EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
BY AND AMONG
SOURCE ATLANTIC, INC.
AND
SOURCE ATLANTIC ACQUISITION CORP.
AND
PARENTECH, INC.
DATED
MAY 13, 2004
TABLE OF CONTENTS
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ARTICLE 1 THE MERGER
1.1 The Merger........................................................................ 5
1.2 Closing; Effective Time........................................................... 6
1.3 Effect of the Merger.............................................................. 6
1.4 Certificate of Incorporation; Bylaws.............................................. 6
1.5 Directors and Officers............................................................ 6
1.6 Effect on Capital Stock........................................................... 6
1.7 Surrender of Certificates......................................................... 8
1.8 No Further Ownership Rights in Company Common Stock............................... 10
1.9 Lost, Stolen or Destroyed Certificates............................................ 10
1.10 Tax Consequences.................................................................. 10
1.11 Withholding Rights................................................................ 10
1.12 Termination of Exchange Agent Funding............................................. 10
1.13 Taking of Necessary Action; Further Action........................................ 11
1.14 Appraisal Rights.................................................................. 11
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY
2.1 Organization, Standing and Power.................................................. 12
2.2 Capital Structure................................................................. 13
2.3 Authority......................................................................... 13
2.4 Financial Statements.............................................................. 14
2.5 Absence of Certain Changes........................................................ 14
2.6 Accounting Practices.............................................................. 14
2.7 Receivables....................................................................... 14
2.8 Payables.......................................................................... 15
2.9 Suppliers......................................................................... 15
2.10 Inventory......................................................................... 15
2.11 Intellectual Property............................................................. 15
2.12 Litigation........................................................................ 17
2.13 Restrictions on Business Activities............................................... 18
2.14 Government Authorization.......................................................... 18
2.15 Title to Property................................................................. 18
2.16 Privacy Policies; Third Party Privacy Obligations; Web Site Terms
and Conditions.................................................................... 18
2.17 Environmental Matters............................................................. 20
2.18 Taxes............................................................................. 21
2.19 Employee Benefit Plans............................................................ 24
2.20 Contracts......................................................................... 26
2.21 Certain Agreements Affected by the Merger......................................... 28
2.22 Employee Matters.................................................................. 28
2.23 Insurance......................................................................... 30
2.24 Bank Accounts; Powers of Attorney................................................. 31
2.25 Compliance with Laws.............................................................. 31
2.26 Minute Books...................................................................... 31
2.27 Complete Copies of Materials...................................................... 31
2.28 Brokers' and Finders' Fees........................................................ 31
2.29 Vote Required..................................................................... 31
2.30 Board Approval.................................................................... 31
2.31 State Takeover Statutes........................................................... 32
2.32 Representations Complete.......................................................... 32
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ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
3.1 Organization, Standing and Power.................................................. 32
3.2 Capital Structure................................................................. 33
3.3 Authority......................................................................... 33
3.4 SEC Documents; Financial Statements............................................... 34
3.5 Xxxxxxxx-Xxxxx Act of 2002........................................................ 35
3.6 Absence of Undisclosed Liabilities................................................ 35
3.7 Litigation........................................................................ 36
3.8 Restrictions on Business Activities............................................... 36
3.9 Certain Agreements Affected by the Merger......................................... 36
3.10 Interested Party Transactions..................................................... 36
3.11 Compliance with Laws.............................................................. 36
3.12 Complete Copies of Materials...................................................... 36
3.13 Intellectual Property............................................................. 37
3.14 Governmental Authorization........................................................ 38
3.15 Privacy Policies; Third Party Privacy Obligations; Web Site Terms
and Conditions.................................................................... 38
3.16 Environmental Matters............................................................. 40
3.17 Taxes............................................................................. 41
3.18 Employee Benefit Plans............................................................ 44
3.19 Contracts......................................................................... 46
3.20 Certain Agreements Affected by the Merger......................................... 48
3.21 Employee Matters.................................................................. 48
3.22 Insurance......................................................................... 51
3.23 Brokers' and Finders' Fees........................................................ 51
3.24 Board Approval.................................................................... 51
3.25 State Takeover Statutes........................................................... 51
3.26 Representations Complete.......................................................... 51
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business............................................................... 52
4.2 Restrictions on Conduct of Business............................................... 52
4.3 No solicitation by Company........................................................ 55
ARTICLE V ADDITIONAL AGREEMENTS
5.1 Meeting of Stockholders........................................................... 56
5.2 Interim Funding................................................................... 57
5.3 Reverse Stock split; Conversion of Certain Parent Indebtedness.................... 57
5.4 Audit............................................................................. 57
5.5 Lock-Up Agreements; Parent Warrant................................................ 58
5.6 Access to Information............................................................. 58
5.7 Confidentiality................................................................... 58
5.8 Public Disclosure................................................................. 58
5.9 Consents.......................................................................... 59
5.10 Legal Requirements................................................................ 60
5.11 Blue Sky Laws..................................................................... 60
5.12 Indemnification................................................................... 60
5.13 Tax Treatment..................................................................... 63
5.14 Cooperation to Satisfy Government Authorities..................................... 63
5.15 Stockholder Litigation............................................................ 63
5.16 Board of Directors................................................................ 63
5.17 Best Efforts and Further Assurances............................................... 63
ARTICLE VI CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
6.1 Representations and Warranties.................................................... 64
6.2 Performance of Covenants.......................................................... 64
6.3 Litigation........................................................................ 64
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6.4 Antitrust Laws Compliance......................................................... 64
6.5 Shareholder Approval.............................................................. 64
6.6 Delivery of Documents............................................................. 64
6.7 Material Changes.................................................................. 64
6.8 Certificate of Merger............................................................. 64
ARTICLE VII CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND MERGER SUB
7.1 Representations and Warranties.................................................... 66
7.2 Performance of Covenants.......................................................... 66
7.3 Litigation........................................................................ 66
7.4 Antitrust Laws Compliance......................................................... 66
7.5 Consents and Approvals............................................................ 66
7.6 Material Changes.................................................................. 66
7.7 Shareholder Approval.............................................................. 66
7.8 Delivery of Documents............................................................. 66
7.9 Certificate of Merger............................................................. 67
ARTICLE VIII TERMINATION
8.1 Termination Events................................................................ 67
8.2 Effect of Termination............................................................. 68
8.3 Amendment......................................................................... 68
8.4 Waiver............................................................................ 68
ARTICLE IX MISCELLANEOUS
9.1 Captions and Headings............................................................. 68
9.2 No Oral Change.................................................................... 68
9.3 Governing Law..................................................................... 68
9.4 Public Announcements.............................................................. 69
9.5 Successors........................................................................ 69
9.6 Further Assurances................................................................ 69
9.7 Confidentiality................................................................... 69
9.8 Notices........................................................................... 69
9.9 Non-Waiver........................................................................ 70
9.10 Time of Essence................................................................... 71
9.11 Remedies Cumulative............................................................... 71
9.12 Severability...................................................................... 71
9.13 Entire Agreement.................................................................. 71
9.14 Rules of Construction............................................................. 71
9.15 Expenses.......................................................................... 71
9.16 Counterparts...................................................................... 72
Signatures................................................................................. 72
SCHEDULES
Schedule 2.2 Company Options
Schedule 2.4 Company Financial Statements
Schedule 2.7 Receivables
Schedule 2.8 Payables
Schedule 2.9 Suppliers
Schedule 2.10 Inventory
Schedule 2.11 Intellectual Property
Schedule 2.15 Title to Property
Schedule 2.18.2 Taxes
Schedule 2.18.3 Foreign Income Taxes
Schedule 2.18.4 Assets
Schedule 2.19. Employee Benefit Plans
Schedule 2.20. Contracts
Schedule 2.22. Employee Matters
Schedule 2.24 Bank Accounts
Schedule 3.8 Litigation
Schedule 3.13 Intellectual Property
Schedule 3.17 Taxes
Schedule 3.18 Employee Benefit Plans
Schedule 3.19. Contracts
Schedule 3.21 Employee Matters
Schedule 5.3 Preferred Stock
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the "Agreement") is
made and entered into as of May 13, 2004, by and among Parentech, Inc., a
Delaware corporation ("Parent"), Source Atlantic Acquisition Corp., a Florida
corporation ("Merger Sub") and wholly owned subsidiary of Parent, and Source
Atlantic, Inc., a Delaware corporation ("Company"). RECITALS A. The Boards of
Directors of Company, Parent and Merger Sub believe it is in the best interests
of their respective companies and the stockholders of their respective companies
that Company and Merger Sub combine into a single company through the statutory
merger of Merger Sub with and into Company (the "Merger") and, in furtherance
thereof, have approved the Merger. B. Pursuant to the Merger, among other
things, the outstanding shares of Company Common Stock, $0.001 par value
("Company Common Stock"), shall be converted into the right to receive shares of
Parent Common Stock, $0.001 par value ("Parent Common Stock"), at the rate set
forth herein. C. Company, Parent and Merger Sub desire to make certain
representations and warranties and other agreements in connection with the
Merger. D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code"), and to cause the Merger to qualify as a
reorganization under the provisions of Sections 368 of the Code, so that such
exchange will constitute a tax-free share exchange under the Code.
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein, and for other good and valuable consideration, the receipt and
adequacy of which are hereby conclusively acknowledged, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE 1
THE MERGER
1.1. THE MERGER. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the Certificate
of Merger attached hereto as Exhibit A and in accordance with the
applicable provisions of the Delaware General Corporation Law ("Delaware
Law"), Merger Sub shall be merged with and into Company, the separate
corporate existence of Merger Sub shall cease and Company shall continue
as the surviving corporation. Company as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
1.2. CLOSING; EFFECTIVE TIME. The closing of the transactions contemplated
hereby (the "Closing") shall take place as soon as practicable after the
satisfaction or waiver of each of the conditions set forth in Article VI
hereof or at such other time as the parties hereto agree (the "Closing
Date"). The Closing shall take place at the offices of Xxxxxx & Xxxxxx,
LLP, or at such other location as the parties hereto agree. Simultaneously
with or as soon as practicable following the Closing, the parties hereto
shall cause the Merger to be consummated by filing the Certificate of
Merger with the Secretary of State of the State of Delaware, in accordance
with the relevant provisions of Delaware Law (the time of such filing
being the "Effective Time").
1.3. EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the
property, rights, privileges, powers and franchises of Company and Merger
Sub shall vest in the Surviving Corporation, and all debts, liabilities
and duties of Company and Merger Sub shall become the debts, liabilities
and duties of the Surviving Corporation.
1.4. CERTIFICATE OF INCORPORATION; BYLAWS.
1.4.1. At the Effective Time, the Certificate of Incorporation of Company
shall be amended so as to read in its entirety as set forth in
Exhibit A to the Certificate of Merger and as so amended shall be
the Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by Delaware Law and such Certificate
of Incorporation.
1.4.2. The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation
until thereafter amended.
1.5. DIRECTORS AND OFFICERS. At the Effective Time, the directors of the
Surviving Corporation shall remain as directors of the Surviving
Corporation, in each case until their successors are elected or appointed
and qualified or until their earlier resignation or removal. The officers
of the Surviving Corporation shall remain as officers of the Surviving
Corporation, until their respective successors are duly elected or
appointed and qualified or until their earlier resignation or removal.
1.6. EFFECT ON CAPITAL STOCK. By virtue of the Merger and without any action on
the part of Merger Sub, Company or the holders of any of the following
securities:
1.6.1.1. CONVERSION OF COMPANY COMMON STOCK. At the Effective Time, each
of 1,370,615 (post split) shares of Company Common Stock issued
and outstanding immediately prior to the Effective Time will be
canceled and extinguished and be converted automatically into the
right to receive one share of Parent Common Stock for each of the
1,370,615 (post split) shares of Company Common Stock (the
"Exchange Ratio"), subject to any adjustments made pursuant to
Section 1.6.5 (the "Merger Consideration"). Each certificate
evidencing shares represented by the Merger Consideration issued
pursuant to this Section 1.6.1 shall bear the following legend
(in addition to any legend required under applicable state
securities laws):
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE SALE IS
MADE IN ACCORDANCE WITH RULE 144 UNDER THE ACT, OR THE
CORPORATION RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF
THESE SECURITIES REASONABLY SATISFACTORY TO THE CORPORATION
STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION
IS EXEMPT FROM REGISTRATION AND PROSPECTUS DELIVERY
REQUIREMENTS OF SUCH ACT."
1.6.2. CANCELLATION OF COMPANY COMMON STOCK. At the Effective Time, all
shares of Company Common Stock that are owned by Company as
treasury stock immediately prior to the Effective Time shall be
canceled and extinguished without any conversion thereof.
1.6.3. COMPANY STOCK OPTIONS, WARRANTS TO PURCHASE COMPANY COMMON STOCK
AND CONVERTIBLE NOTES. At the Effective Time, there shall be no
options to purchase Company Common Stock outstanding, there shall
be no warrants outstanding, there shall be no promissory notes
convertible into shares of Company Common Stock outstanding. and
there shall be no securities convertible into shares of Company
Common Stock outstanding.
1.6.4. CAPITAL STOCK OF MERGER SUB. At the Effective Time, each share of
common stock, $.01 par value, of Merger Sub ("Merger Sub Common
Stock") issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation, and the Surviving Corporation shall be a wholly owned
subsidiary of Parent. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving
Corporation.
1.6.5. ADJUSTMENTS TO EXCHANGE RATIO. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse split,
stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company Common
Stock), reorganization, recapitalization or other like change with
respect to Parent Common Stock or Company Common Stock occurring
after the date hereof and prior to the Effective Time, so as to
provide holders of Company Common Stock and Parent the same
economic effect as contemplated by this Agreement prior to such
stock split, reverse split, stock dividend, reorganization,
recapitalization or like change; except for the stock split and
debt elimination of Parent as contemplated by this Agreement.
1.6.6. NO FRACTIONAL SHARES. No fractional shares of Parent Common Stock
shall be issued in connection with the Merger, and no certificates
or scrip for any such fractional shares shall be issued. Any holder
of Company Common Stock who would otherwise be entitled to receive
a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock issuable to such holder)
shall, in lieu of such fraction of a share, be rounded up to the
nearest whole number of shares of Parent Common Stock.
1.7. SURRENDER OF CERTIFICATES.
1.7.1. EXCHANGE AGENT. Parent's transfer agent shall act as exchange agent
(the "Exchange Agent") in the Merger.
1.7.2. PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective Time,
Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I, through such reasonable procedures
as Parent may adopt, certificates representing the shares of Parent
Common Stock issuable pursuant to Section 1.6.1 in exchange for
shares of Company Common Stock outstanding immediately prior to the
Effective Time (provided that delivery of any shares that are
subject to vesting and/or repurchase rights or other restrictions
shall be in book entry form until such vesting and/or repurchase
rights or other restrictions lapse).
1.7.3. EXCHANGE PROCEDURES. Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail to each holder of record of
a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding
shares of Company Common Stock, whose shares were converted into
the right to receive shares of Parent Common Stock pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that
delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon receipt of the Certificates by
the Exchange Agent, and shall be in such form and have such other
provisions as Parent may reasonably specify) and (ii) instructions
for use in effecting the surrender of the Certificates in exchange
for certificates (or book entries in the case of shares that are
subject to vesting and/or repurchase rights or other restrictions)
representing shares of Parent Common Stock. Upon surrender of a
Certificate for cancellation to the Exchange Agent or to such other
agent or agents as may be appointed by Parent, together with such
letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, the holder of such
Certificate shall be entitled to receive in exchange therefor a
certificate (or book entry in the case of shares that are subject
to vesting and/or repurchase rights or other restrictions)
representing the number of whole shares of Parent Common Stock
which such holder has the right to receive pursuant to Section 1.6,
and the Certificate so surrendered shall forthwith be canceled.
Until so surrendered, each outstanding Certificate that, prior to
the Effective Time, represented shares of Company Common Stock will
be deemed from and after the Effective Time, for all corporate
purposes, other than the payment of dividends, to evidence the
ownership of the number of full shares of Parent Common Stock into
which such shares of Company Common Stock shall have been so
converted.
1.7.4. DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of
any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such
Certificate shall surrender such Certificate. Subject to applicable
law, following surrender of any such Certificate, there shall be
paid to the record holder of the certificates representing whole
shares of Parent Common Stock issued in exchange therefor, without
interest, at the time of such surrender, the amount of any such
dividends or other distributions with a record date after the
Effective Time theretofore payable (but for the provisions of this
Section 1.7.4) with respect to such shares of Parent Common Stock.
1.7.5. TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the
Certificate surrendered in exchange therefor is registered, it will
be a condition of the issuance thereof that the Certificate so
surrendered will be properly endorsed and otherwise in proper form
for transfer and that the person requesting such exchange will have
paid to Parent or any agent designated by it any transfer or other
taxes required by reason of the issuance of a certificate for
shares of Parent Common Stock in any name other than that of the
registered holder of the Certificate surrendered, or established to
the satisfaction of Parent or any agent designated by it that such
tax has been paid or is not payable.
1.7.6. NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.7, none of the Exchange Agent, the Surviving Corporation,
Parent or any party hereto shall be liable to any person for any
amount properly paid to a public official pursuant to any
applicable abandoned property, escheat or similar law. "Person"
herein shall mean any individual, corporation, limited liability
company, partnership, firm, joint venture, association, joint-stock
company, trust, unincorporated organization, or other organization,
whether or not a legal entity, and any Governmental Authority.
1.8. NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All shares of Parent
Common Stock issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Common Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to the
Surviving Corporation for any reason, they shall be canceled and exchanged
as provided in this Article I.
1.9. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue
in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of
Parent Common Stock as may be required pursuant to Section 1.6; provided,
however, that Parent may, in its discretion and as a condition precedent
to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against Parent, the
Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
1.10. TAX CONSEQUENCES. It is intended by the parties hereto that the Merger
shall constitute a reorganization within the meaning of Section 368 of the
Code.
1.11. WITHHOLDING RIGHTS. Parent and the Surviving Corporation shall be entitled
to deduct and withhold from the number of shares of Parent Common Stock
otherwise deliverable under this Agreement, such amounts as Parent and the
Surviving Corporation are required, and Company acknowledges and agrees
are required, to deduct and withhold with respect to such delivery and
payment under the Code or any provision of state, local, provincial or
foreign tax law. To the extent that amounts are so withheld, such withheld
amounts shall be treated for all purposes of this Agreement as having been
delivered and paid to the holder of shares of Company Common Stock in
respect of which such deduction and withholding was made by Parent and the
Surviving Corporation.
1.12. TERMINATION OF EXCHANGE AGENT FUNDING. Any certificates for shares of
Parent Common Stock held by the Exchange Agent which have not been
delivered to holders of Certificates pursuant to this Article I within six
months after the Effective Time shall promptly be delivered to Parent, and
thereafter holders of Certificates who have not theretofore complied with
the exchange procedures set forth in and contemplated by Section 1.7 shall
thereafter look only to Parent (subject to abandoned property, escheat and
similar laws) for their claim for shares of Parent Common Stock and any
dividends or distributions (with a record date after the Effective Time)
with respect to Parent Common Stock to which they are entitled.
1.13. TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out
the purposes of this Agreement and to vest the Surviving Corporation with
full right, title and possession to all assets, property, rights,
privileges, powers and franchises of Company and Merger Sub, the officers
and directors of Company and Merger Sub are fully authorized in the name
of their respective corporations or otherwise to take, and will take, all
such lawful and necessary action, so long as such action is not
inconsistent with this Agreement.
1.14. APPRAISAL RIGHTS. Notwithstanding anything in this Agreement to the
contrary, Company Common Stock that are issued and outstanding immediately
prior to the Effective Time and which are held by stockholders who did not
vote in favor of the Merger (the "Dissenting Shares"), which stockholders
comply with all of the relevant provisions of Delaware Law (the
"Dissenting Stockholders"), shall not be converted into or be exchangeable
for the right to receive the Merger Consideration, unless and until such
holders shall have failed to perfect or shall have effectively withdrawn
or lost their rights to appraisal under Delaware Law. If any Dissenting
Shareholder shall have failed to perfect or shall have effectively
withdrawn or lost such right, such holder's Company Common Stock shall
thereupon be converted into and become exchangeable for the right to
receive, as of the Effective Time, the Merger Consideration without any
interest thereon. The Company shall give Parent (a) prompt notice of any
written demands for appraisal of any Company Common Stock, attempted
withdrawals of such demands and any other instruments served pursuant to
Delaware Law and received by the Company relating to stockholders' rights
of appraisal, and (b) the opportunity to direct, in its reasonable
business judgment, all negotiations and proceedings with respect to
demands for appraisal under Delaware Law. Neither the Company nor the
Surviving Corporation shall, except with the prior written consent of
Parent, voluntarily make any payment with respect to, or settle or offer
to settle, any such demand for payment. If any Dissenting Shareholder
shall fail to perfect or shall have effectively withdrawn or lost the
right to dissent, the Company Common Stock held by such Dissenting
Shareholder shall thereupon be treated as though such Company Common Stock
had been converted into the right to receive the Merger Consideration
pursuant to Section 1.6.1.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
In this Agreement, any reference to any event, change, condition or effect being
"material" with respect to any person means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such person and its subsidiaries, taken
as a whole. In this Agreement, any reference to a "Material Adverse Effect" with
respect to any person means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such person and
its subsidiaries, taken as a whole.
In this Agreement, any reference to a party's "Knowledge" means such party's
actual knowledge after reasonable inquiry of executive officers and directors
(within the meaning of Rule 405 under the Securities Act of 1933, as amended
("Securities Act")).
Except as disclosed in that section of the document of even date herewith
delivered by Company to Parent prior to the execution and delivery of this
Agreement (the "Company Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Company Disclosure
Schedule if it is reasonably apparent from the nature of the disclosure that it
is applicable to another Section of this Agreement, Company represents and
warrants to Parent and Merger Sub as follows:
2.1 ORGANIZATION, STANDING AND POWER. The Company is a corporation duly
organized, validly existing and in good standing in the state of Delaware,
and no certificate of dissolution has been filed under the laws of its
jurisdiction of organization. The Company has no subsidiaries. The Company
has the power to own its properties and to carry on its business as now
being conducted and as presently proposed to be conducted and is duly
authorized and qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Company. Company has delivered or
made available to Parent a true and correct copy of the Certificate of
Incorporation (the "Company Certificate of Incorporation"), and the
Bylaws, or other charter documents, as applicable, of the Company each as
amended to date. The Company is not in violation of any of the provisions
of its charter or bylaws or equivalent organization documents. The Company
has delivered to Parent correct and complete copies of the minute books
(containing the records of meetings of the Stockholders, the board of
directors and committees of the board of directors). Such minute books
accurately reflect in all material respects the matters referenced
therein. The Company has also delivered to Parent correct and complete
copies of the stock certificate books and the stock record books of the
Company and such books and records accurately reflect the matters
referenced therein. The Company has no subsidiaries and never had any
subsidiaries.
2.2 CAPITAL STRUCTURE. The authorized capital stock of Company consists of
10,000,000 shares of common stock, $0.001 par value, and 5,000,000 shares
of preferred stock, $0.001 par value, of which there were issued and
outstanding as of the close of business on May 12, 2004, 3,791,458 shares
of common stock (pre-reverse split) and 875,000 shares of Preferred Stock,
and no additional shares of common stock or preferred stock have been
issued through the date of this Agreement. All outstanding shares of
Company Common Stock are duly authorized, validly issued, fully paid and
non-assessable and are free of any liens or encumbrances other than any
liens or encumbrances created by or imposed upon the holders thereof, and
are not subject to preemptive rights or rights of first refusal created by
statute, the Company Certificate of Incorporation or Bylaws of Company or
any agreement to which Company is a party or by which it is bound. Except
as set forth on Schedule 2.2, there are no outstanding subscriptions,
options, warrants, rights (including phantom stock or stock appreciation
rights), preemptive rights or other contracts, commitments, understandings
or arrangements, including any right of conversion or exchange under any
outstanding security, instrument or agreement (collectively, referred to
as "Company Options"), obligating the Company to issue or sell any shares
of capital stock of the Company or to grant, extend or enter into any
security, instrument or agreement with respect thereto. Schedule 2.2 sets
forth (i) each plan, arrangement or agreement pursuant to which Company
Options may be granted or under which Company Options have been granted
and are outstanding, (ii) in the aggregate by plan, arrangement or
agreement, the number and type of Company Options outstanding, their xxxxx
xxxxx, the date of grant and the number of shares of Company Common Stock
reserved for issuance pursuant to the plan, arrangement or agreement, and
(iii) the name of each holder of a Company Option, a description of the
exercise or purchase prices, vesting schedules, expiration dates and
number of shares of Common Stock subject to such Company Option.
Immediately after the Closing, no options, warrants, convertible
securities or rights will be exercisable or exchangeable for, convertible
into, or otherwise give its holder any right to acquire shares of capital
stock of the Company. All Company Options are duly authorized and validly
issued. Except as disclosed on Schedule 2.2, there are no voting trusts,
proxies or other similar commitments, understandings, restrictions or
arrangements in favor of any other person other than the Company. No
bonds, debentures, notes or other indebtedness having the right to vote on
any matter on which stockholders of the Company may vote are issued or
outstanding.
2.3 AUTHORITY. Company has all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions contemplated
hereby and thereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and thereby have been
duly authorized by all necessary corporate action on the part of Company,
subject only to the adoption of this Agreement by Company's stockholders
holding a majority of the outstanding shares of Company Common Stock. This
Agreement has been duly executed and delivered by Company and constitutes
the valid and binding obligation of Company enforceable against Company in
accordance with its terms, except as enforceability may be limited by
bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity. The execution and delivery of
this Agreement by Company does not, and the consummation of the
transactions contemplated hereby will not, conflict with, or result in any
violation of, or default under (with or without notice or lapse of time,
or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of any benefit under (i) any
provision of the Company Certificate of Incorporation or Bylaws of
Company, as amended, or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its properties or assets. No consent,
approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality ("Governmental Entity") is
required by or with respect to Company in connection with the execution
and delivery of this Agreement by Company or the consummation by Company
of the transactions contemplated hereby, except for (i) the filing of the
Certificate of Merger as provided herein.
2.4 FINANCIAL STATEMENTS. Attached hereto as Schedule 2.4 are balance sheets
for the Company as of March 31, 2003 and March 31, 2004, and related
statements of operations, and cash flows for the periods including the
fiscal year ended December 31, 2003, the three-month periods ending March
31, 2003 and March 31, 2004 (the "Company Financial Statements"). The
Company Financial Statements have been prepared from, and are in
accordance with, the books and records of the Company. The Company
Financial Statements have been prepared in accordance with United States
generally accepted accounting principles ("GAAP") applied on a basis
consistent throughout the periods indicated and consistent with each other
and fairly present the consolidated financial condition and operating
results of Company at the dates and during the periods indicated therein
(subject, in the case of unaudited statements, to normal, recurring
year-end adjustments).
2.5 ABSENCE OF CERTAIN CHANGES. The Company has no liabilities or obligations
(whether known or unknown, absolute, accrued, contingent or otherwise and
whether due or to become due) other than those liabilities and obligations
(a) set forth or adequately provided for in the March 31, 2004 balance
sheet included in the Financial Statements, (b) not required by GAAP to be
set forth in the March 31, 2004 balance sheet or disclosed in the notes
thereto, (c) incurred since March 31, 2004 in the ordinary course of
business and (d) those incurred in connection with the execution of this
Agreement..
2.6 ACCOUNTING PRACTICES. The Company makes and keeps accurate books and
records reflecting its assets and maintains internal accounting controls
that provide reasonable assurance that (i) transactions are executed with
management's authorization, (ii) transactions are recorded as necessary to
permit preparation of the Company financial statements and to maintain
accountability for the assets of the Company and (iii) the reported
accountability of the assets of the Company other than furniture,
equipment and fixtures is compared with existing assets at reasonable
intervals.
2.7 RECEIVABLES. Attached hereto as Schedule 2.7, are a true and correct list
of all of the Company's accounts receivables as of May 12, 2004.
2.8 PAYABLES. Attached hereto as Schedule 2.8 are a true and correct list of
all accounts payable of the Company as of May 12, 2004 in excess of
$10,000 to any one payee. Except as set forth on Schedule 2.8, as of May
12, 2004, no account payable of the Company that has arisen subsequent to
May 12, 2004 has exceeded $10,000.
2.9 SUPPLIERS. Attached hereto as Schedule 2.9 are (a) the names of all
suppliers from which the Company orders, supplies, merchandise and other
goods and services with an aggregate purchase price for each such supplier
of $50,000 or more during the year ended December 31, 2004, and (b) the
amount for which each such supplier invoiced the Company during such
period. The Company has not received any notice to the effect that any
such supplier will not sell supplies, merchandise and other goods to the
Company at any time after the Closing on terms and conditions similar to
those used in its current sales to the Company. To the Company's
Knowledge, except as set forth on Schedule 2.9, neither the Company, nor
any officer or director of the Company possesses, directly or indirectly,
any financial interest in, or is a director, officer or employee of, any
entity which is a client, supplier, customer, lessor, lessee or competitor
or potential competitor of the Company except for an interest of less than
five percent in a publicly held company.
2.10 INVENTORY. All inventory of the Company reflected on the March 31, 2004
balance sheets consisted, and all such inventory acquired since March 31,
2004 consists, of a quality and quantity usable and salable in the
ordinary course of business, subject to normal and customary allowances in
the industry for damage and outdated items. Except as disclosed in the
notes to the Financial Statements and on Schedule 2.10, all items included
in the inventory of the Company are the property of the Company, free and
clear of any Lien, have not been pledged as collateral, are not held by
the Company on consignment from others and conform in all material
respects to all standards applicable to such inventory or its use or sale
imposed by Governmental Authorities.
2.11 INTELLECTUAL PROPERTY.
2.11.1 Schedule 2.11 contains a complete and accurate list and description
of:
2.11.1(a) all United States and foreign patents and patent
applications and patent disclosures, all United States and foreign
copyright registrations and applications, all material computer software
(excluding "shrink-wrap" or licenses for common business and office
applications, such as word processors and spreadsheets, having a cost of
less than $1,000), all United States, state and foreign trademarks,
service marks and trade names for which registrations have been issued or
applied for, all other United States, state and foreign trademarks,
service marks and trade names, and all Internet domain names owned by or
under obligation of assignment to the Company or in which the Company
holds any right, license or interest, showing in each case the registered
or other owner, expiration date and number, if any;
2.11.1(b) all agreements and licenses (excluding "shrink-wrap" or
similar licenses for computer software) relating or pertaining to any
Intellectual Property to which the Company is a party, showing in each
case the parties thereto. All such agreements and licenses are valid and
subsisting and the Company is not in breach of any material provisions of
any such agreements or licenses;
2.11.1(c) all licenses or agreements pertaining to mailing lists,
know-how, trade secrets, inventions, disclosures or uses of ideas to which
the Company is a party, showing in each case the parties thereto;
2.11.1(d) all registered assumed or fictitious names under which
the Company is currently conducting business; and
2.11.1(e) all maintenance, support, training, consulting,
outsourcing, facilities management and other contracts and agreements
relating to computer hardware, software or services and that involve
expenditures in excess of $25,000.
2.11.2 To the Company's knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Company Intellectual
Property rights, or any Intellectual Property right of any third party to
the extent licensed to the Company, by any third party, including any
employee or former employee of Company. The Company has not entered into
any agreement to indemnify any other person against any charge of
infringement of any Intellectual Property, other than indemnification
provisions contained in purchase orders, license agreements and
distribution and other customer agreements, copies of which have been
provided or made available to Parent.
2.11.3 The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its
obligations under this Agreement, in breach of any license, sublicense or
other agreement relating to the Company Intellectual Property or Third
Party Intellectual Property Rights.
2.11.4 To the Company's knowledge, all patents, trademarks, service
marks and copyrights held by Company are valid and subsisting. Company (i)
has not been sued in any suit, action or proceeding (or received any
notice or, to Company's knowledge, threat) which involves a claim of
infringement of any patents, trademarks, service marks, copyrights or
violation of any trade secret or other proprietary right of any third
party and (ii) has not brought any action, suit or proceeding for
infringement of Company Intellectual Property or breach of any license or
agreement involving Company Intellectual Property against any third party.
To Company's knowledge, the manufacture, use, marketing, licensing or sale
of Company's products does not infringe any patent, trademark, service
xxxx, copyright, trade secret or other proprietary right of any third
party.
2.11.5 The Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development
of Company Intellectual Property of the rights to such contributions that
Company does not already own by operation of law.
2.11.6 The Company has taken all reasonably necessary steps to
protect and preserve the confidentiality of all Company Intellectual
Property not otherwise protected by patents or copyright ("Confidential
Information"). All use, disclosure or appropriation of Confidential
Information owned by Company by or to a third party has been pursuant to
the terms of a written agreement between Company and such third party. All
use, disclosure or appropriation of Confidential Information not owned by
Company has been pursuant to the terms of a written agreement between
Company and the owner of such Confidential Information, or is otherwise
lawful.
2.11.7 There are no actions that must be taken by Company within
sixty (60) days of the Closing Date that, if not taken, will result in the
loss of any Company Intellectual Property, including the payment of any
registration, maintenance or renewal fees or the filing of any responses
to the U.S. Patent and Trademark Office actions, documents, applications
or certificates for the purposes of obtaining, maintaining, perfecting or
preserving or renewing any Company Intellectual Property.
2.11.8 The Company has not received any formal written opinion of
counsel stating that: (i) there is or has been any unauthorized use,
disclosure, infringement, or misappropriation of any Company Intellectual
Property; (ii) any of the Company Intellectual Property is invalid or
unenforceable; or (iii) Company has engaged in unauthorized use,
disclosure, infringement or misappropriation of any third party
intellectual property.
2.12 LITIGATION. There is no private or governmental action, suit, proceeding,
claim, arbitration, audit or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Company,
threatened against Company or any of its respective properties or any of
their respective officers or directors (in their capacities as such) that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Company. There is no injunction, judgment,
decree, order or regulatory restriction imposed upon Company or any of
their its assets or business, or, to the knowledge of Company and any of
its directors or officers (in their capacities as such), that would
prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement, or that could reasonably be expected to
have a Material Adverse Effect on Company. Schedule 2.12 lists all
actions, suits, proceedings, claims, arbitrations, audits and
investigations pending before any agency, court or tribunal that involve
Company.
2.13 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon Company which has or reasonably
could be expected to have the effect of prohibiting or materially
impairing any business practice of Company, any acquisition of property by
Company or the conduct of business by Company.
2.14 GOVERNMENTAL AUTHORIZATION. The Company has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Company
currently operates or holds any interest in any of its properties or (ii)
that is required for the operation of Company's business or the holding of
any such interest ((i) and (ii) herein collectively called "Company
Authorizations"), and all of such Company Authorizations are in full force
and effect, except where the failure to obtain or have any of such Company
Authorizations or where the failure of such Company Authorizations to be
in full force and effect would not reasonably be expected to have a
Material Adverse Effect on Company.
2.15 TITLE TO PROPERTY. The Company has good and valid title to all of its
properties, interests in properties and assets, real and personal,
reflected in the Company Balance Sheet or acquired after the Company
Balance Sheet Date (except properties, interests in properties and assets
sold or otherwise disposed of since the Company Balance Sheet Date in the
ordinary course of business), or in the case of leased properties and
assets, valid leasehold interests in, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any kind or character, except
(i) the lien of current taxes not yet due and payable, (ii) such
imperfections of title, liens and easements as do not and will not
materially detract from or interfere with the use of the properties
subject thereto or affected thereby, or otherwise materially impair
business operations involving such properties, (iii) liens securing debt
which is reflected on the Company Balance Sheet, and (iv) liens that in
the aggregate would not have a Material Adverse Effect on Company. The
property and equipment of the Company that are used in the operations of
its businesses are in good operating condition and repair, except where
the failure to be in good operating condition or repair would not have a
Material Adverse Effect. All properties used in the operations of Company
are reflected in the Company Balance Sheet to the extent generally
accepted accounting principles require the same to be reflected. Schedule
2.15 identifies each parcel of real property owned or leased by Company.
2.16 PRIVACY POLICIES; THIRD PARTY PRIVACY OBLIGATIONS; WEB SITE TERMS AND
CONDITIONS.
2.16.1 For purposes of this Section 2.16:
(i) "Company Sites" means the Company's public sites on the World
Wide Web;
(ii) "Privacy Statements" means, collectively, any and all of
Company's privacy policies published on the Company Sites or
otherwise made available by the Company regarding the collection,
retention, use and distribution of the personal information of
individuals, including, without limitation, from visitors of any of
the Company Sites ("Individuals"); and
(iii) "Terms and Conditions" means any and all of the visitor terms
and conditions published on the Company Sites governing
Individuals' use of or access to the Company Sites.
2.16.2 A Privacy Statement is posted and is accessible to Individuals at
all times on each Company Site. Company maintains a hypertext link to a
Privacy Statement from the homepage of the Company Site, and Company uses
commercially reasonable efforts to include a hypertext link to a Privacy
Statement from every page of the Company Sites on which personal
information is collected from Individuals.
2.16.3. The Privacy Statements are clearly written and include, at a
minimum, accurate notice to Individuals about Company's collection,
retention, use and disclosure policies and practices with respect to
Individuals' personal information. The Privacy Statements are accurate and
consistent with the Terms and Conditions and Company's actual practices
with respect to the collection, retention, use and disclosure of
Individuals' personal information.
2.16.4 Company (i) complies with the Privacy Statements as applicable to
any given set of personal information collected by Company from
Individuals; (ii) to Company's knowledge complies with all applicable
privacy laws and regulations regarding the collection, retention, use and
disclosure of personal information; and (iii) takes appropriate measures
to protect and maintain the confidential nature of the personal
information provided to the Company by Individuals. The Company has
adequate technological and procedural measures in place to protect
personal information collected from Individuals against loss, theft and
unauthorized access or disclosure. The Company does not sell, rent or
otherwise make available to third parties any personal information
submitted by Individuals.
2.16.5 The Company's collection, retention, use and distribution of all
personal information collected by Company from Individuals is governed by
the Privacy Statement pursuant to which the data was collected. Other than
as constrained by the Privacy Statements and by applicable laws and
regulations, the Company is not restricted in its use and/or distribution
of personal information collected by Company.
2.16.6 The Company has the full power and authority to transfer all rights
Company has in all Individuals' personal information in their possession
and/or control to Parent and Merger Sub, to the extent permitted by
applicable law. The Company is not a party to any contract, or is subject
to any other obligation that, following the date of this Agreement, would
prevent Parent and/or its affiliates from using the information governed
by the Privacy Statements in a manner consistent with applicable privacy
laws and industry standards regarding the disclosure and use of
information. No claims or controversies have arisen regarding the Privacy
Statements or the implementation thereof or of any of the foregoing.
2.16.7 The Company has complied in all material respects with and, to
Company's Knowledge, is not in violation of any applicable privacy
obligations under any legal requirements or under any contract to which
the Company is a party or by which their properties are bound ("Third
Party Privacy Obligations"). Neither the execution, delivery nor
performance of this Agreement nor the consummation of the Merger will
violate, contravene or conflict with the Third Party Privacy Obligations.
No claims or controversies have arisen regarding the Third Party Privacy
Obligations or of the implementation thereof or of any of the foregoing.
2.17 ENVIRONMENTAL MATTERS.
2.17.1 The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to,
or list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public.
(ii) "Company Facilities" shall mean all buildings and improvements on the
Company Property.
(iii) "Governmental Entity" shall mean any federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
(iv) "Hazardous Materials" shall mean any man-made or naturally occurring
substance, material product, by-product, waste, emission, residual or odor
that is described as a toxic or hazardous substance, waste, material,
pollutant, contaminant, infectious waste, designated waste or words of
similar import, in any of the Environmental and Safety Laws, or any other
words which are intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, or reproductive toxicity and includes, without
limitation, asbestos, asbestos-containing materials, lead-based paint,
petroleum (including crude oil or any fraction thereof, natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for
fuel, or any mixture thereof), petroleum products, waste oil,
polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive
matter, medical waste, otherwise regulated or listed materials and
chemicals which may cause cancer or reproductive toxicity.
(v) "Legal Rules" shall mean codes, statutes, ordinances, orders,
judgments, decrees, injunctions, determinations, approvals, rules,
regulations, permits, licenses and authorizations of all Governmental
Entities with jurisdiction.
(vi) "Company Property" shall mean all real property leased or owned by
the Company either currently or in the past.
2.17.2 To Company's knowledge, except in all cases as, in the aggregate,
would not have a vii) except in material compliance with all Legal Rules
and except for possible small operational releases, no Hazardous Materials
have been released in, on, or about the Company Property or any other
location; (viii) the Company has not received any written notice that a
lien in favor of any Governmental Entity for (A) any liability under any
Environmental and Safety Laws or (B) damages arising from or costs
incurred in responses to a release of any Hazardous Materials into the
environment has been filed against Company's interest in the Company
Property; and (ix) the Company has all the permits and licenses required
to be issued under applicable Environmental and Safety Laws and are in
full compliance with the terms and Material Adverse Effect on Company, (i)
the Company Property and Company Facilities, and the present and former
activities of the Company thereon, comply in all material respects with
all applicable Environmental and Safety Laws; (ii) all Hazardous Materials
and wastes have been disposed of in accordance with all Environmental and
Safety Laws; (iii) the Company has not received notice (oral or written)
of any noncompliance of the Company Facilities or its past or present
operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or, to Company's knowledge,
threatened relating to a violation of any Environmental and Safety Laws;
(v) to Company's knowledge, the Company is not potentially responsible
party under the federal Comprehensive Environmental Response, Compensation
and Liability Act (CERCLA), or state analog statute, arising out of events
occurring prior to the Closing Date; (vi) the Company has not have
received any notice that it is the subject of any federal, state or local
order, agreement or investigation concerning any use, release, discharge,
storage, generation or disposal of any Hazardous Materials; (conditions of
those permits and licenses.
2.18 TAXES.
2.18.1 For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and "Taxable")
means (i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a "Tax authority") responsible for the
imposition of any such tax (domestic or foreign); (ii) any liability for the
payment of any amounts of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined or unitary group for any Taxable
period; and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of being a transferee of or successor to
any person or as a result of any express or implied obligation to indemnify any
other person, including pursuant to any Tax sharing or Tax allocation agreement.
"Tax Return" shall mean any return, statement, report or form (including,
without limitation estimated Tax returns and reports, withholding Tax returns
and reports and information reports and returns) required to be filed with
respect to Taxes.
2.18.2 Except as set forth on Schedule 2.18.2:
2.18.2.1 The Company has duly filed on a timely basis (taking into
account any extensions of time for filing), has filed for an extension
for, or has been included in, all Tax Returns, relating to all Taxes for
which the Company may be liable, required to be filed by or on behalf of
the Company, for any taxable period ending on or before the Closing Date.
Each such Tax Return is true and correct in all material respects. The
Company has duly paid, or made adequate provisions (by a tax accrual or
tax reserve) for all Taxes for which the Company may be liable and other
charges shown as due on such Tax Returns. The Company has paid, or made
adequate provision for, all material Taxes for which the Company may be
liable which are required to be paid without the filing of any Tax Return;
2.18.2.2 Any Taxes for which the Company may be liable incurred or
accrued since the date of the most recent balance sheets of the Company
have arisen in the Ordinary Course of Business determined in the same
manner as in the last taxable period ending on or before such date;
2.18.2.3 The Company has duly paid in full or made adequate
provisions for all Taxes claimed to be due by any taxing authority except
such Taxes as are being contested in good faith, which amounts are set
forth on Schedule 2.18.2. There are no liens for any Taxes, assessments or
government charges or levies upon any property or assets of the Company,
nor are there any outstanding deficiencies or assessments or written
proposals for assessment of any Taxes proposed, asserted or assessed
against the Company except such Taxes as are being contested in good
faith, which amounts are set forth on Schedule 2.18.2. No actions,
proceedings, or examinations are pending or, to the Company's knowledge,
threatened to be brought by any taxing authority for the determination,
assessment or collection of any Taxes for which the Company may be liable
except such Taxes as are being contested in good faith, which amounts are
set forth on Schedule 2.18.2. The Company has not requested any extension
of time within which to file or send any Tax Return which Tax Return has
not since been filed, and the Company is not bound by any election,
consent, or agreement that extends or waives any applicable statute of
limitation with respect to any taxable periods of the Company. The
information set forth in Schedule 2.18.2 indicates the date through which
the taxable years relating to particular Tax Returns of the Company are
closed by applicable statutes of limitation or otherwise;
2.18.2.4 All liabilities for Taxes of the Company for the current
year through the Closing Date and all prior years, whether or not they
have become due and payable, have been duly paid in full or adequate
provisions therefor have been made by a tax accrual or tax reserve;
2.18.2.5 The Company is not a party to any outstanding tax sharing
or other allocation agreement with respect to any Taxes and has no
liability relating to any tax sharing or other allocation agreement;
2.18.2.6 The Company does not have and has never owned stock in a
foreign corporation;
2.18.2.7 No election under section 341(f) of the Code has been made
by the Company, nor has any election been made to be treated as an S
Corporation under section 1362(a) of the Code. No election under section
382(l)(5) is in effect for the Company. The Company has not agreed to, or
been required to, make any section 481(a) adjustment because of a change
of accounting. There are no closing agreements, irrevocable elections, or
similar binding agreements or decisions of any court or other governmental
authority which will restrict the choices of the Company regarding the
treatment of any item of income, deduction, credit, or allowance in
taxable periods subsequent to the Closing Date, and the Company has not
elected to use LIFO for inventory purposes. The Company has withheld all
material Taxes required to have been withheld and has paid all Taxes
withheld in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party. The Company has
not made any payments, is not obligated to make any payments, and is not a
party to any agreement that under certain circumstances could obligate it
to make any payments that will not be deductible under section 280G of the
Code. The Company has not been a United States real property holding
corporation within the meaning of section 897(c)(2) of the Code during the
applicable period specified in section 897(c)(1)(A)(ii) of the Code;
2.18.2.8 The Company has never been (or has any liability or
potential liability for unpaid Taxes because it once was) a member of an
affiliated group (as defined in section 1504(a) of the Code) during any
part of any consolidated return year; and
2.18.2.9 No claim has ever been made by an authority in a
jurisdiction where the Company does not file Tax Returns that it is or may
be subject to taxation by that jurisdiction.
2.18.3 Schedule 2.18.3 sets forth the following information which, to the
Company's Knowledge, is true, complete and correct: (A) the amount
of foreign income taxes (or taxes in lieu thereof) which are
creditable for federal income tax purposes or for foreign income
tax purposes; and (B) the yearly net operating losses, net capital
losses, investment or other tax credits or excess charitable
contributions allocable to the Company which are available for
carryover to subsequent years for federal income tax purposes and
the extent to which such losses or credits are subject to
limitation, or will be subject to limitation upon consummation of
the transactions contemplated herein, under section 382 of the
Code, section 383 of the Code or any other section thereunder, or
are limited for foreign income tax purposes. 2.18.4 Schedule 2.18.4
sets forth, a true, complete and correct list of the assets held by
the Company and the adjusted tax bases as of the date indicated of
such assets for federal tax purposes.
2.19 EMPLOYEE BENEFIT PLANS.
2.19.1 Schedule 2.19.1 lists, with respect to Company and any trade or
business (whether or not incorporated) which is treated as a single
employer with Company (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") other than Foreign Plans (as defined below));
(ii) each loan to a non-officer employee in excess of $50,000, loans to
officers and directors and any stock option, stock purchase, phantom
stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129),
life insurance or accident insurance plans, programs or arrangements;
(iii) all bonus, pension, profit sharing, savings, deferred compensation
or incentive plans, programs or arrangements; (iv) other fringe or
employee benefit plans, programs or arrangements; and (v) any current or
former employment or executive compensation, change in control or
severance agreements, written or otherwise, as to which unsatisfied
obligations of Company remain for the benefit of, or relating to, any
present or former employee, consultant or director of Company (together,
the "Company Employee Plans").
2.19.2 The Company has furnished or made available to Parent a copy of
each of the Company Employee Plans and related plan documents (including
trust documents, insurance policies or contracts, employee booklets,
summary plan descriptions and other authorizing documents, and any
material employee communications relating thereto) and has, with respect
to each Company Employee Plan which is subject to ERISA reporting
requirements, provided copies of the Form 5500 reports filed for the last
three plan years. Any Company Employee Plan intended to be qualified under
Section 401(a) of the Code has obtained from the Internal Revenue Service
a favorable determination letter as to its qualified status under the
Code. The Company has also furnished Parent with the most recent Internal
Revenue Service determination letter issued with respect to each such
Company Employee Plan, and nothing has occurred since the issuance of each
such letter that would reasonably be expected to cause the loss of the
tax-qualified status of any such Company Employee Plan. The Company has
also furnished Parent with all registration statements and prospectuses
prepared in connection with each Company Employee Plan.
2.19.3 (i) None of the Company Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, except as
required by applicable law; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section
4975 of the Code, with respect to any Company Employee Plan; (iii) each
Company Employee Plan has been administered in accordance with its terms
and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as
would not have, in the aggregate, a Material Adverse Effect on Company,
ERISA Affiliate have performed in all material respects all obligations
required to be performed by them under, are not in default in any material
respect under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the Company Employee
Plans; (iv) neither Company nor ERISA Affiliate is subject to any material
liability or material penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Company Employee Plans; (v)
all material contributions required to be made by Company or ERISA
Affiliate to any Company Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to
each Company Employee Plan for the current plan years; (vi) with respect
to each Company Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty (30)
day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or
ERISA has occurred; (vii) no Company Employee Plan is covered by, and
neither Company nor any ERISA Affiliate has incurred or expects to incur
any liability under Title IV of ERISA or Section 412 of the Code; and
(viii) each Company Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms,
without liability to Parent greater than an aggregate of $5,000 (other
than for benefits accrued through the date of termination and ordinary
administrative expenses typically incurred in a termination event). With
respect to each Company Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
Company has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed)
and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Company Employee Plan, except where the failure to do
so would not have a Material Adverse Effect. No suit, administrative
proceeding, action or other litigation has been brought, or to Company's
knowledge is threatened, against or with respect to any such Company
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. No payment or benefit which will or may be made by
the Company to any employee will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
2.19.4 With respect to each Company Employee Plan, the has complied except
to the extent that such failure to comply would not, individually or in
the aggregate, have a Material Adverse Effect on Company, with (i) the
applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations (including proposed regulations) thereunder, (ii) the
applicable requirements of the Family Medical and Leave Act of 1993 and
the regulations thereunder, and (iii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and
the regulations (including proposed regulations) thereunder. Schedule
2.19.1 describes all obligations of the Company as of the date of this
Agreement under any of the provisions of COBRA and the Family and Medical
Leave Act of 1993.
2.19.5 The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service
provider of Company or any other ERISA Affiliate to severance benefits or
any other payment, except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or service provider under any Company
Employee Plan.
2.19.6 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Company or other ERISA
Affiliate relating to, or change in participation or coverage under, any
Company Employee Plan which would materially increase the expense of
maintaining such Plan above the level of expense incurred with respect to
that Plan for the most recent fiscal quarter included in Company's
financial statements.
2.19.7 The Company does not currently maintain, sponsor, participate in or
contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning
of Section 3(2) of ERISA) that is subject to Part 3 of Subtitle B of Title
I of ERISA, Title IV of ERISA or Section 412 of the Code.
2.19.8 Neither the Company or other ERISA Affiliate is a party to, or has
made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
2.19.9 SCHEDULE 2.1.9.1 identifies each employee of any of the Company who
is not fully available to perform work because of disability or other
leave and sets forth the basis of such disability or leave and the
anticipated date of return to full service.
2.20 CONTRACTS. Schedule 2.20.1 lists and the Company has delivered or made
available to Parent true and complete copies (or, in the case of oral
contracts, summaries), of:
2.20.1 each Contract that is executory in whole or in part and involves
performance of services or delivery of goods or materials (A) by
the Company of an amount or value in excess of $50,000 or (B) to
the Company of an amount or value in excess of $50,000;
2.20.2 each Contract that is executory in whole or in part and was not
entered into in the Ordinary Course of Business and that involves
expenditures or receipts of the Company in excess of $50,000;
2.20.3 each licensing agreement (other than "shrink-wrap" and licenses
related to common business and office applications, such as word
processing and spreadsheets, with a cost of less than $2,000) or
any other Contract with respect to patents, trademarks, copyrights,
trade names, service marks, licenses and other intellectual
property;
2.20.4 each collective bargaining agreement and any other Contract to or
with any labor union or other employee representative of a group of
employees of the Company;
2.20.5 each joint venture, partnership or similar contract involving a
sharing of profits, losses, costs or liabilities by the Company
with any other Person;
2.20.6 each Contract containing covenants that in any way purport to
restrict the business activity of the Company or limit the freedom
of the Company to engage in any line of business or to compete with
any Person;
2.20.7 each Contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
2.20.8 each power of attorney that is currently effective and outstanding
granted by and relating to the Company;
2.20.9 each Contract that is executory in whole or in part and involves
capital expenditures in excess of $50,000;
2.20.10 each written warranty, guaranty, and/or other similar undertaking
with respect to contractual performance extended by the Company
other than in the Ordinary Course of Business;
2.20.11 each Contract with any employee, director or officer of the
Company;
2.20.12 each Contract relating to indebtedness of the Company for borrowed
money in excess of $50,000 and each contract relating to the
guarantee by the Company of indebtedness of any Person for borrowed
money in excess of $50,000;
2.20.13 each Contract for the purchase or sale of real property;
2.20.14 each Contract for the sale of products or services by the Company
that involves expenditures or receipts of the Company in excess of
$50,000;
2.20.15 each Contract imposing a Lien on any asset of the Company;
2.20.16 each Contract relating to any loans or advances to, or investment
in, any Person;
2.20.17 each Contract providing for the payment of cash or other
compensation upon consummation of the Merger;
2.20.18 each non-disclosure and non-compete agreement Contract;
2.20.19 each Contract or group of related Contracts not terminable on 30
days' Notice and that involves expenditures or receipts of the
Company in excess of $50,000;
2.20.20 each sales distribution Contract, franchise Contract and
advertising Contract that involves expenditures or receipts of the
Company in excess of $50,000; and
2.20.21 any other Contract which is material to the Company and that
involves expenditures or receipts of the Company in excess of
$50,000.
2.20.22 Each of the Material Contracts is in full force and effect and
constitutes a valid and binding obligation of the Company and, to
the Knowledge of the Company, the other party thereto. Except (i)
with respect to the Contracts relate to shareholder indebtedness
and (ii) as set forth on Schedule 2.20.1, the Company is not in
breach or default under a material provision of any Material
Contract, and no event has occurred and no condition or state of
facts exists which, with the passage of time or the giving of
notice or both, would constitute such a default or breach by the
Company or, to the Knowledge of the Company, by any such other
party. The Company has not received written notice of such a breach
or default or event or condition.
2.21 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution and
delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any entitlement, payment or benefit
(including, without limitation, severance, unemployment compensation,
golden parachute, bonus or benefit under any Company plan or policy or
otherwise) becoming due to any current or former directors or Company
Employees (defined in Section 2.19 below) of the Company, (ii) increase the
amount of any entitlements, payments or benefits otherwise payable by the
Company, or (iii) result in the acceleration of the time of payment or
vesting of any such entitlements, payments or benefits.
2.22 EMPLOYEE MATTERS.
2.22.1 Schedule 2.22.1 contains a true, complete and accurate list (and, as
indicated below, description) of (i) the names and titles of all consultants,
independent contractors, full-time, part-time, temporary, contract, leased or
casual employees employed by or who provided services for Company (collectively,
"Company Employees"), together with their status and location of their
employment; (ii) the date each Company Employee was hired or retained; (iii) a
list of all written employment, consulting or service contracts or offer letters
between Company and the Company Employees; (iv) the rate of annual remuneration
of each Company Employee at the date hereof, any bonuses paid since the end of
the last completed financial year and all other bonuses, incentive schemes and
benefits to which such Company Employee is or may be entitled; (v) the annual
accrual rate and the total current accrued and unused amount of vacation or paid
time off for each Company Employee as of the date hereof; (vi) the names of all
inactive Company Employees, the reason they are inactive Company Employees,
whether they are expected to return to work, and if so when, and the nature of
any benefits to which such inactive Company Employees are entitled from the
Company; (vii) any employee handbook or personnel policies or procedures manual
in effect that governs the terms and conditions or privileges of employment of
the Company Employees; and (viii) particulars of all other material terms and
conditions of employment or engagement of the Company Employees and the
positions, title or classification held by them (collectively, "Company Employee
Matters").
2.22.2 The Company has provided or made available to Parent correct and
complete copies of all documents including but not limited to all agreements,
correspondence, files and policies, relating to the Company Employee Matters.
2.22.3 The Company is in compliance in all respects with all currently
applicable laws and regulations respecting terms and conditions of employment,
including without limitation applicant and employee background checking,
immigration laws, verification of employment eligibility, document retention and
record keeping, discrimination in employment, wages and hours, leaves of absence
(including, as legally applicable, the Family and Medical Leave Act),
classification of workers as employees and independent contractors,
classification of workers as exempt or nonexempt employees, and occupational
safety and health and employment practices, and are not engaged in any unfair
labor practice. The Company has in all material respects withheld all amounts
required by law or by agreement to be withheld from the wages, salaries, and
other payments to employees; and is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing. The
Company is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
Company Employees (other than routine payments to be made in the normal course
of business and consistent with past practice). There are no pending claims, or
claims reasonably expected or, to Company's knowledge, threatened, against
Company under any workers compensation plan or policy or long-term or short-term
disability plan or policy. To the knowledge of Company, there are no
controversies, including claims, complaints, charges, investigations, or
proceedings pending or, to Company's knowledge, reasonably expected or
threatened between Company, on the one hand, and any of its respective Company
Employees, on the other hand, including without limitation any claims for actual
or alleged harassment or discrimination based on race, national origin, age,
sex, sexual orientation, religion, disability, or similar tortuous conduct,
breach of contract, wrongful termination, defamation, intentional or negligent
infliction of emotional distress, interference with contract or interference
with actual or prospective economic disadvantage, which controversies have or
would reasonably be expected to result in an action, suit, proceeding, claim,
arbitration, audit or investigation before any agency, court or tribunal,
foreign or domestic.
2.22.4 The Company is not a party to any collective bargaining agreement or
other labor union contract nor does the Company know of any activities or
proceedings of any labor union to organize any such Company Employees.
2.22.5 No labor dispute, walk out, strike, slowdown, hand billing,
picketing, work stoppage (sympathetic or otherwise), or other "concerted action"
involving the Company Employees has occurred, is in progress or has been, to the
knowledge of Company, threatened.
2.22.6 The Company has each provided all current and former Company
Employees with all wages, benefits, relocation benefits, stock options, bonuses
and incentives, and all other compensation, remuneration and benefits that
became due and payable through the date hereof and has reimbursed all current
and former Company Employees for all expenses incurred and due such individual.
2.22.7 In the last five (5) years, no citation has been issued by the
Occupational Safety and Health Administration ("OSHA") or by a state or
provincial occupational safety and health board or agency against the Company
and no notice of contest, claim, complaint, charge, investigation or other
administrative enforcement proceeding involving the Company has been filed or is
pending or, to the Knowledge of the Company, threatened against the Company
under OSHA or any provincial occupational safety and health board or any other
applicable law relating to occupational safety and health.
2.22.8 To Company's knowledge, no Company Employees are in violation of any
term of any employment contract, confidentiality agreement, patent disclosure
agreement, noncompetition agreement, or any restrictive covenant to a former
employer relating to the right of any such Company Employee to be employed by
the Company because of the nature of the business conducted or presently
proposed to be conducted by Company or to the use of trade secrets or
proprietary information of others. No Company Employees have given notice to the
Company, nor is the Company otherwise aware, that any such Company Employee
intends to terminate his or her employment with the Company.
2.22.9 The Company has maintained and currently maintains adequate
insurance as required by applicable law with respect to workers' compensation
claims and unemployment benefits claims. The Company has paid or accrued all
current assessments under workers' compensation and unemployment legislation,
and has not been subject to any special or penalty assessment under such
legislation which has not been paid.
2.23 INSURANCE. The Company has policies of insurance and bonds of the type and
in amounts customarily carried by persons conducting businesses or owning assets
similar to those of the Company. There is no claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid and the Company is otherwise in
compliance in all material respects with the terms of such policies and bonds.
The Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.24 BANK ACCOUNTS; POWERS OF ATTORNEY. Schedule 2.24 contains a complete and
correct list showing: (a) all banks in which the Company maintains a bank
account or safe deposit box (collectively, "Bank Accounts"), together
with, as to each such Bank Account, the account number, the names of all
signatories thereof and the authorized powers of each such signatory and,
with respect to each such safe deposit box, the number thereof and the
names of all persons having access thereto; and (b) the names of all
persons holding powers of attorney from the Company, true and correct
copies thereof which have been delivered to Parent.
2.25 COMPLIANCE WITH LAWS. The Company has complied with and is not in
violation of, and have not received any notices of violation with respect
to, any federal, state, local or foreign statute, law or regulation with
respect to the conduct of its business, or the ownership or operation of
its business, except for such violations or failures to comply as would
not be reasonably expected to have a Material Adverse Effect on Company.
2.26 MINUTE BOOKS. The minute books of Company made available to Parent contain
a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent of Company during the past
three years and through the date of this Agreement, and reflect all
transactions referred to in such minutes accurately in all material
respects.
2.27 COMPLETE COPIES OF MATERIALS. The Company has delivered or made available
true and complete copies of each document that has been requested by
Parent or its counsel in connection with their legal and accounting review
of Company.
2.28 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders'
fees or agents' commissions or investment bankers' fees or any similar
charges in connection with this Agreement or any transaction contemplated
hereby.
2.29 VOTE REQUIRED. The Company has or will have the affirmative vote of the
holders of at least a majority of the shares of Company Common Stock
outstanding on the record date set for the meeting of the Company
stockholders (the "Company Stockholders Meeting ") and such vote is the
only vote of the holders of any of Company's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
2.30 BOARD APPROVAL. The Board of Directors of Company has (i) approved this
Agreement and the Merger, (ii) determined that this Agreement and the
Merger are advisable and in the best interests of the stockholders of
Company and are on terms that are fair to such stockholders and (iii)
recommended that the stockholders of Company adopt and approve this
Agreement and the consummation of the Merger.
2.31 STATE TAKEOVER STATUTES. The Board of Directors of Company has taken all
actions necessary so that the restrictions contained in Section 203 of the
Delaware Law applicable to a "business combination" (as defined in Section
203) shall not apply to the execution, delivery or performance of this
Agreement or the consummation of the Merger or the other transactions
contemplated by this Agreement. To Company's knowledge, no other "fair
practice," "moratorium," "control share acquisition," "business
combination," or other state takeover statute or similar statute or
regulation applies to Company, Parent, Merger Sub, the Merger, or this
Agreement.
2.32 REPRESENTATIONS COMPLETE. None of the representations or warranties made
by Company herein or in any Schedule hereto, including the Company
Disclosure Schedule, or certificates furnished by Company pursuant to this
Agreement, when all such documents are read together in their entirety,
contains or will contain at the Effective Time any untrue statement of a
material fact, or omits or will omit at the Effective Time to state any
material fact necessary in order to make the statements contained herein
or therein, in the light of the circumstances under which made, not
misleading. All projected, forecasted or prospective financial information
provided by Company to Parent has been prepared in good faith on the basis
of assumptions Company believes are reasonable and supportable.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in that section of the document of even date herewith
delivered by Parent to the Company prior to the execution and delivery of this
Agreement (the "Parent Disclosure Schedule") corresponding to the Section of
this Agreement to which any of the following representations and warranties
specifically relate or as disclosed in another section of the Parent Disclosure
Schedule if it is reasonably apparent on the face of the disclosure that it is
applicable to another Section of this Agreement, Parent represents and warrants
to the Company as follows:
3.1 ORGANIZATION, STANDING AND POWER. Parent is a corporation duly organized,
validly existing and in good standing, and no certificates of dissolution
have been filed under the laws of its jurisdiction of organization. Parent
has the power to own its properties and to carry on its business as now
being conducted and as presently proposed to be conducted and is duly
authorized and qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing
would have a Material Adverse Effect on Parent. Parent has delivered to
the Company a true and correct copy of the Certificate of Incorporation
(the "Parent Certificate of Incorporation"), and the Bylaws, or other
charter documents, as applicable, of Parent, as amended to date. Parent
and Merger Sub are not in violation of any of the provisions of their
respective charter or bylaws or equivalent organization documents. Parent
is the owner of all outstanding shares of capital stock of Merger Sub and
all such shares are duly authorized, validly issued, fully paid and
nonassessable. There are no outstanding subscriptions, options, warrants,
puts, calls, rights, exchangeable or convertible securities or other
commitments or agreements of any character relating to the issued or
unissued capital stock or other securities of any such subsidiary, or
otherwise obligating Parent to issue, transfer, sell, purchase, redeem or
otherwise acquire any such securities, except as disclosed in Parent SEC
Documents (as defined in Section 3.4).
3.2 CAPITAL STRUCTURE. The authorized capital stock of Parent consists of
50,000,000 shares of common stock, $000001 par value, and 10,000,000
shares of preferred stock, $000001 par value, of which there were
43,397,293 shares of common stock (pre-split and prior to additional
issuances required hereunder) issued and outstanding as of the close of
business on, and no shares of Preferred Stock. The shares of Parent Common
Stock to be issued pursuant to the Merger will be duly authorized, validly
issued, fully paid, and non-assessable, free of any liens or encumbrances
imposed by Parent or Merger Sub. There are no other outstanding shares of
capital stock or voting securities and no outstanding commitments to issue
any shares of capital stock or voting securities after the date hereof,
except as disclosed in Parent SEC Documents (as defined in Section 3.4).
All outstanding shares of Parent Common Stock are duly authorized, validly
issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed
upon the holders thereof, and are not subject to preemptive rights or
rights of first refusal created by statute, the Certificate of
Incorporation or Bylaws of Parent or any agreement to which Parent is a
party or by which it is bound. There are no contracts, commitments or
agreements relating to voting, purchase or sale of Parent's capital stock
(i) between or among Parent and any of its stockholders and (ii) to the
best of Parent's knowledge, between or among any of Parent's stockholders.
3.3 AUTHORITY. Parent and Merger Sub have all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and
Merger Sub. This Agreement has been duly executed and delivered by Parent
and Merger Sub and constitutes the valid and binding obligations of Parent
and Merger Sub enforceable against Parent and Merger Sub in accordance
with its terms, except as enforceability may be limited by bankruptcy and
other laws affecting the rights and remedies of creditors generally and
general principles of equity. The execution and delivery of this Agreement
do not, and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under
3.3.1 any provision of the Certificate of Incorporation or Bylaws of
Parent, as amended, or;
3.3.2 any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent
or its properties or assets. No consent, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity
is required by or with respect to Parent in connection with the execution
and delivery of this Agreement by Parent and Merger Sub or the
consummation by Parent and Merger Sub of the transactions contemplated
hereby, except for (i) the filing of the Certificate of Merger as provided
in Section 1.2; (ii) the filing of a Form 8-K with the SEC within 15 days
after the Closing Date; (iii) any filings as may be required under
applicable state securities laws and the securities laws of any foreign
country; and (iv) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a
Material Adverse Effect on Parent and would not prevent or materially
alter or delay any of the transactions contemplated by this Agreement.
3.4 SEC DOCUMENTS; FINANCIAL STATEMENTS. Parent has made available to the
Company a true and complete copy of each statement, report, registration
statement (with the prospectus in the form filed pursuant to Rule 424(b)
of the Securities Act), definitive proxy statement, and other documents
filed with the SEC by Parent as filed by Parent since January 1, 2001,
and, prior to the Effective Time, Parent will have furnished or made
available to Company true and complete copies of any additional documents
filed with the SEC by Parent prior to the Effective Time (collectively,
the "Parent SEC Documents"). The Company acknowledges and agrees that all
Parent SE Documents are available through the XXXXX system. Parent has
timely filed all forms, statements and documents required to be filed by
it with the SEC. All documents required to be filed as exhibits to the
Parent SEC Documents have been so filed, and all material contracts so
filed as exhibits are in full force and effect, except those that have
expired in accordance with their terms, and Parent is not in default
thereunder. As of their respective filing dates, the Parent SEC Documents
complied in all respects with the requirements of the Securities Exchange
Act of 1934, as amended ("the "Exchange Act") and the Securities Act, and
none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the
extent corrected by a subsequently filed Parent SEC Document. The
financial statements of Parent, including the notes thereto, included in
the Parent SEC Documents (the "Parent Financial Statements") were complete
and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in
the notes thereto or, in the case of unaudited statements included in
Quarterly Reports on Form 10-Q, as permitted by Form 10-Q of the SEC). The
Parent Financial Statements fairly present the consolidated financial
condition and operating results of Parent and its subsidiaries at the
dates and during the periods indicated therein (subject, in the case of
unaudited statements, to normal, recurring year-end adjustments). On or
prior to the date of this Agreement, Parent shall obtain not less than
$150,000 in additional financing. Within 90 days from the date of this
Agreement, Parent shall obtain not less than an additional $1.5 million in
additional financing. Such additional funding shall be disclosed in the
appropriate SEC Documents.
3.5 XXXXXXXX-XXXXX ACT OF 2002. There has been no change in Parent accounting
policies since December 31, 2002 except as described in the notes to the
Parent Financial Statements. Each required form, report and document
containing financial statements that has been filed with or submitted to
the SEC since July 31, 2002, was accompanied by the certifications
required to be filed or submitted by Parent's chief executive officer and
chief financial officer pursuant to the Xxxxxxxx-Xxxxx Act of 2002 (the
"Xxxxxxxx-Xxxxx Act"), and at the time of filing or submission of each
such certification, such certification was true and accurate and complied
with the Xxxxxxxx-Xxxxx Act and the rules and regulations promulgated
thereunder. Since December 31, 2001, Parent has not, to the knowledge of
the Parent or any director, officer, employee, auditor, accountant or
representative of Parent have not, received or otherwise had or obtained
knowledge of any complaint, allegation, assertion or claim, whether
written or oral, regarding the accounting or auditing practices,
procedures, methodologies or methods of Parent or its respective internal
accounting controls, including any complaint, allegation, assertion or
claim that Parent has engaged in questionable accounting or auditing
practices, except for (A) any complaint, allegation, assertion or claim as
has been resolved without any resulting change to Parent's accounting or
auditing practices, procedures methodologies or methods of Parent or its
internal accounting controls and (b) questions regarding such matters
raised and resolved in the ordinary course in connection with the
preparation and review of Parent's financial statements and periodic
reports. No attorney representing Parent, whether or not employed by
Parent or any such subsidiary, has reported evidence of a material
violation of securities laws, breach of fiduciary duty or similar
violation by Parent or any of its officers, directors, employees or agents
to the Board of Directors of Parent or any committee thereof or to any
director or officer of Parent. To the knowledge of Parent, no employee of
Parent has provided or is providing information to any law enforcement
agency regarding the commission or possible commission of any crime or the
violation or possible violation of any applicable law.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Parent has no material obligations or
liabilities of any nature (matured or unmatured, fixed or contingent)
other than (i) those set forth or adequately provided for in the Balance
Sheet included in the most recent Parent SEC Documents Balance Sheet (the
"Parent Balance Sheet"), (ii) those incurred in the ordinary course of
business and not required to be set forth in the Parent Balance Sheet
under GAAP, (iii) those incurred in the ordinary course of business since
the Parent Balance Sheet date and not reasonably likely to have a Material
Adverse Effect on Parent, and (iv) those incurred in connection with the
execution of this Agreement.
3.7 LITIGATION. There is no private or governmental action, suit, proceeding,
claim, arbitration, audit or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of Parent,
threatened against Parent or any of its respective properties or any of
its respective officers or directors (in their capacities as such) that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on Parent. There is no injunction, judgment,
decree, order or regulatory restriction imposed upon Parent or any of its
assets or business, or, to the knowledge of Parent, any of its directors
or officers (in their capacities as such), that would prevent, enjoin,
alter or materially delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material Adverse
Effect on Parent. Schedule 3.8 lists all actions, suits, proceedings,
claims, arbitrations, audits and investigations pending before any agency,
court or tribunal that involve Parent.
3.8 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon Parent which has or reasonably
could be expected to have the effect of prohibiting or materially
impairing any business practice of Parent, any acquisition of property by
Parent or the conduct of business by Parent.
3.9 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution and
delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any entitlement, payment or benefit
(including, without limitation, severance, unemployment compensation,
golden parachute, bonus or benefit under any Parent plan or policy or
otherwise) becoming due to any current or former director or employee of
Parent, (ii) increase the amount of any entitlements, payments or benefits
otherwise payable by Parent, or (iii) result in the acceleration of the
time of payment or vesting of any such entitlements, payments or benefits.
3.10 INTERESTED PARTY TRANSACTIONS. Except as disclosed in the Parent SEC
Documents, Parent is not indebted to any director or officer of Parent
(except for amounts due as normal salaries and bonuses and in
reimbursement of ordinary expenses), and no such person is indebted to
Parent, and there are no other transactions of the type required to be
disclosed pursuant to Items 402 or 404 of Regulation S-B under the
Securities Act and the Exchange Act.
3.11 COMPLIANCE WITH LAWS. Parent has complied with, are is in violation of,
and has not received any notices of violation with respect to, any
federal, state, local or foreign statute, law or regulation with respect
to the conduct of its business, or the ownership or operation of its
business, except for such violations or failures to comply as would not be
reasonably expected to have a Material Adverse Effect on Parent.
3.12 COMPLETE COPIES OF MATERIALS. Parent has delivered or made available true
and complete copies of each document that has been requested by Company or
its counsel in connection with their legal and accounting review of
Parent.
3.13 INTELLECTUAL PROPERTY. Schedule 3.13 contains a complete and accurate list
and description of:
3.13.1 all United States and foreign patents and patent applications and
patent disclosures, all United States and foreign copyright registrations
and applications, all material computer software (excluding "shrink-wrap"
or licenses for common business and office applications, such as word
processors and spreadsheets, having a cost of less than $1,000), all
United States, state and foreign trademarks, service marks and trade names
for which registrations have been issued or applied for, all other United
States, state and foreign trademarks, service marks and trade names, and
all Internet domain names owned by or under obligation of assignment to
the Parent or in which the Parent holds any right, license or interest,
showing in each case the registered or other owner, expiration date and
number, if any;
3.13.2 all agreements and licenses (excluding "shrink-wrap" or similar
licenses for computer software) relating or pertaining to any Intellectual
Property to which the Parent is a party, showing in each case the parties
thereto. All such agreements and licenses are valid and subsisting and the
Parent is not in breach of any material provisions of any such agreements
or licenses;
3.13.3 all licenses or agreements pertaining to mailing lists, know-how,
trade secrets, inventions, disclosures or uses of ideas to which the
Parent is a party, showing in each case the parties thereto;
3.13.4 all registered assumed or fictitious names under which the Parent
is currently conducting business; and
3.13.5 all maintenance, support, training, consulting, outsourcing,
facilities management and other contracts and agreements relating to
computer hardware, software or services and that involve expenditures in
excess of $25,000.
3.13.6 To the Parent's knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Parent Intellectual
Property rights, or any Intellectual Property right of any third party to
the extent licensed to the Parent, by any third party, including any
employee or former employee of Parent. The Parent has not entered into any
agreement to indemnify any other person against any charge of infringement
of any Intellectual Property, other than indemnification provisions
contained in purchase orders, license agreements and distribution and
other customer agreements, copies of which have been provided or made
available to Parent.
3.13.7 The Parent is not, nor will it be as a result of the execution and
delivery of this Agreement or the performance of its obligations under
this Agreement, in breach of any license, sublicense or other agreement
relating to the Parent Intellectual Property or Third Party Intellectual
Property Rights.
3.13.8 To the Parent's knowledge, all patents, trademarks, service marks
and copyrights held by Parent are valid and subsisting. Parent (i) has not
been sued in any suit, action or proceeding (or received any notice or, to
Parent's knowledge, threat) which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party and (ii) has not
brought any action, suit or proceeding for infringement of Parent
Intellectual Property or breach of any license or agreement involving
Parent Intellectual Property against any third party. To Parent's
knowledge, the manufacture, use, marketing, licensing or sale of Parents
products does not infringe any patent, trademark, service xxxx, copyright,
trade secret or other proprietary right of any third party.
3.13.9 The Parent has secured valid written assignments from all
consultants and employees who contributed to the creation or development
of Parent Intellectual Property of the rights to such contributions that
Parent does not already own by operation of law.
3.13.10 The Parent has not received any formal written opinion of counsel
stating that: (i) there is or has been any unauthorized use, disclosure,
infringement, or misappropriation of any Parent Intellectual Property;
(ii) any of the Parent Intellectual Property is invalid or unenforceable;
or (iii) Parent has engaged in unauthorized use, disclosure, infringement
or misappropriation of any third party intellectual property.
3.14 GOVERNMENTAL AUTHORIZATION. The Parent has obtained each federal, state,
county, local or foreign governmental consent, license, permit, grant, or
other authorization of a Governmental Entity (i) pursuant to which Parent
currently operates or holds any interest in any of its properties or (ii)
that is required for the operation of Parent's business or the holding of
any such interest ((i) and (ii) herein collectively called "Parent
Authorizations"), and all of such Parent Authorizations are in full force
and effect, except where the failure to obtain or have any of such Parent
Authorizations or where the failure of such Parent Authorizations to be in
full force and effect would not reasonably be expected to have a Material
Adverse Effect on Parent.
3.15 PRIVACY POLICIES; THIRD PARTY PRIVACY OBLIGATIONS; WEB SITE TERMS AND
CONDITIONS.
3.15.1 For purposes of this Section 3.15: (i) "Parent Sites" means the
Parent's public sites on the World Wide Web; (ii) "Privacy Statements"
means, collectively, any and all of Parent's privacy policies published on
the Parent Sites or otherwise made available by the Parent regarding the
collection, retention, use and distribution of the personal information of
individuals, including, without limitation, from visitors of any of the
Parent Sites ("Individuals"); and (iii) "Terms and Conditions" means any
and all of the visitor terms and conditions published on the Parent Sites
governing Individuals' use of or access to the Parent Sites.
3.15.2 A Privacy Statement is posted and is accessible to Individuals at
all times on each Parent Site. Parent maintains a hypertext link to a
Privacy Statement from the homepage of the Parent Site, and Parent uses
commercially reasonable efforts to include a hypertext link to a Privacy
Statement from every page of the Parent Sites on which personal
information is collected from Individuals.
3.15.3. The Privacy Statements are clearly written and include, at a
minimum, accurate notice to Individuals about Parent's collection,
retention, use and disclosure policies and practices with respect to
Individuals' personal information. The Privacy Statements are accurate and
consistent with the Terms and Conditions and Parent's actual practices
with respect to the collection, retention, use and disclosure of
Individuals' personal information.
3.15.4 Parent (i) complies with the Privacy Statements as applicable to
any given set of personal information collected by Parent from
Individuals; (ii) to Parent's knowledge complies with all applicable
privacy laws and regulations regarding the collection, retention, use and
disclosure of personal information; and (iii) takes appropriate measures
to protect and maintain the confidential nature of the personal
information provided to the Parent by Individuals. The Parent has adequate
technological and procedural measures in place to protect personal
information collected from Individuals against loss, theft and
unauthorized access or disclosure. The Parent does not sell, rent or
otherwise make available to third parties any personal information
submitted by Individuals.
3.15.5 The Parent's collection, retention, use and distribution of all
personal information collected by Parent from Individuals is governed by
the Privacy Statement pursuant to which the data was collected. Other than
as constrained by the Privacy Statements and by applicable laws and
regulations, the Parent is not restricted in its use and/or distribution
of personal information collected by Parent.
3.15.6 The Parent has the full power and authority to transfer all rights
Parent has in all Individuals' personal information in their possession
and/or control to Parent and Merger Sub, to the extent permitted by
applicable law. The Parent is not a party to any contract, or is subject
to any other obligation that, following the date of this Agreement, would
prevent Parent and/or its affiliates from using the information governed
by the Privacy Statements in a manner consistent with applicable privacy
laws and industry standards regarding the disclosure and use of
information. No claims or controversies have arisen regarding the Privacy
Statements or the implementation thereof or of any of the foregoing.
3.15.7 The Parent has complied in all material respects with and, to
Parent's Knowledge, is not in violation of any applicable privacy
obligations under any legal requirements or under any contract to which
the Parent is a party or by which their properties are bound ("Third Party
Privacy Obligations"). Neither the execution, delivery nor performance of
this Agreement nor the consummation of the Merger will violate, contravene
or conflict with the Third Party Privacy Obligations. No claims or
controversies have arisen regarding the Third Party Privacy Obligations or
of the implementation thereof or of any of the foregoing.
3.16 ENVIRONMENTAL MATTERS.
3.16.1 The following terms shall be defined as follows:
(i) "Environmental and Safety Laws" shall mean any federal, state or local
laws, ordinances, codes, regulations, rules, policies and orders that are
intended to assure the protection of the environment, or that classify,
regulate, call for the remediation of, require reporting with respect to,
or list or define air, water, groundwater, solid waste, hazardous or toxic
substances, materials, wastes, pollutants or contaminants, or which are
intended to assure the safety of employees, workers or other persons,
including the public.
(ii) "Parent Facilities" shall mean all buildings and improvements on the
Parent Property.
(iii) "Governmental Entity" shall mean any federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
(iv) "Hazardous Materials" shall mean any man-made or naturally occurring
substance, material product, by-product, waste, emission, residual or odor
that is described as a toxic or hazardous substance, waste, material,
pollutant, contaminant, infectious waste, designated waste or words of
similar import, in any of the Environmental and Safety Laws, or any other
words which are intended to define, list or classify substances by reason
of deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, toxicity, or reproductive toxicity and includes, without
limitation, asbestos, asbestos-containing materials, lead-based paint,
petroleum (including crude oil or any fraction thereof, natural gas,
natural gas liquids, liquefied natural gas, or synthetic gas usable for
fuel, or any mixture thereof), petroleum products, waste oil,
polychlorinated biphenyls, urea formaldehyde, radon gas, radioactive
matter, medical waste, otherwise regulated or listed materials and
chemicals which may cause cancer or reproductive toxicity.
(v) "Legal Rules" shall mean codes, statutes, ordinances, orders,
judgments, decrees, injunctions, determinations, approvals, rules,
regulations, permits, licenses and authorizations of all Governmental
Entities with jurisdiction.
(vi) "Parent Property" shall mean all real property leased or owned by the
Parent either currently or in the past.
3.16.2 To Parent's knowledge, except in all cases as, in the aggregate,
would not have a (i) except in material compliance with all Legal Rules
and except for possible small operational releases, no Hazardous Materials
have been released in, on, or about the Parent Property or any other
location; (ii) the Parent has not received any written notice that a lien
in favor of any Governmental Entity for (A) any liability under any
Environmental and Safety Laws or (B) damages arising from or costs
incurred in responses to a release of any Hazardous Materials into the
environment has been filed against Parent's interest in the Parent
Property; and (ix) the Parent has all the permits and licenses required to
be issued under applicable Environmental and Safety Laws and are in full
compliance with the terms and Material Adverse Effect on Parent, (i) the
Parent Property and Parent Facilities, and the present and former
activities of the Parent thereon, comply in all material respects with all
applicable Environmental and Safety Laws; (ii) all Hazardous Materials and
wastes have been disposed of in accordance with all Environmental and
Safety Laws; (iii) the Parent has not received notice (oral or written) of
any noncompliance of the Parent Facilities or its past or present
operations with Environmental and Safety Laws; (iv) no notices,
administrative actions or suits are pending or, to Parent's knowledge,
threatened relating to a violation of any Environmental and Safety Laws;
(v) to Parent's knowledge, the Parent is not potentially responsible party
under the federal Comprehensive Environmental Response, Compensation and
Liability Act (CERCLA), or state analog statute, arising out of events
occurring prior to the Closing Date; (vi) the Parent has not have received
any notice that it is the subject of any federal, state or local order,
agreement or investigation concerning any use, release, discharge,
storage, generation or disposal of any Hazardous Materials; (conditions of
those permits and licenses.
3.17 TAXES.
3.17.1 For purposes of this Agreement, the following terms have the
following meanings: "Tax" (and, with correlative meaning, "Taxes" and
"Taxable") means (i) any net income, alternative or add-on minimum tax,
gross income, gross receipts, sales, use, ad valorem, transfer, franchise,
profits, license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall profit
tax, custom, duty or other tax, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed by any Governmental
Entity (a "Tax authority") responsible for the imposition of any such tax
(domestic or foreign); (ii) any liability for the payment of any amounts
of the type described in (i) as a result of being a member of an
affiliated, consolidated, combined or unitary group for any Taxable
period; and (iii) any liability for the payment of any amounts of the type
described in (i) or (ii) as a result of being a transferee of or successor
to any person or as a result of any express or implied obligation to
indemnify any other person, including pursuant to any Tax sharing or Tax
allocation agreement. "Tax Return" shall mean any return, statement,
report or form (including, without limitation estimated Tax returns and
reports, withholding Tax returns and reports and information reports and
returns) required to be filed with respect to Taxes.
Except as set forth on Schedule 3.17.2:
3.17.2.1 The Parent has duly filed on a timely basis (taking into account
any extensions of time for filing), has filed for an extension for, or has
been included in, all Tax Returns, relating to all Taxes for which the
Parent may be liable, required to be filed by or on behalf of the Parent,
for any taxable period ending on or before the Closing Date. Each such Tax
Return is true and correct in all material respects. The Parent has duly
paid, or made adequate provisions (by a tax accrual or tax reserve) for
all Taxes for which the Parent may be liable and other charges shown as
due on such Tax Returns. The Parent has paid, or made adequate provision
for, all material Taxes for which the Parent may be liable which are
required to be paid without the filing of any Tax Return; any Taxes for
which the Parent may be liable incurred or accrued since the date of the
most recent balance sheets of the Parent have arisen in the Ordinary
Course of Business determined in the same manner as in the last taxable
period ending on or before such date;
3.17.2.2 The Parent has duly paid in full or made adequate provisions for
all Taxes claimed to be due by any taxing authority except such Taxes as
are being contested in good faith, which amounts are set forth on Schedule
3.17.2. There are no liens for any Taxes, assessments or government
charges or levies upon any property or assets of the Parent, nor are there
any outstanding deficiencies or assessments or written proposals for
assessment of any Taxes proposed, asserted or assessed against the Parent
except such Taxes as are being contested in good faith, which amounts are
set forth on Schedule 3.17.2.
3.17.2.3 No actions, proceedings, or examinations are pending or, to the
Parent's knowledge, threatened to be brought by any taxing authority for
the determination, assessment or collection of any Taxes for which the
Parent may be liable except such Taxes as are being contested in good
faith, which amounts are set forth on Schedule 3.17.2.
3.17.2.4 The Parent has not requested any extension of time within which
to file or send any Tax Return which Tax Return has not since been filed,
and the Parent is not bound by any election, consent, or agreement that
extends or waives any applicable statute of limitation with respect to any
taxable periods of the Parent. The information set forth in Schedule
3.17.2 indicates the date through which the taxable years relating to
particular Tax Returns of the Parent are closed by applicable statutes of
limitation or otherwise;
3.17.2.5 All liabilities for Taxes of the Parent for the current year
through the Closing Date and all prior years, whether or not they have
become due and payable, have been duly paid in full or adequate provisions
therefor have been made by a tax accrual or tax reserve;
3.17.2.6 The Parent is not a party to any outstanding tax sharing or other
allocation agreement with respect to any Taxes and has no liability
relating to any tax sharing or other allocation agreement;
3.17.2.7 The Parent does not have and has never owned stock in a foreign
corporation;
3.17.2.8 No election under section 341(f) of the Code has been made by the
Parent, nor has any election been made to be treated as an S Corporation
under section 1362(a) of the Code. No election under section 382(l)(5) is
in effect for the Parent. The Parent has not agreed to, or been required
to, make any section 481(a) adjustment because of a change of accounting.
There are no closing agreements, irrevocable elections, or similar binding
agreements or decisions of any court or other governmental authority which
will restrict the choices of the Parent regarding the treatment of any
item of income, deduction, credit, or allowance in taxable periods
subsequent to the Closing Date, and the Parent has not elected to use LIFO
for inventory purposes. The Parent has withheld all material Taxes
required to have been withheld and has paid all Taxes withheld in
connection with amounts paid or owing to any employee, creditor,
independent contractor, or other third party. The Parent has not made any
payments, is not obligated to make any payments, and is not a party to any
agreement that under certain circumstances could obligate it to make any
payments that will not be deductible under section 280G of the Code. The
Parent has not been a United States real property holding corporation
within the meaning of section 897(c)(2) of the Code during the applicable
period specified in section 897(c)(1)(A)(ii) of the Code;
3.17.2.9 The Parent has never been (or has any liability or potential
liability for unpaid Taxes because it once was) a member of an affiliated
group (as defined in section 1504(a) of the Code) during any part of any
consolidated return year; andno claim has ever been made by an authority
in a jurisdiction where the Parent does not file Tax Returns that it is or
may be subject to taxation by that jurisdiction.
3.17.3 Schedule 3.17.3 sets forth the following information which, to the
Parent's Knowledge, is true, complete and correct: (A) the amount of
foreign income taxes (or taxes in lieu thereof) which are creditable for
federal income tax purposes or for foreign income tax purposes; and (B)
the yearly net operating losses, net capital losses, investment or other
tax credits or excess charitable contributions allocable to the Parent
which are available for carryover to subsequent years for federal income
tax purposes and the extent to which such losses or credits are subject to
limitation, or will be subject to limitation upon consummation of the
transactions contemplated herein, under section 382 of the Code, section
383 of the Code or any other section thereunder, or are limited for
foreign income tax purposes.
3.17.4 Schedule 3.17.4 sets forth, a true, complete and correct list of
the assets held by the Parent and the adjusted tax bases as of the date
indicated of such assets for federal tax purposes.
3.18 EMPLOYEE BENEFIT PLANS.
3.18.1 Schedule 3.18.1 lists, with respect to Parent and any trade or
business (whether or not incorporated) which is treated as a single
employer with Parent (an "ERISA Affiliate") within the meaning of Section
414(b), (c), (m) or (o) of the Code, (i) all employee benefit plans (as
defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") other than Foreign Plans (as defined below));
(ii) each loan to a non-officer employee in excess of $50,000, loans to
officers and directors and any stock option, stock purchase, phantom
stock, stock appreciation right, supplemental retirement, severance,
sabbatical, medical, dental, vision care, disability, employee relocation,
cafeteria benefit (Code Section 125) or dependent care (Code Section 129),
life insurance or accident insurance plans, programs or arrangements;
(iii) all bonus, pension, profit sharing, savings, deferred compensation
or incentive plans, programs or arrangements; (iv) other fringe or
employee benefit plans, programs or arrangements; and (v) any current or
former employment or executive compensation, change in control or
severance agreements, written or otherwise, as to which unsatisfied
obligations of Parent remain for the benefit of, or relating to, any
present or former employee, consultant or director of Parent (together,
the "Parent Employee Plans").
3.18.2 The Parent has furnished or made available to Parent a copy of each
of the Parent Employee Plans and related plan documents (including trust
documents, insurance policies or contracts, employee booklets, summary
plan descriptions and other authorizing documents, and any material
employee communications relating thereto) and has, with respect to each
Parent Employee Plan which is subject to ERISA reporting requirements,
provided copies of the Form 5500 reports filed for the last three plan
years. Any Parent Employee Plan intended to be qualified under Section
401(a) of the Code has obtained from the Internal Revenue Service a
favorable determination letter as to its qualified status under the Code.
The Parent has also furnished Parent with the most recent Internal Revenue
Service determination letter issued with respect to each such Parent
Employee Plan, and nothing has occurred since the issuance of each such
letter that would reasonably be expected to cause the loss of the
tax-qualified status of any such Parent Employee Plan. The Parent has also
furnished Parent with all registration statements and prospectuses
prepared in connection with each Parent Employee Plan.
3.18.3 (i) None of the Parent Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person, except as
required by applicable law; (ii) there has been no "prohibited
transaction," as such term is defined in Section 406 of ERISA and Section
4975 of the Code, with respect to any Parent Employee Plan; (iii) each
Parent Employee Plan has been administered in accordance with its terms
and in compliance with the requirements prescribed by any and all
statutes, rules and regulations (including ERISA and the Code), except as
would not have, in the aggregate, a Material Adverse Effect on Parent,
ERISA Affiliate have performed in all material respects all obligations
required to be performed by them under, are not in default in any material
respect under or violation of, and have no knowledge of any material
default or violation by any other party to, any of the Parent Employee
Plans; (iv) neither Parent nor ERISA Affiliate is subject to any material
liability or material penalty under Sections 4976 through 4980 of the Code
or Title I of ERISA with respect to any of the Parent Employee Plans; (v)
all material contributions required to be made by Parent or ERISA
Affiliate to any Parent Employee Plan have been made on or before their
due dates and a reasonable amount has been accrued for contributions to
each Parent Employee Plan for the current plan years; (vi) with respect to
each Parent Employee Plan, no "reportable event" within the meaning of
Section 4043 of ERISA (excluding any such event for which the thirty (30)
day notice requirement has been waived under the regulations to Section
4043 of ERISA) nor any event described in Section 4062, 4063 or 4041 or
ERISA has occurred; (vii) no Parent Employee Plan is covered by, and
neither Parent nor any ERISA Affiliate has incurred or expects to incur
any liability under Title IV of ERISA or Section 412 of the Code; and
(viii) each Parent Employee Plan can be amended, terminated or otherwise
discontinued after the Effective Time in accordance with its terms,
without liability to Parent greater than an aggregate of $5,000 (other
than for benefits accrued through the date of termination and ordinary
administrative expenses typically incurred in a termination event). With
respect to each Parent Employee Plan subject to ERISA as either an
employee pension plan within the meaning of Section 3(2) of ERISA or an
employee welfare benefit plan within the meaning of Section 3(1) of ERISA,
Parent has prepared in good faith and timely filed all requisite
governmental reports (which were true and correct as of the date filed)
and has properly and timely filed and distributed or posted all notices
and reports to employees required to be filed, distributed or posted with
respect to each such Parent Employee Plan, except where the failure to do
so would not have a Material Adverse Effect. No suit, administrative
proceeding, action or other litigation has been brought, or to Parent's
knowledge is threatened, against or with respect to any such Parent
Employee Plan, including any audit or inquiry by the IRS or United States
Department of Labor. No payment or benefit which will or may be made by
the Parent to any employee will be characterized as an "excess parachute
payment" within the meaning of Section 280G(b)(1) of the Code.
3.18.4 With respect to each Parent Employee Plan, the has complied except
to the extent that such failure to comply would not, individually or in
the aggregate, have a Material Adverse Effect on Parent, with (i) the
applicable health care continuation and notice provisions of the
Consolidated Omnibus Budget Reconciliation Act of 1985 ("COBRA") and the
regulations (including proposed regulations) thereunder, (ii) the
applicable requirements of the Family Medical and Leave Act of 1993 and
the regulations thereunder, and (iii) the applicable requirements of the
Health Insurance Portability and Accountability Act of 1996 ("HIPAA") and
the regulations (including proposed regulations) thereunder. Schedule 3.18
describes all obligations of the Parent as of the date of this Agreement
under any of the provisions of COBRA and the Family and Medical Leave Act
of 1993.
3.18.5 The consummation of the transactions contemplated by this Agreement
will not (i) entitle any current or former employee or other service
provider of Parent or any other ERISA Affiliate to severance benefits or
any other payment, except as expressly provided in this Agreement, or (ii)
accelerate the time of payment or vesting, or increase the amount of
compensation due any such employee or service provider under any Parent
Employee Plan.
3.18.6 There has been no amendment to, written interpretation or
announcement (whether or not written) by the Parent or other ERISA
Affiliate relating to, or change in participation or coverage under, any
Parent Employee Plan which would materially increase the expense of
maintaining such Plan above the level of expense incurred with respect to
that Plan for the most recent fiscal quarter included in Parent's
financial statements.
3.18.7 The Parent does not currently maintain, sponsor, participate in or
contribute to, nor has it ever maintained, established, sponsored,
participated in, or contributed to, any pension plan (within the meaning
of Section 3(2) of ERISA) that is subject to Part 3 of Subtitle B of Title
I of ERISA, Title IV of ERISA or Section 412 of the Code.
3.18.8 Neither the Parent or other ERISA Affiliate is a party to, or has
made any contribution to or otherwise incurred any obligation under, any
"multiemployer plan" as defined in Section 3(37) of ERISA.
3.18.9 SCHEDULE 3.1.8 identifies each employee of any of the Parent who is
not fully available to perform work because of disability or other leave
and sets forth the basis of such disability or leave and the anticipated
date of return to full service.
3.19 CONTRACTS. Schedule 3.19.1 lists and the Parent has delivered or made
available to Parent true and complete copies (or, in the case of oral contracts,
summaries), of:
3.19.1 each Contract that is executory in whole or in part and involves
performance of services or delivery of goods or materials (A) by the Parent
of an amount or value in excess of $50,000 or (B) to the Parent of an
amount or value in excess of $50,000;
3.19.2 each Contract that is executory in whole or in part and was not
entered into in the Ordinary Course of Business and that involves
expenditures or receipts of the Parent in excess of $50,000;
3.19.3 each licensing agreement (other than "shrink-wrap" and licenses
related to common business and office applications, such as word processing
and spreadsheets, with a cost of less than $2,000) or any other Contract
with respect to patents, trademarks, copyrights, trade names, service
marks, licenses and other intellectual property;
3.19.4 each collective bargaining agreement and any other Contract to or
with any labor union or other employee representative of a group of
employees of the Parent;
3.19.5 each joint venture, partnership or similar contract involving a
sharing of profits, losses, costs or liabilities by the Parent with any
other Person;
3.19.6 each Contract containing covenants that in any way purport to
restrict the business activity of the Parent or limit the freedom of the
Parent to engage in any line of business or to compete with any Person;
3.19.7 each Contract providing for payments to or by any Person based on
sales, purchases, or profits, other than direct payments for goods;
3.19.8 each power of attorney that is currently effective and outstanding
granted by and relating to the Parent;
3.19.9 each Contract that is executory in whole or in part and involves
capital expenditures in excess of $50,000;
3.19.10 each written warranty, guaranty, and/or other similar undertaking
with respect to contractual performance extended by the Parent other than
in the Ordinary Course of Business;
3.19.11 each Contract with any employee, director or officer of the Parent;
3.19.12 each Contract relating to indebtedness of the Parent for borrowed
money in excess of $50,000 and each contract relating to the guarantee by
the Parent of indebtedness of any Person for borrowed money in excess of
$50,000;
3.19.13 each Contract for the purchase or sale of real property;
3.19.14 each Contract for the sale of products or services by the Parent
that involves expenditures or receipts of the Parent in excess of $50,000;
3.19.15 each Contract imposing a Lien on any asset of the Parent;
3.19.16 each Contract relating to any loans or advances to, or investment
in, any Person;
3.19.17 each Contract providing for the payment of cash or other
compensation upon consummation of the Merger;
3.19.18 each non-disclosure and non-compete agreement Contract;
3.19.19 each Contract or group of related Contracts not terminable on 30
days' Notice and that involves expenditures or receipts of the Parent in
excess of $50,000;
3.19.20 each sales distribution Contract, franchise Contract and
advertising Contract that involves expenditures or receipts of the Parent
in excess of $50,000; and
3.19.21 any other Contract which is material to the Parent and that
involves expenditures or receipts of the Parent in excess of $50,000.
3.19.22 Each of the Material Contracts is in full force and effect and
constitutes a valid and binding obligation of the Parent and, to the
Knowledge of the Parent, the other party thereto. Except (i) with respect
to the Contracts that relate to shareholder indebtedness and (ii) as set
forth on Schedule 3.19., the Parent is not in breach or default under a
material provision of any Material Contract, and no event has occurred and
no condition or state of facts exists which, with the passage of time or
the giving of notice or both, would constitute such a default or breach by
the Parent or, to the Knowledge of the Parent, by any such other party. The
Parent has not received written notice of such a breach or default or event
or condition.
3.20 CERTAIN AGREEMENTS AFFECTED BY THE MERGER. Neither the execution and
delivery of this Agreement nor the consummation of the transaction
contemplated hereby will (i) result in any entitlement, payment or
benefit (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or benefit under any Parent plan or
policy or otherwise) becoming due to any current or former directors or
Parent Employees (defined in Section 2.19 below) of the Parent, (ii)
increase the amount of any entitlements, payments or benefits otherwise
payable by the Parent, or (iii) result in the acceleration of the time of
payment or vesting of any such entitlements, payments or benefits.
3.21 EMPLOYEE MATTERS.
3.21.1 Schedule 3.21.1 contains a true, complete and accurate list (and,
as indicated below, description) of (i) the names and titles of all
consultants, independent contractors, full-time, part-time, temporary,
contract, leased or casual employees employed by or who provided services
for Parent (collectively, "Parent Employees"), together with their status
and location of their employment; (ii) the date each Parent Employee was
hired or retained; (iii) a list of all written employment, consulting or
service contracts or offer letters between Parent and the Parent
Employees; (iv) the rate of annual remuneration of each Parent Employee
at the date hereof, any bonuses paid since the end of the last completed
financial year and all other bonuses, incentive schemes and benefits to
which such Parent Employee is or may be entitled; (v) the annual accrual
rate and the total current accrued and unused amount of vacation or paid
time off for each Parent Employee as of the date hereof; (vi) the names
of all inactive Parent Employees, the reason they are inactive Parent
Employees, whether they are expected to return to work, and if so when,
and the nature of any benefits to which such inactive Parent Employees
are entitled from the Parent; (vii) any employee handbook or personnel
policies or procedures manual in effect that governs the terms and
conditions or privileges of employment of the Parent Employees; and
(viii) particulars of all other material terms and conditions of
employment or engagement of the Parent Employees and the positions, title
or classification held by them (collectively, "Parent Employee Matters").
3.21.2 The Parent has provided or made available to Parent correct and
complete copies of all documents including but not limited to all
agreements, correspondence, files and policies, relating to the Parent
Employee Matters.
3.21.3 The Parent is in compliance in all respects with all currently
applicable laws and regulations respecting terms and conditions of
employment, including without limitation applicant and employee
background checking, immigration laws, verification of employment
eligibility, document retention and record keeping, discrimination in
employment, wages and hours, leaves of absence (including, as legally
applicable, the Family and Medical Leave Act), classification of workers
as employees and independent contractors, classification of workers as
exempt or nonexempt employees, and occupational safety and health and
employment practices, and are not engaged in any unfair labor practice.
The Parent has in all material respects withheld all amounts required by
law or by agreement to be withheld from the wages, salaries, and other
payments to employees; and is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing. The
Parent is not liable for any payment to any trust or other fund or to any
governmental or administrative authority, with respect to unemployment
compensation benefits, social security or other benefits or obligations
for Parent Employees (other than routine payments to be made in the
normal course of business and consistent with past practice). There are
no pending claims, or claims reasonably expected or, to Parent's
knowledge, threatened, against Parent under any workers compensation plan
or policy or long-term or short-term disability plan or policy. To the
knowledge of Parent, there are no controversies, including claims,
complaints, charges, investigations, or proceedings pending or, to
Parent's knowledge, reasonably expected or threatened between Parent, on
the one hand, and any of its respective Parent Employees, on the other
hand, including without limitation any claims for actual or alleged
harassment or discrimination based on race, national origin, age, sex,
sexual orientation, religion, disability, or similar tortuous conduct,
breach of contract, wrongful termination, defamation, intentional or
negligent infliction of emotional distress, interference with contract or
interference with actual or prospective economic disadvantage, which
controversies have or would reasonably be expected to result in an
action, suit, proceeding, claim, arbitration, audit or investigation
before any agency, court or tribunal, foreign or domestic.
3.21.4 The Parent is not a party to any collective bargaining agreement
or other labor union contract nor does the Parent know of any activities
or proceedings of any labor union to organize any such Parent Employees.
3.21.5 No labor dispute, walk out, strike, slowdown, hand billing,
picketing, work stoppage (sympathetic or otherwise), or other "concerted
action" involving the Parent Employees has occurred, is in progress or
has been, to the knowledge of Parent, threatened.
3.21.6 The Parent has each provided all current and former Parent
Employees with all wages, benefits, relocation benefits, stock options,
bonuses and incentives, and all other compensation, remuneration and
benefits that became due and payable through the date hereof and has
reimbursed all current and former Parent Employees for all expenses
incurred and due such individual.
3.21.7 In the last five (5) years, no citation has been issued by the
Occupational Safety and Health Administration ("OSHA") or by a state or
provincial occupational safety and health board or agency against the
Parent and no notice of contest, claim, complaint, charge, investigation
or other administrative enforcement proceeding involving the Parent has
been filed or is pending or, to the Knowledge of the Parent, threatened
against the Parent under OSHA or any provincial occupational safety and
health board or any other applicable law relating to occupational safety
and health.
3.21.8 To Parent's knowledge, no Parent Employees are in violation of any
term of any employment contract, confidentiality agreement, patent
disclosure agreement, noncompetition agreement, or any restrictive
covenant to a former employer relating to the right of any such Parent
Employee to be employed by the Parent because of the nature of the
business conducted or presently proposed to be conducted by Parent or to
the use of trade secrets or proprietary information of others. No Parent
Employees have given notice to the Parent, nor is the Parent otherwise
aware, that any such Parent Employee intends to terminate his or her
employment with the Parent.
3.21.9 The Parent has maintained and currently maintains adequate
insurance as required by applicable law with respect to workers'
compensation claims and unemployment benefits claims. The Parent has paid
or accrued all current assessments under workers' compensation and
unemployment legislation, and has not been subject to any special or
penalty assessment under such legislation which has not been paid.
3.22 INSURANCE. The Parent has policies of insurance and bonds of the type and
in amounts customarily carried by persons conducting businesses or owning
assets similar to those of the Parent. There is no claim pending under
any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All
premiums due and payable under all such policies and bonds have been paid
and the Parent is otherwise in compliance in all material respects with
the terms of such policies and bonds. The Parent has no knowledge of any
threatened termination of, or material premium increase with respect to,
any of such policies.
3.23 BROKERS' AND FINDERS' FEES. Parent has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or investment bankers' fees or any similar charges in
connection with this Agreement or any transaction contemplated hereby.
3.24 BOARD APPROVAL. The Board of Directors of Parent has (i) approved this
Agreement and the Merger, and (ii) approved the issuance of the shares of
Parent Common Stock pursuant to this Agreement. The Board of Directors of
Merger Sub has approved this Agreement and the Merger, and recommended
that the sole stockholder of Merger Sub approve this Agreement and the
Merger. The affirmative vote of the Parent's stockholders is not required
to approve the Merger and the affirmative vote of Parent as sole
stockholder of Merger Sub is the only vote of the holders of any of
Parent's or Merger Sub's capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
3.25 STATE TAKEOVER STATUTES. The Board of Directors of Parent has taken all
actions necessary so that the restrictions contained in Section 203 of
the Delaware Law applicable to a "business combination" (as defined in
Section 203) shall not apply to the execution, delivery or performance of
this Agreement or the consummation of the Merger or the other
transactions contemplated by this Agreement. To Parent's Knowledge, no
other "fair practice," "moratorium," "control share acquisition,"
"business combination," or other state takeover statute or similar
statute or regulation applies to Parent, Parent, Merger Sub, the Merger,
or this Agreement.
3.26 REPRESENTATIONS COMPLETE. None of the representations or warranties made
by Parent or Merger Sub herein or in any Schedule hereto, including the
Parent Disclosure Schedule, or certificate furnished by Parent or Merger
Sub pursuant to this Agreement, or the Parent SEC Documents, when all
such documents are read together in their entirety, contains or will
contain at the Effective Time any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact
necessary in order to make the statements contained herein or therein, in
the light of the circumstances under which made, not misleading. All
projected, forecasted or prospective financial information provided by
Parent to the Company has been prepared in good faith on the basis of
assumptions Parent believes are reasonable and supportable.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement or
the Effective Time, each of Parent and Company agrees (except to the
extent expressly contemplated by this Agreement or as consented to in
writing by the other party), to carry on its business in the ordinary
course in substantially the same manner as heretofore conducted, to pay
and to cause its subsidiaries to pay debts and Taxes when due subject to
good faith disputes over such debts or taxes, to pay or perform other
obligations when due, and to use all reasonable efforts consistent with
past practice and policies to preserve intact its and its subsidiaries'
present business organizations, use its reasonable best efforts
consistent with past practice to keep available the services of its
present officers and key employees and use its reasonable best efforts
consistent with past practice to preserve its relationships with
customers, suppliers, distributors, licensors, licensees, and others
having business dealings with it or its subsidiaries, to the end that its
and its subsidiaries' goodwill and ongoing businesses shall be unimpaired
at the Effective Time. The Parent and Company agree to promptly notify
the other of any material event or occurrence not in the ordinary course
of its or its subsidiaries' business, and of any event that would have a
Material Adverse Effect on Parent or Company.
4.2 RESTRICTIONS ON CONDUCT OF BUSINESS. During the period from the date of
this Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as expressly contemplated
by this Agreement, each of Parent and Company shall not do, cause or
permit any of the following, or allow, without the prior written
consent of the other:
4.2.1 CHARTER DOCUMENTS. Cause or permit any amendments to its
Certificate of Incorporation or Bylaws;
4.2.2 DIVIDENDS; CHANGES IN CAPITAL STOCK. Declare or pay any dividends
on or make any other distributions (whether in cash, stock or property)
in respect of any of its capital stock, or split, combine or reclassify
any of its capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for shares of its
capital stock, or repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock except from former employees,
directors and consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service to it
or its subsidiaries;
4.2.3 STOCK OPTION PLANS, ETC. Take any action to accelerate, amend or
change the period of exercisability or vesting of options or other rights
granted under its stock plans or authorize cash payments in exchange for
any options or other rights granted under any of such plans;
4.3.4 MATERIAL CONTRACTS. Enter into any contract or commitment, or
violate, amend or otherwise modify or waive any of the terms of any of
its contracts, other than in the ordinary course of business consistent
with past practice and in no event shall such contract, commitment,
amendment, modification or waiver (other than those relating to sales of
products or purchases of supplies in the ordinary course) involve the
payment by Parent or Company, as applicable, or their respective
subsidiaries in excess of $150,000;
4.3.5 ISSUANCE OF SECURITIES. Issue, deliver or sell or authorize or
propose the issuance, delivery or sale of, or purchase or propose the
purchase of, any shares of its capital stock or securities convertible
into, or subscriptions, rights, warrants or options to acquire, or other
agreements or commitments of any character obligating it to issue any
such shares or other convertible securities, other than the issuance of
shares of its common stock pursuant to the conversion of preferred stock,
or exercise of stock options, warrants or other rights therefor
outstanding as of the date of this Agreement;
4.3.6 INTELLECTUAL PROPERTY. Transfer or license to any person or entity
any rights to any Intellectual Property other than the license of
non-exclusive rights to Intellectual Property in the ordinary course of
business consistent with past practice, place any Intellectual Property
into a source-code escrow, or grant any source-code license of any kind;
4.3.7 EXCLUSIVE RIGHTS. Enter into or amend any agreements pursuant to
which any other party is granted exclusive marketing or other exclusive
rights of any type or scope with respect to any of its products or
technology;
4.3.8 DISPOSITIONS. Sell, lease, license or otherwise dispose of or
encumber any of its properties or assets which are material, individually
or in the aggregate, to its and its subsidiaries' business, taken as a
whole, except in the ordinary course of business consistent with past
practice;
4.3.9 INDEBTEDNESS. Incur any indebtedness for borrowed money or
guarantee any such indebtedness or issue or sell any debt securities or
guarantee any debt securities of others;
4.3.10 LEASES. Enter into any operating lease in excess of $50,000;
4.3.11 PAYMENT OF OBLIGATIONS. Pay, discharge or satisfy in an amount in
excess of $200,000 in any one case, any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise)
arising other than in the ordinary course of business, other than the
payment, discharge or satisfaction of liabilities reflected or reserved
against in the Parent Financial Statements or the Company Financial
Statements, as applicable;
4.3.12 CAPITAL EXPENDITURES. Make any capital expenditures, capital
additions or capital improvements except in the ordinary course of
business and consistent with past practice that do not exceed $25,000
individually or $100,000 in the aggregate;
4.3.13 INSURANCE. Materially reduce the amount of any material insurance
coverage provided by existing insurance policies;
4.3.14 TERMINATION OR WAIVER. Terminate or waive any right of substantial
value;
4.3.15 EMPLOYEE BENEFIT PLANS; NEW HIRES; PAY INCREASES. Adopt or amend
any employee benefit or stock purchase or option plan or hire any new
director level or officer level employee, pay any special bonus or
special remuneration to any employee or director, or increase the
salaries or wage rates of its employees other than pursuant to scheduled
annual performance reviews, provided that any resulting modifications are
in the ordinary course of business and consistent with Company's past
practices;
4.3.16 SEVERANCE ARRANGEMENTS. Grant any severance, termination pay or
payments or benefits payable as a result of the Merger (i) to any
director or officer, or (ii) to any other employee except payments made
pursuant to written agreements outstanding on the date hereof;
4.3.17 LAWSUITS. Commence a lawsuit other than (i) for the routine
collection of bills, (ii) in such cases where such party in good faith
determines that failure to commence suit would result in the material
impairment of a valuable aspect of its business, provided that it
consults with the other party prior to the filing of such a suit, (iii)
for a breach of this Agreement, or (iv) to clarify such party's
obligations under this Agreement;
4.3.18 ACQUISITIONS. Acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets
of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof, or
otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to its business, taken as a whole, or
acquire or agree to acquire any equity securities of any corporation,
partnership, association or business organization;
4.3.19 TAXES. Other than in the ordinary course of business, make or
change any material election in respect of Taxes, adopt or change any
accounting method in respect of Taxes, file any material Tax Return or
any amendment to a material Tax Return, enter into any closing agreement,
settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
4.3.20 REVALUATION. Revalue any of its assets, including without
limitation writing down the value of inventory or writing off notes or
accounts receivable other than in the ordinary course of business;
4.3.21 ACCOUNTING POLICIES AND PROCEDURES. Make any change to its
accounting methods, principles, policies, procedures or practices, except
as may be required by GAAP, Regulation S-X promulgated by the SEC or
applicable statutory accounting principles;
4.3.22 OTHER. Take or agree in writing or otherwise to take, any of the
actions described in Sections 4.3, or any action which would make any of
its representations or warranties contained in this Agreement untrue or
incorrect or prevent it from performing or cause it not to perform its
covenants hereunder.
4.3 NO SOLICITATION BY COMPANY. Company and the officers, directors,
employees or other agents of Company (collectively, "Company
Representatives") will not, directly or indirectly, (i) take any action
to solicit, initiate or encourage or agree to any Company Takeover
Proposal ("Company Takeover Proposal" means any offer or proposal for, or
any indication of interest in, a merger or other business combination
involving Company or the acquisition of 15% or more of the outstanding
shares of capital stock of Company, or a significant portion of the
assets of Company, other than the transactions contemplated by this
Agreement, or (ii) subject to the terms of the immediately following
sentence, engage in any discussions or negotiations with, or disclose any
nonpublic information relating to the Company to, or afford access to the
properties, books or records of the Company, to any person that has
advised Company that it may be considering making, or that has made, a
Company Takeover Proposal. Notwithstanding the immediately preceding
sentence, if, prior to adoption of this Agreement by Company
stockholders, an unsolicited written Company Takeover Proposal shall be
received by the Board of Directors of Company, then, to the extent the
Board of Directors of Company believes in good faith (after advice from
its financial advisor and after considering all terms and conditions of
such written Company Takeover Proposal, including the likelihood and
timing of its consummation) that such Company Takeover Proposal would
result in a transaction more favorable to Company's stockholders from a
financial point of view than the transaction contemplated by this
Agreement (any such more favorable Company Takeover Proposal being
referred to in this Agreement as a "Superior Company Proposal") and the
Board of Directors of Company determines in good faith after advice from
outside legal counsel that it is necessary to do so in order for the
Board of Directors of Company to comply with its fiduciary duties to
stockholders under applicable law, then Company Representatives may
furnish in connection therewith information to the party making such
Superior Company Proposal and, subject to the provisions hereof, engage
in negotiations with such party, and such actions shall not be considered
a breach of this Section 4.4 or any other provisions of this Agreement;
provided that in each such event the Company notifies Parent of such
determination by the Company Board of Directors and provides Parent with
a true and complete copy of the Superior Company Proposal received from
such third party, and provides (or has provided) Parent with all
documents containing or referring to non-public information of Company
that are supplied to such third party; provided, however, that Company
provides such non-public information only pursuant to a non-disclosure
agreement; and provided further that Company Representatives shall not
agree to or endorse any Company Takeover Proposal and the Company Board
of Directors shall not withdraw its recommendation of the Merger and
adoption of this Agreement unless Company has provided Parent at least
three (3) days prior notice of any such intent to agree or endorse such
Company Takeover Proposal or to withdraw such recommendation. Company
will promptly (and in any event within 24 hours) notify Parent after
receipt of any Company Takeover Proposal or any notice that any person is
considering making a Company Takeover Proposal or any request for
non-public information relating to Company or for access to the
properties, books or records of Company by any person that has advised
Company that it may be considering making, or that has made, a Company
Takeover Proposal, or whose efforts to formulate a Company Takeover
Proposal would be assisted thereby (such notice to include the identity
of such person or persons), and will keep Parent fully informed of the
status and details of any such Company Takeover Proposal notice, request
or correspondence or communications related thereto, and shall provide
Parent with a true and complete copy of such Company Takeover Proposal
notice or any amendment thereto, if it is in writing, or a complete
written summary thereof, if it is not in writing. Company shall
immediately cease and cause to be terminated all existing discussions or
negotiations with any persons conducted heretofore with respect to a
Company Takeover Proposal.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 MEETING OF STOCKHOLDERS. The Company shall promptly after the date hereof
take all action necessary in accordance with Delaware Law and its
respective Certificate of Incorporation and Bylaws to convene the Company
Stockholders Meeting. The Company shall use its reasonable best efforts to
solicit from its stockholders proxies in favor of the adoption of this
Agreement and the Merger and shall take all other action necessary or
advisable to secure the vote or consent of stockholders required to effect
the Merger. The Company shall use reasonable efforts to obtain from its
stockholders holding in the aggregate 95% of the issued and outstanding
shares of Company Common Stock (i) a waiver of such stockholders'
appraisal rights with respect to the transactions contemplated by this
Agreement; and (ii) the written consent of the Company stockholders to the
transactions contemplated by this Agreement.
5.2 INTERIM FUNDING. On or prior to the date of this Agreement, Parent shall
obtain not less than $150,000 in additional financing. Within 90 days from
the date of this Agreement, Parent shall obtain not less than an
additional $1.5 million in additional financing. Upon effectuation of the
Merger and Parent obtaining the additional $1.5 million in additional
financing, the business of Parent (as it exists as of May 12, 2004) shall
be dropped down to a wholly owned subsidiary, such subsidiary to operate
independently of its parent. Parent agrees that, until such time as the
business of Parent (as it exists as of May 12, 2004) shall be dropped down
to a wholly owned subsidiary, Parent shall not incur any additional
material liabilities.
5.3 REVERSE STOCK SPLIT; CONVERSION OF CERTAIN PARENT INDEBTEDNESS. Prior to
the Effective Time, Parent shall consummate a 1-for-200 reverse stock
split of the Parent Common Stock. Prior to the Effective Time, Parent
shall convert $1,637,570 of debt into an aggregate amount of Parent Common
Stock such that the holders of such debt own 50% of the issued and
outstanding Parent Common Stock prior to the consummation of the Merger.
As a consequence, at the Effective Time, the total debt of Parent shall be
no greater than $150,000 not inclusive of obligations to Xxxxx Xxxxxx,
President, who agrees not to hold Source Atlantic liable for any
obligations owned to him by Parentech. Prior to the Effective Date, Parent
shall authorize the issuance of 1,550,000 shares of the Parent preferred
stock, such shares of preferred stock to have a conversion right (the
"Convertible Preferred Stock") such that 550,000 shares of Convertible
Preferred Stock may be converted to common stock immediately, 500,000
shares of Convertible Preferred Stock may be converted to common stock up
to 24 month earnings benchmark established by Parent intended to be
$1,000,000 NAT, and 500,000 shares of Convertible Preferred Stock may be
converted to common stock up to 36 months after achieving the $1,000,000
NAT earnings benchmark established by Parent intended to be $2,600,000
NAT, the conversion price of such shares of Convertible Preferred Stock
will be priced at 10% of the trading price of Parent Common Stock, upon
the date the conversion right is achieved. Such shares of the Parent's
Preferred Stock shall be issued in accordance with Schedule 5.3.
5.4 AUDIT. On or prior to 60 days following the date hereof, Financial
Statements of the Company for the years ended December 31, 2002 and
December 31, 2003, and the three month periods ended March 31, 2003 and
March 31, 2004 shall be delivered to Parent, together with the signed
opinion of the Company auditor for the respective periods with respect the
Financial Statements of the Company for the years ended December 31, 2002
and December 31, 2003.
5.5 LOCK-UP AGREEMENTS; PARENT WARRANT. Prior to the Effective Date, Parent
will offer up to Four Hundred and Thirty Three Thousand and Nine Hundred
and Seventy Three (433,973) Warrants to Purchase Parent Common Stock to
certain of its stockholders (the "Parent Warrants") to, among other
things, purchase shares of Parent Common Stock at $25.00 per share in
consideration for such stockholder's execution of a lock-up agreement. The
Parent Warrants and the lock-up agreement shall be substantially in the
forms that are annexed hereto as Exhibit B. The Parent Warrants shall be
subject to a "put" provision such that the Warrant can be "put" back to
Parent after one (1) quarter and one day following the Effective Date.
This "put" provision obligates the Parent to spin off the assets and
operations of Parent, into another entity and transfer ninety percent
(90%) ownership to the holders of the Parent Warrants. The "spin off"
shall comply with Securities and Exchange Commission Staff Legal Bulletin
No. 4 on "spin off transactions", dated September 16, 1997.
5.6 ACCESS TO INFORMATION.
5.6.1 Except as prohibited by applicable law, each of Parent and Company
shall afford the other and its accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of such party's and its
subsidiaries' properties, books, contracts, commitments and records, and
(ii) all other information concerning the business, properties and
personnel of such party and its subsidiaries as the other party may
reasonably request. The Parent and Company agree to provide to the other
and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request.
5.6.2 Subject to compliance with applicable law, from the date hereof
until the Effective Time, each of Parent and Company shall confer on a
regular and frequent basis with one or more representatives of the other
party to report operational matters of materiality and the general status
of ongoing operations.
5.6.3 No information or knowledge obtained in any investigation pursuant
to this Section 5.6 shall affect or be deemed to modify any representation
or warranty contained herein or the conditions to the obligations of the
parties to consummate the Merger.
5.6.4 Each of Parent and Company shall provide the other and its
accountants, counsel and other representatives reasonable access, during
normal business hours during the period prior to the Effective Time, to
all of such party's and its subsidiaries' Tax Returns and other records
and workpapers relating to Taxes, and shall also provide the following
information upon the request of the other party or its subsidiaries: (i) a
schedule of the types of Tax Returns being filed by Parent or Company, as
applicable, and each of its subsidiaries in each taxing jurisdiction, (ii)
a schedule of the year of the commencement of the filing of each such type
of Tax Return, (iii) a schedule of all closed years with respect to each
such type of Tax Return filed in each jurisdiction, (iv) a schedule of all
material Tax elections filed in each jurisdiction by Parent or Company, as
applicable, and each of its subsidiaries, (v) a schedule of any deferred
intercompany gain with respect to transactions to which Parent or Company,
as applicable, has been a party, and (vi) receipts for any Taxes paid to
foreign Tax authorities.
5.7 CONFIDENTIALITY. The parties acknowledge that each of Parent and Company
have previously executed a non-disclosure agreement, which agreement shall
continue in full force and effect in accordance with its terms.
5.8 PUBLIC DISCLOSURE. Unless otherwise permitted by this Agreement, Parent
and Company shall consult with each other before issuing any press release
or otherwise making any public statement or making any other public (or
non-confidential) disclosure (whether or not in response to an inquiry)
regarding the terms of this Agreement and the transactions contemplated
hereby, and neither shall issue any such press release or make any such
statement or disclosure without the prior approval of the other (which
approval shall not be unreasonably withheld), except as may be required by
law, in which case the party proposing to issue such press release or make
such public statement or disclosure shall use its commercially reasonable
efforts to consult with the other party before issuing such press release
or making such public statement or disclosure.
5.9 CONSENTS; COOPERATION.
5.9.1 The Parent and Company shall promptly apply for or otherwise seek,
and use its reasonable best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger,
including those required under the Delaware Corporate Law. The Company
shall use its reasonable best efforts to obtain all necessary consents,
waivers and approvals under any of its material contracts in connection
with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in good
faith the views of one another, in connection with any analyses,
appearances, presentations, memoranda, briefs, arguments, opinions and
proposals made or submitted by or on behalf of any party hereto in
connection with proceedings under or relating to the Delaware Corporate
Law or any other federal or state antitrust or fair trade law.
5.9.2 Each of Parent and Company shall use its reasonable best efforts to
resolve such objections, if any, as may be asserted by any Governmental
Entity with respect to the transactions contemplated by this Agreement
under the Delaware Corporate Law, the Xxxxxxx Act, as amended, the Xxxxxxx
Act, as amended, the Federal Trade Commission Act, as amended, and any
other Federal, state or foreign statutes, rules, regulations, orders or
decrees that are designed to prohibit, restrict or regulate actions having
the purpose or effect of monopolization or restraint of trade
(collectively, "Antitrust Laws").
5.9.3 Notwithstanding anything to the contrary in Section 5, (i) neither
Parent nor the Company shall be required to divest any of their respective
businesses, product lines or assets, or to take or agree to take any other
action or agree to any limitation that would reasonably be expected to
have a Material Adverse Effect on Parent or of Parent combined with the
Surviving Corporation after the Effective Time.
5.10 LEGAL REQUIREMENTS. Each of Parent, Merger Sub and Company will, and will
cause their respective subsidiaries to, take all reasonable actions
necessary to comply promptly with all legal requirements which may be
imposed on them with respect to the consummation of the transactions
contemplated by this Agreement and will promptly cooperate with and
furnish information to any party hereto necessary in connection with any
such requirements imposed upon such other party in connection with the
consummation of the transactions contemplated by this Agreement and will
take all reasonable actions necessary to obtain (and will cooperate with
the other parties hereto in obtaining) any consent, approval, order or
authorization of, or any registration, declaration or filing with, any
Governmental Entity or other person, required to be obtained or made in
connection with the taking of any action contemplated by this Agreement.
5.11 BLUE SKY LAWS. Parent shall take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock in connection with
the Merger. Company shall use its reasonable best efforts to assist Parent
as may be necessary to comply with the securities and blue sky laws of all
jurisdictions which are applicable in connection with the issuance of
Parent Common Stock in connection with the Merger.
5.12 INDEMNIFICATION.
5.12.1 After the Effective Time, Parent will fulfill and honor in all
respects the obligations of the Company pursuant to the indemnification
provisions of Company's Certificate of Incorporation and Bylaws or any
indemnification agreement with the Company officers and directors to which
Company is a party, in each case in effect on the date hereof; provided
that such indemnification shall be subject to any limitation imposed from
time to time under applicable law. Without limitation of the foregoing, in
the event any person so indemnified (an "Indemnified Party") is or becomes
involved in any capacity in any action, proceeding or investigation in
connection with any matter relating to this Agreement or the transactions
contemplated hereby occurring on or prior to the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, pay as incurred such
Indemnified Party's reasonable legal and other expenses (including the
cost of any investigation and preparation) incurred in connection
therewith to the fullest extent permitted by the Delaware Law upon receipt
of any undertaking contemplated by Section 145(e) of the Delaware Law. Any
Indemnified Party wishing to claim indemnification under this Section
5.12.1, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Parent and the Surviving Corporation,
and shall deliver to Parent and the Surviving Corporation the undertaking
contemplated by Section 145(e) of the Delaware Law.
5.12.2 To the extent there is any claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time) against
an Indemnified Party that arises out of or pertains to any action or
omission in his or her capacity as director, officer, employee, fiduciary
or agent of the Company occurring prior to the Effective Time, or arises
out of or pertains to the transactions contemplated by this Agreement for
a period lasting until the expiration of two years after the Effective
Time (whether arising before or after the Effective Time), in each case
for which such Indemnified Party is indemnified under this Section 5.12.2,
such Indemnified Party shall be entitled to be represented by counsel,
which counsel shall be counsel of Parent (provided that if use of counsel
of Parent would be expected under applicable standards of professional
conduct to give rise to a conflict between the position of the Indemnified
Person and of Parent, the Indemnified Party shall be entitled instead to
be represented by counsel selected by the Indemnified Party and reasonably
acceptable to Parent) and following the Effective Time the Surviving
Corporation and Parent shall pay the reasonable fees and expenses of such
counsel, promptly after statements therefor are received and the Surviving
Corporation and Parent will cooperate in the defense of any such matter;
provided, however, that neither the Surviving Corporation nor Parent shall
be liable for any settlement effected without its written consent (which
consent shall not be unreasonably withheld); and provided, further, that,
in the event that any claim or claims for indemnification are asserted or
made prior to the expiration of such two year period, all rights to
indemnification in respect to any such claim or claims shall continue
until the disposition of any and all such claims. The Indemnified Parties
as a group may retain only one law firm (in addition to local counsel) to
represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any
significant issue between the position of any two or more Indemnified
Parties.
5.12.3 The provisions of this Section 5.12 are intended to be for the
benefit of, and shall be enforceable by, each Indemnified Party, his or
her heirs and representatives.
5.12.4 From and after the Time of Closing, the Parent agrees to defend,
indemnify and hold harmless the Company from and against all indemnifiable
damages of the Company. For this purpose, "indemnifiable damages" of the
Company means the aggregate of all expenses, losses, costs, deficiencies,
liabilities and damages (including, without limitation, reasonable
attorneys' fees and court costs) incurred or suffered by the Company, as a
result of or in connection with: (1) any inaccurate representation or
warranty made by the Parent in or pursuant to this Agreement, (2) any
default in the performance of any of the covenants or agreements made by
the Parent in this Agreement, or (3) any failure of the Parent to pay,
discharge or perform any of its liabilities, or any asserted liability to
the extent resulting from any dispute or claim against Company concerning
any of the Excluded Liabilities.
5.12.5 After the Effective Date, the Company agrees to defend, indemnify
and hold the Parent and their shareholders harmless from and against all
indemnifiable damages of the Parent. For this purpose, "indemnifiable
damages" of the Parent means the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation,
reasonable attorneys' fees and court costs) incurred or suffered by the
Parent or their respective shareholders as a result of or in connection
with: (1) any inaccurate representation or warranty made by the Company in
or pursuant to this Agreement, (2) any default in the performance of any
of the covenants or agreements made by the Company in this Agreement, (3)
the operation of Company's business after the Effective Date, or any
occurrence, act or omission of the Company or of any shareholder,
director, officer, employee, consultant or agent of the Company or Parent
which occurs subsequent to the Effective Date, and causes damage to the
Parent or its shareholders. The prevailing party in any claim for
indemnification shall be entitled to receive reasonable attorneys' fees
and expenses from the non prevailing party.
5.12.6 If any party hereto (the "Indemnitee" or "Indemnified Party")
receives notice of any claim or the commencement of any action or
proceeding with respect to which the other party or parties is or may be
obligated to provide indemnification (the "Indemnifying Party" or
"Indemnitor"), the Indemnitee shall promptly give the Indemnifying Party
notice thereof. Such notice shall state the basis for the claim, action or
proceeding and the amount thereof (to the extent such amount is
determinable at the time when such notice is given) and shall permit the
Indemnifying Party to assume the defense of such claim, action or
proceeding (including any action or proceeding resulting from any such
claim). Failure to give such notice shall not affect the Indemnitee's
right to indemnification unless the Indemnifying Party can demonstrate
that such failure has materially prejudiced the Indemnifying Party's
ability to defend the same and then only to such extent. The Indemnifying
Party may compromise, to the extent provided below or, at its election,
defend, at such Indemnifying Party's own expense and by such Indemnifying
Party's own counsel, any such matter involving the asserted liability of
the Indemnitee. In any event, the Indemnitee, the Indemnifying Party and
the Indemnifying Party's counsel shall cooperate in the compromise of, or
defense against, any such asserted liability. So long as the Indemnitor is
defending in good faith any such third party claim, the Indemnitee shall
not settle or compromise such third party claim. Both the Indemnitee and
the Indemnifying Party may participate in the defense of such asserted
liability but any Indemnitee participation shall be at its own expense and
the Indemnifying Party shall control and make all decisions regarding said
defense. Indemnifying Party may settle or compromise any claim without the
consent of the Indemnified Party only if no monetary obligation is imposed
on the Indemnified Party (which is not reimbursed or paid for by the
Indemnitee) and the Indemnified Party by reason thereof is not determined
to be in violation of any rule, regulation or law and the Indemnified
Party is not thereby subjected to injunctive or other equitable relief. If
the Indemnifying Party chooses to defend any claim, the Indemnitee shall
make available to the Indemnifying Party such books, records or other
documents within its control.
5.12.7 In case any event shall occur which would otherwise entitle either
party to assert a claim for indemnification hereunder, no loss, damage or
expense shall be deemed to have been sustained by such party to the extent
(1) of any tax savings realized by such party with respect thereto, or (2)
of any proceeds received or which should have been received by such party
from any insurance policies with respect thereto.
5.13 TAX TREATMENT. For U.S. federal income tax purposes, it is intended
that the Merger qualify as a reorganization within the meaning of the
Code, and the parties hereto intend that the transactions contemplated by
this Agreement shall constitute a "plan of reorganization" within the
meaning of Section 368 of the Code and Treasury Regulations Sections
1.368-2(g) and 1.368-3(a). Parent will report the Merger on its income tax
returns in a manner consistent with treatment of the Merger as a Code
Section 368(a) reorganization. Neither Parent, the Company nor any of
there respective affiliates has taken any action, nor will they take any
action, that would prevent or impede the Merger from qualifying as a
reorganization under Section 368 of the Code.
5.14 COOPERATION TO SATISFY GOVERNMENT AUTHORITIES. Parent and the Company
shall cooperate to promptly address and, to the extent commercially
reasonable or practicable, resolve any concerns of any Government
Authority in connection with the Merger.
5.15 STOCKHOLDER LITIGATION. Unless and until the Board of Directors of Company
has withdrawn its recommendation of the Merger, the Company shall give
Parent the opportunity to participate at its own expense in the defense of
any stockholder litigation against Company and/or its directors relating
to the transactions contemplated by this Agreement. Unless and until the
Board of Directors of Parent has withdrawn its approval of the Merger,
Parent shall give Company the opportunity to participate at its own
expense in the defense of any stockholder litigation against Parent and/or
its directors relating to the transactions contemplated by this Agreement.
5.16 BOARD OF DIRECTORS. The Board of Directors of Parent will take all actions
within its power to cause the Board of Directors of the Surviving
Corporation, effective upon the Effective Time, to consist of the current
Directors of the Company. The Board of Directors of the Parent shall
appoint one director to the Board of Directors of the Surviving
Corporation, effective upon the Effective Time, and will be permitted to
have one observer to the meetings of the Board of Directors of the
Surviving Corporation, effective upon the Effective Time.
5.17 BEST EFFORTS AND FURTHER ASSURANCES. Each of the parties to this Agreement
shall use its best efforts to effectuate the transactions contemplated
hereby and to fulfill and cause to be fulfilled the conditions to closing
under this Agreement. Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and
do and perform such other acts and things as may be necessary or desirable
for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF THE COMPANY
The Company's obligation to enter into and complete the Closing is
conditioned upon the satisfaction or waiver in writing by the Company, on or
before the Closing Date, of all of the following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties made by
Parent and Merger Sub contained in this Merger Agreement, the schedules or
exhibits hereto or in any certificate or document delivered to the Company
by Parent and Merger Sub in connection with the transactions contemplated
by this Merger Agreement shall be true in all respects (without giving
effect to any materiality qualifications or limitations therein) on and as
of the Closing Date with the same effect as though such representations
and warranties were made on such date except for such failures to be true
and correct which in the aggregate would not reasonably be expected to
result in a Material Adverse Effect on Parent and Merger Sub.
6.2 PERFORMANCE OF COVENANTS. Parent and Merger Sub shall have performed and
complied in all material respects with all of the agreements and covenants
required by this Merger Agreement to be performed and complied with by it
prior to or on the Closing Date.
6.3 LITIGATION. No injunction shall have been issued by any court or
Governmental Authority which restrains or prohibits this Merger Agreement
or the consummation of the transactions contemplated hereby.
6.4 ANTITRUST LAWS COMPLIANCE. There is an applicable exemption to rules and
regulations of the Antitrust Laws applicable to the transactions
contemplated by this Merger Agreement.
6.5 SHAREHOLDER APPROVAL. The Company Shareholder Approval required in
connection with the consummation of the Merger shall have been obtained.
6.6 DELIVERY OF DOCUMENTS. There shall have been delivered to the Company the
following:
6.6.1 A certificate of Parent, dated the Closing Date, signed by the
Chief Executive Officer of Parent to the effect that the conditions
specified in Sections 6.1 and 6.2 have been fulfilled;
6.6.2 A certificate of Merger Sub dated the Closing Date, signed by the
Chief Executive Officer of Merger Sub to the effect that the
conditions specified in Sections 6.1 and 6.2 have been fulfilled;
6.6.3 A certificate of the Secretary or Assistant Secretary of Parent
certifying copies of all requisite corporate resolutions of Parent
approving the execution and delivery of this Merger Agreement and
the consummation of the transactions contemplated herein and the
identification and signature of each officer of Parent executing
this Merger Agreement; and
6.6.4 A certificate of the Secretary of the Merger Sub certifying copies
of (a) the Certificate of Incorporation and by-laws of the Merger
Sub; (b) all requisite corporate resolutions of SAC approving the
execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated herein; and (c) the
identification and signature of each officer of the Merger Sub
executing this Merger Agreement.
6.7 MATERIAL CHANGES. There shall not have been any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
assets, properties, condition (financial or otherwise), prospects or
results of operations of the Parent from the date hereof to the Closing
Date, nor shall there exist any condition which could reasonably be
expected to result in such a Material Adverse Effect, and there shall have
been delivered to Parent a certificate, dated the Closing Date, to such
effect signed by an authorized officer of the Parent.
6.8 CERTIFICATE OF MERGER. Prior to the Effective Time, the Certificate of
Merger shall be accepted for filing with the Secretary of State of the
State of Delaware.
ARTICLE VII
CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
PARENT AND MERGER SUB
The obligations of Parent and Merger Sub to enter into and complete the
Closing are conditioned upon the satisfaction or waiver by Parent on behalf of
itself and Merger Sub, on or before the Closing Date, of the following
conditions:
7.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties made by
the Company contained in this Merger Agreement, the schedules or exhibits
hereto or in any certificate or document delivered to Parent or the Merger
Sub by the Company in connection with the transactions contemplated by
this Merger Agreement shall be true in all respects (without giving effect
to any materiality qualifications or limitations therein) on and as of the
Closing Date with the same effect as though such representations and
warranties were made on such date, except (i) as otherwise contemplated by
this Merger Agreement and (ii) for such failures to be true and correct
which in the aggregate would not reasonably be expected to result in a
Material Adverse Effect on the Company.
7.2 PERFORMANCE OF COVENANTS. The Company shall have performed and complied in
all material respects with all of the agreements and covenants required by
this Merger Agreement to be performed and complied with by it prior to or
on the Closing Date, except as otherwise contemplated by this Merger
Agreement.
7.3 LITIGATION. No injunction shall have been issued by any court or
Governmental Authority which restrains or prohibits this Merger Agreement
or the consummation of the transactions contemplated hereby.
7.4 ANTITRUST LAWS ACT COMPLIANCE. There is an applicable exemption to rules
and regulations of the Antitrust Laws Act applicable to the transactions
contemplated by this Merger Agreement.
7.5 CONSENTS AND APPROVALS. The consents and approvals specified herein shall
have been obtained in form and substance satisfactory to Parent in its
reasonable discretion.
7.6 MATERIAL CHANGES. There shall not have been any change that has had or
could reasonably be expected to have a Material Adverse Effect on the
assets, properties, condition (financial or otherwise), prospects or
results of operations of the Company from the date hereof to the Closing
Date, nor shall there exist any condition which could reasonably be
expected to result in such a Material Adverse Effect, and there shall have
been delivered to Parent a certificate, dated the Closing Date, to such
effect signed by an authorized officer of the Company.
7.7 SHAREHOLDER APPROVAL. The Company Shareholder Approval required in
connection with the consummation of the Merger shall have been obtained.
7.8 DELIVERY OF DOCUMENTS. There shall have been delivered to Parent the
following:
7.8.1 a certificate of the Company, dated the Closing Date, signed by its
Chief Executive Officer, to the effect that the conditions
specified in Sections 7.1 and 7.2 have been fulfilled; and
7.8.2 a certificate of the Secretary of the Company certifying copies of
(x) the Certificate of Incorporation and by-laws of the Company;
(y) all requisite corporate resolutions of the Company approving
the execution and delivery of this Merger Agreement and the
consummation of the transactions contemplated herein; and (z) the
identification and signature of each officer of the Company
executing this Merger Agreement.
7.9 CERTIFICATE OF MERGER. Prior to the Effective Time, the Certificate of
Merger shall be accepted for filing with the Secretary of State of the
State of Delaware.
ARTICLE VIII
TERMINATION
8.1 TERMINATION EVENTS. This Merger Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Time without prejudice
to any other rights or remedies either party may have:
8.1.1 by written agreement, duly authorized by the Boards of Directors of
Parent, Merger Sub and the Company;
8.1.2 by Parent or the Company if any Governmental Authority shall have
issued an order, decree, injunction or judgment or taken any other
action permanently restraining, enjoining or otherwise prohibiting
the Merger and such order or other action shall have become final
and nonappealable;
8.1.3 subject to the provisions below, by Parent or the Company if the
Effective Time shall not have occurred on or before the 90th day
following the date of this Agreement; provided that the right to
terminate this Merger Agreement under this Section 8.1.3 shall not
be available to any party whose failure to fulfill any obligation
under this Merger Agreement has been the cause of, or results in,
the failure of the Effective Time to have occurred within such
period;
8.1.4 by Parent or the Company by notice to the other if the satisfaction
of any condition to the obligations of the terminating party has
been rendered impossible;
8.1.5 by the Company in the event Parent is unable to obtain all of the
financing contemplated in Section 5.2; provided, however, that the
Company, in its sole discretion, shall have the right to extend the
90-day period contemplated in Section 5.2 for two additional 90-day
periods.
8.2 EFFECT OF TERMINATION. In the event this Merger Agreement is terminated
pursuant to Section 8.1, all further obligations of the parties hereunder
shall terminate. Each party's right of termination hereunder is in
addition to any other rights it may have hereunder or otherwise and the
exercise of a right of termination shall not be an election of remedies.
8.3 AMENDMENT. To the extent permitted by applicable law, this Merger
Agreement may be amended by action taken by or on behalf of the respective
Boards of Directors of the Company, Parent and merger Sub at any time;
provided, however, that, following approval by the Stockholders of the
Company, no amendment shall be made which under the Delaware Corporate Law
would require the further approval of the Stockholders of the Company
without obtaining such approval. This Merger Agreement may not be amended
except by an instrument in writing signed on behalf of all of the parties
hereto.
8.4 WAIVER. At any time prior to the Effective Time any party hereto may, to
the extent legally allowed, (i) extend the time for the performance of any
of the obligations or other acts of the other parties hereto, (ii) waive
any inaccuracies in the representations and warranties made to such party
contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party
hereto to any such extension or waiver shall be valid only if set forth in
an instrument in writing signed on behalf of such party.
ARTICLE IX
MISCELLANEOUS
9.1 CAPTIONS AND HEADINGS. The Article and paragraph headings throughout this
Agreement are for convenience and reference only, and shall in no way be
deemed to define, limit, or add to the meaning of any provision of this
Agreement.
9.2 NO ORAL CHANGE. This Agreement and any provision hereof, may not be
waived, changed, modified, or discharged orally, but only by an agreement
in writing signed by the party against whom enforcement of any waiver,
change, modification, or discharge is sought.
9.3 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to the
laws that might otherwise govern under applicable principles of conflicts
of law. Each of the parties hereto irrevocably consents to the exclusive
jurisdiction of any court located within the State of New York in
connection with any matter based upon or arising out of this Agreement or
the matters contemplated herein, agrees that process may be served upon
them in any manner authorized by the laws of the State of New York for
such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such process.
9.4 PUBLIC ANNOUNCEMENTS. Subject to any requirement of applicable law or
stock exchange listing agreement, all public announcements or similar
publicity with respect to this Merger Agreement or the transactions
contemplated hereby shall be issued only with the consent of Parent and
the Company. Unless consented to by each party hereto in advance prior to
the Closing, all parties hereto shall keep the provisions of this Merger
Agreement strictly confidential and make no disclosure thereof to any
Person, other than such party's respective legal and financial advisors,
subject to the requirements of applicable law or securities exchange
regulations.
9.5 SUCCESSORS. This Merger Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and
permitted assigns.
9.6 FURTHER ASSURANCES. Each of the parties hereto agrees that it will, from
time to time after the date of this Merger Agreement, execute and deliver
such other certificates, documents and instruments and take such other
action as may be reasonably requested by the other party to carry out the
actions and transactions contemplated by this Merger Agreement.
9.7 CONFIDENTIALITY. The Confidentiality Agreement between Parent and the
Company is incorporated by reference herein and shall continue in full
force and effect in accordance with the terms thereof. In the event of
termination or abandonment of the transactions contemplated by this
Agreement pursuant to Section 8.1, the Confidentiality Agreement shall
continue in full force and effect. The definition of "Confidential
Information" contained in the Confidentiality Agreement is hereby amended
to include this Agreement, all Schedules and Exhibits to this Agreement,
and all information obtained pursuant to of this Agreement.
9.8 NOTICES. All notices requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom
notice is to be given, or on the third day after mailing if mailed to the
party to whom notice is to be given, by first class mail, registered or
certified, postage prepaid, and properly addressed, and by fax, as
follows:
If to Parent or Merger Sub:
---------------------------
Parentech, Inc.
000 X. Xxxxx Xxx. 000, Xxx. 000
Xxxxxx Xxxxx, XX 00000
Attention: Xxxxx Xxxxxx
Chief Executive Officer
Telephone: (000) 000-0000
With a copy to:
--------------
Xxxxxx X. Emas
Attorney at Law
0000 Xxxxxxxxxx Xxxxxx
Xxxxx Xxxxx, Xxxxxxx 00000
Telephone: (000) 000-0000
If to the Company:
------------------
Source Atlantic, Inc.
00 Xxxxxx Xxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxx XxXxxxx, President
Telephone: 000-000-0000
Facsimile: (000) 000-0000
With a copy to:
Xxxxxx & Jaclin, LLP
000 Xxxxx 0, Xxxxx 000
Xxxxxxxxx, Xxx Xxxxxx00000
Attention: Xxxxx Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
9.9 NON-WAIVER. Except as otherwise expressly provided herein, no waiver of
any covenant, condition, or provision of this Agreement shall be deemed to
have been made unless expressly in writing and signed by the party against
whom such waiver is charged; and (i) the failure of any party to insist in
any one or more cases upon the performance of any of the provisions,
covenants, or conditions of this Agreement or to exercise any option
herein contained shall not be construed as a waiver or relinquishment for
the future of any such provisions, covenants, or conditions, (ii) the
acceptance of performance of anything required by this Agreement to be
performed with knowledge of the breach or failure of a covenant,
condition, or provision hereof shall not be deemed a waiver of such breach
or failure, and (iii) no waiver by any party of one breach by another
party shall be construed as a waiver with respect to any other or
subsequent breach.
9.10 TIME OF ESSENCE. Time is of the essence of this Agreement and of each and
every provision hereof.
9.11 REMEDIES CUMULATIVE. Except as otherwise provided herein, any and all
remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby, or by law or
equity upon such party, and the exercise by a party of any one remedy will
not preclude the exercise of any other remedy.
9.12 SEVERABILITY. If any provision of this Agreement, or the application
thereof, becomes or is declared by a court of competent jurisdiction to be
illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to
other persons or circumstances will be interpreted so as reasonably to
effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible,
the economic, business and other purposes of such void or unenforceable
provision.
9.13 ENTIRE AGREEMENT. This Agreement contains the entire Agreement and
understanding between the parties hereto, and supersedes all prior
agreements and understandings.
9.14 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation, preparation and execution
of this Agreement and, therefore, waive the application of any law,
regulation, holding or rule of construction providing that ambiguities in
an agreement or other document will be construed against the party
drafting such agreement or document.
9.15 EXPENSES. Except as expressly otherwise provided herein, each party shall
bear its own expenses incurred in connection with the preparation,
execution and performance of this Merger Agreement and the transactions
contemplated hereby, including all fees and expenses of agents,
representatives, counsel and accountants. All such expenses incurred by
the Company ("Company Transaction Expenses") shall be repaid in full at
the Closing.
9.16 COUNTERPARTS. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall
become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that
all parties need not sign the same counterpart.
[SIGNATURES ON FOLLOWING PAGE]
IN WITNESS WHEREOF, the parties have executed this Merger Agreement as of
the date first above written.
PARENT THE COMPANY
Parentech, Inc. Source Atlantic, Inc.
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By: /s/ Xxxxx X. Xxxxxx By: /s/ Xxxxxxx XxXxxxx
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Name: Xxxxx X. Xxxxxx Name: Xxxxxxx XxXxxxx
Title: Chief Executive Officer Title: President
MERGER SUB
Source Atlantic Acquisition Corp.
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By: /s/ Xxxxxx X. Emas
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Name: Xxxxxx X. Emas
Title: President
