EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
SOURCE ATLANTIC, INC.
AND
SOURCE ATLANTIC ACQUISITION CORP.
AND
PARENTECH, INC.
DATED
MAY 13, 2004
TABLE OF CONTENTS
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ARTICLE 1 THE MERGER
1.1 The Merger........................................................................5
1.2 Closing; Effective Time...........................................................5
1.3 Effect of the Merger..............................................................6
1.4 Certificate of Incorporation; Bylaws..............................................6
1.5 Directors and Officers............................................................6
1.6 Effect on Capital Stock...........................................................6
1.7 Surrender of Certificates.........................................................8
1.8 No Further Ownership Rights in Company Common Stock...............................10
1.9 Lost, Stolen or Destroyed Certificates............................................10
1.10 Tax Consequences..................................................................10
1.11 Withholding Rights................................................................10
1.12 Termination of Exchange Agent Funding.............................................11
1.13 Taking of Necessary Action; Further Action........................................11
1.14 Appraisal Rights..................................................................11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization, Standing and Power..................................................12
2.2 Capital Structure.................................................................13
2.3 Authority.........................................................................13
2.4 Financial Statements..............................................................14
2.5 Absence of Certain Changes........................................................14
2.6 Accounting Practices..............................................................14
2.7 Receivables.......................................................................15
2.8 Payables..........................................................................15
2.9 Suppliers.........................................................................15
2.10 Inventory.........................................................................15
2.11 Intellectual Property.............................................................15
2.12 Litigation........................................................................17
2.13 Restrictions on Business Activities...............................................18
2.14 Government Authorization..........................................................18
2.15 Title to Property.................................................................18
2.16 Privacy Policies; Third Party Privacy Obligations; Web Site Terms
and Conditions....................................................................18
2.17 Environmental Matters.............................................................20
2.18 Taxes.............................................................................21
2.19 Employee Benefit Plans............................................................24
2.20 Contracts.........................................................................26
2.21 Certain Agreements Affected by the Merger.........................................28
2.22 Employee Matters..................................................................28
2.23 Insurance.........................................................................30
2.24 Bank Accounts; Powers of Attorney.................................................30
2.25 Compliance with Laws..............................................................31
2.26 Minute Books......................................................................31
2.27 Complete Copies of Materials......................................................31
2.28 Brokers' and Finders' Fees........................................................31
2.29 Vote Required.....................................................................31
2.30 Board Approval....................................................................31
2.31 State Takeover Statutes...........................................................31
2.32 Representations Complete..........................................................32
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
3.1 Organization, Standing and Power..................................................32
3.2 Capital Structure.................................................................33
3.3 Authority.........................................................................33
3.4 SEC Documents; Financial Statements...............................................34
3.5 Xxxxxxxx-Xxxxx Act of 2002........................................................34
3.6 Absence of Undisclosed Liabilities................................................35
3.7 Litigation........................................................................35
3.8 Restrictions on Business Activities...............................................36
3.9 Certain Agreements Affected by the Merger.........................................36
3.10 Interested Party Transactions.....................................................36
3.11 Compliance with Laws..............................................................36
3.12 Complete Copies of Materials......................................................36
3.13 Intellectual Property.............................................................36
3.14 Governmental Authorization........................................................38
3.15 Privacy Policies; Third Party Privacy Obligations; Web Site Terms
and Conditions....................................................................38
3.16 Environmental Matters.............................................................39
3.17 Taxes.............................................................................41
3.18 Employee Benefit Plans............................................................43
3.19 Contracts.........................................................................45
3.20 Certain Agreements Affected by the Merger.........................................47
3.21 Employee Matters..................................................................47
3.22 Insurance.........................................................................49
3.23 Brokers' and Finders' Fees........................................................49
3.24 Board Approval....................................................................49
3.25 State Takeover Statutes...........................................................50
3.26 Representations Complete..........................................................50
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business...............................................................59
4.2 Restrictions on Conduct of Business...............................................51
4.3 No solicitation by Company........................................................54
ARTICLE V ADDITIONAL AGREEMENTS
5.1 Meeting of Stockholders...........................................................55
5.2 Interim Funding...................................................................55
5.3 Reverse Stock split; Conversion of Certain Parent Indebtedness....................55
5.4 Audit.............................................................................56
5.5 Lock-Up Agreements; Parent Warrant................................................56
5.6 Access to Information.............................................................56
5.7 Confidentiality...................................................................57
5.8 Public Disclosure.................................................................57
5.9 Consents..........................................................................57
5.10 Legal Requirements................................................................58
5.11 Blue Sky Laws.....................................................................58
5.12 Indemnification...................................................................58
5.13 Tax Treatment.....................................................................61
5.14 Cooperation to Satisfy Government Authorities.....................................61
5.15 Stockholder Litigation............................................................61
5.16 Board of Directors................................................................61
5.17 Best Efforts and Further Assurances...............................................62
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
6.1 Representations and Warranties....................................................62
6.2 Performance of Covenants..........................................................62
6.3 Litigation........................................................................62
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6.4 Antitrust Laws Compliance.........................................................62
6.5 Shareholder Approval..............................................................62
6.6 Delivery of Documents.............................................................62
6.7 Material Changes..................................................................63
6.8 Certificate of Merger.............................................................63
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND MERGER SUB
7.1 Representations and Warranties....................................................64
7.2 Performance of Covenants..........................................................64
7.3 Litigation........................................................................64
7.4 Antitrust Laws Compliance.........................................................64
7.5 Consents and Approvals............................................................64
7.6 Material Changes..................................................................64
7.7 Shareholder Approval..............................................................64
7.8 Delivery of Documents.............................................................64
7.9 Certificate of Merger.............................................................65
ARTICLE VIII TERMINATION
8.1 Termination Events................................................................65
8.2 Effect of Termination.............................................................66
8.3 Amendment.........................................................................66
8.4 Waiver............................................................................66
ARTICLE IX MISCELLANEOUS
9.1 Captions and Headings.............................................................66
9.2 No Oral Change....................................................................66
9.3 Governing Law.....................................................................66
9.4 Public Announcements..............................................................67
9.5 Successors........................................................................67
9.6 Further Assurances................................................................67
9.7 Confidentiality...................................................................67
9.8 Notices...........................................................................67
9.9 Non-Waiver........................................................................68
9.10 Time of Essence...................................................................69
9.11 Remedies Cumulative...............................................................69
9.12 Severability......................................................................69
9.13 Entire Agreement..................................................................69
9.14 Rules of Construction.............................................................69
9.15 Expenses..........................................................................69
9.16 Counterparts......................................................................69
Signatures.................................................................................70
SCHEDULES
EXHIBITS
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement")
is made and entered into as of May 13, 2004, by and among Parentech, Inc., a
Delaware corporation ("Parent"), Source Atlantic Acquisition Corp., a Florida
corporation ("Merger Sub") and wholly owned subsidiary of Parent, and Source
Atlantic, Inc., a Delaware corporation ("Company").
RECITALS
A. The Boards of Directors of Company, Parent and Merger Sub believe it is
in the best interests of their respective companies and the
stockholders of their respective companies that Company and Merger Sub
combine into a single company through the statutory merger of Merger
Sub with and into Company (the "Merger") and, in furtherance thereof,
have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Company Common Stock, $0.001 par value ("Company Common Stock"), shall
be converted into the right to receive shares of Parent Common Stock,
$0.001 par value ("Parent Common Stock"), at the rate set forth herein.
C. Company, Parent and Merger Sub desire to make certain representations
and warranties and other agreements in connection with the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to cause the Merger
to qualify as a reorganization under the provisions of Sections 368 of
the Code, so that such exchange will constitute a tax-free share
exchange under the Code.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby conclusively acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE 1
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
Certificate of Merger attached hereto as Exhibit A and in accordance
with the applicable provisions of the Delaware General Corporation Law
("Delaware Law"), Merger Sub shall be merged with and into Company, the
separate corporate existence of Merger Sub shall cease and Company
shall continue as the surviving corporation. Company as the surviving
corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2. CLOSING; EFFECTIVE TIME. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after
the satisfaction or waiver of each of the conditions set forth in
Article VI hereof or at such other time as the parties hereto agree
(the "Closing Date"). The Closing shall take place at the offices of
Xxxxxx & Xxxxxx, LLP, or at such other location as the parties hereto
agree. Simultaneously with or as soon as practicable following the
Closing, the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger with the Secretary of State of the
State of Delaware, in accordance with the relevant provisions of
Delaware Law (the time of such filing being the "Effective Time").
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1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of Delaware Law. Without limiting the
generality of the foregoing, and subject thereto, at the Effective
Time, all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Company and Merger Sub shall become
the debts, liabilities and duties of the Surviving Corporation.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
1.4.1. At the Effective Time, the Certificate of Incorporation of
Company shall be amended so as to read in its entirety as set
forth in Exhibit A to the Certificate of Merger and as so
amended shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by
Delaware Law and such Certificate of Incorporation.
1.4.2. The Bylaws of Merger Sub, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
1.5. DIRECTORS AND OFFICERS. At the Effective Time, the directors of the
Surviving Corporation shall remain as directors of the Surviving
Corporation, in each case until their successors are elected or
appointed and qualified or until their earlier resignation or removal.
The officers of the Surviving Corporation shall remain as officers of
the Surviving Corporation, until their respective successors are duly
elected or appointed and qualified or until their earlier resignation
or removal.
1.6. EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any action
on the part of Merger Sub, Company or the holders of any of the
following securities:
1.6.1.1. CONVERSION OF COMPANY COMMON STOCK. At the Effective Time,
each of 1,370,615 (post split) shares of Company Common Stock
issued and outstanding immediately prior to the Effective Time
will be canceled and extinguished and be converted
automatically into the right to receive one share of Parent
Common Stock for each of the 1,370,615 (post split) shares of
Company Common Stock (the "Exchange Ratio"), subject to any
adjustments made pursuant to Section 1.6.5 (the "Merger
Consideration"). Each certificate evidencing shares
represented by the Merger Consideration issued pursuant to
this Section 1.6.1 shall bear the following legend (in
addition to any legend required under applicable state
securities laws):
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"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
1.6.2. CANCELLATION OF COMPANY COMMON STOCK. At the Effective Time,
all shares of Company Common Stock that are owned by Company
as treasury stock immediately prior to the Effective Time
shall be canceled and extinguished without any conversion
thereof.
1.6.3. COMPANY STOCK OPTIONS, WARRANTS TO PURCHASE COMPANY COMMON
STOCK AND CONVERTIBLE NOTES. At the Effective Time, there
shall be no options to purchase Company Common Stock
outstanding, there shall be no warrants outstanding, there
shall be no promissory notes convertible into shares of
Company Common Stock outstanding. and there shall be no
securities convertible into shares of Company Common Stock
outstanding.
1.6.4. CAPITAL STOCK OF MERGER SUB. At the Effective Time, each share
of common stock, $.01 par value, of Merger Sub ("Merger Sub
Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted into and exchanged for one
validly issued, fully paid and nonassessable share of common
stock of the Surviving Corporation, and the Surviving
Corporation shall be a wholly owned subsidiary of Parent. Each
stock certificate of Merger Sub evidencing ownership of any
such shares shall continue to evidence ownership of such
shares of capital stock of the Surviving Corporation.
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1.6.5. ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be
adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common
Stock or Company Common Stock), reorganization,
recapitalization or other like change with respect to Parent
Common Stock or Company Common Stock occurring after the date
hereof and prior to the Effective Time, so as to provide
holders of Company Common Stock and Parent the same economic
effect as contemplated by this Agreement prior to such stock
split, reverse split, stock dividend, reorganization,
recapitalization or like change; except for the stock split
and debt elimination of Parent as contemplated by this
Agreement.
1.6.6. NO FRACTIONAL SHARES. No fractional shares of Parent Common
Stock shall be issued in connection with the Merger, and no
certificates or scrip for any such fractional shares shall be
issued. Any holder of Company Common Stock who would otherwise
be entitled to receive a fraction of a share of Parent Common
Stock (after aggregating all fractional shares of Parent
Common Stock issuable to such holder) shall, in lieu of such
fraction of a share, be rounded up to the nearest whole number
of shares of Parent Common Stock.
1.7. SURRENDER OF CERTIFICATES.
1.7.1. EXCHANGE AGENT. Parent's transfer agent shall act as exchange
agent (the "Exchange Agent") in the Merger.
1.7.2. PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for
exchange in accordance with this Article I, through such
reasonable procedures as Parent may adopt, certificates
representing the shares of Parent Common Stock issuable
pursuant to Section 1.6.1 in exchange for shares of Company
Common Stock outstanding immediately prior to the Effective
Time (provided that delivery of any shares that are subject to
vesting and/or repurchase rights or other restrictions shall
be in book entry form until such vesting and/or repurchase
rights or other restrictions lapse).
1.7.3. EXCHANGE PROCEDURES. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of
record of a certificate or certificates (the "Certificates")
which immediately prior to the Effective Time represented
outstanding shares of Company Common Stock, whose shares were
converted into the right to receive shares of Parent Common
Stock pursuant to Section 1.6, (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk
of loss and title to the Certificates shall pass, only upon
receipt of the Certificates by the Exchange Agent, and shall
be in such form and have such other provisions as Parent may
reasonably specify) and (ii) instructions for use in effecting
the surrender of the Certificates in exchange for certificates
(or book entries in the case of shares that are subject to
vesting and/or repurchase rights or other restrictions)
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representing shares of Parent Common Stock. Upon surrender of
a Certificate for cancellation to the Exchange Agent or to
such other agent or agents as may be appointed by Parent,
together with such letter of transmittal, duly completed and
validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in
exchange therefor a certificate (or book entry in the case of
shares that are subject to vesting and/or repurchase rights or
other restrictions) representing the number of whole shares of
Parent Common Stock which such holder has the right to receive
pursuant to Section 1.6, and the Certificate so surrendered
shall forthwith be canceled. Until so surrendered, each
outstanding Certificate that, prior to the Effective Time,
represented shares of Company Common Stock will be deemed from
and after the Effective Time, for all corporate purposes,
other than the payment of dividends, to evidence the ownership
of the number of full shares of Parent Common Stock into which
such shares of Company Common Stock shall have been so
converted.
1.7.4. DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions with respect to Parent Common Stock
with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to
the shares of Parent Common Stock represented thereby until
the holder of record of such Certificate shall surrender such
Certificate. Subject to applicable law, following surrender of
any such Certificate, there shall be paid to the record holder
of the certificates representing whole shares of Parent Common
Stock issued in exchange therefor, without interest, at the
time of such surrender, the amount of any such dividends or
other distributions with a record date after the Effective
Time theretofore payable (but for the provisions of this
Section 1.7.4) with respect to such shares of Parent Common
Stock.
1.7.5. TRANSFERS OF OWNERSHIP. If any certificate for shares of
Parent Common Stock is to be issued in a name other than that
in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof
that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to Parent or any agent
designated by it any transfer or other taxes required by
reason of the issuance of a certificate for shares of Parent
Common Stock in any name other than that of the registered
holder of the Certificate surrendered, or established to the
satisfaction of Parent or any agent designated by it that such
tax has been paid or is not payable.
1.7.6. NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Surviving
Corporation, Parent or any party hereto shall be liable to any
person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or
similar law. "Person" herein shall mean any individual,
corporation, limited liability company, partnership, firm,
joint venture, association, joint-stock company, trust,
unincorporated organization, or other organization, whether or
not a legal entity, and any Governmental Authority.
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1.8. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of
Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights
pertaining to such shares of Company Common Stock, and there shall be
no further registration of transfers on the records of the Surviving
Corporation of shares of Company Common Stock which were outstanding
immediately prior to the Effective Time. If, after the Effective Time,
Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this
Article I.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof,
such shares of Parent Common Stock as may be required pursuant to
Section 1.6; provided, however, that Parent may, in its discretion and
as a condition precedent to the issuance thereof, require the owner of
such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that
may be made against Parent, the Surviving Corporation or the Exchange
Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.10. TAX CONSEQUENCES. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of
the Code.
1.11. WITHHOLDING RIGHTS. Parent and the Surviving Corporation shall be
entitled to deduct and withhold from the number of shares of Parent
Common Stock otherwise deliverable under this Agreement, such amounts
as Parent and the Surviving Corporation are required, and Company
acknowledges and agrees are required, to deduct and withhold with
respect to such delivery and payment under the Code or any provision
of state, local, provincial or foreign tax law. To the extent that
amounts are so withheld, such withheld amounts shall be treated for
all purposes of this Agreement as having been delivered and paid to
the holder of shares of Company Common Stock in respect of which such
deduction and withholding was made by Parent and the Surviving
Corporation.
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1.12. TERMINATION OF EXCHANGE AGENT FUNDING. Any certificates for shares of
Parent Common Stock held by the Exchange Agent which have not been
delivered to holders of Certificates pursuant to this Article I within
six months after the Effective Time shall promptly be delivered to
Parent, and thereafter holders of Certificates who have not
theretofore complied with the exchange procedures set forth in and
contemplated by Section 1.7 shall thereafter look only to Parent
(subject to abandoned property, escheat and similar laws) for their
claim for shares of Parent Common Stock and any dividends or
distributions (with a record date after the Effective Time) with
respect to Parent Common Stock to which they are entitled.
1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry
out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of Company and
Merger Sub, the officers and directors of Company and Merger Sub are
fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this
Agreement.
1.14. APPRAISAL RIGHTS. Notwithstanding anything in this Agreement to the
contrary, Company Common Stock that are issued and outstanding
immediately prior to the Effective Time and which are held by
stockholders who did not vote in favor of the Merger (the "Dissenting
Shares"), which stockholders comply with all of the relevant provisions
of Delaware Law (the "Dissenting Stockholders"), shall not be converted
into or be exchangeable for the right to receive the Merger
Consideration, unless and until such holders shall have failed to
perfect or shall have effectively withdrawn or lost their rights to
appraisal under Delaware Law. If any Dissenting Shareholder shall have
failed to perfect or shall have effectively withdrawn or lost such
right, such holder's Company Common Stock shall thereupon be converted
into and become exchangeable for the right to receive, as of the
Effective Time, the Merger Consideration without any interest thereon.
The Company shall give Parent (a) prompt notice of any written demands
for appraisal of any Company Common Stock, attempted withdrawals of
such demands and any other instruments served pursuant to Delaware Law
and received by the Company relating to stockholders' rights of
appraisal, and (b) the opportunity to direct, in its reasonable
business judgment, all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment. If any Dissenting
Shareholder shall fail to perfect or shall have effectively withdrawn
or lost the right to dissent, the Company Common Stock held by such
Dissenting Shareholder shall thereupon be treated as though such
Company Common Stock had been converted into the right to receive the
Merger Consideration pursuant to Section 1.6.1.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
In this Agreement, any reference to any event, change, condition or effect being
"material" with respect to any person means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such person and its subsidiaries, taken
as a whole. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any person means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such person and
its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "Knowledge" means such party's
actual knowledge after reasonable inquiry of executive officers and directors
(within the meaning of Rule 405 under the Securities Act of 1933, as amended
("Securities Act")). Except as disclosed in that section of the document of even
date herewith delivered by Company to Parent prior to the execution and delivery
of this Agreement (the "Company Disclosure Schedule") corresponding to the
Section of this Agreement to which any of the following representations and
warranties specifically relate or as disclosed in another section of the Company
Disclosure Schedule if it is reasonably apparent from the nature of the
disclosure that it is applicable to another Section of this Agreement, Company
represents and warrants to Parent and Merger Sub as follows:
2.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing in the state of
Delaware, and no certificate of dissolution has been filed under the
laws of its jurisdiction of organization. The Company has no
subsidiaries. The Company has the power to own its properties and to
carry on its business as now being conducted and as presently proposed
to be conducted and is duly authorized and qualified to do business and
is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on
Company. Company has delivered or made available to Parent a true and
correct copy of the Certificate of Incorporation (the "Company
Certificate of Incorporation"), and the Bylaws, or other charter
documents, as applicable, of the Company each as amended to date. The
Company is not in violation of any of the provisions of its charter or
bylaws or equivalent organization documents. The Company has delivered
to Parent correct and complete copies of the minute books (containing
the records of meetings of the Stockholders, the board of directors and
committees of the board of directors). Such minute books accurately
reflect in all material respects the matters referenced therein. The
Company has also delivered to Parent correct and complete copies of the
stock certificate books and the stock record books of the Company and
such books and records accurately reflect the matters referenced
therein. The Company has no subsidiaries and never had any
subsidiaries.
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2.2 CAPITAL STRUCTURE. The authorized capital stock of Company consists of
10,000,000 shares of common stock, $0.001 par value, and 5,000,000
shares of preferred stock, $0.001 par value, of which there were issued
and outstanding as of the close of business on May 12, 2004, 3,791,458
shares of common stock (pre-reverse split) and 875,000 shares of
Preferred Stock, and no additional shares of common stock or preferred
stock have been issued through the date of this Agreement. All
outstanding shares of Company Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Company Certificate of
Incorporation or Bylaws of Company or any agreement to which Company is
a party or by which it is bound. Except as set forth on Schedule 2.2,
there are no outstanding subscriptions, options, warrants, rights
(including phantom stock or stock appreciation rights), preemptive
rights or other contracts, commitments, understandings or arrangements,
including any right of conversion or exchange under any outstanding
security, instrument or agreement (collectively, referred to as
"Company Options"), obligating the Company to issue or sell any shares
of capital stock of the Company or to grant, extend or enter into any
security, instrument or agreement with respect thereto. Schedule 2.2
sets forth (i) each plan, arrangement or agreement pursuant to which
Company Options may be granted or under which Company Options have been
granted and are outstanding, (ii) in the aggregate by plan, arrangement
or agreement, the number and type of Company Options outstanding, their
xxxxx xxxxx, the date of grant and the number of shares of Company
Common Stock reserved for issuance pursuant to the plan, arrangement or
agreement, and (iii) the name of each holder of a Company Option, a
description of the exercise or purchase prices, vesting schedules,
expiration dates and number of shares of Common Stock subject to such
Company Option. Immediately after the Closing, no options, warrants,
convertible securities or rights will be exercisable or exchangeable
for, convertible into, or otherwise give its holder any right to
acquire shares of capital stock of the Company. All Company Options are
duly authorized and validly issued. Except as disclosed on Schedule
2.2, there are no voting trusts, proxies or other similar commitments,
understandings, restrictions or arrangements in favor of any other
person other than the Company. No bonds, debentures, notes or other
indebtedness having the right to vote on any matter on which
stockholders of the Company may vote are issued or outstanding.
2.3 AUTHORITY. Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action
13
on the part of Company, subject only to the adoption of this Agreement
by Company's stockholders holding a majority of the outstanding shares
of Company Common Stock. This Agreement has been duly executed and
delivered by Company and constitutes the valid and binding obligation
of Company enforceable against Company in accordance with its terms,
except as enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general
principles of equity. The execution and delivery of this Agreement by
Company does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or
give rise to a right of termination, cancellation or acceleration of
any obligation or loss of any benefit under (i) any provision of the
Company Certificate of Incorporation or Bylaws of Company, as amended,
or (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the
Company or any of its properties or assets. No consent, approval, order
or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental
authority or instrumentality ("Governmental Entity") is required by or
with respect to Company in connection with the execution and delivery
of this Agreement by Company or the consummation by Company of the
transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger as provided herein.
2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 2.4 are balance
sheets for the Company as of March 31, 2003 and March 31, 2004, and
related statements of operations, and cash flows for the periods
including the fiscal year ended December 31, 2003, the three-month
periods ending March 31, 2003 and March 31, 2004 (the "Company
Financial Statements"). The Company Financial Statements have been
prepared from, and are in accordance with, the books and records of the
Company. The Company Financial Statements have been prepared in
accordance with United States generally accepted accounting principles
("GAAP") applied on a basis consistent throughout the periods indicated
and consistent with each other and fairly present the consolidated
financial condition and operating results of Company at the dates and
during the periods indicated therein (subject, in the case of unaudited
statements, to normal, recurring year-end adjustments).
2.5 ABSENCE OF CERTAIN CHANGES. The Company has no liabilities or
obligations (whether known or unknown, absolute, accrued, contingent or
otherwise and whether due or to become due) other than those
liabilities and obligations (a) set forth or adequately provided for in
the March 31, 2004 balance sheet included in the Financial Statements,
(b) not required by GAAP to be set forth in the March 31, 2004 balance
sheet or disclosed in the notes thereto, (c) incurred since March 31,
2004 in the ordinary course of business and (d) those incurred in
connection with the execution of this Agreement..
2.6 ACCOUNTING PRACTICES. The Company makes and keeps accurate books and
records reflecting its assets and maintains internal accounting
controls that provide reasonable assurance that (i) transactions are
executed with management's authorization, (ii) transactions are
recorded as necessary to permit preparation of the Company financial
statements and to maintain accountability for the assets of the Company
and (iii) the reported accountability of the assets of the Company
other than furniture, equipment and fixtures is compared with existing
assets at reasonable intervals.
14
2.7 RECEIVABLES. Attached hereto as Schedule 2.7, are a true and correct
list of all of the Company's accounts receivables as of May 12, 2004.
2.8 PAYABLES. Attached hereto as Schedule 2.8 are a true and correct list
of all accounts payable of the Company as of May 12, 2004 in excess of
$10,000 to any one payee. Except as set forth on Schedule 2.8, as of
May 12, 2004, no account payable of the Company that has arisen
subsequent to May 12, 2004 has exceeded $10,000.
2.9 SUPPLIERS. Attached hereto as Schedule 2.9 are (a) the names of all
suppliers from which the Company orders, supplies, merchandise and
other goods and services with an aggregate purchase price for each such
supplier of $50,000 or more during the year ended December 31, 2004,
and (b) the amount for which each such supplier invoiced the Company
during such period. The Company has not received any notice to the
effect that any such supplier will not sell supplies, merchandise and
other goods to the Company at any time after the Closing on terms and
conditions similar to those used in its current sales to the Company.
To the Company's Knowledge, except as set forth on Schedule 2.9,
neither the Company, nor any officer or director of the Company
possesses, directly or indirectly, any financial interest in, or is a
director, officer or employee of, any entity which is a client,
supplier, customer, lessor, lessee or competitor or potential
competitor of the Company except for an interest of less than five
percent in a publicly held company.
2.10 INVENTORY. All inventory of the Company reflected on the March 31, 2004
balance sheets consisted, and all such inventory acquired since March
31, 2004 consists, of a quality and quantity usable and salable in the
ordinary course of business, subject to normal and customary allowances
in the industry for damage and outdated items. Except as disclosed in
the notes to the Financial Statements and on Schedule 2.110, all items
included in the inventory of the Company are the property of the
Company, free and clear of any Lien, have not been pledged as
collateral, are not held by the Company on consignment from others and
conform in all material respects to all standards applicable to such
inventory or its use or sale imposed by Governmental Authorities.
2.11 INTELLECTUAL PROPERTY.
2.11.1 Schedule 2.11 contains a complete and accurate list and
description of:
2.11.1(a) all United States and foreign patents and patent
applications and patent disclosures, all United States and foreign
copyright registrations and applications, all material computer
software (excluding "shrink-wrap" or licenses for common business and
office applications, such as word processors and spreadsheets, having a
cost of less than $1,000), all United States, state and foreign
trademarks, service marks and trade names for which registrations have
been issued or applied for, all other United States, state and foreign
trademarks, service marks and trade names, and all Internet domain
names owned by or under obligation of assignment to the Company or in
which the Company holds any right, license or interest, showing in each
case the registered or other owner, expiration date and number, if any;
15
2.11.1(b) all agreements and licenses (excluding "shrink-wrap"
or similar licenses for computer software) relating or pertaining to
any Intellectual Property to which the Company is a party, showing in
each case the parties thereto. All such agreements and licenses are
valid and subsisting and the Company is not in breach of any material
provisions of any such agreements or licenses;
2.11.1(c) all licenses or agreements pertaining to mailing
lists, know-how, trade secrets, inventions, disclosures or uses of
ideas to which the Company is a party, showing in each case the parties
thereto;
2.11.1(d) all registered assumed or fictitious names under
which the Company is currently conducting business; and
2.11.1(e) all maintenance, support, training, consulting,
outsourcing, facilities management and other contracts and agreements
relating to computer hardware, software or services and that involve
expenditures in excess of $25,000.
2.11.2 To the Company's knowledge, there is no unauthorized
use, disclosure, infringement or misappropriation of any Company
Intellectual Property rights, or any Intellectual Property right of any
third party to the extent licensed to the Company, by any third party,
including any employee or former employee of Company. The Company has
not entered into any agreement to indemnify any other person against
any charge of infringement of any Intellectual Property, other than
indemnification provisions contained in purchase orders, license
agreements and distribution and other customer agreements, copies of
which have been provided or made available to Parent.
2.11.3 The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense
or other agreement relating to the Company Intellectual Property or
Third Party Intellectual Property Rights.
2.11.4 To the Company's knowledge, all patents, trademarks,
service marks and copyrights held by Company are valid and subsisting.
Company (i) has not been sued in any suit, action or proceeding (or
received any notice or, to Company's knowledge, threat) which involves
a claim of infringement of any patents, trademarks, service marks,
copyrights or violation of any trade secret or other proprietary right
of any third party and (ii) has not brought any action, suit or
proceeding for infringement of Company Intellectual Property or breach
of any license or agreement involving Company Intellectual Property
against any third party. To Company's knowledge, the manufacture, use,
marketing, licensing or sale of Company's products does not infringe
any patent, trademark, service xxxx, copyright, trade secret or other
proprietary right of any third party.
16
2.11.5 The Company has secured valid written assignments from
all consultants and employees who contributed to the creation or
development of Company Intellectual Property of the rights to such
contributions that Company does not already own by operation of law.
2.11.6 The Company has taken all reasonably necessary steps to
protect and preserve the confidentiality of all Company Intellectual
Property not otherwise protected by patents or copyright ("Confidential
Information"). All use, disclosure or appropriation of Confidential
Information owned by Company by or to a third party has been pursuant
to the terms of a written agreement between Company and such third
party. All use, disclosure or appropriation of Confidential Information
not owned by Company has been pursuant to the terms of a written
agreement between Company and the owner of such Confidential
Information, or is otherwise lawful.
2.11.7 There are no actions that must be taken by Company
within sixty (60) days of the Closing Date that, if not taken, will
result in the loss of any Company Intellectual Property, including the
payment of any registration, maintenance or renewal fees or the filing
of any responses to the U.S. Patent and Trademark Office actions,
documents, applications or certificates for the purposes of obtaining,
maintaining, perfecting or preserving or renewing any Company
Intellectual Property.
2.11.8 The Company has not received any formal written opinion
of counsel stating that: (i) there is or has been any unauthorized use,
disclosure, infringement, or misappropriation of any Company
Intellectual Property; (ii) any of the Company Intellectual Property is
invalid or unenforceable; or (iii) Company has engaged in unauthorized
use, disclosure, infringement or misappropriation of any third party
intellectual property.
2.12 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration, audit or investigation pending before
any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Company, threatened against Company or any of its
respective properties or any of their respective officers or directors
(in their capacities as such) that, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on
Company. There is no injunction, judgment, decree, order or regulatory
restriction imposed upon Company or any of their its assets or
business, or, to the knowledge of Company and any of its directors or
officers (in their capacities as such), that would prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material
Adverse Effect on Company. Schedule 2.12 lists all actions, suits,
proceedings, claims, arbitrations, audits and investigations pending
before any agency, court or tribunal that involve Company.
17
2.13 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon Company which has or
reasonably could be expected to have the effect of prohibiting or
materially impairing any business practice of Company, any acquisition
of property by Company or the conduct of business by Company.
2.14 GOVERNMENTAL AUTHORIZATION. The Company has obtained each federal,
state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to
which Company currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Company's
business or the holding of any such interest ((i) and (ii) herein
collectively called "Company Authorizations"), and all of such Company
Authorizations are in full force and effect, except where the failure
to obtain or have any of such Company Authorizations or where the
failure of such Company Authorizations to be in full force and effect
would not reasonably be expected to have a Material Adverse Effect on
Company.
2.15 TITLE TO PROPERTY. The Company has good and valid title to all of its
properties, interests in properties and assets, real and personal,
reflected in the Company Balance Sheet or acquired after the Company
Balance Sheet Date (except properties, interests in properties and
assets sold or otherwise disposed of since the Company Balance Sheet
Date in the ordinary course of business), or in the case of leased
properties and assets, valid leasehold interests in, free and clear of
all mortgages, liens, pledges, charges or encumbrances of any kind or
character, except (i) the lien of current taxes not yet due and
payable, (ii) such imperfections of title, liens and easements as do
not and will not materially detract from or interfere with the use of
the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, (iii)
liens securing debt which is reflected on the Company Balance Sheet,
and (iv) liens that in the aggregate would not have a Material Adverse
Effect on Company. The property and equipment of the Company that are
used in the operations of its businesses are in good operating
condition and repair, except where the failure to be in good operating
condition or repair would not have a Material Adverse Effect. All
properties used in the operations of Company are reflected in the
Company Balance Sheet to the extent generally accepted accounting
principles require the same to be reflected. Schedule 2.15 identifies
each parcel of real property owned or leased by Company.
2.16 PRIVACY POLICIES; THIRD PARTY PRIVACY OBLIGATIONS; WEB SITE TERMS AND
CONDITIONS.
2.16.1 For purposes of this Section 2.16:
(i) "Company Sites" means the Company's public sites on the
World Wide Web;
(ii) "Privacy Statements" means, collectively, any and all of
Company's privacy policies published on the Company Sites or
otherwise made available by the Company regarding the
collection, retention, use and distribution of the personal
information of individuals, including, without limitation,
from visitors of any of the Company Sites ("Individuals"); and
18
(iii) "Terms and Conditions" means any and all of the visitor
terms and conditions published on the Company Sites governing
Individuals' use of or access to the Company Sites.
2.16.2 A Privacy Statement is posted and is accessible to Individuals
at all times on each Company Site. Company maintains a hypertext link
to a Privacy Statement from the homepage of the Company Site, and
Company uses commercially reasonable efforts to include a hypertext
link to a Privacy Statement from every page of the Company Sites on
which personal information is collected from Individuals.
2.16.3. The Privacy Statements are clearly written and include, at a
minimum, accurate notice to Individuals about Company's collection,
retention, use and disclosure policies and practices with respect to
Individuals' personal information. The Privacy Statements are accurate
and consistent with the Terms and Conditions and Company's actual
practices with respect to the collection, retention, use and disclosure
of Individuals' personal information.
2.16.4 Company (i) complies with the Privacy Statements as applicable
to any given set of personal information collected by Company from
Individuals; (ii) to Company's knowledge complies with all applicable
privacy laws and regulations regarding the collection, retention, use
and disclosure of personal information; and (iii) takes appropriate
measures to protect and maintain the confidential nature of the
personal information provided to the Company by Individuals. The
Company has adequate technological and procedural measures in place to
protect personal information collected from Individuals against loss,
theft and unauthorized access or disclosure. The Company does not sell,
rent or otherwise make available to third parties any personal
information submitted by Individuals.
2.16.5 The Company's collection, retention, use and distribution of all
personal information collected by Company from Individuals is governed
by the Privacy Statement pursuant to which the data was collected.
Other than as constrained by the Privacy Statements and by applicable
laws and regulations, the Company is not restricted in its use and/or
distribution of personal information collected by Company.
2.16.6 The Company has the full power and authority to transfer all
rights Company has in all Individuals' personal information in their
possession and/or control to Parent and Merger Sub, to the extent
permitted by applicable law. The Company is not a party to any
contract, or is subject to any other obligation that, following the
date of this Agreement, would prevent Parent and/or its affiliates from
using the information governed by the Privacy Statements in a manner
consistent with applicable privacy laws and industry standards
regarding the disclosure and use of information. No claims or
controversies have arisen regarding the Privacy Statements or the
implementation thereof or of any of the foregoing.
19
2.16.7 The Company has complied in all material respects with and, to
Company's Knowledge, is not in violation of any applicable privacy
obligations under any legal requirements or under any contract to which
the Company is a party or by which their properties are bound ("Third
Party Privacy Obligations"). Neither the execution, delivery nor
performance of this Agreement nor the consummation of the Merger will
violate, contravene or conflict with the Third Party Privacy
Obligations. No claims or controversies have arisen regarding the Third
Party Privacy Obligations or of the implementation thereof or of any of
the foregoing.
2.17 ENVIRONMENTAL MATTERS.
2.17.1 The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public.
(ii) "Company Facilities" shall mean all buildings and improvements on
the Company Property.
(iii) "Governmental Entity" shall mean any federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
(iv) "Hazardous Materials" shall mean any man-made or naturally
occurring substance, material product, by-product, waste, emission,
residual or odor that is described as a toxic or hazardous substance,
waste, material, pollutant, contaminant, infectious waste, designated
waste or words of similar import, in any of the Environmental and
Safety Laws, or any other words which are intended to define, list or
classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, or
reproductive toxicity and includes, without limitation, asbestos,
asbestos-containing materials, lead-based paint, petroleum (including
crude oil or any fraction thereof, natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel, or any mixture
thereof), petroleum products, waste oil, polychlorinated biphenyls,
urea formaldehyde, radon gas, radioactive matter, medical waste,
otherwise regulated or listed materials and chemicals which may cause
cancer or reproductive toxicity.
(v) "Legal Rules" shall mean codes, statutes, ordinances, orders,
judgments, decrees, injunctions, determinations, approvals, rules,
regulations, permits, licenses and authorizations of all Governmental
Entities with jurisdiction.
20
(vi) "Company Property" shall mean all real property leased or owned by
the Company either currently or in the past.
2.17.2 To Company's knowledge, except in all cases as, in the
aggregate, would not have a vii) except in material compliance with all
Legal Rules and except for possible small operational releases, no
Hazardous Materials have been released in, on, or about the Company
Property or any other location; (viii) the Company has not received any
written notice that a lien in favor of any Governmental Entity for (A)
any liability under any Environmental and Safety Laws or (B) damages
arising from or costs incurred in responses to a release of any
Hazardous Materials into the environment has been filed against
Company's interest in the Company Property; and (ix) the Company has
all the permits and licenses required to be issued under applicable
Environmental and Safety Laws and are in full compliance with the terms
and Material Adverse Effect on Company, (i) the Company Property and
Company Facilities, and the present and former activities of the
Company thereon, comply in all material respects with all applicable
Environmental and Safety Laws; (ii) all Hazardous Materials and wastes
have been disposed of in accordance with all Environmental and Safety
Laws; (iii) the Company has not received notice (oral or written) of
any noncompliance of the Company Facilities or its past or present
operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or, to Company's knowledge,
threatened relating to a violation of any Environmental and Safety
Laws; (v) to Company's knowledge, the Company is not potentially
responsible party under the federal Comprehensive Environmental
Response, Compensation and Liability Act (CERCLA), or state analog
statute, arising out of events occurring prior to the Closing Date;
(vi) the Company has not have received any notice that it is the
subject of any federal, state or local order, agreement or
investigation concerning any use, release, discharge, storage,
generation or disposal of any Hazardous Materials; (conditions of those
permits and licenses.
2.18 TAXES.
2.18.1 For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means (i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign); (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period; and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of being a transferee of or successor to
any person or as a result of any express or implied obligation to indemnify any
other person, including pursuant to any Tax sharing or Tax allocation agreement.
"Tax Return" shall mean any return, statement, report or form (including,
without limitation estimated Tax returns and reports, withholding Tax returns
and reports and information reports and returns) required to be filed with
respect to Taxes.
21
2.18.2 Except as set forth on Schedule 2.18.2:
2.18.2.1 The Company has duly filed on a timely basis (taking into account any
extensions of time for filing), has filed for an extension for, or has
been included in, all Tax Returns, relating to all Taxes for which the
Company may be liable, required to be filed by or on behalf of the
Company, for any taxable period ending on or before the Closing Date.
Each such Tax Return is true and correct in all material respects. The
Company has duly paid, or made adequate provisions (by a tax accrual or
tax reserve) for all Taxes for which the Company may be liable and
other charges shown as due on such Tax Returns. The Company has paid,
or made adequate provision for, all material Taxes for which the
Company may be liable which are required to be paid without the filing
of any Tax Return;
2.18.2.2 Any Taxes for which the Company may be liable incurred or accrued since
the date of the most recent balance sheets of the Company have arisen
in the Ordinary Course of Business determined in the same manner as in
the last taxable period ending on or before such date;
2.18.2.3 The Company has duly paid in full or made adequate provisions for all
Taxes claimed to be due by any taxing authority except such Taxes as
are being contested in good faith, which amounts are set forth on
Schedule 2.18.2. There are no liens for any Taxes, assessments or
government charges or levies upon any property or assets of the
Company, nor are there any outstanding deficiencies or assessments or
written proposals for assessment of any Taxes proposed, asserted or
assessed against the Company except such Taxes as are being contested
in good faith, which amounts are set forth on Schedule 2.18.2. No
actions, proceedings, or examinations are pending or, to the Company's
knowledge, threatened to be brought by any taxing authority for the
determination, assessment or collection of any Taxes for which the
Company may be liable except such Taxes as are being contested in good
faith, which amounts are set forth on Schedule 2.18.2. The Company has
not requested any extension of time within which to file or send any
Tax Return which Tax Return has not since been filed, and the Company
is not bound by any election, consent, or agreement that extends or
waives any applicable statute of limitation with respect to any taxable
periods of the Company. The information set forth in Schedule 2.18.2
indicates the date through which the taxable years relating to
particular Tax Returns of the Company are closed by applicable statutes
of limitation or otherwise;
2.18.2.4 All liabilities for Taxes of the Company for the current year through
the Closing Date and all prior years, whether or not they have become
due and payable, have been duly paid in full or adequate provisions
therefor have been made by a tax accrual or tax reserve;
22
2.18.2.5 The Company is not a party to any outstanding tax sharing or other
allocation agreement with respect to any Taxes and has no liability
relating to any tax sharing or other allocation agreement;
2.18.2.6 The Company does not have and has never owned stock in a foreign
corporation;
2.18.2.7 No election under section 341(f) of the Code has been made by the
Company, nor has any election been made to be treated as an S
Corporation under section 1362(a) of the Code. No election under
section 382(l)(5) is in effect for the Company. The Company has not
agreed to, or been required to, make any section 481(a) adjustment
because of a change of accounting. There are no closing agreements,
irrevocable elections, or similar binding agreements or decisions of
any court or other governmental authority which will restrict the
choices of the Company regarding the treatment of any item of income,
deduction, credit, or allowance in taxable periods subsequent to the
Closing Date, and the Company has not elected to use LIFO for inventory
purposes. The Company has withheld all material Taxes required to have
been withheld and has paid all Taxes withheld in connection with
amounts paid or owing to any employee, creditor, independent
contractor, or other third party. The Company has not made any
payments, is not obligated to make any payments, and is not a party to
any agreement that under certain circumstances could obligate it to
make any payments that will not be deductible under section 280G of the
Code. The Company has not 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)(1)(A)(ii) of the
Code;
2.18.2.8 The Company has never been (or has any liability or potential liability
for unpaid Taxes because it once was) a member of an affiliated group
(as defined in section 1504(a) of the Code) during any part of any
consolidated return year; and
2.18.2.9 No claim has ever been made by an authority in a jurisdiction where the
Company does not file Tax Returns that it is or may be subject to
taxation by that jurisdiction.
2.18.3 Schedule 2.18.3 sets forth the following information which, to the
Company's Knowledge, is true, complete and correct: (A) the amount of
foreign income taxes (or taxes in lieu thereof) which are creditable
for federal income tax purposes or for foreign income tax purposes; and
(B) the yearly net operating losses, net capital losses, investment or
other tax credits or excess charitable contributions allocable to the
Company which are available for carryover to subsequent years for
federal income tax purposes and the extent to which such losses or
credits are subject to limitation, or will be subject to limitation
upon consummation of the transactions contemplated herein, under
section 382 of the Code, section 383 of the Code or any other section
thereunder, or are limited for foreign income tax purposes.
23
2.18.4 Schedule 2.18.4 sets forth, a true, complete and correct list of the
assets held by the Company and the adjusted tax bases as of the date
indicated of such assets for federal tax purposes.
2.19 EMPLOYEE BENEFIT PLANS.
2.19.1 Schedule 2.19.1 lists, with respect to Company and any trade or
business (whether or not incorporated) which is treated as a single
employer with Company (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") other than Foreign Plans (as
defined below)); (ii) each loan to a non-officer employee in excess of
$50,000, loans to officers and directors and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125)
or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements; (iii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans,
programs or arrangements; (iv) other fringe or employee benefit plans,
programs or arrangements; and (v) any current or former employment or
executive compensation, change in control or severance agreements,
written or otherwise, as to which unsatisfied obligations of Company
remain for the benefit of, or relating to, any present or former
employee, consultant or director of Company (together, the "Company
Employee Plans").
2.19.2 The Company has furnished or made available to Parent a copy of
each of the Company Employee Plans and related plan documents
(including trust documents, insurance policies or contracts, employee
booklets, summary plan descriptions and other authorizing documents,
and any material employee communications relating thereto) and has,
with respect to each Company Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500 reports filed
for the last three plan years. Any Company Employee Plan intended to be
qualified under Section 401(a) of the Code has obtained from the
Internal Revenue Service a favorable determination letter as to its
qualified status under the Code. The Company has also furnished Parent
with the most recent Internal Revenue Service determination letter
issued with respect to each such Company Employee Plan, and nothing has
occurred since the issuance of each such letter that would reasonably
be expected to cause the loss of the tax-qualified status of any such
Company Employee Plan. The Company has also furnished Parent with all
registration statements and prospectuses prepared in connection with
each Company Employee Plan.
2.19.3 (i) None of the Company Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, except
as required by applicable law; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Company Employee Plan;
(iii) each Company Employee Plan has been administered in accordance
24
with its terms and in compliance with the requirements prescribed by
any and all statutes, rules and regulations (including ERISA and the
Code), except as would not have, in the aggregate, a Material Adverse
Effect on Company, ERISA Affiliate have performed in all material
respects all obligations required to be performed by them under, are
not in default in any material respect under or violation of, and have
no knowledge of any material default or violation by any other party
to, any of the Company Employee Plans; (iv) neither Company nor ERISA
Affiliate is subject to any material liability or material penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Company Employee Plans; (v) all material
contributions required to be made by Company or ERISA Affiliate to any
Company Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Company
Employee Plan for the current plan years; (vi) with respect to each
Company Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or
4041 or ERISA has occurred; (vii) no Company Employee Plan is covered
by, and neither Company nor any ERISA Affiliate has incurred or expects
to incur any liability under Title IV of ERISA or Section 412 of the
Code; and (viii) each Company Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Parent greater than an aggregate of
$5,000 (other than for benefits accrued through the date of termination
and ordinary administrative expenses typically incurred in a
termination event). With respect to each Company Employee Plan subject
to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Company has prepared in good faith
and timely filed all requisite governmental reports (which were true
and correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Company
Employee Plan, except where the failure to do so would not have a
Material Adverse Effect. No suit, administrative proceeding, action or
other litigation has been brought, or to Company's knowledge is
threatened, against or with respect to any such Company Employee Plan,
including any audit or inquiry by the IRS or United States Department
of Labor. No payment or benefit which will or may be made by the
Company to any employee will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
2.19.4 With respect to each Company Employee Plan, the has complied
except to the extent that such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on
Company, with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the regulations (including proposed regulations)
thereunder, (ii) the applicable requirements of the Family Medical and
Leave Act of 1993 and the regulations thereunder, and (iii) the
applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") and the regulations (including
proposed regulations) thereunder. SCHEDULE 2.16(d) describes all
obligations of the Company as of the date of this Agreement under any
of the provisions of COBRA and the Family and Medical Leave Act of
1993.
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2.19.5 The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other
service provider of Company or any other ERISA Affiliate to severance
benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or service
provider under any Company Employee Plan.
2.19.6 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or other ERISA
Affiliate relating to, or change in participation or coverage under,
any Company Employee Plan which would materially increase the expense
of maintaining such Plan above the level of expense incurred with
respect to that Plan for the most recent fiscal quarter included in
Company's financial statements.
2.19.7 The Company does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) that is subject to Part 3 of Subtitle
B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
2.19.8 Neither the Company or other ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
2.19.9 SCHEDULE 2.1.8 identifies each employee of any of the Company
who is not fully available to perform work because of disability or
other leave and sets forth the basis of such disability or leave and
the anticipated date of return to full service.
2.20 CONTRACTS. Schedule 2.20.1 lists and the Company has delivered or made
available to Parent true and complete copies (or, in the case of oral
contracts, summaries), of:
2.20.1 each Contract that is executory in whole or in part and involves
performance of services or delivery of goods or materials (A) by the
Company of an amount or value in excess of $50,000 or (B) to the
Company of an amount or value in excess of $50,000;
2.20.2 each Contract that is executory in whole or in part and was not entered
into in the Ordinary Course of Business and that involves expenditures
or receipts of the Company in excess of $50,000;
26
2.20.3 each licensing agreement (other than "shrink-wrap" and licenses related
to common business and office applications, such as word processing and
spreadsheets, with a cost of less than $2,000) or any other Contract
with respect to patents, trademarks, copyrights, trade names, service
marks, licenses and other intellectual property;
2.20.4 each collective bargaining agreement and any other Contract to or with
any labor union or other employee representative of a group of
employees of the Company;
2.20.5 each joint venture, partnership or similar contract involving a sharing
of profits, losses, costs or liabilities by the Company with any other
Person;
2.20.6 each Contract containing covenants that in any way purport to restrict
the business activity of the Company or limit the freedom of the
Company to engage in any line of business or to compete with any
Person;
2.20.7 each Contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
2.20.8 each power of attorney that is currently effective and outstanding
granted by and relating to the Company;
2.20.9 each Contract that is executory in whole or in part and involves
capital expenditures in excess of $50,000;
2.20.10 each written warranty, guaranty, and/or other similar undertaking with
respect to contractual performance extended by the Company other than
in the Ordinary Course of Business;
2.20.11 each Contract with any employee, director or officer of the Company;
2.20.12 each Contract relating to indebtedness of the Company for borrowed
money in excess of $50,000 and each contract relating to the guarantee
by the Company of indebtedness of any Person for borrowed money in
excess of $50,000;
2.20.13 each Contract for the purchase or sale of real property;
2.20.14 each Contract for the sale of products or services by the Company that
involves expenditures or receipts of the Company in excess of $50,000;
2.20.15 each Contract imposing a Lien on any asset of the Company;
2.20.16 each Contract relating to any loans or advances to, or investment in,
any Person;
2.20.17 each Contract providing for the payment of cash or other compensation
upon consummation of the Merger;
2.20.18 each non-disclosure and non-compete agreement Contract;
27
2.20.19 each Contract or group of related Contracts not terminable on 30 days'
Notice and that involves expenditures or receipts of the Company in
excess of $50,000;
2.20.20 each sales distribution Contract, franchise Contract and advertising
Contract that involves expenditures or receipts of the Company in
excess of $50,000; and
2.20.21 any other Contract which is material to the Company and that involves
expenditures or receipts of the Company in excess of $50,000.
2.20.22 Each of the Material Contracts is in full force and effect and
constitutes a valid and binding obligation of the Company and, to the
Knowledge of the Company, the other party thereto. Except (i) with
respect to the Contracts relate to shareholder indebtedness and (ii) as
set forth on Schedule 2.20, the Company is not in breach or default
under a material provision of any Material Contract, and no event has
occurred and no condition or state of facts exists which, with the
passage of time or the giving of notice or both, would constitute such
a default or breach by the Company or, to the Knowledge of the Company,
by any such other party. The Company has not received written notice of
such a breach or default or event or condition.
2.21 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution and
delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any entitlement, payment or
benefit (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or benefit under any Company plan
or policy or otherwise) becoming due to any current or former directors
or Company Employees (defined in Section 2.19 below) of the Company,
(ii) increase the amount of any entitlements, payments or benefits
otherwise payable by the Company, or (iii) result in the acceleration
of the time of payment or vesting of any such entitlements, payments or
benefits.
2.22 EMPLOYEE MATTERS.
2.22.1 Schedule 2.22.1 contains a true, complete and accurate list
(and, as indicated below, description) of (i) the names and titles of all
consultants, independent contractors, full-time, part-time, temporary, contract,
leased or casual employees employed by or who provided services for Company
(collectively, "Company Employees"), together with their status and location of
their employment; (ii) the date each Company Employee was hired or retained;
(iii) a list of all written employment, consulting or service contracts or offer
letters between Company and the Company Employees; (iv) the rate of annual
remuneration of each Company Employee at the date hereof, any bonuses paid since
the end of the last completed financial year and all other bonuses, incentive
schemes and benefits to which such Company Employee is or may be entitled; (v)
the annual accrual rate and the total current accrued and unused amount of
vacation or paid time off for each Company Employee as of the date hereof; (vi)
the names of all inactive Company Employees, the reason they are inactive
Company Employees, whether they are expected to return to work, and if so when,
and the nature of any benefits to which such inactive Company Employees are
entitled from the Company; (vii) any employee handbook or personnel policies or
procedures manual in effect that governs the terms and conditions or privileges
of employment of the Company Employees; and (viii) particulars of all other
material terms and conditions of employment or engagement of the Company
Employees and the positions, title or classification held by them (collectively,
"Company Employee Matters").
28
2.22.2 The Company has provided or made available to Parent correct and
complete copies of all documents including but not limited to all agreements,
correspondence, files and policies, relating to the Company Employee Matters.
2.22.3 The Company is in compliance in all respects with all currently
applicable laws and regulations respecting terms and conditions of employment,
including without limitation applicant and employee background checking,
immigration laws, verification of employment eligibility, document retention and
record keeping, discrimination in employment, wages and hours, leaves of absence
(including, as legally applicable, the Family and Medical Leave Act),
classification of workers as employees and independent contractors,
classification of workers as exempt or nonexempt employees, and occupational
safety and health and employment practices, and are not engaged in any unfair
labor practice. The Company has in all material respects withheld all amounts
required by law or by agreement to be withheld from the wages, salaries, and
other payments to employees; and is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing. The
Company is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Company Employees (other than routine payments to be made in the normal course
of business and consistent with past practice). There are no pending claims, or
claims reasonably expected or, to Company's knowledge, threatened, against
Company under any workers compensation plan or policy or long-term or short-term
disability plan or policy. To the knowledge of Company, there are no
controversies, including claims, complaints, charges, investigations, or
proceedings pending or, to Company's knowledge, reasonably expected or
threatened between Company, on the one hand, and any of its respective Company
Employees, on the other hand, including without limitation any claims for actual
or alleged harassment or discrimination based on race, national origin, age,
sex, sexual orientation, religion, disability, or similar tortuous conduct,
breach of contract, wrongful termination, defamation, intentional or negligent
infliction of emotional distress, interference with contract or interference
with actual or prospective economic disadvantage, which controversies have or
would reasonably be expected to result in an action, suit, proceeding, claim,
arbitration, audit or investigation before any agency, court or tribunal,
foreign or domestic.
2.22.4 The Company is not a party to any collective bargaining
agreement or other labor union contract nor does the Company know of any
activities or proceedings of any labor union to organize any such Company
Employees.
2.22.5 No labor dispute, walk out, strike, slowdown, hand billing,
picketing, work stoppage (sympathetic or otherwise), or other "concerted action"
involving the Company Employees has occurred, is in progress or has been, to the
knowledge of Company, threatened.
29
2.22.6 The Company has each provided all current and former Company
Employees with all wages, benefits, relocation benefits, stock options, bonuses
and incentives, and all other compensation, remuneration and benefits that
became due and payable through the date hereof and has reimbursed all current
and former Company Employees for all expenses incurred and due such individual.
2.22.7 In the last five (5) years, no citation has been issued by the
Occupational Safety and Health Administration ("OSHA") or by a state or
provincial occupational safety and health board or agency against the Company
and no notice of contest, claim, complaint, charge, investigation or other
administrative enforcement proceeding involving the Company has been filed or is
pending or, to the Knowledge of the Company, threatened against the Company
under OSHA or any provincial occupational safety and health board or any other
applicable law relating to occupational safety and health.
2.22.8 To Company's knowledge, no Company Employees are in violation of
any term of any employment contract, confidentiality agreement, patent
disclosure agreement, noncompetition agreement, or any restrictive covenant to a
former employer relating to the right of any such Company Employee to be
employed by the Company because of the nature of the business conducted or
presently proposed to be conducted by Company or to the use of trade secrets or
proprietary information of others. No Company Employees have given notice to the
Company, nor is the Company otherwise aware, that any such Company Employee
intends to terminate his or her employment with the Company.
2.22.9 The Company has maintained and currently maintains adequate
insurance as required by applicable law with respect to workers' compensation
claims and unemployment benefits claims. The Company has paid or accrued all
current assessments under workers' compensation and unemployment legislation,
and has not been subject to any special or penalty assessment under such
legislation which has not been paid.
2.23 INSURANCE. The Company has policies of insurance and bonds of the type and
in amounts customarily carried by persons conducting businesses or owning assets
similar to those of the Company. There is no claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and the Company is otherwise in
compliance in all material respects with the terms of such policies and bonds.
The Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.24 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 2.24 contains a complete
and correct list showing: (a) all banks in which the Company maintains
a bank account or safe deposit box (collectively, "Bank Accounts"),
together with, as to each such Bank Account, the account number, the
names of all signatories thereof and the authorized powers of each such
signatory and, with respect to each such safe deposit box, the number
thereof and the names of all persons having access thereto; and (b) the
names of all persons holding powers of attorney from the Company, true
and correct copies thereof which have been delivered to Parent.
30
2.25 COMPLIANCE WITH LAWS. The Company has complied with and is not in
violation of, and have not received any notices of violation with
respect to, any federal, state, local or foreign statute, law or
regulation with respect to the conduct of its business, or the
ownership or operation of its business, except for such violations or
failures to comply as would not be reasonably expected to have a
Material Adverse Effect on Company.
2.26 MINUTE BOOKS. The minute books of Company made available to Parent
contain a complete and accurate summary of all meetings of directors
and stockholders or actions by written consent of Company during the
past three years and through the date of this Agreement, and reflect
all transactions referred to in such minutes accurately in all material
respects.
2.27 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document that has been
requested by Parent or its counsel in connection with their legal and
accounting review of Company.
2.28 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction
contemplated hereby.
2.29 VOTE REQUIRED. The Company has or will have the affirmative vote of the
holders of at least a majority of the shares of Company Common Stock
outstanding on the record date set for the meeting of the Company
stockholders (the "Company Stockholders Meeting ") and such vote is the
only vote of the holders of any of Company's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
2.30 BOARD APPROVAL. The Board of Directors of Company has (i) approved this
Agreement and the Merger, (ii) determined that this Agreement and the
Merger are advisable and in the best interests of the stockholders of
Company and are on terms that are fair to such stockholders and (iii)
recommended that the stockholders of Company adopt and approve this
Agreement and the consummation of the Merger.
2.31 STATE TAKEOVER STATUTES. The Board of Directors of Company has taken
all actions necessary so that the restrictions contained in Section 203
of the Delaware Law applicable to a "business combination" (as defined
in Section 203) shall not apply to the execution, delivery or
performance of this Agreement or the consummation of the Merger or the
other transactions contemplated by this Agreement. To Company's
knowledge, no other "fair practice," "moratorium," "control share
acquisition," "business combination," or other state takeover statute
or similar statute or regulation applies to Company, Parent, Merger
Sub, the Merger, or this Agreement.
31
2.32 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Company herein or in any Schedule hereto, including the Company
Disclosure Schedule, or certificates furnished by Company pursuant to
this Agreement, when all such documents are read together in their
entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective
Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the
circumstances under which made, not misleading. All projected,
forecasted or prospective financial information provided by Company to
Parent has been prepared in good faith on the basis of assumptions
Company believes are reasonable and supportable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in that section of the document of even date herewith
delivered by Parent to the Company prior to the execution and delivery of this
Agreement (the "Parent Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Parent Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Parent represents and warrants
to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing, and no certificates
of dissolution have been filed under the laws of its jurisdiction of
organization. Parent has the power to own its properties and to carry
on its business as now being conducted and as presently proposed to be
conducted and is duly authorized and qualified to do business and is in
good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on
Parent. Parent has delivered to the Company a true and correct copy of
the Certificate of Incorporation (the "Parent Certificate of
Incorporation"), and the Bylaws, or other charter documents, as
applicable, of Parent, as amended to date. Parent and Merger Sub are
not in violation of any of the provisions of their respective charter
or bylaws or equivalent organization documents. Parent is the owner of
all outstanding shares of capital stock of Merger Sub and all such
shares are duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding subscriptions, options,
warrants, puts, calls, rights, exchangeable or convertible securities
or other commitments or agreements of any character relating to the
issued or unissued capital stock or other securities of any such
subsidiary, or otherwise obligating Parent to issue, transfer, sell,
purchase, redeem or otherwise acquire any such securities, except as
disclosed in Parent SEC Documents (as defined in Section 3.4).
32
3.2 CAPITAL STRUCTURE. The authorized capital stock of Parent consists of
50,000,000 shares of common stock, $000001 par value, and 10,000,000
shares of preferred stock, $000001 par value, of which there were
43,397,293 shares of common stock (pre-split and prior to additional
issuances required hereunder) issued and outstanding as of the close of
business on, and no shares of Preferred Stock. The shares of Parent
Common Stock to be issued pursuant to the Merger will be duly
authorized, validly issued, fully paid, and non-assessable, free of any
liens or encumbrances imposed by Parent or Merger Sub. There are no
other outstanding shares of capital stock or voting securities and no
outstanding commitments to issue any shares of capital stock or voting
securities after the date hereof, except as disclosed in Parent SEC
Documents (as defined in Section 3.4). All outstanding shares of Parent
Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof,
and are not subject to preemptive rights or rights of first refusal
created by statute, the Certificate of Incorporation or Bylaws of
Parent or any agreement to which Parent is a party or by which it is
bound. There are no contracts, commitments or agreements relating to
voting, purchase or sale of Parent's capital stock (i) between or among
Parent and any of its stockholders and (ii) to the best of Parent's
knowledge, between or among any of Parent's stockholders.
3.3 AUTHORITY. Parent and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part
of Parent and Merger Sub. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and
binding obligations of Parent and Merger Sub enforceable against Parent
and Merger Sub in accordance with its terms, except as enforceability
may be limited by bankruptcy and other laws affecting the rights and
remedies of creditors generally and general principles of equity. The
execution and delivery of this Agreement do not, and the consummation
of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or
lapse of time, or both), or give rise to a right of termination,
cancellation or acceleration of any obligation or loss of any benefit
under
3.3.1 any provision of the Certificate of Incorporation or Bylaws of
Parent, as amended, or;
3.3.2 any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to
Parent or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any
Governmental Entity is required by or with respect to Parent in
connection with the execution and delivery of this Agreement by Parent
and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger as provided in Section 1.2; (ii) the filing of a
Form 8-K with the SEC within 15 days after the Closing Date; (iii) any
filings as may be required under applicable state securities laws and
the securities laws of any foreign country; and (iv) such other
consents, authorizations, filings, approvals and registrations which,
if not obtained or made, would not have a Material Adverse Effect on
Parent and would not prevent or materially alter or delay any of the
transactions contemplated by this Agreement.
33
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. Parent has made available to the
Company a true and complete copy of each statement, report,
registration statement (with the prospectus in the form filed pursuant
to Rule 424(b) of the Securities Act), definitive proxy statement, and
other documents filed with the SEC by Parent as filed by Parent since
January 1, 2001, and, prior to the Effective Time, Parent will have
furnished or made available to Company true and complete copies of any
additional documents filed with the SEC by Parent prior to the
Effective Time (collectively, the "Parent SEC Documents"). The Company
acknowledges and agrees that all Parent SE Documents are available
through the XXXXX system. Parent has timely filed all forms, statements
and documents required to be filed by it with the SEC. All documents
required to be filed as exhibits to the Parent SEC Documents have been
so filed, and all material contracts so filed as exhibits are in full
force and effect, except those that have expired in accordance with
their terms, and Parent is not in default thereunder. As of their
respective filing dates, the Parent SEC Documents complied in all
respects with the requirements of the Securities Exchange Act of 1934,
as amended ("the "Exchange Act") and the Securities Act, and none of
the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the
extent corrected by a subsequently filed Parent SEC Document. The
financial statements of Parent, including the notes thereto, included
in the Parent SEC Documents (the "Parent Financial Statements") were
complete and correct in all material respects as of their respective
dates, complied as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of
the SEC with respect thereto as of their respective dates, and have
been prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other (except
as may be indicated in the notes thereto or, in the case of unaudited
statements included in Quarterly Reports on Form 10-Q, as permitted by
Form 10-Q of the SEC). The Parent Financial Statements fairly present
the consolidated financial condition and operating results of Parent
and its subsidiaries at the dates and during the periods indicated
therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments). On or prior to the date of this
Agreement, Parent shall obtain not less than $150,000 in additional
financing. Within 90 days from the date of this Agreement, Parent shall
obtain not less than an additional $1.5 million in additional
financing. Such additional funding shall be disclosed in the
appropriate SEC Documents.
3.5 XXXXXXXX-XXXXX ACT OF 2002. There has been no change in Parent
accounting policies since December 31, 2002 except as described in the
notes to the Parent Financial Statements. Each required form, report
34
and document containing financial statements that has been filed with
or submitted to the SEC since July 31, 2002, was accompanied by the
certifications required to be filed or submitted by Parent's chief
executive officer and chief financial officer pursuant to the
Xxxxxxxx-Xxxxx Act of 2002 (the "Xxxxxxxx-Xxxxx Act"), and at the time
of filing or submission of each such certification, such certification
was true and accurate and complied with the Xxxxxxxx-Xxxxx Act and the
rules and regulations promulgated thereunder. Since December 31, 2001,
Parent has not, to the knowledge of the Parent or any director,
officer, employee, auditor, accountant or representative of Parent have
not, received or otherwise had or obtained knowledge of any complaint,
allegation, assertion or claim, whether written or oral, regarding the
accounting or auditing practices, procedures, methodologies or methods
of Parent or its respective internal accounting controls, including any
complaint, allegation, assertion or claim that Parent has engaged in
questionable accounting or auditing practices, except for (A) any
complaint, allegation, assertion or claim as has been resolved without
any resulting change to Parent's accounting or auditing practices,
procedures methodologies or methods of Parent or its internal
accounting controls and (b) questions regarding such matters raised and
resolved in the ordinary course in connection with the preparation and
review of Parent's financial statements and periodic reports. No
attorney representing Parent, whether or not employed by Parent or any
such subsidiary, has reported evidence of a material violation of
securities laws, breach of fiduciary duty or similar violation by
Parent or any of its officers, directors, employees or agents to the
Board of Directors of Parent or any committee thereof or to any
director or officer of Parent. To the knowledge of Parent, no employee
of Parent has provided or is providing information to any law
enforcement agency regarding the commission or possible commission of
any crime or the violation or possible violation of any applicable law.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Parent has no material obligations
or liabilities of any nature (matured or unmatured, fixed or
contingent) other than (i) those set forth or adequately provided for
in the Balance Sheet included in the most recent Parent SEC Documents
Balance Sheet (the "Parent Balance Sheet"), (ii) those incurred in the
ordinary course of business and not required to be set forth in the
Parent Balance Sheet under GAAP, (iii) those incurred in the ordinary
course of business since the Parent Balance Sheet date and not
reasonably likely to have a Material Adverse Effect on Parent, and (iv)
those incurred in connection with the execution of this Agreement.
3.7 LITIGATION. There is no private or governmental action, suit,
proceeding, claim, arbitration, audit or investigation pending before
any agency, court or tribunal, foreign or domestic, or, to the
knowledge of Parent, threatened against Parent or any of its respective
properties or any of its respective officers or directors (in their
capacities as such) that, individually or in the aggregate, would
reasonably be expected to have a Material Adverse Effect on Parent.
There is no injunction, judgment, decree, order or regulatory
restriction imposed upon Parent or any of its assets or business, or,
to the knowledge of Parent, any of its directors or officers (in their
capacities as such), that would prevent, enjoin, alter or materially
delay any of the transactions contemplated by this Agreement, or that
could reasonably be expected to have a Material Adverse Effect on
Parent. Schedule 3.8 lists all actions, suits, proceedings, claims,
arbitrations, audits and investigations pending before any agency,
court or tribunal that involve Parent.
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3.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon Parent which has or reasonably
could be expected to have the effect of prohibiting or materially
impairing any business practice of Parent, any acquisition of property
by Parent or the conduct of business by Parent.
3.9 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution and
delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any entitlement, payment or
benefit (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or benefit under any Parent plan
or policy or otherwise) becoming due to any current or former director
or employee of Parent, (ii) increase the amount of any entitlements,
payments or benefits otherwise payable by Parent, or (iii) result in
the acceleration of the time of payment or vesting of any such
entitlements, payments or benefits.
3.10 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Parent SEC
Documents, Parent is not indebted to any director or officer of Parent
(except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to
Parent, and there are no other transactions of the type required to be
disclosed pursuant to Items 402 or 404 of Regulation S-B under the
Securities Act and the Exchange Act.
3.11 COMPLIANCE WITH LAWS. Parent has complied with, are is in violation of,
and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation
of its business, except for such violations or failures to comply as
would not be reasonably expected to have a Material Adverse Effect on
Parent.
3.12 COMPLETE COPIES OF MATERIALS. Parent has delivered or made available
true and complete copies of each document that has been requested by
Company or its counsel in connection with their legal and accounting
review of Parent.
3.13 INTELLECTUAL PROPERTY. Schedule 3.11 contains a complete and accurate
list and description of:
3.13.1 all United States and foreign patents and patent applications
and patent disclosures, all United States and foreign copyright
registrations and applications, all material computer software
(excluding "shrink-wrap" or licenses for common business and office
applications, such as word processors and spreadsheets, having a cost
of less than $1,000), all United States, state and foreign trademarks,
service marks and trade names for which registrations have been issued
or applied for, all other United States, state and foreign trademarks,
service marks and trade names, and all Internet domain names owned by
or under obligation of assignment to the Parent or in which the Parent
holds any right, license or interest, showing in each case the
registered or other owner, expiration date and number, if any;
36
3.13.2 all agreements and licenses (excluding "shrink-wrap" or similar
licenses for computer software) relating or pertaining to any
Intellectual Property to which the Parent is a party, showing in each
case the parties thereto. All such agreements and licenses are valid
and subsisting and the Parent is not in breach of any material
provisions of any such agreements or licenses;
3.13.3 all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to
which the Parent is a party, showing in each case the parties thereto;
3.13.4 all registered assumed or fictitious names under which the
Parent is currently conducting business; and
3.13.5 all maintenance, support, training, consulting, outsourcing,
facilities management and other contracts and agreements relating to
computer hardware, software or services and that involve expenditures
in excess of $25,000.
3.13.6 To the Parent's knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Parent Intellectual
Property rights, or any Intellectual Property right of any third party
to the extent licensed to the Parent, by any third party, including any
employee or former employee of Parent. The Parent has not entered into
any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders, license agreements and
distribution and other customer agreements, copies of which have been
provided or made available to Parent.
3.13.7 The Parent is not, nor will it be as a result of the execution
and delivery of this Agreement or the performance of its obligations
under this Agreement, in breach of any license, sublicense or other
agreement relating to the Parent Intellectual Property or Third Party
Intellectual Property Rights.
3.13.8 To the Parent's knowledge, all patents, trademarks, service
marks and copyrights held by Parent are valid and subsisting. Parent
(i) has not been sued in any suit, action or proceeding (or received
any notice or, to Parent's knowledge, threat) which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party and (ii) has not brought any action, suit or proceeding for
infringement of Parent Intellectual Property or breach of any license
or agreement involving Parent Intellectual Property against any third
party. To Parent's knowledge, the manufacture, use, marketing,
licensing or sale of Parents products does not infringe any patent,
trademark, service xxxx, copyright, trade secret or other proprietary
right of any third party.
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3.13.9 The Parent has secured valid written assignments from all
consultants and employees who contributed to the creation or
development of Parent Intellectual Property of the rights to such
contributions that Parent does not already own by operation of law.
3.13.10 The Parent has not received any formal written opinion of
counsel stating that: (i) there is or has been any unauthorized use,
disclosure, infringement, or misappropriation of any Parent
Intellectual Property; (ii) any of the Parent Intellectual Property is
invalid or unenforceable; or (iii) Parent has engaged in unauthorized
use, disclosure, infringement or misappropriation of any third party
intellectual property.
3.14 GOVERNMENTAL AUTHORIZATION. The Parent has obtained each federal,
state, county, local or foreign governmental consent, license, permit,
grant, or other authorization of a Governmental Entity (i) pursuant to
which Parent currently operates or holds any interest in any of its
properties or (ii) that is required for the operation of Parent's
business or the holding of any such interest ((i) and (ii) herein
collectively called "Parent Authorizations"), and all of such Parent
Authorizations are in full force and effect, except where the failure
to obtain or have any of such Parent Authorizations or where the
failure of such Parent Authorizations to be in full force and effect
would not reasonably be expected to have a Material Adverse Effect on
Parent.
3.15 PRIVACY POLICIES; THIRD PARTY PRIVACY OBLIGATIONS; WEB SITE TERMS AND
CONDITIONS.
3.15.1 For purposes of this Section 3.15:
(i) "Parent Sites" means the Parent's public sites on the World Wide
Web;
(ii) "Privacy Statements" means, collectively, any and all of Parent's
privacy policies published on the Parent Sites or otherwise made
available by the Parent regarding the collection, retention, use and
distribution of the personal information of individuals, including,
without limitation, from visitors of any of the Parent Sites
("Individuals"); and
(iii) "Terms and Conditions" means any and all of the visitor terms and
conditions published on the Parent Sites governing Individuals' use of
or access to the Parent Sites.
3.15.2 A Privacy Statement is posted and is accessible to Individuals
at all times on each Parent Site. Parent maintains a hypertext link to
a Privacy Statement from the homepage of the Parent Site, and Parent
uses commercially reasonable efforts to include a hypertext link to a
Privacy Statement from every page of the Parent Sites on which personal
information is collected from Individuals.
3.15.3. The Privacy Statements are clearly written and include, at a
minimum, accurate notice to Individuals about Parent's collection,
retention, use and disclosure policies and practices with respect to
Individuals' personal information. The Privacy Statements are accurate
and consistent with the Terms and Conditions and Parent's actual
practices with respect to the collection, retention, use and disclosure
of Individuals' personal information.
38
3.15.4 Parent (i) complies with the Privacy Statements as applicable to
any given set of personal information collected by Parent from
Individuals; (ii) to Parent's knowledge complies with all applicable
privacy laws and regulations regarding the collection, retention, use
and disclosure of personal information; and (iii) takes appropriate
measures to protect and maintain the confidential nature of the
personal information provided to the Parent by Individuals. The Parent
has adequate technological and procedural measures in place to protect
personal information collected from Individuals against loss, theft and
unauthorized access or disclosure. The Parent does not sell, rent or
otherwise make available to third parties any personal information
submitted by Individuals.
3.15.5 The Parent's collection, retention, use and distribution of all
personal information collected by Parent from Individuals is governed
by the Privacy Statement pursuant to which the data was collected.
Other than as constrained by the Privacy Statements and by applicable
laws and regulations, the Parent is not restricted in its use and/or
distribution of personal information collected by Parent.
3.15.6 The Parent has the full power and authority to transfer all
rights Parent has in all Individuals' personal information in their
possession and/or control to Parent and Merger Sub, to the extent
permitted by applicable law. The Parent is not a party to any contract,
or is subject to any other obligation that, following the date of this
Agreement, would prevent Parent and/or its affiliates from using the
information governed by the Privacy Statements in a manner consistent
with applicable privacy laws and industry standards regarding the
disclosure and use of information. No claims or controversies have
arisen regarding the Privacy Statements or the implementation thereof
or of any of the foregoing.
3.15.7 The Parent has complied in all material respects with and, to
Parent's Knowledge, is not in violation of any applicable privacy
obligations under any legal requirements or under any contract to which
the Parent is a party or by which their properties are bound ("Third
Party Privacy Obligations"). Neither the execution, delivery nor
performance of this Agreement nor the consummation of the Merger will
violate, contravene or conflict with the Third Party Privacy
Obligations. No claims or controversies have arisen regarding the Third
Party Privacy Obligations or of the implementation thereof or of any of
the foregoing.
3.16 ENVIRONMENTAL MATTERS.
3.16.1 The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or
local laws, ordinances, codes, regulations, rules, policies and orders
that are intended to assure the protection of the environment, or that
classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste,
hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees,
workers or other persons, including the public.
39
(ii) "Parent Facilities" shall mean all buildings and improvements on
the Parent Property.
(iii) "Governmental Entity" shall mean any federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
(iv) "Hazardous Materials" shall mean any man-made or naturally
occurring substance, material product, by-product, waste, emission,
residual or odor that is described as a toxic or hazardous substance,
waste, material, pollutant, contaminant, infectious waste, designated
waste or words of similar import, in any of the Environmental and
Safety Laws, or any other words which are intended to define, list or
classify substances by reason of deleterious properties such as
ignitability, corrosivity, reactivity, carcinogenicity, toxicity, or
reproductive toxicity and includes, without limitation, asbestos,
asbestos-containing materials, lead-based paint, petroleum (including
crude oil or any fraction thereof, natural gas, natural gas liquids,
liquefied natural gas, or synthetic gas usable for fuel, or any mixture
thereof), petroleum products, waste oil, polychlorinated biphenyls,
urea formaldehyde, radon gas, radioactive matter, medical waste,
otherwise regulated or listed materials and chemicals which may cause
cancer or reproductive toxicity.
(v) "Legal Rules" shall mean codes, statutes, ordinances, orders,
judgments, decrees, injunctions, determinations, approvals, rules,
regulations, permits, licenses and authorizations of all Governmental
Entities with jurisdiction.
(vi) "Parent Property" shall mean all real property leased or owned by
the Parent either currently or in the past.
3.16.2 To Parent's knowledge, except in all cases as, in the aggregate,
would not have a (i) except in material compliance with all Legal Rules
and except for possible small operational releases, no Hazardous
Materials have been released in, on, or about the Parent Property or
any other location; (ii) the Parent has not received any written notice
that a lien in favor of any Governmental Entity for (A) any liability
under any Environmental and Safety Laws or (B) damages arising from or
costs incurred in responses to a release of any Hazardous Materials
into the environment has been filed against Parent's interest in the
Parent Property; and (ix) the Parent has all the permits and licenses
required to be issued under applicable Environmental and Safety Laws
and are in full compliance with the terms and Material Adverse Effect
on Parent, (i) the Parent Property and Parent Facilities, and the
present and former activities of the Parent thereon, comply in all
material respects with all applicable Environmental and Safety Laws;
(ii) all Hazardous Materials and wastes have been disposed of in
accordance with all Environmental and Safety Laws; (iii) the Parent has
not received notice (oral or written) of any noncompliance of the
Parent Facilities or its past or present operations with Environmental
and Safety Laws; (iv) no notices, administrative actions or suits are
pending or, to Parent's knowledge, threatened relating to a violation
of any Environmental and Safety Laws; (v) to Parent's knowledge, the
Parent is not potentially responsible party under the federal
Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), or state analog statute, arising out of events occurring
prior to the Closing Date; (vi) the Parent has not have received any
notice that it is the subject of any federal, state or local order,
agreement or investigation concerning any use, release, discharge,
storage, generation or disposal of any Hazardous Materials; (conditions
of those permits and licenses.
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3.17 TAXES.
3.17.1 For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax, governmental fee or
other like assessment or charge of any kind whatsoever, together with
any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for
the imposition of any such tax (domestic or foreign); (ii) any
liability for the payment of any amounts of the type described in (i)
as a result of being a member of an affiliated, consolidated, combined
or unitary group for any Taxable period; and (iii) any liability for
the payment of any amounts of the type described in (i) or (ii) as a
result of being a transferee of or successor to any person or as a
result of any express or implied obligation to indemnify any other
person, including pursuant to any Tax sharing or Tax allocation
agreement. "Tax Return" shall mean any return, statement, report or
form (including, without limitation estimated Tax returns and reports,
withholding Tax returns and reports and information reports and
returns) required to be filed with respect to Taxes.
Except as set forth on Schedule 3.17.2:
3.17.2.1 The Parent has duly filed on a timely basis (taking into
account any extensions of time for filing), has filed for an extension
for, or has been included in, all Tax Returns, relating to all Taxes
for which the Parent may be liable, required to be filed by or on
behalf of the Parent, for any taxable period ending on or before the
Closing Date. Each such Tax Return is true and correct in all material
respects. The Parent has duly paid, or made adequate provisions (by a
tax accrual or tax reserve) for all Taxes for which the Parent may be
liable and other charges shown as due on such Tax Returns. The Parent
has paid, or made adequate provision for, all material Taxes for which
the Parent may be liable which are required to be paid without the
filing of any Tax Return; any Taxes for which the Parent may be liable
incurred or accrued since the date of the most recent balance sheets of
the Parent have arisen in the Ordinary Course of Business determined in
the same manner as in the last taxable period ending on or before such
date;
41
3.17.2.2 The Parent has duly paid in full or made adequate provisions
for all Taxes claimed to be due by any taxing authority except such
Taxes as are being contested in good faith, which amounts are set forth
on Schedule 3.17.2. There are no liens for any Taxes, assessments or
government charges or levies upon any property or assets of the Parent,
nor are there any outstanding deficiencies or assessments or written
proposals for assessment of any Taxes proposed, asserted or assessed
against the Parent except such Taxes as are being contested in good
faith, which amounts are set forth on Schedule 3.17.2.
3.17.2.3 No actions, proceedings, or examinations are pending or, to
the Parent's knowledge, threatened to be brought by any taxing
authority for the determination, assessment or collection of any Taxes
for which the Parent may be liable except such Taxes as are being
contested in good faith, which amounts are set forth on Schedule
3.17.2.
3.17.2.4 The Parent has not requested any extension of time within
which to file or send any Tax Return which Tax Return has not since
been filed, and the Parent is not bound by any election, consent, or
agreement that extends or waives any applicable statute of limitation
with respect to any taxable periods of the Parent. The information set
forth in Schedule 2.18.2 indicates the date through which the taxable
years relating to particular Tax Returns of the Parent are closed by
applicable statutes of limitation or otherwise;
3.17.2.5 All liabilities for Taxes of the Parent for the current year
through the Closing Date and all prior years, whether or not they have
become due and payable, have been duly paid in full or adequate
provisions therefor have been made by a tax accrual or tax reserve;
3.17.2.6 The Parent is not a party to any outstanding tax sharing or
other allocation agreement with respect to any Taxes and has no
liability relating to any tax sharing or other allocation agreement;
3.17.2.7 The Parent does not have and has never owned stock in a
foreign corporation;
3.17.2.8 No election under section 341(f) of the Code has been made by
the Parent, nor has any election been made to be treated as an S
Corporation under section 1362(a) of the Code. No election under
section 382(l)(5) is in effect for the Parent. The Parent has not
agreed to, or been required to, make any section 481(a) adjustment
because of a change of accounting. There are no closing agreements,
irrevocable elections, or similar binding agreements or decisions of
any court or other governmental authority which will restrict the
choices of the Parent regarding the treatment of any item of income,
deduction, credit, or allowance in taxable periods subsequent to the
Closing Date, and the Parent has not elected to use LIFO for inventory
purposes. The Parent has withheld all material Taxes required to have
been withheld and has paid all Taxes withheld in connection with
amounts paid or owing to any employee, creditor, independent
contractor, or other third party. The Parent has not made any payments,
is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make
any payments that will not be deductible under section 280G of the
Code. The Parent has not 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)(1)(A)(ii) of the
Code;
42
3.17.2.9 The Parent has never been (or has any liability or potential
liability for unpaid Taxes because it once was) a member of an
affiliated group (as defined in section 1504(a) of the Code) during any
part of any consolidated return year; andno claim has ever been made by
an authority in a jurisdiction where the Parent does not file Tax
Returns that it is or may be subject to taxation by that
jurisdiction.
3.17.3 Schedule 3.17.3 sets forth the following information which, to
the Parent's Knowledge, is true, complete and correct: (A) the amount
of foreign income taxes (or taxes in lieu thereof) which are creditable
for federal income tax purposes or for foreign income tax purposes; and
(B) the yearly net operating losses, net capital losses, investment or
other tax credits or excess charitable contributions allocable to the
Parent which are available for carryover to subsequent years for
federal income tax purposes and the extent to which such losses or
credits are subject to limitation, or will be subject to limitation
upon consummation of the transactions contemplated herein, under
section 382 of the Code, section 383 of the Code or any other section
thereunder, or are limited for foreign income tax purposes.
3.17.4 Schedule 3.17.4 sets forth, a true, complete and correct list of
the assets held by the Parent and the adjusted tax bases as of the date
indicated of such assets for federal tax purposes.
3.18 EMPLOYEE BENEFIT PLANS.
3.18.1 Schedule 3.18.1 lists, with respect to Parent and any trade or
business (whether or not incorporated) which is treated as a single
employer with Parent (an "ERISA Affiliate") within the meaning of
Section 414(b), (c), (m) or (o) of the Code, (i) all employee benefit
plans (as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") other than Foreign Plans (as
defined below)); (ii) each loan to a non-officer employee in excess of
$50,000, loans to officers and directors and any stock option, stock
purchase, phantom stock, stock appreciation right, supplemental
retirement, severance, sabbatical, medical, dental, vision care,
disability, employee relocation, cafeteria benefit (Code Section 125)
or dependent care (Code Section 129), life insurance or accident
insurance plans, programs or arrangements; (iii) all bonus, pension,
profit sharing, savings, deferred compensation or incentive plans,
programs or arrangements; (iv) other fringe or employee benefit plans,
programs or arrangements; and (v) any current or former employment or
executive compensation, change in control or severance agreements,
written or otherwise, as to which unsatisfied obligations of Parent
remain for the benefit of, or relating to, any present or former
employee, consultant or director of Parent (together, the "Parent
Employee Plans").
3.18.2 The Parent has furnished or made available to Parent a copy of
each of the Parent Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and any
material employee communications relating thereto) and has, with
respect to each Parent Employee Plan which is subject to ERISA
reporting requirements, provided copies of the Form 5500 reports filed
for the last three plan years. Any Parent Employee Plan intended to be
qualified under Section 401(a) of the Code has obtained from the
Internal Revenue Service a favorable determination letter as to its
qualified status under the Code. The Parent has also furnished Parent
with the most recent Internal Revenue Service determination letter
issued with respect to each such Parent Employee Plan, and nothing has
occurred since the issuance of each such letter that would reasonably
be expected to cause the loss of the tax-qualified status of any such
Parent Employee Plan. The Parent has also furnished Parent with all
registration statements and prospectuses prepared in connection with
each Parent Employee Plan.
3.18.3 (i) None of the Parent Employee Plans promises or provides
retiree medical or other retiree welfare benefits to any person, except
as required by applicable law; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and
Section 4975 of the Code, with respect to any Parent Employee Plan;
(iii) each Parent Employee Plan has been administered in accordance
with its terms and in compliance with the requirements prescribed by
any and all statutes, rules and regulations (including ERISA and the
Code), except as would not have, in the aggregate, a Material Adverse
Effect on Parent, ERISA Affiliate have performed in all material
respects all obligations required to be performed by them under, are
not in default in any material respect under or violation of, and have
no knowledge of any material default or violation by any other party
to, any of the Parent Employee Plans; (iv) neither Parent nor ERISA
Affiliate is subject to any material liability or material penalty
under Sections 4976 through 4980 of the Code or Title I of ERISA with
respect to any of the Parent Employee Plans; (v) all material
contributions required to be made by Parent or ERISA Affiliate to any
Parent Employee Plan have been made on or before their due dates and a
reasonable amount has been accrued for contributions to each Parent
Employee Plan for the current plan years; (vi) with respect to each
Parent Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty
(30) day notice requirement has been waived under the regulations to
Section 4043 of ERISA) nor any event described in Section 4062, 4063 or
4041 or ERISA has occurred; (vii) no Parent Employee Plan is covered
by, and neither Parent nor any ERISA Affiliate has incurred or expects
to incur any liability under Title IV of ERISA or Section 412 of the
Code; and (viii) each Parent Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time in accordance with
its terms, without liability to Parent greater than an aggregate of
$5,000 (other than for benefits accrued through the date of termination
and ordinary administrative expenses typically incurred in a
termination event). With respect to each Parent Employee Plan subject
to ERISA as either an employee pension plan within the meaning of
Section 3(2) of ERISA or an employee welfare benefit plan within the
meaning of Section 3(1) of ERISA, Parent has prepared in good faith and
timely filed all requisite governmental reports (which were true and
correct as of the date filed) and has properly and timely filed and
distributed or posted all notices and reports to employees required to
be filed, distributed or posted with respect to each such Parent
Employee Plan, except where the failure to do so would not have a
Material Adverse Effect. No suit, administrative proceeding, action or
other litigation has been brought, or to Parent's knowledge is
threatened, against or with respect to any such Parent Employee Plan,
including any audit or inquiry by the IRS or United States Department
of Labor. No payment or benefit which will or may be made by the Parent
to any employee will be characterized as an "excess parachute payment"
within the meaning of Section 280G(b)(1) of the Code.
43
3.18.4 With respect to each Parent Employee Plan, the has complied
except to the extent that such failure to comply would not,
individually or in the aggregate, have a Material Adverse Effect on
Parent, with (i) the applicable health care continuation and notice
provisions of the Consolidated Omnibus Budget Reconciliation Act of
1985 ("COBRA") and the regulations (including proposed regulations)
thereunder, (ii) the applicable requirements of the Family Medical and
Leave Act of 1993 and the regulations thereunder, and (iii) the
applicable requirements of the Health Insurance Portability and
Accountability Act of 1996 ("HIPAA") and the regulations (including
proposed regulations) thereunder. SCHEDULE 2.16(d) describes all
obligations of the Parent as of the date of this Agreement under any of
the provisions of COBRA and the Family and Medical Leave Act of 1993.
3.18.5 The consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other
service provider of Parent or any other ERISA Affiliate to severance
benefits or any other payment, except as expressly provided in this
Agreement, or (ii) accelerate the time of payment or vesting, or
increase the amount of compensation due any such employee or service
provider under any Parent Employee Plan.
3.18.6 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Parent or other ERISA
Affiliate relating to, or change in participation or coverage under,
any Parent Employee Plan which would materially increase the expense of
maintaining such Plan above the level of expense incurred with respect
to that Plan for the most recent fiscal quarter included in Parent's
financial statements.
44
3.18.7 The Parent does not currently maintain, sponsor, participate in
or contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the
meaning of Section 3(2) of ERISA) that is subject to Part 3 of Subtitle
B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
3.18.8 Neither the Parent or other ERISA Affiliate is a party to, or
has made any contribution to or otherwise incurred any obligation
under, any "multiemployer plan" as defined in Section 3(37) of ERISA.
3.18.9 SCHEDULE 3.1.8 identifies each employee of any of the Parent who
is not fully available to perform work because of disability or other
leave and sets forth the basis of such disability or leave and the
anticipated date of return to full service.
3.19 CONTRACTS. Schedule
3.19.1 lists and the Parent has delivered or made available to Parent true and
complete copies (or, in the case of oral contracts, summaries), of: 3.19.1 each
Contract that is executory in whole or in part and involves performance of
services or delivery of goods or materials (A) by the Parent of an amount or
value in excess of $50,000 or (B) to the Parent of an amount or value in excess
of $50,000;
3.19.2each Contract that is executory in whole or in part and was not entered
into in the Ordinary Course of Business and that involves expenditures or
receipts of the Parent in excess of $50,000;
3.19.3 each licensing agreement (other than "shrink-wrap" and licenses related
to common business and office applications, such as word processing and
spreadsheets, with a cost of less than $2,000) or any other Contract with
respect to patents, trademarks, copyrights, trade names, service marks, licenses
and other intellectual property;
3.19.4 each collective bargaining agreement and any other Contract to or with
any labor union or other employee representative of a group of employees of the
Parent;
3.19.5 each joint venture, partnership or similar contract involving a sharing
of profits, losses, costs or liabilities by the Parent with any other Person;
3.19.6 each Contract containing covenants that in any way purport to restrict
the business activity of the Parent or limit the freedom of the Parent to engage
in any line of business or to compete with any Person;
45
3.19.7 each Contract providing for payments to or by any Person based on sales,
purchases, or profits, other than direct payments for goods;
3.19.8 each power of attorney that is currently effective and outstanding
granted by and relating to the Parent;
3.19.9 each Contract that is executory in whole or in part and involves capital
expenditures in excess of $50,000;
3.19.10 each written warranty, guaranty, and/or other similar undertaking with
respect to contractual performance extended by the Parent other than in the
Ordinary Course of Business;
3.19.11 each Contract with any employee, director or officer of the Parent;
3.19.12 each Contract relating to indebtedness of the Parent for borrowed money
in excess of $50,000 and each contract relating to the guarantee by the Parent
of indebtedness of any Person for borrowed money in excess of $50,000;
3.19.13 each Contract for the purchase or sale of real property;
3.19.14 each Contract for the sale of products or services by the Parent that
involves expenditures or receipts of the Parent in excess of $50,000;
3.19.15 each Contract imposing a Lien on any asset of the Parent;
3.19.16 each Contract relating to any loans or advances to, or investment in,
any Person;
3.19.17each Contract providing for the payment of cash or other compensation
upon consummation of the Merger;
3.19.18 each non-disclosure and non-compete agreement Contract;
3.19.19 each Contract or group of related Contracts not terminable on 30 days'
Notice and that involves expenditures or receipts of the Parent in excess of
$50,000;
3.19.20 each sales distribution Contract, franchise Contract and advertising
Contract that involves expenditures or receipts of the Parent in excess of
$50,000; and
3.19.21 any other Contract which is material to the Parent and that involves
expenditures or receipts of the Parent in excess of $50,000.
3.19.22 Each of the Material Contracts is in full force and effect and
constitutes a valid and binding obligation of the Parent and, to the Knowledge
of the Parent, the other party thereto. Except (i) with respect to the Contracts
that relate to shareholder indebtedness and (ii) as set forth on Schedule 3.18.,
the Parent is not in breach or default under a material provision of any
Material Contract, and no event has occurred and no condition or state of facts
exists which, with the passage of time or the giving of notice or both, would
constitute such a default or breach by the Parent or, to the Knowledge of the
Parent, by any such other party. The Parent has not received written notice of
such a breach or default or event or condition.
46
3.20 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution
and delivery of this Agreement nor the consummation of the
transaction contemplated hereby will (i) result in any
entitlement, payment or benefit (including, without limitation,
severance, unemployment compensation, golden parachute, bonus or
benefit under any Parent plan or policy or otherwise) becoming
due to any current or former directors or Parent Employees
(defined in Section 2.19 below) of the Parent, (ii) increase the
amount of any entitlements, payments or benefits otherwise
payable by the Parent, or (iii) result in the acceleration of
the time of payment or vesting of any such entitlements,
payments or benefits.
3.21 EMPLOYEE MATTERS.
3.21.1 Schedule 3.21.1 contains a true, complete and accurate list
(and, as indicated below, description) of (i) the names and
titles of all consultants, independent contractors, full-time,
part-time, temporary, contract, leased or casual employees
employed by or who provided services for Parent (collectively,
"Parent Employees"), together with their status and location of
their employment; (ii) the date each Parent Employee was hired
or retained; (iii) a list of all written employment, consulting
or service contracts or offer letters between Parent and the
Parent Employees; (iv) the rate of annual remuneration of each
Parent Employee at the date hereof, any bonuses paid since the
end of the last completed financial year and all other bonuses,
incentive schemes and benefits to which such Parent Employee is
or may be entitled; (v) the annual accrual rate and the total
current accrued and unused amount of vacation or paid time off
for each Parent Employee as of the date hereof; (vi) the names
of all inactive Parent Employees, the reason they are inactive
Parent Employees, whether they are expected to return to work,
and if so when, and the nature of any benefits to which such
inactive Parent Employees are entitled from the Parent; (vii)
any employee handbook or personnel policies or procedures manual
in effect that governs the terms and conditions or privileges of
employment of the Parent Employees; and (viii) particulars of
all other material terms and conditions of employment or
engagement of the Parent Employees and the positions, title or
classification held by them (collectively, "Parent Employee
Matters").
3.21.2 The Parent has provided or made available to Parent correct and
complete copies of all documents including but not limited to
all agreements, correspondence, files and policies, relating to
the Parent Employee Matters.
47
3.21.3 The Parent is in compliance in all respects with all currently
applicable laws and regulations respecting terms and conditions
of employment, including without limitation applicant and
employee background checking, immigration laws, verification of
employment eligibility, document retention and record keeping,
discrimination in employment, wages and hours, leaves of absence
(including, as legally applicable, the Family and Medical Leave
Act), classification of workers as employees and independent
contractors, classification of workers as exempt or nonexempt
employees, and occupational safety and health and employment
practices, and are not engaged in any unfair labor practice. The
Parent has in all material respects withheld all amounts
required by law or by agreement to be withheld from the wages,
salaries, and other payments to employees; and is not liable for
any arrears of wages or any taxes or any penalty for failure to
comply with any of the foregoing. The Parent is not liable for
any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or
obligations for Parent Employees (other than routine payments to
be made in the normal course of business and consistent with
past practice). There are no pending claims, or claims
reasonably expected or, to Parent's knowledge, threatened,
against Parent under any workers compensation plan or policy or
long-term or short-term disability plan or policy. To the
knowledge of Parent, there are no controversies, including
claims, complaints, charges, investigations, or proceedings
pending or, to Parent's knowledge, reasonably expected or
threatened between Parent, on the one hand, and any of its
respective Parent Employees, on the other hand, including
without limitation any claims for actual or alleged harassment
or discrimination based on race, national origin, age, sex,
sexual orientation, religion, disability, or similar tortuous
conduct, breach of contract, wrongful termination, defamation,
intentional or negligent infliction of emotional distress,
interference with contract or interference with actual or
prospective economic disadvantage, which controversies have or
would reasonably be expected to result in an action, suit,
proceeding, claim, arbitration, audit or investigation before
any agency, court or tribunal, foreign or domestic.
3.21.4 The Parent is not a party to any collective bargaining agreement
or other labor union contract nor does the Parent know of any
activities or proceedings of any labor union to organize any
such Parent Employees.
3.21.5 No labor dispute, walk out, strike, slowdown, hand billing,
picketing, work stoppage (sympathetic or otherwise), or other
"concerted action" involving the Parent Employees has occurred,
is in progress or has been, to the knowledge of Parent,
threatened.
3.21.6 The Parent has each provided all current and former Parent
Employees with all wages, benefits, relocation benefits, stock
options, bonuses and incentives, and all other compensation,
remuneration and benefits that became due and payable through
the date hereof and has reimbursed all current and former Parent
Employees for all expenses incurred and due such individual.
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3.21.7 In the last five (5) years, no citation has been issued by the
Occupational Safety and Health Administration ("OSHA") or by a
state or provincial occupational safety and health board or
agency against the Parent and no notice of contest, claim,
complaint, charge, investigation or other administrative
enforcement proceeding involving the Parent has been filed or is
pending or, to the Knowledge of the Parent, threatened against
the Parent under OSHA or any provincial occupational safety and
health board or any other applicable law relating to
occupational safety and health.
3.21.8 To Parent's knowledge, no Parent Employees are in violation of
any term of any employment contract, confidentiality agreement,
patent disclosure agreement, noncompetition agreement, or any
restrictive covenant to a former employer relating to the right
of any such Parent Employee to be employed by the Parent because
of the nature of the business conducted or presently proposed to
be conducted by Parent or to the use of trade secrets or
proprietary information of others. No Parent Employees have
given notice to the Parent, nor is the Parent otherwise aware,
that any such Parent Employee intends to terminate his or her
employment with the Parent.
3.21.9 The Parent has maintained and currently maintains adequate
insurance as required by applicable law with respect to workers'
compensation claims and unemployment benefits claims. The Parent
has paid or accrued all current assessments under workers'
compensation and unemployment legislation, and has not been
subject to any special or penalty assessment under such
legislation which has not been paid.
3.22 INSURANCE. The Parent has policies of insurance and bonds of the
type and in amounts customarily carried by persons conducting
businesses or owning assets similar to those of the Parent.
There is no claim pending under any of such policies or bonds as
to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and
payable under all such policies and bonds have been paid and the
Parent is otherwise in compliance in all material respects with
the terms of such policies and bonds. The Parent has no
knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
3.23 BROKERS' AND FINDERS' FEES. Parent has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or investment bankers' fees
or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
3.24 BOARD APPROVAL. The Board of Directors of Parent has (i)
approved this Agreement and the Merger, and (ii) approved the
issuance of the shares of Parent Common Stock pursuant to this
Agreement. The Board of Directors of Merger Sub has approved
this Agreement and the Merger, and recommended that the sole
stockholder of Merger Sub approve this Agreement and the Merger.
The affirmative vote of the Parent's stockholders is not
required to approve the Merger and the affirmative vote of
Parent as sole stockholder of Merger Sub is the only vote of the
holders of any of Parent's or Merger Sub's capital stock
necessary to approve this Agreement and the transactions
contemplated hereby.
49
3.25 STATE TAKEOVER STATUTES. The Board of Directors of Parent has
taken all actions necessary so that the restrictions contained
in Section 203 of the Delaware Law applicable to a "business
combination" (as defined in Section 203) shall not apply to the
execution, delivery or performance of this Agreement or the
consummation of the Merger or the other transactions
contemplated by this Agreement. To Parent's Knowledge, no other
"fair practice," "moratorium," "control share acquisition,"
"business combination," or other state takeover statute or
similar statute or regulation applies to Parent, Parent, Merger
Sub, the Merger, or this Agreement.
3.26 REPRESENTATIONS COMPLETE. None of the representations or
warranties made by Parent or Merger Sub herein or in any
Schedule hereto, including the Parent Disclosure Schedule, or
certificate furnished by Parent or Merger Sub pursuant to this
Agreement, or the Parent SEC Documents, when all such documents
are read together in their entirety, contains or will contain at
the Effective Time any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material
fact necessary in order to make the statements contained herein
or therein, in the light of the circumstances under which made,
not misleading. All projected, forecasted or prospective
financial information provided by Parent to the Company has been
prepared in good faith on the basis of assumptions Parent
believes are reasonable and supportable.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS. During the period from the date of this
Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, each of Parent and Company
agrees (except to the extent expressly contemplated by this
Agreement or as consented to in writing by the other party), to
carry on its business in the ordinary course in substantially
the same manner as heretofore conducted, to pay and to cause its
subsidiaries to pay debts and Taxes when due subject to good
faith disputes over such debts or taxes, to pay or perform other
obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact
its and its subsidiaries' present business organizations, use
its reasonable best efforts consistent with past practice to
keep available the services of its present officers and key
employees and use its reasonable best efforts consistent with
past practice to preserve its relationships with customers,
suppliers, distributors, licensors, licensees, and others having
business dealings with it or its subsidiaries, to the end that
its and its subsidiaries' goodwill and ongoing businesses shall
be unimpaired at the Effective Time. The Parent and Company
agree to promptly notify the other of any material event or
occurrence not in the ordinary course of its or its
subsidiaries' business, and of any event that would have a
Material Adverse Effect on Parent or Company.
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4.2 RESTRICTIONS ON CONDUCT OF BUSINESS. During the period from the
date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, except as
expressly contemplated by this Agreement, each of Parent and
Company shall not do, cause or permit any of the following, or
allow, without the prior written consent of the other:
4.2.1 CHARTER DOCUMENTS. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws;
4.2.2 DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any
dividends on or make any other distributions (whether in cash,
stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock,
or repurchase or otherwise acquire, directly or indirectly, any
shares of its capital stock except from former employees,
directors and consultants in accordance with agreements
providing for the repurchase of shares in connection with any
termination of service to it or its subsidiaries;
4.2.3 STOCK OPTION PLANS, ETC. Take any action to accelerate,
amend or change the period of exercisability or vesting of
options or other rights granted under its stock plans or
authorize cash payments in exchange for any options or other
rights granted under any of such plans;
4.3.4 MATERIAL CONTRACTS. Enter into any contract or commitment,
or violate, amend or otherwise modify or waive any of the terms
of any of its contracts, other than in the ordinary course of
business consistent with past practice and in no event shall
such contract, commitment, amendment, modification or waiver
(other than those relating to sales of products or purchases of
supplies in the ordinary course) involve the payment by Parent
or Company, as applicable, or their respective subsidiaries in
excess of $150,000;
4.3.5 ISSUANCE OF SECURITIES. Issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital
stock or securities convertible into, or subscriptions, rights,
warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue any such
shares or other convertible securities, other than the issuance
of shares of its common stock pursuant to the conversion of
preferred stock, or exercise of stock options, warrants or other
rights therefor outstanding as of the date of this Agreement;
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4.3.6 INTELLECTUAL PROPERTY. Transfer or license to any person
or entity any rights to any Intellectual Property other than the
license of non-exclusive rights to Intellectual Property in the
ordinary course of business consistent with past practice, place
any Intellectual Property into a source-code escrow, or grant
any source-code license of any kind;
4.3.7 EXCLUSIVE RIGHTS. Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing
or other exclusive rights of any type or scope with respect to
any of its products or technology;
4.3.8 DISPOSITIONS. Sell, lease, license or otherwise dispose of
or encumber any of its properties or assets which are material,
individually or in the aggregate, to its and its subsidiaries'
business, taken as a whole, except in the ordinary course of
business consistent with past practice;
4.3.9 INDEBTEDNESS. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others;
4.3.10 LEASES. Enter into any operating lease in excess of
$50,000;
4.3.11 PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an
amount in excess of $200,000 in any one case, any claim,
liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise) arising other than in the
ordinary course of business, other than the payment, discharge
or satisfaction of liabilities reflected or reserved against in
the Parent Financial Statements or the Company Financial
Statements, as applicable;
4.3.12 CAPITAL EXPENDITURES. Make any capital expenditures,
capital additions or capital improvements except in the ordinary
course of business and consistent with past practice that do not
exceed $25,000 individually or $100,000 in the aggregate;
4.3.13 INSURANCE. Materially reduce the amount of any material
insurance coverage provided by existing insurance policies;
4.3.14 TERMINATION OR WAIVER. Terminate or waive any right of
substantial value;
4.3.15 EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt
or amend any employee benefit or stock purchase or option plan
or hire any new director level or officer level employee, pay
any special bonus or special remuneration to any employee or
director, or increase the salaries or wage rates of its
employees other than pursuant to scheduled annual performance
reviews, provided that any resulting modifications are in the
ordinary course of business and consistent with Company's past
practices;
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4.3.16 SEVERANCE ARRANGEMENTS. Grant any severance, termination
pay or payments or benefits payable as a result of the Merger
(i) to any director or officer, or (ii) to any other employee
except payments made pursuant to written agreements outstanding
on the date hereof;
4.3.17 LAWSUITS. Commence a lawsuit other than (i) for the
routine collection of bills, (ii) in such cases where such party
in good faith determines that failure to commence suit would
result in the material impairment of a valuable aspect of its
business, provided that it consults with the other party prior
to the filing of such a suit, (iii) for a breach of this
Agreement, or (iv) to clarify such party's obligations under
this Agreement;
4.3.18 ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of
the assets of, or by any other manner, any business or any
corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree
to acquire any assets which are material, individually or in the
aggregate, to its business, taken as a whole, or acquire or
agree to acquire any equity securities of any corporation,
partnership, association or business organization;
4.3.19 TAXES. Other than in the ordinary course of business,
make or change any material election in respect of Taxes, adopt
or change any accounting method in respect of Taxes, file any
material Tax Return or any amendment to a material Tax Return,
enter into any closing agreement, settle any claim or assessment
in respect of Taxes, or consent to any extension or waiver of
the limitation period applicable to any claim or assessment in
respect of Taxes;
4.3.20 REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course
of business;
4.3.21 ACCOUNTING POLICIES AND PROCEDURES. Make any change to
its accounting methods, principles, policies, procedures or
practices, except as may be required by GAAP, Regulation S-X
promulgated by the SEC or applicable statutory accounting
principles;
4.3.22 OTHER. Take or agree in writing or otherwise to take, any
of the actions described in Sections 4.3, or any action which
would make any of its representations or warranties contained in
this Agreement untrue or incorrect or prevent it from performing
or cause it not to perform its covenants hereunder.
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4.3 NO SOLICITATION BY COMPANY. Company and the officers, directors,
employees or other agents of Company (collectively, "Company
Representatives") will not, directly or indirectly, (i) take any
action to solicit, initiate or encourage or agree to any Company
Takeover Proposal ("Company Takeover Proposal" means any offer
or proposal for, or any indication of interest in, a merger or
other business combination involving Company or the acquisition
of 15% or more of the outstanding shares of capital stock of
Company, or a significant portion of the assets of Company,
other than the transactions contemplated by this Agreement, or
(ii) subject to the terms of the immediately following sentence,
engage in any discussions or negotiations with, or disclose any
nonpublic information relating to the Company to, or afford
access to the properties, books or records of the Company, to
any person that has advised Company that it may be considering
making, or that has made, a Company Takeover Proposal.
Notwithstanding the immediately preceding sentence, if, prior to
adoption of this Agreement by Company stockholders, an
unsolicited written Company Takeover Proposal shall be received
by the Board of Directors of Company, then, to the extent the
Board of Directors of Company believes in good faith (after
advice from its financial advisor and after considering all
terms and conditions of such written Company Takeover Proposal,
including the likelihood and timing of its consummation) that
such Company Takeover Proposal would result in a transaction
more favorable to Company's stockholders from a financial point
of view than the transaction contemplated by this Agreement (any
such more favorable Company Takeover Proposal being referred to
in this Agreement as a "Superior Company Proposal") and the
Board of Directors of Company determines in good faith after
advice from outside legal counsel that it is necessary to do so
in order for the Board of Directors of Company to comply with
its fiduciary duties to stockholders under applicable law, then
Company Representatives may furnish in connection therewith
information to the party making such Superior Company Proposal
and, subject to the provisions hereof, engage in negotiations
with such party, and such actions shall not be considered a
breach of this Section 4.4 or any other provisions of this
Agreement; provided that in each such event the Company notifies
Parent of such determination by the Company Board of Directors
and provides Parent with a true and complete copy of the
Superior Company Proposal received from such third party, and
provides (or has provided) Parent with all documents containing
or referring to non-public information of Company that are
supplied to such third party; provided, however, that Company
provides such non-public information only pursuant to a
non-disclosure agreement; and provided further that Company
Representatives shall not agree to or endorse any Company
Takeover Proposal and the Company Board of Directors shall not
withdraw its recommendation of the Merger and adoption of this
Agreement unless Company has provided Parent at least three (3)
days prior notice of any such intent to agree or endorse such
Company Takeover Proposal or to withdraw such recommendation.
Company will promptly (and in any event within 24 hours) notify
Parent after receipt of any Company Takeover Proposal or any
notice that any person is considering making a Company Takeover
Proposal or any request for non-public information relating to
Company or for access to the properties, books or records of
Company by any person that has advised Company that it may be
considering making, or that has made, a Company Takeover
Proposal, or whose efforts to formulate a Company Takeover
Proposal would be assisted thereby (such notice to include the
identity of such person or persons), and will keep Parent fully
informed of the status and details of any such Company Takeover
Proposal notice, request or correspondence or communications
related thereto, and shall provide Parent with a true and
complete copy of such Company Takeover Proposal notice or any
amendment thereto, if it is in writing, or a complete written
summary thereof, if it is not in writing. Company shall
immediately cease and cause to be terminated all existing
discussions or negotiations with any persons conducted
heretofore with respect to a Company Takeover Proposal.
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ARTICLE V
ADDITIONAL AGREEMENTS
5.1 MEETING OF STOCKHOLDERS. The Company shall promptly after the
date hereof take all action necessary in accordance with
Delaware Law and its respective Certificate of Incorporation and
Bylaws to convene the Company Stockholders Meeting. The Company
shall use its reasonable best efforts to solicit from its
stockholders proxies in favor of the adoption of this Agreement
and the Merger and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required
to effect the Merger. The Company shall use reasonable efforts
to obtain from its stockholders holding in the aggregate 95% of
the issued and outstanding shares of Company Common Stock (i) a
waiver of such stockholders' appraisal rights with respect to
the transactions contemplated by this Agreement; and (ii) the
written consent of the Company stockholders to the transactions
contemplated by this Agreement.
5.2 INTERIM FUNDING. On or prior to the date of this Agreement,
Parent shall obtain not less than $150,000 in additional
financing. Within 90 days from the date of this Agreement,
Parent shall obtain not less than an additional $1.5 million in
additional financing. Upon effectuation of the Merger and Parent
obtaining the additional $1.5 million in additional financing,
the business of Parent (as it exists as of May 12, 2004) shall
be dropped down to a wholly owned subsidiary, such subsidiary to
operate independently of its parent. Parent agrees that, until
such time as the business of Parent (as it exists as of May 12,
2004) shall be dropped down to a wholly owned subsidiary, Parent
shall not incur any additional material liabilities.
5.3 REVERSE STOCK SPLIT; CONVERSION OF CERTAIN PARENT INDEBTEDNESS.
Prior to the Effective Time, Parent shall consummate a 1-for-200
reverse stock split of the Parent Common Stock. Prior to the
Effective Time, Parent shall convert $1,637,570 of debt into an
aggregate amount of Parent Common Stock such that the holders of
such debt own 50% of the issued and outstanding Parent Common
Stock prior to the consummation of the Merger. As a consequence,
at the Effective Time, the total debt of Parent shall be no
greater than $150,000 not inclusive of obligations to Xxxxx
Xxxxxx, President, who agrees not to hold Source Atlantic liable
for any obligations owned to him by Parentech. Prior to the
Effective Date, Parent shall authorize the issuance of 1,550,000
shares of the Parent preferred stock, such shares of preferred
stock to have a conversion right (the "Convertible Preferred
Stock") such that 550,000 shares of Convertible Preferred Stock
may be converted to common stock immediately, 500,000 shares of
Convertible Preferred Stock may be converted to common stock up
to 24 month earnings benchmark established by Parent intended to
be $1,000,000 NAT, and 500,000 shares of Convertible Preferred
Stock may be converted to common stock up to 36 months after
achieving the $1,000,000 NAT earnings benchmark established by
Parent intended to be $2,600,000 NAT, the conversion price of
such shares of Convertible Preferred Stock will be priced at 10%
of the trading price of Parent Common Stock, upon the date the
conversion right is achieved. Such shares of the Parent's
Preferred Stock shall be issued in accordance with Schedule 5.3.
55
5.4 AUDIT. On or prior to 60 days following the date hereof,
Financial Statements of the Company for the years ended December
31, 2002 and December 31, 2003, and the three month periods
ended March 31, 2003 and March 31, 2004 shall be delivered to
Parent, together with the signed opinion of the Company auditor
for the respective periods with respect the Financial Statements
of the Company for the years ended December 31, 2002 and
December 31, 2003.
5.5 LOCK-UP AGREEMENTS; PARENT WARRANT. Prior to the Effective Date,
Parent will offer up to Four Hundred and Thirty Three Thousand
and Nine Hundred and Seventy Three (433,973) Warrants to
Purchase Parent Common Stock to certain of its stockholders (the
"Parent Warrants") to, among other things, purchase shares of
Parent Common Stock at $25.00 per share in consideration for
such stockholder's execution of a lock-up agreement. The Parent
Warrants and the lock-up agreement shall be substantially in the
forms that are annexed hereto as Exhibit B. The Parent Warrants
shall be subject to a "put" provision such that the Warrant can
be "put" back to Parent after one (1) quarter and one day
following the Effective Date. This "put" provision obligates the
Parent to spin off the assets and operations of Parent, into
another entity and transfer ninety percent (90%) ownership to
the holders of the Parent Warrants. The "spin off" shall comply
with Securities and Exchange Commission Staff Legal Bulletin No.
4 on "spin off transactions", dated September 16, 1997.
5.6 ACCESS TO INFORMATION.
5.6.1 Except as prohibited by applicable law, each of Parent and
Company shall afford the other and its accountants, counsel and other
representatives, reasonable access during normal business hours during
the period prior to the Effective Time to (i) all of such party's and
its subsidiaries' properties, books, contracts, commitments and
records, and (ii) all other information concerning the business,
properties and personnel of such party and its subsidiaries as the
other party may reasonably request. The Parent and Company agree to
provide to the other and its accountants, counsel and other
representatives copies of internal financial statements promptly upon
request.
5.6.2 Subject to compliance with applicable law, from the date
hereof until the Effective Time, each of Parent and Company shall
confer on a regular and frequent basis with one or more representatives
of the other party to report operational matters of materiality and the
general status of ongoing operations.
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5.6.3 No information or knowledge obtained in any investigation
pursuant to this Section 5.6 shall affect or be deemed to modify any
representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.6.4 Each of Parent and Company shall provide the other and its
accountants, counsel and other representatives reasonable access,
during normal business hours during the period prior to the Effective
Time, to all of such party's and its subsidiaries' Tax Returns and
other records and workpapers relating to Taxes, and shall also provide
the following information upon the request of the other party or its
subsidiaries: (i) a schedule of the types of Tax Returns being filed by
Parent or Company, as applicable, and each of its subsidiaries in each
taxing jurisdiction, (ii) a schedule of the year of the commencement of
the filing of each such type of Tax Return, (iii) a schedule of all
closed years with respect to each such type of Tax Return filed in each
jurisdiction, (iv) a schedule of all material Tax elections filed in
each jurisdiction by Parent or Company, as applicable, and each of its
subsidiaries, (v) a schedule of any deferred intercompany gain with
respect to transactions to which Parent or Company, as applicable, has
been a party, and (vi) receipts for any Taxes paid to foreign Tax
authorities.
5.7 CONFIDENTIALITY. The parties acknowledge that each of Parent and
Company have previously executed a non-disclosure agreement,
which agreement shall continue in full force and effect in
accordance with its terms.
5.8 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement,
Parent and Company shall consult with each other before issuing
any press release or otherwise making any public statement or
making any other public (or non-confidential) disclosure
(whether or not in response to an inquiry) regarding the terms
of this Agreement and the transactions contemplated hereby, and
neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other
(which approval shall not be unreasonably withheld), except as
may be required by law, in which case the party proposing to
issue such press release or make such public statement or
disclosure shall use its commercially reasonable efforts to
consult with the other party before issuing such press release
or making such public statement or disclosure.
5.9 CONSENTS; COOPERATION.
5.9.1 The Parent and Company shall promptly apply for or
otherwise seek, and use its reasonable best efforts to obtain, all
consents and approvals required to be obtained by it for the
consummation of the Merger, including those required under the Delaware
Corporate Law. The Company shall use its reasonable best efforts to
obtain all necessary consents, waivers and approvals under any of its
material contracts in connection with the Merger for the assignment
thereof or otherwise. The parties hereto will consult and cooperate
with one another, and consider in good faith the views of one another,
in connection with any analyses, appearances, presentations, memoranda,
briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or
relating to the Delaware Corporate Law or any other federal or state
antitrust or fair trade law.
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5.9.2 Each of Parent and Company shall use its reasonable best
efforts to resolve such objections, if any, as may be asserted by any
Governmental Entity with respect to the transactions contemplated by
this Agreement under the Delaware Corporate Law, the Xxxxxxx Act, as
amended, the Xxxxxxx Act, as amended, the Federal Trade Commission Act,
as amended, and any other Federal, state or foreign statutes, rules,
regulations, orders or decrees that are designed to prohibit, restrict
or regulate actions having the purpose or effect of monopolization or
restraint of trade (collectively, "Antitrust Laws").
5.9.3 Notwithstanding anything to the contrary in Section 5, (i)
neither Parent nor the Company shall be required to divest any of their
respective businesses, product lines or assets, or to take or agree to
take any other action or agree to any limitation that would reasonably
be expected to have a Material Adverse Effect on Parent or of Parent
combined with the Surviving Corporation after the Effective Time.
5.10 LEGAL REQUIREMENTS. Each of Parent, Merger Sub and Company will,
and will cause their respective subsidiaries to, take all
reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the
consummation of the transactions contemplated by this Agreement
and will promptly cooperate with and furnish information to any
party hereto necessary in connection with any such requirements
imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement
and will take all reasonable actions necessary to obtain (and
will cooperate with the other parties hereto in obtaining) any
consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental
Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this
Agreement.
5.11 BLUE SKY LAWS. Parent shall take such steps as may be necessary
to comply with the securities and blue sky laws of all
jurisdictions which are applicable to the issuance of the Parent
Common Stock in connection with the Merger. Company shall use
its reasonable best efforts to assist Parent as may be necessary
to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the
issuance of Parent Common Stock in connection with the Merger.
5.12 INDEMNIFICATION.
5.12.1 After the Effective Time, Parent will fulfill and honor
in all respects the obligations of the Company pursuant to the
indemnification provisions of Company's Certificate of
Incorporation and Bylaws or any indemnification agreement with
the Company officers and directors to which Company is a party,
in each case in effect on the date hereof; provided that such
indemnification shall be subject to any limitation imposed from
time to time under applicable law. Without limitation of the
foregoing, in the event any person so indemnified (an
"Indemnified Party") is or becomes involved in any capacity in
any action, proceeding or investigation in connection with any
matter relating to this Agreement or the transactions
contemplated hereby occurring on or prior to the Effective Time,
Parent shall, or shall cause the Surviving Corporation to, pay
as incurred such Indemnified Party's reasonable legal and other
expenses (including the cost of any investigation and
preparation) incurred in connection therewith to the fullest
extent permitted by the Delaware Law upon receipt of any
undertaking contemplated by Section 145(e) of the Delaware Law.
Any Indemnified Party wishing to claim indemnification under
this Section 5.12.1, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify Parent
and the Surviving Corporation, and shall deliver to Parent and
the Surviving Corporation the undertaking contemplated by
Section 145(e) of the Delaware Law.
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5.12.2 To the extent there is any claim, action, suit,
proceeding or investigation (whether arising before or after the
Effective Time) against an Indemnified Party that arises out of
or pertains to any action or omission in his or her capacity as
director, officer, employee, fiduciary or agent of the Company
occurring prior to the Effective Time, or arises out of or
pertains to the transactions contemplated by this Agreement for
a period lasting until the expiration of two years after the
Effective Time (whether arising before or after the Effective
Time), in each case for which such Indemnified Party is
indemnified under this Section 5.12.2, such Indemnified Party
shall be entitled to be represented by counsel, which counsel
shall be counsel of Parent (provided that if use of counsel of
Parent would be expected under applicable standards of
professional conduct to give rise to a conflict between the
position of the Indemnified Person and of Parent, the
Indemnified Party shall be entitled instead to be represented by
counsel selected by the Indemnified Party and reasonably
acceptable to Parent) and following the Effective Time the
Surviving Corporation and Parent shall pay the reasonable fees
and expenses of such counsel, promptly after statements therefor
are received and the Surviving Corporation and Parent will
cooperate in the defense of any such matter; provided, however,
that neither the Surviving Corporation nor Parent shall be
liable for any settlement effected without its written consent
(which consent shall not be unreasonably withheld); and
provided, further, that, in the event that any claim or claims
for indemnification are asserted or made prior to the expiration
of such two year period, all rights to indemnification in
respect to any such claim or claims shall continue until the
disposition of any and all such claims. The Indemnified Parties
as a group may retain only one law firm (in addition to local
counsel) to represent them with respect to any single action
unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the
position of any two or more Indemnified Parties.
5.12.3 The provisions of this Section 5.12 are intended to be
for the benefit of, and shall be enforceable by, each
Indemnified Party, his or her heirs and representatives.
5.12.4 From and after the Time of Closing, the Parent agrees to
defend, indemnify and hold harmless the Company from and against
all indemnifiable damages of the Company. For this purpose,
"indemnifiable damages" of the Company means the aggregate of
all expenses, losses, costs, deficiencies, liabilities and
damages (including, without limitation, reasonable attorneys'
fees and court costs) incurred or suffered by the Company, as a
result of or in connection with: (1) any inaccurate
representation or warranty made by the Parent in or pursuant to
this Agreement, (2) any default in the performance of any of the
covenants or agreements made by the Parent in this Agreement, or
(3) any failure of the Parent to pay, discharge or perform any
of its liabilities, or any asserted liability to the extent
resulting from any dispute or claim against Company concerning
any of the Excluded Liabilities.
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5.12.5 After the Effective Date, the Company agrees to defend,
indemnify and hold the Parent and their shareholders harmless
from and against all indemnifiable damages of the Parent. For
this purpose, "indemnifiable damages" of the Parent means the
aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including, without limitation,
reasonable attorneys' fees and court costs) incurred or suffered
by the Parent or their respective shareholders as a result of or
in connection with: (1) any inaccurate representation or
warranty made by the Company in or pursuant to this Agreement,
(2) any default in the performance of any of the covenants or
agreements made by the Company in this Agreement, (3) the
operation of Company's business after the Effective Date, or any
occurrence, act or omission of the Company or of any
shareholder, director, officer, employee, consultant or agent of
the Company or Parent which occurs subsequent to the Effective
Date, and causes damage to the Parent or its shareholders. The
prevailing party in any claim for indemnification shall be
entitled to receive reasonable attorneys' fees and expenses from
the non prevailing party.
5.12.6 If any party hereto (the "Indemnitee" or "Indemnified
Party") receives notice of any claim or the commencement of any
action or proceeding with respect to which the other party or
parties is or may be obligated to provide indemnification (the
"Indemnifying Party" or "Indemnitor"), the Indemnitee shall
promptly give the Indemnifying Party notice thereof. Such notice
shall state the basis for the claim, action or proceeding and
the amount thereof (to the extent such amount is determinable at
the time when such notice is given) and shall permit the
Indemnifying Party to assume the defense of such claim, action
or proceeding (including any action or proceeding resulting from
any such claim). Failure to give such notice shall not affect
the Indemnitee's right to indemnification unless the
Indemnifying Party can demonstrate that such failure has
materially prejudiced the Indemnifying Party's ability to defend
the same and then only to such extent. The Indemnifying Party
may compromise, to the extent provided below or, at its
election, defend, at such Indemnifying Party's own expense and
by such Indemnifying Party's own counsel, any such matter
involving the asserted liability of the Indemnitee. In any
event, the Indemnitee, the Indemnifying Party and the
Indemnifying Party's counsel shall cooperate in the compromise
of, or defense against, any such asserted liability. So long as
the Indemnitor is defending in good faith any such third party
claim, the Indemnitee shall not settle or compromise such third
party claim. Both the Indemnitee and the Indemnifying Party may
participate in the defense of such asserted liability but any
Indemnitee participation shall be at its own expense and the
Indemnifying Party shall control and make all decisions
regarding said defense. Indemnifying Party may settle or
compromise any claim without the consent of the Indemnified
Party only if no monetary obligation is imposed on the
Indemnified Party (which is not reimbursed or paid for by the
Indemnitee) and the Indemnified Party by reason thereof is not
determined to be in violation of any rule, regulation or law and
the Indemnified Party is not thereby subjected to injunctive or
other equitable relief. If the Indemnifying Party chooses to
defend any claim, the Indemnitee shall make available to the
Indemnifying Party such books, records or other documents within
its control.
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5.12.7 In case any event shall occur which would otherwise
entitle either party to assert a claim for indemnification
hereunder, no loss, damage or expense shall be deemed to have
been sustained by such party to the extent (1) of any tax
savings realized by such party with respect thereto, or (2) of
any proceeds received or which should have been received by such
party from any insurance policies with respect thereto.
5.13 TAX TREATMENT. For U.S. federal income tax purposes, it is
intended that the Merger qualify as a reorganization within the
meaning of the Code, and the parties hereto intend that the
transactions contemplated by this Agreement shall constitute a
"plan of reorganization" within the meaning of Section 368 of
the Code and Treasury Regulations Sections 1.368-2(g) and
1.368-3(a). Parent will report the Merger on its income tax
returns in a manner consistent with treatment of the Merger as a
Code Section 368(a) reorganization. Neither Parent, the Company
nor any of there respective affiliates has taken any action, nor
will they take any action, that would prevent or impede the
Merger from qualifying as a reorganization under Section 368 of
the Code.
5.14 COOPERATION TO SATISFY GOVERNMENT AUTHORITIES. Parent and the
Company shall cooperate to promptly address and, to the extent
commercially reasonable or practicable, resolve any concerns of
any Government Authority in connection with the Merger.
5.15 STOCKHOLDER LITIGATION. Unless and until the Board of Directors
of Company has withdrawn its recommendation of the Merger, the
Company shall give Parent the opportunity to participate at its
own expense in the defense of any stockholder litigation against
Company and/or its directors relating to the transactions
contemplated by this Agreement. Unless and until the Board of
Directors of Parent has withdrawn its approval of the Merger,
Parent shall give Company the opportunity to participate at its
own expense in the defense of any stockholder litigation against
Parent and/or its directors relating to the transactions
contemplated by this Agreement.
5.16 BOARD OF DIRECTORS. The Board of Directors of Parent will take
all actions within its power to cause the Board of Directors of
the Surviving Corporation, effective upon the Effective Time, to
consist of the current Directors of the Company. The Board of
Directors of the Parent shall appoint one director to the Board
of Directors of the Surviving Corporation, effective upon the
Effective Time, and will be permitted to have one observer to
the meetings of the Board of Directors of the Surviving
Corporation, effective upon the Effective Time.
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5.17 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to this
Agreement shall use its best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be
fulfilled the conditions to closing under this Agreement. Each
party hereto, at the reasonable request of another party hereto,
shall execute and deliver such other instruments and do and
perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The Company's obligation to enter into and complete the
Closing is conditioned upon the satisfaction or waiver in writing by the
Company, on or before the Closing Date, of all of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by Parent and Merger Sub contained in this
Merger Agreement, the schedules or exhibits hereto or in any
certificate or document delivered to the Company by Parent and
Merger Sub in connection with the transactions contemplated by
this Merger Agreement shall be true in all respects (without
giving effect to any materiality qualifications or limitations
therein) on and as of the Closing Date with the same effect as
though such representations and warranties were made on such
date except for such failures to be true and correct which in
the aggregate would not reasonably be expected to result in a
Material Adverse Effect on Parent and Merger Sub.
6.2 PERFORMANCE OF COVENANTS. Parent and Merger Sub shall have
performed and complied in all material respects with all of the
agreements and covenants required by this Merger Agreement to be
performed and complied with by it prior to or on the Closing
Date.
6.3 LITIGATION. No injunction shall have been issued by any court or
Governmental Authority which restrains or prohibits this Merger
Agreement or the consummation of the transactions contemplated
hereby.
6.4 ANTITRUST LAWS COMPLIANCE. There is an applicable exemption to
rules and regulations of the Antitrust Laws applicable to the
transactions contemplated by this Merger Agreement.
6.5 SHAREHOLDER APPROVAL. The Company Shareholder Approval required
in connection with the consummation of the Merger shall have
been obtained.
6.6 DELIVERY OF DOCUMENTS. There shall have been delivered to the
Company the following:
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6.6.1 A certificate of Parent, dated the Closing Date, signed
by the Chief Executive Officer of Parent to the effect that
the conditions specified in Sections 6.1 and 6.2 have been
fulfilled;
6.6.2 A certificate of Merger Sub dated the Closing Date,
signed by the Chief Executive Officer of Merger Sub to the
effect that the conditions specified in Sections 6.1 and 6.2
have been fulfilled;
6.6.3 A certificate of the Secretary or Assistant Secretary
of Parent certifying copies of all requisite corporate
resolutions of Parent approving the execution and delivery of
this Merger Agreement and the consummation of the
transactions contemplated herein and the identification and
signature of each officer of Parent executing this Merger
Agreement; and
6.6.4 A certificate of the Secretary of the Merger Sub
certifying copies of (a) the Certificate of Incorporation and
by-laws of the Merger Sub; (b) all requisite corporate
resolutions of SAC approving the execution and delivery of
this Merger Agreement and the consummation of the
transactions contemplated herein; and (c) the identification
and signature of each officer of the Merger Sub executing
this Merger Agreement.
6.7 MATERIAL CHANGES. There shall not have been any change that has
had or could reasonably be expected to have a Material Adverse
Effect on the assets, properties, condition (financial or
otherwise), prospects or results of operations of the Parent
from the date hereof to the Closing Date, nor shall there exist
any condition which could reasonably be expected to result in
such a Material Adverse Effect, and there shall have been
delivered to Parent a certificate, dated the Closing Date, to
such effect signed by an authorized officer of the Parent.
6.8 CERTIFICATE OF MERGER. Prior to the Effective Time, the
Certificate of Merger shall be accepted for filing with the
Secretary of State of the State of Delaware.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to enter into and complete the
Closing are conditioned upon the satisfaction or waiver by Parent on behalf of
itself and Merger Sub, on or before the Closing Date, of the following
conditions:
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7.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties made by the Company contained in this Merger
Agreement, the schedules or exhibits hereto or in any
certificate or document delivered to Parent or the Merger Sub by
the Company in connection with the transactions contemplated by
this Merger Agreement shall be true in all respects (without
giving effect to any materiality qualifications or limitations
therein) on and as of the Closing Date with the same effect as
though such representations and warranties were made on such
date, except (i) as otherwise contemplated by this Merger
Agreement and (ii) for such failures to be true and correct
which in the aggregate would not reasonably be expected to
result in a Material Adverse Effect on the Company.
7.2 PERFORMANCE OF COVENANTS. The Company shall have performed and
complied in all material respects with all of the agreements and
covenants required by this Merger Agreement to be performed and
complied with by it prior to or on the Closing Date, except as
otherwise contemplated by this Merger Agreement.
7.3 LITIGATION. No injunction shall have been issued by any court or
Governmental Authority which restrains or prohibits this Merger
Agreement or the consummation of the transactions contemplated
hereby.
7.4 ANTITRUST LAWS ACT COMPLIANCE. There is an applicable exemption
to rules and regulations of the Antitrust Laws Act applicable to
the transactions contemplated by this Merger Agreement.
7.5 CONSENTS AND APPROVALS. The consents and approvals specified
herein shall have been obtained in form and substance
satisfactory to Parent in its reasonable discretion.
7.6 MATERIAL CHANGES. There shall not have been any change that has
had or could reasonably be expected to have a Material Adverse
Effect on the assets, properties, condition (financial or
otherwise), prospects or results of operations of the Company
from the date hereof to the Closing Date, nor shall there exist
any condition which could reasonably be expected to result in
such a Material Adverse Effect, and there shall have been
delivered to Parent a certificate, dated the Closing Date, to
such effect signed by an authorized officer of the Company.
7.7 SHAREHOLDER APPROVAL. The Company Shareholder Approval required
in connection with the consummation of the Merger shall have
been obtained.
7.8 DELIVERY OF DOCUMENTS. There shall have been delivered to Parent
the following:
7.8.1 a certificate of the Company, dated the Closing Date,
signed by its Chief Executive Officer, to the effect that
the conditions specified in Sections 7.1 and 7.2 have been
fulfilled; and
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7.8.2 a certificate of the Secretary of the Company certifying
copies of (x) the Certificate of Incorporation and by-laws
of the Company; (y) all requisite corporate resolutions of
the Company approving the execution and delivery of this
Merger Agreement and the consummation of the transactions
contemplated herein; and (z) the identification and
signature of each officer of the Company executing this
Merger Agreement.
7.9 CERTIFICATE OF MERGER. Prior to the Effective Time, the
Certificate of Merger shall be accepted for filing with the
Secretary of State of the State of Delaware.
ARTICLE VIII
TERMINATION
8.1 TERMINATION EVENTS. This Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective
Time without prejudice to any other rights or remedies either
party may have:
8.1.1 by written agreement, duly authorized by the Boards of
Directors of Parent, Merger Sub and the Company;
8.1.2 by Parent or the Company if any Governmental Authority
shall have issued an order, decree, injunction or judgment
or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such
order or other action shall have become final and
nonappealable;
8.1.3 subject to the provisions below, by Parent or the Company
if the Effective Time shall not have occurred on or before
the 90th day following the date of this Agreement;
provided that the right to terminate this Merger Agreement
under this Section 8.1.3 shall not be available to any
party whose failure to fulfill any obligation under this
Merger Agreement has been the cause of, or results in, the
failure of the Effective Time to have occurred within such
period;
8.1.4 by Parent or the Company by notice to the other if the
satisfaction of any condition to the obligations of the
terminating party has been rendered impossible;
8.1.5 by the Company in the event Parent is unable to obtain all
of the financing contemplated in Section 5.2; provided,
however, that the Company, in its sole discretion, shall
have the right to extend the 90-day period contemplated in
Section 5.2 for two additional 90-day periods.
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8.2 EFFECT OF TERMINATION. In the event this Merger Agreement is
terminated pursuant to Section 8.1, all further obligations of
the parties hereunder shall terminate. Each party's right of
termination hereunder is in addition to any other rights it may
have hereunder or otherwise and the exercise of a right of
termination shall not be an election of remedies.
8.3 AMENDMENT. To the extent permitted by applicable law, this
Merger Agreement may be amended by action taken by or on behalf
of the respective Boards of Directors of the Company, Parent and
merger Sub at any time; provided, however, that, following
approval by the Stockholders of the Company, no amendment shall
be made which under the Delaware Corporate Law would require the
further approval of the Stockholders of the Company without
obtaining such approval. This Merger Agreement may not be
amended except by an instrument in writing signed on behalf of
all of the parties hereto.
8.4 WAIVER. At any time prior to the Effective Time any party hereto
may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other
parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.1 CAPTIONS AND HEADINGS. The Article and paragraph headings
throughout this Agreement are for convenience and reference
only, and shall in no way be deemed to define, limit, or add to
the meaning of any provision of this Agreement.
9.2 NO ORAL CHANGE. This Agreement and any provision hereof, may not
be waived, changed, modified, or discharged orally, but only by
an agreement in writing signed by the party against whom
enforcement of any waiver, change, modification, or discharge is
sought.
9.3 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without
regard to the laws that might otherwise govern under applicable
principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court
located within the State of New York in connection with any
matter based upon or arising out of this Agreement or the
matters contemplated herein, agrees that process may be served
upon them in any manner authorized by the laws of the State of
New York for such persons and waives and covenants not to assert
or plead any objection which they might otherwise have to such
jurisdiction and such process.
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9.4 PUBLIC ANNOUNCEMENTS. Subject to any requirement of applicable
law or stock exchange listing agreement, all public
announcements or similar publicity with respect to this Merger
Agreement or the transactions contemplated hereby shall be
issued only with the consent of Parent and the Company. Unless
consented to by each party hereto in advance prior to the
Closing, all parties hereto shall keep the provisions of this
Merger Agreement strictly confidential and make no disclosure
thereof to any Person, other than such party's respective legal
and financial advisors, subject to the requirements of
applicable law or securities exchange regulations.
9.5 SUCCESSORS. This Merger Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
9.6 FURTHER ASSURANCES. Each of the parties hereto agrees that it
will, from time to time after the date of this Merger Agreement,
execute and deliver such other certificates, documents and
instruments and take such other action as may be reasonably
requested by the other party to carry out the actions and
transactions contemplated by this Merger Agreement.
9.7 CONFIDENTIALITY. The Confidentiality Agreement between Parent
and the Company is incorporated by reference herein and shall
continue in full force and effect in accordance with the terms
thereof. In the event of termination or abandonment of the
transactions contemplated by this Agreement pursuant to Section
8.1, the Confidentiality Agreement shall continue in full force
and effect. The definition of "Confidential Information"
contained in the Confidentiality Agreement is hereby amended to
include this Agreement, all Schedules and Exhibits to this
Agreement, and all information obtained pursuant to of this
Agreement.
9.8 NOTICES. All notices requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if served personally
on the party to whom notice is to be given, or on the third day
after mailing if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage
prepaid, and properly addressed, and by fax, as follows:
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If to Parent or Merger Sub:
Parentech, Inc.
000 X. Xxxxx Xxx. 000, Xxx. 000
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Chief Executive Officer
Telephone: (000) 000-0000
With a copy to:
Xxxxxx X. Emas
Attorney at Law
0000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
If to the Company:
Source Atlantic, Inc.
00 Xxxxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxx XxXxxxx, President
Telephone: 000-000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx & Jaclin, LLP
000 Xxxxx 0, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx00000
Attention: Xxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
9.9 NON-WAIVER. Except as otherwise expressly provided herein, no
waiver of any covenant, condition, or provision of this
Agreement shall be deemed to have been made unless expressly in
writing and signed by the party against whom such waiver is
charged; and (i) the failure of any party to insist in any one
or more cases upon the performance of any of the provisions,
covenants, or conditions of this Agreement or to exercise any
option herein contained shall not be construed as a waiver or
relinquishment for the future of any such provisions, covenants,
or conditions, (ii) the acceptance of performance of anything
required by this Agreement to be performed with knowledge of the
breach or failure of a covenant, condition, or provision hereof
shall not be deemed a waiver of such breach or failure, and
(iii) no waiver by any party of one breach by another party
shall be construed as a waiver with respect to any other or
subsequent breach.
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9.10 TIME OF ESSENCE. Time is of the essence of this Agreement and of
each and every provision hereof.
9.11 REMEDIES CUMULATIVE. Except as otherwise provided herein, any
and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the
exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.12 SEVERABILITY. If any provision of this Agreement, or the
application thereof, becomes or is declared by a court of
competent jurisdiction to be illegal, void or unenforceable, the
remainder of this Agreement will continue in full force and
effect and the application of such provision to other persons or
circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement
with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of
such void or unenforceable provision.
9.13 ENTIRE AGREEMENT. This Agreement contains the entire Agreement
and understanding between the parties hereto, and supersedes all
prior agreements and understandings.
9.14 RULES OF CONSTRUCTION. The parties hereto agree that they have
been represented by counsel during the negotiation, preparation
and execution of this Agreement and, therefore, waive the
application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other
document will be construed against the party drafting such
agreement or document.
9.15 EXPENSES. Except as expressly otherwise provided herein, each
party shall bear its own expenses incurred in connection with
the preparation, execution and performance of this Merger
Agreement and the transactions contemplated hereby, including
all fees and expenses of agents, representatives, counsel and
accountants. All such expenses incurred by the Company ("Company
Transaction Expenses") shall be repaid in full at the Closing.
9.16 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more
counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
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[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed this Merger
Agreement as of the date first above written.
PARENT THE COMPANY
Parentech, Inc. Source Atlantic, Inc.
By: /s/Xxxxx X. Landow___ By: /s/ Xxxxxxx XxXxxxx
------------------------- ----------------------------
Name: Xxxxx X. Xxxxxx Name: Xxxxxxx XxXxxxx
Title: Chief Executive Officer Title: President
MERGER SUB
Source Atlantic Acquisition Corp.
---------------------------------
By: /s/ Xxxxxx X. Emas
--------------------
Name: Xxxxxx X. Emas
Title: President
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