EXHIBIT 2.1
EXECUTION COPY
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
SOURCE INTERLINK COMPANIES, INC.,
ALLIANCE ENTERTAINMENT CORP. AND
ALLIGATOR ACQUISITION, LLC
DATED AS OF NOVEMBER 18, 2004
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER............................................................................................... 2
1.1 THE MERGER.................................................................................... 2
1.2 THE CLOSING................................................................................... 2
1.3 EFFECTIVE TIME................................................................................ 2
1.4 EFFECT OF MERGER.............................................................................. 3
1.5 TAX CONSEQUENCES.............................................................................. 3
ARTICLE II THE SURVIVING ENTITY.................................................................................... 3
2.1 CERTIFICATE OF FORMATION...................................................................... 3
2.2 LIMITED LIABILITY COMPANY AGREEMENT........................................................... 3
2.3 MANAGEMENT.................................................................................... 3
ARTICLE III EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB AND THE COMPANY....................................... 3
3.1 MERGER SUB MEMBERSHIP INTERESTS............................................................... 4
3.2 COMPANY CAPITAL STOCK......................................................................... 4
3.3 COMPANY STOCK OPTIONS AND WARRANTS............................................................ 5
3.4 EXCHANGE OF CERTIFICATES EVIDENCING COMPANY COMMON STOCK...................................... 7
3.5 DISSENTER'S RIGHTS............................................................................ 10
3.6 ADJUSTMENT OF EXCHANGE RATIO.................................................................. 10
3.7 DISTRIBUTION OF SPINCO BUSINESS............................................................... 10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SOURCE................................................................ 10
4.1 ORGANIZATION AND QUALIFICATION................................................................ 11
4.2 CAPITALIZATION................................................................................ 11
4.3 SUBSIDIARIES.................................................................................. 12
4.4 POWER AND AUTHORITY; NON-CONTRAVENTION; GOVERNMENT APPROVALS.................................. 13
4.5 REPORTS AND FINANCIAL STATEMENTS; INFORMATION PROVIDED........................................ 15
4.6 ABSENCE OF UNDISCLOSED LIABILITIES............................................................ 17
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.......................................................... 17
4.8 LITIGATION.................................................................................... 18
4.9 NO VIOLATION OF LAW; LICENSES, PERMITS AND REGISTRATIONS...................................... 18
4.10 TAXES......................................................................................... 19
4.11 LABOR AND EMPLOYMENT MATTERS.................................................................. 20
4.12 EMPLOYEE BENEFIT PLANS........................................................................ 21
4.13 COMPLIANCE WITH ENVIRONMENTAL LAWS............................................................ 24
4.14 REAL ESTATE................................................................................... 26
4.15 GOOD TITLE TO AND CONDITION OF ASSETS......................................................... 26
4.16 INSURANCE..................................................................................... 27
4.17 RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS........................... 27
4.18 NAMES; PRIOR ACQUISITIONS..................................................................... 28
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4.19 MATERIAL CONTRACTS............................................................................ 28
4.20 RESTRICTIONS ON BUSINESS ACTIVITIES........................................................... 30
4.21 INTELLECTUAL PROPERTY......................................................................... 30
4.22 RECORDS OF SOURCE............................................................................. 31
4.23 BROKERS AND FINDERS........................................................................... 32
4.24 OPINION OF FINANCIAL ADVISOR.................................................................. 32
4.25 INTERNAL CONTROL OVER FINANCIAL REPORTING; DISCLOSURE CONTROLS AND PROCEDURES;
CERTIFICATIONS................................................................................ 32
4.26 ANTI-TAKEOVER................................................................................. 32
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................ 32
5.1 ORGANIZATION AND QUALIFICATION................................................................ 32
5.2 CAPITALIZATION................................................................................ 33
5.3 SUBSIDIARIES.................................................................................. 34
5.4 POWER AND AUTHORITY; NON-CONTRAVENTION; GOVERNMENT APPROVALS.................................. 35
5.5 FINANCIAL STATEMENTS; INFORMATION PROVIDED.................................................... 37
5.6 ABSENCE OF UNDISCLOSED LIABILITIES............................................................ 38
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS.......................................................... 39
5.8 LITIGATION.................................................................................... 39
5.9 NO VIOLATION OF LAW; LICENSES, PERMITS AND REGISTRATIONS...................................... 40
5.10 TAXES......................................................................................... 40
5.11 LABOR AND EMPLOYMENT MATTERS.................................................................. 42
5.12 EMPLOYEE BENEFIT PLANS........................................................................ 43
5.13 COMPLIANCE WITH ENVIRONMENTAL LAWS............................................................ 45
5.14 REAL ESTATE................................................................................... 46
5.15 GOOD TITLE TO AND CONDITION OF ASSETS......................................................... 47
5.16 INSURANCE..................................................................................... 47
5.17 RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS........................... 48
5.18 NAMES; PRIOR ACQUISITIONS..................................................................... 48
5.19 MATERIAL CONTRACTS............................................................................ 48
5.20 RESTRICTIONS ON BUSINESS ACTIVITIES........................................................... 50
5.21 INTELLECTUAL PROPERTY......................................................................... 50
5.22 RECORDS OF THE COMPANY........................................................................ 52
5.23 BROKERS AND FINDERS........................................................................... 52
5.24 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW........................................... 52
5.25 ACCURACY OF INFORMATION FURNISHED BY COMPANY.................................................. 52
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER.................................................................. 53
6.1 CONDUCT OF THE COMPANY'S BUSINESS PENDING THE MERGER.......................................... 53
6.2 CONDUCT OF SOURCE'S BUSINESS PENDING THE MERGER............................................... 56
6.3 DISPOSITION OF SPINCO BUSINESS................................................................ 59
6.4 REINCORPORATION OF SOURCE..................................................................... 59
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ARTICLE VII ADDITIONAL AGREEMENTS.................................................................................. 59
7.1 ACCESS TO INFORMATION......................................................................... 59
7.2 NO SOLICITATION............................................................................... 60
7.3 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT............................................ 63
7.4 COMMERCIALLY REASONABLE EFFORTS; AGREEMENT TO COOPERATE....................................... 63
7.5 PUBLIC STATEMENTS............................................................................. 65
7.6 NOTIFICATION OF CERTAIN MATTERS............................................................... 65
7.7 APPROVAL OF STOCKHOLDERS...................................................................... 65
7.8 SECTION 16 MATTERS............................................................................ 66
7.9 368(a) REORGANIZATION......................................................................... 66
7.10 NASDAQ NATIONAL MARKET LISTING................................................................ 66
7.11 CORPORATE GOVERNANCE.......................................................................... 67
7.12 EMPLOYEE BENEFITS; TERMINATION OF PLANS; STOCK OPTION PLANS................................... 68
7.13 AFFILIATE AGREEMENT........................................................................... 69
7.14 INDEMNIFICATION OF OFFICERS AND DIRECTORS; DIRECTORS' AND OFFICERS' INSURANCE................. 69
7.15 CONVERSION OF COMPANY PREFERRED STOCK......................................................... 70
7.16 CAPITALIZATION CERTIFICATE.................................................................... 70
ARTICLE VIII CONDITIONS............................................................................................ 71
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.................................... 71
8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER.................................. 72
8.3 CONDITIONS TO OBLIGATION OF SOURCE AND MERGER SUB TO EFFECT THE MERGER........................ 73
ARTICLE IX TERMINATION; FEES AND EXPENSES.......................................................................... 74
9.1 TERMINATION BY MUTUAL CONSENT................................................................. 74
9.2 TERMINATION BY SOURCE OR THE COMPANY.......................................................... 74
9.3 TERMINATION BY THE COMPANY.................................................................... 75
9.4 TERMINATION BY SOURCE......................................................................... 76
9.5 EFFECT OF TERMINATION AND ABANDONMENT......................................................... 76
9.6 FEES AND EXPENSES............................................................................. 76
ARTICLE X AMENDMENT AND WAIVER..................................................................................... 78
10.1 AMENDMENT..................................................................................... 78
10.2 WAIVER........................................................................................ 78
ARTICLE XI DEFINITIONS............................................................................................. 78
ARTICLE XII GENERAL PROVISIONS..................................................................................... 83
12.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES................................................ 83
12.2 NOTICES....................................................................................... 83
12.3 INTERPRETATION................................................................................ 85
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12.4 ENTIRE AGREEMENT.............................................................................. 85
12.5 GOVERNING LAW................................................................................. 85
12.6 WAIVER OF JURY TRIAL.......................................................................... 85
12.7 COUNTERPARTS.................................................................................. 85
12.8 PARTIES IN INTEREST........................................................................... 85
12.9 SEVERABILITY.................................................................................. 86
12.10 ASSIGNMENT.................................................................................... 86
Appendix A
Exhibit A Source Voting Agreements
Exhibit B Company Voting Agreement
Exhibit C Stockholder's Agreement
Exhibit D Consulting Agreement
Exhibit E Affiliate Agreement
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of November 18, 2004 (this
"AGREEMENT"), is made and entered into by and among SOURCE INTERLINK COMPANIES,
INC., a Missouri corporation ("SOURCE"), ALLIANCE ENTERTAINMENT CORP., a
Delaware corporation (the "COMPANY"), and Alligator Acquisition, LLC, a Delaware
limited liability company whose sole member is Source ("MERGER SUB"). Certain
capitalized terms used herein are defined in Article XI hereof.
WITNESSETH:
WHEREAS, the Board of Directors of Source (the "SOURCE BOARD") has
determined that a business combination between Source and the Company, upon the
terms and subject to the conditions set forth in this Agreement, is advisable
and in the best interests of Source and its stockholders;
WHEREAS, the Board of Directors of the Company (the "COMPANY BOARD") has
determined that a business combination between the Company and Source, upon the
terms and subject to the conditions set forth in this Agreement, is advisable
and in the best interests of the Company and its stockholders;
WHEREAS, pursuant to the Merger (as defined in Section 1.1 below), and
subject to the terms and conditions of this Agreement, all of the issued and
outstanding shares of capital stock of the Company ("COMPANY CAPITAL STOCK") and
all of the outstanding convertible securities and other rights to acquire or
receive shares of Company Capital Stock shall be converted into the right to
receive shares of the common stock, par value $0.01 per share, of Source
("SOURCE COMMON STOCK"), and all of the outstanding options and warrants to
purchase Company Capital Stock shall be assumed in accordance with Section 3.3;
WHEREAS, in connection with, and as a condition to, the Merger, the
Company shall distribute to its stockholders its entire ownership interest in
its "All Media Guide" and "Digital On-Demand" businesses as more fully described
in Appendix A (the "SPINCO BUSINESS" and the entity that will own and operate
such Spinco Business, "SPINCO") subject to, and in accordance with the terms and
conditions of this Agreement;
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to Source's and the Company's willingness to enter into
this Agreement, certain affiliates of Source have entered into a Voting
Agreement in the form attached hereto as Exhibit A (the "SOURCE VOTING
AGREEMENTS"), and AEC Associates, LLC, a Delaware limited liability company (the
"PRINCIPAL STOCKHOLDER") has entered into a Voting Agreement in the form
attached hereto as Exhibit B (the "COMPANY VOTING AGREEMENT" and, together with
the Source Voting Agreements, the "VOTING AGREEMENTS");
WHEREAS, as a condition and inducement to the parties' willingness to
enter into this Agreement and other related agreements contemplated hereby,
Source and the Principal Stockholder will enter into a definitive Stockholder's
Agreement substantially in the form attached hereto as Exhibit C (the
"STOCKHOLDER'S AGREEMENT") to take effect as of the Effective Time;
WHEREAS, as a condition and inducement to the parties' willingness to
enter into this Agreement and other related agreements contemplated hereby, each
of Source and The Yucaipa Companies LLC ("YUCAIPA") will enter into a Consulting
Agreement in substantially the form of Exhibit D attached hereto (the
"CONSULTING AGREEMENT") to take effect as of the Effective Time;
WHEREAS, concurrently with the execution of this Agreement, and as a
condition and inducement to the parties' willingness to enter into this
Agreement, each director and certain other persons who are "affiliates" (as that
term is used in Rule 145 promulgated under the Securities Act) of the Company
have delivered to Source a written agreement in substantially the form of
Exhibit E attached hereto (the "AFFILIATE AGREEMENT"); and
WHEREAS, the parties intend that the merger provided for herein qualify as
a reorganization under the provisions of Section 368(a) of the Code for federal
income tax purposes, and the parties intend to adopt a plan of reorganization
within the meaning of Section 354(a) of the Code.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.3 hereof),
upon the terms and subject to the conditions set forth in this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and the Delaware Limited Liability Company Act (the "LLC ACT"), the
Company shall be merged with and into Merger Sub, the separate existence of the
Company shall thereupon cease and Merger Sub shall continue as the surviving
entity and as a limited liability company whose sole member is Source (the
"MERGER"). Merger Sub shall be the surviving entity in the Merger and is
hereinafter sometimes referred to as the "SURVIVING ENTITY."
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the consummation of the Merger (the "CLOSING") shall take place (a) at the
offices of Source, 27500 Xxxxxxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxx Xxxxxxx,
XX 00000-0000 at 10:00 a.m., local time, as promptly as practicable (and in any
event no later than the second business day) after the satisfaction or waiver of
all the conditions set forth in Article VIII hereof (other than delivery of
items to be delivered at the Closing and other than satisfaction of those
conditions that by their nature are to be satisfied at the Closing, it being
understood that the occurrence of the Closing shall remain subject to the
delivery of such items and the satisfaction or waiver of such conditions at the
Closing) or (b) at such other time, date or place as Source and the Company may
agree. The date on which the Closing occurs is hereinafter referred to as the
"CLOSING DATE."
1.3 EFFECTIVE TIME. As promptly as practicable after all the conditions to
the Merger set forth in Article VIII hereof shall have been satisfied or waived
in accordance herewith and
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provided that this Agreement shall not have been terminated pursuant to Article
IX hereof, the parties hereto shall cause a Certificate of Merger (the
"CERTIFICATE OF MERGER") meeting the applicable requirements of the DGCL and the
LLC Act to be properly executed and filed in accordance with the DGCL and the
LLC Act on the Closing Date. The Merger shall become effective at the time of
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware in accordance with the DGCL and the LLC Act or at such later time which
the parties hereto shall have agreed upon and designated in the Certificate of
Merger as the effective time of the Merger (the "EFFECTIVE TIME").
1.4 EFFECT OF 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 the DGCL and the LLC Act. Without limiting the
generality of the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Merger Sub and the
Company shall vest in the Surviving Entity and all debts, liabilities and duties
of Merger Sub and the Company shall become the debts, liabilities and duties of
the Surviving Entity.
1.5 TAX CONSEQUENCES. The parties hereto intend that the Merger shall
constitute a reorganization within the meaning of Section 368(a) of the Code.
The parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the U.S. Income Tax
Regulations.
ARTICLE II
THE SURVIVING ENTITY
2.1 CERTIFICATE OF FORMATION. The Certificate of Formation of Merger Sub
as in effect immediately prior to the Effective Time shall be the Certificate of
Formation of the Surviving Entity after the Effective Time until duly amended in
accordance with applicable law; provided, however, that a Certificate of
Amendment to the Certificate of Formation of Merger Sub shall be filed
immediately following the Effective Time that amends Section A to read as
follows: "The name of the limited liability company is Source Alliance LLC."
2.2 LIMITED LIABILITY COMPANY AGREEMENT. The Limited Liability Company
Agreement of the Surviving Entity after the Effective Time shall be the limited
liability agreement of Merger Sub as in effect immediately prior to the
Effective Time until duly amended in accordance with applicable law; provided,
however, that the limited liability company agreement of the Surviving Entity
shall be amended such that all references to the name of Merger Sub shall be
amended to refer to "Source Alliance LLC."
2.3 MANAGEMENT. At the Effective Time, management of the Surviving Entity
shall be vested in Source as the sole member of the Surviving Entity after the
Effective Time in accordance with the Limited Liability Company Agreement of the
Surviving Entity.
ARTICLE III
EFFECT OF THE MERGER ON SECURITIES OF MERGER SUB
AND THE COMPANY
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3.1 MERGER SUB MEMBERSHIP INTERESTS. At the Effective Time, each unit of
membership interest of Merger Sub will remain unchanged and shall not be
affected by the Merger.
3.2 COMPANY CAPITAL STOCK.
(a) Preferred Stock. Prior to the Effective Time, each issued and
outstanding share of preferred stock, $0.01 par value per share, of the
Company (the "COMPANY PREFERRED STOCK") shall be converted into shares of
common stock, $0.0001 par value per share, of the Company (the "COMPANY
COMMON STOCK").
(b) Common Stock. The maximum number of shares of Source Common
Stock to be issued (including Source Common Stock to be reserved for
issuance upon exercise of any Assumed Options and Company Stock Warrants
(each, as defined below)) upon consummation of the Merger in exchange for
the acquisition by Source of all of the outstanding Company Capital Stock
and all unexpired and unexercised options, warrants, convertible
securities or other rights to acquire Company Capital Stock shall be the
number of shares of Source Common Stock issued and outstanding (including
all unexpired and unexercised options, warrants, convertible securities or
other rights to acquire Source Common Stock) ten (10) Business Days prior
to the Source Meeting (the "AGGREGATE SHARE NUMBER"). No adjustment shall
be made in the number of shares of Source Common Stock issued in the
Merger as a result of any cash proceeds received by the Company or Source
from the date hereof to the Closing Date pursuant to the exercise of
options, warrants, convertible securities or other rights to acquire
Company Capital Stock or Source Common Stock, as the case may be. At the
Effective Time, by virtue of the Merger and without any action on the part
of the Merger Sub, the Company or the holders of any shares of Company
Capital Stock, the following shall occur:
(i) Each share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (including the shares of
Company Common Stock issued upon conversion of all outstanding
shares of Company Preferred Stock and excluding those shares to be
cancelled in accordance with Section 3.2(b)(iii) or held by any
Dissenting Stockholder (as defined in Section 3.5 hereof)), shall be
automatically converted into the right to receive that number of
shares of Source Common Stock equal to the Exchange Ratio (as
defined below), subject to any adjustments pursuant to Section 3.6,
and cash in lieu of fractional shares upon the surrender of the
certificate representing such share of Company Common Stock in the
manner provided in Section 3.4 below.
(ii) All shares of Company Common Stock shall automatically
cease to be outstanding and shall be canceled and retired and shall
cease to exist, and each holder of shares of Company Common Stock
shall thereafter cease to have any rights with respect to such
shares of Company Common Stock, except the right to receive, without
interest, Source Common Stock, any cash in lieu of fractional shares
of Source Common Stock and any dividends or distributions payable
thereon to be issued or paid in consideration therefor upon the
surrender
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of one or more stock certificates evidencing such shares of Company
Common Stock (each, a "CERTIFICATE"), in accordance with Section 3.4
below.
(iii) Each share of Company Common Stock issued and held in
the Company's treasury or by any subsidiary of the Company at the
Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor.
For purposes of this Agreement, the following terms shall have the meanings
ascribed to them below:
(i) The "EXCHANGE RATIO" shall mean the quotient obtained by
dividing (x) the Aggregate Share Number by (y) sum of (A) the
Outstanding Company Common Amount plus (B) the Outstanding Company
Option Amount, each of (x) and (y) as specified in the Final
Capitalization Certificates.
(ii) The "OUTSTANDING COMPANY COMMON AMOUNT" shall mean the
aggregate number of shares of Company Common Stock outstanding
immediately prior to the Effective Time, including all shares of
Company Common Stock into which the Company Preferred Stock shall be
converted prior to such time.
(iii) The "OUTSTANDING COMPANY OPTION AMOUNT" shall mean the
aggregate number of shares of Company Common Stock issuable,
directly or indirectly, upon exercise of all unexpired and
unexercised options, warrants, convertible securities or other
rights to acquire, directly or indirectly, shares of Company Common
Stock immediately prior to the Effective Time (excluding shares of
Company Common Stock into which the Company Preferred Stock, if any,
may be converted as of such time).
3.3 COMPANY STOCK OPTIONS AND WARRANTS. At the Effective Time, by virtue
of the Merger and without any action on the part of the Merger Sub, the Company
or the holders of any shares of the capital stock of the Company,
(a) Each outstanding option to purchase Company Common Stock (each a
"COMPANY OPTION") issued pursuant to the Company's 1999 Equity
Participation Plan, the Company's 1999 Employee Equity Participation and
Incentive Plan, the Amended and Restated Digital On-Demand, Inc. 1998
General Stock Incentive Plan and the Amended and Restated Digital
On-Demand, Inc. 1998 Executive Stock Incentive Plan (each a "COMPANY
OPTION PLAN"), whether vested or unvested, shall by virtue of the Merger
and regardless of the respective exercise prices thereof, be assumed by
Source. Each Company Option so assumed by Source under this Agreement
(each such option, an "ASSUMED OPTION") will become exercisable in
accordance with its terms, for that number of shares of Source Common
Stock equal to the Exchange Ratio multiplied by the number of shares of
Company Common Stock subject to such Company Option, rounded to the
nearest whole number of shares. The per share exercise price of the
Assumed Option will equal the per share exercise price of such Company
Option, divided by the Exchange Ratio, rounded to the nearest whole cent.
No cash will be paid in lieu of
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fractional shares that are rounded pursuant to this Section 3.3. Any
Company Option exercisable prior to the Effective Time, in whole or in
part, for Company Preferred Stock shall become exercisable for Source
Common Stock in accordance with the preceding four sentences (as if the
Company Preferred Stock underlying such Company Option has been converted
to Company Common Stock in accordance with the conversion rate applicable
to the shares of such series of Company Preferred Stock). Prior to the
Effective Time, the Company shall take all actions necessary to pay out
any cash amounts which are currently due to certain holders of Company
Options. In connection with any spin-off or other distribution by the
Company to its stockholders of the Company's ownership interest in the
Spinco Business, each Company Option will be adjusted, if necessary, in
accordance with the terms of the Company Option Plan or option agreement
under which it was granted. Each Company Option Plan will be assumed by
Source in accordance with Section 7.12(c). Prior to the Effective Time,
the Company shall take all action necessary under the Company Option Plans
or otherwise, to permit Source to assume the Company Options and shall
have provided any notices to optionees required under the Company Option
Plans or other agreements.
(b) The term, exercisability, vesting schedule, and all other terms
of each Assumed Option will be the same in all material respects as the
corresponding Company Option other than for the delivery of Source Common
Stock and any adjustment in the number of shares issuable and the exercise
price. Continuous employment with the Company will be credited to holders
of Assumed Options received upon Source's assumption of Company Options
for purposes of determining the vesting of such Assumed Options from and
after the Effective Time except to the extent the holder is no longer
employed by the Company prior to the Effective Time.
(c) As soon as practicable after the Effective Time, Source shall
deliver to each holder of an outstanding Assumed Option an appropriate
document evidencing the assumption of the holder's Company Options by
Source. Promptly after the Effective Time, but in no event later than
thirty (30) days thereafter, Source shall file one or more registration
statements on Form S-8 (or any successor form) with respect to the shares
of Source Common Stock subject to such Assumed Options (to the extent such
a registration statement is available for such options) and shall use
commercially reasonable efforts to maintain the effectiveness of such
registration statement or registration statements (and maintain the
current status of the prospectus or prospectuses contained therein) for so
long as such options remain outstanding. Source shall take all corporate
action necessary to reserve for issuance a sufficient number of shares of
Source Common Stock for delivery upon exercise of all Assumed Options
pursuant to the terms set forth in this Section 3.3.
(d) At the Effective Time, each outstanding warrant to purchase
shares of Company Capital Stock (each a "COMPANY STOCK WARRANT") shall by
virtue of the Merger be assumed by Source. Each Company Stock Warrant so
assumed by Source under this Agreement will continue to have, and be
subject to, the same terms and conditions of such warrant immediately
prior to the Effective Time, except that (i) each Company Stock Warrant
will be exercisable for the number of shares of Source Common Stock equal
to the Exchange Ratio multiplied by the number of shares of Company
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Common Stock issuable directly or indirectly upon exercise of the Company
Stock Warrant, rounded to the nearest whole number of shares of Source
Common Stock and (ii) the per share exercise price for the shares of
Source Common Stock issuable upon exercise of such assumed Company Stock
Warrant will equal the exercise price per share of Company Common Stock
issuable directly or indirectly under such Company Stock Warrant divided
by the Exchange Ratio, rounded to the nearest whole cent. No cash will be
paid in lieu of fractional shares that are rounded down pursuant to this
Section 3.3. Source shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Source Common Stock for
delivery upon exercise of all Company Stock Warrants pursuant to the terms
set forth in this Section 3.3.
(e) Prior to the Distribution, the Company shall issue the number of
shares of Common Stock and Series A2 Preferred Stock set forth on Section
3.3(e) of the Company Disclosure Schedule to those Company stockholders
identified therein pursuant to the Company's obligations under Section 3.4
of the Contribution Agreement and Plan of Merger by and between the
Company, the Principal Stockholder, DOD Merger Sub, Inc. and Digital
On-Demand.
3.4 EXCHANGE OF CERTIFICATES EVIDENCING COMPANY COMMON STOCK. The
procedures for exchanging outstanding shares of the Company Common Stock
pursuant to the Merger are as follows:
(a) As of the Effective Time, Source shall deposit, or shall cause
to be deposited, with Source's transfer agent, or with such other
institution designated by Source as is reasonably satisfactory to the
Company (the "EXCHANGE AGENT"), for the benefit of the holders of shares
of Company Common Stock for exchange in accordance with this Article III,
certificates evidencing the shares of Source Common Stock and cash in lieu
of fractional shares (such cash and certificates for shares of Source
Common Stock, together with any dividends or distributions with respect
thereto (relating to record dates for such dividends or distributions
after the Effective Time), being hereinafter referred to as the "EXCHANGE
FUND") to be issued pursuant to Section 3.2 hereof and paid pursuant to
this Section 3.4 in exchange for outstanding shares of Company Common
Stock.
(b) As soon as reasonably practicable after the Effective Time,
Source shall cause the Exchange Agent to mail to each holder of record of
shares of Company Common Stock immediately prior to the Effective Time
(including shares of Company Common Stock issued upon conversion of the
Company Preferred Stock immediately prior to the Effective Time) (i) a
letter of transmittal in customary form which shall specify that delivery
of such shares of Company Common Stock shall be effected, and risk of loss
regarding and title to such shares of Company Common Stock shall pass,
only upon delivery of the Certificates evidencing such shares to the
Exchange Agent and (ii) instructions for use in effecting the surrender of
such Certificates in exchange for certificates evidencing shares of Source
Common Stock and cash in lieu of fractional shares, if any, and any
dividends and distributions payable thereon. Upon surrender of a
Certificate for cancellation to the Exchange Agent, together with such
duly executed
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letter of transmittal and such other documents as may be reasonably
requested by the Exchange Agent, the holder of the shares evidenced by
such Certificate shall be entitled to receive in exchange therefor a
certificate evidencing that number of whole shares of Source Common Stock
and a check representing the amount of cash in lieu of fractional shares
(after taking into account all Certificates surrendered by such holder),
if any, and any dividends or distributions payable thereon pursuant to the
provisions of this Article III (after giving effect to any withholding tax
required by law to be withheld by Source) and the shares evidenced by the
Certificate so surrendered shall forthwith be canceled. No interest will
be paid or accrued on cash in lieu of fractional shares or dividends or
distributions payable to holders of shares of Company Common Stock.
Certificates surrendered for exchange by any person constituting an
"affiliate" of the Company for purposes of Rule 145(c) under the
Securities Act shall not be exchanged until Source has received an
Affiliate Letter from such person.
(c) Notwithstanding any other provision of this Agreement to the
contrary, each holder of shares of Company Common Stock converted pursuant
to the Merger that would otherwise have been entitled to receive a
fraction of a share of Source Common Stock (after taking into account all
Certificates delivered by such holder and the aggregate number of shares
of Company Common Stock represented thereby) shall, upon surrender of such
holder's Certificates, receive, in lieu of such fraction of a share, cash
(without interest) in an amount equal to such fractional part of a share
of Source Common Stock multiplied by the average of the closing sales
prices of shares of Source Common Stock as reported by the Nasdaq National
Market ("NASDAQ") during the ten (10) consecutive trading days ending on
and including the last trading day prior to the Effective Time.
(d) Dividends and other distributions declared after the Effective
Time on Source Common Stock issued hereunder shall be paid to the holder
surrendering a Certificate as contemplated hereby; provided, however, that
no such dividends or other distributions so declared shall be paid in
respect of any shares of Source Common Stock evidenced by a Certificate
until such Certificate is surrendered for exchange as provided herein.
Subject to the effect of applicable laws, following surrender of any such
Certificate, there shall be paid to the holder of the certificates
evidencing whole shares of Source Common Stock issued in exchange
therefor, without interest at the time of such surrender, the amount of
dividends or other distributions with a record date after the Effective
Time theretofore payable with respect to such whole shares of Source
Common Stock and not yet paid, less the amount of any withholding taxes
required by law to be withheld by Source.
(e) At and after the Effective Time, there shall be no transfers on
the stock transfer books of the Company of the shares of Company Common
Stock which were outstanding immediately prior to the Effective Time. In
the event of a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, a certificate
evidencing the proper number of shares of Source Common Stock, together
with a check for the cash to be paid in lieu of fractional shares and any
dividends or distributions payable thereon, may be issued to the
transferee thereof if the Certificate evidencing such Company Common Stock
is presented to the Exchange Agent
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accompanied by all documents required to evidence and effect such transfer
and to evidence that any applicable stock transfer taxes have been paid.
If, after the Effective Time, Certificates are presented to the Surviving
Entity, the Surviving Entity shall return such Certificates to the
holder(s) thereof and shall require that such holder(s) comply with the
procedures set forth in this Article III.
(f) Any portion of the Exchange Fund (including the proceeds of any
investments thereof and any shares of Source Common Stock) that remains
unclaimed by the former stockholders of the Company one (1) year after the
Effective Time shall be returned to Source and any holder of Company
Common Stock who has not previously complied with Article III shall
thereafter look only to Source as a general unsecured creditor for payment
of its claims for Source Common Stock, any cash in lieu of fractional
shares of Source Common Stock and any dividends or distributions with
respect thereto.
(g) None of Source, the Company, the Surviving Entity, the Exchange
Agent or any other Person shall be liable to any former holder of shares
of Company Common Stock for any shares or amounts delivered to a public
official pursuant to applicable abandoned property, escheat or similar
laws. If any Certificate shall not have been surrendered prior to two (2)
years after the Effective Time (or immediately prior to such earlier date
on which any Source Common Stock, and any cash payable to the holder of
such Certificate or any dividends or distributions payable to the holder
of such Certificate pursuant to this Article III would otherwise escheat
to or become the property of any Governmental Authority), any such Source
Common Stock or cash, dividends or distributions in respect of such
Certificate shall, to the extent permitted by applicable law, become the
property of the Surviving Entity, free and clear of all claims or interest
of any person previously entitled thereto.
(h) In the event any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit with respect thereto by the
Person claiming such Certificate to be lost, stolen or destroyed and, if
required by Source or its transfer agent, the making of an indemnity
and/or posting of a bond by such Person in such reasonable amount as
Source may direct as indemnity against any claim that may be made against
it with respect to such Certificate, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed Certificate a certificate
representing the shares of Source Common Stock and cash in lieu of
fractional shares, and unpaid dividends and distributions on shares of
Source Common Stock in respect thereof, deliverable in respect thereof
pursuant to this Agreement.
(i) Each of the Exchange Agent, Source and the Surviving Entity
shall be entitled to deduct and withhold from the consideration otherwise
deliverable pursuant to this Agreement to any holder or former holder of
shares of Company Common Stock such amounts as it reasonably determines
that it is required to deduct and withhold with respect to the making of
such payment under the Code, or any other applicable provision of state,
local or foreign tax law or any other applicable legal requirement. To the
extent that amounts are so deducted or withheld, such amounts shall be
treated for all purposes
-9-
of this Agreement as having been paid to the person to whom such amounts
would have otherwise have been delivered.
3.5 DISSENTER'S RIGHTS. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock, if any, issued and outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger and who has delivered a written demand for appraisal of
such shares in accordance with Section 262 of the DGCL (a "DISSENTING
STOCKHOLDER") shall not be converted into the right to receive the Merger
consideration provided in Section 3.2 hereof at or after the Effective Time,
unless and until such holder fails to perfect or effectively withdraws or
otherwise loses such holder's right to appraisal under the DGCL. A Dissenting
Stockholder may receive payment of the fair value of the shares of Company
Common Stock issued and outstanding immediately prior to the Effective Time and
held by such Dissenting Stockholder ("DISSENTING SHARES") in accordance with the
provisions of the DGCL, provided that such Dissenting Stockholder complies with
Section 262 of the DGCL. At the Effective Time, all Dissenting Shares shall be
cancelled and cease to exist and shall represent only the right to receive the
fair value thereof in accordance with the DGCL. If, after the Effective Time,
any Dissenting Stockholder fails to perfect or effectively withdraws or
otherwise loses such Dissenting Stockholder's right to appraisal, such
Dissenting Stockholder's Dissenting Shares shall thereupon be treated as if they
had been converted, as of the Effective Time, into the right to receive the
Merger consideration set forth in Section 3.2 hereof. The Company shall give
Source (a) prompt notice of any demands for appraisal, withdrawals of demands
for appraisal and any other instruments served under the DGCL and (b) the
opportunity to participate in all negotiations, proceedings or settlements with
respect to demands for appraisal under the DGCL. The Company shall not
voluntarily make any payment with respect to any demands for appraisal and shall
not, except with Source's prior written consent, settle or offer to settle any
such demands.
3.6 ADJUSTMENT OF EXCHANGE RATIO. In the event that, subsequent to the
date of this Agreement but prior to the Effective Time, the outstanding shares
of Source Common Stock shall have been changed into a different number of shares
or a different class as a result of the Reincorporation (as defined below), a
stock split, reverse stock split, stock dividend, subdivision, reclassification,
split, combination, exchange, recapitalization or other similar transaction, the
Exchange Ratio shall be proportionately adjusted.
3.7 DISTRIBUTION OF SPINCO BUSINESS. The parties intend for the Spinco
Business of the Company to be spun off or otherwise distributed in its entirety
to the stockholders of the Company. It is a condition to Source's obligation to
consummate the Merger that the Distribution be completed. The terms of the
Distribution will be determined by the Company; provided, however, that Source's
consent shall be required in connection with any material deviation from the
terms and conditions of the Distribution described in Appendix A and shall be
required as to the final form and content of each of the agreements identified
in Appendix A, which consent in either case shall not be unreasonably withheld.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF SOURCE
Except as set forth in the schedules delivered to the Company prior to or
simultaneously with the execution hereof (collectively, the "SOURCE DISCLOSURE
SCHEDULE"), Source represents and warrants to the Company that the statements
contained in this Article IV are true and correct as of the date hereof and as
of the Closing Date. The sections of the Source Disclosure Schedule setting
forth exceptions to the representations and warranties contained in this Article
IV are numbered and lettered to correspond to the applicable sections and
subsections of this Article IV, and shall only qualify the corresponding
sections or subsections of this Article IV and any other subsections of this
Article IV to the extent the relevance of such disclosure to the other
subsection or section is reasonably apparent on its face.
4.1 ORGANIZATION AND QUALIFICATION. Each of Source and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation and has the requisite corporate power and
authority to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted. Source is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary, except where the
failure to be so qualified and in good standing would not have and would not
reasonably be expected to result in a Source Material Adverse Effect. Source has
delivered or made available to the Company a complete and accurate copy of the
Articles of Incorporation and Bylaws, each as amended to date, of Source, all of
which documents are in full force and effect.
4.2 CAPITALIZATION.
(a) The authorized capital stock of Source consists of 40,000,000 of
Source Common Stock and 2,000,000 shares of preferred stock, par value
$0.01 per share ("SOURCE PREFERRED STOCK"). Except as set forth in the
Source SEC Reports, as of November 15, 2004 (i) 23,565,090 shares of
Source Common Stock, were issued and outstanding, (ii) no shares of Source
Preferred Stock were issued and outstanding and (iii) 100,000 shares of
Source Common Stock and no shares of Source Preferred Stock were held in
the treasury of Source. All outstanding shares of Source Common Stock are
duly authorized, validly issued, fully paid and non-assessable and are
free of any preemptive or other similar rights.
(b) Section 4.2(b) of the Source Disclosure Schedule sets forth a
complete and accurate list, as of November 15, 2004, of all stock option
plans or other share or equity-related plans of Source (the "SOURCE OPTION
PLANS"), indicating for each Source Option Plan, as of the date of this
Agreement, the number of shares of Source Common Stock issued to date
under such plan, the number of shares of Source Common Stock subject to
outstanding options under such plan (the "SOURCE OPTIONS") and the number
of shares of Source Common Stock reserved for future issuance under the
plan.
(c) Section 4.2(c) of the Source Disclosure Schedule sets forth a
complete and accurate list, as of November 15, 2004, of each outstanding
option issued other than pursuant to the Source Option Plans (the "SOURCE
OFF-PLAN OPTIONS") and each outstanding warrant to purchase shares of
Source Common Stock (each a "SOURCE WARRANT"). Except pursuant to the
Source Options, the Source Off-Plan Options and the
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Source Warrants, (i) no subscription, warrant, option, convertible
security or other right (contingent or otherwise) to purchase or acquire
any shares of Source is authorized or outstanding, (ii) Source has no
obligation (contingent or otherwise) to issue any capital stock,
subscription, warrant, option, convertible security or other such right,
or to issue or distribute to holders of any of its shares any evidences of
indebtedness or assets of Source, (iii) Source has no obligation
(contingent or otherwise) to purchase, redeem or otherwise acquire any of
its shares or any interest therein or to pay any dividend or to make any
other distribution in respect thereof and (iv) there are no outstanding or
authorized share appreciation, phantom stock or similar rights with
respect to Source. None of the outstanding options or rights or warrants
(including any right of conversion or exchange under any outstanding
security, instrument or other agreement) shall accelerate and vest in
connection with the consummation of the transactions contemplated hereby
or upon the actual or constructive termination of employment by Source
following the transactions contemplated hereby.
(d) (i) There are no agreements, written or oral, between Source or
any Affiliate of Source and any holder of the securities of Source
relating to the sale or transfer (including agreements relating to rights
of first refusal, co-sale or "drag-along' rights) or registration under
the Securities Act (including any rights to include securities in the
Registration Statement) with respect to the capital stock of Source, (ii)
there are no proxies, voting rights or other agreements or understandings
between Source or any Affiliate of Source and any holder of the securities
of Source or, to Source's knowledge, among the holders of securities of
Source, with respect to the voting or transfer of the capital stock of
Source, (iii) there is no rights agreement, "poison pill" anti-takeover
plan or other similar agreement or understanding to which Source is a
party or by which it is bound with respect to the capital stock of Source,
(iv) Source is not obligated to redeem or otherwise acquire any of its
outstanding shares of capital stock and (v) there have been no shareholder
proposals received for inclusion in the proxy statement for the next
Source annual shareholder meeting. The Merger and the transactions
contemplated by this Agreement will not have the effect of increasing the
number of shares of Source capital stock issuable pursuant to any
unexercised options, warrants, convertible securities or other rights to
acquire Source capital stock.
(e) All outstanding shares of Source are, and all shares of Source
Common Stock subject to issuance as specified in Article III above will be
upon issuance on the terms and conditions specified in the instruments
pursuant to which they are issuable, duly authorized, validly issued,
fully paid and nonassessable and free of preemptive or other similar
rights.
4.3 SUBSIDIARIES. Source does not own, directly or indirectly, any capital
stock or other ownership interest in any Person. Each Subsidiary of Source
(including Merger Sub) is duly organized, validly existing and in good standing
under the laws of its jurisdiction of organization or incorporation and has the
requisite power and authority to own, lease and operate its properties and
assets and to carry on its business as it is now being conducted and each
Subsidiary of Source is qualified to do business, and is in good standing as a
foreign corporation, in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so
-12-
qualified and in such good standing will not have or could not reasonably be
expected to have, when taken together with all other such failures, a Source
Material Adverse Effect. All outstanding shares of capital stock and other
equity securities or interest of each Subsidiary of Source are duly authorized,
validly issued, fully paid and nonassessable and free of preemptive rights and
all such shares are owned, of record and beneficially, by Source or another of
its Subsidiaries, free and clear of any and all security interests, liens,
claims, pledges, agreements, limitations in Source's voting rights, charges or
other encumbrances of any nature, except for restrictions imposed by applicable
securities laws. Source is not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any of its Subsidiaries. There are no outstanding
or authorized options, warrants, rights, agreements or commitments to which
Source or any of its Subsidiaries is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital stock of
any Subsidiary of Source. There are no outstanding stock appreciation, phantom
stock or similar rights with respect to any Subsidiary of Source. There are no
voting trusts, proxies or other agreements or understandings with respect to the
voting of any capital stock of any Subsidiary of Source. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated by this
Agreement, has engaged in no other business activities, has no material
liabilities and has conducted its operations only as contemplated by this
Agreement.
4.4 POWER AND AUTHORITY; NON-CONTRAVENTION; GOVERNMENT APPROVALS.
(a) POWER AND AUTHORITY. The execution and delivery of this
Agreement and the performance of the transactions contemplated by this
Agreement by Source and the Merger Sub have been duly and validly
authorized by all necessary corporate action on the part of each of Source
and Merger Sub, subject only to (x) the required receipt of Source
Stockholder Approval (as defined below), and (y) the filing and
recordation of the Certificate of Merger as required by the DGCL and the
LLC Act. Without limiting the generality of the foregoing, the Source
Board, at a meeting duly called and held (and not subsequently rescinded
or modified in any way) and by the vote of directors (i) determined that
the Merger is fair to, advisable and in the best interests of Source and
its stockholders, (ii) approved (A) this Agreement in accordance with the
provisions of the GBCLM (as defined below) and (B) the filing and
recordation of the Certificate of Merger, (iii) approved the issuance of
Source Common Stock in the Merger, (iv) approved the Reincorporation and
the Reincorporation Filings (each as defined in Section 6.5 below), (v)
approved the other transactions contemplated by this Agreement and (vi)
directed that the Source Voting Proposal be submitted to the stockholders
of Source for their approval and resolved to recommend that the
stockholders of Source vote in favor of the Source Voting Proposal.
Assuming this Agreement constitutes the valid and legally binding
obligation of the Company, this Agreement constitutes the valid and
legally binding obligation of Source and Merger Sub, enforceable against
Source and Merger Sub in accordance with its terms, except as such
enforcement may be limited by (i) applicable bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) general equitable principles, regardless of whether such
enforceability is considered in a proceeding at law or in equity.
-13-
For purposes of this Agreement, (1) "SOURCE VOTING PROPOSAL" shall mean,
collectively, the proposal for approval of: (i) the issuance of the Source
Common Stock in the Merger (the "SHARE ISSUANCE") and the other
transactions contemplated hereby and (ii) an amendment to Source's
Articles of Incorporation which shall, among other things, increase the
authorized shares of Source Common Stock from 40,000,000 to 100,000,000
(the "ARTICLES AMENDMENT") and (2) "SOURCE STOCKHOLDER APPROVAL" shall
mean the approval of the Source Voting Proposal by the requisite vote of
Source's stockholders under Source's Articles of Incorporation, the rules
of the Nasdaq Stock Market, Inc., the General Business and Corporation Law
of Missouri (the "GBCLM") and other applicable laws.
(b) NON-CONTRAVENTION. Subject to obtaining Source Stockholder
Approval and compliance with the requirements specified in Section 4.4(c),
the execution and delivery by each of Source and Merger Sub of the
Transaction Documents to which it is a party, the performance by each of
Source and Merger Sub of its obligations under such Transaction Documents
and the consummation by each of Source and Merger Sub of the transactions
contemplated by such Transaction Documents shall not: (i) conflict with,
or result in a violation or breach of, any provision of the articles of
incorporation, bylaws, limited liability company agreement or certificate
of formation, as applicable, thereof, (ii), conflict with, or result in a
violation or breach of, any law, statute, ordinance, rule, regulation,
decree, writ, injunction, judgment or order of any Governmental Authority
or any arbitration award which is applicable to, binding upon or
enforceable against Source or Merger Sub, as the case may be, (iii)
constitute a default (or an event that with notice or lapse of time, or
both would reasonably be expected to become a default or give rise to a
right of termination, cancellation or acceleration of any obligation or
loss of material benefit) under, or require a consent or waiver under, any
agreement, contract, lease, note, mortgage, indenture, loan agreement,
franchise agreement, employment agreement, instrument or legally binding
undertaking material to the business, assets, properties or operations of
Source or Merger Sub, as the case may be, or (iv) result in or require the
creation or imposition of any Lien upon or with respect to any of the
property or assets thereof, except in each of the cases of (ii) through
(iv) for any such contravention, violation, conflict, breach, default,
event or Lien that would not have, individually or in the aggregate, a
Source Material Adverse Effect. Section 4.4(b) of the Source Disclosure
Letter lists all consents, waivers and approvals under any of Source's or
any of its Subsidiaries' agreements, licenses or leases required to be
obtained in connection with the consummation of the transactions
contemplated hereby which, if individually or in the aggregate were not
obtained, would result in a material loss of benefits to Source or the
Surviving Entity as a result of the Merger.
(c) GOVERNMENT APPROVALS. No declaration, filing or registration
with, or notice to, or authorization, consent or approval of, any
Governmental Authority is necessary for the execution and delivery of this
Agreement by Source or the consummation by Source of the transactions
contemplated hereby, except for (i) the filing of the Certificate of
Merger with the Secretary of State of the State of Delaware in connection
with the Merger and the appropriate documents with the relevant
authorities of other states or jurisdictions in which Source and Merger
Sub are qualified to do business, (ii) compliance with any applicable
requirements of the HSR Act and any
-14-
comparable foreign filings or approvals, (iii) the filing of the
Registration Statement with the SEC in accordance with the Securities Act
and the declaration of the effectiveness thereof by the SEC, (iv) the
filing of the Proxy Statement/Prospectus with the SEC in accordance with
the Exchange Act, (v) the filing of such reports, schedules or materials
under Section 13 or Rule 14a-12 under the Exchange Act and materials under
Rule 165 and Rule 425 of the Securities Act as may be required in
connection with this Agreement and the transactions contemplated hereby,
(vi) such declarations, filings, registrations, notices, authorizations,
consents or approvals as may be required under applicable federal, foreign
and state securities ("BLUE SKY") laws, (vii) the filing of the Nasdaq
Notification Form: Listing of Additional Shares with respect to Nasdaq,
(viii) the filing of the Reincorporation Filings in connection with the
Reincorporation, and (ix) such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or
obtained, as the case may be, would not have a Source Material Adverse
Effect.
(d) REQUIRED VOTE. The affirmative votes for adoption of the Source
Voting Proposal by, (i) in the case of the Share Issuance, the holders of
a majority of the votes cast on the Share Issuance and (ii) in the case of
the Articles Amendment, the holders of a majority of the outstanding
shares of Source Common Stock on the record date for the meeting of
Source's stockholders to consider the Source Voting Proposal (the "SOURCE
MEETING") are the only votes of the holders of any class or series of
Source capital stock or other securities necessary to adopt this Agreement
and for consummation by Source of the other transactions contemplated by
this Agreement. There are no bonds, debentures, notes or other
indebtedness of Source having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on
which stockholders of Source may vote.
4.5 REPORTS AND FINANCIAL STATEMENTS; INFORMATION PROVIDED.
(a) Since January 1, 2001, Source has filed or otherwise furnished
with the SEC all forms, registration statements, prospectuses, proxy
statements, schedules and reports required to be filed by it with or to
the SEC under each of the Securities Act and the Exchange Act (together
with all forms, statements, reports and documents which shall be filed
subsequent to the date hereof up to the Closing, being referred to herein,
collectively, the "SOURCE SEC REPORTS"). As of their respective dates (or
if amended or superseded by a filing prior to the date of this Agreement,
then on the date of such filing), the Source SEC Reports including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, at the time filed (and, in the case of
registration statements and proxy statements, on the dates of
effectiveness and the dates of mailing, respectively), (i) were prepared
in accordance and complied in all material respects with the requirements
of the Securities Act and/or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to the Source SEC
Reports and (ii) did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading. None of Source's
Subsidiaries is, and none of Source's Subsidiaries at any
-15-
time since January 1, 2001 has been, required to file or otherwise furnish
any form, report, registration statement or prospectus with or to the SEC.
(b) Each of the consolidated financial statements included in the
Source SEC Reports, together with the notes and schedules related thereto
(collectively, the "SOURCE FINANCIAL STATEMENTS"), as of their respective
dates (or if amended or supplemented in a Source SEC Report filed prior to
the date of this Agreement, as of the date amended or supplemented), (i)
complied in all material respects with the applicable accounting
requirements as set forth in the published rules and regulations of the
SEC, (ii) were prepared in accordance with GAAP, applied on a consistent
basis throughout the periods involved (except as may be indicated in the
notes to such financial statements or, in the case of unaudited interim
financial statements, as permitted by the SEC on Form 10-Q under the
Exchange Act) and (iii) fairly presented in all material respects the
consolidated financial position of Source and its Subsidiaries as of the
respective dates of the balance sheets included therein and the results of
operations and changes in financial position for the respective periods
indicated, except that the unaudited interim financial statements are
subject to lack of footnotes and normal and recurring year-end adjustments
and any other adjustments described therein not material in amount.
(c) Each of Source and its Subsidiaries maintains accurate books and
records reflecting its assets and liabilities and maintains proper and
adequate internal accounting controls which provide reasonable assurance
that (i) transactions are executed with management's authorization; (ii)
transactions are recorded as necessary to permit preparation of the
consolidated financial statements of Source in accordance with GAAP and to
maintain accountability for Source's consolidated assets; (iii) access to
Source's assets is permitted only in accordance with management's
authorization, (iv) the reporting of Source's assets is compared with
existing assets at regular intervals; (v) accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current
and timely basis and (vi) there are adequate procedures regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of Source's assets. As of the date of this Agreement, (i)
there are no significant deficiencies in the design or operation of
Source's internal controls over financial reporting which could adversely
affect in any material respect Source's ability to record, process,
summarize and report financial data or material weaknesses in internal
controls over financial reporting and (ii) there has been no fraud,
whether or not material, that involved management or other employees of
Source or any of its Subsidiaries who have a significant role in Source's
internal controls over financial reporting.
(d) The information to be supplied by or on behalf of Source for
inclusion or incorporation by reference in the registration statement on
Form S-4 to be filed by Source pursuant to which shares of Source Common
Stock issuable in connection with the Merger shall be registered under the
Securities Act (the "REGISTRATION STATEMENT"), shall not at the time the
Registration Statement is declared effective by the SEC, contain any
untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not misleading. The information to be supplied by or on behalf of
Source for inclusion in the proxy
-16-
statement/prospectus (the "PROXY STATEMENT/PROSPECTUS") to be sent to the
stockholders of Source in connection with the Source Meeting and to
stockholders of the Company in connection with the Company Meeting (as
defined in Section 5.4(d) hereof) (or the solicitation of the stockholders
of the Company seeking written consent of the Company Voting Proposal),
shall not, on the date the Proxy Statement/Prospectus is first mailed to
stockholders of Source and the Company, or at the time of the Source
Meeting, the Company Meeting (or the solicitation of the stockholders of
the Company seeking written consent of the Company Voting Proposal) or as
of the Effective Time, contain any statement which, at such time and in
light of the circumstances under which it shall be made, is false or
misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements made in the Proxy
Statement/Prospectus not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the Source
Meeting or the Company Meeting (or the solicitation of the stockholders of
the Company seeking written consent of the Company Voting Proposal)which
has become false or misleading. If at any time prior to the Effective
Time, any fact or event relating to Source or any of its Affiliates should
be discovered by Source or should occur which should be set forth in an
amendment to the Registration Statement or a supplement to the Proxy
Statement/Prospectus, Source shall promptly inform the Company of such
fact or event. Notwithstanding anything to the contrary, Source makes no
representation or warranty with respect to the information to be supplied
by or on behalf of the Company for inclusion in the Registration Statement
or the Proxy Statement/Prospectus.
(e) Source has implemented such programs and has taken such steps it
believes are reasonably necessary to provide for its upcoming compliance
(not later than the relevant statutory and regulatory deadline therefore)
with all provisions of Section 404 of the Xxxxxxxx-Xxxxx Act of 2002
("SOX") that shall become applicable to Source and has not received,
orally or in writing, any notification that its auditor believes that
management will not likely be able to complete its assessment before the
reporting deadline, or if completed, that it will not likely be completed
in sufficient time for the auditor to complete its assessment.
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither Source nor any of its
Subsidiaries have any liabilities or obligations (whether absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the consolidated financial statements prepared in
accordance with GAAP, which individually or in the aggregate are reasonably
likely to have a Source Material Adverse Effect, other than (i) liabilities
disclosed in or reserved for in the Source Financial Statements, (ii)
liabilities incurred since February 1, 2004 in the ordinary course of business
consistent with past practice and (iii) liabilities under this Agreement for
fees and expenses of professional advisors incurred in connection with the
transactions contemplated hereby.
4.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since February 1, 2004, neither
Source nor any of its Subsidiaries has (a) issued any capital stock or other
securities, except pursuant to the exercise of outstanding options or warrants;
(b) made any distribution of or with respect to its capital stock or other
securities or purchased or redeemed any of its securities except for
-17-
repurchase from employees following their termination pursuant to the terms of
agreements existing prior to February 1, 2004; (c) paid any bonus to or
increased the rate of fringe benefits or other compensation payable to its
officers, members of its board of directors or employees, except in the ordinary
course of business and consistent with past practice, or amended any other terms
of employment of its officers or members of its board of directors; (d) sold,
leased or transferred any of its material properties or assets other than in the
ordinary course of business consistent with past practice; (e) made or obligated
itself to make capital expenditures individually in excess of $100,000 other
than in the ordinary course of business consistent with past practice; (f)
suffered any theft, damage, destruction or casualty or loss, not covered by
insurance and for which a timely claim was filed, or any extraordinary loss
regardless of insurance coverage or filed claims, in excess of $250,000 in the
aggregate; (g) waived, canceled, compromised or released any material rights
having a value in excess of $250,000 in the aggregate; (h) made or adopted any
material change in its accounting methods, practices or policies (including any
material change in any assumption underlying, or method of calculating, any bad
debt, contingency or other reserve) other than changes required by GAAP or
applicable law; (i) terminated, amended or modified any plan or agreement
involving an amount in excess of $250,000 other than renewals or extensions of
expired or expiring contracts in the ordinary course of business; (j) delayed
paying any material accounts payable which are due and payable except to the
extent being contested in good faith; (k) made or pledged any charitable
contribution in excess of $50,000; (l) entered into any transaction which would
reasonably be expected to have a Source Material Adverse Effect; (m) entered
into any currently effective arrangement providing for severance, termination or
change of control benefits individually in excess of $100,000, or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence (either alone or upon the occurrence of additional
events) of termination of employment following a transaction involving Source of
the nature contemplated by this Agreement; or (n) agreed to do or authorized any
of the foregoing.
4.8 LITIGATION. Neither Source nor any of its Subsidiaries (including
Merger Sub) (a) is subject to any outstanding judgment, order, decree,
injunction, ruling or charge or (b) is a party or, to Source's knowledge,
threatened to be made a party to any action, suit, proceeding, hearing or
investigation of, in, or before any court or quasi-judicial or administrative
agency of any federal, state, local or foreign jurisdiction or before any
arbitrator, which would reasonably be expected to result in material damages or
any material injunctive relief against Source or any of its Subsidiaries.
4.9 NO VIOLATION OF LAW; LICENSES, PERMITS AND REGISTRATIONS. Neither
Source nor any of its Subsidiaries (including Merger Sub) is in violation of, or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (other than matters related to
the environment) of any Governmental Authority, except for violations which
would not reasonably be expected to have a Source Material Adverse Effect. To
the knowledge of Source, no material investigation or review by any Governmental
Authority is pending or threatened involving Source or its Subsidiaries
(including Merger Sub). Each of Source and each of its Subsidiaries (including
Merger Sub) has all permits, licenses, approvals and authorizations of, and
registrations with and under, all federal, state, local and foreign laws, and
from all applicable Governmental Authorities, required thereby to carry on its
businesses as currently conducted, except where the failure to have any such
permits, licenses, approvals,
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authorizations or registrations would not reasonably be expected to have a
Source Material Adverse Effect.
4.10 TAXES.
(a) Source and its Subsidiaries have timely filed all income Tax Returns
and all other material Tax Returns that each was required to file. Each such Tax
Return has been prepared in compliance with all applicable laws and regulations,
and all such Tax Returns are true and correct in all material respects. All
Taxes due and payable by or with respect to Source and its Subsidiaries have
been paid or are accrued or reserved on the balance sheet included in the Source
Financial Statements whether asserted or unasserted, contingent or otherwise.
Neither Source nor any of its Subsidiaries have any liability for Taxes that is
materially in excess of the amount reserved on its July 31, 2004 unaudited
balance sheet, or any more recent balance sheet. Each of Source and its
Subsidiaries has withheld and paid all Taxes to the appropriate Governmental
Authorities required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party. With respect to each taxable period of Source and its
Subsidiaries: (a) no deficiency or proposed adjustment has been asserted or
assessed by any taxing authority against Source or its Subsidiaries, (b) neither
Source nor any of its Subsidiaries has executed any waiver of any statute of
limitations or consented to extend the time in which any Taxes may be assessed
or collected by any taxing authority, (c) neither Source nor any of its
Subsidiaries has requested or been granted an extension of the time for filing
any Tax Return, (d) no audit or other examination of any Tax Return is presently
in progress nor has Source been notified of any request for such an audit or
other examination, (e) there is no action, suit, taxing authority proceeding, or
audit or claim for refund now in progress, or pending or, to the knowledge of
Source, threatened against or with respect to Source or any of its Subsidiaries
regarding Taxes and (f) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of Source or any of its
Subsidiaries, and Source has no knowledge of any basis for the assertion of any
claim relating to or attributable to Taxes which, if adversely determined, would
result in a Lien upon the assets of Source or any of its Subsidiaries.
(b) Neither Source nor any of its Subsidiaries is obligated by any
contract, agreement or other arrangement to indemnify any other person with
respect to material Taxes. Neither Source nor any of its Subsidiaries are now or
have ever been a party to or bound by any agreement or arrangement (whether or
not written and including, without limitation, any arrangement required or
permitted by law) binding Source or any of its Subsidiaries that (i) requires
Source or any of its Subsidiaries to make any Tax payment to or for the account
of any other person, (ii) affords any other person the benefit of any net
operating loss, net capital loss, investment Tax credit, foreign Tax credit,
charitable deduction or any other credit or Tax attribute which could reduce
Taxes (including, without limitation, deductions and credits related to
alternative minimum Taxes) of Source or any of its Subsidiaries, or (iii)
requires or permits the transfer or assignment of income, revenues, receipts or
gains to Source or any of its Subsidiaries, from any other person, in each case
other than with respect to each other.
(c) Neither Source nor any of its Subsidiaries has agreed to or is
required to make any adjustments pursuant to Sections 263A or 481(a) of the Code
or any similar provision of state, local or foreign law by reason of a change in
accounting method initiated by Source or any of its
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Subsidiaries or has any knowledge that the Internal Revenue Service has proposed
any such adjustment or change in accounting method, or has any application
pending with any Governmental Authority requesting permission for any changes in
accounting methods that relate to the business or operations of Source or any of
its Subsidiaries.
(d) Neither Source nor any of its Subsidiaries is subject to any private
letter ruling of the Internal Revenue Service or comparable ruling of other
Governmental Authorities.
(e) Neither Source nor any of its Subsidiaries is or has been a party to
any joint venture, partnership, or other agreement that would be treated as a
partnership for U.S. federal income tax purposes.
(f) Except for the group for which Source is presently a member, Source
has never been a member of an affiliated group of corporations, within the
meaning of Section 1504 of the Code, other than as a common parent corporation,
and none of Source's Subsidiaries has been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code (or any similar
provision of state, local or foreign law), except where Source was the common
parent corporation of such affiliated group.
(g) Neither Source nor any of its Subsidiaries has any liability for the
Taxes of any person other than any of Source or its Subsidiaries, under
Regulation Section 1.1502-6 (or any similar provision of state, local or foreign
law), as a transferee or successor, by contract or otherwise.
(h) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement covering any employee or former employee of Source or any
Subsidiary that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Section 280G or 162 of the
Code.
(i) Source and all of its Subsidiaries are in full compliance with all
terms and conditions of any Tax exemptions, Tax holiday or other Tax reduction
agreement or order of a territorial or non-U.S. government and the consummation
of the transactions contemplated by this Agreement will not have any adverse
effect on the continued validity and effectiveness of any such Tax exemptions,
Tax holiday or other Tax reduction agreement or order.
(j) Each of Source and its Subsidiaries is and has at all times been
resident for Tax purposes in their respective place of incorporation or
formation and is not and has not at any time been treated as resident in any
other jurisdiction for any Tax purpose (including any double taxation
arrangement).
(k) Neither Source nor any of its Subsidiaries has engaged in a
transaction that is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service has determined to be a tax
avoidance transaction and identified by notice, regulation, or other form of
published guidance as a listed transaction, as set forth in Treas. Reg. Section
1.6011-4(b)(2).
4.11 LABOR AND EMPLOYMENT MATTERS. Neither Source nor any of its
Subsidiaries is now, or has been in the past five years, or is in current
negotiations to be, a party to or bound by
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any collective bargaining agreement or any other agreement with a labor union;
and, to the knowledge of Source, there has been no effort by any labor union
during the 24 months prior to the date hereof to organize any employees of
Source or any of its Subsidiaries into one or more collective bargaining units.
There is no pending or, to the knowledge of Source, threatened labor, strike or
work stoppage. None of Source, its Subsidiaries or, to the knowledge of Source,
any agent, representative or employee thereof has, within the last 24 months,
committed any unfair labor practice as defined in the National Labor Relations
Act, as amended, and there is no pending or, to the knowledge of Source,
threatened charge or complaint against Source or any of its Subsidiaries by or
with the National Labor Relations Board or any representative thereof. There has
been no strike, walkout or work stoppage involving the employees of Source or
any of its Subsidiaries during the 24 months prior to the date hereof. There are
no actions, suits, claims, labor disputes or grievances pending, or, to the
knowledge of Source, threatened relating to any labor, safety or discrimination
matters involving any employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in a Source Material Adverse
Effect. Each of Source and its Subsidiaries (i) has complied in all material
respects with applicable laws, rules and regulations relating to employment,
employment practices, wages and hours, civil rights and equal employment
opportunities, including but not limited to, the Civil Rights Act of 1964, the
Fair Labor Standards Act, and the Americans with Disabilities Act, as amended,
(ii) has withheld all amounts required by law or agreement to be withheld from
the wages, salaries or other payments to its employees, except as would not
result in material liability to Source, (iii) is not liable for any arrears of
wages or other taxes or any penalty for failure to comply with any of the
foregoing, except as would not result in material liability to Source, (iv) has
not incurred any material liability or material obligations under the Worker
Adjustment and Retraining Notification Act or any similar state law which
remains unsatisfied and (v) is not liable for any payment to any trust or other
fund or to any Governmental Authority with respect to employment insurance
benefits or other benefits or obligations for such Persons (other than routine
payments to be made in the normal course of business and consistent with past
practices). There are no pending, or to Source's knowledge, threatened claims or
actions against Source under any worker's compensation policy or long-term
disability policy that would result in a material liability to Source. Neither
Source nor Source ERISA Affiliate has direct or indirect liability with respect
to any misclassification of any person as an independent contractor rather than
as an employee, or with respect to any employee leased from another employer,
except as would not result in material liability to Source.
4.12 EMPLOYEE BENEFIT PLANS.
(a) Section 4.12 of the Source Disclosure Schedule contains an accurate
and complete list of each material Source Employee Benefit Plan and each
material Source Employee Agreement. Neither Source nor any Source ERISA
Affiliate has any plan or commitment to establish any new Source Employee
Benefit Plan or Source Employee Agreement, to modify any Source Employee Benefit
Plan or Source Employee Agreement (except to the extent required by law or to
conform any such Source Employee Benefit Plan or Source Employee Agreement to
the requirements of any applicable law), or to adopt or enter into any Source
Employee Benefit Plan or Source Employee Agreement.
-21-
(b) To the extent that each item pertains to Source and its ERISA
Affiliates, Source has made available to the Company correct and complete copies
of: (i) all documents embodying each material Source Employee Benefit Plan and
each material Source Employee Agreement including (without limitation) all
material amendments thereto and all related trust documents, administrative
service agreements, group annuity contracts, group insurance contracts, and
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Source Employee Benefit Plan; (ii) the most recent annual actuarial
valuations, if any, prepared for each Source Employee Benefit Plan; (iii) the
three (3) most recent annual reports (Form Series 5500 and all schedules and
financial statements attached thereto), if any, required under ERISA or the Code
in connection with each Source Employee Benefit Plan; (iv) if the Source
Employee Benefit Plan is funded, the most recent annual and periodic accounting
of Source Employee Benefit Plan assets; (v) the most recent summary plan
description together with the summary(ies) of material modifications thereto, if
any, required under ERISA with respect to each Source Employee Benefit Plan;
(vi) all IRS determination, opinion, notification and advisory letters; (vii)
all material communications to any Employee or Employees relating to any Source
Employee Benefit Plan and any proposed Source Employee Benefit Plans, in each
case, relating to any amendments, terminations, establishments, increases or
decreases in benefits, acceleration of payments or vesting schedules or other
events which would result in any material liability to Source; (viii) all
material correspondence to or from any governmental agency relating to any
Source Employee Benefit Plan (other than routine correspondence that would not
reasonably be expected to result in liability to Source); (ix) all standard
COBRA forms and related notices (or such forms and notices as required under
comparable law); and (x) the three (3) most recent plan years discrimination
tests for each Source Employee Benefit Plan.
(c) Source and the Source ERISA Affiliates have performed in all material
respects all obligations required to be performed by them under each Source
Employee Benefit Plan, and each Source Employee Benefit Plan has been
established and maintained in all material respects in accordance with its terms
and in compliance with all applicable laws, statutes, orders, rules and
regulations, including but not limited to ERISA or the Code. Source does not
now, nor has it ever established or maintained any International Employee Plan.
There are no actions, suits or claims pending, or, to the knowledge of Source or
any Source ERISA Affiliates, threatened (other than routine claims for benefits)
against any Source Employee Benefit Plan or against the assets of any Source
Employee Benefit Plan. Each Source Employee Benefit Plan (other than any stock
option plan) can be amended, terminated or otherwise discontinued after the
Effective Time in accordance with its terms, without material liability to
Source or any Source ERISA Affiliates (other than ordinary administration
expenses). There are no audits, inquiries or proceedings pending or, to the
knowledge of Source or any Source ERISA Affiliates, threatened by the IRS or
DOL, or any other governmental entity with respect to any Source Employee
Benefit Plan. Source and each Source ERISA Affiliate have timely made all
contributions and other payments required by and due under the terms of each
Employee Benefit Plan, except as would not have a Source Material Adverse
Effect. All contributions, reserves or premium payments required to be made or
accrued as of the date hereof to the Source Employee Benefit Plans have been, in
all material respects, timely made or accrued. No "prohibited transaction,"
within the meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA,
and not otherwise exempt under Section 408 of ERISA, has occurred with respect
to any Source Employee Benefit Plan.
-22-
(d) Each of Source's Source Employee Benefit Plans intended to be
qualified under Section 401(a) of the Code and each trust intended to qualify
under Section 501(a) of the Code has, since January 1, 2001, obtained a
favorable determination, notification, and advisory and/or opinion letter, as
applicable, as to its qualified status from the IRS. For each Source Employee
Benefit Plan that is intended to be qualified under Section 401(a) of the Code
there has been no event, condition or circumstance that has adversely affected
or, to the knowledge of Source, is reasonably likely to adversely affect such
qualified status.
(e) Neither Source nor any Source ERISA Affiliate (including any person or
entity that was a Source ERISA Affiliate in the past) has ever maintained,
established, sponsored, participated in, or contributed to, any (i) Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code, (ii)
Multiemployer Plan or (iii) any plan described in Section 413 of the Code or a
"multiple employer plan" as defined in ERISA or the Code. Neither Source nor any
Source ERISA Affiliate is subject to any penalty or tax with respect to any
Source Employee Benefit Plan under Section 502(i) of ERISA or Sections 4975
through 4980 of the Code.
(f) None of the Source Employee Benefit Plans or Source Employee
Agreements provides, or reflects or represents any liability to provide
post-termination or retiree welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and neither
Source nor any Source ERISA Affiliate has incurred any commitment or obligation
to provide any Person with post-termination or retiree welfare benefits, except
to the extent required by statute.
(g) Neither Source nor any Source ERISA Affiliate has, prior to the
Effective Time and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of the Family Medical Leave
Act of 1993, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and Cancer
Rights Act of 1998, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, or any amendment to each such act, or any similar
provisions of state law applicable to its Employees. No Source Employee Benefit
Plan provides health benefits that are not fully insured through an insurance
contract and neither Source nor any Source ERISA Affiliate maintains a "funded
welfare plan" within the meaning of Section 419 of the Code.
(h) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Source
Employee Benefit Plan, Source Employee Agreement, trust or loan that will or may
result in any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any employee of Source or any Source
ERISA Affiliate.
(i) No payment or benefit which has been, will be or may be made by Source
or the Source ERISA Affiliates in connection with this transaction (either alone
or upon the occurrence of additional or subsequent events) with respect to any
Source or Source ERISA Affiliate employee will be, or could reasonably be
expected to be, characterized as a "parachute payment," within the meaning of
Section 280G(b)(2) of the Code ("SECTION 280G PAYMENTS"). There is no contract,
agreement, plan or arrangement to which Source or any Source ERISA
-23-
Affiliates is a party or by which it is bound to compensate any employee for
excise taxes paid pursuant to Section 4999 of the Code as a result of this
transaction (either alone or upon the occurrence of additional or subsequent
events).
4.13 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) Source is and, to Source's knowledge has at all times been, in
compliance with all Environmental Laws and Permits governing its business,
operations, properties and assets except failures to be in compliance that would
not cause a Source Material Adverse Effect.
(b) There are no currently outstanding noncompliance orders, consent
orders or decrees, warnings, information requests, notices of potential
liability, letters or notices of violations (collectively, "NOTICES") or claims,
suits, actions, judgments, penalties, fines or administrative or judicial
investigations or proceedings (collectively, "PROCEEDINGS") pending or, to the
knowledge of Source, threatened against or involving Source, by any Governmental
Authority or third party with respect to any Environmental Laws or Permits.
(c) Source has not Discharged or disposed of, nor has it allowed or
arranged for any third party to Discharge or dispose of, Hazardous Substances
to, at or upon: (i) any real property currently or previously owned, leased or
operated by Source or (ii) any site which, pursuant to any Environmental Laws,
has been placed or has been proposed to be placed on the Superfund National
Priorities List or its state equivalent by a Governmental Authority and for
which Source has received: (x) a request for information or notice that it may
be a "potentially responsible party" at the site from a Governmental Authority,
or (y) notice of a contribution action or threatened contribution action against
it from a third party to recover response costs at the site.
(d) Source does not use, nor has it used, any Aboveground Storage Tanks or
Underground Storage Tanks, and there are not now, nor to Source's knowledge have
there ever been, any Underground Storage Tanks beneath, or any Aboveground
Storage Tanks on, any real property currently or previously owned, leased or
operated by Source.
(e) Section 4.13 of the Source Disclosure Schedule identifies (i) all
environmental audits and assessments from the past three years undertaken by
Source or its agents or, to the knowledge of Source, undertaken by any
Governmental Authority, relating to or affecting Source or any real property
currently or previously owned, leased or operated by Source; and (ii) the
results of any ground, water, soil, air or asbestos monitoring undertaken by
Source or its agents or, to the knowledge of Source, undertaken by any
Governmental Authority, relating to or affecting Source or any real property
currently or previously owned, leased or operated by the Company which indicate
the presence of Hazardous Substances at levels requiring a notice or report to
be made to a Governmental Authority or in violation of any applicable
Environmental Laws. Source has provided to the Company copies of all material
written communications between Source and any Governmental Authority arising
under or related to Environmental Laws.
(f) For purposes of this Section 4.13 and Section 5.13 below, the
following terms shall have the meanings ascribed to them below:
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"ABOVEGROUND STORAGE TANK" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing aboveground storage tanks.
"DISCHARGE" means any manner of spilling, leaking, dumping,
discharging, releasing or emitting, as any of such terms may further be
defined in any Environmental Law, into any environmental medium, including
without limitation, groundwater, surface water, soil, sediments or air.
"ENVIRONMENTAL LAWS" means all federal, state, regional or local
statutes, laws, rules, regulations, codes, orders, consent orders and
agreements, plans, court orders, judgments, injunctions, decrees, consent
decrees, or similar laws of foreign jurisdictions where Source conducts
business, currently in existence any of which govern (or purport to
govern) or relate to pollution, protection of the environment, natural
resources, public health and safety, air emissions, water discharges,
hazardous or toxic substances, or solid or hazardous waste, as any of
these terms are or may be defined in such statutes, laws, rules,
regulations, codes, orders, consent orders and agreements, plans, court
orders, judgments, injunctions, decrees, consent decrees, or
interpretations thereof, including, without limitation: the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C.
Section 9601, et seq.; the Solid Waste Disposal Act, as amended by the
Resource Conservation and Recovery Act of 1976 and subsequent Hazardous
and Solid Waste Amendments of 1984, 42 U.S.C. Section 6901 et seq.
(collectively, "RCRA"); the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Section 1801, et seq.; the Clean Water Act, as amended,
33 U.S.C. Section 1311, et seq.; the Clean Air Act, as amended (42 U.S.C.
Section 7401-7642); and the Toxic Substances Control Act, as amended, 15
U.S.C. Section 2601 et seq.
"HAZARDOUS SUBSTANCES" means any substance which constitutes, in
whole or in part, a pollutant, contaminant, or toxic or hazardous
substance or waste under, or the generation, use, processing, treatment,
storage, release, transport or disposal of which is regulated by, any
Environmental Law. "HAZARDOUS SUBSTANCES" specifically includes, but is
not limited to, asbestos, polychlorinated biphenyls ("PCBs"), petroleum
and petroleum-based derivatives, and urea formaldehyde.
"PERMITS" means all permits, licenses, certificates, registrations,
or other approvals by a Governmental Authority issues or required under
any Environmental Law.
"UNDERGROUND STORAGE TANK" shall have the meaning ascribed to such
term in Section 6901 et seq., as amended, of RCRA, or any applicable state
or local statute, law, ordinance, code, rule, regulation, order ruling, or
decree governing underground storage tanks.
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4.14 REAL ESTATE.
(a) Section 4.14(a) of the Source Disclosure Schedule lists all real
property owned by Source and its Subsidiaries (the "SOURCE OWNED REAL
PROPERTY"). Source, or its Subsidiaries as the case may be, has good,
marketable, and insurable title to the Source Owned Real Property, free and
clear of any Lien (excluding any mortgage or deed of trust that has been
previously disclosed to the Company and reflected on the financial statements of
Source and its Subsidiaries) that would materially and adversely interfere with
its present use.
(b) With respect to the Source Owned Real Property: (i) there are no
material leases, subleases, licenses, concessions or other material agreements
or arrangements, written or oral, granting to any party or parties the right of
use or occupancy of any material portion of the parcel of such Source Owned Real
Property except in favor of Source and its Subsidiaries; (ii) there are no
outstanding options or rights of first refusal to purchase such Source Owned
Real Property, or any material portion thereof or material interest therein; and
(iii) there are no parties (other than Source and its Subsidiaries) in
possession of a material portion of such Source Owned Real Property.
(c) The leases, subleases and similar agreements and all amendments
thereto under which Source or any of its Subsidiaries lease real property (each,
a "SOURCE REAL PROPERTY LEASE") are in full force and effect, and have not been
amended (except as disclosed to the Company as set forth above) and neither
Source nor, to the knowledge of Source, any other party thereto is in material
default or material breach thereunder. To Source's knowledge, no event has
occurred which, with the passage of time or the giving of notice or both, would
cause a material breach of or material default by Source under any of such
Source Real Property Leases and, to Source's knowledge, there is no material
breach by any other party to the Source Real Property Leases. With respect to
each piece of real property leased by Source and its Subsidiaries (the "SOURCE
LEASED PREMISES" and together with the Source Owned Property, the "SOURCE REAL
PROPERTY"), Source, to Source's knowledge, has valid and enforceable leasehold
interests therein. Source, or its Subsidiaries as the case may be, has good,
marketable, and insurable leasehold interests to the Source Leased Premises,
free and clear of any Lien (excluding any mortgage or deed of trust that has
been previously disclosed to the Company and reflected on the financial
statements of Source and its Subsidiaries) that would materially and adversely
interfere with its present use.
(d) With respect to the Source Real Property, to Source's knowledge: (i)
such Source Real Property is in good condition and repair, normal wear and tear
excepted, and (ii) Source has not received notice of (A) any condemnation
proceeding with respect to any portion of such Source Real Property or any
access thereto and, to the knowledge of Source, no such proceeding has been
commenced by any Governmental Authority or (B) any special assessment which may
affect such Source Real Property and, to the knowledge of Source, no such
special assessment has been commenced by any Governmental Authority.
4.15 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) Each of Source and its Subsidiaries has good and valid title to all of
its material Source Assets (as such term is hereinafter defined), free and clear
of any Liens except for (a)
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Liens reflected in the Source Financial Statements, (b) Liens for current taxes,
assessments or governmental charges or levies on property not yet due and
delinquent, (c) zoning, building and land use laws imposed by any Governmental
Entity, (d) mechanics', carriers', workmen's, repairmen's, statutory or common
law liens being contested in good faith, and (e) other title defects,
encumbrances, covenants, rights of way, building or use restrictions, easements,
exceptions, variances, reservations and other matters or limitations of any
kind, if any, which do not and would not reasonably be expected to have a Source
Material Adverse Effect. The Source Assets and the Source Leased Premises
constitute, in the aggregate, all of the assets and properties necessary for the
conduct of the business of Source and each of the Subsidiaries in the manner in
which and to the extent to which such business is currently being conducted. For
purposes of this Agreement, the term "SOURCE ASSETS" means all of the properties
and assets of Source and the Subsidiaries which are reflected in the Source
Financial Statements or acquired after the date of the Source Financial
Statements (except assets or properties sold or otherwise disposed of in the
ordinary course of business since such date or as otherwise disclosed or
permitted by this Agreement), other than the Source Leased Premises, whether
personal or mixed, tangible or intangible, and wherever located.
(b) The Source Fixed Assets (as such term is hereinafter defined)
currently in use or necessary for the business and operations of Source and each
of the Subsidiaries are in good operating condition, normal wear and tear
excepted. For purposes of this Agreement, the term "SOURCE FIXED ASSETS" means
all vehicles, machinery, equipment, tools, supplies, leasehold improvements,
furniture and fixtures used, leased or owned by Source or the Subsidiaries
(except assets sold or otherwise disposed of in the ordinary course of business
or as otherwise disclosed or permitted by the Agreement).
4.16 INSURANCE. Each of the insurance policies maintained by Source and
its Subsidiaries (collectively, the "SOURCE INSURANCE POLICIES") are in full
force and effect, and all premiums due thereon have been paid when due, and no
notice of cancellation has been received, and there is no existing default or
event which, with the giving of notice or lapse of time or both, would
constitute a default thereunder. As of the Closing, each of the Source Insurance
Policies will be in full force and effect. None of the Source Insurance Policies
will lapse or terminate as a result of the transactions contemplated by this
Agreement. Section 4.16 of the Source Disclosure Schedule sets forth a
description of any pending claim under any Source Insurance Policy, or any
insurance policy previously in effect, for an amount in excess of $100,000 that
relates to loss or damage to the properties, assets or business of Source.
4.17 RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS.
No current customer of Source or any of its Subsidiaries that was responsible
for five percent or more of Source's revenue during Source's last full fiscal
year has, to the knowledge of Source, threatened to terminate its business
relationship with, or materially decrease purchasing products or services from,
Source or any of its Subsidiaries for any reason. No current supplier or vendor
of Source or any of its Subsidiaries that was responsible for five percent or
more of Source's purchases during Source's last full fiscal year has, to the
knowledge of Source, threatened to terminate its business relationship with, or
materially decrease sales of products or services to, Source or any of its
Subsidiaries for any reason. Neither Source nor any of its Subsidiaries has any
direct or indirect interest in any customer, supplier or competitor of Source or
such Subsidiary, or in any Person from whom or to whom Source or such Subsidiary
leases real or
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personal property. No officer, director or stockholder of Source or any of its
Subsidiaries, nor any Person related by blood or marriage to any such officer,
director or stockholder, nor any entity in which any such officer, director or
stockholder owns any beneficial interest, is a party to any agreement or
transaction with Source or any such Subsidiary or has any interest in any
property used by Source or any such Subsidiary.
4.18 NAMES; PRIOR ACQUISITIONS. All names under which Source and each of
its Subsidiaries does business, as of the date hereof, are specified in Section
4.18 of the Source Disclosure Schedule. Neither Source nor any of its
Subsidiaries has changed its name or used any assumed or fictitious name, or
been the surviving entity in a merger, acquired any business or changed its
principal place of business or chief executive office, within the past three
years.
4.19 MATERIAL CONTRACTS.
(a) The following agreements, contracts and commitments to which the
Source or any of its Subsidiaries is a party or is bound are referred to herein,
collectively, as the "SOURCE MATERIAL CONTRACTS":
(i) the material contracts (as defined in Item 601(b)(10) of
Regulation S-K of the SEC rules) set forth in the Source SEC Reports;
(ii) any employment, consulting, severance or change of control
agreement, contract or commitment with any executive officer or member of the
Source Board, other than those that are terminable by Source or any of its
Subsidiaries on no more than thirty (30) days' notice without liability or
financial obligation to Source;
(iii) any agreement or plan, including (without limitation) any
stock option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of which
will be accelerated, by the occurrence (alone or in connection with additional
or subsequent events) of any of the transactions contemplated by this Agreement
or the value of any of the benefits of which will be calculated on the basis of
any of the transactions contemplated by this Agreement;
(iv) any agreement of indemnification or any guaranty other than, in
either case, as entered into in the ordinary course of business;
(v) any agreement, contract or commitment containing any covenant
limiting in any respect the right of Source or any of its Subsidiaries to engage
in any line of business or to compete with any person or granting any exclusive
distribution rights;
(vi) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by Source or any of its Subsidiaries
after the date of this Agreement of assets in excess of $250,000 not in the
ordinary course of business or pursuant to which Source or any of its
Subsidiaries has any material ownership interest in any corporation,
partnership, limited liability company, joint venture or other business
enterprise other than Source's Subsidiaries;
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(vii) any dealer, distributor, joint marketing or development
agreement currently in force under which Source or any of its Subsidiaries have
continuing material obligations to jointly market any product, technology or
service and which may not be canceled without penalty upon notice of thirty (30)
days or less, or any material agreement pursuant to which Source or any of its
Subsidiaries have continuing material obligations to jointly develop any
Intellectual Property that will not be owned, in whole or in part, by Source or
any of its Subsidiaries and which may not be canceled without penalty upon
notice of thirty (30) days or less;
(viii) any material agreement, contract or commitment currently in
force to license any third party to manufacture or reproduce any product or
service of Source or any of its Subsidiaries or any material agreement, contract
or commitment currently in force to sell or distribute any products or services
of Source or any of its Subsidiaries, including any material agreement, contract
or commitment related to any Intellectual Property owned by Source or any of its
Subsidiaries, except agreements with distributors or sales representative in the
ordinary course of business cancelable without penalty upon notice of thirty
(30) days or less and substantially in the form previously provided to the
Company;
(ix) any mortgage, indenture, guarantee, loan or credit agreement,
security agreement or other agreement or instrument relating to the borrowing of
money or extension of credit, other than accounts receivable and payable in the
ordinary course of business;
(x) any material settlement agreement entered into during the
five-year period preceding the date hereof or that was not fully performed prior
to the date of the Source Financial Statements; or
(xi) any other agreement, contract or commitment (i) in connection
with or pursuant to which Source or any of its Subsidiaries will spend or
receive (or are expected to spend or receive), in the aggregate, more than
$250,000 during the current calendar year or during the next calendar year and
(ii) the termination, expiration or loss of the other contracting party's
performance of which would reasonably be expected to have a Source Material
Adverse Effect.
(b) Neither Source nor, to Source's knowledge, any other Person thereto
has, materially violated or breached, or declared or committed any material
default under, any Source Material Contract. No event has occurred, and no
circumstance or condition exists, that would (with or without notice or lapse of
time) (A) result in a violation or breach of any of the material provisions of
any Source Material Contract by Source, (B) give to Source, nor to the knowledge
of Source, any other Person thereto the right to accelerate the maturity of any
material matters in the performance of any Source Material Contract, or (C) give
to Source nor, to the knowledge of Source, any other Person thereto the right to
cancel, terminate or modify any Source Material Contract. Source and/or its
Subsidiaries have not received any written notice or other written communication
regarding any actual, alleged, possible or potential violation or breach of,
default under, termination of, or any other material change to, any Source
Material Contract. Source and/or its Subsidiaries have not waived any material
right under any Source Material Contract.
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4.20 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which Source or any of its Subsidiaries is a party or otherwise binding upon
Source which has or reasonably could be expected to have the effect of
prohibiting or impairing any business practice of Source, any acquisition of
property (tangible or intangible) by Source or the conduct of business by
Source.
4.21 INTELLECTUAL PROPERTY.
(a) For purposes of this Section 4.21, the following definitions shall
apply:
(i) "REGISTERED SOURCE INTELLECTUAL PROPERTY" means (A) patents,
patent applications (including provisional applications); (B) registered
trademarks, applications to register trademarks, intent to use applications or
other registrations related to trademarks; (C) registered copyrights and
applications for copyright registration; (D) internet domain name registrations;
and (E) any other Source Intellectual Property that is owned by or exclusively
licensed by Source that is the subject of an application, certificate or
registration issued by or recorded by any state, government or other public
legal authority;
(ii) "SOURCE INTELLECTUAL PROPERTY" means the Intellectual Property
owned by, developed by or filed in the name of, Source or any Subsidiary
thereof, whether U.S. or foreign; and
(iii) "SOURCE INTELLECTUAL PROPERTY CONTRACTS" means all contracts,
licenses, sublicenses and agreements: (A) with respect to any of Source
Intellectual Property licensed or offered by Source or any of its Subsidiaries
to any third party or (B) pursuant to which a third party has licensed or
transferred any Intellectual Property to Source or any of its Subsidiaries
(other than contracts, licenses or agreements relating to generally massed
produced and commercially available software).
(b) All of the Source Intellectual Property Contracts are in full force
and effect except where the failure would not have a Source Material Adverse
Effect. Source and its Subsidiaries are in material compliance with, and has not
breached any term of, any of the Source Intellectual Property Contracts and, to
the knowledge of Source, all other parties to the Source Intellectual Property
Contracts are in compliance with, and have not breached any terms of such Source
Intellectual Property Contracts.
(c) Source has all right, title and interest to each item of Source
Intellectual Property purported to be owned by it, including all Registered
Source Intellectual Property, free and clear of any Liens. Source Intellectual
Property constitutes all of the intellectual property necessary to conduct the
business of Source and its Subsidiaries as currently contemplated to be
conducted by Source.
(d) Except pursuant to end-user licenses entered into by Source in the
ordinary course of business, (i) Source has the lawful and exclusive right to
use all of Source Intellectual Property and (ii) no Person (other than Source
and its Subsidiaries) has any right to use any of Source Intellectual Property
nor has Source granted to any Person or authorized any Person to retain any
rights in Source Intellectual Property.
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(e) Neither the use (including, without limitation, any transmission,
reproduction, use, display or modification (including, framing and linking web
site content)) of Source Intellectual Property by Source, nor the operation of
Source's business as currently conducted has, does or will infringe upon,
misappropriate or violate the proprietary or other rights of any other Person.
To Source's knowledge, no Person is infringing upon, misappropriating or
violating any of Source Intellectual Property.
(f) No Source Intellectual Property, or product of Source using or
embodying Source Intellectual Property, is subject to any proceedings or
outstanding decree, order, judgment or stipulation restricting in any manner the
use or licensing thereof by Source, or which may affect the validity or
enforceability of any Intellectual Property. There is no claim, suit, action or
proceeding pending or, to the knowledge of Source, threatened against Source or
any of its Subsidiaries (i) alleging any such conflict, infringement or
violation with any other Person's proprietary rights or (ii) challenging such
Source's ownership or use of, or the validity or enforceability of any Source
Intellectual Property owned or used by Source.
(g) To Source's knowledge, (i) no other Person asserts ownership rights in
any of the Intellectual Property owned by Source or any of its Subsidiaries, and
(ii) no other Person claims that the use by Source or any of its Subsidiaries of
any Intellectual Property infringes any right of any third party.
(h) Each of Source and its Subsidiaries has taken reasonable steps to
protect its rights in its confidential information and trade secrets or any
trade secrets or confidential information of third parties provided thereto.
Without limiting the generality of the foregoing, each of Source and its
Subsidiaries has and enforces a policy requiring each employee and contractor
with access to Intellectual Property of Source or such Subsidiaries to execute a
proprietary information/confidentiality agreement substantially in Source's
standard form as then in effect and all current and former employees and
contractors of Source and each such Subsidiary have executed such an agreement.
To Source's knowledge, (i) none of Source Intellectual Property has been used,
disclosed or appropriated to the detriment of Source for the benefit of any
Person other than Source or its Subsidiaries, and (ii) no employee, independent
contractor or agent of Source has misappropriated any trade secrets or other
confidential information of any other Person in the course of the performance of
his or her duties as an employee, independent contractor or agent of Source.
4.22 RECORDS OF SOURCE. The minute books for Source and its Subsidiaries
made available to the Company for review were correct and complete in all
material respects as of the date of such review, no further entries have been
made through the date of this Agreement, such minute books contain the true
signatures of the persons purporting to have signed them, and such minute books
contain an accurate record of all material corporate actions of the stockholders
and directors, and any committees thereof, of Source or its Subsidiaries, as the
case may be, taken by written consent or at a meeting since incorporation of
Source or its Subsidiaries, as the case may be. All material corporate actions
taken by Source have been duly authorized or ratified. All accounts, books,
ledgers and official and other records of Source and its Subsidiaries have been
fully, properly and accurately kept and completed in all material respects, and
there are no material inaccuracies or discrepancies of any kind contained
therein.
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4.23 BROKERS AND FINDERS. Except with respect to Jefferies & Company, Inc.
("JEFFERIES"), whose fees are set forth in Section 4.23 of the Source Disclosure
Schedule, (a) Source has not entered into any contract, arrangement or
understanding with any person or firm which may result in the obligation of
Source to pay any finder's fees, brokerage or agent commissions or other similar
payments in connection with the transactions contemplated hereby and (b) there
is no claim for payment by Source of any investment banking fees, finder's fees,
brokerage or agent commissions or other similar payments in connection with the
negotiations leading to this Agreement or the consummation of the transactions
contemplated hereby.
4.24 OPINION OF FINANCIAL ADVISOR. Source has received the written opinion
of Jefferies dated the date of this Agreement, to the effect that, as of the
date hereof, the Exchange Ratio is fair to Source from a financial point of
view.
4.25 INTERNAL CONTROL OVER FINANCIAL REPORTING; DISCLOSURE CONTROLS AND
PROCEDURES; CERTIFICATIONS. The Chief Executive Officer and the Chief Financial
Officer of Source have signed, and Source has furnished to the SEC, all
certifications required by Sections 302 and 906 of the Xxxxxxxx-Xxxxx Act of
2002; such certifications have not been withdrawn; and neither Source nor any of
its officers has received notice from the SEC or any other Governmental
Authority questioning or challenging the accuracy, completeness, content, form
or manner of filing or submission of such certifications.
4.26 ANTI-TAKEOVER. The Board of Directors of Source has taken all actions
so that (a) the restrictions contained in Section 351.459 of the GBCLM
applicable to a "business combination" (as defined in such Section 351.459) will
not apply to the execution, delivery or performance of this Agreement or the
Source Voting Agreements or to the consummation of the Merger or the other
transactions contemplated by this Agreement. No "control share acquisition," or
other anti-takeover laws or regulations enacted under the laws of the State of
Missouri or the federal laws of the United States apply to this Agreement, the
Voting Agreement or the Merger.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the schedules delivered to Source and Merger Sub
prior to or simultaneously with the execution hereof (collectively, the "COMPANY
DISCLOSURE SCHEDULE"), the Company represents and warrants to Source and Merger
Sub that the statements contained in this Article V are true and correct as of
the date hereof and as of the Closing Date. The sections of the Company
Disclosure Schedule setting forth exceptions to the representations and
warranties in this Article V are numbered and lettered to correspond to the
applicable sections and subsections of this Article V and shall only qualify the
corresponding sections or subsections of this Article V and any other
subsections of this Article V to the extent the relevance of such disclosure to
the other subsection or section is reasonably apparent on its face.
5.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the requisite corporate power and authority to own, lease and
operate its properties and assets and to
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carry on its business as it is now being conducted. The Company is duly
qualified to do business and is in good standing as a foreign corporation in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing would not have
and would not reasonably be expected to have a Company Material Adverse Effect.
The Company has delivered or made available to Source a complete and accurate
copy of the Certificate of Incorporation and Bylaws, each as amended to date, of
the Company, all of which documents are in full force and effect. Section 5.1 of
the Company Disclosure Schedule sets forth each jurisdiction in which the
Company or any of the Acquired Subsidiaries is qualified or licensed to do
business and, whether the Company or the Acquired Subsidiaries are in good
standing as of the date of the Agreement.
5.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of 150,000,000
shares of Company Common Stock, par value $0.0001 per share, and 10,000,000
shares of Company Preferred Stock, par value $.01 per share, of which 20,000
shares have been designated Series A1 Preferred, 45,000 shares have been
designated Series A2 Preferred, and 9,700,000 shares have been designated Series
B Preferred. As of November 15, 2004, 71,758,845 shares of Company Common Stock
were issued and outstanding. As of November 15, 2004, 20,000 shares of Series A1
Preferred Stock were issued and outstanding, 40,967 shares of Series A2
Preferred Stock were issued and outstanding, and 4,540,070 shares of Series B
Preferred Stock were issued and outstanding excluding accrued and unpaid
dividends. No shares of Company Common Stock or of Company Preferred Stock were
held in the treasury of the Company. Assuming the payment of all accrued and
unpaid dividends on the Series A1 Preferred Stock, the Series A2 Preferred Stock
and the Series B Preferred Stock as of November 15, 2004, and the subsequent
conversion of such stock into shares of Company Common Stock, each share of the
Series A Preferred Stock, the Series A2 Preferred Stock and the Series B
Preferred Stock shall be convertible into such number of shares of the Company
Common Stock, respectively, as set forth in Section 5.2(a)(i) of the Company
Disclosure Schedule, and the number of shares of Company Common Stock issued and
outstanding as of November 15, 2004 would be as set forth in Section 5.2(a)(ii)
of the Company Disclosure Schedule. All outstanding shares of Company Common
Stock and Company Preferred Stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any preemptive or other similar rights.
Neither the Principal Stockholder (nor any transferee of the "beneficial
ownership" of any of the Principal Stockholder's shares of capital stock of the
Company prior to the Effective Time) nor any "group" which includes the
Principal Stockholder (or such transferee) (within the meaning of Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder) will
beneficially own 40% or more of the outstanding shares of Source Common Stock
immediately after the Effective Time.
(b) As of November 15, 2004, the Company has reserved (i) 2,826,376 shares
of Common Stock pursuant to the Company Option Plans subject to outstanding,
unexercised options, (ii) 138,000 shares of Common Stock pursuant to outstanding
warrants to purchase Company Common Stock and Series A2 Preferred Stock (the
"COMPANY WARRANTS") and (iii) 999,672.0725 shares of Company Common Stock
pursuant to Section 3.3(e) hereof (the "RESIDUAL SHARES"). Section 5.2(b) of the
Company Disclosure Schedule sets forth for each
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outstanding, unexercised Company Option and Company Warrant, the name of the
holder of such Company Option, the number, class and series of shares subject to
such Company Option or Company Warrant, as applicable, the exercise price of
such option and the vesting schedule for such Company Option or Company Warrant,
as applicable.
(c) Except for the Company Options, the Company Warrants and the Residual
Shares, (i) no subscription, warrant, option, convertible security or other
right (contingent or otherwise) to purchase or acquire any shares of the Company
is authorized or outstanding, (ii) the Company has no obligation (contingent or
otherwise) to issue any capital stock, subscription, warrant, option,
convertible security or other such right, or to issue or distribute to holders
of any of its shares any evidences of indebtedness or assets of the Company,
(iii) the Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any of its shares or any interest therein or to pay
any dividend or to make any other distribution in respect thereof and (iv) there
are no outstanding or authorized share appreciation, phantom stock or similar
rights with respect to the Company. None of the outstanding options or rights or
warrants (including any right of conversion or exchange under any outstanding
security, instrument or other agreement) shall accelerate and vest in connection
with the consummation of the transactions contemplated hereby or upon the actual
or constructive termination of employment by Source following the transactions
contemplated hereby. The Company does not have outstanding "incentive stock
options" as such term is defined in Section 422 of the Code.
(d) (i) There are no agreements, written or oral, between the Company or
any Affiliate of the Company and any holder of the securities of the Company
relating to the sale or transfer (including agreements relating to rights of
first refusal, co-sale or "drag-along" rights) or registration under the
Securities Act (including any rights to include securities in the Registration
Statement) with respect to the capital stock of the Company, (ii) there are no
proxies, voting rights or other agreements or understandings between the Company
or any Affiliate of the Company and any holder of the securities of the Company
or, to the Company's knowledge, among the holders of the securities of the
Company with respect to the voting or transfer of the capital stock of the
Company, and (iii) the Company is not obligated to redeem or otherwise acquire
any of its outstanding shares of capital stock.
(e) Section 5.2(e) of the Company Disclosure Schedule sets forth the name,
and the number of outstanding shares of each class of Company Capital Stock
owned of record or beneficially, by each stockholder of the Company. As of the
date hereof, such stockholders constitute all of the holders of all issued and
outstanding shares of capital stock of the Company.
(f) All sales of equity securities by the Company prior to the date hereof
have been made in compliance in all material respects with applicable federal
and state securities laws.
5.3 SUBSIDIARIES. The name and jurisdiction of incorporation or
organization of each Subsidiary of the Company is set forth in Section 5.3 of
the Company Disclosure Schedule. The Company does not own, directly or
indirectly, any capital stock or other ownership interest in any Person. Each
Subsidiary of the Company that is not to be distributed in the Distribution
shall be referred to herein as an "ACQUIRED SUBSIDIARY" and each Subsidiary to
be included as part of the Distribution shall be referred to herein as a "SPINCO
SUBSIDIARY". Each Acquired Subsidiary is duly organized, validly existing and in
good standing under the laws of its
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jurisdiction of organization or incorporation and has the requisite power and
authority to own, lease and operate its properties and assets and to carry on
its business as it is now being conducted and each Acquired Subsidiary is
qualified to do business, and is in good standing as a foreign corporation, in
each jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in such good standing will not
have or could not reasonably be expected to have, when taken together with all
other such failures, a Company Material Adverse Effect. All outstanding shares
of capital stock and other equity securities or interest of each Acquired
Subsidiary are duly authorized, validly issued, fully paid and nonassessable and
free of preemptive rights and all such shares are owned, of record and
beneficially, by the Company or another of its Acquired Subsidiaries, free and
clear of any and all security interests, liens, claims, pledges, agreements,
limitations in the Company's voting rights, charges or other encumbrances of any
nature except for restrictions imposed by applicable securities laws. The
Company is not subject to any obligation or requirement to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any of its Acquired Subsidiaries or any of its Spinco Subsidiaries or any
other person. There are no outstanding or authorized options, warrants, rights,
agreements or commitments to which the Company or any of its Acquired
Subsidiaries is a party or which are binding on any of them providing for the
issuance, disposition or acquisition of any capital stock of any Acquired
Subsidiary of the Company. There are no outstanding stock appreciation, phantom
stock or similar rights with respect to any Acquired Subsidiary of the Company.
There are no voting trusts, proxies or other agreements or understandings with
respect to the voting of any capital stock of any Acquired Subsidiary of the
Company.
5.4 POWER AND AUTHORITY; NON-CONTRAVENTION; GOVERNMENT APPROVALS.
(a) POWER AND AUTHORITY. The execution and delivery of this Agreement and
the performance of the transactions contemplated by this Agreement by the
Company have been duly and validly authorized by all necessary corporate action
on the part of the Company, subject only to (x) the required receipt of the
Company Stockholder Approval and (y) the filing and recordation of the
Certificate of Merger as required by the DGCL and the LLC Act. Without limiting
the generality of the foregoing, the Company Board, at a meeting duly called and
held (and not subsequently rescinded or modified in any way), and by the
unanimous vote of all directors (i) determined that the Merger is fair to,
advisable and in the best interests of the Company and its stockholders, (ii)
approved (A) this Agreement in accordance with the provisions of the DGCL, and
(B) the filing and recordation of the Certificate of Merger, (iii) approved the
other transactions contemplated by this Agreement and (iv) directed that the
Company Voting Proposal be submitted to the stockholders of the Company for
their approval and resolved to recommend that the stockholders of the Company
vote in favor of the Company Voting Proposal. Assuming this Agreement
constitutes valid and legally binding obligations of the Source and Merger Sub,
this Agreement constitutes the valid and legally binding obligation of the
Company, enforceable against the Company in accordance with its terms, except as
such enforcement may be limited by (i) applicable bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles, regardless of whether such enforceability is
considered in a proceeding at law or in equity. For purposes of this Agreement,
(1) "COMPANY VOTING PROPOSAL" shall mean, collectively, the proposal (i) to
adopt this
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Agreement and (ii) if applicable, to approve the Distribution and (2) "COMPANY
STOCKHOLDER APPROVAL" shall mean the approval of the Company Voting Proposal (as
defined above) by a vote, or by the written consent, of the holders of a
majority of the Company Common Stock, which constitutes the requisite vote or
written consent of the Company's stockholders, under the Company's Certificate
of Incorporation, the DGCL and any other applicable laws.
(b) NON-CONTRAVENTION. Subject to Company Stockholder Approval and
compliance with the requirements specified in Section 5.4(c), the execution and
delivery by the Company of the Transaction Documents to which it is a party, the
performance by the Company of its obligations thereunder and the consummation by
the Company of the transactions contemplated by such Transaction Documents shall
not (i) conflict with, or result in a violation or breach of, any provision of
the certificate of incorporation or bylaws of the Company, (ii) conflict with,
or result in a violation or breach of, any law, statute, ordinance, rule,
regulation, decree, writ, injunction, judgment or order of any Governmental
Authority or any arbitration award which is applicable to, binding upon or
enforceable against the Company, (iii) constitute a default (or an event that
with notice or lapse of time, or both would reasonably be expected to become a
default or give rise to a right of termination, cancellation or acceleration of
any obligation or loss of material benefit) under, or require a consent or
waiver under, any agreement, contract, lease, note, mortgage, indenture, loan
agreement, franchise agreement, employment agreement, instrument or legally
binding undertaking material to the business, assets, properties or operations
of the Company or (iv) result in or require the creation or imposition of any
Lien upon or with respect to any of the property or assets of the Company,
except in each of the cases of (ii) through (iv) for any such contravention,
violation, conflict, breach, default, event or Lien that would not have,
individually or in the aggregate, a Company Material Adverse Effect. Section
5.4(b) of the Company Disclosure Schedule lists all consents, waivers and
approvals under any of the Company's or any of its Subsidiaries' agreements,
licenses or leases required to be obtained in connection with the consummation
of the transactions contemplated hereby which, if individually or in the
aggregate were not obtained, would result in a material loss of benefits to the
Company as a result of the Merger.
(c) GOVERNMENT APPROVALS. No declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any Governmental Authority
is necessary for the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
for (i) the filing of the Certificate of Merger with the Secretary of State of
the State of Delaware in connection with the Merger and the appropriate
documents with the relevant authorities of other states or jurisdictions in
which the Company and its Subsidiaries are qualified to do business, (ii)
compliance with any applicable requirements of the HSR Act and any comparable
foreign filings or approvals, (iii) the filing of the Prospectus/Proxy Statement
with the SEC in accordance with the Exchange Act and the effectiveness of the
Registration Statement in accordance with the Securities Act, (iv) such
declarations, filings, registrations, notices, authorizations, consents or
approvals as may be required under applicable federal, foreign and blue sky
laws, and (v) such declarations, filings, registrations, notices,
authorizations, consents or approvals which, if not made or obtained, as the
case may be, would not have an Company Material Adverse Effect.
(d) REQUIRED VOTE. The affirmative vote, or written consent, for adoption
of the Company Voting Proposal by the holders of a majority of the outstanding
shares of the Company
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Common Stock on the record date for the meeting of the Company's stockholders to
consider the Company Voting Proposal (the "COMPANY MEETING"), or on the date of
such written consent, is the only vote or consent of the holders of any class or
series of Company capital stock or other securities necessary to adopt this
Agreement and for consummation by the Company of the other transactions
contemplated by this Agreement. There are no bonds, debentures, notes or other
indebtedness of the Company having the right to vote (or convertible into, or
exchangeable for, securities having the right to vote) on any matters on which
stockholders of the Company may vote.
5.5 FINANCIAL STATEMENTS; INFORMATION PROVIDED
(a) (i) Attached to Section 5.5(a)(i) of the Company Disclosure Schedule
are true copies of (A) the financial statements of the Company as required to be
included in the Registration Statement by Regulation S-X as of and for the
periods ended December 31, 2001, 2002 and 2003, including the notes thereto,
audited by PricewaterhouseCoopers LLP (collectively, the "COMPANY FINANCIAL
STATEMENTS") and (B) the unaudited financial statements of the Company as
required to be included in the Registration Statement by Regulation S-X for the
six-month period ended June 30, 2004 (such unaudited financial statements being
referred to herein, collectively, as the "INTERIM COMPANY FINANCIAL
STATEMENTS"). Each of the Company Financial Statements and the Interim Company
Financial Statements (x) has been prepared in accordance with GAAP, applied on a
consistent basis throughout the periods involved (except as may be indicated in
the notes to such financial statements) and (y) fairly present in all material
respects the consolidated financial position of the Company and the Acquired
Subsidiaries as at the respective dates of the balance sheets included therein
and the consolidated results of operations and changes in financial position for
the respective periods indicated, except that the unaudited interim financial
statements are subject to lack of footnotes and normal and recurring year-end
adjustments and any other adjustments described therein not material in amount.
(ii) Attached to Section 5.5(a)(ii) of the Company Disclosure
Schedule are true copies of (A) the financial statements of the Distribution and
Fulfillment Services Group of the Company ("DFSG") as required to be included in
the Registration Statement by Regulation S-X as of and for the periods ended
December 31, 2001, 2002 and 2003, including the notes thereto, audited by
PricewaterhouseCoopers LLP (collectively, the "DFSG FINANCIAL STATEMENTS") and
(B) the unaudited financial statements of DFSG as required to be included in the
Registration Statement by Regulation S-X for the six-month period ended June 30,
2004 (such unaudited financial statements being referred to herein,
collectively, as the "INTERIM DFSG FINANCIAL STATEMENTS"). The balance sheet of
DFSG as required to be included in the Registration Statement by Regulation S-X,
dated as of December 31, 2003, included in the DFSG Financial Statements is
referred to herein as the "CURRENT BALANCE SHEET". Each of the DFSG Financial
Statements and the Interim DFSG Financial Statements (x) has been prepared in
accordance with GAAP, applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes to such financial statements)
and (y) fairly present in all material respects the consolidated financial
position of DFSG as at the respective dates of the balance sheets included
therein and the consolidated results of operations and changes in financial
position for the respective periods indicated, except that the unaudited interim
financial statements are subject to lack of footnotes and normal and recurring
year-end adjustments and any other adjustments described therein not material in
amount.
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(b) Each of the Company and the Acquired Subsidiaries maintains accurate
books and records reflecting its assets and liabilities and maintains proper and
adequate internal accounting controls which provide reasonable assurance that
(i) transactions are executed with management's authorization; (ii) transactions
are recorded as necessary to permit preparation of the consolidated financial
statements of the Company in accordance with GAAP and to maintain accountability
for the Company's consolidated assets; (iii) access to the Company's assets is
permitted only in accordance with management's authorization, (iv) the reporting
of the Company's assets is compared with existing assets at regular intervals;
(v) accounts, notes and other receivables and inventory are recorded accurately,
and proper and adequate procedures are implemented to effect the collection
thereof on a current and timely basis and (vi) there are adequate procedures
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the Company's assets. As of the date of this Agreement, (i) there
are no significant deficiencies in the design or operation of the Company's
internal controls over financial reporting which could adversely affect in any
material respect the Company's ability to record, process, summarize and report
financial data or material weaknesses in internal controls over financial
reporting and (ii) there has been no fraud, whether or not material, that
involved management or other employees of the Company or any of the Acquired
Subsidiaries who have a significant role in the Company's internal controls over
financial reporting.
(c) The information to be supplied by or on behalf of the Company for
inclusion in the Registration Statement shall not at the time the Registration
Statement is declared effective by the SEC contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
information to be supplied by or on behalf of the Company for inclusion in the
Proxy Statement/Prospectus to be sent to the stockholders of the Company in
connection with the Company Meeting (or the solicitation of the stockholders of
the Company seeking written consent of the Company Voting Proposal) and to
stockholders of Source in connection with the Source Meeting, shall not, on the
date the Proxy Statement/Prospectus is first mailed to stockholders of the
Company and Source, or at the time of the Company Meeting (or the solicitation
of the stockholders of the Company seeking written consent of the Company Voting
Proposal) or the Source Meeting or as of the Effective Time, contain any
statement which, at such time and in light of the circumstances under which it
shall be made, is false or misleading with respect to any material fact, or omit
to state any material fact necessary in order to make the statements made in the
Proxy Statement/Prospectus not false or misleading, or omit to state any
material fact necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Company Meeting (or the
solicitation of the stockholders of the Company seeking written consent of the
Company Voting Proposal) or the Source Meeting which has become false or
misleading. If at any time prior to the Effective Time, any fact or event
relating to the Company or any of its Affiliates should be discovered by the
Company or should occur which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement/Prospectus, the
Company shall promptly inform Source of such fact or event. Notwithstanding
anything to the contrary, the Company makes no representation or warranty with
respect to the information to be supplied by or on behalf of Source for
inclusion in the Registration Statement or the Proxy Statement/Prospectus.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. Neither the Company nor any of the
Acquired Subsidiaries have any liabilities or obligations (whether absolute,
accrued, contingent
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or otherwise) of a nature required to be disclosed on a balance sheet or in the
related notes to the consolidated financial statements prepared in accordance
with GAAP, which individually or in the aggregate are reasonably likely to have
a Company Material Adverse Effect other than (i) liabilities disclosed in or
reserved for in the Current Balance Sheet, (ii) liabilities incurred since the
date of the Current Balance Sheet in the ordinary course of business consistent
with past practice, and (iii) liabilities under this Agreement for fees and
expenses of professional advisors incurred in connection with the transactions
contemplated hereby.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since the date of the Current
Balance Sheet, neither the Company nor any of the Acquired Subsidiaries has (a)
issued any capital stock or other securities, except pursuant to the exercise of
outstanding options or warrants; (b) made any distribution of or with respect to
its capital stock or other securities or purchased or redeemed any of its
securities except for repurchase from employees following their termination
pursuant to the terms of agreements existing prior to the date of the Current
Balance Sheet; (c) paid any bonus to or increased the rate of fringe benefits or
other compensation payable to its officers, members of its board of directors or
employees, except in the ordinary course of business and consistent with past
practice, or amended any other terms of employment of its officers and members
of its board of directors; (d) sold, leased or transferred any of its material
properties or assets other than in the ordinary course of business consistent
with past practice; (e) made or obligated itself to make capital expenditures
individually in excess of $100,000 other than in the ordinary course of business
consistent with past practice; (f) suffered any theft, damage, destruction or
casualty or loss, not covered by insurance and for which a timely claim was
filed, or any extraordinary loss regardless of insurance coverage or filed
claims, in excess of $250,000 in the aggregate; (g) waived, canceled,
compromised or released any material rights having a value in excess of $250,000
in the aggregate; (h) made or adopted any material change in its accounting
methods, practices or policies (including any material change in any assumption
underlying, or method of calculating, any bad debt, contingency or other
reserve) other than changes required by GAAP or applicable law; (i) terminated,
amended or modified any plan or agreement involving an amount in excess of
$250,000 other than renewals or extensions of expired or expiring contracts in
the ordinary course of business; (j) delayed paying any material accounts
payable which are due and payable except to the extent being contested in good
faith; (k) made or pledged any charitable contribution in excess of $50,000; (l)
entered into any transaction which would reasonably be expected to have a
Company Material Adverse Effect; (m) entered into any currently effective
arrangement providing for severance, termination or change of control benefits
individually in excess of $100,000, or any agreement the benefits of which are
contingent or the terms of which are materially altered upon the occurrence
(either alone or upon the occurrence of additional events) of termination of
employment following a transaction involving the Company of the nature
contemplated by this Agreement; or (n) agreed to do or authorized any of the
foregoing.
5.8 LITIGATION. Neither the Company nor any Subsidiary (a) is subject to
any outstanding injunction, judgment, order, decree, ruling or charge or (b) is
a party or, to the Company's knowledge, threatened to be made a party to any
action, suit, proceeding, hearing or investigation of, in, or before any court
or quasi-judicial or administrative agency of any federal, state, local or
foreign jurisdiction or before any arbitrator which would reasonably be expected
to result in material damages or any material injunctive relief against the
Company or any of its Subsidiaries.
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5.9 NO VIOLATION OF LAW; LICENSES, PERMITS AND REGISTRATIONS. Neither the
Company, any Acquired Subsidiary nor any Spinco Subsidiary is in violation of,
or has been given notice or been charged with any violation of, any law,
statute, order, rule, regulation, ordinance or judgment (other than matters
related to the environment) of any Governmental Authority, except for violations
which would not reasonably be expected to have a Company Material Adverse
Effect. As of the date of this Agreement, to the knowledge of the Company, no
material investigation or review by any Governmental Authority is pending or
threatened involving the Company or the Acquired Subsidiaries. Each of the
Company and each of the Acquired Subsidiaries has all permits, licenses,
approvals and authorizations of, and registrations with and under, all federal,
state, local and foreign laws, and from all applicable Governmental Authorities,
required thereby to carry on its businesses as currently conducted, except where
the failure to have any such permits, licenses, approvals, authorizations or
registrations would not reasonably be expected to have a Company Material
Adverse Effect.
5.10 TAXES.
(a) The Company and its Subsidiaries have timely filed all income Tax
Returns and all other material Tax Returns that each was required to file. Each
such Tax Return has been prepared in compliance with all applicable laws and
regulations, and all such Tax Returns are true and correct in all material
respects. All Taxes due and payable by or with respect to the Company and its
Subsidiaries have been paid or are accrued or reserved on the balance sheet
included in the Company Financial Statements whether asserted or unasserted,
contingent or otherwise. Neither the Company nor any of its Subsidiaries have
any liability for Taxes that is materially in excess of the amount reserved on
its June 30, 2004 unaudited balance sheet, or any more recent balance sheet.
Each of the Company and its Subsidiaries has withheld and paid all Taxes to the
appropriate Governmental Authorities required to have been withheld and paid in
connection with amounts paid or owing to any employee, independent contractor,
creditor, stockholder or other third party. With respect to each taxable period
of the Company and its Subsidiaries: (a) no deficiency or proposed adjustment
has been asserted or assessed by any taxing authority against the Company or its
Subsidiaries, (b) neither the Company nor any of its Subsidiaries has executed
any waiver of any statute of limitations or consented to extend the time in
which any Taxes may be assessed or collected by any taxing authority, (c)
neither the Company nor any of its Subsidiaries has requested or been granted an
extension of the time for filing any Tax Return, (d) no audit or other
examination of any Tax Return is presently in progress nor has the Company been
notified of any request for such an audit or other examination, (e) there is no
action, suit, taxing authority proceeding, or audit or claim for refund now in
progress, or pending or, to the knowledge of the Company, threatened against or
with respect to the Company or any of its Subsidiaries regarding Taxes and (f)
there are no Liens for Taxes (other than for current Taxes not yet due and
payable) upon the assets of the Company or any of its Subsidiaries, and the
Company has no knowledge of any basis for the assertion of any claim relating to
or attributable to Taxes which, if adversely determined, would result in a Lien
upon the assets of the Company or any of its Subsidiaries.
(b) Other than as provided for in the Tax Sharing Agreement (as defined),
neither the Company nor any of its Subsidiaries is obligated by any contract,
agreement or other arrangement to indemnify any other person with respect to
material Taxes. Other than as provided for in the Tax Sharing Agreement (as
defined), neither the Company nor any of its
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Subsidiaries are now or have ever been a party to or bound by any agreement or
arrangement (whether or not written and including, without limitation, any
arrangement required or permitted by law) binding the Company or any of its
Subsidiaries that (i) requires the Company or any of its Subsidiaries to make
any Tax payment to or for the account of any other person, (ii) affords any
other person the benefit of any net operating loss, net capital loss, investment
Tax credit, foreign Tax credit, charitable deduction or any other credit or Tax
attribute which could reduce Taxes (including, without limitation, deductions
and credits related to alternative minimum Taxes) of the Company or any of its
Subsidiaries, or (iii) requires or permits the transfer or assignment of income,
revenues, receipts or gains to the Company or any of its Subsidiaries, from any
other person, in each case other than with respect to each other.
(c) Neither the Company nor any of its Subsidiaries has agreed to or is
required to make any adjustments pursuant to Sections 263A or 481(a) of the Code
or any similar provision of state, local or foreign law by reason of a change in
accounting method initiated by the Company or any of its Subsidiaries or has any
knowledge that the Internal Revenue Service has proposed any such adjustment or
change in accounting method, or has any application pending with any
Governmental Authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company or any of its
Subsidiaries.
(d) Neither the Company nor any of its Subsidiaries is subject to any
private letter ruling of the Internal Revenue Service or comparable ruling of
other Governmental Authorities.
(e) Neither the Company nor any of its Subsidiaries is or has been a
United States real property holding corporation (as defined in Section 897(c)(2)
of the United States Internal Revenue Code of 1986, as amended) during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(f) Neither the Company nor any of its Subsidiaries is or has been a party
to any joint venture, partnership, or other agreement that would be treated as a
partnership for U.S. federal income tax purposes.
(g) Except for the group for which the Company is presently a member, the
Company has never been a member of an affiliated group of corporations, within
the meaning of Section 1504 of the Code, other than as a common parent
corporation, and none of the Company's Subsidiaries has been a member of an
affiliated group of corporations, within the meaning of Section 1504 of the Code
(or any similar provision of state, local or foreign law), except where the
Company was the common parent corporation of such affiliated group.
(h) Neither the Company nor any of its Subsidiaries has any liability for
the Taxes of any person other than any of the Company or any of its
Subsidiaries, under Regulation Section 1.1502-6 (or any similar provision of
state, local or foreign law), as a transferee or successor, by contract or
otherwise.
(i) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement covering any employee or former employee of the Company or
any Subsidiary that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to Section 280G or
162 of the Code.
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(j) The Company and all of its Subsidiaries are in full compliance with
all terms and conditions of any Tax exemptions, Tax holiday or other Tax
reduction agreement or order of a territorial or non-U.S. government and the
consummation of the transactions contemplated by this Agreement will not have
any adverse effect on the continued validity and effectiveness of any such Tax
exemptions, Tax holiday or other Tax reduction agreement or order.
(k) Each of the Company and its Subsidiaries is and has at all times been
resident for Tax purposes in their respective place of incorporation or
formation and is not and has not at any time been treated as resident in any
other jurisdiction for any Tax purpose (including any double taxation
arrangement).
(l) Neither the Company nor any of its Subsidiaries has engaged in a
transaction that is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service has determined to be a tax
avoidance transaction and identified by notice, regulation, or other form of
published guidance as a listed transaction, as set forth in Treas. Reg. Section
1.6011-4(b)(2).
5.11 LABOR AND EMPLOYMENT MATTERS. Neither the Company nor any of its
Subsidiaries is now, or has been in the past five years, or is in current
negotiations to be, a party to or bound by any collective bargaining agreement
or any other agreement with a labor union; and, to the knowledge of the Company,
there has been no effort by any labor union during the 24 months prior to the
date hereof to organize any employees of the Company or any of its Subsidiaries
into one or more collective bargaining units. There is no pending or, to the
knowledge of the Company, threatened labor dispute, strike or work stoppage.
None of the Company, its Subsidiaries or, to the knowledge of the Company, any
agent, representative or employee thereof has, within the last 24 months,
committed any unfair labor practice as defined in the National Labor Relations
Act, as amended, and there is no pending or, to the knowledge of the Company,
threatened charge or complaint against the Company or any of its Subsidiaries by
or with the National Labor Relations Board or any representative thereof. There
has been no strike, walkout or work stoppage involving the employees of the
Company or any of its Subsidiaries during the 24 months prior to the date
hereof. There are no actions, suits, claims, labor disputes or grievances
pending, or, to the knowledge of the Company, threatened relating to any labor,
safety or discrimination matters involving any employee, including, without
limitation, charges of unfair labor practices or discrimination complaints,
which, if adversely determined, would, individually or in the aggregate, result
in a Company Material Adverse Effect. Each of the Company and its Subsidiaries
(i) has complied in all material respects with applicable laws, rules and
regulations relating to employment, employment practices, wages and hours, civil
rights and equal employment opportunities, including but not limited to, the
Civil Rights Act of 1964, the Fair Labor Standards Act, and the Americans with
Disabilities Act, as amended, (ii) has withheld all amounts required by law or
agreement to be withheld from the wages, salaries or other payments to its
employees, except as would not result in a material liability to the Company,
(iii) is not liable for any arrears of wages or other taxes or any penalty for
failure to comply with any of the foregoing, except as would not result in a
material liability to the Company, (iv) has not incurred any material liability
or material obligations under the Worker Adjustment and Retraining Notification
Act or any similar state law which remains unsatisfied and (v) is not liable for
any payment to any trust or other fund or to any Governmental Authority with
respect to employment insurance benefits or other benefits or
-42-
obligations for such Persons (other than routine payments to be made in the
normal course of business and consistent with past practices). There are no
pending, or to the Company's knowledge, threatened or reasonably anticipated
claims or actions against the Company under any worker's compensation policy or
long-term disability policy that would result in a material liability to the
Company. Neither the Company nor any ERISA Affiliate has direct or indirect
liability with respect to any misclassification of any person as an independent
contractor rather than as an employee, or with respect to any employee leased
from another employer, except as would not result in material liability to the
Company.
5.12 EMPLOYEE BENEFIT PLANS.
(a) Section 5.12 of the Company Disclosure Schedule contains an accurate
and complete list of each material Employee Benefit Plan and each material
Employee Agreement. Neither the Company nor any ERISA Affiliate has any plan or
commitment to establish any new Employee Benefit Plan or Employee Agreement, to
modify any Employee Benefit Plan or Employee Agreement (except to the extent
required by law or to conform any such Employee Benefit Plan or Employee
Agreement to the requirements of any applicable law), or to adopt or enter into
any Employee Benefit Plan or Employee Agreement.
(b) To the extent that each item pertains to the Company and its ERISA
Affiliates Subsidiaries, the Company has made available to Source correct and
complete copies of: (i) all documents embodying each material Employee Benefit
Plan and each material Employee Agreement including (without limitation) all
material amendments thereto and all related trust documents, administrative
service agreements, group annuity contracts, group insurance contracts, and
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Employee Benefit Plan; (ii) the most recent annual actuarial
valuations, if any, prepared for each Employee Benefit Plan; (iii) the three (3)
most recent annual reports (Form Series 5500 and all schedules and financial
statements attached thereto), if any, required under ERISA or the Code in
connection with each Employee Benefit Plan; (iv) if the Employee Benefit Plan is
funded, the most recent annual and periodic accounting of Employee Benefit Plan
assets; (v) the most recent summary plan description together with the
summary(ies) of material modifications thereto, if any, required under ERISA
with respect to each Employee Benefit Plan; (vi) all IRS determination, opinion,
notification and advisory letters; (vii) all material communications to any
Employee or Employees relating to any Employee Benefit Plan and any proposed
Employee Benefit Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company; (viii) all material correspondence to or from any governmental
agency relating to any Employee Benefit Plan (other than routine correspondence
that would not reasonably be expected to result in liability to the Company);
(ix) all standard COBRA forms and related notices (or such forms and notices as
required under comparable law); and (x) the three (3) most recent plan years
discrimination tests for each Employee Benefit Plan.
(c) The Company and its ERISA Affiliates have performed in all material
respects all obligations required to be performed by them under each Employee
Benefit Plan, and each Employee Benefit Plan has been established and maintained
in all material respects in accordance with its terms and in compliance with all
applicable laws, statutes, orders, rules and
-43-
regulations, including but not limited to ERISA or the Code. The Company does
not now, nor has it ever established or maintained any International Employee
Plan. There are no actions, suits or claims pending, or, to the knowledge of the
Company or any ERISA Affiliates, threatened (other than routine claims for
benefits) against any Employee Benefit Plan or against the assets of any
Employee Benefit Plan. Each Employee Benefit Plan (other than any stock option
plan) can be amended, terminated or otherwise discontinued after the Effective
Time in accordance with its terms, without material liability to the Company or
any of its ERISA Affiliates (other than ordinary administration expenses). There
are no audits, inquiries or proceedings pending or, to the knowledge of the
Company or any ERISA Affiliates, threatened by the IRS or DOL, or any other
governmental entity with respect to any Employee Benefit Plan. The Company and
each ERISA Affiliate have timely made all contributions and other payments
required by and due under the terms of each Employee Benefit Plan, except as
would not have a Company Material Adverse Effect. All contributions, reserves or
premium payments required to be made or accrued as of the date hereof to the
Employee Benefit Plans have been, in all material respects, timely made or
accrued. No "prohibited transaction," within the meaning of Section 4975 of the
Code or Sections 406 and 407 of ERISA, and not otherwise exempt under Section
408 of ERISA, has occurred with respect to any Employee Benefit Plan.
(d) Each of the Company's Employee Benefit Plans intended to be qualified
under Section 401(a) of the Code and each trust intended to qualify under
Section 501(a) of the Code has, since January 1, 2001, obtained a favorable
determination, notification, and advisory and/or opinion letter, as applicable,
as to its qualified status from the IRS. For each Employee Benefit Plan that is
intended to be qualified under Section 401(a) of the Code there has been no
event, condition or circumstance that has adversely affected or, to the
knowledge of the Company, is reasonably likely to adversely affect such
qualified status.
(e) Neither the Company nor any ERISA Affiliate (including any person or
entity that was an ERISA Affiliate in the past) has ever maintained,
established, sponsored, participated in, or contributed to, any (i) Pension Plan
which is subject to Title IV of ERISA or Section 412 of the Code, (ii)
Multiemployer Plan or (iii) any plan described in Section 413 of the Code or a
"multiple employer plan" as defined in ERISA or the Code. Neither the Company
nor any ERISA Affiliate is subject to any penalty or tax with respect to any
Employee Benefit Plan under Section 502(i) of ERISA or Sections 4975 through
4980 of the Code.
(f) No Employee Benefit Plan or Employee Agreement provides, or reflects
or represents any liability to provide post-termination or retiree welfare
benefits to any person for any reason, except as may be required by COBRA or
other applicable statute, and neither the Company nor any ERISA Affiliate has
incurred any commitment or obligation to provide any Person with
post-termination or retiree welfare benefits, except to the extent required by
statute.
(g) Neither the Company nor any ERISA Affiliate has, prior to the
Effective Time and in any material respect, violated any of the health care
continuation requirements of COBRA, the requirements of the Family Medical Leave
Act of 1993, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and Cancer
Rights Act of 1998, the requirements of the Newborns' and Mothers' Health
Protection Act of 1996, or any amendment to each such act, or any similar
provisions of state law applicable to its Employees. No Employee Benefit Plan
provides health benefits that are not
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fully insured through an insurance contract and neither the Company nor any
ERISA Affiliate maintains a "funded welfare plan" within the meaning of Section
419 of the Code.
(h) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Employee
Benefit Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(i) No payment or benefit which has been, will be or may be made by the
Company or its ERISA Affiliates in connection with this transaction (either
alone or upon the occurrence of additional or subsequent events) with respect to
any Employee will be, or could reasonably be expected to be, characterized as a
Section 280G Payments. There is no contract, agreement, plan or arrangement to
which the Company or any ERISA Affiliates is a party or by which it is bound to
compensate any Employee for excise taxes paid pursuant to Section 4999 of the
Code as a result of this transaction (either alone or upon the occurrence of
additional or subsequent events).
5.13 COMPLIANCE WITH ENVIRONMENTAL LAWS.
(a) The Company is and, to the Company's knowledge has at all times been,
in compliance with all Environmental Laws and Permits governing its business,
operations, properties and assets except failures to be in compliance that would
not cause a Company Material Adverse Effect.
(b) There are no currently outstanding Notices or Proceedings pending or,
to the knowledge of the Company, threatened against or involving the Company, by
any Governmental Authority or third party with respect to any Environmental Laws
or Permits.
(c) The Company has not Discharged or disposed of, nor has it allowed or
arranged for any third party to Discharge or dispose of, Hazardous Substances
to, at or upon: (i) any real property currently or previously owned, leased or
operated by the Company or (ii) any site which, pursuant to any Environmental
Laws, has been placed or has been proposed to be placed on the Superfund
National Priorities List or its state equivalent by a Governmental Authority and
for which the Company has received: (x) a request for information or notice that
it may be a "potentially responsible party" at the site from a Governmental
Authority, or (y) notice of a contribution action or threatened contribution
action against it from a third party to recover response costs at the site.
(d) The Company does not use, nor has it used, any Aboveground Storage
Tanks or Underground Storage Tanks, and there are not now, nor to the Company's
knowledge have there ever been, any Underground Storage Tanks beneath, or any
Aboveground Storage Tanks on, any real property currently or previously owned,
leased or operated by the Company.
(e) Section 5.13(e) of the Company Disclosure Schedule identifies (i) all
environmental audits and assessments from the past three years undertaken by the
Company or its agents or, to the knowledge of the Company, undertaken by any
Governmental Authority, relating to or affecting the Company or any real
property currently or previously owned, leased
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or operated by the Company; and (ii) the results of any ground, water, soil, air
or asbestos monitoring undertaken by the Company or its agents or, to the
knowledge of the Company, undertaken by any Governmental Authority, relating to
or affecting the Company or any real property currently or previously owned,
leased or operated by the Company which indicate the presence of Hazardous
Substances at levels requiring a notice or report to be made to a Governmental
Authority or in violation of any applicable Environmental Laws. The Company has
provided to Source copies of all material written communications between the
Company and any Governmental Authority arising under or related to Environmental
Laws.
5.14 REAL ESTATE.
(a) Section 5.14(a) of the Company Disclosure Schedule lists all real
property owned by the Company and the Acquired Subsidiaries (the "OWNED REAL
PROPERTY"). The Company, or the Acquired Subsidiaries as the case may be, has
good, marketable, and insurable title to the Owned Real Property, free and clear
of any Lien (excluding any mortgage or deed of trust that has been previously
disclosed to Source and reflected on the financial statements of Company and the
Acquired Subsidiaries) that would materially and adversely interfere with its
present use.
(b) With respect to the Owned Real Property: (i) there are no material
leases, subleases, licenses, concessions or other material agreements or
arrangements, written or oral, granting to any party or parties the right of use
or occupancy of any material portion of the parcel of such Owned Real Property
except in favor of the Company and the Acquired Subsidiaries; (ii) there are no
outstanding options or rights of first refusal to purchase such Property, or any
material portion thereof or material interest therein; and (iii) there are no
parties (other than the Company and the Acquired Subsidiaries) in possession of
a material portion of such Owned Real Property.
(c) The leases, subleases and similar agreements and all amendments
thereto under which the Company or any of the Acquired Subsidiaries lease real
property (each, a "COMPANY REAL PROPERTY LEASE") are in full force and effect,
and have not been amended (except as disclosed to Source as set forth above) and
neither the Company nor, to the knowledge of the Company, any other party
thereto is in material default or material breach thereunder. To the Company's
knowledge, no event has occurred which, with the passage of time or the giving
of notice or both, would cause a material breach of or material default by the
Company under any of such Company Real Property Leases and, to Company's
knowledge, there is no material breach by any other party to the Company Real
Property Leases. With respect to each piece of real property leased by the
Company and the Acquired Subsidiaries (the "COMPANY LEASED PREMISES" and
together with the Company Owned Property, the "COMPANY REAL PROPERTY"), the
Company, to Company's knowledge, has valid and enforceable leasehold interests
therein. The Company, or the Acquired Subsidiaries as the case may be, has good,
marketable, and insurable leasehold interests to the Company Leased Premises,
free and clear of any Lien (excluding any mortgage or deed of trust that has
been previously disclosed to Source and reflected on the financial statements of
Company and the Acquired Subsidiaries) that would materially and adversely
interfere with its present use.
(d) With respect to the Company Real Property, to Company's knowledge: (i)
such Company Real Property is in good condition and repair, normal wear and tear
excepted, and (ii)
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the Company has not received notice of (A) any condemnation proceeding with
respect to any portion of such Company Real Property or any access thereto and,
to the knowledge of the Company, no such proceeding has been commenced by any
Governmental Authority or (B) any special assessment which may affect such
Company Real Property and, to the knowledge of the Company, no such special
assessment has been commenced by any Governmental Authority.
5.15 GOOD TITLE TO AND CONDITION OF ASSETS.
(a) Each of the Company and the Acquired Subsidiaries has good and valid
title to all of its material Assets (as such term is hereinafter defined), free
and clear of any Liens except for (a) Liens reflected in the Current Balance
Sheet, (b) Liens for current taxes, assessments or governmental charges or
levies on property not yet due and delinquent, (c) zoning, building and land use
laws imposed by any Governmental Entity, (d) mechanics', carriers', workmen's,
repairmen's, statutory or common law liens being contested in good faith, and
(e) other title defects, encumbrances, covenants, rights of way, building or use
restrictions, easements, exceptions, variances, reservations and other matters
or limitations of any kind, if any, which do not and would not reasonably be
expected to have a Company Material Adverse Effect. The Assets and the Leased
Premises constitute, in the aggregate, all of the assets and properties
necessary for the conduct of the business of the Company and each of the
Acquired Subsidiaries (other than the Spinco Business) in the manner in which
and to the extent to which such business is currently being conducted (assuming
consummation of the Distribution and entry into the related licensing
arrangements). For purposes of this Agreement, the term "ASSETS" means all of
the properties and assets of the Company and the Acquired Subsidiaries which are
reflected on the Current Balance Sheet or acquired after the date of the Current
Balance Sheet (except assets or properties sold or otherwise disposed of in the
ordinary course of business since such date or as otherwise disclosed or
permitted by this Agreement including without limitation, the Distribution),
other than the Leased Premises, whether personal or mixed, tangible or
intangible, and wherever located.
(b) The Company Fixed Assets (as such term is hereinafter defined)
currently in use or necessary for the business and operations of the Company and
each of the Acquired Subsidiaries (other than the Spinco Business) are in good
operating condition, normal wear and tear excepted. For purposes of this
Agreement, the term "COMPANY FIXED ASSETS" means all vehicles, machinery,
equipment, tools, supplies, leasehold improvements, furniture and fixtures used,
leased or owned by the Company or the Acquired Subsidiaries (except assets sold
or otherwise disposed of in the ordinary course of business or as otherwise
disclosed or permitted by this Agreement including without limitation, the
Distribution).
5.16 INSURANCE. Each of the insurance policies maintained by the Company
and the Acquired Subsidiaries (collectively, the "COMPANY INSURANCE POLICIES")
are in full force and effect, and all premiums due thereon have been paid when
due, and no notice of cancellation has been received, and there is no existing
default or event which, with the giving of notice or lapse of time or both,
would constitute a default thereunder. As of the Closing, each of the Company
Insurance Policies will be in full force and effect. None of the Company
Insurance Policies will lapse or terminate as a result of the transactions
contemplated by this Agreement. Section 5.16 of the Company Disclosure Schedule
sets forth a description of any pending claim under any
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Company Insurance Policy, or any insurance policy previously in effect for an
amount in excess of $100,000 that relates to loss or damage to the properties,
assets or businesses of Source.
5.17 RELATIONSHIPS WITH CUSTOMERS AND SUPPLIERS; AFFILIATED TRANSACTIONS.
No current customer of the Company or any of the Acquired Subsidiaries that was
responsible for five percent or more of the Company's revenue during the
Company's last full fiscal year (assuming consummation of the Distribution) has,
to the knowledge of the Company, threatened to terminate its business
relationship with, or materially decrease purchasing products or services from,
the Company or any such Acquired Subsidiary for any reason. No current supplier
or vendor of the Company or any of the Acquired Subsidiaries that was
responsible for five percent or more of the Company's purchases during the
Company's last full fiscal year (assuming consummation of the Distribution) has,
to the knowledge of the Company, threatened to terminate its business
relationship with, or materially decrease sales of products or services to, the
Company or any such Acquired Subsidiary for any reason. Neither the Company nor
any of the Acquired Subsidiaries has any direct or indirect interest in any
customer, supplier or competitor of the Company or such Acquired Subsidiary, or
in any Person from whom or to whom the Company or such Acquired Subsidiary
leases real or personal property. No officer, director or stockholder of the
Company or any of the Acquired Subsidiaries, nor any Person related by blood or
marriage to any such officer, director or stockholder, nor any entity in which
any such officer, director or stockholder owns any beneficial interest, is a
party to any agreement or transaction with the Company or any such Acquired
Subsidiary or has any interest in any property used by the Company or any such
Acquired Subsidiary.
5.18 NAMES; PRIOR ACQUISITIONS. All names under which the Company and each
of its Subsidiaries does business, as of the date hereof, are specified in
Section 5.18 of the Company Disclosure Schedule. Neither the Company nor any of
its Subsidiaries has changed its name or used any assumed or fictitious name, or
been the surviving entity in a merger, acquired any business or changed its
principal place of business or chief executive office, within the past three
years.
5.19 MATERIAL CONTRACTS.
(a) The following agreements, contracts and commitments to which the
Company or any of the Acquired Subsidiaries is a party or is bound are referred
to herein, collectively, as the "COMPANY MATERIAL CONTRACTS":
(i) any employment, consulting, severance or change of control
agreement, contract or commitment with any executive officer or member of the
Company Board, other than those that are terminable by the Company or any of the
Acquired Subsidiaries on no more than thirty (30) days' notice without liability
or financial obligation to the Company;
(ii) any agreement or plan, including (without limitation) any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence (alone or in connection with additional or
subsequent events) of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement;
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(iii) any agreement of indemnification or any guaranty other than,
in either case, as entered into in the ordinary course of business;
(iv) any agreement, contract or commitment containing any covenant
limiting in any respect the right of the Company or any of the Acquired
Subsidiaries to engage in any line of business or to compete with any person or
granting any exclusive distribution rights;
(v) any agreement, contract or commitment currently in force
relating to the disposition or acquisition by the Company or any of the Acquired
Subsidiaries after the date of this Agreement of assets in excess of $250,000
not in the ordinary course of business or pursuant to which the Company or any
of the Acquired Subsidiaries has any material ownership interest in any
corporation, partnership, limited liability company, joint venture or other
business enterprise other than the Acquired Subsidiaries;
(vi) any dealer, distributor, joint marketing or development
agreement currently in force under which the Company or any of the Acquired
Subsidiaries have continuing material obligations to jointly market any product,
technology or service and which may not be canceled without penalty upon notice
of thirty (30) days or less, or any material agreement pursuant to which the
Company or any of the Acquired Subsidiaries have continuing material obligations
to jointly develop any Intellectual Property that will not be owned, in whole or
in part, by the Company or any of the Acquired Subsidiaries and which may not be
canceled without penalty upon notice of thirty (30) days or less;
(vii) any material agreement, contract or commitment currently in
force to license any third party to manufacture or reproduce any product or
service of the Company or any of the Acquired Subsidiaries or any material
agreement, contract or commitment currently in force to sell or distribute any
products or services of the Company or any of the Acquired Subsidiaries,
including any material agreement, contract or commitment related to any
Intellectual Property owned by the Company or any of the Acquired Subsidiaries,
except agreements with distributors or sales representative in the ordinary
course of business cancelable without penalty upon notice of thirty (30) days or
less and substantially in the form previously provided to Source;
(viii) any mortgage, indenture, guarantee, loan or credit agreement,
security agreement or other agreement or instrument relating to the borrowing of
money or extension of credit, other than accounts receivable and payable in the
ordinary course of business;
(ix) any material settlement agreement entered into during the
five-year period preceding the date hereof or that was not fully performed prior
to December 31, 2003; or
(x) any other agreement, contract or commitment (i) in connection
with or pursuant to which the Company or any of the Acquired Subsidiaries will
spend or receive (or are expected to spend or receive), in the aggregate, more
than $250,000 during the current calendar year or during the next calendar year,
(ii) the termination, expiration or loss of the other contracting party's
performance of which would reasonably be expected to have a Company Material
Adverse Effect or (iii) that is or would be deemed to be a material contract (as
defined in Item 601(b)(10) of Regulation S-K of the SEC rules).
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(b) Section 5.19 of the Company Disclosure Schedule contains a true and
complete list of the Company Material Contracts. The Company has provided or
made available a complete and correct copy of each Material Contract to Source.
Neither the Company nor, to the Company's knowledge, any other Person thereto
has, materially violated or breached, or declared or committed any material
default under, any Company Material Contract. No event has occurred, and no
circumstance or condition exists, that would (with or without notice or lapse of
time) (A) result in a violation or breach of any of the material provisions of
any Company Material Contract by the Company, (B) give to the Company, nor to
the knowledge of the Company, any other Person thereto the right to accelerate
the maturity of any material matters in the performance of any Company Material
Contract, or (C) give to the Company nor, to the knowledge of the Company, any
other Person thereto the right to cancel, terminate or modify any Company
Material Contract. The Company and/or the Acquired Subsidiaries have not
received any written notice or other written communication regarding any actual,
alleged, possible or potential violation or breach of, default under,
termination of, or any other material change to, any Company Material Contract.
The Company and/or the Acquired Subsidiaries have not waived any material right
under any Company Material Contract.
5.20 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement
(noncompete or otherwise), commitment, judgment, injunction, order or decree to
which the Company or any of Acquired Subsidiaries (other than the Spinco
Business) is a party or otherwise binding upon the Company which has or
reasonably could be expected to have the effect of prohibiting or impairing any
business practice of the Company, any acquisition of property (tangible or
intangible) by the Company or the conduct of business by the Company.
5.21 INTELLECTUAL PROPERTY.
(a) For purposes of this Section 5.21, the following definitions shall
apply:
(i) "COMPANY INTELLECTUAL PROPERTY" means the Intellectual Property
owned by, developed by or filed in the name of, the Company or any Acquired
Subsidiary thereof, whether U.S. or foreign;
(ii) "INTELLECTUAL PROPERTY CONTRACTS" means all contracts,
licenses, sublicenses and agreements: (A) with respect to any of the Company
Intellectual Property licensed or offered by the Company or any of the Acquired
Subsidiaries to any third party or (B) pursuant to which a third party has
licensed or transferred any Intellectual Property to the Company or any of the
Acquired Subsidiaries (other than contracts, licenses or agreements relating to
generally massed produced and commercially available software); and
(iii) "REGISTERED COMPANY INTELLECTUAL PROPERTY" means (A) patents,
patent applications (including provisional applications); (B) registered
trademarks, applications to register trademarks, intent to use applications or
other registrations related to trademarks; (C) registered copyrights and
applications for copyright registration; (D) internet domain name registrations;
and (E) any other Company Intellectual Property that is owned by or exclusively
licensed by the Company that is the subject of an application, certificate or
registration issued by or recorded by any state, government or other public
legal authority.
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(b) All of the Intellectual Property Contracts are in full force and
effect except where the failure would not have a Company Material Adverse
Effect. The Company and the Acquired Subsidiaries are in material compliance
with, and have not breached any term of, any of the Intellectual Property
Contracts and, to the knowledge of the Company, all other parties to the
Intellectual Property Contracts are in compliance with, and have not breached
any terms of such Intellectual Property Contracts.
(c) The Company has all right, title and interest to each item of Company
Intellectual Property purported to be owned by it, including all Registered
Company Intellectual Property, free and clear of any Liens. The Company
Intellectual Property constitutes all of the intellectual property necessary to
conduct the business of the Company and the Acquired Subsidiaries as currently
contemplated to be conducted by the Company (assuming the consummation of the
Distribution).
(d) Except pursuant to end-user licenses entered into by the Company in
the ordinary course of business, (i) the Company has the lawful and exclusive
right to use all of the Company Intellectual Property and (ii) no Person (other
than the Company and the Acquired Subsidiaries) has any right to use any of the
Company Intellectual Property nor has the Company granted to any Person or
authorized any Person to retain any rights in the Company Intellectual Property.
(e) Neither the use (including, without limitation, any transmission,
reproduction, use, display or modification (including, framing and linking web
site content)) of the Company Intellectual Property by the Company, nor the
operation of the Company's business as currently conducted has, does or will
infringe upon, misappropriate or violate the proprietary or other rights of any
other Person. To the Company's knowledge, no Person is infringing upon,
misappropriating or violating any of the Company Intellectual Property.
(f) No Company Intellectual Property, or product of the Company using or
embodying the Company Intellectual Property, is subject to any proceedings or
outstanding decree, order, judgment or stipulation restricting in any manner the
use or licensing thereof by the Company, or which may affect the validity or
enforceability of any Intellectual Property. There is no claim, suit, action or
proceeding pending or, to the knowledge of the Company, threatened against the
Company or any of the Acquired Subsidiaries (i) alleging any such conflict,
infringement or violation with any other Person's proprietary rights or (ii)
challenging such the Company's ownership or use of, or the validity or
enforceability of any Company Intellectual Property owned or used by the
Company.
(g) To the Company's knowledge, (i) no other Person asserts ownership
rights in any of the Intellectual Property owned by the Company or any of the
Acquired Subsidiaries, and (ii) no other Person claims that the use by the
Company or any of the Acquired Subsidiaries of any Intellectual Property
infringes any right of any third party.
(h) Each of the Company and the Acquired Subsidiaries has taken reasonable
steps to protect its rights in its confidential information and trade secrets or
any trade secrets or confidential information of third parties provided thereto.
Without limiting the generality of the foregoing, each of the Company and the
Acquired Subsidiaries has and enforces a policy requiring each employee and
contractor with access to Intellectual Property of the Company or
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such Acquired Subsidiaries to execute a proprietary information/confidentiality
agreement substantially in the Company's standard form as then in effect and all
current and former employees and contractors of the Company and each such
Acquired Subsidiary have executed such an agreement. To the Company's knowledge,
(i) none of the Company Intellectual Property has been used, disclosed or
appropriated to the detriment of the Company for the benefit of any Person other
than the Company or the Acquired Subsidiaries, and (ii) no employee, independent
contractor or agent of the Company has misappropriated any trade secrets or
other confidential information of any other Person in the course of the
performance of his or her duties as an employee, independent contractor or agent
of the Company.
5.22 RECORDS OF THE COMPANY. The minute books for the Company and the
Acquired Subsidiaries made available to Source for review were correct and
complete in all material respects as of the date of such review, no further
entries have been made through the date of this Agreement, such minute books
contain the true signatures of the persons purporting to have signed them, and
such minute books contain an accurate record of all material corporate actions
of the stockholders and directors, and any committees thereof, of the Company or
the Acquired Subsidiary, as the case may be, taken by written consent or at a
meeting since incorporation of the Company or the Acquired Subsidiary, as the
case may be. All material corporate actions taken by the Company have been duly
authorized or ratified. All accounts, books, ledgers and official and other
records of the Company and the Acquired Subsidiaries have been fully, properly
and accurately kept and completed in all material respects, and there are no
material inaccuracies or discrepancies of any kind contained therein. The stock
ledgers of the Company and the Acquired Subsidiaries, as previously made
available to Source, contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of the Company or the
Acquired Subsidiary, as the case may be.
5.23 BROKERS AND FINDERS. (a) The Company has not entered into any
contract, arrangement or understanding with any person or firm which may result
in the obligation of the Company to pay any finder's fees, brokerage or agent
commissions or other similar payments in connection with the transactions
contemplated hereby and (b) there is no claim for payment by the Company of any
investment banking fees, finder's fees, brokerage or agent commissions or other
similar payments in connection with the negotiations leading to this Agreement
or the consummation of the transactions contemplated hereby.
5.24 SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW. The Board of
Directors of the Company has taken all actions so that (a) the restrictions
contained in Section 203 of the DGCL applicable to a "business combination" (as
defined in such Section 203) will not apply to the execution, delivery or
performance of this Agreement or the Company Voting Agreement or to the
consummation of the Merger or the other transactions contemplated by this
Agreement. No other "control share acquisition," "fair price" or other
anti-takeover laws or regulations enacted under the laws of the State of
Delaware or the federal laws of the United States apply to this Agreement, the
Voting Agreement or the Merger.
5.25 ACCURACY OF INFORMATION FURNISHED BY COMPANY. No statement made or
information provided by the Company in this Agreement, any other Transaction
Document or the Company Disclosure Schedule, contains or shall contain any
untrue statement of a material fact or omits or shall omit any material fact
necessary to make the information contained therein, in
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light of the circumstances in which such statements were made, not misleading.
The Company has made available to or provided Source with true, accurate and
complete copies of all documents listed or described in the Company Disclosure
Schedule.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
6.1 CONDUCT OF THE COMPANY'S BUSINESS PENDING THE MERGER. Except as
expressly provided herein (including the Distribution in accordance with Section
3.7 hereof) or as consented to in advance in writing by Source (such consent not
to be unreasonably withheld or delayed), from and after the date of this
Agreement until the earlier of the termination of this Agreement in accordance
with its terms or the Effective Time, the Company shall, and shall cause each of
the Acquired Subsidiaries to, (i) act and carry on its business in the ordinary
course in substantially the same manner as previously conducted, pay its debts
and Taxes and perform its other obligations when due (subject to good faith
disputes over such debts, Taxes or obligations), (ii) comply in all material
respects with applicable laws, rules and regulations, and (iii) use commercially
reasonable efforts, consistent with past practices, to maintain and preserve its
and each of the Acquired Subsidiaries' business organization, assets and
properties, keep available the services of its present officers and key
employees and preserve its business relationships with customers, strategic
partners, suppliers, distributors and others having business dealings with it.
Without limiting the generality of the foregoing, from and after the date of
this Agreement until the earlier of the termination of this Agreement in
accordance with its terms or the Effective Time, except as expressly provided by
this Agreement (including the Distribution in accordance with Section 3.7 and
Appendix A hereof) or by Section 6.1 of the Company Disclosure Schedule, the
Company shall not, and shall not permit any of the Acquired Subsidiaries to,
directly or indirectly, do any of the following without the prior written
consent of Source not to be unreasonably withheld or delayed:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, securities or other property) in
respect of, any of its capital stock (other than dividends and
distributions by a direct or indirect wholly owned subsidiary of the
Company to its parent; provided that such parent is the Company or an
Acquired Subsidiary and other than dividends on the Preferred Stock
declared or paid in shares of Preferred Stock as provided in the Company's
Certificate of Incorporation, as amended and in effect on the date
hereof); (ii) 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 any of its capital stock or any of its
other securities; or (iii) purchase, redeem or otherwise acquire any
shares of its capital stock or any other of its securities or any rights,
warrants or options to acquire any such shares or other securities
(except, in the case of this clause (iii), for the acquisition in
compliance with any applicable laws of Company Common Stock from former
employees, directors and consultants in accordance with agreements
providing for the repurchase of shares at their original issuance price in
connection with any termination of services to the Company);
(b) issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any shares of its capital stock, any other voting securities or
any securities convertible into or
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exchangeable for, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible or exchangeable securities (other
than (i) the issuance of Company Common Stock upon the exercise of Company
Stock Options outstanding on the date of this Agreement in accordance with
their present terms, (ii) the conversion of Company Preferred Stock to
Company Common Stock in accordance with the Company's Certificate of
Incorporation, as amended and in effect on the date hereof and (iii) the
grant of options to purchase Company Common Stock not to exceed 300,000
shares in the aggregate; provided that all options granted shall have an
exercise price equal to the fair market value thereof (which in no event
shall be less than $2.60 per share) on the date of grant and shall
otherwise be upon the Company's customary terms, and provided further that
no options may be granted after the delivery by the Company of the
Capitalization Certificate pursuant to Section 7.17;
(c) amend its certificate of incorporation, by-laws or other
comparable charter or organizational documents;
(d) acquire (i) by merging or consolidating with, or by purchasing
all or a substantial portion of the assets or any stock of, or by any
other manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof or (ii) any assets that are material, in the aggregate,
to the Company and the Acquired Subsidiaries, taken as a whole;
(e) whether or not in the ordinary course of business, sell, lease,
license, encumber, dispose of or otherwise transfer any assets material to
the Company and the Acquired Subsidiaries, taken as a whole (including any
material accounts, leases, contracts or intellectual property or any
material assets or the stock of any of the Acquired Subsidiaries, but
excluding the sale of inventory in the ordinary course of business);
(f) enter into any agreement or arrangement that materially limits
or otherwise materially restricts the Company or any Acquired Subsidiary
or any of their respective affiliates or any successor thereto from
engaging or competing in any line of business or in any location;
(g) except for a confidentiality agreement as permitted by Section
7.2, enter into an agreement with respect to any merger, consolidation,
liquidation or business combination, or any acquisition or disposition of
all or substantially all of the assets or securities of the Company or any
of the Acquired Subsidiaries;
(h) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, (ii) issue, sell or amend any debt
securities or warrants or other rights to acquire any debt securities of
the Company or any of the Acquired Subsidiaries, guarantee any debt
securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person
or enter into any arrangement having the economic effect of any of the
foregoing, or (iii) make any loans, advances (other than routine advances
to employees of the Company or any Acquired Subsidiary in the ordinary
course of business) or capital contributions to, or
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investment in, any other person, other than the Company or any of the
Acquired Subsidiaries; except in the case of (i), draw-downs in the
ordinary course of business under revolving credit facilities in existence
on the date hereof;
(i) make any capital expenditures or other expenditures with respect
to property, plant or equipment in excess of $11.5 million in the
aggregate for the Company and its Subsidiaries, taken as a whole, of which
no more than $3 million in the aggregate may be used for the Spinco
Business;
(j) make any changes in accounting methods, principles or practices
in effect at December 31, 2003, except to the extent required by a change
in GAAP, as concurred in by its independent public auditors, or, except as
so required, change any assumption underlying, or method of calculating,
any bad debt, contingency or other reserve;
(k) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which the Company or any
of the Acquired Subsidiaries is party, or knowingly waive, release or
assign any material rights or claims (including any write-off or other
compromise of any accounts receivable of the Company of any of the
Acquired Subsidiaries);
(l) except in the ordinary course of business, (i) enter into any
material contract or agreement or (ii) license any material intellectual
property rights to or from any third party;
(m) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof, (i) take any action
with respect to, adopt, enter into, terminate or amend any Employee
Agreement for the benefit or welfare of any current or former director,
officer, employee or consultant or any collective bargaining agreement,
(ii) increase in any material respect the compensation or fringe benefits
of, or pay any bonus to, any director, officer, employee or consultant
(whether in cash, stock, equity securities, property or otherwise), (iii)
waive any stock repurchase rights, accelerate, amend or change the period
of exercisability of options or restricted stock or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans, (iv) pay any material benefit not provided for as of the date
of this Agreement under any Employee Benefit Plan or Employee Agreement or
(v) take any action other than in the ordinary course of business to fund
or in any other way secure the payment of compensation or benefits under
any Employee Benefit Plan or Employee Agreement;
(n) make or rescind any material Tax election, settle or compromise
any material Tax liability, amend any material Tax return, adopt or change
any material accounting method in respect of Taxes, or consent to any
extension or waiver of the applicable statute of limitations in respect of
Taxes;
(o) initiate, compromise, pay, discharge or settle any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or
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otherwise), litigation or arbitration proceeding for an amount in the
aggregate that exceeds $100,000, exclusive of any amounts covered by
Company insurance policies;
(p) fail to maintain insurance at levels substantially comparable to
levels existing as of the date of this Agreement;
(q) hire any employee who would have an annual base salary in excess
of $200,000; or
(r) authorize any of, or commit or agree, in writing or otherwise,
to take any of, the foregoing actions.
6.2 CONDUCT OF SOURCE'S BUSINESS PENDING THE MERGER. Except as expressly
provided herein or as consented to in advance in writing by the Company (such
consent not to be unreasonably withheld or delayed), from and after the date of
this Agreement until the earlier of the termination of this Agreement in
accordance with its terms or the Effective Time, Source shall, and shall cause
each of its Subsidiaries to, (i) act and carry on its business in the ordinary
course in substantially the same manner as previously conducted, pay its debts
and Taxes and perform its other obligations when due (subject to good faith
disputes over such debts, Taxes or obligations), (ii) comply in all material
respects with applicable laws, rules and regulations, and (iii) use commercially
reasonable efforts, consistent with past practices, to maintain and preserve its
and each of its Subsidiaries' business organization, assets and properties, keep
available the services of its present officers and key employees and preserve
its business relationships with customers, strategic partners, suppliers,
distributors and others having business dealings with it. Without limiting the
generality of the foregoing, from and after the date of this Agreement until the
earlier of the termination of this Agreement in accordance with its terms or the
Effective Time, except as expressly provided by this Agreement or by Section 6.2
of the Source Disclosure Schedule, Source shall not, and shall not permit any of
its Subsidiaries to, directly or indirectly, do any of the following without the
prior written consent of the Company not to be unreasonably withheld or delayed:
(a) (i) declare, set aside or pay any dividends on, or make any
other distributions (whether in cash, securities or other property) in
respect of, any of its capital stock (other than dividends and
distributions by a direct or indirect wholly owned subsidiary of Source to
its parent); (ii) 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 any of its capital stock or any of its
other securities; or (iii) purchase, redeem or otherwise acquire any
shares of its capital stock or any other of its securities or any rights,
warrants or options to acquire any such shares or other securities
(except, in the case of this clause (iii), for the acquisition in
compliance with any applicable laws of Source Common Stock from former
employees, directors and consultants in accordance with agreements
providing for the repurchase of shares at their original issuance price in
connection with any termination of services to Source);
(b) issue, deliver, sell, grant, pledge or otherwise dispose of or
encumber any of its capital stock, any other voting securities or any
securities convertible into or exchangeable for, or any rights, warrants
or options to acquire, any such shares, voting
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securities or convertible or exchangeable securities (other than (i) the
issuance of Source Common Stock upon the exercise of Source Stock Options,
Source Off-Plan Options and Source Warrants, and (ii) the grant of options
to purchase Source Common Stock not to exceed 200,000 shares in the
aggregate; provided that all options granted shall have an exercise price
equal to the fair market value thereof on the date of grant and shall
otherwise be upon Source's customary terms, and provided further that no
options may be granted after the delivery by Source of the Capitalization
Certificate pursuant to Section 7.16);
(c) amend its articles of incorporation, bylaws or other comparable
charter or organizational documents, except for approval of the Bylaws
Amendment (as defined below);
(d) acquire (i) by merging or consolidating with, or by purchasing
all or a substantial portion of the assets or any stock of, or by any
other manner, any business or any corporation, partnership, joint venture,
limited liability company, association or other business organization or
division thereof or (ii) any assets that are material, in the aggregate,
to Source and its Subsidiaries, taken as a whole;
(e) whether or not in the ordinary course of business, sell, lease,
license, encumber, dispose of or otherwise transfer any assets material to
Source and its Subsidiaries, taken as a whole (including any material
accounts, leases, contracts or intellectual property or any material
assets or the stock of any of its Subsidiaries, but excluding the sale of
inventory in the ordinary course of business);
(f) enter into any agreement or arrangement that materially limits
or otherwise materially restricts Source, any of its Subsidiaries or any
of their respective affiliates or any successor thereto from engaging or
competing in any line of business or in any location;
(g) adopt or implement any stockholder rights plan;
(h) except for a confidentiality agreement as permitted by Section
7.2, enter into an agreement with respect to any merger, consolidation,
liquidation or business combination, or any acquisition or disposition of
all or substantially all of the assets or securities of Source or any of
its Subsidiaries;
(i) (i) incur any indebtedness for borrowed money or guarantee any
such indebtedness of another person, (ii) issue, sell or amend any debt
securities or warrants or other rights to acquire any debt securities of
Source or any of its Subsidiaries, guarantee any debt securities of
another person, enter into any "keep well" or other agreement to maintain
any financial statement condition of another person or enter into any
arrangement having the economic effect of any of the foregoing, or (iii)
make any loans, advances (other than routine advances to employees of
Source or any of its Subsidiaries in the ordinary course of business) or
capital contributions to, or investment in, any other person, other than
Source or any of its direct or indirect wholly owned Subsidiaries;
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except in the case of (i), draw-downs in the ordinary course of business
under revolving credit facilities in existence on the date hereof;
(j) make any capital expenditures or other expenditures with respect
to property, plant or equipment in excess of $750,000 in the aggregate for
Source and its Subsidiaries, taken as a whole;
(k) make any changes in accounting methods, principles or practices
in effect at January 31, 2004, except to the extent required by the SEC or
a change in GAAP, as concurred in by its independent public auditors, or,
except as so required, change any assumption underlying, or method of
calculating, any bad debt, contingency or other reserve;
(l) except in the ordinary course of business, modify, amend or
terminate any material contract or agreement to which Source or any of its
Subsidiaries is party, or knowingly waive, release or assign any material
rights or claims (including any write-off or other compromise of any
accounts receivable of Source of any of its Subsidiaries);
(m) except in the ordinary course of business, (i) enter into any
material contract or agreement or (ii) license any material intellectual
property rights to or from any third party;
(n) except as required to comply with applicable law or agreements,
plans or arrangements existing on the date hereof, (i) take any action
with respect to, adopt, enter into, terminate or amend any Source Employee
Agreement for the benefit or welfare of any current or former director,
officer, employee or consultant or any collective bargaining agreement,
(ii) increase in any material respect the compensation or fringe benefits
of, or pay any bonus to, any director, officer, employee or consultant
(whether in cash, stock, equity securities, property or otherwise), (iii)
waive any stock repurchase rights, accelerate, amend or change the period
of exercisability of options or restricted stock or reprice options
granted under any employee, consultant, director or other stock plans or
authorize cash payments in exchange for any options granted under any of
such plans, (iv) pay any material benefit not provided for as of the date
of this Agreement under any Source Employee Benefit Plan, or (v) take any
action other than in the ordinary course of business to fund or in any
other way secure the payment of compensation or benefits under any Source
Employee Benefit Plan or Source Employee Agreement;
(o) make or rescind any material Tax election, settle or compromise
any material Tax liability, amend any material Tax return, adopt or change
any material accounting method in respect of Taxes, or consent to any
extension or waiver of the applicable statute of limitations in respect of
Taxes;
(p) initiate, compromise, pay, discharge or settle any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), litigation or arbitration proceeding
for an amount in the aggregate that exceeds $100,000, exclusive of any
amounts covered by Source insurance policies;
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(q) fail to maintain insurance at levels substantially comparable to
levels existing as of the date of this Agreement;
(r) hire any employee who would have an annual base salary in excess
of $200,000; or
(s) authorize any of, or commit or agree, in writing or otherwise,
to take any of, the foregoing actions.
6.3 DISPOSITION OF SPINCO BUSINESS. The Company will use all commercially
reasonable efforts to consummate the Distribution in accordance with Appendix A
and will inform Source promptly of any material developments relating thereto.
6.4 REINCORPORATION OF SOURCE. Prior to, at or following the Closing,
Source may reincorporate from its current state of incorporation of Missouri
into Delaware (the "REINCORPORATION"). In the event that Source consummates the
Reincorporation, and in connection therewith, Source shall be permitted to take
all actions necessary to effect the Reincorporation. Without limiting the
foregoing, Source shall be permitted to: (i) execute and deliver a merger
agreement or other appropriate transaction document to effect the
Reincorporation, and consummate the transactions contemplated therein, (ii)
adopt a Certificate or Articles of Merger and file such Certificate or Articles
with the Secretary of State of Delaware or other state reasonably determined by
Source's Board of Directors to effect the Reincorporation, (iii) file and record
all such other filings, authorizations declaration, registrations with, or
notice to, or authorization, consent or approval of, any Governmental Authority
as are necessary in connection with the Reincorporation, (iv) enter into other
agreements and instruments, containing provisions that are appropriate or
customary for public companies, including, without limitation, indemnification
agreements for officers and directors, and (v) have Source's Board of Directors
take all actions so that the restrictions contained in Section 203 of the DGCL
applicable to a "business combination" will not apply to the execution, delivery
or performance of this Agreement or the Source Voting Agreements or to the
consummation of the Merger or the other transactions contemplated by this
Agreement, including the Reincorporation (such items contained in subsections
(ii) and (iii) hereof being defined as "REINCORPORATION FILINGS"). The Company's
consent shall be required in connection with the final form and content of the
certificate of incorporation and bylaws of the surviving Delaware entity in the
Reincorporation and other agreements to be entered into in connection with the
Reincorporation, which, in each case, shall not be unreasonably withheld.
ARTICLE VII
ADDITIONAL AGREEMENTS
7.1 ACCESS TO INFORMATION.
(a) Subject to applicable law, the Company shall afford, and cause
its Subsidiaries to afford, to Source and its accountants, counsel,
financial advisors and other representatives and Source and its
Subsidiaries shall afford to the Company and its accountants, counsel,
financial advisors and other representatives full access during
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normal business hours with reasonable notice throughout the period prior
to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, Tax
Returns) and, during such period, shall furnish promptly to one another
such information concerning their respective businesses, properties and
personnel as Source or the Company, as the case may be, shall reasonably
request. Any investigation pursuant to this Section 7.1 shall be conducted
in a manner which will not interfere unreasonably with the conduct of the
business of the other party. No information or knowledge obtained in any
investigation pursuant to this Section 7.1 or otherwise shall affect or be
deemed to modify any representation or warranty contained in this
Agreement or the conditions to the obligations of the parties to
consummate the Merger.
(b) The parties hereto acknowledge that Source and the Company have
previously executed a Confidentiality Agreement, dated as of July 15, 2004
(the "CONFIDENTIALITY AGREEMENT"), which shall continue in full force and
effect in accordance with its terms, except as expressly modified by this
Agreement.
7.2 NO SOLICITATION.
(a) Neither the Company nor Source shall authorize or permit any of
their respective directors, officers, investment bankers (or other
financial advisors), attorneys or accountants, and neither shall authorize
or knowingly permit any of their respective employees or other advisors or
representatives (such directors, officers, employees, investment bankers,
attorneys, accountants, other advisors and representatives being referred
to herein, collectively, as "REPRESENTATIVES"), to directly or indirectly:
(i) solicit or initiate or knowingly encourage any proposal
that constitutes, or could reasonably be expected to lead to, an
Acquisition Proposal,
(ii) (A) participate or engage in discussions or negotiations
with, or (B) disclose or provide any non-public information relating
to itself or its Subsidiaries to, or afford access to any of its
properties, books or records or that of its Subsidiaries to, any
Person with respect to an Acquisition Proposal or
(iii) enter into any agreement or agreement in principle with
any Person with respect to an Acquisition Proposal,
provided, however, that prior to (1) in the case of the Company, obtaining the
approval of the Company Voting Proposal at the Company Meeting (or by written
consent of the stockholders of the Company) or (2) in the case of Source,
obtaining the approval of the Source Voting Proposal at the Source Meeting, the
Company or Source, as applicable, and its Representatives may take any of the
actions described in clause (ii) of this subsection (a) in response to any
Person that has made a bona fide written Acquisition Proposal if, but only if,
(A) such Person has submitted a written Acquisition Proposal which did not
result from a violation by the Company or Source, as applicable, of its
obligations under this Section 7.2, (B) the Company Board or the Source Board,
as applicable (the "APPLICABLE BOARD"), has determined in good faith by
resolution duly adopted, after consultation with outside legal counsel and its
financial advisor, that such
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Acquisition Proposal constitutes or would reasonably be expected to lead to a
Superior Proposal, (C) in the case of Section 7.2(a)(ii)(B), such Person has
entered into a confidentiality agreement with the Company or Source, as
applicable on terms that are no less favorable to the other than the
Confidentiality Agreement (which shall not preclude discussions or negotiations
with the Company or Source, as applicable, relating to the proposal or offer
from such Person required by this Section 7.2 and which shall not contain any
exclusivity provision or other term that could restrict in any manner the other
party's ability to consummate the transactions contemplated by this Agreement),
and (D) prior to, or substantially concurrent with, disclosing or providing any
such non-public information, the Company or Source, as applicable, shall
disclose or provide all such information to the other.
(b) Each of the Company and Source shall promptly advise the other,
in writing (and in any event within one business day of attaining
knowledge), of its receipt of any Acquisition Proposal or any proposal,
inquiry or request related to, or that could reasonably be expected to
lead to, any Acquisition Proposal. Each of the Company and Source shall
promptly provide the other, in writing, with the terms and conditions of
any such Acquisition Proposal, or such proposal, inquiry or request, and
the identity of the Person making the same. Each of the Company and Source
shall promptly inform the other of any material changes in the status and
any material changes or modifications in the terms of any Acquisition
Proposal, proposal, inquiry or request. Promptly upon determination by the
Applicable Board that an Acquisition Proposal constitutes a Superior
Proposal, the Company or Source, as applicable, shall deliver to the other
a written notice advising them that the Applicable Board has so
determined, specifying the terms and conditions of such Superior Proposal
and the identity of the Person making such Superior Proposal, and
providing the other party with a copy of the Superior Proposal.
(c) The Source Board has adopted a resolution recommending the
approval of this Agreement and the issuance of the Source Common Stock in
the Merger and the other transactions contemplated hereby by the
stockholders of Source (the "SOURCE RECOMMENDATION"), and, except as
provided in the next sentence, the Board of Directors of Source shall at
all times maintain the Source Recommendation. The Source Board shall be
permitted to (i) withdraw or modify in a manner adverse to the Company (or
not to continue to make) the Source Recommendation, (ii) approve or
recommend a Superior Proposal, and/or (iii) enter into an agreement
regarding such Superior Proposal if, but only if, (a) a majority of the
Source Board has determined in good faith, following consultation with
outside counsel, that taking such action is required in order for the
members of the Source Board to comply with their fiduciary duties to the
stockholders of Source under applicable law, (b) Source has given the
Company three (3) Business Days' prior written notice of its intention to
take such action, and Source shall have considered in good faith, with
respect to actions set forth in clauses (i), (ii) and (iii) of this
Section 7.2(c), any proposed changes to this Agreement proposed by the
Company (it being understood and agreed that any material amendment to the
financial or other material terms of a Superior Proposal, if any, shall
require a new three (3) Business Day period to afford the Company the
opportunity to negotiate with Source), and (c) Source has materially
complied with its obligations under this Section 7.2 with respect to such
Superior Proposal, if any. Nothing in this Section 7.2 shall prohibit
Source or the Source
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Board from taking and disclosing to its stockholders a position, or any
information, with respect to an Acquisition Proposal by a Third Party to the
extent required under applicable law (including Rule 14d-9 and Rule 14e-2
promulgated under the Exchange Act) or stock exchange regulation; provided that
unless and until this Agreement is terminated in accordance with Section 9.4(c)
hereof, nothing in this sentence shall affect the obligations of Source and its
Board of Directors under any other provision of this Agreement, including
Section 7.7(c).
(d) DEFINITION. For purposes of this Agreement,
(i) "ACQUISITION PROPOSAL" means any inquiry, offer or proposal from
any Third Party (whether or not in writing) (other than an offer or
proposal by or on behalf of the other party, including the Merger and the
transactions contemplated hereby) relating to, or that could reasonably be
expected to lead to: (a) a transaction pursuant to which any Third Party
acquires or would acquire Beneficial Ownership of more than fifteen
percent (15%) of the outstanding voting power of Source or the Company, as
applicable, whether from it or pursuant to a tender offer, exchange offer
or otherwise, (b) a merger, consolidation, business combination,
reorganization, share exchange, sale of all or substantially all assets,
recapitalization, liquidation, dissolution or similar transaction which
would result in a Third Party acquiring fifteen percent (15%) or more of
the fair market value of the assets of Source or the Company, as
applicable, and its Subsidiaries, taken as a whole, (c) any transaction
which would result in a Third Party acquiring fifteen percent (15%) or
more of the fair market value of the assets (including, without
limitation, the capital stock of Subsidiaries) of Source or the Company,
as applicable, and its Subsidiaries, taken as a whole, immediately prior
to such transaction (whether by purchase of assets, acquisition of stock
of a Subsidiary or otherwise), or (d) any combination of the foregoing.
(ii) "SUPERIOR PROPOSAL" means any bona fide written Acquisition
Proposal (with all of the percentages included in the definition of
Acquisition Proposal increased to 50% for purposes of this definition)
that a majority of the members of the Applicable Board determines in good
faith by resolution duly adopted, after consultation with its outside
legal counsel and its financial advisor, (a) could result in a
transaction, that, if consummated, is more favorable to the stockholders
of Source or the Company, as applicable, from a financial point of view
than the Merger (after taking into account any revisions made or proposed
by the Company), (b) is reasonably capable of being consummated on the
terms proposed (taking into account all legal, financial, regulatory and
other relevant considerations) and (c) has committed financing, is not
subject to a financing contingency or has financing that is reasonably
likely to be obtained.
(e) The Company and Source shall use commercially reasonable efforts to
inform their respective Representatives of the obligations of the Company and
Source, as applicable, under Section 7.2(a).
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7.3 PROXY STATEMENT/PROSPECTUS; REGISTRATION STATEMENT. As promptly as
practical after the execution of this Agreement, Source and the Company shall
jointly prepare the Registration Statement, which shall include the Proxy
Statement/Prospectus, and Source shall file the Registration Statement with the
SEC. The Company shall provide promptly to Source such information concerning
its business and financial statements (including without limitation, financial
statements in compliance with Regulation S-X) and affairs as, in the reasonable
judgment of Source, may be required or appropriate for inclusion in the Proxy
Statement/Prospectus and the Registration Statement, or in any supplements or
amendments thereto, and cause its counsel and auditors to cooperate with
Source's counsel and auditors in the preparation of the Proxy
Statement/Prospectus and the Registration Statement. Each of the Company and
Source shall respond to any comments of the SEC and shall use its commercially
reasonable efforts to have the Registration Statement declared effective under
the Securities Act as promptly as practicable after such filing and Source and
the Company shall cause the Proxy Statement/Prospectus to be mailed to their
respective securityholders as promptly as practicable after the Registration
Statement is declared effective under the Securities Act. Source shall notify
the Company promptly upon the receipt of any comments from the SEC or its staff
or any other governmental officials and of any request by the SEC or its staff
or any other governmental officials for amendments or supplements to the
Registration Statement, the Proxy Statement/Prospectus or any filing pursuant to
Section 7.4(a)(iii) or for additional information and shall supply the Company
with copies of all such correspondence. Source shall provide the Company with a
reasonable opportunity to review and comment on any and all correspondence
between Source or any of its representatives, on the one hand, and the SEC, or
its staff or any other governmental officials, on the other hand, with respect
to the Registration Statement, the Proxy Statement/Prospectus, the Merger or any
filing pursuant to Section 7.4(a)(iii) and will provide the Company with copies
of any such correspondence. Each of the Company and Source shall use
commercially reasonable efforts to cause all documents it is responsible for
filing with the SEC or other regulatory authorities under this Section 7.3 to
comply in all material respects with all applicable requirements of law and the
rules and regulations promulgated thereunder. Whenever any event occurs with
respect to Source or the Company that is required to be set forth in an
amendment or supplement to the Proxy Statement/Prospectus, the Registration
Statement or any filing pursuant to Section 7.4(a)(iii), Source or the Company,
as the case may be, shall promptly inform the other party of such occurrence and
cooperate in filing or assisting in filing with the SEC or its staff or any
other Governmental Authority or government officials, or mailing or assisting in
preparing and mailing to securityholders of Source and the Company, such
amendment or supplement. Source shall provide the Company with a reasonable
opportunity to review and comment on any amendment or supplement to the
Registration Statement and Prospectus/Proxy Statement prior to filing such with
the SEC, and will provide a copy of all filings made with the SEC.
7.4 COMMERCIALLY REASONABLE EFFORTS; AGREEMENT TO COOPERATE.
(a) The Company and Source shall use commercially reasonable efforts
to (i) take, or cause to be taken, all actions, and do, or cause to be
done, and to assist and cooperate with the other parties in doing, all
things necessary, proper or advisable to consummate and make effective the
transactions contemplated hereby as promptly as practicable, (ii) as
promptly as practicable, obtain from any Governmental Authority or any
other third party any consents, licenses, permits, waivers, approvals,
authorizations,
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or orders required to be obtained or made by the Company or Source or any
of their Subsidiaries in connection with the authorization, execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, (iii) as promptly as practicable, make all necessary
filings, and thereafter make any other required submissions, with respect
to this Agreement and the Merger required under (A) the Securities Act and
the Exchange Act, and any other applicable federal or state securities
laws, (B) the HSR Act and any related governmental request thereunder, and
(C) any other applicable law, and (iv) execute or deliver any additional
instruments necessary to consummate the transactions contemplated by, and
to fully carry out the purposes of, this Agreement. The Company and Source
shall cooperate with each other in connection with the making of all such
filings, including providing copies of all such documents to the
non-filing party and its advisors prior to filing and, if requested,
accepting all reasonable additions, deletions or changes suggested in
connection therewith. The Company and Source shall use their respective
commercially reasonable efforts to furnish to each other all information
required for any application or other filing to be made pursuant to the
rules and regulations of any applicable law (including all information
required to be included in the Proxy Statement/Prospectus and the
Registration Statement) in connection with the transactions contemplated
by this Agreement. For the avoidance of doubt, the Company and Source
agree that nothing contained in this Section 7.4(a) shall modify or affect
their respective rights and responsibilities under Section 7.4(b).
(b) Subject to the terms hereof, the Company and Source agree, and
shall cause each of their respective Subsidiaries, to cooperate and to use
their respective commercially reasonable efforts to obtain any government
clearances or approvals required for Closing under the HSR Act and any
other federal, state or foreign law or, regulation or decree designed to
prohibit, restrict or regulate actions for the purpose or effect of
monopolization or restraint of trade reasonably determined by the parties
to apply (collectively "ANTITRUST LAWS"), to respond to any government
requests for information under any Antitrust Law, and to contest and
resist any action, including any legislative, administrative or judicial
action, and to each use commercially reasonable efforts to have vacated,
lifted, reversed or overturned any decree, judgment, injunction or other
order that restricts, prevents or prohibits the consummation of the Merger
or any other transactions contemplated by this Agreement under any
Antitrust Law, provided, that, nothing in this Section 7.4 shall require
either Source or the Company (i) to license, sell, divest or dispose of
any material assets or businesses of Source or the Company or any of their
respective Subsidiaries or (ii) otherwise take or commit to take any
action that limits in any material respect the freedom of action with
respect to, or the ability to retain, any of the assets or business of the
Company or Source or their respective Subsidiaries. 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 any Antitrust Law.
(c) The Company agrees to cooperate and use its commercially
reasonable efforts to assist Source in connection with the implementation
and assessment of internal
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controls over financial reporting under SOX and to take such other actions
reasonably requested by Source to further comply with SOX and the rules
and regulations promulgated thereunder by the SEC and Nasdaq.
7.5 PUBLIC STATEMENTS. Except as may be required by applicable law or any
listing agreement with a national securities exchange or association, the
parties shall consult with each other and agree prior to issuing any press
release or any written public statement with respect to this Agreement or the
transactions contemplated hereby and shall not issue any such press release or
written public statement prior to such consultation and agreement.
7.6 NOTIFICATION OF CERTAIN MATTERS. Each of the Company and Source agrees
to give prompt notice to the other such party of, and to use commercially
reasonable efforts to remedy (a) the occurrence or failure to occur of any
event, which occurrence or failure to occur would reasonably be expected to
cause any of the representations or warranties of the Company or Source, as the
case may be, in this Agreement to constitute a Company Material Adverse Effect
or a Source Material Adverse Effect, as the case may be, and (b) any failure on
the part of the Company or Source, as the case may be, to comply with or satisfy
any covenant, agreement or condition to be complied with or satisfied thereby
hereunder in all material respects; provided, however, that the delivery of any
notice pursuant to this Section 7.6 shall not limit or otherwise affect the
remedies available hereunder to the party receiving such notice.
7.7 APPROVAL OF STOCKHOLDERS.
(a) Source shall use commercially reasonable efforts to promptly and
duly call, give notice of, convene and hold as promptly as practicable
after the declaration of effectiveness of the Registration Statement the
Source Meeting for the purpose of considering and voting upon the Source
Voting Proposal, among other things. Subject to Section 7.2, (i) the
Source Board shall recommend approval and adoption of the Source Voting
Proposal by the stockholders of Source and include such recommendation in
the Proxy Statement/Prospectus and (ii) neither the Source Board nor any
committee thereof shall withdraw or modify, or propose or resolve to
withdraw or modify in a manner adverse to the Company, the recommendation
of the Source Board that Source's stockholders vote in favor of the Source
Voting Proposal. Subject to Section 7.2, Source shall use commercially
reasonable efforts to solicit from its stockholders proxies in favor of
the Source Voting Proposal. Notwithstanding anything to the contrary
contained in this Agreement, after consultation with the Company, Source
may adjourn or postpone the Source Meeting to the extent necessary (i) to
ensure that any required supplement or amendment to the Proxy
Statement/Prospectus is provided to Source's stockholders or (ii) if, as
of the time for which the Source Meeting is originally scheduled (as set
forth in the Proxy Statement/Prospectus), there are insufficient shares of
Source Common Stock represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the Source
Meeting.
(b) The Company shall use commercially reasonable efforts to
promptly and duly call, give notice of, convene and hold as promptly as
practicable after the declaration of effectiveness of the Registration
Statement, the Company Meeting for the purpose of considering and voting
upon the Company Voting Proposal (or seek the written consent
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of the stockholders of the Company to approve the Company Voting
Proposal). The Company Board shall recommend approval of the Company
Voting Proposal by the stockholders of the Company and include such
recommendation in the Proxy Statement/Prospectus and neither the Company
Board nor any committee thereof shall withdraw or modify, or propose or
resolve to withdraw or modify in a manner adverse to Source, the
recommendation of the Company Board that the Company's stockholders vote
in favor of the Company Voting Proposal. The Company shall use
commercially reasonable efforts to solicit from its stockholders proxies
or written consents in favor of the Company Voting Proposal.
Notwithstanding anything to the contrary contained in this Agreement,
after consultation with Source, the Company may adjourn or postpone the
Company Meeting to the extent necessary (i) to ensure that any required
supplement or amendment to the Proxy Statement/Prospectus is provided to
the Company's stockholders or (ii) if, as of the time for which the
Company Meeting is originally scheduled (as set forth in the Proxy
Statement/Prospectus), there are insufficient shares of Company Common
Stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Company Meeting.
(c) Source and the Company shall call, give notice of, convene and
hold the Source Meeting and Company Meeting (or seek the written consent
of the stockholders of the Company), respectively, in accordance with this
Section 7.7 for the purpose of voting upon or approving the Source Voting
Proposal and the Company Voting Proposal, respectively, and shall submit
the Source Voting Proposal and the Company Voting Proposal, respectively,
to their respective stockholders for the purpose of acting upon such
proposal whether or not (i) the Source Board, at any time subsequent to
the date hereof determines, in the manner permitted by Section 7.2(c),
that this Agreement is no longer advisable or recommends that the
stockholders of Source reject it, or (ii) any actual, potential or
purported Acquisition Proposal or Superior Proposal has been commenced,
disclosed, announced or submitted to Source.
7.8 SECTION 16 MATTERS. Source shall take all steps reasonably necessary
to cause the acquisition of shares of Source Common Stock or other equity
securities (including stock options and other derivative securities) of Source
in connection with the Merger by each director or officer of the Company
functioning as a director or officer of Source following the Merger to be exempt
pursuant to Rule 16b-3 under the Exchange Act.
7.9 368(a) REORGANIZATION. The Company and Source shall each use
commercially reasonable efforts to cause the Merger to be treated as a
reorganization within the meaning of Section 368 of the Code. The parties hereto
hereby adopt this Agreement as a plan of reorganization.
7.10 NASDAQ NATIONAL MARKET LISTING. Source shall, if required by the
rules of The Nasdaq Stock Market, Inc., file with The Nasdaq Stock Market, Inc.
a Notification Form: Listing of Additional Shares with respect to the Source
Common Stock issuable pursuant to the transactions contemplated by this
Agreement.
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7.11 CORPORATE GOVERNANCE.
(a) BOARD OF DIRECTORS.
(i) COMPOSITION. At the Effective Time, the Source Board will
be comprised of eleven directors, to consist of six members of the
Source Board designated by Source (including the current Chairman
and Chief Executive Officer of Source, S. Xxxxxx Xxxxxx and Xxxxx
Xxxxxxx) before the mailing of the Proxy Statement/Prospectus, three
of whom must be "independent" under the rules of the NASD and the
SEC with respect to Source (the "SOURCE DESIGNATED DIRECTORS") and
five individuals designated by the Company (three of whom must be
"independent" under the rules of the NASD and the SEC with respect
to Source) before the mailing of the Proxy Statement/Prospectus (the
"COMPANY DESIGNATED DIRECTORS"). Such directors shall be initially
appointed as follows: (A) three Company Designated Directors to the
class whose term expires at the 2005 annual meeting of Source
shareholders, (B) one Company Designated Director and three Source
Designated Directors to the class whose term expires at the 2006
annual meeting of Source shareholders and (C) one Company Designated
Director and three Source Designated Directors to the class whose
term expires at the 2007 annual meeting of Source shareholders. If
any Source Designated Director or Company Designated Director shall
be unable or unwilling to serve as a director at the Effective Time,
the party that designated such individual as indicated above shall
designate another individual to serve in such individual's place.
(ii) COMMITTEES. As soon as reasonably practicable following
the Effective Time, the Source Board will take all actions necessary
to cause the membership of each its standing committees (i) to
include one Company Designated Director and (ii) to be comprised of
a majority of Source Designated Directors, each to the extent that
such individual's membership on a given committee is permitted by
the applicable rules and regulations of the SEC and Nasdaq and
consented to by the individual.
(b) Immediately following the Effective Time, the executive officers
of Source shall be comprised of Xxxx Xxxxxxx, who shall be appointed as
Executive Vice President, and the following current officers of Source: S.
Xxxxxx Xxxxxx, Chairman and Chief Executive Officer; Xxxxx X. Xxxxxx,
President and Chief Operating Officer; Xxxxx X. Xxxxxx, Executive Vice
President, Xxxx X. Xxxxx, Executive Vice President and Xxxx Xxxxxxx, Chief
Financial Officer.
(c) The Source Board shall amend its Bylaws effective at the
Effective Time, to, among other things, (i) provide that the Source Board
shall consist of between three (3) and eleven (11) directors, with the
exact number to be specified by resolution approved by Supermajority Board
Approval; (ii) provide that the consummation of a Change of Control (as
defined in Article XI) or any further amendment to the Bylaws shall
require Supermajority Board Approval; (iii) until the Minimum Holding
Date, provide that if any Company Designated Director or Stockholder
Designated Director is
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unable to fulfill his or her term in office, for whatever reason, either
as a result of death, resignation, retirement or removal, then the
remaining Company Designated Directors and the Stockholder Designated
Directors shall have the exclusive right to designate an individual to
fill such vacancy; and (iv) until the Minimum Holding Date, provide that
if any Source Designated Director is unable to fulfill his or her term in
office, for whatever reason, either as a result of death, resignation,
retirement or removal, then the remaining Source Designated Directors
shall have the exclusive right to designate an individual to fill such
vacancy (the "BYLAWS AMENDMENT").
(d) Immediately following the Effective Time, the executive
headquarters of Source and the Surviving Entity shall be located in Bonita
Springs, Florida and the operating headquarters of the Surviving Entity
shall be in Coral Springs, Florida.
7.12 EMPLOYEE BENEFITS; TERMINATION OF PLANS; STOCK OPTION PLANS.
(a) Following the Effective Time, Source will give each employee of
the Company who continues as an employee of the Surviving Entity
immediately following the Merger (a "CONTINUING EMPLOYEE") full credit for
prior service with the Company or the Acquired Subsidiaries for purposes
of (i) eligibility and vesting under any Source employee benefit plans,
(ii) determination of benefits levels under any Source employee benefit
plan or policy relating to vacation or severance and (iii) determination
of "retiree" status under any Source employee benefit plan, in each case
for which the Continuing Employee is otherwise eligible and in which the
Continuing Employee is offered participation, but except where such
crediting would (A) result in a duplication of benefits or (B) otherwise
cause Source or its Subsidiaries or any Source employee benefit plan or
trust relating thereto to accrue or pay for benefits that relate to any
time period prior to the Continuing Employee's participation in the Source
employee benefit plan. Source agrees that each otherwise eligible
Continuing Employee shall be eligible to either: (i) participate in Source
employee benefit plans as permitted by the terms of such Source employee
benefit plans, (ii) participate in Employee Benefit Plans or Employee
Agreements that are continued by Source, or (iii) a combination of clauses
(i) and (ii) so that each Continuing Employee is eligible for benefits
that are substantially similar in the aggregate to those of similarly
situated employees of Source.
(b) Effective no later than the day immediately preceding the
Effective Time, the Company shall terminate any and all group severance,
separation or salary continuation plans, programs or arrangements and any
and all plans intended to include a Code Section 401(k) arrangement that
Source elects to terminate by providing written notice to the Company
within a reasonable time prior to the Effective Time (collectively,
"COMPANY TERMINATING PLAN(S)"). Source agrees that the Continuing
Employees shall be eligible to participate, to the extent they were
eligible to participate in the Company Terminating Plan, in a comparable
Source plan, program or arrangement, as promptly following the Effective
Time as is permitted by the terms of such Source plan, program or
arrangement. If Source provides such notice to terminate the Terminating
Plan(s) to the Company, no later than three business days prior to the
Effective Time, the Company shall provide Source with evidence that such
Company Terminating Plan(s) have been terminated (effective no later than
the day immediately preceding the Effective Time)
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pursuant to resolutions of the Company's Board of Directors. The Company
shall take such reasonable actions as required by Source to effect the
provisions of this Section 7.12(b).
(c) Effective as of the Effective Time, Source will assume all
Company Option Plans. The Company shall take such reasonable actions prior
to the Effective Time as are reasonably necessary to effect the provisions
of this Section 7.12(c), including taking such actions as may be required
to confirm that the Source Board of Directors (or its committee) shall,
effective as of the Effective Time, become the administrator of the
assumed Company Option Plans and shall have any and all amendment
authority with respect thereto. For the avoidance of doubt, the parties
agree that the assumption by Source of the Company Option Plans in
accordance with this Agreement does not adversely affect the rights of the
holders of options under such Company Option Plans.
(d) Prior to the Effective Time, the Company shall take all action
necessary under the Company Option Plans or otherwise to permit Source to
assume the Company Options in accordance with Section 3.3 and shall have
timely provided any notices to optionees required under the Company Option
Plans or other agreements.
7.13 AFFILIATE AGREEMENT. At least 30 days prior to the Closing Date, the
Company shall deliver to Source a list of names and addresses of those persons
who were, in the reasonable judgment of Source and the Company, at the record
date for such party's stockholders' meeting to approve the Merger, "affiliates"
(as that term is used in Rule 145 promulgated under the Securities Act including
those individuals listed in Section 7.13 of Company Disclosure Schedule). The
Company shall use its commercially reasonable efforts to cause each "affiliate"
so identified who has not previously delivered an Affiliate Agreement to Source
to deliver to Source, on or prior to the Effective Time, an Affiliate Agreement.
Source shall be entitled to place appropriate legends on the certificates
evidencing the Source Common Stock to be received by the Company's affiliates
pursuant to the terms of this Agreement, and to issue appropriate stock transfer
instructions to the transfer agent for the Source Common Stock, to the effect
that the shares received or to be received by such Company affiliate pursuant to
this Agreement may only be sold, transferred or otherwise conveyed pursuant to
an effective registration statement under the Securities Act or in accordance
with the provisions of paragraph (d) of Rule 145 or pursuant to an exemption
from registration provided under the Securities Act.
7.14 INDEMNIFICATION OF OFFICERS AND DIRECTORS; DIRECTORS' AND OFFICERS'
INSURANCE.
(a) Source shall cause all rights to indemnification existing in
favor of those Persons who are officers and directors of the Company and
the Acquired Subsidiaries as of the date of this Agreement (the
"INDEMNIFIED PERSONS") for their acts and omissions occurring prior to the
Effective Time, whether provided in the Company's Certificate of
Incorporation, bylaws or other charter documents (as in effect as of the
date of this Agreement) or as provided in indemnification agreements
between the Company or an Acquired Subsidiary set forth on Section 7.14 of
the Company Disclosure Schedule and said Indemnified Persons (as in effect
as of the date of this Agreement) to survive the
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Merger and be observed by Source or the Surviving Entity to the fullest
extent permitted by the DGCL until not earlier than the sixth anniversary
of the Effective Time.
(b) From the Effective Time until the sixth anniversary of the
Effective Time, Source shall cause the Surviving Entity to provide
officers' and directors' liability insurance policy in respect of acts or
omissions occurring prior to the Effective Time covering each such
Indemnified Person currently covered by the Company's officers' and
directors' liability insurance policy in effect as of the date hereof, in
an amount, on terms, and with scope of coverage comparable to those
applicable to such policy; provided, however, that notwithstanding the
foregoing, the Surviving Entity shall not be required to pay an aggregate
premium on such insurance policy for such entire six (6) year period that
is greater than 300% of the annual premium payable under the Company's
directors' and officers' insurance policy in effect as of the date hereof;
and provided further, however, that notwithstanding the foregoing, Source
may satisfy its obligations under this Section 7.14 by purchasing a "tail"
policy under the Company's existing directors' and officers' insurance
policy. If notwithstanding the use of commercially reasonable efforts to
do so, Source is unable to maintain or obtain the insurance called for in
this Section 7.14(b), the Surviving Entity shall obtain as much comparable
insurance as available for the maximum amount set forth in the preceding
sentence.
(c) The provisions of this Section 7.14 are intended to be in
addition to the rights otherwise available to the Indemnified Persons by
law, charter, statute, bylaw or agreement, and shall operate for the
benefit of, and shall be enforceable by, each of the Indemnified Persons,
and their respective heirs and representatives.
7.15 CONVERSION OF COMPANY PREFERRED STOCK. The Company shall effect a
conversion of all outstanding Company Preferred Stock into Company Common Stock
prior to the Effective Time.
7.16 CAPITALIZATION CERTIFICATE. Ten (10) Business Days prior to the
Source Meeting: (i) Source shall furnish the Company with a certificate from its
appropriate officers setting forth a true and correct calculation of the
Aggregate Share Number and (ii) the Company shall furnish Source with a
certificate from its appropriate officers setting forth the true and correct
estimate of the capitalization of the Company immediately prior to the Effective
Time, after giving effect to all accrued and unpaid dividends on the Company
Preferred Stock and the conversion of all Company Preferred Stock, setting forth
(A) the Outstanding Company Common Amount as of the Effective Time and (B) the
Outstanding Company Option Amount (each a "CAPITALIZATION CERTIFICATE"). In the
case of the Company's Capitalization Certificate, Company shall include a list
naming each record holder of Company Common Stock, Company Option, Company
Warrant or other right, the number of shares held or subject to such Company
Option, Company Warrant or other right (in each case after giving effect to all
accrued and unpaid dividends on the Company Preferred Stock and the conversion
of all Company Preferred Stock) and the best available address known to the
Company for each security holder. Each Capitalization Certificate, together with
such mutually agreed modifications, shall serve as the basis for the
capitalization certificate to be delivered at the Closing (each, a "FINAL
CAPITALIZATION CERTIFICATE").
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ARTICLE VIII
CONDITIONS
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
obligation of each party hereto to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) The Source Voting Proposal shall have been approved in the
manner required by applicable law, by the applicable regulations of The
Nasdaq Stock Market, Inc. and by the vote of the requisite holders of the
issued and outstanding shares of capital stock of Source under applicable
law and the certificate of incorporation of Source. The Company Voting
Proposal shall have been approved in the manner required by applicable law
and by the vote or written consent of the requisite holders of the issued
and outstanding shares of capital stock of the Company under applicable
law and the certificate of incorporation of the Company.
(b) Any applicable waiting periods or consents under the HSR Act or
any other applicable Antitrust Laws relating to the Merger shall have
expired, been terminated or been granted, as applicable.
(c) None of the parties hereto shall be subject to any order or
injunction of a court of competent jurisdiction that prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its commercially reasonable efforts to have any such
injunction lifted.
(d) Other than the filing of the Certificate of Merger, all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
Governmental Authority in connection with the Merger and the consummation
of the other transactions contemplated by this Agreement, the failure of
which to file, obtain or occur is reasonably likely to have a Source
Material Adverse Effect or a Company Material Adverse Effect shall have
been filed, been obtained or occurred on terms and conditions which could
not reasonably be likely to have a Source Material Adverse Effect or a
Company Material Adverse Effect.
(e) The Registration Statement shall have become effective under the
Securities Act and no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceeding for such
purpose and no similar proceeding in respect of the Prospectus/Proxy
Statement, shall have been initiated or threatened in writing (and not
abandoned or withdrawn) by the SEC or its staff.
(f) Prior to the Closing Date, the Source Common Stock to be issued
pursuant to the transactions contemplated by this Agreement shall be
approved for listing on the Nasdaq National Market subject to official
notice of issuance.
(g) Source shall have amended its Articles of Incorporation to
increase the authorized shares of Source Common Stock from 40,000,000 to
100,000,000 or shall
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have effected the Reincorporation to provide for an adequate number of
shares of Common Stock for the Share Issuance.
(h) The Company shall have obtained the consent of its primary
lender, General Electric Capital Corporation ("GECC"), or the Company or
Source shall have entered into an alternative financing arrangement for
the combined company on terms no less favorable than those offered by
GECC.
(i) The Distribution shall have been consummated in accordance with
Appendix A.
8.2 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE MERGER. The
obligation of the Company to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions (any of
which may be waived, in writing, by the Company in its sole discretion):
(a) The representations and warranties of Source contained in
Article IV of the Agreement shall be accurate as of the date of this
Agreement and as of the Effective Time as if made as of the Effective
Time, except to the extent that such representations and warranties refer
to a specific date, in which case such representations and warranties
shall have been accurate as of such date, provided, however, that this
Section 8.2(a) shall be deemed to be satisfied so long as any failures of
such representations and warranties to be so accurate, in the aggregate,
do not constitute a Source Material Adverse Effect as of the Effective
Time (it being understood that, for purposes of determining the accuracy
of the representations and warranties of Source all "Source Material
Adverse Effect" qualifications and other qualifications based on the word
"material" contained in such representations and warranties shall be
disregarded). The Company shall have received a certificate signed on
behalf of Source by the chief executive officer and the chief financial
officer of Source to such effect.
(b) Source shall have performed in all material respects the
obligations required to be performed by it under this Agreement on or
prior to the Closing Date; and the Company shall have received a
certificate signed on behalf of Source by the chief executive officer and
the chief financial officer of Source to such effect.
(c) Except as contemplated in the Source Disclosure Schedule, there
shall not have occurred, since the date of this Agreement, any change,
event, occurrence, development or circumstance which, individually or in
the aggregate, constitutes or could reasonably be expected to result in, a
Source Material Adverse Effect; and the Company shall have received a
certificate signed on behalf of Source by the chief executive officer and
the chief financial officer of Source to such effect.
(d) The Company shall have received a written opinion from its tax
counsel, Xxxxxx, Xxxxxx & Xxxxx, LLP, in form and substance reasonably
satisfactory to it to the effect that the Merger will constitute a
tax-free reorganization within the meaning of Section 368(a) of the Code
and such opinion shall not have been withdrawn; provided, however, that if
the counsel of the Company does not render such opinion, this condition
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shall nonetheless be satisfied with respect to the Company if counsel to
Source renders such opinion to Source. The parties to this Agreement agree
to make such reasonable representations as requested by their counsel for
the purpose of rendering such opinions.
(e) The Bylaws Amendment shall have been approved and adopted by the
Source Board prior to the effectiveness of the Merger.
(f) The Company shall have received a true and correct Final
Capitalization Certificate from Source and such Final Capitalization
Certificate shall be true and correct immediately prior to the Effective
Time.
(g) Source shall have obtained resignations from the members of its
Board of Directors who will not continue on the Board of Directors at the
Effective Time.
(h) Source shall have executed and delivered the Stockholder's
Agreement to the Principal Stockholder.
(i) Source shall have executed and delivered the Consulting
Agreement to Yucaipa.
8.3 CONDITIONS TO OBLIGATION OF SOURCE AND MERGER SUB TO EFFECT THE
MERGER. The obligations of Source and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions (any of which may be waived by Source in its sole discretion):
(a) The representations and warranties of the Company contained in
Article V of the Agreement shall be accurate as of the date of this
Agreement and as of the Effective Time as if made as of the Effective
Time, except to the extent that such representations and warranties refer
to a specific date, in which case such representations and warranties
shall have been accurate as of such date, provided, however, that this
Section 8.3(a) shall be deemed to be satisfied so long as any failures of
such representations and warranties to be so accurate, in the aggregate,
do not constitute a Company Material Adverse Effect as of the Effective
Time (it being understood that, for purposes of determining the accuracy
of the representations and warranties of the Company, all "Company
Material Adverse Effect" qualifications and other qualifications based on
the word "material" contained in such representations and warranties shall
be disregarded). Source shall have received a certificate signed on behalf
of the Company by the chief executive officer and the chief financial
officer of the Company to such effect.
(b) The Company shall have performed in all material respects all
obligations required to be performed by it under this Agreement on or
prior to the Closing Date; and Source shall have received a certificate
signed on behalf of the Company by the chief executive officer and the
chief financial officer of the Company to such effect.
(c) Except as contemplated in the Company Disclosure Schedule, there
shall not have occurred, since the date of this Agreement, any change,
event, occurrence, development or circumstance which, individually or in
the aggregate, constitutes or could
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reasonably be expected to result in, a Company Material Adverse Effect;
and Source shall have received a certificate signed on behalf of the
Company by the chief executive officer and the chief financial officer of
the Company to such effect.
(d) Dissenters' rights, as contemplated by Section 3.5 hereof, shall
not have been exercised with respect to more than five percent (5%) of the
outstanding shares of Company Common Stock.
(e) All shares of Company Preferred Stock shall have been converted
into Company Common Stock prior to the Effective Time.
(f) Source shall have received a written opinion from its tax
counsel, Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, Professional Corporation, in
form and substance reasonably satisfactory to it to the effect that the
Merger will constitute a tax-free reorganization within the meaning of
Section 368(a) of the Code and such opinion shall not have been withdrawn;
provided, however, that if the counsel of Source does not render such
opinion, this condition shall nonetheless be satisfied with respect to the
Source if counsel to the Company renders such opinion to the Company. The
parties to this Agreement agree to make such reasonable representations as
requested by their counsel for the purpose of rendering such opinions.
(g) Source shall have received a true and correct Final
Capitalization Certificate from the Company and such Final Capitalization
Certificate shall be true and correct immediately prior to the Effective
Time.
(h) Each of the agreements listed on Section 8.3(h) of the Company
Disclosure Schedule shall have been terminated.
(i) The Principal Stockholder shall have executed and delivered the
Stockholder's Agreement to Source.
(j) Yucaipa shall have executed and delivered the Consulting
Agreement to Source.
ARTICLE IX
TERMINATION; FEES AND EXPENSES
9.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time by the
mutual written agreement of the parties hereto.
9.2 TERMINATION BY SOURCE OR THE COMPANY. This Agreement may be terminated
and the Merger may be abandoned by either Source or the Company if:
(a) the Merger shall not have been consummated by April 30, 2005
(the "TERMINATION DATE"), provided that the terminating party shall not
have breached in any
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material respect its obligations under this Agreement in any manner that
shall have been a principal cause of the failure to consummate the Merger
by the Termination Date;
(b) at the Company Meeting (including any adjournment or
postponement permitted by this Agreement), at which a vote on the Company
Voting Proposal is taken, the requisite vote of the stockholders of the
Company in favor of the Merger shall not have been obtained, or if the
Company has not provided notice for a Company Meeting, the failure to
obtain the requisite written consents of the stockholders of the Company
necessary to approve the Company Voting Proposal by the date of the Source
Meeting (provided, however, that the right to terminate this Agreement
under this Section 9.2(b) shall not be available to: (x) any party whose
failure to fulfill any obligation under this Agreement has been a
principal cause of the failure to obtain such requisite vote or (y) the
Company, if the failure to obtain such requisite vote has been principally
caused by a breach of the Shareholder's Voting Agreement by any party
thereto other than Source);
(c) at the Source Meeting (including any adjournment or postponement
permitted by this Agreement), at which a vote on the Source Voting
Proposal is taken, the requisite vote of the stockholders of Source in
favor of the Source Voting Proposal shall not have been obtained
(provided, however, that the right to terminate this Agreement under this
Section 9.2(c) shall not be available to any party whose failure to
fulfill any obligation under this Agreement has been a principal cause of
the failure to obtain such requisite vote); or
(d) a United States federal or state court of competent jurisdiction
or United States federal or state governmental, regulatory or
administrative agency or commission shall have issued an order, decree or
ruling or taken any other action permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement and
such order, decree, ruling or other action shall have become final and
non-appealable; provided that the party seeking to terminate this
Agreement pursuant to clause (d) above shall have used its commercially
reasonable efforts to remove such order, decree or ruling.
9.3 TERMINATION BY THE COMPANY. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of the
Company Board if:
(a) (i) Source shall have materially and knowingly breached any of
its obligations under Section 7.2 or Section 7.7(c) (other than breaches
under Section 7.7(c) which are cured within 15 days or such longer period
as may be required under applicable law and/or Source's Articles of
Incorporation or bylaws after notice from the Company) of this Agreement;
(ii) the Source Board shall (A) withdraw, modify, condition or
qualify the Source Recommendation in a manner adverse to the
Company, (B) approve or recommend to the stockholders of Source an
Acquisition Proposal (other than by the Company or its Affiliates),
(C) approve or recommend that the stockholders of Source tender
their shares in any tender or exchange offer that is an Acquisition
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Proposal (other than by the Company or its Affiliates), or (D)
approve a resolution or agree to do any of the foregoing; or
(ii) any Third Party acquires Beneficial Ownership of a
majority of the outstanding Source Common Stock; or
(b) there has been a breach of or failure to perform any
representation, warranty, covenant or agreement on the part of Source set
forth in this Agreement, which breach (i) would cause the conditions set
forth in Section 8.2(a) or (b) not to be satisfied, and (ii) shall not
have been cured within 15 days following receipt by Source of written
notice of such breach from the Company (except in the case of a breach
that is not curable or efforts to cure such breach have ceased).
9.4 TERMINATION BY SOURCE. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time by action of the Source
Board if:
(a) the Company shall have materially and knowingly breached any of
its obligations under Section 7.2 or Section 7.7(c) (other than breaches
under Section 7.7(c) which are cured within 15 days after notice from
Source) of this Agreement; or
(b) there has been a breach of or failure to perform any
representation, warranty, covenant or agreement (other than those referred
to elsewhere in this Section 9.4) on the part of the Company set forth in
this Agreement, which breach (i) would cause the conditions set forth in
Section 8.3(a) or (b) not to be satisfied, and (ii) shall not have been
cured within 15 days following receipt by the Company of written notice of
such breach from Source (except in the case of a breach that is not
curable or efforts to cure such breach have ceased); or
(c) Source concurrently enters into a definitive agreement for a
Superior Proposal in accordance with, or has otherwise complied with, all
provisions of Section 7.2 hereof and concurrently with such termination,
Source shall have paid to the Company the Termination Fee in accordance
with Section 9.6.
9.5 EFFECT OF TERMINATION AND ABANDONMENT. In the event of termination of
this Agreement and the abandonment of the Merger pursuant to this Article IX,
all obligations of the parties hereto shall terminate; provided that (i) any
such termination shall not relieve any party from liability for any breach of
this Agreement and (ii) the provisions of this Section 9.5, Section 9.6, Article
XII of this Agreement and the Confidentiality Agreement shall remain in full
force and effect and survive any termination of this Agreement.
9.6 FEES AND EXPENSES.
(a) Except as set forth in this Section 9.6, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby including, without limitation, all legal, accounting,
financial advisory, consulting and all other fees and expenses of third
parties shall be paid by the party incurring such expenses, whether or not
the Merger is consummated; provided, however, that Source and the Company
shall share equally (i) the aggregate filing fees of the parties'
pre-merger notification
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report under the HSR Act and compliance with other foreign Antitrust Laws,
if any, and (ii) all fees and expenses, other than accountants' and
attorneys' fees, incurred with respect to the printing and filing of the
Proxy Statement/Prospectus (including any related preliminary materials)
and the Registration Statement and any amendments or supplements thereto.
(b) In addition to any payment required by Section 9.6(a) and
notwithstanding any other provision of this Agreement, Source agrees that:
(i) if this Agreement is terminated pursuant to Section
9.3(a)(i), Section 9.3(a)(ii), Section 9.3(a)(iii) or Section 9.4(c)
then Source shall immediately pay to the Company the Termination
Fee;
(ii) if this Agreement is terminated pursuant to Section
9.2(a), Source shall pay to the Company the Termination Fee if (1) a
Third Party has made an Acquisition Proposal and not withdrawn such
Acquisition Proposal at the Termination Date and (2) within twelve
(12) months following such termination, any Third Party Acquisition
is consummated or Source enters into a definitive agreement
providing for a Third Party Acquisition (for purposes of this
clause, the terms "Acquisition Proposal" and "Third Party
Acquisition" shall have the meanings assigned to such terms except
that it shall refer only to Source and references to "15%" in the
definition shall be references to 50%); and
(iii) if this Agreement is terminated pursuant to Section
9.2(c), (A) Source shall pay to the Company a fee of $2 million plus
the Company's reasonable, out-of-pocket expenses (supported by
documentation and subject to Source's right, along with its
Representatives as reasonably necessary to audit the records of the
Company to verify such expenses) incurred in connection with the
transactions contemplated hereby (excluding the Distribution);
provided that the aggregate amount paid pursuant to this Section
9.6(b)(iii)(A) shall not exceed $5 million and (B) if (1) a Third
Party has made an Acquisition Proposal and not withdrawn such
Acquisition Proposal at the time of the Source Meeting and (2)
within twelve (12) months following such termination, any Third
Party Acquisition is consummated or Source enters into a definitive
agreement providing for a Third Party Acquisition (for purposes of
this clause (iii), the terms "Acquisition Proposal" and "Third Party
Acquisition" shall have the meanings assigned to such terms except
that it shall refer only to Source and references to "15%" in the
definition shall be references to 50%), Source shall pay to the
Company an amount, if any, equal to the Termination Fee, less
amounts paid pursuant to Section 9.6(b)(iii)(A). The parties
acknowledge that certain invoices may not separate the expenses
attributable to the Distribution. The Company shall estimate the
expenses on those invoices related to the Distribution, and Source
acknowledges that such estimate will not be capable of audit but
shall represent a good faith approximation of the expenses related
to the Distribution.
(c) The parties acknowledge that the agreements contained in this
Section 9.6 are an integral part of the transactions contemplated by this
Agreement and that, without
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such agreements, the parties would not enter into this Agreement. If
either party fails to promptly pay to the other party the applicable
termination fee if and when it becomes due hereunder, such breaching party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other
legal action, taken to collect payment, together with interest on the
amount of any unpaid fee at the publicly announced prime rate of Bank of
America, N.A. plus five percent per annum, compounded quarterly, from the
date such applicable termination fee was required to be paid.
ARTICLE X
AMENDMENT AND WAIVER
10.1 AMENDMENT. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto. Such amendment may
take place at any time prior to the Closing Date, and, subject to applicable
law, whether before or after approval by the stockholders of the Company or
Source.
10.2 WAIVER. At any time prior to the Effective Time, the parties hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions 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 XI
DEFINITIONS
As used herein, the following terms shall have the following
meanings:
"AFFILIATE" means, with respect to any Person, any other Person,
directly or indirectly, controlling, controlled by, or under common control
with, such Person. For purposes of this definition, the term "CONTROL"
(including the correlative terms "CONTROLLING", "CONTROLLED BY" and "UNDER
COMMON CONTROL WITH") means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
"BENEFICIAL OWNERSHIP" shall have the meaning provided under Section
13(d) of the Exchange Act and the rules and regulations promulgated under such
section.
"BUSINESS DAY" means any day except a Saturday, Sunday or other day
on which commercial banks in New York are authorized by law to close.
"COBRA" means the Consolidated Omnibus Budget Reconciliation Act of
1985, as amended and as codified in Section 4980B of the Code and Section 601
et. seq. of ERISA.
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"CODE" means the Internal Revenue Code of 1986, as amended, and any
regulations and rulings thereunder.
"COMPANY MATERIAL ADVERSE EFFECT" means any change, event,
occurrence, violation, inaccuracy, circumstance, development or effect that is
or is reasonably likely to (i) be materially adverse to the business,
operations, assets, capitalization, results of operations or financial condition
of the Company and the Acquired Subsidiaries, taken as a whole or (ii)
materially impede the ability of the Company to consummate the transactions
contemplated by this Agreement; provided, however, that in no event shall any of
the following, alone or in combination, be deemed to constitute, nor shall any
of the following be taken into account in determining whether there has been or
will be, a Company Material Adverse Effect: any changes, events, occurrences,
violations, inaccuracies, circumstances, developments or effects that are (a)
caused or resulting from conditions affecting the industries in which the
Company or the Acquired Subsidiaries participates, the U.S. economy as a whole,
or foreign economies as a whole in any countries where the Company or the
Acquired Subsidiaries have material operations or the capital markets generally
(which changes in each case do not materially and disproportionately affect the
Company and the Acquired Subsidiaries), (b) caused by or resulting from an
outbreak or escalation of hostilities involving the United States, the
declaration by the United States of a national emergency or war, or the
occurrence of any acts of terrorism or (c) attributable to the public
announcement or pendency of this Agreement or the performance of this Agreement
by the Company.
"CHANGE OF CONTROL" shall mean: (i) a reorganization or merger of
Source with or into any other entity which will result in Source's stockholders
immediately prior to such transaction not holding, as a result of such
transaction, at least 50% of the voting power of the surviving or continuing
entity or entity controlling the surviving or continuing entity or (ii) a sale
of all or substantially all of the assets of the corporation which will result
in Source's stockholders immediately prior to such sale not holding, as a result
of such sale, at least 50% of the voting power of the purchasing entity.
"DISTRIBUTION" shall have the meaning shall have the meaning
provided in the Appendix A hereto.
"DOL" means the Department of Labor.
"DFSG" means the Distribution and Fulfillment Services Group of the
Company.
"EMPLOYEE" means any current or former or retired employee,
consultant, contractor or director of the Company or any ERISA Affiliate.
"EMPLOYEE AGREEMENT" means each management, employment, severance,
consulting, relocation, repatriation, expatriation, visa, work permit or other
agreement, contract or understanding between the Company or any ERISA Affiliate
and any Employee.
"EMPLOYEE BENEFIT PLAN" means any plan, program, policy, practice,
contract, agreement or other arrangement providing for compensation, severance,
termination pay, retirement benefits, deferred compensation, performance awards,
stock or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written or
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unwritten or otherwise, funded or unfunded, including without limitation, each
"employee benefit plan," within the meaning of Section 3(3) of ERISA which is or
has been maintained in the past three years, contributed to, or required to be
contributed to, by the Company or any ERISA Affiliate for the benefit of any
Employee, or with respect to which the Company or any ERISA Affiliate has or may
have any liability or obligation.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations promulgated thereunder.
"ERISA AFFILIATE" means each Subsidiary of the Company and any other
person or entity under common control with the Company or any of its
Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code
and the regulations issued thereunder.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted accounting principles in effect in
the United States of America from time to time.
"GOVERNMENTAL AUTHORITY" means any Federal, state, local or foreign
government, court, administrative agency or commission or other governmental or
regulatory authority or instrumentality.
"GROUP" or "GROUP" shall have the meaning provided in Section 13(d)
of the Exchange Act and the rules and regulations promulgated thereunder.
"HSR ACT" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended.
"INTELLECTUAL PROPERTY" shall mean any or all of the following and
all rights in, arising out of, or associated therewith: (i) all United States,
international, regional and foreign patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data, non-technical data, formula, methods,
techniques, financial data, and customer lists, and all documentation relating
to any of the foregoing; (iii) all copyrights, copyright registrations and
applications therefor, and all other rights corresponding thereto throughout the
world; (iv) all industrial designs and any registrations and applications
therefor throughout the world; (v) all trade names, logos, common law trademarks
and service marks, trademark and service xxxx registrations and applications
therefor throughout the world; (vi) all databases and data collections and all
rights therein throughout the world; and (vii) any similar or equivalent rights
to any of the foregoing anywhere in the world.
"INTERNATIONAL EMPLOYEE PLAN" means any Employee Benefit Plan that
has been adopted or maintained by the Company or any ERISA Affiliate, with
respect to which the Company or any Affiliate will or may have any liability,
for the benefit of Employees who perform services outside the United States.
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"KNOWLEDGE" or "KNOWLEDGE" means, (i) with respect to the Company,
the actual knowledge of Xxxx Xxxxxxx, Xxxxxx Xxxxxxxx, Xxxxx Xxxx and Xxxx
Xxxxxx and (ii) with respect to Source, the actual knowledge of S. Xxxxxx
Xxxxxx, Xxxx Xxxxxxx, Xxxxx X. Xxxxxx, Xxxxxxx Xxxxx and Xxxxx Xxxxxx.
"LIEN" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, but not limited to, any conditional sale
or other title retention agreement, any lease in the nature thereof, and the
filing of or agreement to give any financing statement under the Uniform
Commercial Code or comparable law or any jurisdiction in connection with such
mortgage, pledge, security interest, encumbrance, lien or charge).
"MINIMUM HOLDING DATE" means the date on which the Principal
Stockholder and the Principal Stockholder Group Members own less than 10% in the
aggregate of the outstanding Source Common Stock.
"MULTIEMPLOYER PLAN" means any "Pension Plan" which is a
"multiemployer plan," as defined in Section 3(37) of ERISA.
"PENSION PLAN" means an "employee pension benefit plan," within the
meaning of Section 3(2) of ERISA.
"PERSON" means an individual, corporation, limited liability
company, partnership, association, trust or any other entity or organization.
"PRINCIPAL STOCKHOLDER" shall have the meaning provided in the
Recitals hereto.
"PRINCIPAL STOCKHOLDER GROUP MEMBER(S)" means the Principal
Stockholder and those of its Affiliates and members and Persons who file
Schedule 13Ds and Schedule 13Gs pursuant to the Exchange Act as a Group with
Principal Stockholder.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"SOURCE EMPLOYEE AGREEMENT" means each management, employment,
severance, consulting, relocation, repatriation, expatriation, visa, work permit
or other agreement, contract or understanding between Source or any Source ERISA
Affiliate and any current or former or retired employee, consultant, contractor
or director of Source or any Source ERISA Affiliate.
"SOURCE EMPLOYEE BENEFIT PLAN" means any plan, program, policy,
practice, contract, agreement or other arrangement providing for compensation,
severance, termination pay, retirement benefits, deferred compensation,
performance awards, stock or stock-related awards, fringe benefits or other
employee benefits or remuneration of any kind, whether written or unwritten or
otherwise, funded or unfunded, including without limitation, each "Source
Employee Benefit Plan," within the meaning of Section 3(3) of ERISA which is or
has been maintained in the past three years, contributed to, or required to be
contributed to, by Source or
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any Source ERISA Affiliate for the benefit of any Employee, or with respect to
which Source or any Source ERISA Affiliate has or may have any liability or
obligation.
"SOURCE ERISA AFFILIATE" means each subsidiary of Source and any
other person or entity under common control with Source or any of its
Subsidiaries within the meaning of Section 414(b), (c), (m) or (o) of the Code
and the regulations issued thereunder.
"SOURCE MATERIAL ADVERSE EFFECT" means any change, event,
occurrence, violation, inaccuracy, circumstance, development or effect that is
or is reasonably likely to (i) be materially adverse to the business,
operations, assets, capitalization, results of operations or financial condition
of Source and its Subsidiaries taken as a whole or (ii) materially impede the
ability of Source to consummate the transactions contemplated by this Agreement;
provided, however, that in no event shall any of the following, alone or in
combination, be deemed to constitute, nor shall any of the following be taken
into account in determining whether there has been or will be, a Source Material
Adverse Effect: any changes, events, occurrences, violations, inaccuracies,
circumstances, developments or effects that are (a) caused or resulting from
conditions affecting the industries in which Source or its Subsidiaries
participates, the U.S. economy as a whole, or foreign economies as a whole in
any countries where Source or its Subsidiaries have material operations or the
capital markets generally (which changes in each case do not materially and
disproportionately affect Source and its Subsidiaries), (b) caused by or
resulting from an outbreak or escalation of hostilities involving the United
States, the declaration by the United States of a national emergency or war, or
the occurrence of any acts of terrorism, (c) attributable to the public
announcement or pendency of this Agreement or the performance of this Agreement
by Source, or (d) any change in the market price or trading volume of Source
Common Stock, in and of itself, after the date hereof
"SOURCE SEC REPORTS" shall have the meaning provided in Section 4.5
hereof.
"SOURCE VOTING AGREEMENTS" shall have the meaning provided in the
Recitals hereto.
"SPINCO BUSINESS" shall have the meaning provided in the Recitals
hereto.
"STOCKHOLDER DESIGNATED DIRECTOR(S)" means the individual or
individuals of Principal Stockholder's choice that Principal Stockholder has the
right to designate as a nominee for election to the Source Board.
"SUBSIDIARY" when used with respect to any Person means any
corporation, partnership, limited liability company, joint venture or other
business entity in which a party owns, directly or indirectly, more than half of
the voting securities of, or other interests in, such entity or has the right or
has the ability to elect, designate or appoint a majority of the Board of
Directors or other Persons performing similar functions of such Person.
"SUPERMAJORITY BOARD APPROVAL" means (i) the approval of at least
75% of the total number of members of the Source Board or (ii) the unanimous
written consent of the Source Board.
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"TAX RETURNS" means any return, report or other document required to
be supplied to a taxing authority in connection with Taxes.
"TAX SHARING AGREEMENT" means the tax sharing and indemnification
agreement between Company and Spinco contemplated in Appendix A.
"TAXES" means (i) all taxes, including, without limitation, income,
gross receipts, excise, property, sales, withholding, social security,
occupation, use, service, license, payroll, franchise, transfer and recording
taxes, fees and charges, windfall profits, severance, customs, import, export,
employment or similar taxes, charges, fees, levies or other assessments imposed
by the United States, or any state, local or foreign government or subdivision
or agency thereof, together with all interest, penalties and additions imposed
with respect to such amounts, (ii) any liability for the payment of any amount
described in section (i) of this definition as a result of being a member of an
affiliated, consolidated, combined or unitary group for any period and (iii) any
obligations under any agreements or arrangements with any other Person with
respect to amounts described in sections (i) and (ii) of this definition
(including any liability for such amounts of a predecessor entity).
"TERMINATION FEE" means a cash amount equal to $5 million.
"THIRD PARTY" means any Person or group (as such term is defined in
Section 13(d)(3) of the Exchange Act and the rules and regulations promulgated
thereunder) of Persons other than the Company and its Affiliates and Source and
its Affiliates, as applicable.
"THIRD PARTY ACQUISITION" means the consummation by a Third Party of
any transaction or series of transactions described in clauses (a) through (d)
of the definition of "ACQUISITION PROPOSAL."
"TRANSACTION DOCUMENTS" means this Agreement, the Voting Agreements,
the Stockholder's Agreement, the Consulting Agreement, and the Affiliate
Agreements and all other documents to be executed by the parties hereto in
connection with the consummation of transactions contemplated hereby.
"VOTING AGREEMENT" has the meaning provided in the Recitals hereof.
ARTICLE XII
GENERAL PROVISIONS
12.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations
and warranties of Source and the Company contained in this Agreement, or any
instrument delivered pursuant to this Agreement, shall terminate at the
Effective Time, and only the covenants that by their terms survive the Effective
Time and this Article XII shall survive the Effective Time.
12.2 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, mailed by registered
or certified mail (return receipt requested) or sent via facsimile to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
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If to Source or Merger Sub to:
Source Interlink Companies, Inc.
00000 Xxxxxxxxx Xxxxxx Xxxx.,
Xxxxx 000
Xxxxxx Xxxxxxx, Xxxxxxx 00000
Attention: S. Xxxxxx Xxxxxx, Chairman and Chief Executive Officer
Facsimile: (000) 000-0000
with copies to:
Source Interlink Companies, Inc.
00000 Xxxxxxxxx Xxxxxx Xxxx.,
Xxxxx 000
Xxxxxx Xxxxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq., General Counsel
Facsimile: (000) 000-0000
and:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
Professional Corporation
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxxx X. Xxxxxxx
Xxxxx X. Xxxxxxxx
Facsimile: (000) 000-0000
If to the Company to:
Alliance Entertainment Corp.
0000 Xxxxx Xxxxx Xxxxx
Xxxxx Xxxxxxx, Xxxxxxx 00000
Attention: Xxxx Xxxxxxx, President and Chief Operating Officer
Facsimile: (000) 000-0000
with copies to:
Alliance Entertainment Corp.
0000 Xxxxx Xxxxx Xxxxx
Xxxxx Xxxxxxx, Xxxxxxx 00000
Attention: Alliance Legal Department
Facsimile: (000) 000-0000
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and:
Xxxxxx, Xxxxxx & Xxxxx LLP
000 Xxxxx Xxxxx Xxxxxx
00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxx
Xxxxxx Xxxxxxx-Xxxxx
Facsimile: (000) 000-0000
12.3 INTERPRETATION. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears (i) the words "herein", "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision and (ii) reference to any Article or
Section means such Article or Section hereof. No provision of this Agreement
shall be interpreted or construed against any party hereto solely because such
party or its legal representative drafted such provision. Neither this Agreement
nor any uncertainty or ambiguity herein shall be construed or resolved against
any party, whether under any rule of construction or otherwise. No party to this
Agreement shall be considered the draftsman. The parties hereto acknowledge and
agree that this Agreement has been reviewed, negotiated and accepted by all
parties and their attorneys and shall be construed and interpreted according to
the ordinary meaning of the words used so as fairly to accomplish the purposes
and intentions of the parties hereto.
12.4 ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein and the exhibits and schedules attached hereto)
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof.
12.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS,
INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE LAWS OF THE STATE OF NEW
YORK APPLICABLE TO CONTRACTS EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH
STATE.
12.6 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY IRREVOCABLY WAIVES ALL
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED
ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
THE ACTIONS OF THE PARTIES HERETO IN THE NEGOTIATION, ADMINISTRATION,
PERFORMANCE AND ENFORCEMENT HEREOF.
12.7 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same agreement.
12.8 PARTIES IN INTEREST. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto and nothing in this Agreement,
express or implied, is intended to
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confer upon any other person any rights or remedies of any nature whatsoever
under or by reason of this Agreement except for the Indemnified Persons pursuant
to Section 7.14.
12.9 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
12.10 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any of the parties hereto (whether
by operation of law or otherwise) without the prior written consent of the other
parties. Subject to the preceding sentence, this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the parties and their
respective successors and assigns. Additionally, notwithstanding the foregoing
or anything to the contrary contained in this Agreement, Source is specifically
permitted to consummate the Reincorporation of Source into the State of Delaware
and assign this Agreement to its successor in such Reincorporation.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
SOURCE INTERLINK COMPANIES, INC.
By:/s/ S.Xxxxxx Xxxxxx
--------------------------------------------
Name: S. Xxxxxx Xxxxxx
Title: Chairman and Chief Executive Officer
ALLIANCE ENTERTAINMENT CORP.
By:/s/ Xxxx Xxxxxxx
--------------------------------------------
Name: Xxxx Xxxxxxx
Title: President and Chief Operating Officer
ALLIGATOR ACQUISITION, LLC
by Source Interlink Companies, Inc.,
its sole member
By: /s/ S.Xxxxxx Xxxxxx
--------------------------------------------
Name: S. Xxxxxx Xxxxxx
Title: Chairman and Chief Executive Officer
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
APPENDIX A(1)
Certain of the Company's direct and indirect wholly-owned subsidiaries
engage in the business of developing and licensing entertainment databases and
kiosk-based products and selling related products and services. In connection
with and as a condition to the Merger, these businesses will be reorganized and
contributed, sold or otherwise transferred to Digital On-Demand, Inc., a
wholly-owned subsidiary of the Company, and/or one or more other existing or
newly created, direct or indirect subsidiaries of the Company (other than DFS,
as defined below, or its subsidiaries) (collectively, the "Digital Entities"),
including, at the Company's election and without limitation, through the initial
transfer of the shares of a Digital Entity to DFS or its subsidiaries; the
Company may contribute, sell or otherwise transfer the shares and other
securities of one or more Digital Entities to other Digital Entities; the
Digital Entities may engage in certain additional transactions among themselves;
and the shares and other securities of the Digital Entities will be spun-off or
otherwise distributed to the stockholders of the Company (together with the
steps contemplated by Section I below, the "Distribution"). This appendix sets
forth the general terms of the Distribution.
I. STRUCTURE OF THE SPIN
AEC One Stop Group, Inc. ("AEC One Stop") is a wholly-owned, indirect
subsidiary of the Company. A portion of the businesses included in the
Distribution is operated as a division (the "All Media Guide Division") within
AEC One Stop. As part of the Distribution, AEC One Stop will cause substantially
all of the assets and liabilities of the All Media Guide Division consistent
with Section II below (as well as any additional assets and/or liabilities
related to the All Media Guide Division that are held under AEC One Stop) and
the assets and liabilities of All Media Guide, Inc. (collectively, the "AMG
Items") to be reorganized and contributed, sold or otherwise transferred to the
Digital Entities (and All Media Guide, Inc. will be dissolved or otherwise
included in Spinco, as defined below), including, at the Company's election and
without limitation, through the initial transfer of the shares of a Digital
Entity to DFS or its subsidiaries. It is currently contemplated that such
reorganization and contribution, sale or other transfer will be effected through
(1) the transfer of the AMG Items to a newly-formed LLC ("AMG LLC"), through
contribution, entity conversion or otherwise, (2) AEC One Stop's distribution of
all of its interest in and to AMG LLC to Distribution & Fulfillment Services
Group, Inc. ("DFS"), a direct, wholly-owned subsidiary of the Company, (3) DFS's
distribution of all of its interest in and to AMG LLC to the Company, (4) the
Company's contribution, sale or other transfer of all of its interest in and to
AMG LLC to the Digital Entities, and (5) the Company's distribution of the
shares and other securities of the Digital Entities, which shall also include
the interests of AMG LLC (collectively, "Spinco"), to its stockholders. As noted
above, at the Company's election, certain of the foregoing steps may be effected
through the initial transfer of the shares of a Digital Entity to DFS or its
subsidiaries. In addition, the Company may contribute, sell or otherwise
transfer the shares and other securities of one or more Digital Entities to
other Digital Entities; and the Digital Entities may engage in certain
additional contribution, sale or other transactions among themselves.
----------
(1) Terms used but not otherwise defined herein shall have the meanings ascribed
to them in the Agreement.
1
The transactions comprising the Distribution will occur in such order
as is selected by the Company. The consummation of the Distribution will occur
at such time prior to the consummation of the Merger as is selected by the
Company (such date referred to herein as the "Spin Date").
II. SPUN ASSETS AND LIABILITIES
The businesses of Spinco (the "Spinco Business") consists of two
sub-businesses:
(i) the "All Media Guide" business, which involves the
development, licensing and sale of music, movie and video game databases
providing music sound clips and software and services for the recognition and
identification of CDs, DVDs and digital music files. This business is operated
primarily as an unincorporated division of AEC One-Stop referred to as the All
Media Guide Division and also includes All Media Guide, Inc., a wholly-owned
subsidiary of AEC One Stop; and
(ii) the "Digital On-Demand" business, which involves the
development, licensing and sale of kiosk-based products (including listening
stations and digital distribution terminals) and services related to the digital
distribution and manufacturing of music and related entertainment goods. This
business is primarily conducted in and through Digital On-Demand, Inc. and
includes DOD Acquisition Sub, a wholly owned subsidiary of the Company, and
Digital Holding, Inc., a wholly owned subsidiary of DOD Acquisition Sub.
The assets of the Spinco Business that will be spun-off from the
Company as part of the Distribution are the following:
1. The All Media Guide Division contracts (consisting mostly of
licensing agreements for the AMG Databases, SonicGuide sound
sampling service, and the media recognition software and
service and agreements with freelance writers) listed on
Exhibit 6 to this Appendix A and any similar contracts, in
each case, to the extent related solely to the Spinco
Business;
2. The Digital On-Demand contracts (consisting mostly of retail
and technology agreements) listed on Exhibit 6 to this
Appendix A and any other contracts entered into by any Digital
Entities, in each case, to the extent related solely to the
Spinco Business;
3. The real property leases listed on Exhibit 7 to this Appendix
A;
4. The vendor agreements listed on Exhibit 4 to this Appendix A
and any other vendor agreements, in each case, to the extent
related solely to the Spinco Business;
5. The content licenses and agreements listed on Exhibit 6 to
this Appendix A and all other content licenses and agreements,
in each case, to the extent related solely to the Spinco
Business;
6. The following Spinco Business databases: the "All Music
Guide," "All-Movie Guide," "All-Game Guide," and any other
databases to the extent related solely to the Spinco Business;
7. The "Digital On-Demand" software systems, subsystems and
databases, the "RedDot" network and in-store systems software,
the "Mercury Dot" technology,
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and any software systems, subsystems and databases, including
as listed on Exhibit 13.2, in each case related solely to the
Spinco Business;
8. The transfer of all other intellectual property related solely
to the Spinco Business;
9. The tangible personal property, including, without limitation,
furniture, fixtures, equipment, machinery, vehicles, tools,
supplies and leasehold improvements listed on Exhibit 3 to
this Appendix A located on the premises covered in the real
property leases set forth in Item 3 above;
10. All receivables outstanding on the Spin Date that arose in the
ordinary course of the Spinco Business on or prior to the Spin
Date to the extent related solely to the Spinco Business;
11. The existing files, books and records of the Spinco Business
located on the leased premises of the Spinco Business related
solely to the Spinco Business;
12. All NOLs attributable to Digital On-Demand, Inc.;
13. All inventory, raw materials, works-in-process, finished
goods, prepayments, prepaid expenses, advances, claims, choses
in action, rights of recovery, rights of set-off, and rights
to refunds, in each case, related solely to the Spinco
Business;
14. The domain names listed on Exhibit 5;
15. All licenses and permits related solely to the Spinco
Business;
16. All trademarks, copyrights and patents listed on Exhibit 12
and any other tradenames, copyrights and patents related
solely to the Spinco Business;
17. All "AMG Developed Applications" listed on Exhibit 13.1;
18. All owned and licensed software developed by third parties and
licensed or purchased for use, including as listed on Exhibit
14, in each case related solely to the Spinco Business; and
19. All goodwill related solely to the Spinco Business.
To the extent that there are additional assets used solely in the
conduct of the Spinco Business, such assets will be included in the assets to be
spun off on the Spin Date. The term "related solely to the Spinco Business"
shall not be negated by the provision of any service of the Spinco Business to
or on behalf of the Company.
To the extent there are shared assets, Spinco and the Company will
provide terms in the separation agreement and enter into a Transition Services
Agreement and/or License Agreement to give access to/benefit of certain assets
to Spinco. The agreement between the parties shall not constitute an assignment
of any asset or the assumption of any liability if such an assignment or
assumption would constitute a breach or default under the agreement or adversely
affect the rights or increase the obligations of the parties. The Company and
Spinco shall enter into reasonably cooperative arrangements as may be reasonably
acceptable to both to provide for or impose upon Spinco the benefits of any
asset or the obligations of any liability. To the extent that there are
agreements that are shared between the Company and Spinco, the parties will
enter into reasonably cooperative arrangements to permit performance under such
agreements and to
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allocate payments received or to be made or the obligation or liabilities
thereunder in an equitable manner if not separately identified in the agreement.
Each party shall cooperate with the other to give access to or copies of any
books or records that may be reasonably requested as relevant to the other
party's ongoing businesses, including prior tax records. The retention of
records shall be coordinated between the parties. If a pre-closing obligation to
a third party has not been performed by the Company, and after the Spin Date,
Spinco has the assets uniquely capable of performing such obligation, then
Spinco, at the Company's request, shall satisfy the obligation to the third
party and the Company shall reimburse Spinco for its cost of performance.
Spinco will assume: (i) all current liabilities incurred and expenses
accrued relating solely to the Spinco Business, (ii) all liabilities, claims or
actions arising from the operation of the Spinco Business on and after the Spin
Date, including on-going obligations under any assigned contract or any shared
contract to the extent allocable to Spinco for services received or rendered by
Spinco after the Spin Date, (iii) accrued vacation, personal days and floating
holidays of the Spinco employees as of the Spin Date; and (iv) tax liabilities
as set forth in the Tax Sharing and Indemnification Agreement (the "Assumed
Liabilities"). The current liabilities outstanding as of September 30, 2004 are
listed in Exhibits 8 and 9, and the Company will update those exhibits as of the
Spin Date.
Any liabilities and obligations of the Company not described in the
immediately preceding paragraph as Assumed Liabilities shall be the sole
responsibility of the Company. In particular, Spinco shall not assume and shall
have no liability or obligations of the Company as follows: (i) payment or other
allocations with respect to income taxes (except as provided below) for periods
prior to the Spin Date; (ii) the GECC loan and any intercompany amounts; (iii)
any pending litigation, including the Muze litigation; and (iv) any liabilities,
claims or actions arising from the operation of the Spinco Business prior to the
Spin Date, other than for items identified in clause (i) and (iii) of the
preceding paragraph.
The Company expects that some or all of the Distribution will be a
taxable transaction at the corporate level. The Company will utilize
consolidated NOLs and other attributes, to the extent available after offset
against operating income of the consolidated group, to shelter the gain on the
Distribution. NOLs will be absorbed pursuant to Treas. Reg. Sections 1.1502-21
and -21T. Spinco shall indemnify the Company with respect to certain tax
consequences of the Distribution, as described in Section III(3) below.
Notwithstanding the foregoing, the month-end immediately following the
Distribution, the Company shall have a Tangible Net Worth (as defined below) of
at least $20.7 million (the "Measurement Date"). The balance sheet used for the
calculation of Tangible Net Worth shall be the Company's monthly internally
generated consolidating balance sheet, prepared in a manner consistent with the
past practice of the Company, excluding all assets and liabilities of SBU 2
(Information Services Group ("AMG")) and SBU 3 (Digital Media Infrastructure
Group ("Digital on Demand") except the amount classified as Revolving Credit
Facility in SBU 2 and SBU 3, which represent AMG and Digital on Demand
intercompany amounts and thus should be reclassified to Due From Affiliates from
Revolving Credit Facility (the "Intercompany Receivable") (the "Balance Sheet").
"Tangible Net Worth", calculated from the Balance Sheet, shall mean Total Assets
less Total Liabilities less amounts classified as Due From Affiliates ("DFA")
less Intercompany Receivable less amounts classified as Investments in
Subsidiaries ("IIS") (DFA, Intercompany Receivable and IIS shall collectively be
referred to as the "Intercompany Amounts") less amounts classified as
Reorganization Value in Excess of
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Amounts Allocable to Identifiable Assets ("Reorganization Value") less amounts
classified as Goodwill less amounts classified as Deferred Financing Costs
(Reorganization Value, Goodwill and Deferred Financing Costs shall collectively
be referred to as the "Intangible Amounts"). The calculation on Measurement Date
shall be computed in a manner consistent with the calculation set forth on
Attachment A hereto. For purposes of this calculation, intangibles related to
capitalized software costs should not reduce Tangible Net Worth. Tangible Net
Worth shall exclude, to the extent accrued, expensed, or paid at the Measurement
Date, transaction expenses related to the Merger, including the $4 million
transaction fee payable to Yucaipa and professional fees payable to Xxxxxx
Xxxxxx & Xxxxx and Pricewaterhouse Coopers. In the event that the Company would
otherwise have a Tangible Net Worth of less than $20.7 million, Spinco shall
elect to assume such additional liabilities (which shall be included in the
"Assumed Liabilities") or forego such current assets as necessary to ensure such
minimum Tangible Net Worth. Amounts not defined in the definition of Tangible
Net Worth shall refer to amounts classified on the Company's monthly balance
sheet.
If the Company has insurance coverage applicable to any Assumed
Liabilities, it shall cooperate with Spinco to make the benefits of such
coverage available to Spinco.
For a period of two years after the Spin Date, Spinco and the Company
will agree not to solicit (other than through a general advertisement or
non-specific means) each other's employees or consultants or independent
contractors who devote all or substantially all of their time to Spinco or the
Company, as applicable.
Except for personnel in the accounting and legal areas, those employees
who currently devote substantially all of their time to the Spinco Business will
be offered employment by Spinco after the Distribution. A list of the current
employees is attached hereto as Exhibit 2.
III. RELATIONSHIP BETWEEN SPINCO AND THE COMPANY AFTER THE DISTRIBUTION
1. Licensing and Co-Marketing Arrangement
Effective as of the Spin Date, the Company and Spinco will enter into a
license, sublicense, and co-marketing agreement arrangement. Please see Exhibit
1.
2. Spinco Transition/Shared Services Agreement
For a period of no more than six (6) months following the Spin Date,
Spinco and the Company will enter into a transition/shared services agreement
pursuant to which the Company will provide certain services to Spinco. These
services may include:
a) HR -Payroll, benefit programs, HR management
b) Accounting
(1) A/R collection - credit review
(2) AP xxxx paying
(3) Insurance placement/case management
(4) Financial preparation
(5) Trial balance for AMG only
(6) Cash Management
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(7) Tax Returns
c) Legal
(1) Contract negotiation
(2) Contract write-up - Legal review and drafting of
contracts.
(3) Litigation management
Each of these service areas (HR, Accounting and Legal) may be
terminated by Spinco at any time prior to the six (6) month anniversary of the
Spin Date. Spinco shall use commercially reasonable efforts to terminate the
services as soon as reasonably practicable. Spinco and the Company will agree to
cooperate with one another to separate the Spinco Business and the Company's
business as soon as practicable.
The Company will xxxx Spinco for the transition services at an
aggregate rate of $25,000 per month. To the extent that Spinco terminates any
service area on fifteen days' notice, then the fee shall be reduced by the
amount for such service area as set forth on Exhibit 10. If Spinco's use of the
time of the personnel in any service area is expected to exceed that which is
set forth on Exhibit 10, then the parties shall discuss increasing the fee in a
manner consistent with the assumptions made to calculate the amounts set forth
in Exhibit 10; provided, however, Spinco shall not be obligated to pay any
increased fee unless it agrees in writing. The Company shall not be obligated to
provide any services in excess of those set forth on Exhibit 10 in the absence
of any fee arrangement.
Recognizing that the Company is not in the business of providing the
services contemplated by this transition/shared services agreement, and that it
is performing such services at cost, the Company shall not be liable for any
services provided thereunder absent its gross negligence or willful misconduct.
In no event shall either party be entitled to incidental, special, exemplary,
punitive or consequential damages.
3. Noncompete
The Company and Spinco shall enter into a noncompetition agreement to
provide that for a period of one year from the Spin Date, Spinco will not engage
in the business of distribution and fulfillment of prepackaged, physical VHS,
CDs or DVDs containing audio or video files or other prepackaged, physical
products containing audio or video files, provided, however, the foregoing shall
not include video games. The noncompete shall not bind an acquirer of Spinco's
assets through an asset acquisition or any other successor to Spinco's business
that would not otherwise be bound by operation of law.
4. Tax Sharing and Indemnification Agreement
Spinco and the Company will enter into a tax sharing and
indemnification agreement, which will address, among other items:
(a) The Company's inclusion of the income of Spinco (including any
deferred items triggered into income by Treasury Regulations Section 1.1502-13)
on the Company's consolidated federal income Tax Return (and any comparable
state returns) for all periods through the date of the Distribution, and the
payment of any Taxes attributable to such income. All such Tax Returns shall be
prepared and filed in a manner consistent with past practice. The Company and
Spinco shall cooperate with each other in the preparation of such Tax Returns,
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provided that Spinco shall control the reporting of the Distribution, and Spinco
shall have the right to review and approve the portions of any such Tax Returns
relating to the Company's pre-Distribution activities, which approval shall not
be unreasonably withheld or delayed. The Company shall not amend any material
Tax Return that includes any period prior to or including the Distribution
without the approval of Spinco if such amendment relates to the reporting of the
Distribution, would result in an indemnity obligation on the part of Spinco or
would otherwise reduce Spinco's NOLs or other attributes, which approval shall
not be unreasonably withheld or delayed;
(b) The indemnity to be provided by Spinco to the Company for any Taxes
payable by the Company with respect to the Distribution (which shall include
each of the steps comprising part of the Distribution, including those steps
described in Section I (Structure of the Spin) of this Appendix A) for the
taxable year in which the Distribution occurs (including, primarily, Taxes
resulting from the failure of the Company's consolidated NOLs or other
attributes to fully offset any gain arising from the Distribution). For the
avoidance of doubt, such indemnity shall not extend to Taxes (including any
Taxes attributable to any reduction in the Company's consolidated NOLs or other
attributes as a result of the Distribution) arising from transactions or
activities of the Company other than the Distribution. If the Distribution and
Merger transactions occur in the same taxable year, such indemnity shall not
include any Taxes to the extent attributable to a reduction in the Company's
consolidated NOLs or other attributes due to transactions or activities of
Salamander or transactions or activities of the Company for such year that are
properly allocable to the portion of the year following the Merger. The Company
shall reduce (or to the extent previously paid by Spinco to the Company,
promptly pay back to Spinco) the amount of any indemnity claim for Taxes payable
by the Company with respect to the Distribution by the value of any Tax benefit
actually realized by the Company as a result of any losses generated by the
Distribution not otherwise allocated to Spinco pursuant to Treas. Reg. Sections
1.1502-21 and -21T. The Company shall have no obligation to file any amended Tax
Return in order to realize any such Tax benefit;
(c) The indemnity to be provided by the Company to Spinco with respect
to any Taxes of the Company or its subsidiaries payable by Spinco as a result of
the application of Treasury Regulations Section 1.1502-6 (or any similar
provision of state, local or foreign law); and
(d) The conduct of any audits and contests relating to the Company's
Taxes. The Company shall allow Spinco and its counsel to participate (at
Spinco's expense) in any audit of the Company's Tax Returns to the extent
related to the Distribution or the Company's pre-Distribution activities if such
audit relates to the reporting of the Distribution or the resolution of such
items would result in an indemnity obligation on the part of Spinco or would
otherwise reduce Spinco's NOLs or other attributes, and shall not settle any
such audit or contest in a manner that would adversely affect Spinco (including
by modifying the taxation of the Distribution to the Company's shareholders,
increasing its liability under the indemnity described in paragraph (b) above or
reducing Spinco's NOLs or other attributes), without the approval of Spinco,
which approval shall not be unreasonably withheld or delayed;
(e) The term of the indemnity provisions. The indemnity provisions will
expire on the date that is 30 days following the expiration of the applicable
statute of limitations.
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5. Indemnification Agreement.
The Company and Spinco will enter into an Indemnification Agreement at
or prior to Spin Date, which will provide that Spinco will indemnify, defend and
hold the Company and its affiliates and successors harmless against any and all
liabilities, in perpetuity, relating to or arising out of the Assumed
Liabilities, other than tax liabilities.
6. Survival of Agreements
Each of the agreements shall provide that the agreements, obligations
and rights of each party shall be binding on successors and assigns and contain
a covenant that it shall not consummate any transaction in which another entity
becomes the owner of 50% or more of the equity interests of such party unless
the acquiror and any ultimate parent entity shall have executed and delivered to
the other party an agreement confirming that such acquiror and/or ultimate
parent entity shall, upon consummation of such transaction, cause the relevant
party to continue to perform under the terms of such agreement.
IV. OPTIONS
In order to account for the reduction in value to the Company
attributable to the Distribution, the Company may adjust each outstanding option
to acquire the Company's capital stock. Consequently, the exercise price of each
option may be reduced and the number of shares for which each such option is
exercisable may be correspondingly increased to preserve the intrinsic value of
the adjusted award as compared to the original award. Furthermore, those
employees of the Company that are either terminated or accept employment with
Spinco may also receive re-denominated Company options, and would have whatever
period to exercise such options that they are afforded in their option
agreements or as determined in accordance with the applicable plan or by the
Board of Directors. The maximum number of shares issuable under the applicable
plan will be increased by the additional number of shares covered by options
outstanding under such plan as a result of the adjustment.
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