviving Corporation until duly amended or repealed.
(b) The bylaws of the Company in effect immediately prior to the
Effective Time shall be the bylaws of the Surviving Corporation until duly
amended or repealed.
1.11 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.12 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Parent or the Surviving Corporation, they shall be cancelled and exchanged
for Initial Shares in accordance with Section 1.5, subject to Section 1.9 and to
applicable law in the case of Dissenting Shares.
1.13 Post-Closing Adjustment. In the event that, during the period
commencing from the Closing Date and ending on the second anniversary of the
Closing Date, the Company (or its controlling stockholders immediately prior to
the Merger) incurs any Loss with respect to, in connection with, or arising from
any Parent Liabilities, then promptly following the filing by the Parent with
the Securities and Exchange Commission (the "SEC") of a quarterly report
relating to the most recent completed quarter for which such determination has
been made, the Parent shall issue to the Company Stockholders and/or their
designees such number of shares of Parent Common Stock as would result from
dividing (x) the whole dollar amount representing such Losses by (y) the PPO
Price. The limit on the aggregate number of shares of Parent Common Stock
issuable under this Section 1.13 shall be 2,000,000 shares. As used in this
Section 1.13: (a) "Loss" shall mean any and all costs and expenses, including
reasonable attorneys' fees, court costs, reasonable accountants' fees, and
damages and losses, net of any insurance proceeds actually received by the Party
suffering the Loss with respect thereto; (b) "Claims" shall include, but are not
limited to, any claim, notice, suit, action, investigation, other proceedings
(whether actual or threatened); and (c) "Parent Liabilities" shall mean all
Claims against and liabilities, obligations or indebtedness of any nature
whatsoever of the Parent, accruing on or before the Closing Date (whether
primary, secondary, direct, indirect, liquidated, unliquidated or contingent,
matured or unmatured), including, but not limited to (i) any breach by the
Parent or the Acquisition Subsidiary of any of their respective representations
or warranties set forth in Article III herein, (ii) any litigation threatened,
pending or for which a basis exists, that has resulted or may result in the
entry of judgment in damages or otherwise against the Parent or any Subsidiary;
(iii) any and all outstanding debts owed by the Parent or any subsidiary of the
parent; (iv) any and all internal or employee related disputes, arbitrations or
administrative proceedings threatened, pending or otherwise outstanding, (v) any
and all liens, foreclosures, settlements, or other threatened, pending or
otherwise outstanding financial, legal or similar obligations of the Parent or
any subsidiary of the Parent, and (vi) all fees and expenses incurred in
connection with effecting the adjustments contemplated by this Section 1.13, as
such Parent Liabilities are determined by the Parent's independent auditors, on
a quarterly basis.
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1.14 Exemption From Registration. Parent and the Company intend that the
shares of Parent Common Stock to be issued pursuant to Section 1.5 hereof or
upon exercise of Parent Options granted pursuant to Section 1.8 hereof in each
case in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended, ("Securities Act") by
reason of section 4(2) of the Securities Act and/or Rule 506 of Regulation D
promulgated by the SEC thereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Parent on the date hereof and
accepted in writing by the Parent (the "Disclosure Schedule"). The Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and except to the extent that
it is clear from the context thereof that such disclosure also applies to any
other paragraph, the disclosures in any paragraph of the Disclosure Schedule
shall qualify only the corresponding paragraph in this Article II. For purposes
of this Article II, the phrase "to the knowledge of the Company" or any phrase
of similar import shall be deemed to refer to the actual knowledge of the
executive officers of the Company, as well as any other knowledge which such
executive officers would have possessed had they made reasonable inquiry with
respect to the matter in question.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of Delaware. The Company is duly qualified
to conduct business and is in corporate and tax good standing under the laws of
each jurisdiction in which the nature of its businesses or the ownership or
leasing of its properties requires such qualification, except where the failure
to be so qualified or in good standing, individually or in the aggregate, has
not had and would not reasonably be expected to have a Company Material Adverse
Effect (as defined below). The Company has all requisite corporate power and
authority to carry on the businesses in which it is engaged and to own and use
the properties owned and used by it. The Company has furnished or made available
to the Parent complete and accurate copies of its certificate of incorporation
and bylaws. The Company is not in default under or in violation of any provision
of its certificate of incorporation, as amended to date, or its bylaws, as
amended to date. For purposes of this Agreement, "Company Material Adverse
Effect" means a material adverse effect on the assets, business, condition
(financial or otherwise), results of operations or future prospects of the
Company.
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2.2 Capitalization. The authorized capital stock of the Company consists
of 10,000 Company Shares. As of the date of this Agreement, 10,000 Company
Shares were issued and outstanding, and no Company Shares were held in the
treasury of the Company. Section 2.2 of the Disclosure Schedule sets forth a
complete and accurate list of (i) all stockholders of the Company, indicating
the number and class of Company Shares held by each stockholder, (ii) all
outstanding Options and Warrants, indicating (A) the holder thereof, (B) the
number of Company Shares subject to each Option and Warrant, (C) the exercise
price, date of grant, vesting schedule and expiration date for each Option or
Warrant, and (D) any terms regarding the acceleration of vesting, and (iii) all
stock option plans and other stock or equity-related plans of the Company. All
of the issued and outstanding Company Shares are, and all Company Shares that
may be issued upon exercise of Options or Warrants will be (upon issuance in
accordance with their terms), duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. Other than the Options and
Warrants listed in Section 2.2 of the Disclosure Schedule, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance or redemption of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements to which the Company is a
party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act, or
sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or "drag-along"
rights) of any securities of the Company. To the knowledge of the Company, there
are no agreements among other parties, to which the Company is not a party and
by which it is not bound, with respect to the voting (including without
limitation voting trusts or proxies) or sale or transfer (including without
limitation agreements relating to rights of first refusal, co-sale rights or
"drag-along" rights) of any securities of the Company. All of the issued and
outstanding Company Shares were issued in compliance with applicable federal and
state securities laws.
2.3 Authorization of Transaction. The Company has all requisite power
and authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery by the Company of this
Agreement and, subject to the adoption of this Agreement and the approval of the
Merger by a majority of the votes represented by the outstanding Company Shares
entitled to vote on this Agreement and the Merger (the "Requisite Company
Stockholder Approval"), the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action on the part of the Company. Without limiting the generality of
the foregoing, the board of directors of the Company (i) determined that the
Merger is fair and in the best interests of the Company and the Company
Stockholders, (ii) adopted this Agreement in accordance with the provisions of
the GCL, and (iii) directed that this Agreement and the Merger be submitted to
the Company Stockholders for their adoption and approval and resolved to
recommend that the Company Stockholders vote in favor of the adoption of this
Agreement and the approval of the Merger. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
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2.4 Noncontravention. Subject to the filing of the Certificate of Merger
as required by the GCL, neither the execution and delivery by the Company of
this Agreement, nor the consummation by the Company of the transactions
contemplated hereby, will (a) conflict with or violate any provision of the
certificate of incorporation or bylaws of the Company, as amended to date,
bylaws or other organizational document of any Subsidiary (as defined below),
(b) require on the part of the Company or any Subsidiary any filing with, or any
permit, authorization, consent or approval of, any court, arbitrational
tribunal, administrative agency or commission or other governmental or
regulatory authority or agency (a "Governmental Entity"), except for such
permits, authorizations, consents and approvals for which the Company is
obligated to use its Reasonable Best Efforts to obtain pursuant to Section
4.2(a), (c) conflict with, result in a breach of, constitute (with or without
due notice or lapse of time or both) a default under, result in the acceleration
of obligations under, create in any Party the right to terminate, modify or
cancel, or require any notice, consent or waiver under, any contract or
instrument to which the Company or any Subsidiary is a party or by which the
Company or any Subsidiary is bound or to which any of their assets is subject,
except for (i) any conflict, breach, default, acceleration, termination,
modification or cancellation in any contract or instrument set forth in Section
2.4 of the Disclosure Schedule, for which the Company is obligated to use its
Reasonable Best Efforts to obtain waiver, consent or approval pursuant to
Section 4.2(b), (ii) any conflict, breach, default, acceleration, termination,
modification or cancellation which, individually or in the aggregate, would not
have a Company Material Adverse Effect and would not adversely affect the
consummation of the transactions contemplated hereby or (iii) any notice,
consent or waiver the absence of which, individually or in the aggregate, would
not have a Company Material Adverse Effect and would not adversely affect the
consummation of the transactions contemplated hereby, (d) result in the
imposition of any Security Interest (as defined below) upon any assets of the
Company or any Subsidiary or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company, any Subsidiary or any of
their properties or assets. For purposes of this Agreement: "Security Interest"
means any mortgage, pledge, security interest, encumbrance, charge or other lien
(whether arising by contract or by operation of law), other than (i) mechanic's,
materialmen's, and similar liens, (ii) liens arising under worker's
compensation, unemployment insurance, social security, retirement, and similar
legislation, and (iii) liens on goods in transit incurred pursuant to
documentary letters of credit, in each case arising in the Ordinary Course of
Business (as defined below) of the Company and not material to the Company; and
"Ordinary Course of Business" means the ordinary course of the Company's
business, consistent with past custom and practice (including with respect to
frequency and amount).
-8-
2.5 Subsidiaries.
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the
name of each Company Subsidiary; (ii) the number and type of outstanding equity
securities of each Subsidiary and a list of the holders thereof; (iii) the
jurisdiction of organization of each Subsidiary; (iv) the names of the officers
and directors of each Company Subsidiary; and (v) the jurisdictions in which
each Company Subsidiary is qualified or holds licenses to do business as a
foreign corporation or other entity. For purposes of this Agreement, a
"Subsidiary" shall mean any corporation, partnership, joint venture or other
entity in which a Party has, directly or indirectly, an equity interest
representing 50% or more of the equity securities thereof or other equity
interests therein (collectively, the "Subsidiaries")
(b) Each Subsidiary is an entity duly organized, validly existing
and in corporate and tax good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary is duly qualified to conduct business and is in
corporate and tax good standing under the laws of each jurisdiction in which the
nature of its businesses or the ownership or leasing of its properties requires
qualification to do business, except where the failure to be so qualified or in
good standing, individually or in the aggregate, has not had and would not
reasonably be expected to have a Company Material Adverse Effect. Each
Subsidiary has all requisite power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Company has delivered or made available to the Parent complete and accurate
copies of the charter, bylaws or other organizational documents of each
Subsidiary. No Subsidiary is in default under or in violation of any provision
of its charter, bylaws or other organizational documents. All of the issued and
outstanding equity securities of each Subsidiary are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. All equity
securities of each Subsidiary that are held of record or owned beneficially by
either the Company or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any equity securities
of any Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. To the knowledge of the Company,
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting of any equity securities of any Subsidiary.
(c) Except as set forth in Section 2.5(c) of the Disclosure
Schedule, the Company does not control directly or indirectly or have any direct
or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
association which is not a Subsidiary.
2.6 Financial Statements. The Company was incorporated in Delaware on
May 12, 2006 (the "Organization Date"), and currently has no assets or
liabilities other than those incurred in connection with its organization. The
Company has not prepared any financial statements.
-9-
2.7 Absence of Certain Changes. Since the Organization Date, and except
as set forth in Section 2.7 of the Disclosure Schedule, (a) there has occurred
no event or development which, individually or in the aggregate, has had, or
could reasonably be expected to have in the future, a Company Material Adverse
Effect, and (b) neither the Company nor any Subsidiary has taken any of the
actions set forth in paragraphs (a) through (m) of Section 4.4.
2.8 Undisclosed Liabilities. None of the Company and its Subsidiaries
has any liability (whether known or unknown, whether absolute or contingent,
whether liquidated or unliquidated and whether due or to become due), except for
(a) liabilities which have arisen since the Organization Date in the Ordinary
Course of Business and (b) contractual and other liabilities incurred in the
Ordinary Course of Business which are not required by GAAP to be reflected on a
balance sheet.
2.9 Tax Matters.
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without limitation
income, gross receipts, ad valorem, premium, value-added, excise,
real property, personal property, sales, use, transfer, withholding,
employment, unemployment insurance, social security, business
license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties, franchise and
other taxes imposed by the United States of America or any state,
local or foreign government, or any agency thereof, or other
political subdivision of the United States or any such government,
and any interest, fines, penalties, assessments or additions to tax
resulting from, attributable to or incurred in connection with any
tax or any contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a taxing
authority in connection with Taxes.
(b) Each of the Company and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file, and all such Tax Returns
were complete and accurate in all material respects. Neither the Company nor any
Subsidiary is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary Tax
Returns, other than a group of which only the Company and the Subsidiaries are
or were members. Each of the Company and the Subsidiaries has paid on a timely
basis all Taxes that were due and payable. The unpaid Taxes of the Company and
the Subsidiaries for tax periods subsequent to the Organization Date do not
exceed the accruals and reserves for Taxes (excluding accruals and reserves for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth in the Company's internal financial records. Neither the
Company nor any Subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group of
corporations or other entities that included the Company or any Subsidiary
during a prior period) other than the Company and the Subsidiaries. All Taxes
that the Company or any Subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
-10-
(c) The Company has delivered or made available to the Parent
complete and accurate copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company or any Subsidiary since the Organization Date. No examination or audit
of any Tax Return of the Company or any Subsidiary by any Governmental Entity is
currently in progress or, to the knowledge of the Company, threatened or
contemplated. Neither the Company nor any Subsidiary has been informed by any
jurisdiction that the jurisdiction believes that the Company or Subsidiary was
required to file any Tax Return that was not filed. Neither the Company nor any
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or the Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Company and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Company nor any Subsidiary has undergone a change
in its method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481 of the Code.
-11-
(g) No state or federal "net operating loss" of the Company
determined as of the Closing Date is subject to limitation on its use pursuant
to Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of any state law occurring prior to the Closing Date.
2.10 Assets. Each of the Company and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Except as set forth in
Section 2.10 of the Disclosure Schedule, each such tangible asset is free from
material defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to normal wear and
tear) and is suitable for the purposes for which it presently is used. No asset
of the Company or any Subsidiary (tangible or intangible) is subject to any
Security Interest.
2.11 Owned Real Property. Neither the Company nor any Subsidiary owns any
real property, except as otherwise listed in Section 2.11 of the Disclosure
Schedule.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists
all real property leased or subleased to or by the Company or any Subsidiary and
lists the term of such lease, any extension and expansion options, and the rent
payable thereunder. The Company has delivered or made available to the Parent
complete and accurate copies of the leases and subleases listed in Section 2.12
of the Disclosure Schedule. With respect to each lease and sublease listed in
Section 2.12 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable
and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior to
the Closing;
(c) neither the Company nor any Subsidiary nor, to the knowledge
of the Company, any other party, is in breach or violation of, or default under,
any such lease or sublease, and no event has occurred, is pending or, to the
knowledge of the Company, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Company
or any Subsidiary or, to the knowledge of the Company, any other party under
such lease or sublease;
(d) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold; and
(e) to the knowledge of the Company, there is no Security
Interest, easement, covenant or other restriction applicable to the real
property subject to such lease, except for recorded easements, covenants and
other restrictions which do not materially impair the current uses or the
occupancy by the Company or a Subsidiary of the property subject thereto.
-12-
2.13 Contracts.
(a) Section 2.13 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Company or any Subsidiary is a party
as of the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties providing for
lease payments in excess of $25,000 per annum or having a remaining
term longer than 12 months;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of
services (A) which calls for performance over a period of more than
one year, (B) which involves more than the sum of $25,000, or (C) in
which the Company or any Subsidiary has granted manufacturing
rights, "most favored nation" pricing provisions or exclusive
marketing or distribution rights relating to any products or
territory or has agreed to purchase a minimum quantity of goods or
services or has agreed to purchase goods or services exclusively
from a certain party;
(iii) any agreement which, to the knowledge of the Company,
establishes a partnership or joint venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness (including
capitalized lease obligations) involving more than $25,000 or under
which it has imposed (or may impose) a Security Interest on any of
its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director or
stockholder of the Company or any affiliate, as defined in Rule
12b-2 under the Exchange Act (an "Affiliate"), thereof;
(viii) any agreement under which the consequences of a default
or termination would reasonably be expected to have a Company
Material Adverse Effect;
(ix) any agreement which contains any provisions requiring
the Company or any Subsidiary to indemnify any other party thereto
(excluding indemnities contained in agreements for the purchase,
sale or license of products entered into in the Ordinary Course of
Business); and
-13-
(x) any other agreement (or group of related agreements)
either involving more than $25,000 or not entered into in the
Ordinary Course of Business.
(b) The Company has delivered or made available to the Parent a
complete and accurate copy of each agreement listed in Section 2.13 of the
Disclosure Schedule. With respect to each agreement so listed, and except as set
forth in Section 2.13 of the Disclosure Schedule: (i) the agreement is legal,
valid, binding and enforceable and in full force and effect; (ii) the agreement
will continue to be legal, valid, binding and enforceable and in full force and
effect immediately following the Closing in accordance with the terms thereof as
in effect immediately prior to the Closing; and (iii) neither the Company nor
any Subsidiary nor, to the knowledge of the Company, any other party, is in
breach or violation of, or default under, any such agreement, and no event has
occurred, is pending or, to the knowledge of the Company, is threatened, which,
after the giving of notice, with lapse of time, or otherwise, would constitute a
breach or default by the Company or any Subsidiary or, to the knowledge of the
Company, any other party under such contract.
2.14 Accounts Receivable. The Company has no accounts receivable.
2.15 Powers of Attorney. Except as set forth in Section 2.15 of the
Disclosure Schedule, there are no outstanding powers of attorney executed on
behalf of the Company or any Subsidiary.
2.16 Insurance. Section 2.16 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. Such insurance policies are of the type
and in amounts customarily carried by organizations conducting businesses or
owning assets similar to those of the Company and the Subsidiaries. There is no
material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy. All premiums
due and payable under all such policies have been paid, neither the Company nor
any Subsidiary may be liable for retroactive premiums or similar payments, and
the Company and the Subsidiaries are otherwise in compliance in all material
respects with the terms of such policies. The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any
such policy. Each such policy will continue to be enforceable and in full force
and effect immediately following the Effective Time in accordance with the terms
thereof as in effect immediately prior to the Effective Time.
2.17 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation before any Governmental
Entity or before any arbitrator (a "Legal Proceeding") which is pending or has
been threatened in writing against the Company or any Subsidiary which (a) seeks
either damages in excess of $25,000 or equitable relief or (b) if determined
adversely to the Company or such Subsidiary, could have, individually or in the
aggregate, a Company Material Adverse Effect.
-14-
2.18 Employees.
(a) Section 2.18 of the Disclosure Schedule contains a list of all
employees of the Company and each Subsidiary whose annual rate of compensation
exceeds $50,000 per year, along with the position and the annual rate of
compensation of each such person. Section 2.18 of the Disclosure Schedule
contains a list of all employees of the Company or any Subsidiary who are a
party to a non-competition agreement with the Company or any Subsidiary; copies
of such agreements have previously been delivered to the Parent. To the
knowledge of the Company, no key employee or group of employees has any plans to
terminate employment with the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or bound
by any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. To the knowledge of the Company, no organizational effort
has been made or threatened, either currently or within the past two years, by
or on behalf of any labor union with respect to employees of the Company or any
Subsidiary. To the knowledge of the Company there are no circumstances or facts
which could individually or collectively give rise to a suit based on
discrimination of any kind.
2.19 Employee Benefits.
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), any "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA), and any
other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including without limitation
insurance coverage, severance benefits, disability benefits,
deferred compensation, bonuses, stock options, stock purchase,
phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of
corporations (as defined in Section 414(b) of the Code), (2) a group
of trades or businesses under common control (as defined in Section
414(c) of the Code), or (3) an affiliated service group (as defined
under Section 414(m) of the Code or the regulations under Section
414(o) of the Code), any of which includes or included the Company
or a Subsidiary.
-15-
(b) Section 2.19(b) of the Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans maintained, or contributed to,
by the Company, any Subsidiary or any ERISA Affiliate. Complete and accurate
copies of (i) all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans, (iii) all
related trust agreements, insurance contracts and summary plan descriptions, and
(iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all
funded plans) all plan financial statements for the last five plan years for
each Employee Benefit Plan, have been delivered or made available to the Parent.
Each Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company, each Subsidiary, each ERISA Affiliate and each Employee Benefit
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
without limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings
and reports as to each Employee Benefit Plan required to have been submitted to
the Internal Revenue Service or to the United States Department of Labor have
been duly submitted.
(c) To the knowledge of the Company, there are no Legal
Proceedings (except claims for benefits payable in the normal operation of the
Employee Benefit Plans and proceedings with respect to qualified domestic
relations orders) against or involving any Employee Benefit Plan or asserting
any rights or claims to benefits under any Employee Benefit Plan that could give
rise to any material liability.
(d) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Closing
Date.
(e) Neither the Company, any Subsidiary, nor any ERISA Affiliate
has ever maintained an Employee Benefit Plan subject to Section 412 of the Code
or Title IV of ERISA.
-16-
(f) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without liability to the Company as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(k) Section 2.19(k) of the Disclosure Schedule discloses each: (i)
agreement with any stockholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness and
disability expenses are accounted for on the Company Balance Sheet and are
adequate and properly reflect the expenses associated therewith in accordance
with generally accepted accounting principles.
-17-
2.20 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied with all
applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
There is no pending or, to the knowledge of the Company, threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Company or any
Subsidiary, except for litigation, notices of violations, formal administrative
proceedings or investigations, inquiries or information requests that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. For purposes of this
Agreement, "Environmental Law" means any federal, state or local law, statute,
rule or regulation or the common law relating to the environment, including
without limitation any statute, regulation, administrative decision or order
pertaining to (i) treatment, storage, disposal, generation and transportation of
industrial, toxic or hazardous materials or substances or solid or hazardous
waste; (ii) air, water and noise pollution; (iii) groundwater and soil
contamination; (iv) the release or threatened release into the environment of
industrial, toxic or hazardous materials or substances, or solid or hazardous
waste, including without limitation emissions, discharges, injections, spills,
escapes or dumping of pollutants, contaminants or chemicals; (v) the protection
of wild life, marine life and wetlands, including without limitation all
endangered and threatened species; (vi) storage tanks, vessels, containers,
abandoned or discarded barrels, and other closed receptacles; (vii) health and
safety of employees and other persons; and (viii) manufacturing, processing,
using, distributing, treating, storing, disposing, transporting or handling of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) Set forth in Section 2.20(b) of the Disclosure Schedule is a
list of all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company or a Subsidiary (whether
conducted by or on behalf of the Company or a Subsidiary or a third party, and
whether done at the initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which were issued or conducted during
the past five years and which the Company has possession of or access to. A
complete and accurate copy of each such document has been provided to the
Parent.
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(c) To the knowledge of the Company there is no material
environmental liability with respect to any solid or hazardous waste transporter
or treatment, storage or disposal facility that has been used by the Company or
any Subsidiary.
2.21 Legal Compliance. Each of the Company and the Subsidiaries, and the
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
2.22 Customers and Suppliers. Section 2.22 of the Disclosure Schedule
sets forth a list of each customer that accounted for more than 5% of the
consolidated revenues of the Company during the last full fiscal year and the
amount of revenues accounted for by such customer during such period. No such
customer has notified the Company in writing within the past year that it will
stop buying services from the Company or any Subsidiary.
2.23 Permits. Section 2.23 of the Disclosure Schedule sets forth a list
of all permits, licenses, registrations, certificates, orders or approvals from
any Governmental Entity (including without limitation those issued or required
under Environmental Laws and those relating to the occupancy or use of owned or
leased real property) ("Permits") issued to or held by the Company or any
Subsidiary. Such listed Permits are the only Permits that are required for the
Company and the Subsidiaries to conduct their respective businesses as presently
conducted except for those the absence of which, individually or in the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. Each such Permit is in full force and effect and, to
the knowledge of the Company, no suspension or cancellation of such Permit is
threatened and there is no basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in full force and
effect immediately following the Closing.
2.24 Certain Business Relationships With Affiliates. Except as listed in
Section 2.24 of the Disclosure Schedule, no Affiliate of the Company or of any
Subsidiary (a) owns any property or right, tangible or intangible, which is used
in the business of the Company or any Subsidiary, (b) has any claim or cause of
action against the Company or any Subsidiary, or (c) owes any money to, or is
owed any money by, the Company or any Subsidiary. Section 2.24 of the Disclosure
Schedule describes any transactions involving the receipt or payment in excess
of $25,000 in any fiscal year between the Company or a Subsidiary and any
Affiliate thereof which have occurred or existed since the beginning of the time
period covered by the Financial Statements, other than employment agreements.
2.25 Brokers' Fees. Neither the Company nor any Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement, except as
listed in Section 2.25 of the Disclosure Schedule.
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2.26 Books and Records. The minute books and other similar records of the
Company and each Subsidiary contain complete and accurate records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders, board
of directors or any committees thereof and of all written consents executed in
lieu of the holding of any such meetings. The books and records of the Company
and each Subsidiary accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of the
Company or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices.
2.27 Disclosure. No representation or warranty by the Company contained
in this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
The Company has disclosed to the Parent all material information relating to the
business of the Company or any Subsidiary or the transactions contemplated by
this Agreement.
2.28 Duty to Make Inquiry. To the extent that any of the representations
or warranties in this Section 2 are qualified by "knowledge" or "belief," the
Company represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
2.29 Board Actions. The Company's board of directors (a) has unanimously
determined that the Merger is fair and in the best interests of the Company
Stockholders and is on terms that are fair to the Company Stockholders and has
recommended the Merger to the Company Stockholders, and (b) shall submit the
Merger and this Agreement to the vote and approval of the Company Stockholders
or the approval of the Company Stockholders by written consent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE ACQUISITION SUBSIDIARY
Each of the Parent and the Acquisition Subsidiary represents and warrants
to the Company that the statements contained in this Article III are true and
correct, except as set forth in the Parent Disclosure Schedule provided by the
Parent and the Acquisition Subsidiary to the Company on the date hereof and
accepted in writing by the Parent (the "Parent Disclosure Schedule"). The Parent
Disclosure Schedule shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article III, and except to
the extent that it is clear from the context thereof that such disclosure also
applies to any other paragraph, the disclosures in any paragraph of the Parent
Disclosure Schedule shall qualify only the corresponding paragraph in this
Article III. For purposes of this Article III, the phrase "to the knowledge of
the Parent" or any phrase of similar import shall be deemed to refer to the
actual knowledge of the executive officers of the Parent, as well as any other
knowledge which such executive officers would have possessed had they made
reasonable inquiry with respect to the matter in question.
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3.1 Organization, Qualification and Corporate Power. The Parent is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and the Acquisition Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. The Parent is duly qualified to conduct business and is in corporate
and tax good standing under the laws of each jurisdiction in which the nature of
its businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified or in good standing
would not have a Parent Material Adverse Effect (as defined below). The Parent
has all requisite corporate power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Parent has furnished or made available to the Company complete and accurate
copies of its certificate of incorporation and bylaws. For purposes of this
Agreement, "Parent Material Adverse Effect" means a material adverse effect on
the assets, business, condition (financial or otherwise), results of operations
or future prospects of the Parent and its subsidiaries, taken as a whole.
3.2 Capitalization. The authorized capital stock of the Parent consists
of (a) 75,000,000 shares of Parent Common Stock, of which 38,437,500 shares were
issued and outstanding as of the date of this Agreement, after giving effect to
a 2.5 forward stock split in the form of a 1.5 for 1 stock dividend (the "Stock
Split") to shareholders of record on May 22, 2006. The Parent Common Stock is
presently eligible for quotation and trading on the NASD Over-the-Counter
Bulletin Board (the "OTCBB") in all 00 xxxxxx xx xxx Xxxxxx Xxxxxx. All of the
issued and outstanding shares of Parent Common Stock are duly authorized,
validly issued, fully paid, nonassessable and free of all preemptive rights.
There are no outstanding or authorized options, warrants, rights, agreements or
commitments to which the Parent is a party or which are binding upon the Parent
providing for the issuance or redemption of any of its capital stock. There are
no outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Parent. There are no agreements to which the Parent is a
party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act, or
sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or "drag-along"
rights) of any securities of the Parent. To the knowledge of the Parent, there
are no agreements among other parties, to which the Parent is not a party and by
which it is not bound, with respect to the voting (including without limitation
voting trusts or proxies) or sale or transfer (including without limitation
agreements relating to rights of first refusal, co-sale rights or "drag-along"
rights) of any securities of the Parent. All of the issued and outstanding
shares of Parent Common Stock were issued in compliance with applicable federal
and state securities laws. The 12,900,000 Merger Shares to be issued at the
Closing pursuant to Section 1.5 hereof, when issued and delivered in accordance
with the terms hereof and of the Certificate of Merger, shall be duly and
validly issued, fully paid and nonassessable and free of all preemptive rights.
Immediately prior to the Effective Time, after giving effect to (i) the
surrender of shares of Parent Common Stock by two former officers of the Parent
(the "Share Contribution") and (ii) the Stock Split, but without giving effect
to the Private Placement Offering, there will be 15,000,002 shares of Parent
Common Stock issued and outstanding.
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3.3 Authorization of Transaction. Each of the Parent and the Acquisition
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Parent) the Escrow Agreement and to perform
its obligations hereunder and thereunder. The execution and delivery by the
Parent and the Acquisition Subsidiary of this Agreement, and the agreements
contemplated hereby (collectively, the "Transaction Documentation") and the
consummation by the Parent and the Acquisition Subsidiary of the transactions
contemplated hereby and thereby have been duly and validly authorized by all
necessary corporate action on the part of the Parent and Acquisition Subsidiary,
respectively. This Agreement has been duly and validly executed and delivered by
the Parent and the Acquisition Subsidiary and constitutes a valid and binding
obligation of the Parent and the Acquisition Subsidiary, enforceable against
them in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act, the regulations of the OTCBB and the filing of the Certificate of
Merger as required by the GCL, neither the execution and delivery by the Parent
or the Acquisition Subsidiary of this Agreement or the Transaction Documentation
, nor the consummation by the Parent or the Acquisition Subsidiary of the
transactions contemplated hereby or thereby, will (a) conflict with or violate
any provision of the certificate of incorporation or bylaws of the Parent or the
Acquisition Subsidiary, (b) require on the part of the Parent or the Acquisition
Subsidiary any filing with, or permit, authorization, consent or approval of,
any Governmental Entity, (c) conflict with, result in breach of, constitute
(with or without due notice or lapse of time or both) a default under, result in
the acceleration of obligations under, create in any Party any right to
terminate, modify or cancel, or require any notice, consent or waiver under, any
contract or instrument to which the Parent or the Acquisition Subsidiary is a
party or by which either is bound or to which any of their assets are subject,
except for (i) any conflict, breach, default, acceleration, termination,
modification or cancellation which would not adversely affect the consummation
of the transactions contemplated hereby or (ii) any notice, consent or waiver
the absence of which would not adversely affect the consummation of the
transactions contemplated hereby, or (d) violate any order, writ, injunction,
decree, statute, rule or regulation applicable to the Parent or the Acquisition
Subsidiary or any of their properties or assets.
3.5 Subsidiaries.
(a) Parent has no Subsidiaries other than the Acquisition Subsidiary.
The Acquisition Subsidiary is a corporation duly organized, validly existing and
in corporate and tax good standing under the laws of the jurisdiction of its
incorporation. The Acquisition Subsidiary was formed solely to effectuate the
Merger, and it has not conducted any business operations since its organization.
The Parent has delivered or made available to the Company complete and accurate
copies of the charter, bylaws or other organizational documents of the
Acquisition Subsidiary. The Acquisition Subsidiary is not in default under or in
violation of any provision of its charter, bylaws or other organizational
documents. All of the issued and outstanding shares of capital stock of the
Acquisition Subsidiary are duly authorized, validly issued, fully paid,
nonassessable and free of preemptive rights. All shares of the Acquisition
Subsidiary are owned by Parent free and clear of any restrictions on transfer
(other than restrictions under the Securities Act and state securities laws),
claims, Security Interests, options, warrants, rights, contracts, calls,
commitments, equities and demands. There are no outstanding or authorized
options, warrants, rights, agreements or commitments to which the Parent or the
Acquisition Subsidiary is a party or which are binding on any of them providing
for the issuance, disposition or acquisition of any capital stock of any
Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to the Acquisition Subsidiary. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of any capital stock of the Acquisition Subsidiary.
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(b) At all times from April 8, 2002, which was the date of
incorporation of the Parent, through the date of this Agreement, the business
and operations of the Parent have been conducted exclusively through Parent.
3.6 Exchange Act Reports. The Parent has furnished or made available to
the Company complete and accurate copies, as amended or supplemented, of its (a)
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2005, as
filed with the SEC, (b) Quarterly Report on Form 10-QSB for the quarterly period
ended March 31, 2006 and (c) all other reports filed by the Parent under Section
13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC
since September 12, 2003 (such reports are collectively referred to herein as
the "Parent Reports"). The Parent Reports constitute all of the documents
required to be filed by the Parent under Section 13 or subsections (a) or (c) of
Section 14 of the Exchange Act with the SEC from October 17, 2001 through the
date of this Agreement. The Parent Reports complied in all material respects
with the requirements of the Exchange Act and the rules and regulations
thereunder when filed. As of their respective dates, the Parent Reports did not
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.7 Compliance with Laws. Each of the Parent and its Subsidiaries:
(a) and the conduct and operations of their respective businesses,
are in compliance with each applicable law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, except for any violations or defaults that, individually or
in the aggregate, have not had and would not reasonably be expected to have a
Parent Material Adverse Effect;
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(b) has complied with all federal and state securities laws and
regulations, including being current in all of its reporting obligations under
such federal and state securities laws and regulations;
(c) has not, and the past and present officers, directors and
Affiliates of the Parent have not, been the subject of, nor does any officer or
director of the Parent have any reason to believe that Parent or any of its
officers, directors or Affiliates will be the subject of, any civil or criminal
proceeding or investigation by any federal or state agency alleging a violation
of securities laws;
(d) has not been the subject of any voluntary or involuntary
bankruptcy proceeding, nor has it been a party to any material litigation;
(e) has not, and the past and present officers, directors and
Affiliates have not, been the subject of, nor does any officer or director of
the Parent have any reason to believe that the Parent or any of its officers,
directors or affiliates will be the subject of, any civil, criminal or
administrative investigation or proceeding brought by any federal or state
agency having regulatory authority over such entity or person;
(f) does not and will not on the Closing, have any liabilities,
contingent or otherwise, including but not limited to notes payable and accounts
payable, and is not a party to any executory agreements; and
(g) is not a "blank check company" as such term is defined by Rule
419 of the Securities Act.
3.8 Financial Statements. The audited financial statements and unaudited
interim financial statements of the Parent included in the Parent Reports
(collectively, the "Parent Financial Statements") (i) complied as to form in all
material respects with applicable accounting requirements and, as appropriate,
the published rules and regulations of the SEC with respect thereto when filed,
(ii) were prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby (except as may be indicated therein or in
the notes thereto, and in the case of quarterly financial statements, as
permitted by Form 10-QSB under the Exchange Act), (iii) fairly present the
consolidated financial condition, results of operations and cash flows of the
Parent as of the respective dates thereof and for the periods referred to
therein, and (iv) are consistent with the books and records of the Parent.
3.9 Absence of Certain Changes. Since the date of the balance sheet
contained in the most recent Parent Report, there has occurred no event or
development which, individually or in the aggregate, has had, or could
reasonably be expected to have in the future, a Parent Material Adverse Effect.
3.10 Litigation. Except as disclosed in the Parent Reports, as of the
date of this Agreement, there is no Legal Proceeding which is pending or, to the
Parent's knowledge, threatened against the Parent or any subsidiary of the
Parent which, if determined adversely to the Parent or such subsidiary, could
have, individually or in the aggregate, a Parent Material Adverse Effect or
which in any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
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3.11 Undisclosed Liabilities. None of the Parent and its Subsidiaries has
any liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities shown on the balance sheet contained in the most recent Parent
Report, (b) liabilities which have arisen since the date of the balance sheet
contained in the most recent Parent Report in the Ordinary Course of Business
and (c) contractual and other liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance sheet.
3.12 Tax Matters.
(a) Each of the Parent and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file, and all such Tax Returns
were complete and accurate in all material respects. Neither the Parent nor any
Subsidiary is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary Tax
Returns, other than a group of which only the Parent and the Subsidiaries are or
were members. Each of the Parent and the Subsidiaries has paid on a timely basis
all Taxes that were due and payable. The unpaid Taxes of the Parent and the
Subsidiaries for tax periods through the date of the balance sheet contained in
the most recent Parent Report do not exceed the accruals and reserves for Taxes
(excluding accruals and reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on such balance sheet.
Neither the Parent nor any Subsidiary has any actual or potential liability for
any Tax obligation of any taxpayer (including without limitation any affiliated
group of corporations or other entities that included the Parent or any
Subsidiary during a prior period) other than the Parent and the Subsidiaries.
All Taxes that the Parent or any Subsidiary is or was required by law to
withhold or collect have been duly withheld or collected and, to the extent
required, have been paid to the proper Governmental Entity.
(b) The Parent has delivered or made available to the Company
complete and accurate copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Parent or any Subsidiary since December 31, 2002. The federal income Tax Returns
of the Parent and each Subsidiary have been audited by the Internal Revenue
Service or are closed by the applicable statute of limitations for all taxable
years through the taxable year specified in Section 3.12(b) of the Parent
Disclosure Schedule. No examination or audit of any Tax Return of the Parent or
any Subsidiary by any Governmental Entity is currently in progress or, to the
knowledge of the Parent, threatened or contemplated. Neither the Parent nor any
Subsidiary has been informed by any jurisdiction that the jurisdiction believes
that the Parent or Subsidiary was required to file any Tax Return that was not
filed. Neither the Parent nor any Subsidiary has waived any statute of
limitations with respect to Taxes or agreed to an extension of time with respect
to a Tax assessment or deficiency.
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(c) Neither the Parent nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Parent or the Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Parent and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(d) None of the assets of the Parent or any Subsidiary: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(e) Neither the Parent nor any Subsidiary has undergone a change
in its method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481 of the Code.
(f) No state or federal "net operating loss" of the Parent
determined as of the Closing Date is subject to limitation on its use pursuant
to Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of any state law occurring prior to the Closing Date.
3.13 Assets. Each of the Parent and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
No asset of the Parent or any Subsidiary (tangible or intangible) is subject to
any Security Interest.
3.14 Owned Real Property. Neither the Parent nor any Subsidiary owns any
real property.
3.15 Real Property Leases. Section 3.15 of the Parent Disclosure Schedule
lists all real property leased or subleased to or by the Parent or any
Subsidiary and lists the term of such lease, any extension and expansion
options, and the rent payable thereunder. The Parent has delivered or made
available to the Company complete and accurate copies of the leases and
subleases listed in Section 3.15 of the Parent Disclosure Schedule. With respect
to each lease and sublease listed in Section 3.15 of the Parent Disclosure
Schedule:
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(a) the lease or sublease is legal, valid, binding, enforceable
and in full force and effect;
(b) the lease or sublease will continue to be legal, valid,
binding, enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect immediately prior to
the Closing;
(c) neither the Parent nor any Subsidiary nor, to the knowledge of
the Parent, any other party, is in breach or violation of, or default under, any
such lease or sublease, and no event has occurred, is pending or, to the
knowledge of the Parent, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Parent
or any Subsidiary or, to the knowledge of the Parent, any other party under such
lease or sublease;
(d) neither the Parent nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold; and
(e) the Parent is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
lease, except for recorded easements, covenants and other restrictions which do
not materially impair the current uses or the occupancy by the Parent or a
Subsidiary of the property subject thereto.
3.16 Contracts.
(a) Section 3.16 of the Parent Disclosure Schedule lists the
following agreements (written or oral) to which the Parent or any Subsidiary is
a party as of the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of
services (A) which calls for performance over a period of more than
one year, (B) which involves more than the sum of $5,000, or (C) in
which the Parent or any Subsidiary has granted manufacturing rights,
"most favored nation" pricing provisions or exclusive marketing or
distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has
agreed to purchase goods or services exclusively from a certain
party;
(iii) any agreement establishing a partnership or joint
venture;
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(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness (including
capitalized lease obligations) involving more than $5,000 or under
which it has imposed (or may impose) a Security Interest on any of
its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director or
stockholder of the Parent or any Affiliate thereof;
(viii) any agreement under which the consequences of a default
or termination would reasonably be expected to have a Parent
Material Adverse Effect;
(ix) any agreement which contains any provisions requiring
the Parent or any Subsidiary to indemnify any other party thereto
(excluding indemnities contained in agreements for the purchase,
sale or license of products entered into in the Ordinary Course of
Business); and
(x) any other agreement (or group of related agreements)
either involving more than $5,000 or not entered into in the
Ordinary Course of Business.
(b) The Parent has delivered or made available to the Company a
complete and accurate copy of each agreement listed in Section 3.16 of the
Parent Disclosure Schedule. With respect to each agreement so listed: (i) the
agreement is legal, valid, binding and enforceable and in full force and effect;
(ii) the agreement will continue to be legal, valid, binding and enforceable and
in full force and effect immediately following the Closing in accordance with
the terms thereof as in effect immediately prior to the Closing; and (iii)
neither the Parent nor any Subsidiary nor, to the knowledge of the Parent, any
other party, is in breach or violation of, or default under, any such agreement,
and no event has occurred, is pending or, to the knowledge of the Parent, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Parent or any Subsidiary or, to the
knowledge of the Parent, any other party under such contract.
3.17 Accounts Receivable. All accounts receivable of the Parent and the
Subsidiaries reflected on the Parent Report are valid receivables subject to no
setoffs or counterclaims and are current and collectible (within 90 days after
the date on which it first became due and payable), net of the applicable
reserve for bad debts on the balance sheet contained in the most recent Parent
Report. All accounts receivable reflected in the financial or accounting records
of the Parent that have arisen since the date of the balance sheet contained in
the most recent Parent Report are valid receivables subject to no setoffs or
counterclaims and are collectible (within 90 days after the date on which it
first became due and payable), net of a reserve for bad debts in an amount
proportionate to the reserve shown on the balance sheet contained in the most
recent Parent Report.
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3.18 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Parent or any Subsidiary.
3.19 Insurance. Section 3.19 of the Parent Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Parent or any Subsidiary is a party. Such insurance policies are of the type and
in amounts customarily carried by organizations conducting businesses or owning
assets similar to those of the Parent and the Subsidiaries. There is no material
claim pending under any such policy as to which coverage has been questioned,
denied or disputed by the underwriter of such policy. All premiums due and
payable under all such policies have been paid, neither the Parent nor any
Subsidiary may be liable for retroactive premiums or similar payments, and the
Parent and the Subsidiaries are otherwise in compliance in all material respects
with the terms of such policies. The Parent has no knowledge of any threatened
termination of, or material premium increase with respect to, any such policy.
Each such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing.
3.20 Warranties. No service sold or delivered by the Parent or any
Subsidiary is subject to any guaranty, warranty, right of credit or other
indemnity other than the applicable standard terms and conditions of sale of the
Parent or the appropriate Subsidiary, which are set forth in Section 3.20 of the
Parent Disclosure Schedule.
3.21 Employees.
(a) Section 3.21 of the Parent Disclosure Schedule contains a list
of all employees of the Parent and each Subsidiary whose annual rate of
compensation exceeds $50,000 per year, along with the position and the annual
rate of compensation of each such person. Each current or past employee of the
Parent or any Subsidiary has entered into a confidentiality/assignment of
inventions agreement with the Parent or such Subsidiary, a copy or form of which
has previously been delivered to the Company. Section 3.21 of the Parent
Disclosure Schedule contains a list of all employees of the Parent or any
Subsidiary who are a party to a non-competition agreement with the Parent or any
Subsidiary; copies of such agreements have previously been delivered to the
Company. To the knowledge of the Parent, no key employee or group of employees
has any plans to terminate employment with the Parent or any Subsidiary.
(b) Neither the Parent nor any Subsidiary is a party to or bound
by any collective bargaining agreement, nor have any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Parent has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Parent or any
Subsidiary.
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3.22 Employee Benefits.
(a) Section 3.22(a) of the Parent Disclosure Schedule contains a
complete and accurate list of all Employee Benefit Plans maintained, or
contributed to, by the Parent, any Subsidiary or any ERISA Affiliate. Complete
and accurate copies of (i) all Employee Benefit Plans which have been reduced to
writing, (ii) written summaries of all unwritten Employee Benefit Plans, (iii)
all related trust agreements, insurance contracts and summary plan descriptions,
and (iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all
funded plans) all plan financial statements for the last five plan years for
each Employee Benefit Plan, have been delivered or made available to the Parent.
Each Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Parent, the Subsidiaries and the ERISA
Affiliates has in all material respects met its obligations with respect to such
Employee Benefit Plan and has made all required contributions thereto. The
Parent, each Subsidiary, each ERISA Affiliate and each Employee Benefit Plan are
in compliance in all material respects with the currently applicable provisions
of ERISA and the Code and the regulations thereunder (including without
limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and
Sections 601 through 608 and Section 701 et seq. of ERISA). All filings and
reports as to each Employee Benefit Plan required to have been submitted to the
Internal Revenue Service or to the United States Department of Labor have been
duly submitted.
(b) To the knowledge of the Parent, there are no Legal Proceedings
(except claims for benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified domestic relations
orders) against or involving any Employee Benefit Plan or asserting any rights
or claims to benefits under any Employee Benefit Plan that could give rise to
any material liability.
(c) All the Employee Benefit Plans that are intended to be
qualified under Section 401(a) of the Code have received determination letters
from the Internal Revenue Service to the effect that such Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Closing
Date.
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(d) Neither the Parent, any Subsidiary, nor any ERISA Affiliate
has ever maintained an Employee Benefit Plan subject to Section 412 of the Code
or Title IV of ERISA.
(e) At no time has the Parent, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(f) There are no unfunded obligations under any Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Parent or any Subsidiary (or to any beneficiary of any such employee), including
but not limited to retiree health coverage and deferred compensation, but
excluding continuation of health coverage required to be continued under Section
4980B of the Code or other applicable law and insurance conversion privileges
under state law. The assets of each Employee Benefit Plan which is funded are
reported at their fair market value on the books and records of such Employee
Benefit Plan.
(g) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Parent, any Subsidiary or
any ERISA Affiliate that would subject the Parent, any Subsidiary or any ERISA
Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(h) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(i) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Parent at any time without liability to the Parent as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Parent from amending or terminating any
such Employee Benefit Plan.
(j) Section 3.22(j) of the Parent Disclosure Schedule discloses
each: (i) agreement with any stockholder, director, executive officer or other
key employee of the Parent or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Parent or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Parent or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Parent or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness and
disability expenses are accounted for on the Most Recent Balance Sheet and are
adequate and properly reflect the expenses associated therewith in accordance
with generally accepted accounting principles.
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3.23 Environmental Matters.
(a) Each of the Parent and the Subsidiaries has complied with all
applicable Environmental Laws, except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. There is no pending or, to
the knowledge of the Parent, threatened civil or criminal litigation, written
notice of violation, formal administrative proceeding, or investigation, inquiry
or information request by any Governmental Entity, relating to any Environmental
Law involving the Parent or any Subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries or
information requests that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Parent Material Adverse Effect.
(b) Set forth in Section 3.23(b) of the Parent Disclosure Schedule
is a list of all documents (whether in hard copy or electronic form) that
contain any environmental reports, investigations and audits relating to
premises currently or previously owned or operated by the Parent or a Subsidiary
(whether conducted by or on behalf of the Parent or a Subsidiary or a third
party, and whether done at the initiative of the Parent or a Subsidiary or
directed by a Governmental Entity or other third party) which were issued or
conducted during the past five years and which the Parent has possession of or
access to. A complete and accurate copy of each such document has been provided
to the Parent.
(c) The Parent is not aware of any material environmental
liability of any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Parent or any Subsidiary.
3.24 Permits. Section 3.24 of the Parent Disclosure Schedule sets forth a
list of all permits, licenses, registrations, certificates, orders or approvals
from any Governmental Entity (including without limitation those issued or
required under Environmental Laws and those relating to the occupancy or use of
owned or leased real property) ("Parent Permits") issued to or held by the
Parent or any Subsidiary. Such listed Permits are the only Parent Permits that
are required for the Parent and the Subsidiaries to conduct their respective
businesses as presently conducted except for those the absence of which,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. Each such Parent Permit is in
full force and effect and, to the knowledge of the Parent, no suspension or
cancellation of such Parent Permit is threatened and there is no basis for
believing that such Parent Permit will not be renewable upon expiration. Each
such Parent Permit will continue in full force and effect immediately following
the Closing.
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3.25 Certain Business Relationships With Affiliates. No Affiliate of the
Parent or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Parent or any Subsidiary, (b)
has any claim or cause of action against the Parent or any Subsidiary, or (c)
owes any money to, or is owed any money by, the Parent or any Subsidiary.
Section 3.25 of the Parent Disclosure Schedule describes any transactions
involving the receipt or payment in excess of $5,000 in any fiscal year between
the Parent or a Subsidiary and any Affiliate thereof which have occurred or
existed since the beginning of the time period covered by the Parent Financial
Statements, other than employment agreements.
3.26 Tax-Free Reorganization.
(a) The Parent (i) is not an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present plan or
intention to liquidate the Surviving Corporation or to merge the Surviving
Corporation with or into any other corporation or entity, or to sell or
otherwise dispose of the stock of the Surviving Corporation which Parent will
acquire in the Merger, or to cause the Surviving Corporation to sell or
otherwise dispose of its assets, all except in the ordinary course of business
or if such liquidation, merger, disposition is described in Section 368(a)(2)(C)
or Treasury Regulation Section 1.368-2(d)(4) or Section 1368-2(k); (iii) has no
present plan or intention, following the Merger, to issue any additional shares
of stock of the Surviving Corporation or to create any new class of stock of the
Surviving Corporation.
(b) The Acquisition Subsidiary is a wholly-owned subsidiary of the
Parent, formed solely for the purpose of engaging in the Merger, and will carry
on no business prior to the Merger.
(c) Immediately prior to the Merger, the Parent will be in control
of Acquisition Subsidiary within the meaning of Section 368(c) of the Code.
(d) Immediately following the Merger, the Surviving Corporation
will hold at least 90% of the fair market value of the net assets and at least
70% of the fair market value of the gross assets held by the Company immediately
prior to the Merger (for purposes of this representation, amounts used by the
Company to pay reorganization expenses, if any, will be included as assets of
the Company held immediately prior to the Merger).
(e) The Parent has no present plan or intention to reacquire any
of the Merger Shares.
(f) The Acquisition Subsidiary will have no liabilities assumed by
the Surviving Corporation and will not transfer to the Surviving Corporation any
assets subject to liabilities in the Merger.
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(g) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of the Company's
historic business assets in a business as required by Section 368 of the Code
and the Treasury Regulations promulgated thereunder.
3.27 Discontinuance of Operations. As of the Effective Time, the Parent
will have discontinued all of its business operations which it conducted prior
to the Effective Time. Upon such discontinuance, the Parent will have no
material liabilities, contingent or otherwise in any way related to its
pre-Effective Time business operations.
3.28 Brokers' Fees. Except as set forth on Section 3.28 of the Parent
Disclosure Schedule, neither the Parent nor the Acquisition Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
3.29 Disclosure. No representation or warranty by the Parent contained in
this Agreement or in any of the Transaction Documentation, and no statement
contained in the any document, certificate or other instrument delivered or to
be delivered by or on behalf of the Parent pursuant to this Agreement or
therein, contains or will contain any untrue statement of a material fact or
omits or will omit to state any material fact necessary, in light of the
circumstances under which it was or will be made, in order to make the
statements herein or therein not misleading. The Parent has disclosed to the
Company all material information relating to the business of the Parent or any
Subsidiary or the transactions contemplated by this Agreement.
3.30 Interested Party Transactions. To the knowledge of the Parent, no
officer, director or stockholder of Parent or any "affiliate" (as such term is
defined in Rule 12b-2 under the Exchange Act) or "associate" (as such term is
defined in Rule 405 under the Securities Act) of any such person has had, either
directly or indirectly, (a) an interest in any person that (i) furnishes or
sells services or products that are furnished or sold or are proposed to be
furnished or sold by Parent or any Subsidiary or (ii) purchases from or sells or
furnishes to Parent or any Subsidiary any goods or services, or (b) a beneficial
interest in any contract or agreement to which Parent or any Subsidiary is a
party or by which it may be bound or affected. Neither Parent or any Subsidiary
has extended or maintained credit, arranged for the extension of credit, or
renewed an extension of credit, in the form of a personal loan to or for any
director or executive officer (or equivalent thereof) of the Parent or any
Subsidiary.
3.31 Duty to Make Inquiry. To the extent that any of the representations
or warranties in this Section 3 are qualified by "knowledge" or "belief," Parent
represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
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3.32 Accountants. Xxxxx Winter Xxxxxxxxx & Co., LLP are and has been
throughout the periods covered by such financial statements (a) a registered
public accounting firm (as defined in Section 2(a)(12) of the Xxxxxxxx-Xxxxx Act
of 2002, (b) "independent" with respect to Parent within the meaning of
Regulation S-X and (c) in compliance with subsections (g) through (l) of Section
10A of the Exchange Act and the related rules of the Commission and the Public
Company Accounting Oversight Board. Schedule 3.32 lists all non-audit services
performed by Xxxxx Winter Xxxxxxxxx & Co., LLP for Parent and/or any Subsidiary
since January 1, 2003. None of the reports of Xxxxx Winter Xxxxxxxxx & Co., LLP
on the financial statements of Parent for either of the past two fiscal years
contained an adverse opinion or a disclaimer of opinion, or was qualified as to
uncertainty, audit scope, or accounting principles. During Parent's two most
recent fiscal years and the subsequent interim periods, there were no
disagreements with Xxxxx Winter Xxxxxxxxx & Co., LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedures. None of the reportable events listed in Item 304(a)(1)(iv) of
Regulation S-B occurred with respect to Xxxxx Winter Xxxxxxxxx & Co., LLP.
3.33 Minute Books. The minute books, if any, of Parent and each
Subsidiary contain, in all material respects, a complete and accurate summary of
all meetings of directors and stockholders or actions by written resolutions
since the time of organization of each such corporation through the date of this
Agreement, and reflect all transactions referred to in such minutes and
resolutions accurately, except for omissions which are not material. Parent has
provided true and complete copies of all such minute books, if any, to the
Company's representatives.
3.34 Board Action. The Parent's Board of Directors (a) has unanimously
determined that the Merger is advisable and in the best interests of the
Parent's stockholders and is on terms that are fair to such Parent stockholders
and (b) has caused the Parent, in its capacity as the sole stockholder of the
Acquisition Subsidiary, and the Board of Directors of the Acquisition
Subsidiary, to approve the Merger and this Agreement by written consent.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
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4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at
its expense, all waivers, permits, consents, approvals or other authorizations
from Governmental Entities, and to effect all registrations, filings and notices
with or to Governmental Entities, as may be required for such Party to
consummate the transactions contemplated by this Agreement and to otherwise
comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to obtain,
at its expense, all such waivers, consents or approvals from third parties, and
to give all such notices to third parties, as are required to be listed in
Section 2.4 of the Disclosure Schedule.
4.3 Current Report. As soon as reasonably practicable after the
execution of this Agreement, the Parties shall prepare a current report on Form
8-K relating to this Agreement and the transactions contemplated hereby (the
"Current Report"). Each of the Company and Parent shall use its reasonable
efforts to cause the Current Report to be filed with the SEC within four
business days of the execution of this Agreement and to otherwise comply with
all requirements of applicable federal and state securities laws. Further, the
Parties shall prepare and file with the SEC an amendment to the Current Report
within four business days after the Closing Date, if such Current Report was
filed before the Closing Date.
4.4 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, prior to the Effective Time, the Company shall
not (and shall cause each Subsidiary not to), without the written consent of the
Parent:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any Warrants, Options or other rights to acquire
any such stock or other securities (except pursuant to the conversion or
exercise of convertible securities or Options or Warrants outstanding on the
date hereof), or amend any of the terms of (including without limitation the
vesting of) any such convertible securities or Options or Warrants;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
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(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement or (except for normal increases
in the Ordinary Course of Business for employees who are not Affiliates)
increase in any manner the compensation or fringe benefits of, or materially
modify the employment terms of, its directors, officers or employees, generally
or individually, or pay any bonus or other benefit to its directors, officers or
employees;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or subject
any such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents;
(i) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(j) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive any rights
under, any material contract or agreement;
(k) institute or settle any Legal Proceeding;
(l) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied; or
(m) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Access to Information.
(a) The Company shall (and shall cause each Subsidiary to) permit
representatives of the Parent to have full access (at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Company and the Subsidiaries) to all premises, properties, financial and
accounting records, contracts, other records and documents, and personnel, of or
pertaining to the Company and each Subsidiary.
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(b) Each of the Parent and the Acquisition Subsidiary (i) shall
treat and hold as confidential any Company Confidential Information (as defined
below), (ii) shall not use any of the Company Confidential Information except in
connection with this Agreement, and (iii) if this Agreement is terminated for
any reason whatsoever, shall return to the Company all tangible embodiments (and
all copies) thereof which are in its possession. For purposes of this Agreement,
"Company Confidential Information" means any confidential or proprietary
information of the Company or any Subsidiary that is furnished in writing to the
Parent or the Acquisition Subsidiary by the Company or any Subsidiary in
connection with this Agreement and is labeled confidential or proprietary;
provided, however, that it shall not include any information (A) which, at the
time of disclosure, is available publicly, (B) which, after disclosure, becomes
available publicly through no fault of the Parent or the Acquisition Subsidiary,
(C) which the Parent or the Acquisition Subsidiary knew or to which the Parent
or the Acquisition Subsidiary had access prior to disclosure, or (D) which the
Parent or the Acquisition Subsidiary rightfully obtains from a source other than
the Company or a Subsidiary.
4.6 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Parent shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, prior to the Effective Time, the Parent shall
not (and shall cause each Subsidiary not to), without the written consent of the
Company:
(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities, except as contemplated by, and in connection with,
the Private Placement Offering;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock,
except as contemplated by, and in connection with, the Stock Split;
(c) create, incur or assume any indebtedness (including
obligations in respect of capital leases); assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
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(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement or (except for normal increases
in the Ordinary Course of Business for employees who are not Affiliates)
increase in any manner the compensation or fringe benefits of, or materially
modify the employment terms of, its directors, officers or employees, generally
or individually, or pay any bonus or other benefit to its directors, officers or
employees, except for the adoption of Parent Option Plan covering 4,000,000
shares of Parent Common Stock in connection with the Merger;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or subject
any such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any
obligation or liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents;
(i) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
(j) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive any rights
under, any material contract or agreement;
(k) institute or settle any Legal Proceeding;
(l) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Parent and/or the
Acquisition Subsidiary set forth in this Agreement becoming untrue or (ii) any
of the conditions to the Merger set forth in Article V not being satisfied; or
(m) agree in writing or otherwise to take any of the foregoing
actions.
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4.7 Access to Information.
(a) The Parent shall (and shall cause the Acquisition Subsidiary
to) permit representatives of the Company to have full access (at all reasonable
times, and in a manner so as not to interfere with the normal business
operations of the Parent and the Acquisition Subsidiary) to all premises,
properties, financial and accounting records, contracts, other records and
documents, and personnel, of or pertaining to the Parent and the Acquisition
Subsidiary.
(b) The Company (i) shall treat and hold as confidential any
Parent Confidential Information (as defined below), (ii) shall not use any of
the Parent Confidential Information except in connection with this Agreement,
and (iii) if this Agreement is terminated for any reason whatsoever, shall
return to the Parent all tangible embodiments (and all copies) thereof which are
in its possession. For purposes of this Agreement, "Parent Confidential
Information" means any confidential or proprietary information of the Parent or
any Subsidiary that is furnished in writing to the Company by the Parent or the
Acquisition Subsidiary in connection with this Agreement and is labeled
confidential or proprietary; provided, however, that it shall not include any
information (A) which, at the time of disclosure, is available publicly, (B)
which, after disclosure, becomes available publicly through no fault of the
Company, (C) which the Company knew or to which the Company had access prior to
disclosure or (D) which the Company rightfully obtains from a source other than
the Parent or the Acquisition Subsidiary.
4.8 Expenses. The costs and expenses (including legal fees and expenses
of Parent and the Company) incurred in connection with this Agreement and the
transactions contemplated hereby shall be payable at Closing from the proceeds
of the Private Placement Offering.
4.9 Indemnification.
(a) The Parent shall not, for a period of three years after the
Effective Time, take any action to alter or impair any exculpatory or
indemnification provisions now existing in the certificate of incorporation or
bylaws of the Company for the benefit of any individual who served as a director
or officer of the Company at any time prior to the Effective Time, except for
any changes which may be required to conform with changes in applicable law and
any changes which do not affect the application of such provisions to acts or
omissions of such individuals prior to the Effective Time.
(b) From and after the Effective Time, the Parent agrees that it
will, and will cause the Surviving Corporation to, indemnify and hold harmless
each present and former director and officer of the Company (the "Indemnified
Executives") against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted under Delaware law (and the Parent and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under Delaware law, provided the Indemnified Executive to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Indemnified Executive is not entitled to
indemnification).
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4.10 Listing of Merger Shares. The Parent shall take whatever steps are
necessary to cause the Merger Shares to be eligible for quotation on the NASD's
OTC Bulletin Board.
4.11 Stock Split. The Parent shall take whatever steps are necessary to
enable it to effect the Stock Split prior to or as of the Effective Time.
4.12 Stock Option Plan. The Board of Directors of Parent shall adopt the
Parent Option Plan reserving for issuance 4,000,000 shares of Parent Common
Stock, subject to ratification of Parent's shareholders after the Effective
Time.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations
of each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the
Requisite Company Stockholder Approval;
(b) the completion of the offer and sale of the Private Placement
Offering; and
(c) satisfactory completion by Parent and Company of all necessary
legal due diligence.
5.2 Conditions to Obligations of the Parent and the Acquisition
Subsidiary. The obligation of each of the Parent and the Acquisition Subsidiary
to consummate the Merger is subject to the satisfaction (or waiver by the
Parent) of the following additional conditions:
(a) the number of Dissenting Shares shall not exceed 10% of the
number of outstanding Company Shares as of the Effective Time;
(b) the Company and its Subsidiaries shall have obtained (and
shall have provided copies thereof to the Parent) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Company or the Subsidiaries, except for any the
failure of which to obtain or effect would not, individually or in the
aggregate, have a Company Material Adverse Effect or a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement;
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(c) the representations and warranties of the Company set forth in
this Agreement shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Effective Time as though made as of the
Effective Time, except to the extent that the inaccuracy of any such
representation or warranty is the result of events or circumstances occurring
subsequent to the date of this Agreement and any such inaccuracies, individually
or in the aggregate, would not have a Company Material Adverse Effect or a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement (it being agreed that any
materiality qualifications in particular representations and warranties shall be
disregarded in determining whether any such inaccuracies would have a Company
Material Adverse Effect for purposes of this Section 5.2(c));
(d) the Company shall have performed or complied in all material
respects with its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Effective Time;
(e) no Legal Proceeding shall be pending wherein an unfavorable
judgment, order, decree, stipulation or injunction would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation or (iii) have, individually or in the aggregate, a
Company Material Adverse Effect, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
(f) the Company shall have delivered to the Parent and the
Acquisition Subsidiary a certificate (the "Company Certificate") to the effect
that each of the conditions specified in clauses (a) and (c) of Section 5.1 and
clauses (a) through (e) (insofar as clause (e) relates to Legal Proceedings
involving the Company or a Subsidiary) of this Section 5.2 is satisfied in all
respects; and
(g) the Parent shall have received from McGuireWoods LLP, counsel
to the Company, an opinion with respect to the matters set forth in Exhibit B
attached hereto, addressed to the Parent and dated as of the Closing Date.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Parent shall have obtained (and shall have provided copies
thereof to the Company and its Subsidiaries) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Parent, except for any the failure of which to
obtain or effect would not, individually or in the aggregate, have a Parent
Material Adverse Effect or a material adverse effect on the ability of the
Parties to consummate the transactions contemplated by this Agreement;
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(b) the representations and warranties of the Parent set forth in
this Agreement shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Effective Time as though made as of the
Effective Time, except to the extent that the inaccuracy of any such
representation or warranty is the result of events or circumstances occurring
subsequent to the date of this Agreement and any such inaccuracies, individually
or in the aggregate, would not have a Parent Material Adverse Effect or a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement (it being agreed that any
materiality qualifications in particular representations and warranties shall be
disregarded in determining whether any such inaccuracies would have a Parent
Material Adverse Effect for purposes of this Section 5.3(b));
(c) each of the Parent and the Acquisition Subsidiary shall have
performed or complied with its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective Time;
(d) no Legal Proceeding shall be pending wherein an unfavorable
judgment, order, decree, stipulation or injunction would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation or (iii) have, individually or in the aggregate, a Parent
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
(e) the Parent shall have delivered to the Company a certificate
(the "Parent Certificate") to the effect that each of the conditions specified
in clauses (a) through (d) (insofar as clause (d) relates to Legal Proceedings
involving the Parent) of this Section 5.3 is satisfied in all respects;
(f) the Company shall have received from Gottbetter & Partners,
LLP, counsel to the Parent and the Acquisition Subsidiary, an opinion with
respect to the matters set forth in Exhibit C attached hereto, addressed to the
Company and dated as of the Closing Date;
(g) the total number of shares of Parent Common Stock issued and
outstanding immediately prior to the Effective Time shall equal 15,000,002
shares, after giving effect to the Stock Split and the Share Contribution, but
excluding (i) the shares of Parent Common Stock to be issued to accredited
investors in the Private Placement Offering and (ii) 600,000 shares of Parent
Common Stock to be issued to financial advisors in connection with the Private
Placement Offering;
(h) each of Xxxx Xxxxxx and Xxx Xxxxx shall have executed an
employment agreement reasonably satisfactory to Xxxx Xxxxxx and Xxx Xxxxx, as
the case may be, and Parent and the Company related to the employment of Xxxx
Xxxxxx and Xxx Xxxxx by the Surviving Corporation;
(i) the Parent shall have adopted the Parent Option Plan;
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(j) the Company shall have received a certificate of Parent's
transfer agent and registrar certifying that as of the Closing Date there are
38,437,500 shares of Parent Common Stock issued and outstanding (without giving
effect to the 23,437,500 shares of Parent Common Stock to be retired in
connection with the Share Contribution and the shares of Parent Common Stock to
be issued in the Private Placement Offering).
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Stockholders. The Indemnifying
Stockholders receiving the Merger Shares pursuant to Section 1.5 shall indemnify
the Parent in respect of, and hold it harmless against, any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) ("Damages") incurred or suffered by the Surviving Corporation or
the Parent or any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Company contained in this Agreement or the Company
Certificate;
(b) any failure of any Company Stockholder to have good, valid and
marketable title to the issued and outstanding Company Shares issued in the name
of such Company Stockholder, free and clear of all Security Interests; or
(c) any claim by a stockholder or former stockholder of the Company, or
any other person or entity, seeking to assert, or based upon: (i) ownership or
rights to ownership of any shares of stock of the Company; (ii) any rights of a
stockholder (other than the right to receive the Merger Shares pursuant to this
Agreement or appraisal rights under the applicable provisions of the GCL),
including any option, preemptive rights or rights to notice or to vote; (iii)
any rights under the certificate of incorporation or bylaws of the Company; or
(iv) any claim that his, her or its shares were wrongfully repurchased by the
Company.
6.2 Indemnification by the Parent.
(a) The Parent shall indemnify the Indemnifying Stockholders in
respect of, and hold them harmless against, any and all Damages incurred or
suffered by the Indemnifying Stockholders resulting from, relating to or
constituting any misrepresentation, breach of warranty or failure to perform any
covenant or agreement of the Parent or the Acquisition Subsidiary contained in
this Agreement or the Parent Certificate.
(b) The post-Closing adjustment mechanism set forth in Section
1.13 is intended to secure the indemnification obligations of the Parent under
this Agreement and shall be the exclusive means for the Indemnifying
Stockholders to collect any Damages for which they are entitled to
indemnification under this Article VI.
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6.3 Indemnification Claims by the Parent.
(a) In the event the Parent is entitled, or seeks to assert
rights, to indemnification under Section 6.1, Parent shall give written
notification to the Indemnifying Stockholders of the commencement of any suit or
proceeding relating to a third party claim for which indemnification pursuant to
this Article VI may be sought. Such notification shall be given within 20
business days after receipt by the Parent of notice of such suit or proceeding,
and shall describe in reasonable detail (to the extent known by the Parent) the
facts constituting the basis for such suit or proceeding and the amount of the
claimed damages; provided, however, that no delay on the part of the Parent in
notifying the Indemnifying Stockholders shall relieve the Indemnifying
Stockholders of any liability or obligation hereunder except to the extent of
any damage or liability caused by or arising out of such failure. Within 20 days
after delivery of such notification, the Indemnifying Stockholders may, upon
written notice thereof to the Parent, assume control of the defense of such suit
or proceeding with counsel reasonably satisfactory to the Parent; provided that
(i) the Indemnifying Stockholders may only assume control of such defense if (A)
it acknowledges in writing to the Parent that any damages, fines, costs or other
liabilities that may be assessed against the Parent in connection with such suit
or proceeding constitute Damages for which the Parent shall be indemnified
pursuant to this Article VI and (B) the ad damnum is less than or equal to the
amount of Damages for which the Indemnifying Stockholders are liable under this
Article VI and (ii) the Indemnifying Stockholders may not assume control of the
defense of a suit or proceeding involving criminal liability or in which
equitable relief is sought against the Parent. If the Indemnifying Stockholders
do not so assume control of such defense, the Parent shall control such defense.
The party not controlling such defense (the "Non-Controlling Party") may
participate therein at its own expense; provided that if the Indemnifying
Stockholders assume control of such defense and the Parent reasonably concludes
that the Indemnifying Stockholders and the Parent have conflicting interests or
different defenses available with respect to such suit or proceeding, the
reasonable fees and expenses of counsel to the Parent shall be considered
"Damages" for purposes of this Agreement. The party controlling such defense
(the "Controlling Party") shall keep the Non-Controlling Party advised of the
status of such suit or proceeding and the defense thereof and shall consider in
good faith recommendations made by the Non-Controlling Party with respect
thereto. The Non-Controlling Party shall furnish the Controlling Party with such
information as it may have with respect to such suit or proceeding (including
copies of any summons, complaint or other pleading which may have been served on
such party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with and assist
the Controlling Party in the defense of such suit or proceeding. The
Indemnifying Stockholders shall not agree to any settlement of, or the entry of
any judgment arising from, any such suit or proceeding without the prior written
consent of the Parent, which shall not be unreasonably withheld or delayed;
provided that the consent of the Parent shall not be required if the
Indemnifying Stockholders agree in writing to pay any amounts payable pursuant
to such settlement or judgment and such settlement or judgment includes a
complete release of the Parent from further liability and has no other adverse
effect on the Parent. The Parent shall not agree to any settlement of, or the
entry of any judgment arising from, any such suit or proceeding without the
prior written consent of the Indemnifying Stockholders, which shall not be
unreasonably withheld or delayed.
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(b) In order to seek indemnification under this Article VI, Parent
shall give written notification (a "Claim Notice") to the Indemnifying
Stockholders which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Parent, (ii) a statement that the Parent is entitled to indemnification under
this Article VI for such Damages and a reasonable explanation of the basis
therefor, and (iii) a demand for payment (in the manner provided in paragraph
(c) below) in the amount of such Damages. The Indemnifying Stockholders shall
deliver a copy of the Claim Notice to the Escrow Agent.
(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Stockholders shall deliver to the Parent a written response (the
"Response") in which the Indemnifying Stockholders shall: (i) agree that the
Parent is entitled to receive all of the Claimed Amount (in which case the
Indemnifying Stockholders and the Parent shall deliver to the Escrow Agent,
within three days following the delivery of the Response, a written notice
executed by both parties instructing the Escrow Agent to distribute to the
Parent such number of Escrow Shares as have an aggregate Value (as defined
below) equal to the Claimed Amount), (ii) agree that the Parent is entitled to
receive part, but not all, of the Claimed Amount (the "Agreed Amount") (in which
case the Indemnifying Stockholders and the Parent shall deliver to the Escrow
Agent, within three days following the delivery of the Response, a written
notice executed by both parties instructing the Escrow Agent to distribute to
the Parent such number of Escrow Shares as have an aggregate Value (as defined
below) equal to the Agreed Amount) or (iii) dispute that the Parent is entitled
to receive any of the Claimed Amount. If the Indemnifying Stockholders in the
Response disputes its liability for all or part of the Claimed Amount, the
Indemnifying Stockholders and the Parent shall follow the procedures set forth
in Section 6.3(d) for the resolution of such dispute (a "Dispute"). For purposes
of this Article VI, the "Value" of any Escrow Shares delivered in satisfaction
of an indemnity claim shall be $1.00 per Escrow Share (subject to equitable
adjustment in the event of any stock split, stock dividend, reverse stock split
or similar event affecting the Parent Common Stock since the Closing Date),
multiplied by the number of such Escrow Shares.
(d) During the 60-day period following the delivery of a Response
that reflects a Dispute, the Indemnifying Stockholders and the Parent shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved within
such 60-day period, the Indemnifying Stockholders and the Parent shall discuss
in good faith the submission of the Dispute to a mutually acceptable alternative
dispute resolution procedure (which may be non-binding or binding upon the
parties, as they agree in advance) (the "ADR Procedure"). In the event the
Indemnifying Stockholders and the Parent agree upon an ADR Procedure, such
parties shall, in consultation with the chosen dispute resolution service (the
"ADR Service"), promptly agree upon a format and timetable for the ADR
Procedure, agree upon the rules applicable to the ADR Procedure, and promptly
undertake the ADR Procedure. The provisions of this Section 6.3(d) shall not
obligate the Indemnifying Stockholders and the Parent to pursue an ADR Procedure
or prevent either such Party from pursuing the Dispute in a court of competent
jurisdiction; provided that, if the Indemnifying Stockholders and the Parent
agree to pursue an ADR Procedure, neither the Indemnifying Stockholders nor the
Parent may commence litigation or seek other remedies with respect to the
Dispute prior to the completion of such ADR Procedure. Any ADR Procedure
undertaken by the Indemnifying Stockholders and the Parent shall be considered a
compromise negotiation for purposes of federal and state rules of evidence, and
all statements, offers, opinions and disclosures (whether written or oral) made
in the course of the ADR Procedure by or on behalf of the Indemnifying
Stockholders, the Parent or the ADR Service shall be treated as confidential
and, where appropriate, as privileged work product. Such statements, offers,
opinions and disclosures shall not be discoverable or admissible for any
purposes in any litigation or other proceeding relating to the Dispute (provided
that this sentence shall not be construed to exclude from discovery or admission
any matter that is otherwise discoverable or admissible). The fees and expenses
of any ADR Service used by the Indemnifying Stockholders and the Parent shall be
shared equally by the Indemnifying Stockholders and the Parent. The Parent and
the Indemnifying Stockholders shall deliver to the Escrow Agent, promptly
following the resolution of the Dispute (whether by mutual agreement, pursuant
to an ADR Procedure, as a result of a judicial decision or otherwise), a written
notice executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to the Parent (which notice
shall be consistent with the terms of the resolution of the Dispute).
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(e) Notwithstanding the other provisions of this Section 6.3, if a
third party asserts (other than by means of a lawsuit) that the Parent is liable
to such third party for a monetary or other obligation which may constitute or
result in Damages for which such Parent may be entitled to indemnification
pursuant to this Article VI, and the Parent reasonably determines that it has a
valid business reason to fulfill such obligation, then (i) Parent shall be
entitled to satisfy such obligation, with prior notice to but without prior
consent from the Indemnifying Stockholders, (ii) Parent may subsequently make a
claim for indemnification in accordance with the provisions of this Article VI,
and (iii) Parent shall be reimbursed, in accordance with the provisions of this
Article VI, for any such Damages for which it is entitled to indemnification
pursuant to this Article VI (subject to the right of the Indemnifying
Stockholders to dispute the Parent's entitlement to indemnification, or the
amount for which it is entitled to indemnification, under the terms of this
Article VI).
(f) For purposes of this Section 6.3 and the last two sentences of
Section 6.4, any references to the Indemnifying Stockholders (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives. The Indemnification Representatives shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Stockholders under this
Article VI. The Indemnification Representatives shall have no liability to any
Indemnifying Stockholder for any action taken or omitted on behalf of the
Indemnifying Stockholders pursuant to this Article VI.
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6.4 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Company Certificate or the Parent
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of Parent or the Indemnifying Stockholders and (b) shall expire
on the date two years following the Closing Date. If Parent delivers to an
Indemnifying Stockholders, before expiration of a representation or warranty,
either a Claim Notice based upon a breach of such representation or warranty, or
a notice that, as a result a legal proceeding instituted by or written claim
made by a third party, the Parent reasonably expects to incur Damages as a
result of a breach of such representation or warranty (an "Expected Claim
Notice"), then such representation or warranty shall survive until, but only for
purposes of, the resolution of the matter covered by such notice. If the legal
proceeding or written claim with respect to which an Expected Claim Notice has
been given is definitively withdrawn or resolved in favor of the Parent, the
Parent shall promptly so notify the Indemnifying Stockholders; and if the Parent
has delivered a copy of the Expected Claim Notice to the Escrow Agent and Escrow
Shares have been retained in escrow after the Termination Date (as defined in
the Escrow Agreement) with respect to such Expected Claim Notice, the
Indemnifying Stockholders and the Parent shall promptly deliver to the Escrow
Agent a written notice executed by both parties instructing the Escrow Agent to
distribute such retained Escrow Shares to the Indemnifying Stockholders in
accordance with the terms of the Escrow Agreement.
6.5 Limitations on Parent's Claims for Indemnification.
(a) Notwithstanding anything to the contrary herein, the Parent
shall not be entitled to recover, or be indemnified for, Damages arising out of
a misrepresentation or breach of warranty set forth in Article II unless and
until the aggregate of all such Damages paid or payable by the Indemnifying
Stockholders collectively exceeds $50,000 (the "Damages Threshold") and then, if
such aggregate threshold is reached, the Parent shall only be entitled to
recover for Damages in excess of such respective threshold; and in no event
shall any Indemnifying Stockholder be liable under this Article VI for an
aggregate amount, whether paid in cash or in shares of Parent Common Stock,
greater than the product of the number of Escrow Shares held on account of such
Indemnifying Stockholder, pursuant to Section 1.5 above, multiplied by the
Value. For purposes of the preceding sentence, each Escrow Share delivered by a
party in payment of his or its obligations under this Article VI shall be valued
at the Value.
(b) The Escrow Agreement is intended to secure the indemnification
obligations of the Indemnifying Stockholders under this Agreement and shall be
the exclusive means for the Parent to collect any Damages for which it is
entitled to indemnification under this Article VI.
(c) Except with respect to claims based on fraud, after the
Closing, the rights of the Indemnified Stockholders and the Parent under this
Article VI and the Escrow Agreement shall be the exclusive remedy of the
Indemnified Stockholders and the Parent with respect to claims resulting from or
relating to any misrepresentation, breach of warranty or failure to perform any
covenant or agreement contained in this Agreement.
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(d) No Indemnifying Stockholder shall have any right of
contribution against the Surviving Corporation with respect to any breach by the
Company of any of its representations, warranties, covenants or agreements. The
amount of Damages recoverable by Parent under this Article VI with respect to an
indemnity claim shall be reduced by (i) any proceeds received by Parent with
respect to the Damages to which such indemnity claim relates, from an insurance
carrier and (ii) the amount of any tax savings actually realized by Parent, for
the tax year in which such Damages are incurred, which are clearly attributable
to the Damages to which such indemnity claim relates (net of any increased tax
liability which may result from the receipt of the indemnity payment or any
insurance proceeds relating to such Damages).
ARTICLE VII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Acquisition Subsidiary Introduction
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.13(a)(vii)
Agreed Amount 6.3(c)
Agreement Introduction
CERCLA 2.20(a)
Certificates 1.7
Certificate of Merger 1.1
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Claims 1.13
Closing 1.2
Closing Date 1.2
Code Introduction
Common Conversion Ratio 1.5(b)
Company Introduction
Company Certificate 5.3(e)
Company Confidential Information 4.5(b)
Company Material Adverse Effect 2.1
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Company Shares 1.5(a)
Company Stockholder 1.3(d)
Contemplated Transactions 8.3
Controlling Party 6.3(a)
Current Report 4.3(a)
Damages 6.1
Damages Threshold 6.5(a)
Defaulting Party 8.6
Disclosure Schedule Article II
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.19(a)(i)
Environmental Law 2.20(a)
ERISA 2.19(a)(ii)
ERISA Affiliate 2.19(a)(iii)
Escrow Agent 1.3(g)
Escrow Agreement 1.3(g)
Escrow Shares 1.5(b)
Exchange Act 2.6
Expected Claim Notice 6.4
GAAP 2.6
GCL 1.1
Governmental Entity 2.4
Indemnification Representative 1.3(g)
Indemnified Executives 4.9(b)
Indemnifying Stockholders 1.5(b)
Initial Shares 1.5(b)
Legal Proceeding 2.17
Loss 1.13
Merger Introduction
Merger Shares 1.5(b)
Non-Controlling Party 6.3(a)
Non-Defaulting Party 8.6
Options 1.5(b)
Ordinary Course of Business 2.4
Organization Date 2.6
OTCBB 3.2
Parent Introduction
Parent Certificate 5.3(e)
Parent Common Stock 1.5(a)
Parent Confidential Information 4.7(b)
Parent Disclosure Schedule Article III
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Parent Liabilities 1.13
Parent Material Adverse Effect 3.1
Parent Options 1.8(a)
Parent Option Plan 1.8(a)
Parent Reports 3.6
Party Introduction
Permits 2.23
PPO Price Introduction
Private Placement Offering Introduction
Reasonable Best Efforts 4.1
Requisite Company Stockholder Approval 2.3
Response 6.3(c)
SEC 1.13
Securities Act 1.14
Security Interest 2.4
Share Contribution 3.2
Stock Split 3.2
Subsidiary 2.5(a)
Surviving Corporation 1.1
Tax Returns 2.9(a)(ii)
Taxes 2.9(a)(i)
Transaction Documentation 3.3
Value 6.3(c)
Warrants 1.5(b)
ARTICLE VIII
TERMINATION
8.1 Termination by Mutual Agreement. This Agreement may be terminated at
any time by mutual consent of the parties hereto, provided that such consent to
terminate is in writing and is signed by each of the parties hereto.
8.2 Termination for Failure to Close. This Agreement shall be
automatically terminated if the Closing Date shall not have occurred by
September 7, 2006.
8.3 Termination by Operation of Law. This Agreement may be terminated by
any Party hereto if there shall be any statute, rule or regulation that renders
consummation of the transactions contemplated by this Agreement (the
"Contemplated Transactions) illegal or otherwise prohibited, or a court of
competent jurisdiction or any government (or governmental authority) shall have
issued an order, decree or ruling, or has taken any other action restraining,
enjoining or otherwise prohibiting the consummation of such transactions and
such order, decree, ruling or other action shall have become final and
nonappealable.
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8.4 Termination for Failure to Perform Covenants or Conditions. This
Agreement may be terminated prior to the Effective Time:
(a) by the Parent and the Acquisition Subsidiary if: (i) any of
the representations and warranties made in this Agreement by the Company shall
not be materially true and correct, when made or at any time prior to
consummation of the Contemplated Transactions as if made at and as of such time;
(ii) any of the conditions set forth in Section 5.2 hereof have not been
fulfilled in all material respects by the Closing Date; (iii) the Company shall
have failed to observe or perform any of its material obligations under this
Agreement; or (iv) as otherwise set forth herein; or
(b) by the Company if: (i) any of the representations and
warranties of the Parent or the Acquisition Subsidiary shall not be materially
true and correct when made or at any time prior to consummation of the
Contemplated Transactions as if made at and as of such time; (ii) any of the
conditions set forth in Section 5.3 hereof have not been fulfilled in all
material respects by the Closing Date; (iii) the Parent or the Acquisition
Subsidiary shall have failed to observe or perform any of their material
respective obligations under this Agreement; or (iv) as otherwise set forth
herein.
8.5 Effect of Termination or Default; Remedies. In the event of
termination of this Agreement as set forth above, this Agreement shall forthwith
become void and there shall be no liability on the part of any Party hereto,
provided that such Party is a Non-Defaulting Party (as defined below). The
foregoing shall not relieve any Party from liability for damages actually
incurred as a result of such Party's breach of any term or provision of this
Agreement.
8.6 Remedies; Specific Performance. In the event that any Party shall
fail or refuse to consummate the Contemplated Transactions or if any default
under or beach of any representation, warranty, covenant or condition of this
Agreement on the part of any Party (the "Defaulting Party") shall have occurred
that results in the failure to consummate the Contemplated Transactions, then in
addition to the other remedies provided herein, the non-defaulting Party (the
"Non-Defaulting Party") shall be entitled to seek and obtain money damages from
the Defaulting Party, or may seek to obtain an order of specific performance
thereof against the Defaulting Party from a court of competent jurisdiction,
provided that the Non-Defaulting Party seeking such protection must file its
request with such court within forty-five (45) days after it becomes aware of
the Defaulting Party's failure, refusal, default or breach. In addition, the
Non-Defaulting Party shall be entitled to obtain from the Defaulting Party court
costs and reasonable attorneys' fees incurred in connection with or in pursuit
of enforcing the rights and remedies provided hereunder.
ARTICLE IX
MISCELLANEOUS
9.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
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9.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Shares, Article VI concerning
indemnification and Article VII concerning registration rights are intended for
the benefit of the Company Stockholders and (b) the provisions in Section 4.9
concerning indemnification are intended for the benefit of the individuals
specified therein and their successors and assigns.
9.3 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
9.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Acquisition Subsidiary may assign its
rights, interests and obligations hereunder to a wholly-owned subsidiary of the
Parent.
9.5 Counterparts and Facsimile Signature. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be executed by facsimile signature.
9.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company and Parent (subsequent to the Copy to (which copy shall not constitute notice
Closing): hereunder):
Xxxxxx Energy, Inc. McGuireWoods LLP
c/o McGuireWoods LLP 1345 Avenue of the Americas
0000 Xxxxxx xx xxx Xxxxxxxx Xxx Xxxx, XX 00000
Xxx Xxxx, XX 00000 Attn: Xxxxx X. Xxxxx, Esq.
Attn: Xxxx Xxxxxx, Chief Executive Officer Facsimile: (000) 000-0000
Facsimile: (000) 000-0000
If to the Parent or Copy to (which copy shall not constitute notice
the Acquisition Subsidiary (prior to the Closing): hereunder):
Alternative Energy Sources, Inc.
00 Xxxx 00xx Xxxxxx, Xxxxxxxxx Xxxxxxxxxx & Xxxxxxxx, XXX
Xxxxxxx Xxxxxxxx, X0X 0X0, Xxxxxx 000 Xxxxxxx Xxxxxx, 00xx Xxxxx
Attn: Xxxxxxx Xxxxxxx, President and Chief Executive Xxx Xxxx, XX 00000
Officer Attn: Xxxx X. Xxxxxxxxxx, Esq.
Facsimile: (000) 000-0000
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Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the Party for whom it is intended. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
9.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of laws of any
jurisdictions other than those of the State of New York.
9.9 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time. No amendment of any
provision of this Agreement shall be valid unless the same shall be in writing
and signed by all of the Parties. No waiver of any right or remedy hereunder
shall be valid unless the same shall be in writing and signed by the Party
giving such waiver. No waiver by any Party with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
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9.10 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
9.11 Submission to Jurisdiction. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in the County of New York in
the State of New York in any action or proceeding arising out of or relating to
this Agreement, (b) agrees that all claims in respect of such action or
proceeding may be heard and determined in any such court, and (c) agrees not to
bring any action or proceeding arising out of or relating to this Agreement in
any other court. Each of the Parties waives any defense of inconvenient forum to
the maintenance of any action or proceeding so brought and waives any bond,
surety or other security that might be required of any other Party with respect
thereto. Any Party may make service on another Party by sending or delivering a
copy of the process to the Party to be served at the address and in the manner
provided for the giving of notices in Section 9.7. Nothing in this Section 9.11,
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law.
9.12 Construction.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute
or law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
\ [SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
PARENT
ALTERNATIVE ENERGY SOURCES, INC.
By:________________________________
Name: Xxxxxxx Xxxxxxx
Title: President and Chief Executive Officer
ACQUISITION SUBSIDIARY
XXXXXX ACQUISITION CORP.
By:________________________________
Name: Xxxxxxx Xxxxxxx
Title: President and Chief Executive Officer
COMPANY
XXXXXX ENERGY, INC.
By:________________________________
Name: Xxxx Xxxxxx
Title: President and Chief Executive Officer
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