ASSET PURCHASE AGREEMENT
This
Asset Purchase Agreement (“Agreement”)
is
made and entered into as of the 25th day of October, 2006 (the “Effective
Date”),
by
and among RAC Nutrition Corporation, a Delaware corporation, (the “Buyer”),
and
Millennium Biotechnologies Group, Inc., a Delaware corporation (the
“Parent”
or
the
“Company”),
together with its wholly owned subsidiary Millennium Biotechnologies, Inc.,
a
Delaware corporation (the “Seller”
or
the
“Subsidiary”),
and
RAC Nutrition Holdings LLC, a Delaware limited liability company (“LLC”) and
their respective successors and assigns.
RECITALS:
(A) WHEREAS,
Seller is engaged in the distribution and sale of nutraceuticals under the
“Resurgex”
name
and xxxx (the “Business”),
and;
(B) WHEREAS,
Seller desires to sell to Buyer, and Buyer desires to purchase from Seller,
substantially all of the assets used in connection with the Business, as
provided herein, together with certain liabilities as defined herein (the sale
of such assets of the Business and certain liabilities by Seller to Buyer
referred to herein as the “Transaction”).
(C) WHEREAS,
for United States Federal income tax purposes, it is intended that the
Transaction shall qualify as a “reorganization” under Section 368(a) of the
Internal Revenue Code of 1986, as amended (together with the rules and
regulations promulgated thereunder, the “Code”),
and
that this Agreement shall be, and hereby is, adopted as a plan of reorganization
for purposes of Section 368 of the Code.
NOW,
THEREFORE, in consideration of the premises above and of the mutual covenants,
representations, warranties, and agreements set forth herein, the parties hereby
agree as follows:
ARTICLE
I
DEFINITIONS
Section
1.1 Certain
Definitions.
As used
herein, the following capitalized terms have the following
meanings:
“Accounts
Receivable”
has
the
meaning set forth in Section
2.1(k).
“Adjustment
Report”
has
the
meaning set forth in Section
2.7(b).
“Affiliate”
means,
as to any Person, (a) any subsidiary of such Person and (b) any other Person
which, directly or indirectly, controls, is controlled by, or is under common
control with, such Person and includes, in the case of a Person other than
an
individual, each officer, director, general partner or member of such Person,
and each Person who is the beneficial owner of twenty-five percent (25%) or
more
of such Person’s outstanding stock having ordinary voting power of such Person.
For the purposes of this definition, “control”
means
the possession of the power to direct or cause the direction of management
and
policies of such Person, whether through the ownership of voting securities,
by
contract or otherwise.
“Agreement”
has
the
meaning set forth in the Preamble.
“Assignment
Agreement”
has
the
meaning set forth in Section
2.10(a)(ii).
“Assumed
Obligations”
has
the
meaning set forth in Section
2.3.
“Big
Four”
means
Ernst & Young, Deloitte Touche Tohmatsu, PricewaterhouseCoopers and KPMG,
collectively.
“Xxxx
of Sale”
has
the
meaning set forth in Section
2.10(a)(i).
“Business”
has
the
meaning set forth in the Recitals.
“Business
Day”
means
any day other than Saturday, Sunday, and any day on which commercial banks
in
the State of New York are authorized by Law to be closed.
“Business
Employees”
means,
collectively, the individuals who are employed by Seller (or an Affiliate of
Seller) on a full-time or permanent basis principally at or with respect to
the
business of the Company immediately prior to the Closing and who are identified
on Schedule
3.27(c).
“Business
Intellectual Property”
has
the
meaning set forth in Section
2.1(h).
“Buyer”
has
the
meaning set forth in the Preamble.
“Buyer
Common Stock”
means
shares of common stock of Buyer, par value $0.001 per share.
“Buyer
Common Stock Issuance Calculation”
means
an amount equal to 10,000,000 shares of Buyer Common Stock less the number
of
shares equal to Estimated Qualified Liabilities divided by $1.00.
“Certificate
of Good Standing”
means
a
certificate of good standing issued by a Secretary of State of a competent
jurisdiction evidencing the good standing of the Company or the
Subsidiary.
“Claim”
means
any demand, suit, claim or other assertion of liability by third
parties.
“Closing”
has
the
meaning set forth in Section
2.9.
“Closing
Date”
has
the
meaning set forth in Section
2.9.
“Closing
Statement”
has
the
meaning set forth in Section
2.7(b).
“COBRA”
means
the requirements of Part 6 of Subtitle B of Title I of ERISA and Section 4980B
of the Code.
2
“Code”
has
the
meaning set forth in the Recitals.
“Collected
Receivables”
has
the
meaning set forth in Section
2.6.
“Company”
has
the
meaning set forth in the Preamble.
“Company
Common Stock”
has
the
meaning set forth in Section
5.8(a).
“Company
Stockholders”
has
the
meaning set forth in Section
5.8(a).
“Confidentiality
Agreements”
has
the
meaning set forth in Section
2.10(a)(xii).
“Consent
Contract”
has
the
meaning set forth in Section
2.5.
“Contract”
and
“Contracts”
have
the meaning given to them in Section
2.1(f).
“Current
Liabilities”
shall
include all Accounts Payable, accrued expenses and accrued Tax liabilities
of
the Company on the Closing Date net of any and all accrued interest on any
long-term or short-term debt obligations of Seller.
“Damages”
has
the
meaning set forth in Section
9.1.
“Distributor
Contracts”
has
the
meaning set forth in Section
2.1(a).
“Domain
Names”
means
URL addresses and all other internet and world wide web addresses and
designations.
“Effective
Date”
has
the
meaning set forth in the Preamble.
“Employee
Benefit Plan”
means
any (a) nonqualified deferred compensation or retirement plan or arrangement;
(b) qualified defined contribution retirement plan or arrangement which is
an
Employee Pension Benefit Plan; (c) qualified defined benefit retirement plan
or
arrangement which is an Employee Pension Benefit Plan (including any
Multiemployer Plan); (d) Employee Welfare Benefit Plan; (e) material fringe
benefit including vacation pay or paid sick leave; and (f) other retirement,
bonus, severance, change in control, vacation, incentive, profit sharing,
equity-incentive, employee group insurance, hospitalization, disability or
other
employee benefit plan, program policy or agreement, whether formal or informal,
and whether or not subject to ERISA in each case that is sponsored, contributed
to or maintained by Seller or to which Seller has an obligation to
contribute.
“Employer”
means
the entity designated by Buyer (which may be the Buyer, its Affiliate or other
entity) that employs the Transferred Employees as of the Transfer
Date.
“Encumbrances”
has
the
meaning set forth in Section
3.7.
“Environmental,
Health and Safety Requirements”
has
the
meaning set forth in Section
3.23.
3
“ERISA”
means
the Employee Retirement Income Security Act of 1974, as amended and the rules
and regulations adopted pursuant thereto.
“ERISA
Affiliate”
means
with respect to the Seller, any trade or business (whether or not incorporated)
under common control with Seller or which, together with the Seller is treated
as a single employer within the meaning of Sections 414(b),(c) or (m) of the
Code.
“Estimated
Qualified Liabilities”
has
the
meaning set forth in Section
2.7(a).
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended and the rules and regulations
adopted pursuant hereto.
“Excluded
Assets”
has
the
meaning set forth in Section
2.2.
“Exclusivity
Period”
has
the
meaning set forth in Section
10.1(a).
“Fairness
Advisor Opinion”
has
the
meaning set forth in Section
7.2(k).
“Fee”
has
the
meaning set forth in Section
10.1(a).
“Financial
Statements”
has
the
meaning set forth in Section
3.5.
“401(k)
Plan”
means
an Employee Pension Benefit Plan that is intended to meet the requirements
of a
qualified cash or deferred arrangement under section 401(k) of the
Code.
“GAAP”
means
generally accepted accounting principles in the United States of America as
in
effect from time to time set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified Public
Accountants and the statements and pronouncements of the Financial Accounting
Standards Board.
“Governmental
Authority”
means
any federal, state, local or foreign government or governmental regulatory
body
and any of their respective subdivisions, agencies, instrumentalities,
authorities, courts or tribunals.
“Headquarters
Lease”
means
the Lease Agreement, dated October __, 2001, for the commercial real estate
located at 000 Xxxxxxxxxxxx Xxxx, Xxxxx 000, Xxxxxxx Xxxxx, Xxx Xxxxxx
00000.
“Indebtedness”
shall
mean (a) obligations for borrowed money; (b) obligations evidenced by bonds,
debentures, notes or other similar instrument; (c) obligations under a lease
that are required to be classified and accounted as capital lease obligation
under GAAP; (d) obligations for reimbursement of any obligor on any letter
of
credit, banker’s acceptance or similar credit transaction; and (e) guarantees
and other contingent obligations in respect of Indebtedness referred to in
clauses (a) through (d) above.
“Indemnitee”
has
the
meaning set forth in Section
9.5.
“Indemnitor”
has
the
meaning set forth in Section
9.5.
4
“Independent
Auditors”
has
the
meaning set forth in Section
2.7(d).
“Intellectual
Property”
has
the
meaning set forth in Section
2.1(h).
“Inventory”
has
the
meaning set forth in Section
2.1(d).
“Key
Employee”
means
the employee listed in Schedule
2.10(a)(xi).
“Key
Employment Agreement”
has
the
meaning set forth Section
2.10(a)(xi).
“Law”
means
any federal, state, local or foreign law, ordinance, order, rule, regulation,
license or permit, and any order, writ, judgment, award, injunction, or decree
of any court or arbitrator or any Governmental Authority of the United States
of
America, any state or political subdivision thereof or any foreign Governmental
Authority.
“Letter
of Intent”
means
that certain Letter of Intent by and among the Company, the Subsidiary and
Aisling Capital II, L.P., dated April 5, 2006.
“Lien”
means
any charge, claim, community property interest, condition, equitable interest,
lien (including any Tax lien), mortgage, option, pledge, security interest,
right of first refusal, easement, servitude, right of way, or other encumbrance
or restriction of any kind, including any restrictions on use, voting, transfer,
receipt of income, or exercise of any other attribute of ownership.
“LLC”
has
the
meaning set forth in Section
7.1(e).
“LLC
Interest”
means
a
one hundred percent (100%) membership interest in the LLC.
“Material
Adverse Effect”
means,
when used with respect to Seller, any event, condition, change, occurrence
or
circumstance which has a material adverse effect on the Purchased Assets,
operations, business, assets, liabilities, results of operations, financial
condition or prospects of the Business on the whole, as now conducted by
Seller.
“Operating
Agreement”
has
the
meaning set forth in Section
7.1(e).
“Organizational
Documents”
has
the
meaning set forth in Section
3.1.
“Other
Businesses”
has
the
meaning set forth in Section
9.1(b).
“Other
Contracts”
has
the
meaning set forth in Section
2.1(f).
“Parent”
has
the
meaning set forth in the Preamble.
“Patent
Assignment Agreement”
has
the
meaning set forth in Section
2.10(a)(xv).
“Permits”
has
the
meaning set forth in Section
2.1(g).
“Permitted
Encumbrances”
has
the
meaning set forth in Section
3.7.
5
“Person”
means
any individual, corporation, partnership, joint venture, association, limited
liability company, joint stock company, trust, or unincorporated association,
or
any Governmental Authority, officer, department, commission, board, bureau
or
instrumentality thereof.
“Personal
Property Leases”
has
the
meaning set forth in Section
2.1(j).
“Proxy
Statement”
has
the
meaning set forth in Section
5.8(c).
“Purchase
Price”
has
the
meaning set forth in Section
2.6.
“Purchased
Assets”
has
the
meaning set forth in Section
2.1.
“Qualified
Liabilities”
has
the
meaning set forth in Section
2.4.
“Representatives”
has
the
meaning set forth in Section
10.1(a)
“Restricted
Area”
has
the
meaning set forth in Section
6.3(a).
“Royalty
Agreement”
has
the
meaning set forth in Section
2.10(a)(xiii).
“SEC”
has
the
meaning set forth in Section
5.8(c).
“SEC
Reports”
has
the
meaning set forth in Section
3.4.
“Securities
Act”
has
the
meaning set forth in Section
5.8(c).
“Seller”
has
the
meaning set forth in the Preamble.
“Solvency
Opinion”
has
the
meaning set forth in Section
7.2(l).
“Solvent”
has
the
meaning set forth in Section
3.33.
“Stock
Purchase Agreement”
has
the
meaning set forth in Section
2.10(b)(x).
“Straddle
Period”
has
the
meaning set forth in Section
5.9(c)(ii).
“Stockholders’
Meeting”
has
the
meaning set forth in Section
5.8(a).
“Sublease”
has
the
meaning set forth in Section
2.10(a)(xiv).
“Subsidiary”
has
the
meaning set forth in the Preamble.
“Superior
Proposal”
has
the
meaning set forth in Section
10.1(b).
“Superior
Transaction”
has
the
meaning set forth in Section
10.1(b).
“Survival
Period”
has
the
meaning set forth in Section
9.4(a).
6
“Tax
Audit”
has
the
meaning set forth in Section
3.20(a)(v).
“Tax
Deficiency”
has
the
meaning set forth in Section
3.20(a)(vii).
“Tax”
(including, with correlative meaning, “Taxes”
and
“Taxable”)
means
(i)(A) any net income, gross income, business and occupation, admissions, gross
receipts, sales, use, value added, ad valorem, transfer, transfer gains,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, rent, recording, occupation, premium, real or personal
property, intangibles, environmental or windfall profits tax, alternative or
add-on minimum tax, customs duty or other tax, fee, duty, levy, impost,
assessment or charge of any kind whatsoever (including but not limited to taxes
assessed to or on real property and water and sewer rents relating thereto),
together with (B) all interest, any penalties, additions to tax or additional
amounts imposed by any taxing or other governmental body, authority or
jurisdiction (domestic or foreign) (a “Tax
Authority”);
(ii)
any liability for the payment of any amount of the type described in the
immediately preceding clause (i) as a result of being a member of an affiliated,
unitary, consolidated or combined group with any other corporation at any time
prior to the Closing Date; and (iii) any liability for the payment of an amount
of the type described in the preceding clause (i) by reason of a contractual
obligation to any other Person.
“Tax
Return”
means
any report, return, document, declaration or other information (including any
attached schedules or amendments thereto) required to be supplied to or filed
with any Tax Authority) with respect to any Tax, including an information
return, any document with respect to or accompanying Tax payments or estimated
Taxes, or with respect to or accompanying requests for an extension of time
in
which to file any such report, return document, declaration or other
information.
“Terminated
Employees”
has
the
meaning set forth in Section
6.1(a).
“Third
Party”
has
the
meaning set forth in Section
10.1(a).
“Third
Party Acquisition”
has
the
meaning set forth in Section
10.1(a).
“Third
Party Licenses”
has
the
meaning set forth in Section
2.1(c).
“Third
Party Proposal”
has
the
meaning set forth in Section
10.1(b).
“Trademark
and Domain Name Assignment Agreement”
has
the
meaning set forth in Section
2.10(a)(xvi).
“Transaction”
has
the
meaning set forth in the Recitals.
“Transaction
Documents”
has
the
meaning set forth in Section
2.2(b).
“Transferred
Employees”
has
the
meaning set forth in Section
6.1(a).
“Transfer
Date”
has
the
meaning set forth in Section
6.1(b).
7
“Transfer
Taxes”
means
all excise, sales, value added, use, registration, stamp, transfer, gains,
real
estate transfer and other taxes imposed with respect to a change in the
ownership of any asset or of its direct or indirect owners.
“UCC”
means
the Uniform Commercial Code in effect from time to time in the jurisdiction
in
which a security interest is located.
“Unassumed
Liabilities”
has
the
meaning set forth in Section
2.4.
“Uniform
Resource Locator”
or
“URL”
means
a
string of characters that refers to a resource on the internet by its
location.
“Updated
Schedules”
has
the
meaning set forth in Section
5.2.
“Vendor
Contracts”
has
the
meaning set forth in Section
2.1(b).
“Warrant”
has
the
meaning set forth in Section
2.6.
“Warrant
Shares”
has
the
meaning set forth in Section
2.6.
“Working
Capital Adjustment Payment”
has
the
meaning set forth in Section
2.7.
ARTICLE
II
PURCHASE
AND SALE OF PURCHASED ASSETS
Section
2.1 Purchase
and Sale.
Except
for the Excluded Assets, as of the Closing Date, Seller will sell, assign,
transfer, convey, and deliver to Buyer, and Buyer will purchase, accept and
assume from Seller, all of Seller’s right, title and interest in and to all of
the Seller’s property and assets, real or personal, tangible or intangible,
relating to, reasonably necessary in and/or used in connection with the Business
as set forth below (collectively, the “Purchased
Assets”),
free
and clear of all Encumbrances other than Permitted Encumbrances. The Purchased
Assets shall consist of:
(a) All
of
Seller’s right, title and interest in and to all written customer contracts,
distributor contracts, reseller contracts, and contracts with sales agents
or
representatives, to which either Seller is a party that are related to the
Business and that are listed in Schedule
2.1(a),
including, but not limited to, contracts, agreements, outstanding proposals
and
commitments with such distributors, reseller, dealers and sales agents (the
“Distributor
Contracts”);
(b) All
of
Seller’s right, title and interest in and to the vendor purchase orders and
contracts, that are related to the Business and that are listed in Schedule
2.1(b)
(the
“Vendor
Contracts”);
(c) All
of
Seller’s right, title and interest in and to third party commercial computer
software and related maintenance contracts relating to the Business to which
either Seller is a party and that are listed in Schedule
2.1(c)
(the
“Third
Party Licenses”);
8
(d) All
of
Seller’s inventory items relating to the Business whether new, used, excess or
obsolete, both in and out of service, inventory held for sale, if any,
including, but not limited to, all inventory currently being held to supply
Seller’s contractual commitments to customers, and all other similar items of
inventory all of which are listed in Schedule
2.1(d)
(the
“Inventory”);
(e) Seller’s
marketing and sales materials relating to the Business;
(f) All
of
Seller’s right, title and interest in and to any written contracts (including
any solicitation or outstanding offers for contract), agreements, outstanding
price quotes, commitments from service providers, customers and/or
manufacturers, other than the Distributor Contracts, Vendor Contracts and Third
Party Licenses that relate to the Business to which either Seller is a party
and
that are listed in Schedule
2.1(f)
(the
“Other
Contracts”)
(the
Distributor Contracts, Vendor Contracts, Third Party Licenses, and Other
Contracts are sometimes referred to collectively as the “Contracts”
and
individually as a “Contract”);
(g) All
of
Seller’s right, title and interest in and to the licenses, permits,
certificates, approvals, exemptions, franchises, registrations, variances,
accreditations or authorizations that relate to the Business and are listed
in
Schedule
2.1(g)
(the
“Permits”);
(h) All
of
Seller’s right, title and interest in and to the “Intellectual
Property,”
(as
such term is hereinafter defined) that relate to the Business and as set forth
in Schedule
2.1(h)
(the
“Business
Intellectual Property”).
“Intellectual
Property”
shall
mean, for purposes of this Agreement: patents, patent rights, patent
applications, patent disclosures, and inventions and designs that are not
disclosed in any patent, patent application, or patent disclosure; registered
and unregistered trademarks, trade names, and service marks, brand marks, brand
names, copyrights, copyright registrations, and any applications therefore;
all
designs, diagrams, specifications, schematics, molds, tooling and assembly,
installation and other key processes; licenses granted by or to a party; trade
secrets relating to or arising from any monetary process; proprietary computer
software, hardware and databases, including source code and documentation
corresponding thereto and any software and source or object code; symbols and
logos and all applications therefor, registrations thereof and licenses and
sublicenses or agreements in respect thereof; improvements to any of the
foregoing (whether or not completed); all filings, registrations or issuances
of
any of the foregoing with or by any federal, state, local or foreign regulatory,
administrative or governmental office; and other tangible and intangible
proprietary information owned or licensed by a party; including goodwill and
going concern value; technology, and know-how related to, reasonably necessary
in and used to support the Business and not embodied in any of the foregoing;
and other tangible and intangible proprietary information owned or licensed
by a
party;
(i) The
machinery, equipment, furniture, fixtures, furnishings, supplies, office
equipment, accessories, vehicles, personal computers, notebook computers,
cellular phones, pagers, copiers, calculators, workstations, office automation
software, printers, facsimile machines, and other property relating to the
Business, and as listed in Schedule
2.1(i);
9
(j) All
leases of equipment, machinery or other tangible personal property to which
either Seller is a party, solely used in conducting the Business as listed
in
Schedule
2.1(j)
(the
“Personal
Property Leases”);
(k) All
accounts, notes, contracts or other receivables of Seller generated in
connection with the Business existing as of the Closing Date that are listed
in
Schedule
2.1(k)
and are
not listed as Excluded Assets herein, and rights and benefits of any security
interests and corresponding financing statements filed under the UCC (the
“Accounts
Receivable”);
(l) All
of
Seller’s books and records relating exclusively to the Business (other than
Seller’s Tax returns and Seller’s organizational books and records) including,
without limitation, lists of customers, vendors and suppliers, records with
respect to pricing, volume, billing and payment history, cost, inventory,
machinery and equipment, mailing lists, distribution lists, sales, purchasing
and materials, technical processes, production and testing techniques and
procedures, marketing research, design and manufacturing drawings and
specifications and other engineering data, promotional or sales literature,
training, operations, equipment and other manuals, quotation, correspondence,
and other miscellaneous information, including any such records which are
maintained on computer or any storage media;
(m) All
service manuals, databases, and knowledge bases, in their current forms, listed
in Schedule
2.1(m)
relating
to the operation of the Business as currently operated by Seller;
(n) Seller’s
backlog on orders relating to the Business;
(o) Seller’s
claims, demands, actions or causes of actions, which either Seller has or may
have against any other person or entity relating to the Business, rights to
judgments, and proceeds resulting from the matters listed in Schedule
2.1(o);
and
(p) All
of
Seller’s domain names, internet names, web addresses and internet locations,
links to other relevant sites and applicable related registrations related
to
the Business, and as listed on Schedule
2.1(p).
Section
2.2 Excluded
Assets.
Notwithstanding anything to the contrary contained in Section
2.1
or
elsewhere in this Agreement, the following assets of Seller (collectively,
the
“Excluded
Assets”)
are
not part of the sale and purchase contemplated hereunder, are excluded from
the
Purchased Assets and shall remain the property of Seller after the Closing
Date:
(a) All
property and assets of Seller that are not related to the Business;
(b) All
rights of either Seller under this Agreement and the other documents, agreements
and instruments executed or delivered in connection with this Agreement
(together with this Agreement, the “Transaction
Documents”)
including all monies to be received by either Seller, and all other rights
of
Seller under the Transaction Documents, including without limitation, the
Purchase Price (as defined herein);
10
(c) all
real
estate and real property leases, including the Headquarters Lease;
(d) all
minute books, transfer records and corporate seals of Seller;
(e) all
cash,
cash equivalents, bank accounts, certificates of deposit, commercial paper,
annuities, treasury notes, bills and other marketable securities of Seller;
(f) all
rights of Seller relating to claims, refunds, causes of action, rights of
recovery, rights of set-off, deposits and prepaid expenses and claims for
refunds and rights to offset of every kind and nature whether or not related
to
the Business and related to time periods prior to the Closing Date, except
for
Accounts Receivable claims pertaining to the Business and other matters set
out
in Schedule
2.1(o);
(g) all
insurance policies of Seller and rights thereunder, including, without
limitation, all rights to receive proceeds of insurance policies and all rights
of offset, counterclaims and insurance coverage thereunder;
(h) any
tax
credits and refunds;
(i) Intellectual
Property of the Seller not related to the Business and any rights or obligations
associated therewith;
(j) all
severance, pension, retirement and other Employee Benefit Plans and
administration and services contracts related thereto, or funding
arrangements,
(k) all
of
Seller’s distributor contracts, purchase contracts and other contracts that are
not related to the Business; and
(l) all
of
Seller’s Domain Names not related to the Business.
Section
2.3 Assumed
Obligations.
At the
Closing, Purchaser shall assume, and agree to pay, perform, fulfill and
discharge, the following obligations of Seller that relate to or arise out
of
the Purchased Assets (the “Assumed
Obligations”).
The
Assumed Obligations shall include, but not be limited to, the
following:
(a) Obligations
which are required to be performed under the Contracts, Permits,
Personal Property Leases and Intellectual Property, except where (i) such
obligations are not fully disclosed in accordance with the Agreement or arise
in
contravention of this Agreement, or (ii) such obligations arise due to any
breach of contract, breach of warranty, tort, infringement, or violation of
Law
or arose out of any Claim, provided, such breach, tort, infringement, violation
or Claim arose out of events occurring prior to the Closing, or (iii) the
consent of any third party is required for the assignment of such Contract,
Permit or Personal Property Lease and such consent has not been obtained;
11
(b) Obligations
and liabilities set forth on the face of the balance sheet as of June 30, 2006
included in the Financial Statements (rather than in any notes thereto), and
all
liabilities which have arisen after June 30, 2006 in the ordinary course of
business of the Business; provided that such Assumed Obligations (i) do not
include any Indebtedness; (ii) are reflected in the calculation of the Purchase
Price; (iii) are fully disclosed to Buyer pursuant to this Agreement and do
not
arise in contravention of this Agreement; and (iv) do not relate to any breach
of contract, breach of warranty, tort, infringement, or violation of Law or
arise out of any Claim,; it being understood that the number of shares of Buyer
Common Stock to be delivered to the LLC pursuant to Section
2.6
shall be
reduced in the manner specified in Section
2.6
and
2.7
to the
extent that the value of Qualified Liabilities exceeds zero; and
(c) Obligations
arising after the Closing Date with respect to Transferred Employees as set
forth in Section
6.1.
Section
2.4 No
Other Liabilities Assumed.
Anything
in this Agreement to the contrary notwithstanding, neither Buyer nor any of
its
Affiliates shall assume, and shall not be deemed to have assumed, any debt,
claim, obligation or other liability of Seller or any of its Affiliates, whether
known or unknown, now or hereafter existing, accrued or contingent, other than
as specifically set forth in Section
2.3
including, but not limited to (i) any environmental costs and liabilities,
(ii)
any of Seller’s liabilities in respect of Taxes, (iii) any income, transfer,
sales, use, and other Taxes arising in connection with the consummation of
the
transactions contemplated hereby (other than as expressly provided in this
Agreement), (iv) any brokers or finders’ fees, or other liability of Seller for
costs and expenses (including legal fees and expenses) incurred in connection
with this Agreement or the consummation of the transactions contemplated hereby,
(vi) any liabilities or obligations arising out of the Royalty Agreements,
(vii)
any liability or obligation of Seller under this Agreement, (viii) any
Indebtedness, (ix) any obligations or liabilities, including severance, for
Seller’s employees who are not Transferred Employees, (x) any liabilities of the
Seller or any of its ERISA affiliates relating to any Employee Benefit Plan
to
which any of the Seller or its ERISA Affiliates contributes or has any
obligation to contribute, or with respect to which any of the Seller or Seller’s
Affiliates has any liability or potential liability (including, without
limitation any such liability (a) relating to benefits payable under any
Employee Benefit Plan, (b) relating to Title IV of ERISA (c) relating to a
multiemployer plan, (d) with respect to noncompliance with the notice and
benefit continuation requirements of COBRA, or (e) with respect to any
noncompliance with ERISA or any other applicable laws), (xi) any liability
or
obligation of Seller in respect of pending or threatened claims listed on
Schedule
3.14,
(xii)
any obligation or liability arising as a result of or whose existence is a
breach of Seller’s representations, warranties, agreements or covenants, or
(xiii) any Qualified Liabilities (as defined below) to the extent that the
aggregate value of the Qualified Liabilities is greater than $500,000
(collectively, “Unassumed
Liabilities”).
Each
of the Seller and Parent hereby agrees to pay, perform and discharge all of
the
obligations that are Unassumed Liabilities hereunder. “Qualified
Liabilities”
shall
mean liabilities assumed by Purchaser pursuant to Section
2.3(b).
12
Section
2.5 Non-Assignment
of Certain Property.
To the
extent that the assignment hereunder of any of the Permits, Personal Property
Leases or Contracts shall require the consent of any other party (or in the
event that any of the same shall be nonassignable) (each, a “Consent
Contract”),
neither this Agreement nor any action taken pursuant to its provisions shall
constitute an assignment or an agreement to assign if such assignment or
attempted assignment would constitute a breach thereof; provided, however,
that
in each such case, Seller shall use its commercial reasonable efforts to obtain
the consents of such other party to an assignment to Buyer on or prior to the
Closing. If any such consent has not been obtained as of the Closing Date,
the
parties shall continue to use its commercially reasonable efforts to obtain
such
consent after the Closing Date. Pending the receipt of any such consents, the
Seller shall cooperate with the Buyer in any commercially reasonable arrangement
designed to provide for the Buyer all of the benefits under all of the Consent
Contracts, and for the Buyer to discharge the corresponding obligations. At
the
Buyer’s request and expense, the Seller shall take all commercially reasonable
best efforts requested by the Buyer to enforce, for the benefit of the Buyer,
any and all rights of the Seller under any Consent Contract. Seller agrees
to
remit promptly, and to cause their Affiliates to remit promptly (but in no
event
later than three (3) Business Days after receipt), to the Buyer all collections
or payments received by them or their Affiliates in respect of all Consent
Contracts following the Closing Date, and shall hold all such collections or
payments for the benefit of and in trust and as a fiduciary for and promptly
pay
the same over to, the Buyer. When such consents to the transfer, conveyance
and
assignment of a Consent Contract have been obtained, if ever, such Consent
Contract shall thereupon automatically be transferred, conveyed and assigned
to
Buyer, and the obligations and liabilities of either Seller under such Consent
Contract shall automatically cease to be excluded from the Assignment Agreement
(as hereinafter defined) by reason of this Section
2.5,
without
the payment of any additional consideration.
Section
2.6 Purchase
Price.
In
consideration for the sale, transfer and assignment by the Seller of the
Purchased Assets, the Buyer shall: (i) assume the Assumed Obligations;
provided,
however, in
no
event shall the value of the Qualified Liabilities assumed by the Buyer exceed
Five Hundred Thousand Dollars ($500,000.00); (ii) issue a certificate evidencing
the LLC Interest to the Parent; and (iii) issue to the LLC a performance vesting
warrant to purchase up to an additional Two Million Five Hundred Thousand
(2,500,000) shares of Buyer Common Stock (the “Warrant
Shares”)
upon
the terms and conditions set forth in the form of warrant reasonably agreed
by
Buyer and Seller (the “Warrant”).
The
Warrant shall be exercisable for a period of five years at an exercise price
of
$1.00 and shall further provide that the holder may not exercise the Warrant
unless and until Buyer has (i) aggregate net revenues for the preceding four
quarters of at least $50.0 million and (ii) pre-tax net income of at least
$5.0
million for the preceding four quarters. For purposes of this Agreement, the
term “Purchase
Price”
shall
mean, initially, $10,000,000, consisting of (y) the value of Assumed Obligations
(provided, pursuant to the terms of this Agreement, Qualified Liabilities to
be
assumed by the Buyer may range from zero to $500,000), and (z) the LLC Interest
(having an assumed value equal to the $10,000,000, less the value of the
Qualified Liabilities). At the Closing, the Buyer shall deliver to the LLC
a
number of shares of Buyer Common Stock equal to (i) 10,000,000, less (ii) a
number of shares equal to (A) the Estimated Qualified Liabilities (as defined
below) less $300,000, divided by (B) $1.00.
Section
2.7 Purchase
Price Payment Adjustment.
(a) At
least
ten (10) days prior to the Closing, the Sellers shall provide to the Buyer
an
estimate as of the Closing Date, which, absent manifest error, shall be the
basis for calculating, on a preliminary basis, of the value of the Qualified
Liabilities for purposes of determining the number of shares of Buyer Common
Stock to be issued to the LLC at Closing (the “Estimated
Qualified Liabilities”).
13
(b) Not
later
than sixty (60) days after the Closing, the Buyer at its own cost, shall prepare
and deliver to the Sellers a statement of the value of the Qualified Liabilities
as of the Closing Date (the “Closing
Statement”),
prepared in accordance with GAAP, applied consistently with the Sellers’ past
practices. A failure by the Buyer to deliver the Closing Statement within the
required sixty (60) day period shall constitute its acceptance of the Estimated
Qualified Liabilities. Within fifteen (15) days after the Closing Statement
is
delivered to the Sellers pursuant to this Section
2.7(b),
the
Sellers at their own cost, shall complete its examination thereof, and provide
for the examination thereof by its accountants, if necessary, and shall deliver
to the Buyer either (i) a written acknowledgment accepting the determination
of
the value of the Qualified Liabilities or (ii) a written report of an
independent accounting firm engaged by the Sellers setting forth in reasonable
detail any proposed adjustments to the value of the Qualified Liabilities
(“Adjustment
Report”).
A
failure by the Sellers to deliver the Adjustment Report within the required
fifteen (15) day period shall constitute its acceptance of the Closing
Statement. The Buyer shall, and shall cause its independent auditors to,
cooperate with the Sellers and its accountants in the course of the preparation
of the Adjustment Report.
(c) Following
the Closing, the number of shares of Common Stock issued to the LLC in
satisfaction of the Purchase Price shall be decreased by a number of shares
equal to (i) the amount, if any, by which the value of the Qualified Liabilities
as specified on the Closing Statement exceeds the Estimated Qualified
Liabilities, divided by (ii) $1.00; provided, if the Qualified Liabilities
as
specified in the Closing Statement is less than $300,000, there shall be no
adjustment to the number of shares of Common Stock pursuant to this Section
2.7(c).
(d) During
a
period of fifteen (15) days following the receipt by the Buyer of the Adjustment
Report, the Buyer and Sellers shall attempt to resolve any difference they
may
have with respect to the matters raised in the Adjustment Report. In the event
the Buyer and Sellers fail to agree on all of the proposed adjustments contained
in the Adjustment Report within such fifteen (15) day period, then the Buyer
and
the Sellers mutually agree that the New York office of KPMG, or such other
“Big
Four” accounting firm mutually acceptable to the Buyer and the Sellers (the
“Independent
Auditors”),
shall
make the final determination with respect to the correctness of the proposed
adjustments in the Adjustment Report in light of the terms and provisions of
this Agreement. The decision of the Independent Auditors shall be final and
binding on the Buyer and Sellers, and may be used in a court of law by either
the Buyer or the Sellers for the purpose of enforcing such decision. The costs
and expenses of the Independent Auditors and their services rendered pursuant
to
this clause (d) shall be borne by the non-prevailing party or, if neither party
prevails, equally by the Buyer and the Sellers.
Section
2.8 Prorations.
At
Closing, the parties hereto shall determine the proration of any expenses,
if
necessary.
Section
2.9 Closing.
The
closing of the transactions contemplated in this Agreement (the “Closing”)
shall
take place at the offices of Xxxxxxx Xxxxx LLP, 000 Xxxxxxxxx Xxxxxx, 00xx
Xxxxx, Xxx Xxxx, XX, 00000, or such other location as the parties may select,
within thirty (30) calendar days of the clearance of the Proxy Statement by
the
SEC or at such other time and place as the Purchaser, in its sole discretion,
may agree (the “Closing
Date”).
14
Section
2.10 Deliveries
at Closing
(a) Deliveries
by Seller.
At the
Closing, Seller shall deliver or cause to be delivered to Buyer the following
documents, instruments, certificates and agreements (which shall be in form
and
substance reasonably satisfactory to Buyer and its counsel):
(i) an
executed counterpart to the Xxxx of Sale in a form to be mutually agreed upon
(the “Xxxx
of Sale”),
duly
executed by Seller;
(ii) an
executed counterpart to the Assignment and Assumption Agreement in a form to
be
mutually agreed upon (the “Assignment
Agreement”),
duly
executed by Seller;
(iii) such
other deeds, bills of sale, assignments and other instruments of sale, in form
and substance reasonably satisfactory to Buyer’s counsel, as shall be required
or as may be desirable to vest in Buyer good and marketable title to the
Purchased Assets, free and clear of all Encumbrances other than the Permitted
Encumbrances;
(iv) a
Certificate signed by an authorized officer of each of the Seller and dated
as
of the Closing Date, certifying that the representations and warranties of
Seller contained in this Agreement are true and correct on the Closing Date
as
if such representations and warranties were made on the Closing
Date;
(v) an
incumbency and specimen certificate with respect to the officer(s) of Seller
executing the Transaction Documents to which such entity is a party;
(vi) a
Certificate of Good Standing for Seller issued not earlier than thirty (30)
days
prior to the Closing Date by the Secretary of State of Delaware as applicable;
(vii) the
Fairness Opinion;
(viii) The
Solvency Opinion
(ix) a
release
of Liens as may be identified by the Buyer prior to the Closing;
(x) all
of
the required consents of third Persons set forth in Schedule
2.10(a)(x);
15
(xi) an
executed employment contract between the buyer and the individual listed in
Schedule 2.10(a)(xi)
(the
“Key
Employee”)
(the
“Key
Employment Agreement”);
(xii) executed
copies of certain Confidentiality Agreements and Assignment of Invention
Agreements by any Transferred Employees who are employed prior to Closing (the
“Confidentiality
Agreements”);
(xiii) evidence
satisfactory to the Buyer that the Seller has obtained releases with respect
to
all royalty agreements between the Company and the following individuals: (i)
P.
Xxxxxx Xxxxxxx; (ii) Xxxx Xxxx; (iii) Xxxxx X. Xxxx; (iv) Xxxx Xxxx; (v) Xxxxx
Xxxxxx; and (vi) Xxxx Xxxxxxx (collectively, the “Royalty
Agreements”),
provided, that the Buyer shall have the option to waive such requirement;
(xiv) an
executed counterpart of the sublease under the Headquarters Lease, in form
and
substance satisfactory to Buyer (the “Sublease”);
in a
form reasonably acceptable to the Buyer and the Seller, pursuant to which Buyer
subleases the premises covered by the Headquarters Lease;
(xv) an
executed counterpart of the Patent Assignment Agreement (the “Patent
Assignment Agreement”)
in a
form reasonably acceptable to the Buyer and Seller, pursuant to which the Seller
shall assign all of the patents contained in the Purchased Assets to Buyer;
(xvi) an
executed counterpart of Trademark and Domain Name Assignment Agreement (the
“Trademark
and Domain Name Assignment Agreement”)
in a
form reasonably acceptable to Buyer and Seller, pursuant to which the Seller
shall assign all of the trademarks and domain names contained in the Purchased
Assets to the Buyer;
(xvii) evidence
satisfactory to the Buyer regarding payoff, conversion or release of all
Indebtedness; and
(xviii) Operating
Agreement executed by the Parent.
(b) Deliveries
by Buyer.
At the
Closing, Buyer shall deliver or cause to be delivered to Seller the following
documents, instruments, certificates and agreements (which shall be in form
and
substance reasonably satisfactory to Seller and its counsel):
(i) a
counterpart to the Xxxx of Sale, duly executed by Buyer;
(ii) a
counterpart to the Assignment Agreement, duly executed by Buyer;
16
(iii) a
certificate signed by an authorized officer of Buyer and dated as of the Closing
Date, certifying that the representations and warranties of Buyer contained
in
this Agreement are true and correct in all material respects on the Closing
Date
as if such representations and warranties were made on the Closing
Date;
(iv) an
incumbency and specimen certificate with respect to the officer(s) of Buyer
executing the Transaction Documents to which Buyer is party;
(v) a
counterpart to the Patent Assignment Agreement;
(vi) a
counterpart to the Trademark and Domain Name Assignment Agreement;
(vii) the
LLC
Interest;
(viii) a
copy of
the Warrant issued to the LLC;
(ix) a
copy of
the Operating Agreement, duly executed by Buyer;
(x) a
counterpart to the Key Employment Agreement duly executed by Buyer;
(xi) a
counterpart to the Sublease duly executed by Buyer;
(xii) evidence
satisfactory to Seller that Buyer has been capitalized in an amount not less
than $15 million through the sale of its Series A Convertible Preferred Stock
in
accordance with the Series A Preferred Stock Purchase Agreement by and among
the
Buyer and the purchasers named therein (the “Stock
Purchase Agreement”).
ARTICLE
III
REPRESENTATION
AND WARRANTIES OF SELLER
Each
of
Parent and Seller represent and warrant to Buyer as of the Effective Date and
agree to represent and warrant to Buyer as of the Closing Date as
follows:
Section
3.1 Organization.
The
Company is a corporation duly organized and validly existing under the Laws
of
the State of Delaware. Subsidiary is a corporation duly organized and validly
existing under the laws of the State of Delaware. Both Company and Subsidiary
have (i) the requisite power and authority to conduct the Business as now
conducted and (ii) the necessary corporate power and authority to execute,
deliver and perform their obligations under the Transaction Documents and to
consummate the transactions contemplated herein and therein. Complete and
correct copies of the Certificates of Incorporation and Bylaws of Company and
of
Subsidiary have previously been delivered to Buyer (such documents, the
“Organizational
Documents”).
Each
of Company and Subsidiary are is duly qualified to do business in every
jurisdiction in which the nature of its business makes such qualifications
necessary, except where such failure would not have a Material Adverse Effect.
Each of Company and Subsidiary have the full right, power, and authority to
engage in the Business as it is now conducted, and has all necessary licenses
and permits to operate the Business as it is presently being
operated.
17
Section
3.2 Authority.
Each of
Company and Subsidiary now have, or will have, all requisite organizational
authority to execute, deliver and perform each Transaction Document to which
it
is a party, and to perform its obligations and consummate the transactions
contemplated under the Transaction Documents to which it is a party, subject
to
receipt of shareholder approval, if the Board of Directors of the Company
determines that such approval is required. Subject to receipt of shareholder
approval, the execution and the delivery of each Transaction Document to which
either Company or Subsidiary is a party, and the performance of the transactions
contemplated by such Transaction Documents, have been duly authorized by each
of
Company and Subsidiary and all necessary corporate or organizational actions
by
each of Company and Subsidiary for the execution, delivery and performance
of
each Transaction Document to which such Company or Subsidiary is a party and
the
consummation of the transactions contemplated hereby and thereby have been
taken, and no further corporate or organizational authorization will be
necessary to authorize the execution and delivery by each of Company and
Subsidiary, and the performance of its obligations under, each Transaction
Document to which such Company or Subsidiary is a party.
Section
3.3 Execution
and Delivery.
Each
Transaction Document to which either Company or Subsidiary is a party has been
validly executed and delivered by such party and constitutes valid and binding
obligations of each such party, enforceable against each such party in
accordance with its terms, except (i) as such enforceability may be limited
by
or subject to any bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting creditors’ rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity may
he
limited by federal or state securities laws or by public policy.
Section
3.4 SEC
Reports.
The
Seller has timely filed all forms, reports, statements and documents required
to
be filed by it with the SEC and with any other governmental body, agency,
official or authority (collectively, the “SEC
Reports”).
Each
SEC Report (i) was prepared in accordance with the requirements of the
Securities Act, the Exchange Act and the rules and regulations thereunder (ii)
did not at the time it was filed contain any untrue statement of a material
fact
or omit to state a material fact required to be stated therein or necessary
in
order to make the statements made therein, in the light of the circumstances
under which they were made, not misleading. Each of the financial statements
(including, in each case, any notes thereto) contained in the SEC Reports was
prepared in accordance with GAAP (except, in the case of unaudited financial
statements, for the absence of footnotes and subject to normal year end
adjustments, which adjustments are not material) applied on a consistent basis
throughout the periods indicated (except as may be indicated in the notes
thereto) and each presented fairly the financial position of Buyer as at the
respective dates thereof, and results of operations, stockholders' equity and
cash flows for the respective periods indicated therein, except as otherwise
noted therein (subject, in the case of unaudited statements, to normal and
recurring immaterial year-end adjustments).
18
Section
3.5 Financial
Statements.
Seller
has delivered the balance sheet of the Parent as of June 30, 2006 and the
related statements of income, stockholders’ equity, changes in financial
position and cash flow (the “Financial
Statements”).
Seller represent that, to Seller’s actual knowledge, and subject to adjustments
recommended by Seller’s independent auditors, the Financial Statements (i) are
true and correct: in accordance with the books of account and records of Parent
and Subsidiary in all material respects; and (ii) accurately and fairly reflect
in all material respects all assets and liabilities of Parent and Subsidiary.
To
Seller’s actual knowledge, neither Parent nor Subsidiary has any indebtedness or
liability, absolute or contingent, which is not reflected in the financial
statements, or that has not been specifically identified herein to Buyer, other
than liabilities or indebtedness incurred in the ordinary course of
business.
Section
3.6 No
Conflict or Default.
The
execution and performance of this Agreement, the compliance with its provisions
by each of Company and Subsidiary, and the transfer of the Purchased Assets
to
Buyer on the Closing Date will not conflict with or result in any breach of
any
of the terms, conditions, or provisions of any agreement, indenture, mortgage,
or other instrument to which either Seller is a party or by which it is bound,
except for any such breach which would not in the aggregate reasonably be
expected to have a Material Adverse Effect or as set forth in Schedule
3.6.
Further, subject to shareholder approval, the execution and performance of
this
Agreement, the compliance with its provisions by Seller, and the transfer of
the
Purchased Assets to Buyer on the Closing Date will materially comply with all
Laws of any Governmental Authority applicable to the Business or any of the
Purchased Assets and will not conflict with, or result in, the breach of any
of
the terms of any Organizational Documents. Except as set forth in Schedule
3.6,
the
consummation of the transactions contemplated by this Agreement will not require
the consent of any Person with respect to the rights, licenses, franchises,
leases, contracts or agreements (including but not limited to the Contracts)
of
Seller and will not have a Material Adverse Effect upon any such rights,
licenses, franchises, leases or agreements.
Section
3.7 Title
to Assets.
Seller
has or shall have good and marketable title, or valid leasehold rights (in
the
case of leased property) to all of the Purchased Assets, free and clear of
all
security interests, liabilities, conditions, pledges, liens, mortgages, licenses
in favor of any Person other than either Seller, conditional sales contracts,
attachments, hypothecations, judgments, easements, claims, and encumbrances
of
every kind and nature (collectively, “Encumbrances”),
except for those set forth in Schedule
3.7
(the
“Permitted
Encumbrances”).
At
the Closing, Seller will sell, assign, transfer, convey, and deliver good and
marketable title to the Purchased Assets, or, in the case of assets constituting
Purchased Assets which are leased or licensed by either Seller pursuant to
Personal Property Leases or other Contracts, valid leasehold interests or
licenses to such Personal Property Leases or other Contracts, free and clear
of
all Encumbrances other than Permitted Encumbrances.
Section
3.8 Contracts.
All of
the Contracts are in full force and are enforceable against Company or
Subsidiary, as the case may be, in accordance with their terms. To the Company’s
and Subsidiary’s knowledge and except as set forth in Schedule
3.8
and
except a default or breach which is capable of being, and shall be, cured prior
to the Closing, (i) none of the Contracts is in breach or default due to the
action of Company or Subsidiary, or to Seller’s knowledge, of any other party
thereto; and (ii) no event exists which is a default or breach due to the action
of Company or Subsidiary, under any of the Contracts, or which after the passage
of time or giving of notice or both would constitute a breach or default, due
to
the action of Company or Subsidiary. Except as set forth in Schedule
3.8,
all
duties and obligations required to be performed by any party to the Contracts
prior to Closing have been so performed or will be performed prior to Closing.
Except as set forth in Schedule
3.8,
the
Contracts are freely assignable, or if the consent of the contracting party
to
the assignment is required, Seller shall have obtained such consent prior to
Closing, or if the giving of notice of such assignment is required, Seller
has
provided such notice prior to the Closing. To Seller’s actual knowledge: (x) no
party to any of the Contracts is threatened with insolvency; and (y) there
exists no fact or circumstance which may cause a party to one of the Contracts
to fail to perform such Contract. The execution, delivery, consummation and
performance of this Agreement and the transactions contemplated herein will
not
cause either Seller to be in breach or default of any of the Contracts.
Schedules
2.1(a),
(b),
(c),
and (f)
collectively constitute accurate, correct and complete lists of the
Contracts.
19
Section
3.9 No
Other Contracts.
Other
than the Contracts or the Excluded Assets, there are no written or oral or
contractual commitments, contracts or agreements that relate to the Business
to
which Seller is a party that will be binding upon Buyer, or that will affect
Buyer or the Purchased Assets, on or after the Closing.
Section
3.10 Permits.
Other
than the Contracts or the Excluded Assets, the Permits listed in Schedule
2.1(g)
constitute all of the licenses, permits, certificates, approvals, exemptions,
franchises, registrations, variances, accreditations or authorizations related
to, reasonably necessary in, currently used in or required for the operation
of
the Business. The Permits are valid and in full force and effect and there
are
no pending proceedings which could result in the termination, revocation,
limitation or impairment of any of the Permits. The Seller has not received
notice of any violations in respect of any of the Permits. Schedule
2.1(g)
contains
an accurate, correct and complete list of the Permits that are reasonably
necessary in, currently used in or required for the operation of the
Business.
Section
3.11 Intellectual
Property.
Other
than the Contracts or the Excluded Assets, the Business Intellectual Property
listed in Schedule
2.1(h)
constitutes all of the Intellectual Property owned or licensed by Seller that
is
currently used solely in the conduct of the Business, and any license for any
of
the foregoing in each case. Seller owns, or licenses or otherwise possesses,
legally enforceable rights to use the Business Intellectual Property that is
listed in Schedule
2.1(h)
and such
Business Intellectual Property is sufficient for the conduct of the Business
of
Seller as it is currently being conducted on the date hereof. Except as
disclosed in Schedule
3.11,
neither
the manufacture, marketing, license, sale or intended use of any tangible
product currently sold by the Business violates any license or agreement between
either Seller and any third party relating to such product or, to Seller’s
knowledge, infringes any Intellectual Property right of any other party. The
Seller has not received any written charge, complaint, claim, demand, or notice
alleging any such interference, infringement, misappropriation, or violation
(including any claim that either Seller must license or refrain from using
any
Intellectual Property rights of any Person relating to the Business Intellectual
Property), nor is there any pending claim or litigation contesting the validity
of the Business Intellectual Property or Seller’s ownership or right to use,
sell, license or dispose of the Business Intellectual Property. The Seller
has
not received any notice asserting that any of the Business Intellectual Property
or the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, and the Seller has not licensed
the
use of the Business Intellectual Property to any third party nor permitted
the
use by any third party of the same in a manner which would infringe the
trademark rights of Seller. Seller will make available to Buyer complete and
correct copies of all reasonably accessible user and technical documentation
related to the Business Intellectual Property that is listed in Schedule
2.1(h).
Except
as disclosed in Schedule
3.11,
the
Seller has not received any notice that any of their current or prior members,
officers, employees or consultants claim an ownership interest in any of the
Business Intellectual Property as a result of having been involved in the
development of such property while employed by or consulting to the Business
or
otherwise.
20
Section
3.12 Inventory.
Except
as set forth in Schedule
3.12,
Sellers
are not in possession of any inventory that is not owned by them. All of the
Inventory has been valued at cost on a first-in, first-out basis.
Section
3.13 No
Real Property Owned by Seller.
Seller
owns no real property used in the Business. Except as set forth in Schedule
3.13,
the
Headquarters Lease may be freely assigned, assumed or sublet, is valid and
in
full force and effect, and to Seller’s knowledge there is not pending or
threatened any proceedings which could result in the termination revocation,
limitation or impairment of the Headquarters Lease.
Section
3.14 Litigation.
Except
as set forth in Schedule
3.14,
there
is no litigation, proceeding, or governmental investigation pending in front
of
any court, arbitration board, administrative agency, or tribunal against or
relating to Seller that would prevent or affect the Purchased Assets, the
Business, or the consummation of this Agreement or the sale, transfer or
assignment of the Purchased Assets by Seller.
Section
3.15 Compliance
with Law.
Except
as set forth in Schedule
3.15,
Seller
has been and are in, and the Business has been and is being conducted in,
compliance in all material respects with all Laws that are applicable to or
binding upon the Business or the Purchased Assets, and Seller has not received
any written or oral notice of any violation or alleged violation of any
Law.
Section
3.16 Investment
Company.
Seller
is not an “investment company”, or an “affiliated person” of an “investment
company”, or a company “controlled” by an “investment company” as such terms are
defined in the Investment Company Act of 1940, as amended, and Buyer is not
an
“investment adviser” or an “affiliated person” of an “investment adviser” as
such terms are defined in the Investment Advisers Act of 1940, as
amended.
Section
3.17 Brokers’
Fees.
Except
as set forth in Schedule
3.17,
Seller
has no liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by the Transaction
Documents.
Section
3.18 No
Material Adverse Effect.
Since
June 30, 2006, there have been no changes that would have a Material Adverse
Effect. Since June 30, 2006, Seller has operated the Business in the ordinary
course of business consistent with past practices and Seller has used reasonable
efforts to keep the Business intact.
21
Section
3.19 Accounts
Receivable.
Except
as set forth on Schedule
3.19,
all
Accounts Receivable of the Business arose from valid transactions and in the
ordinary course of business for goods sold or services rendered and are not
subject to any valid counterclaims or setoffs known to Seller with respect
to
any such Accounts Receivable. The list of Accounts Receivable listed in
Schedule
2.1(k)
is a
true, accurate and complete list of such accounts generated in connection with
the Business and existing as of the date thereof.
Section
3.20 Taxes
(a) Except
as
set forth in Schedule
3.20 (a),
as of
the Closing Date:
(i) The
Seller has timely filed or, if not yet due, will timely file all Tax Returns
required to be filed by them on or before the Closing Date and all such Tax
Returns are or, in the case of Tax Returns not yet filed, will be, true, correct
and complete in all respects.
(ii) The
Seller has paid all Taxes with respect to all Taxable periods ending on or
before the Closing Date and all Taxable periods starting before and ending
after
the Closing Date to the extent attributable to the portion of such periods
up to
and including the Closing Date, except to the extent the failure to pay any
such
Taxes would not reasonably expected to have a Material Adverse Effect.
(iii) The
Seller has made or will make available to Buyer signed copies of all Tax Returns
filed by the Seller relating to all Taxable periods ending on or before the
Closing Date as to which the statute of limitations remains open.
(iv) No
extension of time has been requested or granted for the Seller to file any
Tax
Return that has not yet been filed or to pay any Tax that has not yet been
paid,
and the Seller has not granted a power of attorney that remains outstanding
with
regard to any Tax matter.
(v) There
is
no pending or, to the knowledge of the Seller, threatened examination,
investigation, audit, suit, action, claim or proceeding relating to Taxes (a
“Tax
Audit”)
of the
Seller.
(vi) Buyer
has
received copies of all material audit reports and correspondence between the
Seller and any Tax Authority and
a
true and complete summary of all oral communications between the Seller and
any
Tax Authority relating to any Tax Audit of the Seller, including without
limitation any Tax Audit that is in progress or for which an extension of the
statute of limitations was granted.
(vii) The
Seller has not received notice of a determination by a Tax Authority that Taxes
are owed by the Seller (such determination being referred to as a “Tax
Deficiency”)
and,
to the knowledge of
the
Seller, no Tax Deficiency is proposed or threatened.
22
(viii) All
Tax
Deficiency asserted against the Seller has been paid or finally settled and
all
amounts asserted in any Tax Deficiency to be owed have been paid.
(ix) There
are
no Liens arising from or related to Taxes on or pending against the Seller
or
any of their properties other than statutory Liens for personal property Taxes
that are not yet due and payable.
(x) There
are
no presently outstanding waivers or extensions, or requests for waiver or
extension, of the time within which a Tax Deficiency may be asserted or assessed
against the Seller.
(xi) No
issue
has been raised in any Tax Audit of the Seller which, by application of similar
principles to any past, present or future period as to which the statute of
limitations remains open, would result in an adjustment to the amounts reported
in such period.
(xii) The
Seller has not changed a Tax accounting method during any Taxable year ending
on
or before the Closing Date. Seller has not taken any action, whether or not
required, that has resulted or will result in deferring a liability for Taxes
of
the Seller from a Taxable period ending on or before the Closing Date to a
Taxable period ending after such date.
(xiii) The
Seller has not ever been required to include in income an adjustment pursuant
to
Section 481 of the Code and no Tax Authority has ever made or proposed any
such
adjustment. The Seller has not entered into a closing agreement described in
Section 7121 of the Code, an advance pricing agreement or any other agreement
with a Tax Authority relating to Taxes.
(xiv) The
Seller does not own any property that is tax-exempt use property within the
meaning of Section 168(h) of the Code, that is described in Section 168(f)(8)
of
the Code as in effect prior to its amendment by the Tax Reform Act of 1986,
that
is tax-exempt bond financed property within the meaning of Section 168(g) of
the
Code or that is “limited use property” within the meaning of Rev. Proc.
76-30.
(xv) The
Seller is not party to any arrangement to which Section 162(m) or Section 280G
of the Code might apply.
(xvi) The
Seller has not filed a consent pursuant to Section 341(f) of the Code or agreed
to have Section 341(f)(2) apply to the disposition of any asset.
(xvii) The
Seller has not participated in or cooperated with any international boycott
within the meaning of Section 999 of the Code.
23
(xviii) The
Seller is not now nor has ever been (a) an includable member of an
“affiliated group” within the meaning of Section 1504(a) of the Code other than
an affiliated group consisting only of the Seller and one or more of the current
Parent subsidiaries or otherwise liable for the Taxes (or amounts in lieu of
Taxes) of a person other than the Seller pursuant to Treasury Regulation Section
1.1502-6 or any similar provision of state, local or foreign Laws, whether
or
not as a transferee, a successor, by operation of law, by contract or otherwise,
(b) a member of any consolidated, combined or unitary Tax Return filing group
other than a group consisting only of the Seller and one or more of the current
Parent subsidiaries, (c) a party to any Tax sharing agreement, Tax indemnity
agreement or similar agreement, arrangement or practice with respect to Taxes,
including an agreement that obligates it to make any payment computed by
reference to the Taxes, Taxable income or Tax losses of any other individual
or
entity, (d) a personal holding company as defined in Section 542 of the Code,
(e) the owner of an interest in an entity that is treated as a Tax partnership,
trust, regulated investment company as defined in Section 851 of the Code or
real estate investment trust as defined in Section 856 of the Code (f) a United
States shareholder as defined in Section 951(b) of the Code of a controlled
foreign corporation as defined in Section 957 of the Code, (g) a United States
real property holding company within the meaning of Section 897(c)(2) of the
Code or (h) a shareholder of a passive foreign investment company, as defined
in
Section 1297 of the Code.
(xix) Seller
has not entered into a gain recognition or other agreement requiring it to
take
into account Taxable income or to incur a Tax liability that it would not have
had to take into account or would not have had to incur but for such
agreement.
(xx) Seller
has not failed to disclose on its federal, state, local and foreign income
Tax
Returns all positions taken therein that could give rise to a penalty under
Section 6662 of the Code or any corresponding provision of state, local or
foreign Tax Laws.
(xxi) Seller
has not ever participated, directly or indirectly, in a transaction which is
described in Treasury Regulation Sections 1.6011-4(b)(2) or 1.6011-4(b)(3)
nor
has ever held “an interest” in a “tax shelter,” as those terms are defined in
Treasury Regulation Section 301.6112-1.
(xxii) Seller
has not ever been a party to a transaction that gave rise to deferred
intercompany gains or losses that have not been fully taken into income for
income Tax purposes.
(xxiii) To
the
knowledge of the Seller, no claim has ever been made by a Tax Authority in
any
jurisdiction that the Seller is or may be subject to Tax in a jurisdiction
in
which it does not currently pay Tax or file a Tax Return.
(xxiv) The
Seller has not ever requested a private ruling from a Tax Authority on any
matter.
24
(xxv) Seller
has not been a “distributing corporation” or a “controlled corporation” in
connection with a distribution described in Section 355 of the Code.
(xxvi) The
Seller nor, to the knowledge of the Seller, any other Person, has taken any
action or failed to take any action that would cause the Transaction to fail
to
qualify as a tax-free reorganization under Section 368(a) of the Code, and
no facts exist that would cause the Transaction to fail to so
qualify.
(xxvii) The
net
operating losses, alternative minimum tax net operating losses, net capital
losses, alternative minimum tax net capital losses, Tax credits, alternative
minimum tax credits and other Tax attributes of the Seller are not subject
to
any consolidated return limitation, limitation under Section 382 of the
Code or any other limitation on their use, allowance or availability, other
than
a limitation arising from the transaction pursuant to this
Agreement.
(xxviii) The
Seller has retained all supporting and backup papers, receipts, spreadsheets
and
other information necessary for the preparation of all Tax Returns with respect
to the Seller and the defense of Tax Audits involving all Taxable periods
either ended
on
or during the six (6) years prior to the Closing Date or from which there are
unutilized net operating loss, capital loss or investment tax credit
carryovers.
(xxix) The
Seller has collected, or will, on or before the Closing Date, collect, all
sales
and use, employment, excise and other Taxes that are required to have been
or to
be collected on or prior to the Closing Date and the Seller has remitted, or
will, on or before the Closing Date, or as soon as practicable thereafter,
but
in no event after the date such Taxes are required to be remitted, remit to
the
appropriate Tax Authority all sales and use, employment, excise and other Taxes
that were collected on or before the Closing Date or that are required to have
been or to be remitted on or prior to the Closing Date.
(xxx) The
Seller has maintained and has in its possession all records, supporting
documents and exemption and resale certificates required by applicable sales
and
other Tax statutes and regulations to be retained in connection with the
collection and remittance of Taxes or necessary to justify the amounts of such
Taxes reported and paid in each case for all periods up to and including the
Closing Date.
(xxxi) No
Transfer Taxes or other Taxes are or will be imposed on Buyer, or the Seller
or
on any of their properties by reason of the Transaction pursuant to this
Agreement.
(xxxii) The
Seller is not subject to Tax in any foreign country and the Seller has complied
with all applicable Tax Laws and regulations of all countries whose Tax laws
to
which they are subject.
25
(b) Schedule
3.20(b)
sets
forth:
(i) A
schedule of the filing dates of all Tax Returns required to be filed by the
Seller;
(ii) A
description of all past Tax Audits involving the Seller;
(iii) A
list of
all elections made by the Seller relating to Taxes;
(iv) A
description of any change of accounting method of the Seller;
(v) A
schedule of the Seller’s Tax basis in each of its assets as of the Closing Date,
and the recovery period and annual depreciation or amortization deduction for
each such asset for each year of its remaining Tax recovery period and in the
case of amortizable assets, a description of each asset; and
(vi) A
schedule of the Tax attributes of the Seller (including, but not limited to,
net
operating losses, capital losses, investment credits, foreign tax credits and
alternative minimum tax credits), together with a description of all limitations
to which such Tax attributes are subject (e.g., limitations under Section 382
of
the Code).
(c) Each
reference to a provision of law in this Section
3.20
shall be
treated for state, local and foreign Tax purposes as a reference to all
analogous and similar provisions of state, local and foreign Laws.
Section
3.21 Accounts
Payable.
Except
as set forth on Schedule
3.21,
all
accounts payable of Seller related to the Business are current and have been
generated in the ordinary course of business. Except as set forth in
Schedule
3.21,
Seller
has paid promptly, when due, all accounts payable related to the Business,
including lease payments and rental fees, utility bills, and other obligations
due as a result of the operation of the Business and the ownership of the
Purchased Assets through the Closing Date.
Section
3.22 No
Undisclosed Liabilities.
Except
as disclosed on Schedule
3.22,
Seller
has no material liability related to the operation of the Business, except
for
liabilities reflected in the Financial Statements and for current liabilities
incurred in the ordinary course of business. Seller has no liability or
obligation to refund any economic development incentives received from any
governmental entity.
Section
3.23 Environmental,
Health & Safety Compliance.
To
Seller’s knowledge, neither the conduct nor operation of the Business, nor any
condition of the Headquarters Lease, nor the premises leased by the Headquarters
Lease, violates any Law or common law concerning public health and safety,
worker health and safety, and pollution or protection of the environment
(“Environmental,
Health, and Safety Requirements”),
where
such violation would reasonably be expected to have a Material Adverse Effect
and Seller has not received any notice stating that the operation or condition
of any real property presently leased or operated in connection with the
Business is in violation of any Environmental, Health, and Safety Requirements,
where such violation would reasonably be expected to have a Material Adverse
Effect.
26
Section
3.24 Government
Authorizations.
The
governmental authorizations listed in Schedule
3.24
collectively constitute all of the authorizations of any Governmental Authority
necessary to permit Seller to lawfully conduct and operate the business in
the
manner in which they currently conduct and operate the business and to permit
Seller to own and use the Purchased Assets in the manner in which they currently
own and use such Purchased Assets, except where the failure to do so would
not
have a Material Adverse Effect.
Section
3.25 Relationships
with Affiliates.
Neither
Seller nor any of their Affiliates has any interest in, has owned, of record
or
as a beneficial owner, or has an equity interest or any other financial or
profit interest in any Person that has (a) had business dealings or a material
financial interest in any transaction with either Seller other than business
dealings or transactions disclosed in Schedule
3.25
or (b)
engaged in competition with Seller with respect to the Business in any market
presently served by Seller. Except as set forth in Schedule
3.25,
neither
Seller nor any of their Affiliates is a party to any Contract with, or has
any
claim or right against, either Seller, (i) providing for the furnishing of
services by, (ii) providing for the rental of real or personal property from,
or
(iii) otherwise requiring payments to (other than for services as managers,
officers, directors or employees of the Business), any such person or any
corporation, partnership, trust or other entity in which any such person has
a
substantial interest as a stockholder, officer, director, trustee or
partner.
Section
3.26 ERISA.
Neither
Seller nor any ERISA Affiliate maintains or contributes to or has or had any
obligation to maintain or contribute to any employee pension benefit plan within
the meaning of Section 3(2) of ERISA that (i) is subject to minimum funding
standards of the Code or ERISA; or (ii) is a multiemployer plan as defined
in
Section 4001(a)(3) of ERISA.
Section
3.27 Employees.
(a) Each
Employee Benefit Plan maintained by the Seller is listed in Schedule
3.27(a)
and
copies or descriptions of each such Employee Benefit Plan have been delivered
to
Buyer. Buyer will not have, as a consequence of the transactions contemplated
hereby, any liability or obligation with respect to or under any agreement
between either Seller and any of the Employees, except for the Transferred
Employees (as such term is defined herein) to the extent contemplated by
Section
6.1
hereof.
(b) Each
Employee Benefit Plan maintained by Seller with respect to the Business
Employees has been maintained and administered at all times in material
compliance with its terms and all applicable Laws.
(c) Schedule
3.27(c)
contains: (i) a list of the Business Employees; (ii) the current annual
compensation provided by Seller to each such Business Employee as of the Closing
Date; (iii) a list of any increase presently scheduled (including the effective
date thereof) in the rate of compensation of any the Business Employees; (iv)
the title and location of each such Business Employee; and (v) a job description
for each Business Employee.
27
(d) Neither
Seller is a party to or bound by any union contract or collective bargaining
agreement and has not experienced any strike, grievance or any arbitration
proceeding, claim of unfair labor practices filed or, to Seller’s knowledge,
threatened to be filed or any other material labor difficulty.
(e) All
of
the Business Employees are United States citizens, or lawful residents of the
United States.
Section
3.28 No
Disputes.
Except
as set forth on Schedule
3.28,
to
Seller’s knowledge, there are no material conflicts or problems with any
officer, manager or Key Employee of Seller that would likely result in the
termination or resignation of employment of any such individual. To Seller’s
knowledge, there are no material disputes with suppliers that would likely
result in the termination of the source of supply of a material product and
there are no long term commitments with suppliers.
Section
3.29 Insurance
Coverage.
Except
as set forth in Schedule
3.29,
Seller
maintains insurance policies for fire, liability and other forms of insurance
covering the Business and the Purchased Assets in amounts and against such
losses and risks as are generally maintained for comparable businesses and
properties and such insurance will be maintained through Closing.
Section
3.30 Consents
and Approvals.
Except
for consents with respect to the Consent Contracts, no material consent,
approval, waiver or authorization is required to be given or made by any
Government Authority or other Person in connection with the execution, delivery
and performance of this Agreement by the Seller.
Section
3.31 Assets
of the Business.
The
Seller (and not any third party or Affiliate of any Seller) is the beneficial
owner of the Purchased Assets, other than the leased Purchased Assets, and
has
(and, at the Closing, the Buyer will receive) good and marketable title to
such
Purchased Assets, or, in the case of leased Purchased Assets, valid and
enforceable rights to use such Purchased Assets, free and clear of all Liens
other than Permitted Encumbrances. All the Purchased Assets that are tangible
assets are in good operating condition and repair for the purpose in which
they
are intended, subject only to ordinary wear and tear. The Purchased Assets
constitute all of the assets (whether real or personal, tangible or intangible)
that are required to operate the Business as currently being operated by the
Seller prior to the Closing other than the assets listed on Schedule
3.31.
Section
3.32 Product
Warranties.
Each
product manufactured, licensed or sold by Seller has been in substantial
conformity with all contractual commitments and express warranties applicable
to
Seller, all of which are described in Schedule
3.32,
as well
as with all warranties implied by law.
Section
3.33 Solvency.
Seller
will be Solvent immediately following the Closing. Seller will not fail to
be
Solvent as a result of the execution and delivery of the Transaction Documents.
“Solvent”
shall
mean, when used with respect to any person or entity, that at the time of
determination: (i) its assets exceed its liabilities; (ii) it is then able
and
expects to be able to pay its debts as they mature; and (iii) it has capital
sufficient to carry on its business as conducted and as proposed to be
conducted.
28
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF BUYER
Buyer
represents and warrants to Seller as of the Effective Date and agrees to
represent and warrant to Seller as of the Closing Date as follows:
Section
4.1 Organization.
Buyer
is a corporation duly organized and validly existing under the laws of the
State
of Delaware. Buyer has (i) all requisite power and authority to carry on
respective business as it is now being conducted and as contemplated to be
conducted immediately following the Closing, and (ii) the necessary corporate
power and authority to execute, deliver and perform its obligations under the
Transaction Documents and to consummate the transactions contemplated herein
and
therein.
Section
4.2 Authority.
Buyer
now has, and at Closing will have, all requisite organizational authority to
execute, deliver and perform the Transaction Documents and to perform its
obligations and consummate the transactions contemplated under the Transaction
Documents to which it is a party. The execution and the delivery of the
Transaction Documents to which Buyer is a party and the performance of the
transactions contemplated by such Transaction Documents have been duly
authorized by Buyer, as the case may be, and all necessary corporate or
organizational actions by Buyer for the execution, delivery and performance
of
the Transaction Documents to which either of them is a party and the
consummation of the transactions contemplated hereby and thereby have been
taken, and no further corporate or organizational authorization will be
necessary to authorize the execution and delivery by Buyer of, and the
performance of its obligations under, each Transaction Document to which Buyer
is a party. Each Transaction Document to which Buyer is a party has been validly
executed and delivered by Buyer, as the case may be, and constitutes valid
and
binding obligations of Buyer, enforceable against Buyer in accordance with
its
terms, except (i) as such enforceability may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors’ rights generally, (ii) as such obligations are subject to
general principles of equity and (iii) as rights to indemnity may be limited
by
federal or state securities laws or by public policy.
Section
4.3 Approvals.
No
third-party action, waiver, consent or approval is required of any Person for
the execution, delivery and performance of the Transaction Documents by Buyer,
and the execution, delivery or performance, and the consummation of the
transactions contemplated herein or therein do not breach any provision of
Buyer’s Certificate of Incorporations and Bylaws. No action, waiver, consent or
approval by any Governmental Authority is necessary to make this Agreement
a
valid instrument binding on Buyer in accordance with its terms.
Section
4.4 Broker
or Finder’s Fee.
Buyer
has no liability or obligation to pay any fees or commissions to any broker,
finder or agent with respect to the transactions contemplated by this
Agreement.
29
Section
4.5 No
Conflict or Default.
The
execution and performance of this Agreement, the compliance with its provisions
by Buyer, and the transfer of the Purchased Assets to Buyer on the Closing
Date
will not conflict with or result in any breach of any of the terms, conditions,
or provisions of any agreement, indenture, mortgage, or other instrument to
which either Buyer is a party or by which it is bound. Further, the execution
and performance of this Agreement, the compliance with its provisions by Buyer,
and the transfer of the Purchased Assets to Buyer on the Closing Date will
materially comply with all Laws of any Governmental Authority applicable to
the
Business or any of the Purchased Assets and will not conflict with, or result
in
the breach of any of the terms of any of Buyers’ Organizational Documents. The
consummation of the transactions contemplated by this Agreement will not require
the consent of any Person with respect to the rights, licenses, franchises,
leases, contracts or agreements (including but not limited to the Contracts)
of
Buyer.
Section
4.6 Litigation.
There
is no litigation, proceeding or governmental investigation pending in front
of
any court, arbitration board, administrative agency or tribunal against or
relating to Buyer.
Section
4.7 No
Default.
Buyer
is not in default with respect to any indebtedness, note, indenture, loan
agreement, mortgage, lease, deed or other agreement to which Buyer is a party
or
by which it is bound and neither Buyer nor Parent has received any notice or
demands with respect to the same that would prevent or affect the transactions
contemplated by the Transaction Documents.
Section
4.8 Capitalization.
Immediately following the Closing and after giving effect to the transactions
contemplated in this Agreement and the Stock Purchase Agreement, (a) the
authorized capital stock of the Buyer will consist of: (i) an aggregate of
75,000,000 shares of Buyer Common Stock, of which up to 10,000,000 shares will
have been issued and outstanding pursuant to this Agreement and (ii) an
aggregate of 27,000,000 shares of Series A Convertible Preferred Stock of which
15,000,000 shares will have been issued and outstanding pursuant to the Stock
Purchase Agreement; and (b) there will be no options, warrants, conversion
privileges or other rights outstanding to purchase or otherwise acquire from
the
Buyer any capital stock or other securities of the Buyer, or any other
agreements to issue any such securities or rights other than (i) the Warrant,
(ii) the issued and outstanding shares of the Series A Convertible Preferred
Stock, (iii) pursuant to the Stock Purchase Agreement and (iv) a stock option
plan covering 5,303,030 shares of Buyer Common Stock.
ARTICLE
V
PARENT
& SELLER
COVENANTS
The
Parent and Seller hereby covenant and agree as follows:
Section
5.1 Maintenance
of the Purchased Assets.
Until
the Closing Date, Seller shall not lease, sell, or dispose of any of the
Purchased Assets other than in the ordinary course of business consistent with
past practice or otherwise except with the prior written consent of
Buyer.
30
Section
5.2 Update
of Disclosure Schedule.
Prior
to the Closing Date, Seller shall supplement or amend all relevant Schedules
and/or notify Buyer with respect to any matter thereafter arising or discovered
which, if existing or known on the Effective Date of this Agreement, would
have
been required to be set forth or described in such Schedule(s) or would have
been required to be disclosed to Buyer under this Agreement. At the Closing
Date, Seller shall deliver to Buyer a complete Disclosure Schedule, marked
to
show all of the changes since the Effective Date (the “Updated
Schedules”).
Section
5.3 Conduct
of Business.
From
the date hereof to the Closing Date, except (i) for entering into and performing
this Agreement, and the other Transaction Documents; (ii) for the effect of
the
consummation of the transactions contemplated hereby and thereby; (iii)
repayment, conversion or satisfaction of its liabilities and Indebtedness;
(iv)
the transactions contemplated in that certain Securities Purchase Agreement,
dated August 16, 2006, among the Parent and the Purchasers identified therein;
or (v) as otherwise consented to by Buyer in writing, the Seller shall conduct
the Business in the ordinary course in substantially the same manner in which
it
has previously been conducted, and shall take or refrain from taking (as
appropriate) the following actions:
(a) Seller
will use its best efforts to maintain and preserve relationships with its
current customers and suppliers of the Business and Transferred
Employees;
(b) Seller
will maintain the books, accounts and records on a basis consistent with that
of
prior periods and said books, accounts and records will accurately reflect
activities of Seller with respect to the Business;
(c) Seller
will not do any act or omit to do any act or permit any act or omission to
act
that will cause a material breach of any contract, commitment or obligation
of
either Seller, including but not limited to the Contracts, where such breach
would reasonably likely have a Material Adverse Effect;
(d) Seller
will use its best efforts to prevent the occurrence of any change or event
which
would prevent any of its representations and warranties contained herein from
being true at and as of the Closing Date;
(e) Seller
will maintain in full force and effect the insurance coverage under the policies
set forth in Section
3.29;
(f) Seller
will give Buyer and Buyer’s Representatives access during normal business hours,
without unreasonable interference with business operations, to all of the
facilities, properties, books, contracts, commitments and records of Seller
and
shall make Seller’s officers and employees available to Buyer as Buyer shall
from time to time reasonably request. Buyer and its Representatives will be
furnished the information concerning Seller relating to the Business which
Buyer
reasonably requests.
(g) Seller
will not enter into any settlement of any material litigation or proceeding
relating to the Purchased Assets, the Business or the Assumed
Obligations;
31
(h) Seller
will not incur any material obligation or liability or enter into any
transaction material to the Business without the prior written consent of the
Buyer;
(i) Seller
will discharge or satisfy any known encumbrance or pay or satisfy any known
obligation or liability (whether absolute, accrued, contingent or otherwise),
other than Permitted Encumbrances, liabilities being contested in good faith
and
for which adequate reserve have been provided and Encumbrances, obligations
and
liabilities arising in the ordinary course of business that do not, individually
or in the aggregate, materially interfere with the use, operation, or
marketability of any of the Purchased Assets or which may be discharged or
satisfied at Closing with a portion of the Purchase Price.
(j) Seller
will not mortgage, pledge or subject to any Encumbrance any of the Purchased
Assets, except for Permitted Encumbrances and Encumbrances arising in the
ordinary course of business and consistent with past practice and liens for
Taxes not yet due and payable;
(k) Seller
will not dispose of any of the Purchased Assets or enter into any material
contracts relating to the Business, except in the ordinary course of business
and consistent with past practices, without the prior written consent of the
Buyer;
(l) Seller
will not become or remain in breach or default on any material obligation other
than such breach or default which can and shall be cured prior to the
Closing;
(m) Seller
will not write-off as uncollectible any of its Accounts Receivable relating
to
the Business or any portion thereof unless otherwise advised by Seller’s
independent accountants;
(n) Seller
will not discontinue the sales of any products of the Business;
(o) Seller
will not increase any salary or wage of any Transferred Employee, other than
regularly scheduled salary increases agreed upon by the board of directors
of
the Company or the Subsidiary (which shall not exceed two percent (2%) in the
aggregate, per annum), or as agreed to prior to the Effective Date, declare
or
pay any bonus, revise, amend, institute, or terminate any employee benefit
of
any Employee other than previously disclosed to Buyer;
(p) Seller
will not enter into any agreement or make any commitment to do any of the
foregoing;
(q) Seller
will assist in the transfer of Transferred Employees needed for the Business;
and
(r) Seller
shall assist Buyer with reasonable integration efforts and
transition.
32
Section
5.4 Notification.
Seller
shall promptly notify Buyer in writing if it becomes aware of (a) any fact
or
condition that, in Seller’s reasonable determination, causes or constitutes a
material breach of any of Seller’s representations and warranties made as of the
Effective Date or (b) the occurrence after the Effective Date of any fact or
condition that, in Seller’s reasonable determination, would or would be
reasonably likely to (except as expressly contemplated by this Agreement) cause
or constitute a breach of any such representation or warranty had that
representation or warranty been made as of the time of the occurrence of, or
Seller’s discovery of, such fact or condition.
Section
5.5 Interim
Financial Statements.
Until
the Closing Date, Seller shall deliver to Buyer within ten (10) Business Days
after the end of each month a copy of the unaudited financial statements of
Subsidiary or such month prepared in accordance with GAAP, consistently applied,
in a manner and containing information consistent with Seller’s current
practices.
Section
5.6 Compliance
with Laws.
Seller
shall duly comply with all Laws applicable to the Business or the Purchased
Assets (including, without limitation, all environmental Laws) or as may be
required for the valid and effective transfer and assignment of the Purchased
Assets.
Section
5.7 Notice
of Developments.
Seller
will give prompt written notice to the Buyer of any material development
affecting the assets, liabilities, business, financial condition, operations,
results of operations, or future prospects of Seller. Seller will give prompt
written notice to Buyer of any material development affecting the ability of
Seller to consummate the transactions contemplated by the Agreement. No
disclosure by Seller pursuant to this Section
5.7,
however, shall be deemed to amend or supplement the Disclosure Schedule or
to
prevent or cure any misrepresentation, breach of warranty, or
covenant.
Section
5.8 Meeting
of Company Stockholders.
(a) In
connection with obtaining the approval of the holders of Company’s common stock,
par value $0.001 (the “Company
Common
Stock”,
and
such holders, the “Company
Stockholders”),
the
Company will take all action necessary in accordance with applicable law and
regulations and its Certificate of Incorporation and Bylaws to duly call, give
notice of, convene and hold, as promptly as reasonably practicable after the
date hereof, a meeting (the “Stockholders’
Meeting”)
of the
Company Stockholders for the purpose of obtaining approval of this Agreement
and
the Transaction and shall submit this Agreement and the Transaction for approval
by the Company Stockholders at such meeting or any adjournment
thereof.
(b) Company,
through its board of directors, shall recommend approval of the Transactions
by
the Company Stockholders at the Stockholders’ Meeting or any adjournment
thereof, shall include such recommendation in the Proxy Statement and shall
use
all commercially reasonable efforts to obtain the approval of the Company
Stockholders.
33
(c) Within
fourteen (14) days of the execution of this Agreement, Company shall prepare
and
file with the Securities and Exchange Commission (“SEC”)
proxy
materials as required by applicable law to solicit from the Company Stockholders
proxies in favor of the adoption of this Agreement and the approval of the
Transaction (the “Proxy
Statement”),
and
shall use reasonable efforts to have the Proxy Statement cleared by the SEC.
The
Proxy Statement shall comply with applicable provisions of the Securities Act
of
1933, as amended (the “Securities
Act”)
and
the Exchange Act and the rules and regulations thereunder. If at any time prior
to the Stockholder’s Meeting any event shall occur that should be set forth in
an amendment of or a supplement to the Proxy Statement, Company shall prepare
and file with the SEC such amendment or supplement as soon thereafter as is
reasonably practicable. Buyer and Company shall cooperate with each other in
the
preparation of the Proxy Statement, and Company shall notify Buyer of the
receipt of any comments of the SEC with respect to the Proxy Statement and
of
any requests by the SEC for any amendment or supplement thereto or for
additional information, and shall provide to Buyer promptly copies of all
correspondence between Company or any representative of Company and the SEC
with
respect to the Proxy Statement. Buyer and its counsel shall have the right
to
review the Proxy Statement and all responses to requests for additional
information by and replies to comments of the SEC before their being filed
with,
or sent to, the SEC. Each of Company and Buyer agrees to use commercially
reasonable efforts, after consultation with the other parties hereto, to respond
promptly to all such comments of and requests by the SEC in an effort to cause
the Proxy Statement to be mailed to the holders of Company Common Stock entitled
to vote at the Stockholders’ Meeting at the earliest practicable time. Company
agrees that the information provided by it for inclusion in the Proxy Statement
and each amendment or supplement thereto, at the time of mailing thereof and
at
the time of the Stockholders’ Meeting, will not include an untrue statement of a
material fact or omit to state a material fact required to be stated therein
or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
Section
5.9 Tax
Matters.
(a) Tax
Returns.
The
Seller shall prepare and shall timely file with the appropriate Tax Authority
all Tax Returns with respect to Taxable periods ending on or before the Closing
Date. In the event of Tax Returns whose due date is after the Closing Date,
taking into account all extensions that are properly obtained, at least ten
(10)
business days prior to filing a Tax Return, the Seller shall provide or cause
to
be provided to Buyer a copy thereof and such Tax Return shall not be filed
if
Buyer notifies the Seller in writing within such ten (10) day period of its
material objection to any material aspect of such Tax Return.
(b) Liability
for Taxes.
Seller
shall indemnify and hold harmless the Buyer, from and against all Taxes of
or
with respect to the Seller, any its business, its assets or its capital, which
are owed for any Taxable period ending on or before the Closing Date, or the
portion of any Straddle Period up to and including the Closing Date.
(c) Allocation
of Taxes.
(i) Taxable
Periods Ending on the Closing Date.
Seller
shall, whenever required or permitted to do so, end its taxable period on the
Closing Date, including without limitation the federal income tax period ending
on the Closing Date and begin a new taxable period on the day after the Closing
Date.
34
(ii) Straddle
Periods.
In the
case of a Taxable period that begins on or before the Closing Date and ends
after the Closing Date (a “Straddle
Period”),
items
shall be allocated between the portion of the Straddle Period up to and
including the Closing Date and the portion of the Straddle Period after the
Closing Date, on the basis of a “closing of the books” by allocating to each
such portion of the Straddle Period: (A) sales Taxes in proportion to the
Taxable sales which take place in each portion of the Straddle Period, (B)
use
Taxes in proportion to the Taxable purchases which take place in each portion
of
the Straddle Period, (C) Taxes based on gross receipts in proportion to the
gross receipts accrued in each portion of the Straddle Period, (D) Taxes which
accrue over time (including without limitation, property Taxes) in proportion
to
the number of days in each portion of the Straddle Period and (E) in the case
of
all other Taxes, on a reasonable basis that gives effect to a “closing of the
books.”
(iii) Cooperation.
Parent,
the Seller, and the Buyer shall reasonably cooperate, and shall cause their
Representatives and agents reasonably to cooperate, in the preparation of Tax
Returns, the payment of Taxes and the resolution of Tax Audits and Tax
Deficiencies, including maintaining and making available to each other all
records necessary in connection therewith.
(iv) Section
368(a) Qualification.
From
and after the date hereof, neither Parent nor Seller will (i) knowingly take
any
action or fail to take any action that would cause the Transaction to fail
to
qualify as a tax-free reorganization under Section 368(a) or (ii) enter into
any
contract, agreement, commitment or arrangement the performance of which would
result in any such action.
(v) FIRPTA
Clearance.
Buyer
shall have received from the Seller a statement meeting the requirements of
Treasury Regulation Section 1.1445-2(b)(2) that the Seller is not a foreign
person.
(vi) Survival.
The
covenants set forth in this Section
5.9
shall
survive the Closing and continue in full force and effect forever thereafter.
Section
5.10 Liquidation.
Promptly following the Closing, Parent shall cause Subsidiary to liquidate,
dissolve, and distribute all of its remaining assets to Parent as sole
stockholder of Subsidiary.
ARTICLE
VI
MUTUAL
COVENANTS.
Each
of
the parties hereto, as the case may be, hereby covenant and agree as follows:
Section
6.1 Employee
Matters.
35
(a) Transferred
Employees.
Schedule
3.27(c)
lists
all of the Business Employees as of the date of this Agreement. Seller shall
continue to employ all of the Employees until the Closing, except for any
Employee who prior to the Closing (i) is terminated for cause; (ii) is
terminated with the consent of Buyer, or (iii) voluntarily resigns. Within
sixty
(60) business days of the execution of this Agreement, Buyer shall deliver
to
Seller a list of those Business Employees who will be offered employment by
Buyer on terms and conditions of employment to be determined in the sole
discretion of the Buyer. From the date of this Agreement to the Closing Date,
Seller shall permit Buyer to communicate with the Business Employees, at
reasonable times and upon reasonable notice and to interview the Business
Employees and review the personnel records and such other information concerning
such employees as Buyer may reasonably (subject to obtaining any legally
required written permission of any affected employee and to any other applicable
law). Buyer’s offer of employment shall be contingent upon and effective as of
the Closing Date. The Business Employees who are offered and accept employment
by the Buyer shall hereinafter be referred to as the “Transferred
Employees.”
Business Employees to whom offers are made but who decline such offers, or
who
fail to perform one hour of service for Buyer after the Closing Date shall
hereinafter be referred to as the “Terminated
Employees.”
Seller
and Buyer agree, with respect to Transferred Employees, to take the position
that they are, respectively, a “predecessor” and “successor” as defined in
Revenue Procedure 96-60 and Treasury Regulation Section 31.3 121(a)(l)-l(b).
Seller and Buyer shall use the “Standard Procedure” described in Section 4 of
Revenue Procedure 96-60 with respect to all Transferred Employees. Seller shall
supply to Buyer, with respect to all Transferred Employees, all cumulative
payroll information as of the Closing Date that Buyer shall reasonably request
in order not to restart the wage base of Transferred Employees for social
security and Medicare tax purposes.
(b) Employment
of the Transferred Employees with the Buyer shall be effective as of 12:01
a.m.
on the date immediately following the Closing Date (the “Transfer
Date”).
As to
the Transferred Employees, the Buyer will not cause any period of unemployment
between the time employment with the Seller ends and the effective date of
employment with the Buyer.
(c) Except
as
specifically set forth below, the Seller shall retain sole liability for claims
of the Business Employees and their dependents arising on or prior to the
Closing Date. Buyer shall have sole liability to the Transferred Employees
and
their dependents for any and all claims by the Transferred Employees and their
dependents arising after the Closing Date. The Seller shall be solely
responsible for and Buyer does not assume any liability for the Seller’s actions
in terminating the employment of any Business Employee, including but not
limited to any obligation to pay any Business Employee a severance benefit.
(d) The
Seller shall retain sole liability for and shall pay all premiums, costs and
expenses with respect to unemployment compensation obligations occurring during
the Seller’s employment of the Business Employees on and prior to the Closing
Date. The Seller shall be liable for all work-related injury claims of Business
Employees occurring on and prior to the Closing Date, including but not limited
to those claims covered by workers’ compensation statutes. The Buyer shall be
solely liable for and shall pay all premiums, costs and expenses with respect
to
unemployment compensation obligations occurring during the Buyer’s employment of
the Transferred Employees. The Buyer shall be liable for all work-related injury
claims of Transferred Employees occurring after the Closing Date, including
but
not limited to those claims covered by workers’ compensation
statutes.
36
(e) Notwithstanding
anything herein to the contrary, the Buyer shall not assume any liability or
responsibility for any Employee Benefit Plans sponsored or maintained by the
Seller, and Seller shall be solely responsible and liable for such Employee
Benefit Plans, including, but not limited to:
(f) Payment
of any accrued but unused vacation benefits for Transferred Employees accruing
on or prior to the Closing Date;
(g) Payment
of any severance pay or stay bonuses due to any Business Employees pursuant to
any severance or stay bonus program or policy of the Seller in effect as of
the
Closing Date; or
(h) Payment
of benefits of the Business Employees attributable to Seller’s 401(k) plan or
other retirement or savings plan, whether qualified or
non-qualified;
(i) The
Buyer
shall recognize all service credited for the Transferred Employees on the
Seller’s records for purposes of eligibility for benefits (but not vesting or
benefit accrual) under the Buyer’s benefit plans and programs, but the Buyer
shall not recognize service credited on the Seller’s records to the extent that
such recognition of service would result in duplication of
benefits.
(j) The
Seller will retain responsibility for and continue to pay all hospital, medical,
life insurance, disability and other welfare benefit plan expenses and benefits
for each Employee with respect to claims incurred by such Employee or such
Employee’s covered dependents on or prior to the Closing Date. Hospital, life
insurance and other welfare benefit plan expenses and benefits with respect
to
claims incurred by any Transferred Employee or such Transferred Employee’s
covered dependents after the Closing Date shall be the Buyer’s responsibility in
accordance with the terms of any applicable welfare benefit plan maintained
by
the Buyer for the Transferred Employee. For purposes of this paragraph, a claim
is deemed incurred when the services giving rise to the claim were
performed.
(k) At
the
Buyer’s discretion and expense, the Seller shall maintain coverage for the
Transferred Employees and their covered dependents in the Seller’s group medical
and dental plans for up to sixty (60) days after the Closing Date. With respect
to any period of coverage for the Transferred Employees in the Seller’s group
medical and dental plans after the Closing Date, the Seller will cause the
Transferred Employees’ medical and dental expenses to be paid under the Seller’s
plans. The Buyer shall promptly reimburse the Seller for the Seller’s actual
costs associated with the coverage of the Transferred Employees and their
covered dependents and any applicable administrative costs during the period
of
coverage upon receipt of an invoice, supported by reasonable documentation,
from
the Seller for those costs.
37
(l) The
Transferred Employees and their eligible dependents who were participants in
Seller’s group health plan shall become participants in the group medical and
dental plans offered by Buyer on the later of either (i) the Closing Date or
(ii) the date of termination of coverage (other than coverage for COBRA
purposes) under the Seller’s group health plans pursuant to the preceding
paragraph. The Transferred Employees and their eligible dependents who present
certificates of creditable coverage to Buyer shall not be subject to any
pre-existing conditions limitations under the Buyer’s group health plans to the
extent that such limitations did not apply under Seller’s group health plans.
(m) Seller
shall retain and Buyer shall not assume liability for any of Seller’s
obligations under COBRA, including the obligation, if any, to provide notice
and
continuation of coverage to any “M&A qualified beneficiary” (as such term is
defined in COBRA). Seller shall reimburse and indemnify Buyer for any costs
or
liabilities relating to Seller’s COBRA responsibility with respect to any
Business Employee or former employee of Seller.
(n) Seller
shall be responsible for and shall pay promptly after the Closing any remaining
vacation under the Seller’s vacation policy for the period prior to and
including the Closing Date. The Transferred Employee shall be eligible for
vacation under the Buyer’s vacation policy beginning on the Transfer
Date.
(o)
As of
the Closing Date, each Transferred Employee will become fully vested in his
interests in the Seller’s 401(k) or other retirement or savings plan, whether
qualified or unqualified, maintained by the Seller. The Seller shall cause
the
Seller’s 401(k) plan or other retirement or savings plans to be amended, to the
extent necessary, to accomplish the foregoing.
(p) No
provision of this Agreement shall create any rights in any Business Employee,
former employee of the Seller, Transferred Employee (including any beneficiary
or dependent thereof) or Terminated Employee with respect to continued
employment (or resumed employment), and this Agreement shall not create any
rights in any such persons with respect to any benefits that may be provided,
directly or indirectly, under any employee benefit plan or arrangement sponsored
by either the Seller or the Buyer.
(q) No
intention, implication or interpretation of this Agreement shall convey any
guarantee of employment for any Transferred Employee for any particular period
of time. The Transferred Employees shall be employees-at-will of the Buyer.
Except as otherwise provided in this Agreement, the Buyer shall have the
absolute discretion to establish and modify the terms and conditions of
employment for any Transferred Employee.
(r) Prior
to
and following the Closing Date, the Seller and the Buyer shall supply each
other
appropriate and reasonably necessary employee data and other records to carry
out the purposes and terms of this Article
VI,
including but not limited to data appropriate to complete actuarial
computations, evaluations, benefit reports, filings and claims analysis and
government filings.
38
Section
6.2 Payment
of Liabilities.
On or
prior to the Closing Date, Seller shall pay or otherwise satisfy in the ordinary
course of business all of its retained liabilities and other obligations
associated with the Business, other than the Assumed Obligations.
Section
6.3 Noncompetition,
Nonsolicitation and Nondisparagement.
(a) Noncompetition
with Buyer.
For a
period of five (5) years after the Closing Date, Seller shall not anywhere
in
the world (the “Restricted
Area”),
directly or indirectly, invest in, own, manage, operate, finance, control,
advise, aid or assist, act as a broker for, render services to, be employed
by
or guarantee the obligations of any Person engaged in or planning to become
engaged in a
business which competes with the Business. With respect to the covenants and
agreements set forth in this Section
6.3,
Seller
agree that it may be impossible to measure in monetary terms the damages which
will accrue to Buyer by reason of an actual breach by it of such covenants
and
agreements, that a violation of such covenants and agreements will cause
irreparable injury to Buyer, and that Buyer shall be entitled, in addition
to
any other rights and remedies it may have, at law or in equity, to apply to
a
court of competent jurisdiction for an injunction to restrain Seller from
violating, or continuing to violate, such covenants and agreements. Nothing
in
this Section
6.3
shall be
deemed to limit Buyer’s right to recover damages caused by any actual breach by
Seller.
(b) Nonsolicitation.
Seller
agrees that it shall not, for a period of two (2) years from the Closing Date,
either directly or indirectly on its own behalf or in association with or on
behalf of others, directly or indirectly, solicit, entice or induce any employee
or independent consultant of Buyer to leave its service with Buyer or solicit,
entice or induce for employment or employ, whether as an advisor, independent
consultant or otherwise, any person who was, either at the Closing Date or
within a period of three months prior thereto, an employee of Buyer. The
geographic scope of this Section
6.3(b)
shall
extend worldwide to anywhere the Buyer or Seller is doing business, has done
business or has plans to do business, or to such lesser geographic area as
a
court of competent jurisdiction may direct. The provisions of Section
6.3(b)
shall
not be deemed to apply to or include general solicitations of employment that
are not specifically directed towards employees of the other party.
(c) Nondisparagement.
After
the Closing Date, neither party will disparage any other party hereto or any
of
such party’s Representatives.
(d) Modification
of Covenant.
If a
final judgment of a court or tribunal of competent jurisdiction determines
that
any term or provision contained in this Section
6.3(d)
is
invalid or unenforceable, then the parties agree that the court or tribunal
will
have the power to reduce the scope, duration or geographic area of the term
or
provision, to delete specific words or phrases or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid
or
unenforceable term or provision. This Section
6.3(d)
will be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed. This Section
6.3(d)
is
reasonable and necessary to protect and preserve Buyer’s legitimate business
interests in the geographical locations in which the business operates and
the
value of the Purchased Assets and to prevent any unfair advantage conferred
on
Seller.
39
Section
6.4 Further
Assurances.
Seller
agrees to cooperate with Buyer and its authorized Representatives in connection
with any steps required to be taken as part of Seller’s respective obligations
under this Agreement, and shall (i) furnish upon request to Seller such further
information; (ii) execute and deliver to Seller such other documents; and (iii)
do such other acts and things, all as Buyer may reasonably request for the
purpose of carrying out the intent of this Agreement and the transactions
contemplated thereby.
Section
6.5 Collection
of Accounts Receivable.
After
the Closing Date, Buyer shall collect any Accounts Receivable that were
generated in connection with the Business prior to the Closing Date. Seller
shall promptly remit to Buyer any such payments on the Accounts Receivable
received by Seller after the Closing Date. After the Closing Date, Buyer shall
have the right to notify any customers who owe Seller any amounts properly
payable to Buyer to send its payments directly to Buyer.
Section
6.6 Necessary
Action.
Seller
shall, at its own expense, use commercially reasonable efforts, both prior
to
and after the Closing, take all necessary action, obtain any consents, approvals
and amendments of agreements required to carry out the transactions contemplated
by this Agreement and to satisfy any conditions for which any of them is
responsible hereunder.
ARTICLE
VII
CONDITIONS
TO CLOSING
Section
7.1 Conditions
Precedent to Seller’s Obligation to Perform.
The
obligation of Seller to consummate the transaction contemplated in this
Agreement is subject to the satisfaction or express waiver by Seller at or
prior
to the Closing of the following conditions:
(a) All
representations and warranties by Buyer in this Agreement or in any document
delivered by Buyer pursuant to this Agreement shall be true and correct in
all
material respects on and as of the Closing Date and the Effective
Date;
(b) All
organizational approvals necessary to authorize the transactions contemplated
herein shall have been obtained by Seller;
(c) Buyer
shall have performed, satisfied and complied with all covenants, agreements,
and
conditions required by this Agreement to be performed or complied with by it
on
or before the Effective Date and the Closing Date;
(d) Buyer
shall have delivered all of the documents, agreements, instruments and other
items that Buyer is required to deliver at the Closing pursuant to Section
2.10(b)
of this
Agreement;
40
(e) Buyer
shall have formed a limited liability company under the laws of Delaware (the
“LLC”)
pursuant to an operating agreement in a form reasonably acceptable to Buyer
and
Seller (the “Operating
Agreement”);
(f) Buyer
shall have issued to the LLC a duly authorized stock certificate evidencing
the
number of shares of the Buyer Common Stock to be issued pursuant to the Buyer
Common Stock Issuance Calculation;
(g) Buyer
shall have issued a duly authorized Warrant to the LLC;
(h) All
organizational approvals necessary to authorize Buyer to consummate the
transactions contemplated under this Agreement shall have been obtained by
Buyer
(or obtained by Seller and evidence of such approval is delivered to
Buyer);
(i) Since
the
Effective Date, there shall not have been commenced or threatened against Buyer
any proceeding (a) involving any challenge to, or seeking Damages or other
relief in connection with, any of the transactions contemplated under this
Agreement or (b) that may have the effect of preventing, delaying, making
illegal, imposing limitations or conditions on or otherwise interfering with
any
of the transactions;
(j) Buyer
shall have not conducted any business other than entering into this Agreement
and the other Transaction Documents and the transactions contemplated
thereby;
(k) Buyer
shall not have any obligations or liabilities other than in connection with
this
Agreement and the other Transaction Documents;
(l) Buyer
shall have received financing in an amount not less than $15 million through
the
sale of its Series A Convertible Preferred Stock in accordance with the Stock
Purchase Agreement; and
(m) Since
the
Effective Date, there shall not have been any material adverse changes to Buyer
or its assets.
Section
7.2 Conditions
Precedent to Buyer’s Obligation to Perform.
The
obligation of Buyer to consummate the transaction contemplated in this Agreement
is subject to the satisfaction or express waiver by Buyer at or prior to the
Closing of the following conditions:
(a) All
organizational approvals necessary to authorize the transaction contemplated
under this Agreement shall have been obtained by Buyer (or obtained by Seller
and evidence of such approval is delivered to Buyer), including without
limitation either (i) an opinion reasonably acceptable to the Seller and Buyer,
of Delaware counsel that is reasonably acceptable to the Seller and the Buyer,
stating the approval by the Company Stockholders is not required under Law
for
the consummation of the transactions contemplated herein; or (ii) the approval
of the transactions contemplated herein by proxy or written consent of a
majority of the holders of the outstanding shares of Common Stock or securities
convertible or exchangeable into Common Stock and having the right to vote
in
such matter in a form and substance reasonably acceptable to the
Buyer;
41
(b) All
necessary consents of third parties to the transaction contemplated by the
Transaction Documents shall have been obtained by Seller or Buyer, as
applicable, including, without limitation, (i) any required consents in the
Contracts, and (ii) any required consents of creditors, lessors, suppliers
and
Governmental Authorities including without limitation those listed in
Schedule
3.24,
attached hereto;
(c) All
representations and warranties by Seller in this Agreement or in any document
delivered by Seller pursuant to this Agreement shall be true and correct in
all
respects on and as of the Effective Date and the Closing Date;
(d) Buyer
shall have received approval from Aisling Capital II, L.P.’s internal investment
committee to take all actions contemplated by this Agreement and the Stock
Purchase Agreement;
(e) Qualified
Liabilities do not exceed $500,000;
(f) Seller
shall have performed, satisfied and complied with all covenants, agreements,
and
conditions required by this Agreement to be performed or complied with by it
on
or before the Closing Date;
(g) Seller
shall have delivered all of the documents, agreements, instruments and other
items that Seller is required to deliver at the Closing pursuant to Section
2.10(a)
of this
Agreement;
(h) Buyer
shall have entered into the Key Employment Agreement with the Key
Employee;
(i) Subject
to Section
2.10(a)(xii),
Seller
shall have obtained releases with respect to all of the Royalty
Agreements;
(j) Seller
shall have paid off, converted or released all of its Indebtedness;
(k) Seller
shall have received an opinion from a financial advisor, in form and substance
reasonably acceptable to Buyer that this transaction is fair from a financial
point of view to the Company Stockholders (the “Fairness
Opinion”);
(l) Seller
shall have received an opinion from a financial advisor, in form and substance
reasonably acceptable to Buyer that Seller is not insolvent as of the Closing
Date, and the sale of the Purchased Assets will not cause Seller to be insolvent
immediately following the Closing (the “Solvency
Opinion”);
(m) Since
the
Effective Date, there shall not have been any material adverse changes to the
Business;
(n) Since
the
Effective Date, there shall not have been commenced or threatened against Buyer,
or against any Affiliate of Buyer, any proceeding (a) involving any challenge
to, or seeking Damages or other relief in connection with, any of the
transactions contemplated under this Agreement or (b) that may have the effect
of preventing, delaying, making illegal, imposing limitations or conditions
on
or otherwise interfering with any of the transactions; and
42
(o) Seller
shall have provided assistance as reasonably requested by Buyer in obtaining,
and Buyer shall have obtained, appropriate amendments to or terminations of
any
third party agreements that Buyer and Seller mutually agree appropriate in
their
reasonable discretion, provided, however, Seller shall not be required to make
any payment in connection herewith.
ARTICLE
VIII
TERMINATION
Section
8.1 Termination
by Seller.
Seller
may, on or prior to the Closing Date, terminate this Agreement without liability
if:
(a) there
shall have been a material breach of any representations or warranties set
forth
in this Agreement on the part of Buyer or if any representations or warranties
of Buyer shall have become untrue, provided that Seller has not materially
breached any of its obligations hereunder; or
(b) there
shall have been a material breach by Buyer of any of its covenants or agreements
hereunder and such breach would result in a material adverse effect on Buyer
or
on the ability of Buyer or Seller to consummate the transactions contemplated
by
this Agreement, and Buyer has not cured such breach within ten (10) Business
Days after notice by Seller thereof setting forth in reasonable detail the
nature of such breach; provided that Seller has not materially breached any
of
its obligations hereunder; or
(c) the
approval of the Company’s stockholders required by Section
5.8 shall
not
have been obtained at a meeting duly convened thereafter or at any adjournment
or postponement thereof; or
(d) the
Closing has not occurred by January 31, 2007, unless such date shall have been
extended by the mutual written consent of Seller and Buyer; provided, however,
that this right to terminate shall not be available to Seller if Seller’s
failure to fulfill in any material respect any covenant or obligation under
this
Agreement has been the cause of, or results in, the failure of the Closing
to
occur on or before the Closing Date; or any court of competent jurisdiction
in
the United States or other United States federal or state governmental entity
shall have issued a final order, decree or ruling, or taken any other final
action, restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
is
or shall have become non-appealable, and if this Agreement is terminated under
this Section
8.1(d),
neither
Buyer nor Seller shall have any liability hereunder; or
(e) in
the
exercise of its good faith judgment and to its fiduciary duties to its
stockholders imposed by law, the Board of Directors of this Company determines
that such termination is required.
43
Section
8.2 Termination
by Buyer.
Buyer
may, on or prior to the Closing Date, terminate this Agreement without liability
if:
(a) If
prior
to the Closing Date, the interim financial statements delivered pursuant to
Section
5.5
indicate
that the operating revenues of the Business for the fourth quarter of 2006
are
less than $175,000; or
(b) there
shall have been a material breach of any representations or warranties set
forth
in this Agreement on the part of the Seller or if any representations or
warranties of the Seller shall have become untrue provided that Buyer has not
materially breached any of its obligations hereunder; or
(c) there
shall have been a material breach by Seller of one or more of its covenants
or
agreements hereunder having a Material Adverse Effect on Seller or materially
adversely affecting (or materially delaying) the ability of Seller and Buyer
to
consummate transactions contemplated by this Agreement, and Seller has not
cured
such breach within ten (10) Business Days after notice by Buyer thereof setting
forth in reasonable detail the nature of such breach, provided that Buyer has
not materially breached any of its obligations hereunder; or
(d) the
approval of the Company’s stockholders required by Section
5.8
shall
not have been obtained at a meeting duly convened thereafter or at any
adjournment or postponement thereof; or
(e) the
Closing has not occurred by January 31, 2007, unless such date shall have been
extended by the mutual written consent of Seller and Buyer; provided, however,
that this right to terminate shall not be available to Buyer if Buyer’s failure
to fulfill in any material respect any covenant or obligation under this
Agreement has been the cause of, or results in, the failure of the Closing
to
occur on or before the Closing Date; or any court of competent jurisdiction
in
the United States or other United States federal or state governmental entity
shall have issued a final order, decree or ruling, or taken any other final
action, restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other action
is
or shall have become non-appealable, and if this Agreement is terminated under
this Section
8.2(e),
neither
Buyer nor Seller shall have any liability hereunder; or
(f) Buyer
shall not have entered into the Key Employment Agreement with the Key
Employee;
(g) the
Board
of Directors shall have withdrawn or modified in any manner adverse to Buyer
its
approval of this Agreement and the transactions contemplated hereby;
or
(h) Buyer
shall have failed to receive financing in an amount not less than $15 million
through the sale of its Series A Convertible Preferred Stock in accordance
with
the Stock Purchase Agreement.
44
Section
8.3 Termination
by Mutual Consent.
This
Agreement may be terminated by mutual written consent of Seller and Buyer (in
which case neither Buyer not Seller shall have any liability
hereunder).
Section
8.4 Procedures
Upon Termination.
In the
event of termination pursuant to this Article
VIII,
written
notice shall forthwith be given to the other party or parties, and the
transactions contemplated hereby shall be abandoned, without further action
by
any party hereto; provided, however, that nothing contained herein shall be
construed to prevent any parties hereto from pursuing any remedy available
at
law or in equity for any breach, violation, default or other failure of
performance of any other party hereto prior to Closing.
Section
8.5 Expense
Reimbursement.
If
this
Agreement is terminated pursuant to Section 8.2
(other
than Section
8.2(f),
(h)
or
(e)
(except,
with regard to (e),
where
such termination is due to any material breach of any representation, warranty,
covenant or agreement hereunder by Seller or Parent)), the Seller shall pay
the
Buyer an amount equal to the lesser of (i) Buyer’s reasonable, actual
out-of-pocket costs and expenses incurred in connection with preparing this
Agreement and the transaction contemplated hereby, including, without
limitation, the expenses of legal counsel or (ii) $350,000.
ARTICLE
IX
Indemnification.
Section
9.1 Seller
Indemnification.
Seller
agrees to protect, defend, indemnify and hold harmless Buyer and its directors,
officers, employees, agents, managers, shareholders, members, successors and
assigns, from any and all losses, claims, liabilities, obligations,
deficiencies, assessments, fines, costs, and damages (including, without
limitation, interest, penalties, reasonable legal fees and reasonable accounting
fees), whether fixed or contingent, liquidated or unliquidated, matured or
unmatured and all demands, assessments and judgments (collectively,
“Damages”),
resulting from, arising from or relating to: (a) any liability of Seller or
the
Business arising on or before the Closing Date other than the Assumed
Obligations; (b) any events relating to the Business occurring on or before
the
Closing Date, other than the Assumed Obligations; (c) any misrepresentation,
inaccuracy or breach of any warranty or representation by Seller in this
Agreement; (d) any material failure of Seller to perform any covenant or
agreement in the Transaction Documents in a timely manner and the failure of
which remains uncured for a period of ten (10) Business Days after receipt
of
written notice from Buyer setting forth in reasonable detail the nature of
such
material failure; or (e) any forfeitures, fines, penalties, or other sanctions
imposed as a result of noncompliance by Seller prior to the Closing Date with
any Laws applicable to the Business or the Purchased Assets.
Section
9.2 Buyer
Indemnification.
Buyer
shall protect, defend, indemnify and hold harmless Seller and its directors,
officers, employees, agents, managers, shareholders, partners, members,
successors and assigns, from and against any and all Damages resulting from,
arising from or relating to: (a) the Assumed Obligations; (b) any
misrepresentation, inaccuracy or breach of any warranty or representation by
Buyer in this Agreement; (c) the operation or ownership of the Business and
the
Purchased Assets after the Closing Date; (d) any events relating to the Business
occurring after the Closing Date; and (e) any material failure of Buyer to
perform any covenant or agreement in Transaction Documents in a timely manner
and the failure of which remains uncured for a period of ten (10) Business
Days
after the receipt of written notice front Seller setting forth in reasonable
detail the nature of such material failure; provided, however, Buyer shall
not
indemnify Seller for any Damages which arising out of a termination of this
Agreement pursuant to Section
8.2(d).
45
Section
9.3 Exclusive
Remedy.
The
parties hereby acknowledge and agree that, from and after the Closing, the
sole
remedy with respect to any and all claims arising under this Agreement shall
be
pursuant to the indemnification provisions set forth in this Article
IX.
In
furtherance of the foregoing, the parties hereby waive, from and after the
Closing, to the fullest extent permitted by Law, any and all other rights,
claims and causes of action they may have against the other parties hereto,
or
any of the other parties’ Representatives and Affiliates relating to any
misrepresentation in or breach of any representation or warranty or
nonfulfillment of any covenant, agreement or other obligation contained in
the
Transaction Documents .
Section
9.4 Survival.
(a) With
respect to any and all claims among the parties hereto arising in connection
with this Agreement, the representations, warranties, covenants and agreements
that are set forth in this Agreement shall be continuing and shall survive
the
Closing for a period of three (3) years except (1) the representations and
warranties set out in Sections
3.20,
3.23,
3.26
and
3.32,
which
shall survive for the period of the applicable statute of limitations plus
thirty (30) days; (2) the representations and warranties set out in Sections
3.3,
3.7
and
4.2
shall
indefinitely survive the Closing; and (3) in the case of a claim for any breach
of any of the representations and warranties contained in this Agreement
involving fraud or fraudulent misrepresentation shall survive and continue
in
full force and effect without limitation of time, subject only to applicable
limitation periods imposed by Law (the period during which the representations
and warranties and covenants and agreements shall survive being referred to
herein with respect to such representations and warranties and covenants and
agreements as the “Survival
Period”),
but
shall thereafter terminate and be of no further force and effect unless a
written notice asserting a claim shall have been made pursuant to this
Section
9.4(a)
within
the Survival Period with respect to such matter
(b) All
claims made hereunder prior to the expiration of the applicable survival period
stated above, but which are not yet settled, shall be subject to the
indemnification provisions hereunder.
Section
9.5 Procedure
for Indemnification.
If a
party entitled to indemnification under this Agreement (an “Indemnitee”)
asserts that a party obligated to indemnify it under this Agreement (an
“Indemnitor’”)
has
become obligated to such Indemnitee pursuant to this Agreement, or if any suit,
action, investigation, claim or proceeding is begun, made or instituted as
a
result of which the Indemnitor may become obligated to an Indemnitee hereunder,
such Indemnitee shall promptly give written notice to the Indemnitor. The
Indemnitor agrees to defend, contest or otherwise protect the Indemnitee against
any such suit, action, investigation, claim or proceeding at its sole cost
and
expense. The Indemnitee shall have the right, but not the obligation, to
participate at its own expense in the defense thereof by counsel of the
Indemnitee’s choice and shall in any event cooperate with and assist the
Indemnitor to the extent reasonably possible. If the Indemnitor fails timely
to
defend, contest or otherwise protect against such suit, action, investigation,
claim or proceeding, the Indemnitee shall have the right to do so, including,
without limitation, the right to make any compromise or settlement thereof,
and
the Indemnitee shall be entitled to recover the entire cost thereof from the
Indemnitor, including, without limitation, reasonable attorneys’ fees,
disbursements and amounts paid as the result of such suit, action,
investigation, claim or proceeding. The parties shall in no case settle or
compromise the other’s claim or consent to the entry of judgment, in either case
other than solely for money damages, without the prior written consent of the
other party if such settlement, compromise or judgment would adversely affect
the rights of the other party in any continuing manner.
46
ARTICLE
X
MISCELLANEOUS
Section
10.1 No
Negotiation.
(a)Except
as
specifically set forth in Section
10.1(a), (b), (c),
(d) or (e)
hereof,
until the earlier of the Closing or the termination of this Agreement pursuant
to Section
8
hereof
(the “Exclusivity
Period”),
Seller shall not directly or indirectly, individually or through any of their
respective officers, directors, stockholders, employees, representatives,
agents, affiliates, or otherwise (collectively, the “Representatives”) initiate,
solicit or encourage, consider, evaluate, or respond to (other than to say
that
Seller is contractually obligated not to respond, and referring such party
to
public disclosure regarding this Agreement, but shall not otherwise respond,
including, without limitation, by way of furnishing non-public information
or
assistance) any proposals, inquiries or offers from any person or entity,
(“Third
Party”),
or
enter into any confidentiality agreement, due diligence agreement, letter of
intent, purchase agreement, merger agreement or other arrangement, regarding
any
proposed sale of all or any portion of the Purchased Assets or control thereof,
whether by means of a sale or exchange of shares, sale of assets, whether in
whole or in part, merger, recapitalization, liquidation or otherwise
(“Third
Party Acquisition”).
Except as specifically set forth in Sections
10.1(a), (b), (c), (d) or (e)
hereof,
during the Exclusivity Period, Seller shall not have, and shall take reasonable
efforts to cause its Representatives not to have, any discussions,
conversations, negotiations or other communications relating to any Third Party
Acquisition with any Third Party expressing interest therein, and shall
immediately discontinue negotiations with any Third Party with which it
heretofore has engaged in negotiations or discussions regarding any Third Party
Acquisition. During the Exclusivity Period, Seller shall immediately notify
Buyer of all terms of any written inquiry, contact, communication, or proposal
by any Third Party with respect to any Third Party Acquisition that is received
by Seller or any of its Representatives (including Seller’s response thereto),
and immediately shall provide Buyer with a copy of any such written inquiry,
contact, communication or proposal. With respect to any oral inquiry, contact,
communication or proposal, Seller shall document the same in writing (including
Seller’s response thereto) and reasonably promptly provide Buyer with a copy of
the same. Seller agrees that if the Seller shall breach and fail to cure
promptly any material provision of this Section
10.1
and
within twelve (12) months thereafter enter into any definitive agreement with
a
Third Party, including any of its affiliates, with whom Seller breached this
Section
10.1
regarding a Third Party Acquisition, then upon the consummation of such
acquisition, Seller immediately shall pay to Buyer by wire transfer (in readily
available funds) $300,000 (the “Fee”),
which
Seller acknowledges is reasonable under the circumstances and designed to
compensate Buyer for the lost opportunity to consummate the Transaction. The
Fee
will serve as the exclusive remedy to Buyer hereunder in the event of a breach
by Seller of the exclusivity arrangement set forth herein, including, but not
limited to, Buyer’s damages relative to its efforts, expenses and costs incurred
in evaluating the Transaction. The parties acknowledge that the foregoing
provisions do not necessarily require Seller to provide Buyer a written summary
of on-going discussions with a third party, nor shall Seller be required to
document to Buyer any oral inquiry, contact, communication or proposal that
does
not materially change any inquiry, contact, communication or proposal previously
provided by Buyer.
47
(b) The
parties acknowledge that prior to the Closing, in response to a bona fide
unsolicited written proposal for a Third Party Acquisition that did not result
from the breach of this Section
10.1
(a
“Third
Party Proposal”)
and
following delivery to Buyer of notice and a copy of the Third Party Proposal
in
compliance with its obligations under Section
10.1(a)
hereof,
the Seller may participate in discussions or negotiations with or furnish
information (pursuant to a confidentiality agreement with customary terms
comparable to those in place between Buyer and Seller) to any Third Party which
makes a bona fide written Third Party Proposal if, and only if, prior to taking
such action: (i) a majority of the Company’s board of directors reasonably
determines in good faith that the transactions contemplated by such Third Party
Proposal are capable of being completed and would, if consummated, result in
a
Superior Transaction (as hereinafter defined) and (ii) a majority of Company’s
board of directors determines in good faith (after receiving the written advice
of outside legal counsel) that it is necessary to pursue such Superior Proposal
in order to comply with its fiduciary duties to its shareholders under
applicable law and (iii) Seller complies with the information and notice
obligations set forth in Section
10.1(a).
For
purposes of this Agreement, “Superior
Proposal”
means
a
bona fide Third Party Proposal to purchase at least two-thirds of the
outstanding equity securities of Seller pursuant to a tender offer or exchange
offer or to effect any merger, consolidation, business combination or sale
of
all or substantially all of the Purchased Assets, recapitalization or similar
transaction involving the Seller, on terms which a majority of Company’s board
of directors determines in good faith to be superior to the Company and its
shareholders (in their capacity as shareholders) from a financial point of
view
(taking into account, among other things, all legal, financial, regulatory
and
other aspects of the proposal and identity of the offeror) as compared to (i)
the transactions contemplated hereby and (ii) any alternative proposed by Buyer
in accordance with Section
10.1(e)
which is
reasonably capable of being consummated (any such transaction being referred
to
herein as a “Superior
Transaction”).
(c) The
Seller and Buyer agree that, notwithstanding anything to the contrary herein,
prior to the Closing, the Company and/or its board of directors may take the
actions otherwise prohibited by Section
10.1(a),
subject
to the conditions of and as limited by Section
10.1(b),
if and
only if: (i) (A) a Third Party makes a Superior Proposal, and (B) the Company
complies with its obligations under Section
10.1(b)
and
(c)
and its
disclosure obligations under Section
10.1(a),
(ii)
all of the conditions to Company’s board of directors’ right to withhold or
withdraw its recommendation of this Transaction in accordance with Section
10.1(e)
hereof
have been complied with (including the expiration of the six (6) Business Day
period described therein) with the exception of compliance with the requirement
to pay the amounts contemplated pursuant to Section
10.1(e)
hereof),
which amount shall be paid when due pursuant to the terms thereof; and (iii)
simultaneously therewith, the Company’s board of directors withholds or
withdraws its recommendation of this Agreement in accordance with Section
10.1(e)
hereof.
48
(d) Buyer
agrees that nothing contained in this Section
10.1
shall
prohibit Company from taking and disclosing to its shareholders a position
contemplated by Rule 14d-9 and Rule 14e-2 promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange
Act”),
with
respect to any tender offer.
(e) If
at any
time prior to the Closing a Superior Proposal is received by the Seller and
the
board of directors of the Company reasonably determines in good faith (after
receiving the advice of outside legal counsel) that it is necessary to withhold
or withdraw the board’s recommendation of this Transaction and to enter into an
agreement to effect the Superior Proposal in order to comply with its fiduciary
duties to its shareholders under applicable law, then the Company’s board of
directors may withhold or withdraw its recommendation of this Transaction;
provided that the Company Board of directors may not withdraw its recommendation
pursuant to this Section
10.1(e)
unless
and until (i) six (6) Business Days have elapsed following delivery to Buyer
of
a written notice of such determination by the board of directors of Company,
and
during such six Business Day period the Company has fully cooperated with Buyer,
including, without limitation, informing Buyer of the terms and conditions
of
such Superior Proposal and the identity of the Third Party making such Superior
Proposal and providing to Buyer copies of all documents required by Section
10.1(a),
with
the intent of enabling the parties hereto to agree to a modification of the
terms and conditions of this Agreement to provide substantially equivalent
value
to the Seller as determined in the reasonable and good faith exercise of the
discretion of the board of directors of Company, so that the transactions
contemplated hereby may be effected, it being the intent that Buyer be given
the
opportunity to consummate the Transaction on substantially equivalent financial
terms as any Superior Proposal, without any requirement to provide more
favorable terms thereto; (ii) at the end of such six Business Day period the
Third Party Proposal continues in the good faith judgment of the board of
directors of Company to constitute a Superior Proposal compared to this
Transaction or any other offer made by Buyer and the Board of directors of
Company confirms its determination (after receiving the advice of outside legal
counsel) that it is necessary to withhold or withdraw its recommendation of
the
Transaction and enter into an agreement to effect the Superior Proposal to
comply with its fiduciary duties to its shareholders under applicable law;
and
(iii) immediately following such withdrawal, the Seller enter into a definitive
acquisition, merger or similar agreement to effect the Superior Proposal and
immediately following the execution of a definitive agreement for the Superior
Transaction, Buyer is paid the Fee by wire transfer of immediately available
funds.
Section
10.2 Time
is of the Essence.
Buyer,
as a party on the one hand, and Seller and Parent, on the other hand, hereby
agree that the time is of the essence with respect to closing of the Transaction
contemplated by this Agreement. Therefore, it is understood by Buyer, on the
one
hand, and Seller and Parent, on the other hand, that timing conditions set
forth
in Sections
2.9
and
8.2
of this
Agreement are a material inducement to Buyer in entering this Agreement and
the
Transaction, and, accordingly, the extension thereof shall be solely in the
Buyer’s discretion and business judgment. The Buyer’s refusal to extend any such
timing conditions shall not be viewed as a bad faith action.
49
Section
10.3 Confidentiality.
Buyer,
as a party on the one hand, and Seller, as a party on the other, agree that
it
will treat in confidence all documents, materials and other information which
it
shall have obtained regarding the other party during the course of the
negotiations leading to the consummation of the transactions contemplated by
this Agreement (whether obtained before or after the date of this Agreement),
the investigation provided for herein and the preparation of this Agreement
and
other related documents, and, in the event that such transactions shall not
be
consummated, each party will return to the other party all copies of nonpublic
documents and materials which have been furnished in connection therewith.
Such
documents, materials and information shall not be communicated to any third
Person (other than, in the case of Buyer, to its counsel, accountants, financial
advisors or lenders, and in the case of Seller. to its counsel, accountants
or
financial advisors). No Person shall use any confidential information,
including, without limitation, with respect to the Business, any information
relating to the Business or customers, suppliers, contractors, subcontractors
and licensors, in any manner whatsoever except for (a) the purpose of evaluating
the proposed purchase and sale of the Purchases Assets or the negotiation or
enforcement of this Agreement or any agreement contemplated hereby; (b) where
the disclosure of any portion thereof is required by applicable law or
determined to be necessary to comply with any court order or Governmental
Authorization (but only to the extent so required); provided, however, that
such
party shall first notify the other party of any such requirement and, if the
other party desires, shall cooperate with that party to seek approval to prevent
or limit such disclosure; (c) where the disclosure of any portion thereof is
required in order to obtain any of the consents contemplated hereby, and both
parties agree in writing that such disclosure is necessary; (d) where the
information becomes generally available to the public other than as a result
of
a disclosure by Buyer or Seller; or (e) where the information is or becomes
lawfully available to Buyer from a source other than Seller who is authorized
to
make such disclosure without restriction. Notwithstanding the foregoing, after
the Closing, Buyer may use or disclose any confidential information related
to
the Purchased Assets or the Business. Notwithstanding the foregoing, the parties
hereto hereby reaffirm the confidentiality provisions set forth in the Letter
of
Intent. The parties acknowledge and agree that this Agreement and a description
hereof will be made publicly available by Company upon its execution, but only
to the extent required by applicable federal securities law.
Section
10.4 Governing
Law.
This
Agreement and all claims arising out of or relating to this Agreement shall
be
governed by and construed in accordance with the Laws of the State of New
York.
Section
10.5 Jurisdiction
and Venue.
Any
process against Buyer, Parent or Seller in, or in connection with, any suit,
action or proceeding arising out of or relating to this Agreement or any of
the
transactions contemplated by this Agreement may be served personally or by
certified mail at the address set forth in this Section
10.5
with the
same effect as though served on it personally. Buyer, Parent and Seller hereby
irrevocably submit in any suit, action or proceeding arising out of or relating
to this Agreement or any of the transactions contemplated by this Agreement
to
the exclusive jurisdiction and venue of the United States District Court for
the
Southern District of New York or any court of the State of New York located
in
Manhattan and irrevocably waive any and all objections to jurisdiction and
review or venue that each may have under the Laws of New York or the United
States.
50
Section
10.6 Notices.
Any
notices or demands to another party under the terms of this Agreement shall
be
sent (a) by personal service, (b) by United States registered or certified
mail,
postage prepaid and return receipt requested, or (c) by a nationally recognized
overnight courier, and shall be deemed effective (a) immediately upon personal
delivery or (b) five Business Days after deposit in the mail or (c) one Business
Day after deposit with the courier, and addressed to:
If
to
Buyer:
RAC
Nutrition Corporation
000
Xxxxxxx Xxxxxx - 00xx Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxxx X. Xxxxxx, M.D.
With
a
copy to (which copy shall not constitute Notice):
Xxxxxxx
Xxxxx LLP
000
Xxxxxxxxx Xxxxxx, 00xx
Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxx Xxxxxxxxx
If
to
Seller:
Millennium
Biotechnologies Group, Inc.
000
Xxxxxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx
Xxxxx, XX 00000
Attention:
President
With
a
copy to (which copy shall not constitute a Notice):
Xxxxxxxxx
Xxxxx Xxxx & Xxxxx PLLC
000
Xxxx
Xxxxxx Xxxxx, 00xx Xxxxx
Xxx
Xxxx,
XX 00000
Attention:
Xxxxx Xxxxxxxxx
Any
party
may change the address to which notices are to he addressed by giving the other
party notice in the manner set forth herein.
Section
10.7 No
Assignment.
This
Agreement, and the covenants herein contained, shall be binding upon, shall
inure to the benefit of, and shall be enforceable by the parties hereto and
their respective successors and permitted assigns. Neither Party may assign
this
Agreement, either in part or in whole, without the prior written consent of
the
other party; provided that Buyer may assign its rights to any affiliate having
an equal or greater net worth.
Section
10.8 Public
Announcements.
Any
public announcement, press release or similar publicity with respect to this
Agreement will be issued, if at all, at such time and in such manner as the
parties may mutually determine. Seller and Buyer will consult with each other
concerning the means by which Seller’s employees, customers, suppliers and
others having dealings with Seller will be informed of the transactions
contemplated by this Agreement, and Buyer will have the right to be present
for
any such communication. Notwithstanding the foregoing, the parties acknowledge
that Company will disclose this Agreement, its terms and conditions, including
a
copy thereof, but only to the extent required pursuant to federal securities
law.
51
Section
10.9 Waiver.
The
waiver by either party to this Agreement of any breach of any provision of
this
Agreement shall not constitute a continuing waiver or a waiver of any breach
of
any other provision of this Agreement.
Section
10.10 Severability.
If any
provision of this Agreement is held to be unenforceable for any reason, the
remainder of this Agreement shall, nevertheless, remain in full force and
effect.
Section
10.11 Captions.
Section
captions used herein are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement.
Section
10.12 Counterparts.
This
Agreement may be executed in two or more counterparts, each of which shall
be
deemed on original, but all of which taken together shall constitute one
Agreement.
Section
10.13 Entire
Agreement; Amendment.
This
Agreement, together with the Schedules and Exhibits attached hereto, supersedes
all, other agreements and understandings between the parties, either oral or
written, constitutes the entire agreement of the parties with respect to the
subject matter hereof, and may be amended only by an instrument in writing
executed by all of the parties hereto.
Section
10.14 Consents
to Assignments.
Subject
to Section
2.5
hereof,
nothing in this Agreement or the documents to be executed and delivered at
the
Closing shall be deemed to constitute an assignment or an attempt to assign
any
Permit, Contract or other agreement to which Seller is a party, if the attempted
assignment thereof without the consent of the other party to such Permit,
Contract or other agreement would constitute a breach thereof or affect in
any
way the rights of Seller thereunder.
Section
10.15 No
Third Party Beneficiaries.
This
Agreement is solely for the benefit of the parties hereto and, to the extent
provided in Article IX, the Persons indemnified thereunder, and no provision
of
this Agreement shall be deemed to confer upon any other third parties any
remedy, claim, liability, reimbursement, cause of action or other
right.
Section
10.16 Exculpation.
Seller
and Parent recognize that the Buyer and their respective affiliates, directors,
officers and consultants have participated in, directly or indirectly, and
will
continue to participate in, including managing and/or making venture capital
and
other direct investments in corporations, partnerships, joint ventures, limited
liability companies and other entities and other similar transactions (the
“Other
Businesses”).
In
such Other Businesses, the Buyers, may encounter business opportunities that
may
be in direct or indirect competition with the Business. Recognizing such, in
the
event that this Agreement is terminated pursuant to Section
8.2,
the
Seller and Parent hereby waive and release, on behalf of themselves, their
stockholders, subsidiaries and agents, any and all claims for Damages that
they
may have against the Buyer and its directors, officers, employees, agents,
managers, shareholders, members, consultants, successors and assigns in
connection with or arising out of Buyer’s, or any such affiliates’, directors’,
officers’ or consultants’, involvement in Other Businesses.
52
Section
10.17 Expenses.
Except
as otherwise set forth herein, each party to this Agreement shall pay all fees
and expenses incurred by it in connection with this Agreement and the
transactions contemplated by this Agreement.
[REMAINDER
OF PAGE INTENTIONALLY LEFT BLANK]
53
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
RAC
NUTRITION CORPORATION
By:
/s/ Xxxxxx
Xxxxxxx
Name:
Xxxxxx Xxxxxxx
Title:
MILLENNIUM
BIOTECHNOLOGIES GROUP,
INC.
By:
/s/ Xxxxx
Xxxx
Name: Xxxxx
Xxxx
Title:
Chief Executive Officer
MILLENNIUM
BIOTECHNOLOGIES, INC.
By:
/s/ Xxxxx
Xxxx
Name:
Xxxxx Xxxx
Title:
Chief Executive Officer
RAC
NUTRITION HOLDINGS LLC
By:
/s/ Xxxxxx
Xxxxxxx
Name:
Xxxxxx Xxxxxxx
Title:
54