EXHIBIT 10.1
EXECUTION COPY
________________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
AMONG
BPO MANAGEMENT SERVICES, INC.,
NETGURU, INC.
AND
BPO ACQUISITION CORP.
DATED AS OF AUGUST 29, 2006
________________________________________________________________________________
Table of Contents
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RECITALS .........................................................................................................5
AGREEMENT.........................................................................................................6
ARTICLE 1 DESCRIPTION OF THE TRANSACTION..........................................................................6
Section 1.1 The NGRU Divestiture; Reverse Split....................................................6
Section 1.2 Ngru Dividend..........................................................................6
Section 1.3 The Merger.............................................................................7
Section 1.4 Effects of the Merger..................................................................7
Section 1.5 The Closing............................................................................7
Section 1.6 Effective Time.........................................................................8
Section 1.7 Certificate of Incorporation; By-laws..................................................8
Section 1.8 Directors and Officers.................................................................8
Section 1.9 Tax Consequences.......................................................................9
ARTICLE 2 CONVERSION OF SHARES....................................................................................9
Section 2.1 Conversion of Merger Sub Shares........................................................9
Section 2.2 Conversion of BPOMS Shares.............................................................9
Section 2.3 Conversion of BPOMS Preferred Stock...................................................10
Section 2.4 Conversion of BPOMS Employee Stock Options and Warrants...............................10
Section 2.5 Adjustments...........................................................................11
Section 2.6 Dissenting BPOMS Stockholders.........................................................11
ARTICLE 3 EXCHANGE OF SHARES.....................................................................................12
Section 3.1 Exchange of Certificates..............................................................12
Section 3.2 Exchange of Preferred Stock Certificates..............................................14
Section 3.3 Withholding Rights....................................................................14
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BPOMS................................................................15
Section 4.1 Organization; Good Standing; Authority; Compliance With Law...........................15
Section 4.2 Authorization, Validity and Effect of Agreements......................................16
Section 4.3 Capitalization........................................................................16
Section 4.4 Subsidiaries..........................................................................17
Section 4.5 Other Interests.......................................................................18
Section 4.6 No Violation..........................................................................18
Section 4.7 Auditors..............................................................................18
Section 4.8 Financial Statements..................................................................19
Section 4.9 Litigation............................................................................19
Section 4.10 Absence of Certain Changes............................................................19
Section 4.11 Taxes. .............................................................................21
Section 4.12 Books and Records.....................................................................22
Section 4.13 Properties............................................................................23
Section 4.14 Environmental Matters.................................................................23
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Section 4.15 Brokers...............................................................................24
Section 4.16 [Reserved]............................................................................24
Section 4.17 Related Party Transactions............................................................24
Section 4.18 Contracts and Commitments.............................................................25
Section 4.19 Employee Matters and Benefit Plans....................................................26
Section 4.20 Intellectual Property.................................................................28
Section 4.21 Antitakeover Plan.....................................................................32
Section 4.22 Shareholder Vote Required.............................................................32
Section 4.23 Undisclosed Liabilities...............................................................32
Section 4.24 Insurance.............................................................................33
Section 4.25 Tax Treatment.........................................................................33
Section 4.26 Relationships With Suppliers, Licensors and Customers.................................33
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF NGRU AND MERGER SUB..................................................33
Section 5.1 Organization; Good Standing; Authority; Compliance With Law...........................34
Section 5.2 Authorization, Validity and Effect of Agreements......................................35
Section 5.3 Capitalization........................................................................35
Section 5.4 No Violation..........................................................................36
Section 5.5 Tax Treatment.........................................................................36
Section 5.6 [Reserved]............................................................................36
Section 5.7 [Reserved]............................................................................36
Section 5.8 Litigation............................................................................36
Section 5.9 Absence of Certain Changes............................................................37
Section 5.10 Ownership of Bpoms Shares.............................................................39
Section 5.11 Taxes.................................................................................39
Section 5.12 Books and Records.....................................................................40
Section 5.13 Properties............................................................................40
Section 5.14 Environmental Matters.................................................................41
Section 5.15 No Brokers............................................................................41
Section 5.16 Related Party Transactions............................................................41
Section 5.17 Employee Matters and Benefit Plans....................................................41
Section 5.18 Intellectual Property.................................................................44
Section 5.19 Antitakeover Matters..................................................................47
Section 5.20 Vote Required.........................................................................47
Section 5.21 Undisclosed Liabilities...............................................................47
Section 5.22 Insurance.............................................................................47
Section 5.23 Relationships With Suppliers, Licensors and Customers.................................48
Section 5.24 Continuity of Business Enterprise.....................................................48
Section 5.25 Sec Filings; Financial Statements.....................................................48
ARTICLE 6 COVENANTS AND OTHER AGREEMENTS.........................................................................49
Section 6.1 Conduct of Businesses.................................................................49
Section 6.2 Meeting of Stockholders...............................................................54
Section 6.3 Approvals; Other Action...............................................................55
Section 6.4 Access to Information; Due Diligence..................................................56
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Section 6.5 Publicity.............................................................................56
Section 6.6 Listing of Ngru Common Stock..........................................................56
Section 6.7 Further Action........................................................................56
Section 6.8 Tax Treatment.........................................................................56
Section 6.9 No Solicitation.......................................................................57
Section 6.10 Notice of Certain Events..............................................................60
Section 6.11 Capital Surplus.......................................................................60
Section 6.12 Directors and Officers................................................................60
Section 6.13 Indemnification and Insurance.........................................................61
Section 6.14 Shelf Registration....................................................................62
ARTICLE 7 CONDITIONS.............................................................................................64
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger............................64
Section 7.2 Conditions to Obligations of BPOMS to Effect the Merger...............................64
Section 7.3 Conditions to Obligations of NGRU and Merger Sub to Effect the Merger.................65
ARTICLE 8 TERMINATION............................................................................................66
Section 8.1 Termination...........................................................................66
Section 8.2 Effect of Termination.................................................................68
Section 8.3 Expenses and Termination Fees.........................................................68
Section 8.4 Extension; Waiver.....................................................................69
ARTICLE 9 GENERAL PROVISIONS.....................................................................................69
Section 9.1 Nonsurvival of Representations, Warranties and Agreements.............................69
Section 9.2 Notices...............................................................................69
Section 9.3 Assignment; Binding Effect; Benefit...................................................70
Section 9.4 Entire Agreement......................................................................71
Section 9.5 Confidentiality.......................................................................71
Section 9.6 Amendment.............................................................................71
Section 9.7 Governing Law; Attorneys' Fees........................................................71
Section 9.8 Counterparts..........................................................................72
Section 9.9 Headings..............................................................................72
Section 9.10 Waivers...............................................................................72
Section 9.11 Incorporation.........................................................................72
Section 9.12 Severability..........................................................................72
Section 9.13 Interpretation and Certain Definitions................................................72
Section 9.14 Specific Performance..................................................................73
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AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made and
entered into as of August 29, 2006, among BPO Management Services, Inc., a
Delaware corporation ("BPOMS"), netGuru, Inc., a Delaware corporation ("NGRU"),
and BPO Acquisition Corp., a Delaware corporation and wholly owned subsidiary of
NGRU ("MERGER Sub"). Each of BPOMS, NGRU and Merger Sub are sometimes referred
to herein as a "PARTY" or, collectively, the "PARTIES."
RECITALS
A. BPOMS, NGRU and Merger Sub intend to effect a merger of Merger Sub
into BPOMS (the "Merger") in accordance with this Agreement and the Delaware
General Corporation Law, as a result of which Merger Sub will cease to exist,
and BPOMS will become a wholly owned subsidiary of NGRU.
B. BPOMS, NGRU and Merger Sub intend that the Merger qualify as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
C. The Board of Directors of NGRU, after consideration of the fairness
opinion rendered by its investment bankers and other relevant factors, (i) has
determined that the proposed Merger, NGRU Divestiture and NGRU Dividend together
would secure the best value reasonably available to the stockholders of NGRU in
the short-term and therefore are in the best interests of NGRU and its
stockholders, (ii) has approved this Agreement, the Merger, the issuance of
shares of NGRU Common Stock to the stockholders of BPOMS pursuant to the terms
of this Agreement, the change of control of NGRU, and the other actions
contemplated by this Agreement and (iii) has determined to recommend that the
stockholders of NGRU vote to approve the issuance of shares of NGRU Common Stock
to the stockholders of BPOMS pursuant to the terms of this Agreement, the change
of control of NGRU and such other actions as contemplated by this Agreement.
D. The Board of Directors of Merger Sub (i) has determined that the
Merger is fair to, and in the best interests of, Merger Sub and its sole
stockholder, (ii) has approved this Agreement, the Merger, and the other actions
contemplated by this Agreement and (iii) has determined to recommend that the
stockholder of Merger Sub vote to approve the Merger and such other actions as
contemplated by this Agreement.
E. The Board of Directors of BPOMS and the stockholders of BPOMS have
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement.
F. As a condition and inducement to BPOMS entering into this Agreement
and incurring the obligations set forth herein, concurrently with the execution
and delivery of this Agreement, (i) NGRU is entering into a purchase agreement
(the "NGRU DIVESTITURE AGREEMENT") with Das Family Holdings with respect to the
NGRU Divestiture (defined herein) and (ii) the parties are entering into a
voting agreement with certain NGRU stockholders with respect to the voting of
their shares in connection with the transactions contemplated by this Agreement.
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AGREEMENT
In consideration of the foregoing, and of the representations,
warranties, covenants and agreements contained herein, the parties hereto hereby
agree as follows:
ARTICLE 1
DESCRIPTION OF THE TRANSACTION
Section 1.1 THE NGRU DIVESTITURE; REVERSE SPLIT.
At the Effective Time, NGRU shall sell one of its subsidiaries,
Research Engineers Ltd. (the "DIVESTED SUBSIDIARY"), to Das Family Holdings, an
entity controlled by Xx. Xxxxx Xxx and his family (the "NGRU DIVESTITURE"), for
aggregate net proceeds of no less than $2.0 million ("DIVESTITURE PROCEEDS").
Prior to the Closing Date, NGRU shall effect a reverse stock split of shares of
NGRU capital stock in a range to be determined by the Board of Directors of NGRU
(the "REVERSE SPLIT").
Section 1.2 NGRU DIVIDEND; PRE-CLOSING NGRU BALANCE SHEET.
(a) Prior to the Effective Time, NGRU shall declare a special
dividend in respect of the NGRU Common Stock to holders of record of
NGRU Common Stock immediately prior to the Effective Time in an
aggregate amount of $3,500,000 (the "NGRU DIVIDEND"). The NGRU Dividend
shall be paid out of the Divestiture Proceeds and the BPOMS Available
Cash (as defined in Section 6.11) and in accordance with applicable
provisions of the Delaware General Corporation Law ("DGCL"). Prior to
the Effective Time, the NGRU Board of Directors shall take all actions
necessary to approve the declaration and payment of the NGRU Dividend
and NGRU shall, at the Closing, deliver a certificate to BPOMS executed
by the Secretary of NGRU to the effect that the NGRU Dividend has been
approved by the NGRU Board of Directors. NGRU shall use commercially
reasonable efforts to pay the NGRU Dividend on the tenth (10th)
business day after the Closing Date and shall pay the NGRU Dividend in
no event later than ten (10) business days after the Closing Date
("DIVIDEND PAYABLE DATE").
(b) On the calendar day preceding the Closing Date (the
"BALANCE SHEET DATE")), the Parties shall complete preparation of: (1)
a pro forma consolidated balance sheet of NGRU and its Subsidiaries
("PRE-CLOSING NGRU BALANCE SHEET") and (2) a pro forma consolidated
balance sheet of NGRU and its Subsidiaries other than the Divested
Subsidiary ("U.S. BALANCE SHEET"). Each of the two balance sheets shall
be based upon financial information as of the close of business on the
fifth (5th) business day preceding the Balance Sheet Date and shall be
prepared in accordance with United States generally accepted accounting
principles ("GAAP"). The Parties shall cooperate with one another in
the timely preparation of the balance sheets and shall make available
to the other such personnel, work papers and other documents and
financial information relating to the balance sheets as the other may
request. Simultaneous with completion of the preparation of the balance
sheets, the Parties shall make the following calculations:
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(i) "U.S. RESERVED CASH" shall be calculated by
subtracting (x) the deferred gain on sale-leaseback, all
liabilities that are included in the calculation of U.S.
Working Capital and 80% of deferred maintenance revenues from
(y) the sum of the total amount of liabilities on the U.S.
Balance Sheet plus any Withheld Taxes (as defined in the NGRU
Divestiture Agreement) to be withheld by Das Family Holdings
in accordance with Section 2.7 of the NGRU Divestiture
Agreement, and then adding (z) the U.S. Working Capital
Shortfall, if any.
(ii) "U.S. WORKING CAPITAL" shall be calculated from
the U.S. Balance Sheet by subtracting (x) the sum of accounts
payable, accrued expenses, 20% of deferred maintenance
revenues, and income taxes payable from (y) the sum of
accounts receivable, prepaid expenses, deposits and deferred
income taxes.
(iii) "U.S. WORKING CAPITAL SHORTFALL" shall be the
amount by which U.S. Working Capital is less than $0,
reflected as a positive number.
(c) Any cash and cash equivalents on the Pre-Closing NGRU
Balance Sheet in excess of the amount calculated as U.S. Reserved Cash
shall be distributed at the Closing to the Divested Subsidiary via an
adjusting wire transfer from NGRU to the Divested Subsidiary, it being
understood that the Divestiture Proceeds shall not be distributed at
the Closing to the Divested Subsidiary but rather shall be held by NGRU
to applied to the payment of the NGRU Dividend.
Section 1.3 THE MERGER.
Upon the terms and subject to the conditions contained in this
Agreement, at the Effective Time (as defined in Section 1.6 hereof), Merger Sub
shall be merged with and into BPOMS, and the separate corporate existence of
Merger Sub shall thereupon cease (the "MERGER"). BPOMS shall continue as the
surviving corporation in the Merger (the "SURVIVING CORPORATION").
Section 1.4 EFFECTS OF THE MERGER.
The Merger shall have the effects provided in this Agreement and the
applicable provisions of the DGCL. As a result of the Merger, BPOMS will become
a wholly owned subsidiary of NGRU.
Section 1.5 THE CLOSING.
On the terms and subject to the conditions of this Agreement, the
closing of the Merger (the "Closing") shall take place at the offices of Xxxxx &
Xxxxxx, LLP, 000 Xxxxx Xxxxxxxxx, Xxxxx 0000, Xxxxx Xxxx, Xxxxxxxxxx 00000, at
10:00 a.m., local time, on (a) the third (3rd) business day immediately
following the day on which the last of the conditions set forth in Article 7
shall be fulfilled or waived in accordance herewith, or (b) at such other time,
date or place as BPOMS and NGRU may otherwise agree in writing. Unless the
parties shall otherwise agree and subject to Article 8, the parties shall use
their reasonable best efforts to cause the Closing to occur as soon as
practicable after the NGRU Meeting (as defined in Section 6.2). The date on
which the Closing occurs is hereinafter referred to as the "CLOSING DATE."
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Section 1.6 EFFECTIVE TIME.
If all the conditions to the Merger set forth in Article 7 shall have
been fulfilled or waived in accordance herewith, and this Agreement shall not
have been terminated as provided in Article 8, the parties hereto shall cause a
Certificate of Merger satisfying the requirements of the DGCL to be properly
executed, verified and delivered for filing in accordance with the DGCL on the
Closing Date. The Merger shall become effective upon the acceptance for record
of the Certificate of Merger by the Secretary of State of the State of Delaware
in accordance with the DGCL (but not earlier than the Closing Date) or at such
later time that the parties hereto shall have agreed upon and designated in such
filing in accordance with applicable law as the effective time of the Merger
(the "EFFECTIVE TIME").
Section 1.7 CERTIFICATE OF INCORPORATION; BY-LAWS.
At the Effective Time, unless otherwise determined by BPOMS and NGRU
prior to the Effective Time:
(a) The Certificate of Incorporation of the Surviving
Corporation shall be the Certificate of Incorporation of Merger Sub
immediately prior to the Effective Time, until thereafter amended as
provided by the DGCL and such Certificate of Incorporation.
(b) The Certificate of Incorporation of NGRU shall be the
Certificate of Incorporation of NGRU immediately prior to the Effective
Time, until thereafter amended as provided by the DGCL and such
Certificate of Incorporation; provided, however, that at the Effective
Time, NGRU shall file an amendment to its Certificate of Incorporation
(the "CHARTER AMENDMENT") to (i) change the name of NGRU to "BPO
MANAGEMENT SERVICES, INC.", and (ii) create three separate series of
Preferred Stock designated as Series A Convertible Preferred Stock (the
"NGRU SERIES A PREFERRED STOCK"), Series B Preferred Convertible
Preferred Stock (the "NGRU SERIES B PREFERRED STOCK") and Series C
Preferred Stock (the "NGRU SERIES C PREFERRED STOCK") having the
rights, powers and privileges set forth in EXHIBIT A hereto (to be
adjusted in accordance with Section 2.5).
(c) The By-laws of Merger Sub in effect immediately prior to
the Effective Time shall be the By-laws of the Surviving Corporation.
Section 1.8 DIRECTORS AND OFFICERS.
(a) The directors of BPOMS immediately prior to the Effective
Time shall initially be the directors of the Surviving Corporation as
of the Effective Time, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation,
until their respective successors are duly elected or appointed and
qualified.
(b) The officers of BPOMS immediately prior to the Effective
Time shall initially be the officers of the Surviving Corporation as of
the Effective Time, until their respective successors are duly elected
or appointed and qualified.
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Section 1.9 TAX CONSEQUENCES.
For federal income tax purposes, the Merger is intended to constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and the parties shall report the Merger
consistent therewith. The parties to this Agreement hereby adopt this Agreement
as a "plan of reorganization" within the meaning of Section 1.368-2(g) and
1.368-3(a) of the United States Treasury Regulations.
ARTICLE 2
CONVERSION OF SHARES
Section 2.1 CONVERSION OF MERGER SUB SHARES.
At the Effective Time, by virtue of the Merger and without any action
on the part of NGRU, Merger Sub, BPOMS or the holders thereof, each share of
common stock, $0.01 par value per share, of Merger Sub that is issued and
outstanding immediately prior to the Effective Time shall be converted into one
share of common stock, $0.01 par value per share, of the Surviving Corporation.
Section 2.2 CONVERSION OF BPOMS SHARES.
(a) At the Effective Time, by virtue of the Merger and without
any action on the part of NGRU, Merger Sub, BPOMS or the holders
thereof, each issued and outstanding share of common stock, par value
$0.001 per share (the "BPOMS COMMON STOCK"), of BPOMS (each a "BPOMS
SHARE" and collectively, the "BPOMS SHARES") shall be converted into
the right to receive a number of shares of common stock, par value
$0.01 per share, of NGRU (the "NGRU COMMON STOCK"), equal to 10.869 (to
be adjusted in accordance with Section 2.5) (the "EXCHANGE RATIO"). The
shares of NGRU Common Stock to be issued in connection with the Merger
are sometimes referred to as the "NGRU SHARES" and shall bear
appropriate restrictive legends.
(b) Each BPOMS Share held in BPOMS's treasury, if any,
immediately prior to the Effective Time (collectively, "CANCELLED BPOMS
SHARES") shall, at the Effective Time, by virtue of the Merger and
without any action on the part of the holder thereof, be canceled and
retired and cease to exist and no payment shall be made with respect
thereto.
(c) No fractional shares of NGRU 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 BPOMS Shares who
would otherwise be entitled to receive a fraction of a share of NGRU
Common Stock (after aggregating all fractional shares of NGRU Common
Stock issuable to such holder) shall, in lieu of such fraction of a
share and upon surrender of such holder's Certificate(s) (as defined in
Section 3.1(b)), one full share of NGRU Common Stock.
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Section 2.3 CONVERSION OF BPOMS PREFERRED STOCK.
(a) At the Effective Time, each share of BPOMS Series A
Preferred Stock (as defined in Section 4.3), BPOMS Series B Preferred
Stock (as defined in Section 4.3) and BPOMS Series C Preferred Stock
(as defined in Section 4.3) that is then outstanding and unconverted
shall cease to represent a right to acquire shares of BPOMS Common
Stock and shall be converted automatically into a right to receive one
share of NGRU Series A Preferred Stock, NGRU Series B Preferred Stock
or NGRU Series C Preferred Stock, as applicable (to be adjusted in
accordance with Section 2.5).
(b) Promptly following the date of this Agreement, BPOMS shall
file an amendment to its certificate of incorporation to revise the
terms of the BPOMS Series A Preferred Stock, BPOMS Series B Preferred
Stock and BPOMS Series C Preferred Stock to conform to the terms set
forth in EXHIBIT A to this Agreement. At or prior to the Effective
Time, NGRU shall reserve for issuance the number of shares of NGRU
Common Stock issuable upon conversion of the NGRU Series A Preferred
Stock, NGRU Series B Preferred Stock and NGRU Series C Preferred Stock
issued pursuant to Section 2.3(a).
Section 2.4 CONVERSION OF BPOMS EMPLOYEE STOCK OPTIONS AND
WARRANTS.
(a) At the Effective Time, each option or warrant, whether
vested or unvested, to purchase BPOMS Common Stock that is then
outstanding and unexercised (a "BPOMS OPTION" or a "BPOMS WARRANT," as
the case may be) shall cease to represent a right to acquire shares of
BPOMS Common Stock and shall be converted automatically into an option
or warrant to acquire, under the same terms and conditions as were
applicable to such BPOMS Option or BPOMS Warrant immediately prior to
the Effective Time, shares of NGRU Common Stock, and NGRU shall assume
each BPOMS Option and BPOMS Warrant and each option plan or agreement
pursuant to which any such BPOMS Option and BPOMS Warrant were granted;
provided, however, that from and after the Effective Time, (i) the
number of shares of NGRU Common Stock purchasable upon exercise of such
BPOMS Option or BPOMS Warrant shall be equal to the number of shares of
BPOMS Common Stock that were purchasable under such BPOMS Option or
BPOMS Warrant immediately prior to the Effective Time multiplied by the
Exchange Ratio rounding down to the nearest whole share, and (ii) the
per share exercise price under each such BPOMS Option and BPOMS Warrant
shall be adjusted by dividing the per share exercise price of each such
BPOMS Option and BPOMS Warrant by the Exchange Ratio, rounding up to
the nearest cent. The terms of each BPOMS Option and BPOMS Warrant
shall be subject to further adjustment as appropriate to reflect any
stock split, stock dividend, recapitalization or other similar
transaction with respect to NGRU Common Stock on or subsequent to the
Effective Time.
(b) As soon as practicable after the Effective Time, NGRU
shall deliver to each holder of an outstanding BPOMS Option or BPOMS
Warrant an appropriate notice setting forth such holder's rights
pursuant thereto, and such BPOMS Option and BPOMS Warrant shall
continue in effect on the same terms and conditions (including
antidilution provisions).
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(c) At or prior to the Effective Time, NGRU shall reserve for
issuance the number of shares of NGRU Common Stock subject to BPOMS
Options and BPOMS Warrants assumed pursuant to Section 2.4(a) hereof.
Promptly following the Effective Time, NGRU shall file with the
Securities and Exchange Commission ("SEC") a registration statement on
Form S-8 (to the extent such form is available) under the Securities
Act of 1933, as amended (the "SECURITIES ACT"), with respect to the
shares of NGRU Common Stock subject to BPOMS Options and BPOMS Warrants
assumed pursuant to Section 2.4(a) hereof and eligible for inclusion on
Form S-8 under applicable securities laws, and shall use its reasonable
best efforts to maintain the current status of the prospectus contained
therein, as well as to comply with any applicable state securities or
"BLUE SKY" laws, for one year after the Effective Time.
Section 2.5 ADJUSTMENTS.
If at any time during the period between the date of this Agreement and
the Effective Time, any change in the BPOMS Common Stock or NGRU Common Stock
shall occur by reason of any reclassification, recapitalization, stock dividend,
stock split or combination (including the Reverse Split), exchange or
readjustment of shares, or any stock dividend thereon with the record date
during such period, the Exchange Ratio shall be appropriately adjusted.
Section 2.6 DISSENTING BPOMS STOCKHOLDERS.
Notwithstanding any provision of this Agreement to the contrary, if
required by the DGCL but only to the extent required thereby, shares of BPOMS
Common Stock that are issued and outstanding immediately prior to the Effective
Time and that are held by holders of such shares of BPOMS Common Stock who have
properly exercised appraisal rights with respect thereto (the "DISSENTING COMMON
STOCK") in accordance with Section 262 of the DGCL will not be exchangeable for
the right to receive the per share amount of the merger consideration described
in Section 2.2(a) attributable to such shares of Dissenting Common Shares, and
holders of such shares of Dissenting Common Stock will be entitled to receive
payment of the appraised value of such shares of Dissenting Common Stock in
accordance with the provisions of such Section 262 unless and until such holders
fail to perfect or effectively withdraw or lose their rights to appraisal and
payment under the DGCL. If, after the Effective Time, any such holder fails to
perfect or effectively withdraws or loses such right, such shares of Dissenting
Common Stock will thereupon be treated as if they had been converted into and
have become exchangeable for, at the Effective Time, the right to receive the
merger consideration attributable to such shares of Dissenting Common Stock.
Notwithstanding anything to the contrary contained in this Section 2.6, if the
Merger is not consummated, then the right of any stockholder to be paid the fair
value of such stockholder's Dissenting Common Stock pursuant to Section 262 of
the DGCL shall cease. BPOMS will promptly comply with its obligations under
Section 262 of the DGCL and will give NGRU prompt notice of any demands and
withdrawals of such demands received by BPOMS for appraisals of shares of
Dissenting Common Stock.
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ARTICLE 3
EXCHANGE OF SHARES
Section 3.1 EXCHANGE OF CERTIFICATES.
(a) Prior to the Effective Time, NGRU shall designate either
its transfer agent as of the date hereof or a bank or trust company as
shall be reasonably acceptable to BPOMS, to act as Exchange Agent in
connection with the Merger (the "EXCHANGE AGENT"). At, or immediately
prior to, the Effective Time, NGRU will take all steps necessary to
deposit with the Exchange Agent for the benefit of the holders of BPOMS
Shares (i) certificates representing the aggregate number of shares of
NGRU Common Stock issuable pursuant to Section 2.2 in exchange for
outstanding BPOMS Shares and (ii) cash in lieu of fractional shares of
NGRU Common Stock (the "EXCHANGE FUND").
(b) Promptly after the Effective Time, NGRU and the Surviving
Corporation shall cause the Exchange Agent to mail to each Person who
was a record holder, as of the Effective Time, of an outstanding
certificate or certificates that immediately prior to the Effective
Time represented BPOMS Shares (the "CERTIFICATES"), 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 proper
delivery of the Certificates to the Exchange Agent), instructions for
use in effecting the surrender of the Certificates in exchange for
certificates evidencing NGRU Shares and cash in lieu of fractional
shares. Upon surrender to the Exchange Agent of a Certificate, together
with such letter of transmittal duly executed, and any other required
documents, the holder of such Certificate shall be entitled to receive
in exchange therefor (i) a certificate representing the number of whole
shares of NGRU Common Stock, if any, to which such holder shall be
entitled pursuant to Section 2.2, (ii) a check representing the amount
of cash in respect of fractional shares, if any, to which such holder
shall be entitled in accordance with Section 2.2(d), and (iii) any
dividends or other distributions to which such holder is entitled
pursuant to Section 3.1(c) (the NGRU Shares and cash paid pursuant to
Section 2.2(d) and Section 3.1(c) being referred to, collectively as
the "EXCHANGE MERGER CONSIDERATION") and such Certificate shall
forthwith be canceled. If payment is to be made to a Person other than
the Person in whose name the Certificate surrendered is registered, it
shall be a condition of payment that the transfer not be prohibited
under applicable law and the Certificate so surrendered shall be
properly endorsed or otherwise in proper form for transfer as
determined by the Exchange Agent, and that the Person requesting such
payment shall pay any transfer, or other taxes required by reason of
the payment to a Person other than the registered holder of the
Certificate surrendered or established to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable.
Until surrendered in accordance with the provisions of this Section
3.1, each Certificate (other than Certificates representing Canceled
BPOMS Shares and other than Certificates representing Dissenting Common
Stock) shall represent for all purposes only the right to receive the
Exchange Merger Consideration, without any interest thereon. In the
event of a transfer of ownership of BPOMS Shares which is not
registered in the stock transfer records of BPOMS, the Exchange Merger
Consideration may be issued to such a transferee if the transfer is not
prohibited under applicable law and the certificate representing BPOMS
Shares is presented to the Exchange Agent, accompanied by all documents
required to evidence and effect such transfer and to evidence that any
applicable stock transfer taxes have been paid.
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(c) No dividends or other distributions declared or made after
the Effective Time with respect to shares of NGRU Common Stock with a
record date after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of NGRU Common
Stock they are entitled to receive until the holder 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 NGRU Common
Stock issued in exchange therefor, without interest, at the time of
such surrender, the amount of dividends or other distributions with a
record date after the Effective Time theretofore paid with respect to
such whole shares of NGRU Common Stock.
(d) Any portion of the Exchange Fund that remains unclaimed by
the former stockholders of BPOMS one year after the Effective Time
shall be returned to NGRU (provided that NGRU shall issue such shares
of NGRU Common Stock and/or pay such cash in accordance with this
Article 3 to former stockholders of BPOMS who thereafter surrender
their Certificates), subject to the provisions and effect of applicable
abandoned property, escheat or similar laws. Any former stockholders of
BPOMS who have not theretofore complied with this Article 3 shall
thereafter look only to NGRU for issuance or payment of the Exchange
Merger Consideration, without any interest thereon. Neither the
Surviving Corporation, the Exchange Agent nor NGRU shall be liable to
any holder of a BPOMS Share for any consideration set forth in Section
2.2 hereof delivered in respect of such BPOMS Share to a public
official pursuant to any abandoned property, escheat or other similar
law.
(e) After the Effective Time there shall be no registration on
the share transfer books of the Surviving Corporation of transfers of
the BPOMS Shares that were outstanding immediately prior to the
Effective Time, and as of the Effective Time, the share ledger of BPOMS
shall be closed. All Exchange Merger Consideration paid upon the
surrender of Certificates in accordance with the terms of this Article
3 shall be deemed to have been paid in full satisfaction of all rights
pertaining to the BPOMS shares previously evidenced by Certificates.
After the Effective Time, the holders of BPOMS Shares outstanding at
the Effective Time shall cease to have any rights with respect to such
BPOMS Shares except as provided herein or by applicable law. If, after
the Effective Time, certificates evidencing BPOMS Shares are presented
to the Surviving Corporation, they shall be canceled and exchanged for
the Exchange Merger Consideration as provided in this Article 3.
(f) 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 NGRU Common Stock as
may be required pursuant to Section 2.2, cash for fractional shares, as
may be required by Section 2.2(d) and any dividends or distributions
payable pursuant to Section 3.1(c), provided, however, that NGRU may,
in its discretion and as a condition precedent to the issuance and/or
payment 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 NGRU, the
Surviving Corporation or the Exchange Agent with respect to the
Certificates alleged to have been lost, stolen or destroyed.
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Section 3.2 EXCHANGE OF PREFERRED STOCK CERTIFICATES.
(a) Promptly after the Effective Time, NGRU shall mail to each
Person who was a holder, as of the Effective Time, of an outstanding
certificate or certificates which immediately prior to the Effective
Time represented shares of BPOMS Series A Preferred Stock or BPOMS
Series B Preferred Stock or BPOMS Series C Preferred Stock (the
"PREFERRED CERTIFICATES"), a letter of transmittal (which shall specify
that delivery shall be effected, and the risk of loss and title to the
Preferred Certificates shall pass, only upon proper delivery of the
Preferred Certificates to NGRU), instructions for use in effecting the
surrender of the Preferred Certificates in exchange for certificates
evidencing shares of NGRU Series A Preferred Stock, NGRU Series B
Preferred Stock or NGRU Series C Preferred Stock, as applicable. Upon
surrender to NGRU of a Preferred Certificate, together with such letter
of transmittal duly executed, and any other required documents, the
holder of such Preferred Certificate shall be entitled to receive in
exchange therefore a certificate representing the number of shares of
NGRU Series A Preferred Stock, NGRU Series B Preferred Stock or NGRU
Series C Preferred Stock, as applicable, to which such holder shall be
entitled pursuant to Section 2.3 and such Preferred Certificate shall
forthwith be cancelled.
(b) In the event any Preferred Certificates shall have been
lost, stolen or destroyed, NGRU shall issue in exchange for such lost,
stolen or destroyed Preferred Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of NGRU
Series A Preferred Stock, NGRU Series B Preferred Stock or NGRU Series
C Preferred Stock as may be required pursuant to Section 2.3, provided,
however, that NGRU may, in its discretion and as a condition precedent
to the issuance and/or payment thereof, require the owner of such lost,
stolen or destroyed Preferred Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may
be made against NGRU with respect to the Preferred Certificates alleged
to have been lost, stolen or destroyed.
Section 3.3 WITHHOLDING RIGHTS.
NGRU and the Surviving Corporation shall be entitled to deduct and
withhold from the number of shares of NGRU Common Stock otherwise deliverable
under the Agreement such amounts as NGRU and the Surviving Corporation 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 BPOMS Common Stock, BPOMS Series A Preferred Stock or BPOMS Series
B Preferred Stock or BPOMS Series C Preferred Stock in respect of which such
deduction and withholding was made by NGRU and the Surviving Corporation.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BPOMS
BPOMS hereby represents and warrants to NGRU and Merger Sub as follows,
except as set forth in the written disclosure letter delivered at or prior to
the execution hereof to NGRU (the "BPOMS DISCLOSURE Letter"). The BPOMS
Disclosure Letter shall be arranged in sections or subsections corresponding to
the number and lettered sections and subsections contained in this Article 4.
The disclosures in any section or subsection of the BPOMS Disclosure Letter
shall qualify the correspondingly numbered representation and warranty and such
other representations and warranties in this Article 4 to the extent it is
reasonably clear from a reading of the disclosure that such disclosure is
applicable to such other representations and warranties.
Section 4.1 ORGANIZATION; GOOD STANDING; AUTHORITY; COMPLIANCE
WITH LAW.
(a) BPOMS is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and has
all requisite power and authority to own, lease and operate its
properties and to carry on its business as now conducted. BPOMS is duly
licensed or qualified and is in good standing to transact business as a
foreign corporation in each jurisdiction in which the character of the
properties owned or leased by it therein or in which the nature of its
business makes such qualification or licensing necessary, except where
the failure to be so licensed or qualified would not have, individually
or in the aggregate, a BPOMS Material Adverse Effect. For purposes of
this Agreement, a "BPOMS MATERIAL ADVERSE EFFECT" means a material
adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of BPOMS and the BPOMS
Subsidiaries (as defined in Section 4.4) taken as a whole.
(b) Each of the BPOMS Subsidiaries is a corporation,
partnership or limited liability company duly incorporated or
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization, has the corporate,
partnership or limited liability company power and authority to own its
properties and to carry on its business as it is now being conducted,
and is duly qualified to transact business and is in good standing in
each jurisdiction in which the ownership of its property or the conduct
of its business requires such qualification, except for jurisdictions
in which such failure to be so qualified or to be in good standing
would not, individually or in the aggregate, have a BPOMS Material
Adverse Effect.
(c) The business of BPOMS and the BPOMS Subsidiaries has been
operated in compliance with all laws, ordinances, regulations and
orders of all governmental entities, except for violations that would
not have, individually or in the aggregate, a BPOMS Material Adverse
Effect. BPOMS and the BPOMS Subsidiaries have all permits,
certificates, licenses, approvals, consents and other authorizations
(collectively, "GOVERNMENT APPROVALS") of all governmental agencies,
entities, commissions, boards, bureaus, tribunals, officials or
authorities, whether Federal, state or local (collectively,
"GOVERNMENTAL AGENCIES"), required by law with respect to the operation
of their businesses, except those the absence of which would not,
individually or in the aggregate, have a BPOMS Material Adverse Effect
or prevent or delay consummation of the Merger. All such Government
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Approvals are in full force and effect, and, BPOMS and the BPOMS
Subsidiaries are in compliance with all conditions and requirements of
the Government Approvals and with all rules and regulations relating
thereto, other than failures that would not have a BPOMS Material
Adverse Effect. BPOMS has not received any notices of violations of any
Federal, state and local laws, regulations and ordinances relating to
its business, operations or assets which, if it were determined that a
violation had occurred, would have a BPOMS Material Adverse Effect.
(d) The certificate of incorporation or other charter
documents, bylaws, organizational documents and partnership,
shareholder, joint venture or similar agreements (and in each such
case, all amendments thereto) of BPOMS and each of the BPOMS
Subsidiaries are listed in Section 4.1(d) of the BPOMS Disclosure
Letter, true and correct copies of which have previously been delivered
to NGRU or its counsel.
Section 4.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.
BPOMS has the requisite corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The Board of Directors of BPOMS and the holders of BPOMS Shares have taken all
necessary corporate action to approve this Agreement, the Merger, and the
transactions contemplated by this Agreement. BPOMS has taken all action
necessary to exempt the transactions contemplated by this Agreement from the
operation of any "fair price," "moratorium," "control share acquisition," or
other similar anti-takeover statute or regulation enacted under the state or
federal laws of the United States. The execution by BPOMS of this Agreement and
the consummation of the transactions contemplated by this Agreement have been
duly authorized by all requisite corporate action on the part of BPOMS. This
Agreement constitutes the valid and legally binding obligation of BPOMS,
enforceable against BPOMS in accordance with its terms, subject to applicable
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights and general principles of equity.
Section 4.3 CAPITALIZATION.
The authorized capital stock of BPOMS consists of 15,000,000 shares of
BPOMS Common Stock and 34,220,000 shares of preferred stock, par value $0.001
per share, of which 2,220,000 shares are designated as Series A (the "BPOMS
SERIES A PREFERRED SHARES"), 2,000,000 shares are designated as Series B (the
"BPOMS SERIES B PREFERRED SHARES"), and 30,000,000 shares are designated as
Series C (the "BPOMS SERIES C PREFERRED SHARES"). As of the date hereof, there
are 9,925,000 BPOMS Shares issued and outstanding, 2,088,036 BPOMS Series A
Preferred Shares issued and outstanding, 2,000,000 BPOMS Series B Preferred
Shares issued and outstanding and zero shares of BPOMS Series C Preferred Shares
issued and outstanding. All outstanding shares of BPOMS are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights or
rights of first refusal created by statute, the Certificate of Incorporation or
Bylaws of BPOMS or any agreement to which BPOMS is a party or by which it is
bound, and free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof or under applicable
federal or state securities or "blue sky" laws. Except as set forth in Section
4.3 of the BPOMS Disclosure Letter, BPOMS has no outstanding bonds, debentures,
notes or other obligations the holders of which have or upon the happening of
certain events would have the right to vote (or which are convertible into or
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exercisable or exchangeable for securities having the right to vote) with the
stockholders of BPOMS on any matter. Each holder of shares of capital stock or
securities that are or may become convertible into or exercisable or
exchangeable for shares of capital stock of BPOMS qualifies as an "accredited
investor" as defined in Regulation D promulgated under the Securities Act, or if
such holder does not qualify as an "accredited investor," that such holder is
not a "U.S. person" as defined in Regulation S promulgated under the Securities
Act and did not acquire and does not hold shares of capital stock or securities
that are or may become convertible into or exercisable or exchangeable for
shares of capital stock of BPOMS for the account or benefit of any U.S. person.
Except as set forth in Section 4.3 of the BPOMS Disclosure Letter, there are no
existing options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements, stock appreciation rights or similar derivative
securities or instruments or commitments which obligate BPOMS to issue, transfer
or sell any BPOMS Shares or make any payments in lieu thereof. Except as set
forth in Section 4.3 of the BPOMS Disclosure Letter, there are no agreements or
understandings to which BPOMS or any BPOMS Subsidiary is a party with respect to
the voting of any BPOMS Shares or which restrict the transfer of any such
shares, nor does BPOMS have knowledge of any such agreements or understandings
with respect to the voting of any such shares or which restrict the transfer of
any such shares. There are no outstanding contractual obligations of BPOMS or
any BPOMS Subsidiary to repurchase, redeem or otherwise acquire any BPOMS Shares
or any other securities of BPOMS or any BPOMS Subsidiary. Except as set forth in
Section 4.3 of the BPOMS Disclosure Letter, neither BPOMS nor any BPOMS
Subsidiary is under any obligation, contingent or otherwise, by reason of any
agreement to register any of their securities under the Securities Act. Section
4.3 of the BPOMS Disclosure Letter contains a complete and correct list setting
forth as of the date hereof (i) the number of options and warrants outstanding,
(ii) the dates on which such options or warrants were granted, (iii) the dates
on which such options or warrants shall vest and expire and (iv) the exercise or
conversion price of each outstanding option or warrant, as the case may be. The
terms of the options and warrants permit the assumption or substitution of
options to purchase NGRU Common Stock as provided in this Agreement, without the
consent or approval of the holders of such securities or BPOMS stockholders.
True and complete copies of all agreements and instruments relating to the
securities described above and in Section 4.3 of the BPOMS Disclosure Letter
have been provided to NGRU and such agreements and instruments have not been
amended, modified or supplemented, and there are no agreements to amend, modify
or supplement such agreements or instruments in any case from the form provided
to NGRU. The shares of BPOMS Common Stock issued under options or warrants were
issued in transactions which qualified for exemptions under either Section 4(2)
of, or Rule 701 under, the Securities Act for stock issuances under compensatory
benefit plans.
Section 4.4 SUBSIDIARIES.
Section 4.4 of the BPOMS Disclosure Letter lists all Subsidiaries (as
defined in Section 9.13) of BPOMS (the "BPOMS SUBSIDIARIES" and, individually, a
"BPOMS SUBSIDIARY"). BPOMS owns directly or indirectly all of the outstanding
shares of capital stock or other equity interests of each of the BPOMS
Subsidiaries. All of the outstanding shares of capital stock in each of the
BPOMS Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.4 of the BPOMS Disclosure
Letter, all of the outstanding shares of capital stock of each of the BPOMS
Subsidiaries owned, directly or indirectly, by BPOMS are owned free and clear of
all liens, pledges, security interests, claims or other encumbrances. Except as
set forth in Section 4.4 of the BPOMS Disclosure Letter, there are no options,
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warrants, calls, subscriptions, convertible securities, or other rights,
agreements or commitments which obligate BPOMS or any BPOMS Subsidiary to issue,
transfer or sell any shares of capital stock of any BPOMS Subsidiary. The
following information for each BPOMS Subsidiary is set forth in Section 4.4 of
the BPOMS Disclosure Letter: (i) its name and jurisdiction of incorporation and
(ii) its authorized capital stock.
Section 4.5 OTHER INTERESTS.
Except for interests in the BPOMS Subsidiaries, neither BPOMS nor any
BPOMS Subsidiary owns directly or indirectly any interest or investment (whether
equity or debt) in any corporation, partnership, joint venture, business, trust
or other entity (other than investments in short term investment securities).
Section 4.6 NO VIOLATION.
Except as set forth in Section 4.6 of the BPOMS Disclosure Letter,
neither the execution and delivery by BPOMS of this Agreement nor the
consummation by BPOMS of the transactions contemplated by this Agreement in
accordance with its terms will: (i) conflict with or result in a breach of any
provisions of BPOMS's Certificate of Incorporation or Bylaws; (ii) violate,
result in a breach of any provision of, or constitute a default under, or
require any approval or consent under or result in the termination or in a right
of termination or cancellation of, or accelerate the performance required by or
result in a material adverse change to, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties owned or
leased by BPOMS under, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust or any license, franchise, permit,
lease, contract, agreement or other instrument to which BPOMS or any of the
BPOMS Subsidiaries is a party, or by which BPOMS or any of the BPOMS
Subsidiaries or any of the properties owned or leased by BPOMS is bound or
affected, except for any of the foregoing matters in this clause which,
individually or in the aggregate, would not have a BPOMS Material Adverse Effect
and would not reasonably be expected to prevent, materially alter or materially
delay any of the transactions contemplated by this Agreement; (iii) contravene
or conflict with or constitute a violation of any provision of any law, rule,
regulation, judgment, injunction, order or decree binding upon or applicable to
BPOMS or any BPOMS Subsidiary; or (iv) other than the filings provided for in
this Agreement, required under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), the Securities Act or applicable state securities and
"Blue Sky" laws (collectively, the "REGULATORY FILINGS"), require any consent,
approval or authorization of, or declaration, filing or registration with, any
governmental or regulatory authority which has not been obtained or made, except
where the failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not have a BPOMS Material Adverse Effect and could not
reasonably be expected to prevent, materially alter or materially delay any of
the transactions contemplated by this Agreement.
Section 4.7 AUDITORS.
To BPOMS's knowledge, the auditor of the BPOMS financial statements
provided to NGRU pursuant to this Agreement has at all times since the date of
enactment of the Xxxxxxxx-Xxxxx Act been: (i) a registered public accounting
firm (as defined in Section 2(a)(12) of the Xxxxxxxx-Xxxxx Act); (ii)
"independent" with respect to BPOMS and the BPOMS Subsidiaries within the
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meaning of Regulation S-X under the Exchange Act; and (iii) to the knowledge of
BPOMS, in compliance with subsections (g) through (l) of Section 10A of the
Exchange Act and the rules and regulations promulgated by the SEC and the Public
Company Accounting Oversight Board thereunder.
Section 4.8 FINANCIAL STATEMENTS.
BPOMS has delivered to NGRU true and complete copies of the audited
consolidated balance sheets of BPOMS at December 31, 2005, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flow for each of the fiscal years then ended, and unaudited consolidated balance
sheets of BPOMS at June 30, 2006, and the related unaudited consolidated
statements of income, changes in stockholders' equity, and cash flow for the six
(6) month periods then ended (collectively, the "BPOMS Financials"). The BPOMS
Financials (i) were prepared in accordance with GAAP applied on a consistent
basis throughout the periods involved (except as may be indicated in the
footnotes to the BPOMS Financials and that the interim financial statements may
not have notes thereto and other presentation items that may be required by GAAP
and are subject to normal and recurring year-end adjustments that are not
reasonably expected to be material in amount), (ii) fairly present in all
material respects the consolidated financial position and operating results and
cash flows of BPOMS as of the dates and for the periods indicated therein, (iii)
comply as to form in all material respects with the published rules and
regulations of the SEC as would be applicable thereto if BPOMS were subject to
the reporting requirements of the Exchange Act, and (iv) in the case of the
interim financial statements, have been reviewed by the auditor of BPOMS to the
same extent as if BPOMS were subject to the reporting requirements of the
Exchange Act.
Section 4.9 LITIGATION.
Except as set forth in Section 4.9 of the BPOMS Disclosure Letter,
there are (i) no continuing orders, injunctions or decrees of any court,
arbitrator or governmental authority to which BPOMS or any BPOMS Subsidiary is a
party or by which any of its properties or assets are bound or likely to be
affected and (ii) no actions, suits or proceedings pending against BPOMS or any
BPOMS Subsidiary or to which any of their respective properties or assets are
subject or, to the knowledge of BPOMS, threatened against BPOMS or any BPOMS
Subsidiary or to which any of their respective properties or assets are subject,
at law or in equity, that in each such case could, individually or in the
aggregate, have a BPOMS Material Adverse Effect.
Section 4.10 ABSENCE OF CERTAIN CHANGES.
Except as set forth in Section 4.10 of the BPOMS Disclosure Letter,
since December 31, 2005, BPOMS and the BPOMS Subsidiaries have conducted their
business only in the ordinary course of such business and consistent with past
practices and there has not been any:
(a) BPOMS Material Adverse Effect;
(b) amendment or change in the Certificate of Incorporation or
By-Laws of BPOMS or in any similar organizational documents of any
BPOMS Subsidiaries;
(c) incurrence, creation or assumption by BPOMS or any of the
BPOMS Subsidiaries of (i) any mortgage, deed of trust, security
interest, pledge, lien, title retention device, collateral assignment,
claim, charge, restriction or other encumbrance of any kind on any of
the assets or properties of BPOMS or any of the BPOMS Subsidiaries; or
(ii) any obligation or liability of any indebtedness for borrowed
money;
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(d) issuance or sale of any debt or equity securities of BPOMS
or any of the BPOMS Subsidiaries, or the issuance or grant of any
options, warrants or other rights to acquire from BPOMS or any of the
BPOMS Subsidiaries, directly or indirectly, any debt or equity
securities of BPOMS or any of the BPOMS Subsidiaries (except upon the
exercise of then outstanding BPOMS Options and BPOMS Warrants);
(e) payment or discharge by BPOMS or any of the BPOMS
Subsidiaries of any security interest, lien, claim, or encumbrance of
any kind on any asset or property of BPOMS or any of the BPOMS
Subsidiaries, or the payment or discharge of any liability that was not
either shown or reflected on the BPOMS Financials or incurred in the
ordinary course of BPOMS's business after the December 31, 2005, in an
amount in excess of $50,000 for any single liability to a particular
creditor;
(f) purchase, license, sale, assignment or other disposition
or transfer, or any agreement or other arrangement for the purchase,
license, sale, assignment or other disposition or transfer, of any of
the assets, properties or goodwill of BPOMS other than a license or
sale of any product or products of BPOMS or any of the BPOMS
Subsidiaries made in the ordinary course of BPOMS's business;
(g) damage, destruction or loss of any property or asset,
whether or not covered by insurance, having (or likely with the passage
of time to have) a BPOMS Material Adverse Effect;
(h) declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital
stock of BPOMS, any split, combination or recapitalization of the
capital stock of BPOMS or any direct or indirect redemption, purchase
or other acquisition of the capital stock of BPOMS or any change in any
rights, preferences, privileges or restrictions of any outstanding
security of BPOMS;
(i) increase in the compensation payable or to become payable
to any of the officers, directors, or employees of BPOMS or any of the
BPOMS Subsidiaries, or any bonus or pension, insurance or other benefit
payment or arrangement (including without limitation stock awards,
stock option grants, stock appreciation rights or stock option grants)
made to or with any of such officers, employees or agents;
(j) obligation or liability incurred by BPOMS or any of the
BPOMS Subsidiaries to any of its officers, directors or stockholders
except for normal and customary compensation and expense allowances
payable to officers in the ordinary course of BPOMS's business
consistent with past practice;
(k) making by BPOMS or any of the BPOMS Subsidiaries of any
loan, advance or capital contribution to, or any investment in, any
officer, director or stockholder of BPOMS or any BPOMS Subsidiary or
any firm or business enterprise in which any such Person had a direct
or indirect material interest at the time of such loan, advance,
capital contribution or investment;
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(l) entering into, amendment of, relinquishment, termination
or non-renewal by BPOMS or any BPOMS Subsidiary of any contract, lease,
transaction, commitment or other right or obligation other than in the
ordinary course of its business or any written or oral indication or
assertion by the other party thereto of any material problems with
BPOMS's or any BPOMS Subsidiary's services or performance under such
contract, lease, transaction, commitment or other right or obligation
or of such other party's demand to amend, terminate or not renew any
such contract, lease, transaction, commitment or other right or
obligation;
(m) material change in the manner in which BPOMS or any BPOMS
Subsidiary extends discounts, credits or warranties to customers or
otherwise deals with its customers;
(n) entering into by BPOMS or any of the BPOMS Subsidiaries of
any transaction, contract or agreement that by its terms requires or
contemplates a required minimum current and/or future financial
commitment, expenses (inclusive of overhead expenses) or obligation on
the part of BPOMS or any of the BPOMS Subsidiaries involving in excess
of $50,000 (provided that the amount of such financial commitments and
expenses for all such transactions, contracts or agreements does not
exceed $150,000 in the aggregate) or that is not entered into in the
ordinary course of BPOMS's business, or the conduct of any business or
operations by BPOMS or any BPOMS Subsidiary that is other than in the
ordinary course of BPOMS's or such BPOMS Subsidiary's business; or
(o) license, transfer or grant of a right under any BPOMS
Intellectual Property (as defined in Section 4.20 below), other than
those licensed, transferred or granted in the ordinary course of
business consistent with its past practices.
Section 4.11 TAXES.
Except as set forth in Section 4.11 of the BPOMS Disclosure Letter or
where such failure would not have, individually or in the aggregate, a BPOMS
Material Adverse Effect:
(a) BPOMS and each of the BPOMS Subsidiaries has paid or
caused to be paid all federal, state, local, foreign, and other taxes,
and all deficiencies, or other additions to tax, interest, fines and
penalties (collectively, "TAXES"), owed or accrued by it and due and
payable through the date hereof (including any Taxes payable pursuant
to Treasury Regulation ss.1.1502-6 (and any similar state, local or
foreign provision)).
(b) BPOMS and each of the BPOMS Subsidiaries has timely filed
all federal, state, local and foreign tax returns (collectively "TAX
RETURNS") required to be filed by any of them through the date hereof,
and all such returns accurately set forth the amount of any Taxes
relating to the applicable period.
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(c) BPOMS and each of the BPOMS Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other party.
(d) The BPOMS Financials reflect adequate reserves for Taxes
payable by BPOMS and each BPOMS Subsidiary for all taxable periods and
portions thereof through the date of such financial statements.
(e) Since December 31, 2005, each of BPOMS and the BPOMS
Subsidiaries has made sufficient accrual for Taxes in accordance with
GAAP with respect to periods for which Tax Returns have not been filed.
(f) There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitations applicable
to any claim for, or the period for the collection or assessment of,
Taxes due from BPOMS or any BPOMS Subsidiary for any taxable period and
there have been no deficiencies proposed, assessed or asserted for such
Taxes.
(g) There are no closing agreements that could affect Taxes of
BPOMS or any BPOMS Subsidiary for periods after the Effective Time
pursuant to Section 7121 of the Code or any similar provision under
state, local or foreign tax laws.
(h) No audit or other proceedings by any court, governmental
or regulatory authority or similar authority has occurred, been
asserted or is pending and none of BPOMS or any BPOMS Subsidiary has
received notice that any such audit or proceeding may be commenced.
(i) No election has been made or filed by or with respect to,
and no consent to the application of, Section 341(f)(2) of the Code has
been made by or with respect to, BPOMS, any BPOMS Subsidiary or any of
their properties or assets.
(j) None of BPOMS or any BPOMS Subsidiary has agreed to, or
filed application for, or is required, to make any changes or
adjustment to its accounting method.
(k) There is no contract, agreement, plan or arrangement
covering any Person that, individually or collectively, could give rise
to the payment of any amount that would not be deductible by BPOMS or
any BPOMS Subsidiary by reason of Section 280G or Section 162(m) of the
Code.
Section 4.12 BOOKS AND RECORDS.
(a) The books of account and other financial records of BPOMS
and each of the BPOMS Subsidiaries are true, complete and correct in
all material respects, have been maintained in accordance with good
business practices, and are accurately reflected in all material
respects in the BPOMS Financials.
(b) The minute books and other records of BPOMS and each of
the BPOMS Subsidiaries contain accurate records of all meetings and
accurately reflect all other action of the stockholders and Board of
Directors and any committees of the Board of Directors of BPOMS and
each of the BPOMS Subsidiaries.
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Section 4.13 PROPERTIES.
(a) Section 4.13(a) of the BPOMS Disclosure Letter sets forth
a list of all real property currently, or at any time in the past five
years, owned or leased by BPOMS or any of the BPOMS Subsidiaries, and,
with respect to all real property currently leased by BPOMS or any of
the BPOMS Subsidiaries, the name of the lessor, the date of the lease
and each amendment thereto and the aggregate annual rental and/or other
fees payable under any such lease. All such current leases are, to the
knowledge of BPOMS, in full force and effect, are valid and effective
in accordance with their respective terms, and there is not to the
knowledge of BPOMS any existing material default or event of default
under any such lease (or event which with notice or lapse of time, or
both, would constitute such a material default).
(b) BPOMS and each of the BPOMS Subsidiaries has good and
valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets,
real, personal and mixed, used or held for use in its business, free
and clear of any liens, except as reflected in the BPOMS Financials or
in Section 4.13(b) of the BPOMS Disclosure Letter and except for liens
for taxes not yet due and payable and such imperfections of title and
encumbrances, if any, which are not material in character, amount or
extent, and which do not materially detract from the value, or
materially interfere with the present use, of the property subject
thereto or affected thereby.
Section 4.14 ENVIRONMENTAL MATTERS.
Except as set forth in Section 4.14 of the BPOMS Disclosure Letter,
neither BPOMS nor any of the BPOMS Subsidiaries is in violation of any laws,
regulations, judgments or consent decrees relating to hazardous substances or
hazardous waste (collectively, "ENVIRONMENTAL LAWS") which violation could
reasonably be expected to result in a BPOMS Material Adverse Effect. Except as
set forth in Section 4.14 of the BPOMS Disclosure Letter, neither BPOMS, any of
the BPOMS Subsidiaries, nor, to the knowledge of BPOMS, any third party, has
used, released, discharged, generated, manufactured, produced, stored, or
disposed of in, on, or under or about its owned or leased property or other
assets, or transported thereto or therefrom, any hazardous substances or
hazardous wastes, including asbestos, lead and petroleum, during the period of
BPOMS's or the BPOMS Subsidiary's ownership or lease of such property in a
manner that could reasonably be expected to subject BPOMS or any BPOMS
Subsidiary to a material liability under the Environmental Laws. None of BPOMS
or any of the BPOMS Subsidiaries has received written notice from any
governmental authority that any property owned or leased by BPOMS or any of the
BPOMS Subsidiaries is in violation of any Environmental Laws. There is no
pending civil, criminal or administrative suit or other legal proceeding against
BPOMS or any of the BPOMS Subsidiaries with respect to any Environmental Laws.
BPOMS has provided NGRU complete copies of all environmental reports,
assessments and studies in BPOMS's possession and control with respect to
properties owned or leased by BPOMS or any BPOMS Subsidiary. As used in this
Agreement, the terms "HAZARDOUS SUBSTANCES" and "HAZARDOUS WASTES" shall have
the meanings set forth in the Comprehensive Environmental Response, Compensation
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and Liability Act, as amended, and the regulations thereunder; the Resource
Conservation and Recovery Act, as amended, and the regulations thereunder; the
Federal Clean Water Act, as amended, and the regulations thereunder; the Clean
Air Act, 42 U.S.C. Sections 7401 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Sections 136 et seq.; the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001 et seq.; the Occupational
Safety and Health Act of 1970; the Hazardous Materials Transportation Act, as
amended by the Hazardous Materials Transportation Authorization Act of 1994, 49
U.S.C. Sections 5101 et seq.; the Toxic Substances Control Act, 15 U.S.C.
Sections 2601 et seq.; the Oil Pollution Act of 1990, 33 U.S.C. Sections 2701 et
seq.; as each of these may be amended from time to time; and any and state or
local analogues to any of these statutes.
Section 4.15 BROKERS.
Except as set forth on Section 4.15 of the BPOMS Disclosure Letter,
neither BPOMS nor any of the BPOMS Subsidiaries has entered into any contract,
arrangement or understanding with any Person or firm that may result in the
obligation of such entity or NGRU or the Surviving Corporation to pay any
finder's fees, brokerage or agent's commissions or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby. BPOMS is not aware of any claim for
payment of any finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby other than as set forth in
Section 4.15 of the BPOMS Disclosure Letter.
Section 4.16 [Reserved].
Section 4.17 RELATED PARTY TRANSACTIONS.
Section 4.17 of the BPOMS Disclosure Letter sets forth all
arrangements, agreements and contracts or understandings entered into by BPOMS
or any of the BPOMS Subsidiaries (which are or will be in effect as of or after
the date of this Agreement) with (i) any consultant (X) involving payments in
excess of $60,000 or (Y) which may not be terminated at will by BPOMS or the
BPOMS Subsidiary which is a party thereto without penalty, or (ii) any Person
who is an officer, director or affiliate of BPOMS or any of the BPOMS
Subsidiaries. All such documents are listed (and any unwritten arrangement or
understanding is accurately and completely described) in Section 4.17 of the
BPOMS Disclosure Letter and the copies of such documents, and such descriptions,
all of which have previously been provided to NGRU and its counsel, are true,
complete and correct copies. Except as disclosed in Section 4.17 of the BPOMS
Disclosure Letter, BPOMS (including all BPOMS Subsidiaries) has not made any
payments to, received any services from, or is dependent on any services of, any
affiliate of BPOMS other than services provided by officers and directors in
such capacities and payments to such officers and directors of BPOMS in such
capacities. Neither BPOMS nor any of the BPOMS Subsidiaries is a party to any
arrangement, agreement, contract or understanding of the type that would be
grandfathered in or prohibited by Section 402 of the Xxxxxxxx-Xxxxx Act of 2002
if BPOMS were subject to Section 402.
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Section 4.18 CONTRACTS AND COMMITMENTS.
(a) Except as set forth in Section 4.18(a) of the BPOMS
Disclosure Letter, neither BPOMS nor any of the BPOMS Subsidiaries has,
or is party to or is bound by:
(i) any consulting or sales agreement, contract or
commitment under which any firm or other organization provides
services to BPOMS or any of the BPOMS Subsidiaries;
(ii) any fidelity or surety bond or completion bond;
(iii) any agreement of indemnification or guaranty;
(iv) any agreement, contract, commitment, transaction
or series of transactions for any purpose other than in the
ordinary course of BPOMS's or any of the BPOMS Subsidiaries'
business relating to capital expenditures or commitments or
long term obligations in excess of $50,000;
(v) any agreement, contract or commitment relating to
the disposition or acquisition of assets or any interest in
any business enterprise outside the ordinary course of BPOMS's
or any of the BPOMS Subsidiaries' business.
(vi) any mortgages, indentures, loans or credit
agreements, security agreements or other arrangements or
instruments relating to the borrowing of money or extension of
credit, including guaranties referred to in clause (iii)
hereof:
(vii) any purchase order or contract for the purchase
of inventory or other materials involving $50,000 or more;
(viii) any distribution, joint marketing or
development agreement;
(ix) any assignment, license or other agreement with
respect to any form of intangible property; or
(x) any other agreement, contract or commitment that
involves $50,000 or more or is not cancelable without penalty
within thirty (30) days.
Collectively, any of (i) through (x) above shall be referred to herein as
"CONTRACTS".
(b) Except as would not individually or in the aggregate have
a BPOMS Material Adverse Effect, all such Contracts are valid and
binding on BPOMS and are in full force and effect and enforceable
against BPOMS in accordance with their respective terms. Except as
disclosed in Section 4.18(b) of the BPOMS Disclosure Letter, no
approval or consent of, or notice to any Person the failure of which to
obtain would have a BPOMS Material Adverse Effect is needed in order
that such Contracts shall continue in full force and effect in
accordance with its terms without penalty, acceleration or rights of
early termination following the consummation of the transactions
contemplated by this Agreement. Except to the extent any of the
following would not individually or in the aggregate have a BPOMS
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Material Adverse Effect, BPOMS is not in violation of, breach of or
default under any such Contract nor, to BPOMS's knowledge, is any other
party to any such Contract. Except as set forth in Section 4.18 of the
BPOMS Disclosure Letter, BPOMS is not in violation or breach of or
default under any such Contract (including leases of real property)
relating to non-competition, indebtedness, guarantees of indebtedness
of any other Person, employment, or collective bargaining.
Section 4.19 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) With the exception of the definition of "AFFILIATE" set
forth in Section 4.19(a)(i) below (which definition shall apply only to
this Section 4.19 and Section 5.17), for purposes of this Agreement,
the following terms shall have the meanings set forth below:
(i) "AFFILIATE" shall mean any other Person under
common control with or otherwise required to be aggregated
with a Person or any Subsidiary of such Person as set forth in
Section 414(b), (c), (m) or (o) of the Code and the
regulations thereunder;
(ii) "EMPLOYEE" shall mean any current, former or
retired employee, officer, or director of a Person or any
Subsidiary or any Affiliate of such Person;
(iii) "EMPLOYEE AGREEMENT" shall refer to any
material management, employment, severance, consulting,
relocation, repatriation, expiration, visas, work permit or
similar agreement or contract between a Person or any
Subsidiary or Affiliate of such Person and any Employee or
consultant that is not an Employee Plan;
(iv) "EMPLOYEE PLAN" shall refer to any plan,
program, policy, practice, contract, agreement or other
arrangement providing for compensation, severance, termination
pay, performance awards, stock or stock related awards, fringe
benefits or other employee benefits or remuneration of any
kind, whether formal or informal, funded or unfunded and
whether or not legally binding, including without limitation,
each "EMPLOYEE BENEFIT PLAN" within the meaning of Section
3(3) of ERISA (as defined below), which is or has been
maintained, contributed to, or required to be contributed to,
by a Person or any of its Subsidiaries or any Affiliate for
the benefit of any "EMPLOYEE," and pursuant to which such
Person or any of its Subsidiary or any Affiliate has or may
have any material liability contingent or otherwise;
(v) "ERISA" shall mean the Employee Retirement Income
Security Act of 1974, as amended;
(vi) "IRS" shall mean the Internal Revenue Service;
(vii) "MULTIEMPLOYER PLAN" shall mean any "PENSION
PLAN" (as defined below) which is a "multiemployer plan," as
defined in Sections 3(37) and 4001(a)(3) of ERISA; and
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(viii) "PENSION PLAN" shall refer to each BPOMS and
Subsidiary Employee Plan that is an "employee pension benefit
plan," within the meaning of Section 3(2) of ERISA.
(b) Section 4.19(b) of the BPOMS Disclosure Letter contains an
accurate and complete list of each Employee Agreement of BPOMS. BPOMS
has no Employee Plans. No benefits under any Employee Agreement of
BPOMS will be increased, or subject to accelerated vesting, by the
occurrence of any of the transactions contemplated by this Agreement,
nor will the value of any of the benefits thereunder be calculated on
the basis of any transactions contemplated by this Agreement. Except as
set forth in Section 4.19(b) of the BPOMS Disclosure Letter, neither
BPOMS nor any of its Subsidiaries or Affiliates has any announced plan
or commitment, whether legally binding or not, to establish any new
Employee Plan or Employee Agreement, to modify any Employee Agreement
(except to the extent required by law or to conform any such Employee
Agreement to the requirements of any applicable law, in each case as
previously disclosed to NGRU in writing, or as required by this
Agreement), or to enter into any Employee Plan or Employee Agreement,
nor does it have any intention or commitment to do any of the
foregoing.
(c) BPOMS has provided to NGRU correct and complete copies of
all material documents embodying or relating to each Employee
Agreement.
(d) Neither BPOMS nor any of the BPOMS Subsidiaries or
Affiliates currently maintain, sponsor, participate in or contribute
to, nor have they ever maintained, established, sponsored, participated
in, or contributed to, any Pension Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code.
(e) At no time has BPOMS or any of the BPOMS Subsidiaries or
Affiliates contributed to or been requested or obligated to contribute
to any Multiemployer Plan.
(f) Except as set forth in Section 4.19(g) of the BPOMS
Disclosure Letter or as required by local, state or federal law, no
Employee Agreement provides, or is required to provide, life insurance,
medical or other employee benefits to any Employee upon his or her
retirement or termination of employment for any reason, and BPOMS and
each of the BPOMS Subsidiaries has never represented, promised or
contracted (whether in oral or written form) to any Employee (either
individually or to Employees as a group) that such Employee(s) would be
provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment.
(g) The execution of this Agreement and the consummation of
the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Employee Agreement, trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in
benefits or obligation to fund benefits with respect to any Employee,
except as set forth in Schedule 4.19(h) of the BPOMS Disclosure Letter.
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(h) Except as set forth in Section 4.19(i) of the Disclosure
Letter, BPOMS and each of the BPOMS Subsidiaries (i) is in compliance
in all respects with all applicable foreign, federal, state and local
laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees except as would not have a BPOMS
Material Adverse Effect; (ii) is not liable for any arrears of wages of
any taxes or any penalty for failure to comply with any of the
foregoing; and (iii) 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 Employees (other than routine payments to
be made in the normal course of business and consistent with past
practice).
(i) No work stoppage or labor strike against BPOMS or any
BPOMS Subsidiary is pending or, to the knowledge of BPOMS, threatened.
Neither BPOMS nor any of the BPOMS Subsidiaries is involved in or, to
the knowledge of BPOMS, threatened with, any labor dispute, grievance,
administrative proceeding or litigation relating to labor, safety,
employment practices or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, have a BPOMS Material Adverse Effect.
Neither BPOMS nor any of the BPOMS Subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor
Relations Act that would, individually or in the aggregate, directly or
indirectly have a BPOMS Material Adverse Effect. Neither BPOMS nor any
of the BPOMS Subsidiaries or Affiliates has ever been a party to any
agreement with any labor organization or union, and none of the BPOMS
Employees are represented by any labor organization or union, nor have
any BPOMS Employees threatened to organize or join a union or filed a
petition for representation with the National Labor Relations Board.
(j) There are no (i) bonus or severance payments that could be
payable to Employees of BPOMS under existing Employee Agreements on
account of the transactions contemplated by this Agreement (without
regard to termination of employment), or (ii) severance obligations
that could be payable to Employees of BPOMS under existing Employee
Agreements on account of terminations of employment following the
Effective Time, except as disclosed in Section 4.19(k) of the BPOMS
Disclosure Letter.
Section 4.20 INTELLECTUAL PROPERTY.
(a) For the purposes of this Agreement, the following terms
have the following definitions:
(i) "INTELLECTUAL PROPERTY" shall mean any or all of
the following and all rights in, arising out of, or associated
therewith: (a) all United States, international and foreign
patents and applications therefor and all reissues, divisions,
renewals, extensions, provisionals, continuations and
continuations in part thereof; (b) all inventions (whether
patentable or not), invention disclosures, improvements, trade
secrets, proprietary information, know how, technology,
technical data, customer lists, proprietary processes and
formulae, all source and object code, algorithms,
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architectures, structures, display screens, layouts,
inventions, development tools and all documentation and media
constituting, describing or relating to the above, including,
without limitation, manuals, memoranda and records; (c) all
copyrights, copyrights registrations and applications
therefor, and all other rights corresponding thereto
throughout the world; (d) all industrial designs and any
registrations and applications therefor throughout the world;
(e) all trade names, logos, common law trademarks and service
marks, trademark and service xxxx registrations and
applications therefor throughout the world; (f) all
proprietary databases and data collections and all rights
therein throughout the world; and (g) any equivalent rights to
any of the foregoing anywhere in the world.
(ii) "BPOMS INTELLECTUAL PROPERTY" shall mean that
Intellectual Property owned by or licensed to or controlled by
BPOMS or any of the BPOMS Subsidiaries.
(iii) "BPOMS REGISTERED INTELLECTUAL PROPERTY" means
those United States, international and foreign: (a) patents
and patent applications (including provisional applications);
(b) registered trademarks and service marks, applications to
register trademarks or service marks, intent to use
applications, or other registrations or applications related
to trademarks or service marks; and (c) registered copyrights
and applications for copyright registration, owned by BPOMS.
(iv) "UTILIZE" or "UTILIZATION" means to make,
manufacture, use, market, import, export, distribute, sell,
dispose, assign, license, develop, publish, display, modify
and/or amend.
(b) Section 4.20(b) of the BPOMS Disclosure Letter lists all
material proceedings or actions known to BPOMS before any court,
tribunal (including the United States Patent and Trademark Office
("PTO") or equivalent authority anywhere in the world) related to any
BPOMS Intellectual Property. No BPOMS Intellectual Property is the
subject of any outstanding decree, order, judgment, agreement, or
stipulation restricting in any manner the use, transfer, or licensing
thereof by BPOMS or any of the BPOMS Subsidiaries, or which may affect
the validity, use or enforceability of any BPOMS Intellectual Property.
(c) Section 4.20(c) of the BPOMS Disclosure Letter lists all
BPOMS Registered Intellectual Property. With respect to each item of
BPOMS Registered Intellectual Property, necessary registration,
maintenance and renewal fees in connection with such BPOMS Registered
Intellectual Property have been made and all necessary documents and
certificates in connection with such BPOMS Registered Intellectual
Property have been filed with the relevant patent, trademark or
copyright authorities in the United States or other jurisdictions for
the purposes of maintaining such BPOMS Registered Intellectual
Property.
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(d) BPOMS and each BPOMS Subsidiary has the right to prevent
others from using, marketing, distributing, selling or licensing all
BPOMS Intellectual Property used in its business as presently conducted
and as it is expected to be conducted as of the Effective Time,
including without limitation, all Intellectual Property used or to be
used in the BPOMS Products (as defined below), and such rights to
Utilize the BPOMS Intellectual Property are sufficient for such conduct
of their respective businesses.
(e) To BPOMS's knowledge, neither the manufacture,
development, publication, marketing, license, sale, distribution or use
intended by BPOMS or any of the BPOMS Subsidiaries of any BPOMS
Intellectual Property currently being licensed, produced or sold by
BPOMS or any of the BPOMS Subsidiaries or currently under development
or consideration by BPOMS or any of the BPOMS Subsidiaries (the "BPOMS
PRODUCTS") violates any license or agreement between BPOMS or any of
the BPOMS Subsidiaries and any third party or, to BPOMS's knowledge,
infringes any Intellectual Property right, moral right or right of
publicity or privacy of any other party, and BPOMS has not received
notice of any pending or threatened claim or litigation contesting the
validity, ownership or right to Utilize any BPOMS Intellectual Property
nor, to the knowledge of BPOMS, is there any basis for any such claim
under applicable law, nor has BPOMS or any of the BPOMS Subsidiaries
received any notice asserting that any BPOMS Intellectual Property or
the Utilization thereof conflicts or will conflict with the rights of
any other party. Section 4.20(e) of the BPOMS Disclosure Letter sets
forth a list of all BPOMS Products.
(f) BPOMS and the BPOMS Subsidiaries have timely and
satisfactorily fulfilled their respective obligations under all
material agreements pursuant to which BPOMS or any of the BPOMS
Subsidiaries, as the case may be, has agreed to program, design or
develop on behalf of a third party, whether for original use or for
porting or conversion (for use on a different hardware platform or in a
different language), any software products or any part thereof, except
where the failure to so comply would not reasonably be expected to have
a BPOMS Material Adverse Effect.
(g) Except as set forth in Section 4.20(g) of the BPOMS
Disclosure Letter, to the extent that any work, invention, or material
has been developed or created by a third party for BPOMS or any of the
BPOMS Subsidiaries, to BPOMS's knowledge, BPOMS and each of the BPOMS
Subsidiaries has a written agreement with such third party with respect
thereto and BPOMS and each of the BPOMS Subsidiaries thereby has
obtained ownership of, and is the exclusive owner of, or has a valid
license to use, all BPOMS Intellectual Property in such work, material
or invention by operation of law or by valid assignment or by
agreement, as the case may be.
(h) Section 4.20(h) of the BPOMS Disclosure Letter lists all
material contracts, licenses and agreements to which BPOMS or any of
the BPOMS Subsidiaries is a party that are currently in effect (i) with
respect to BPOMS Intellectual Property licensed or offered to any third
party; or (ii) pursuant to which a third party has licensed or
transferred any Intellectual Property to BPOMS or any of the BPOMS
Subsidiaries. Except as set forth in Section 4.20(h) of the BPOMS
Disclosure Letter, neither BPOMS nor any of the BPOMS Subsidiaries has
transferred ownership of, or granted any license with respect to, any
BPOMS Intellectual Property, to any third party.
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(i) Except as set forth in Section 4.20(i) of the BPOMS
Disclosure Letter, the contracts, licenses and agreements listed in
Section 4.20(h) are in full force and effect to BPOMS's knowledge. The
consummation of the transactions contemplated by this Agreement will
not violate or result in the breach, modification, cancellation,
termination, or suspension of such contracts, licenses and agreements
listed in Section 4.20(i) and will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any
rights of BPOMS to any BPOMS Intellectual Property or impair the right
of BPOMS or any of the BPOMS Subsidiaries or the Surviving Corporation
to Utilize any BPOMS Intellectual Property or portion thereof. BPOMS
and each of the BPOMS Subsidiaries is in material compliance with, and
has not materially breached any term any of such contracts, licenses
and agreements listed in Section 4.20(i) and, to the knowledge of
BPOMS, all other parties to such contracts, licenses and agreements
listed in Section 4.20(i) are in compliance with, and have not breached
any term of, such contracts, licenses and agreements. Except as set
forth in Section 4.20(i) of the BPOMS Disclosure Letter, following the
Effective Time, the Surviving Corporation will be permitted to exercise
all of BPOMS's and each of the BPOMS Subsidiaries', if any, rights
under the contracts, licenses and agreements listed in Section 4.20(h)
to the same extent BPOMS and such BPOMS Subsidiary would have been able
to had the transactions contemplated by this Agreement not occurred and
without the payment of any additional funds other than ongoing fees,
royalties or payments which BPOMS or such BPOMS Subsidiary would
otherwise be required to pay.
(j) [Reserved.]
(k) Except as set forth in Section 4.20(k) of the BPOMS
Disclosure Letter, (a) BPOMS and each of the BPOMS Subsidiaries
(including each of their executive officers, directors and, to the
knowledge of BPOMS, employees) has not received any notice or claim
(whether written, oral or otherwise) challenging BPOMS's ownership or
rights in the BPOMS Intellectual Property or claiming that any other
Person or entity has any legal or beneficial ownership with respect
thereto; (b) all the BPOMS Intellectual Property rights owned by BPOMS
and embodied in its products are, to BPOMS's knowledge, legally valid
and enforceable without any material qualification, limitation or
restriction on their use, and BPOMS has not received any notice or
claim (whether written or oral) challenging the validity or
enforceability of any of the BPOMS Intellectual Property rights; and
(c) to BPOMS's knowledge, no third party is infringing or
misappropriating any part of the BPOMS Intellectual Property.
(l) BPOMS and each of the BPOMS Subsidiaries has taken
reasonable and practicable measures designed to protect their
respective rights in their respective confidential information and
trade secrets or any trade secrets or confidential information of third
parties provided to BPOMS or any of the BPOMS Subsidiaries. None of
BPOMS or any of the BPOMS Subsidiaries, or any employees or, to BPOMS's
knowledge, consultants of BPOMS or any of the BPOMS Subsidiaries, has
permitted any such confidential information or trade secrets to be
used, divulged or appropriated for the benefit of Persons to the
material detriment of BPOMS or any of the BPOMS Subsidiaries.
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(m) Section 4.20(m) of the BPOMS Disclosure Letter sets forth
a list of all Internet domain names used by BPOMS in its business
(collectively, the "DOMAIN NAMES"). BPOMS has, and after the Effective
Time, to BPOMS's knowledge, the Surviving Corporation will have, a
valid registration and all material rights (free of any material
restriction) in and to the Domain Names, including, without limitation,
all rights necessary to continue to conduct BPOMS's business as it is
currently conducted.
(n) Neither BPOMS nor any of the BPOMS Subsidiaries is or
has been a party to any Government Contract relating to or affecting ownership
or Utilization of any BPOMS Intellectual Property. For purposes of this
paragraph, the term "GOVERNMENT CONTRACT" means any Government Prime Contract,
Government Subcontract, Bid or Teaming Agreement. "GOVERNMENT PRIME CONTRACT"
means any prime contract, basic ordering agreement, letter contract, purchase
order, delivery order, change, arrangement or other commitment of any kind, on
which final payment has not been made, between a party and either the U.S.
Government or a State Government. "GOVERNMENT SUBCONTRACT" means any
subcontract, basic ordering agreement, letter subcontract, purchase order,
delivery order, change, arrangement, or other commitment of any kind, on which
final payment has not been made, between a party and any prime contractor to
either the U.S. Government or a State Government or any subcontractor with
respect to a Government Prime Contract. "STATE GOVERNMENT" means any state,
territory or possession of the United States or any department, agency or
instrumentality thereof, or any department or agency of any of the above with
statewide jurisdiction and responsibility, or any municipal or local government,
department, agency or instrumentality. "TEAMING AGREEMENT" has same meaning as
the term "contractor team arrangement(s)" as defined in the Federal Acquisition
Regulation (FAR) Subpart 9.601. "U.S. GOVERNMENT" means the United States
Government or any department, agency or instrumentality thereof.
Section 4.21 ANTI-TAKEOVER PLAN.
Neither BPOMS nor any BPOMS Subsidiary has in effect any plan, scheme,
device or arrangement, commonly or colloquially known as a "poison pill" or, an
"anti-takeover" plan or any similar plan, scheme, device or arrangement.
Section 4.22 SHAREHOLDER VOTE REQUIRED.
The only vote of the holders of any class or shares of capital stock of
BPOMS necessary to approve the Merger and the transactions contemplated by this
Agreement is (i) the affirmative vote of holders of a majority of the
outstanding BPOMS Common Stock, (ii) the affirmative vote of the holders of a
majority of the outstanding BPOMS Series A Preferred Shares, and (iii) the
affirmative vote of the holders of a majority of the outstanding BPOMS Series B
Preferred Shares. BPOMS has obtained the required votes described in this
Section 4.22 and timely complied with its obligations under Section 262 of the
DGCL.
Section 4.23 UNDISCLOSED LIABILITIES.
Except as and to the extent reflected, reserved against or otherwise
disclosed in the BPOMS Financials (including the notes thereto) or as set forth
in Section 4.23 of the BPOMS Disclosure Letter, to BPOMS's knowledge, neither
BPOMS nor any BPOMS Subsidiary has any liabilities or obligations of any kind,
whether accrued, absolute, asserted or unasserted, contingent or otherwise,
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whether or not such liabilities would have been required to be reflected in a
balance sheet prepared in accordance with GAAP consistently applied, which would
have, individually or in the aggregate, a BPOMS Material Adverse Effect.
Section 4.24 INSURANCE.
BPOMS maintains, and has maintained or caused to be maintained, without
interruption, during its existence, policies or binders of insurance covering
such risk, and events, including personal injury, property damage, errors and
omissions and general liability in amounts BPOMS reasonably believes adequate
for its business and operations, and its current insurance policies (other than
directors' and officers' insurance) will not terminate due to the consummation
of the Merger. Section 4.24 of the BPOMS Disclosure Letter sets forth a summary
of all current insurance policies (including, without limitation, limits,
deductibles and terms) maintained by BPOMS and the BPOMS Subsidiaries.
Section 4.25 TAX TREATMENT.
Neither BPOMS nor any of the BPOMS Subsidiaries has taken any action or
engaged in any activities that would preclude the treatment of the Merger as a
reorganization under Section 368(a) of the Code. In addition, neither BPOMS nor
any of the BPOMS Subsidiaries has any plan or intention to take any action or
engage in any activities that would preclude the treatment of the Merger as a
reorganization under Section 368(a) of the Code.
Section 4.26 RELATIONSHIPS WITH SUPPLIERS, LICENSORS AND
CUSTOMERS.
No current distributor, customer of or supplier to BPOMS or any of the
BPOMS Subsidiaries has notified BPOMS or such BPOMS Subsidiary of an intention
to terminate or substantially alter its existing business relationship with
BPOMS or such BPOMS Subsidiary, nor has any licensor under a license agreement
with BPOMS or any of the BPOMS Subsidiaries notified BPOMS or such BPOMS
Subsidiary of an intention to terminate or substantially alter BPOMS's or such
BPOMS Subsidiary's rights under such license, which termination or alteration
would have a BPOMS Material Adverse Effect.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF NGRU AND MERGER SUB
NGRU and Merger Sub hereby represent and warrant to BPOMS as follows,
except as set forth in the written disclosure letter delivered at or prior to
the execution hereof to BPOMS (the "NGRU DISCLOSURE Letter"). The NGRU
Disclosure Letter shall be arranged in sections or subsections corresponding to
the number and lettered sections and subsections contained in this Article 5.
The disclosures in any section or subsection of the NGRU Disclosure Letter shall
qualify the correspondingly numbered representation and warranty and such other
representations and warranties in this Article 5 to the extent it is reasonably
clear from a reading of the disclosure that such disclosure is applicable to
such other representations and warranties.
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Section 5.1 ORGANIZATION; GOOD STANDING; AUTHORITY; COMPLIANCE
WITH LAW.
(a) NGRU is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and Merger Sub
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of NGRU and Merger Sub
has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now conducted. NGRU is duly
licensed or qualified and is in good standing to transact business as a
foreign corporation in each jurisdiction in which the character of the
properties owned or leased by it therein or in which the nature of its
business makes such qualification or licensing necessary, except where
the failure to be so licensed or qualified would not have, individually
or in the aggregate, a NGRU Material Adverse Effect. For purposes of
this Agreement, a "NGRU MATERIAL ADVERSE EFFECT," means a material
adverse effect on the business, assets (including intangible assets),
financial condition or results of operations of NGRU and its
Subsidiaries, taken as a whole; provided that any actual or anticipated
failure to maintain NGRU's Nasdaq listing or obtain a new listing shall
not be considered in determining whether a NGRU Material Adverse Effect
has occurred or is likely to occur.
(b) Each of the Subsidiaries of NGRU (the "NGRU SUBSIDIARIES")
is a corporation, partnership or limited liability company duly
incorporated or formed, validly existing and in good standing under the
laws of its jurisdiction of incorporation or formation, has the
corporate, partnership or limited liability company power and authority
to own its properties and to carry on its business as it is now being
conducted, and is duly qualified to transact business and is in good
standing in each jurisdiction in which the ownership of its property or
the conduct of its business requires such qualification, except for
jurisdictions in which such failure to be so qualified or to be in good
standing would not have, individually or in the aggregate, a NGRU
Material Adverse Effect. Except for a nominal amount of shares of NGRU
Subsidiaries in India held by Indian residents pursuant to applicable
law, each of the NGRU Subsidiaries is wholly-owned, directly or
indirectly, by NGRU. Except for its interests in the NGRU Subsidiaries,
neither NGRU nor any NGRU Subsidiary owns directly or indirectly any
interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust or other entity (other than
investments in short term investment securities).
(c) Except as described in the NGRU SEC Documents (as defined
in Section 5.25), the business of NGRU and the NGRU Subsidiaries has
been operated in compliance with all laws, ordinances, regulations and
orders of all governmental entities, except for violations which would
not have, individually or in the aggregate, a NGRU Material Adverse
Effect. NGRU and the NGRU Subsidiaries have all Government Approvals of
all Governmental Agencies, required by law with respect to the
operation of their businesses, except those the absence of which would
not, individually or in the aggregate, have a NGRU Material Adverse
Effect or prevent or delay consummation of the Merger. All such
Government Approvals are in full force and effect, and NGRU and the
NGRU Subsidiaries are in compliance with all conditions and
requirements of the Government Approvals and with all rules and
regulations relating thereto other than failures that would not have a
NGRU Material Adverse Effect. NGRU has not received any notices of
violations of any Federal, state and local laws, regulations and
ordinances relating to its business, operations or assets which, if it
were determined that a violation had occurred, would have a NGRU
Material Adverse Effect.
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(d) The Certificate of Incorporation or other charter
documents and Bylaws (and in each such case, all amendments thereto) of
NGRU are described in the NGRU SEC Documents, and true and correct
copies have previously been delivered or made available to BPOMS and
its counsel.
Section 5.2 AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENTS.
NGRU and Merger Sub each has the requisite corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. To the extent required by law, the Board of
Directors of each of NGRU and Merger Sub have approved this Agreement, the
Merger, and the transactions contemplated by this Agreement. The execution by
NGRU and Merger Sub of this Agreement and the consummation of the transactions
contemplated by this Agreement have been duly authorized by all requisite action
on the part of NGRU and Merger Sub, subject to the approvals described in
Section 6.2. This Agreement constitutes the valid and legally binding obligation
of NGRU and Merger Sub, enforceable against NGRU and Merger Sub in accordance
with its terms, subject to applicable bankruptcy, insolvency, moratorium or
other similar laws relating to creditors' rights and general principles of
equity.
Section 5.3 CAPITALIZATION.
(a) The authorized capital stock of NGRU consists of
150,000,000 shares of NGRU Common Stock and 5,000,000 shares of
preferred stock, $0.01 par value (the "NGRU PREFERRED SHARES"). As of
the date hereof, there are 19,235,041 shares of NGRU Common Stock
issued and outstanding and zero NGRU Preferred Shares issued and
outstanding. All such outstanding shares of NGRU are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive
rights. The authorized capital stock of Merger Sub consists of 100
shares of common stock, par value $0.01. As of the date hereof, 100
shares of common stock of Merger Sub are issued and outstanding, fully
paid and non-assessable and owned by NGRU. Except as described in the
NGRU SEC Documents or as called for by this Agreement, NGRU has no
outstanding bonds, debentures, notes or other obligations the holders
of which have or upon the happening of certain events would have the
right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the stockholders of NGRU on
any matter. Except as described in the NGRU SEC Documents or as called
for in this Agreement or the employment agreements contemplated to be
entered into with Xxxxx Xxxxxx and Xxxxxxx Xxxxx prior to the Closing
Date, there are no existing options, warrants, calls, subscriptions,
convertible securities, or other rights, agreements, stock appreciation
rights or similar derivative securities or instruments or commitments
which obligate NGRU to issue, transfer or sell any Shares of NGRU
Common Stock or make any payments in lieu thereof other than options
granted to employees, directors and consultants after the date of the
most recent SEC Report.
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(b) The shares of NGRU Common Stock to be issued pursuant to
the Merger will be duly authorized, validly issued, fully paid and
unassessable and free of preemptive rights of any nature.
(c) Section 5.3(c) of the NGRU Disclosure Letter describes
NGRU's outstanding and effective employee or director stock purchase or
option plans, each of which has been approved and adopted by the Board
of Directors of NGRU and approved by the stockholders of NGRU.
Section 5.4 NO VIOLATION.
Neither the execution and delivery by NGRU and Merger Sub of this
Agreement nor the consummation by NGRU and Merger Sub of the transactions
contemplated by this Agreement in accordance with its terms will: (i) conflict
with or result in a breach of any provisions of NGRU's or Merger Sub's
respective certificate of incorporation or by-laws; (ii) violate, result in a
breach of any provision of, or constitute a default under, or require any
approval or consent under or result in the termination or in a right of
termination or cancellation of, or accelerate the performance required by or
result in a material adverse change to, or result in the creation of any lien,
security interest, charge or encumbrance upon any of NGRU's or Merger Sub's
properties under, any of the terms, conditions or provisions of any note, bond,
mortgage, indenture, deed of trust or any license, franchise, permit, lease,
contract, agreement or other instrument to which NGRU or Merger Sub is a party,
or by which NGRU or Merger Sub or any of their properties is bound or affected,
except for any of the foregoing matters in this clause which, individually or in
the aggregate, would not have a NGRU Material Adverse Effect; (iii) contravene
or conflict with or constitute a violation of any provision of any law, rule,
regulation, judgment, injunction, order or decree binding upon or applicable to
NGRU or Merger Sub; or (iv) other than the filings provided for in this
Agreement and the Regulatory Filings, require any consent, approval or
authorization of, or declaration, filing or registration with, any governmental
or regulatory authority which has not been obtained or made, except where the
failure to obtain any such consent, approval or authorization of, or
declaration, filing or registration with, any governmental or regulatory
authority would not have a NGRU Material Adverse Effect.
Section 5.5 TAX TREATMENT.
Neither NGRU nor Merger Sub has taken any action or engaged in any
activities that would preclude the treatment of the Merger as a reorganization
under Section 368(a) of the Code. In addition, neither NGRU nor Merger Sub has
any plan or intention to take any action or engage in any activities that would
preclude the treatment of the Merger as a reorganization under Section 368(a) of
the Code.
Section 5.6 [Reserved].
Section 5.7 [Reserved].
Section 5.8 LITIGATION.
Except as set forth in Section 5.8 of the NGRU Disclosure Letter, there
are (i) no continuing orders, injunctions or decrees of any court, arbitrator or
governmental authority to which NGRU or any NGRU Subsidiary is a party or by
which any of its properties or assets are bound or likely to be affected and
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(ii) no actions, suits or proceedings pending against NGRU or any NGRU
Subsidiary as to which any of their respective properties or assets are subject
or, to the knowledge of NGRU threatened against NGRU or any NGRU Subsidiary or
to which any of their respective properties or assets are subject, at law or in
equity, that in each such case could, individually or in the aggregate, have an
NGRU Material Adverse Effect.
Section 5.9 ABSENCE OF CERTAIN CHANGES.
Except as set forth in the NGRU Disclosure Letter or the NGRU SEC
Documents, since Xxxxx 00, 0000, XXXX and the NGRU Subsidiaries have conducted
their business only in the ordinary course of such business and consistent with
past practices and there has not been any:
(a) NGRU Material Adverse Effect;
(b) amendment or change in the Certificate of Incorporation or
By-Laws of NGRU or any of the NGRU Subsidiaries; other than as
contemplated in this Agreement;
(c) incurrence, creation or assumption by NGRU or any of the
NGRU Subsidiaries of (i) any mortgage, deed of trust, security
interest, pledge, lien, title retention device, collateral assignment,
claim, charge, restriction or other encumbrance of any kind on any of
the assets or properties of NGRU or any of the NGRU Subsidiaries; or
(ii) any obligation or liability of any indebtedness for borrowed
money;
(d) issuance or sale of any debt or equity securities of NGRU
or any of its Subsidiaries, or the issuance or grant of any options,
warrants or other rights to acquire from NGRU or any NGRU Subsidiaries,
directly or indirectly, any debt or equity securities of NGRU or any of
its Subsidiaries, other than the granting of stock options to
employees, directors and consultants and other than upon exercise of
then outstanding options and warrants;
(e) payment or discharge by NGRU or any of the NGRU
Subsidiaries of any security interest, lien, claim, or encumbrance of
any kind on any asset or property of NGRU or any of the NGRU
Subsidiaries, or the payment or discharge of any liability that was not
either shown or reflected in the NGRU SEC Documents or incurred in the
ordinary course of NGRU's business after March 31, 2006 in an amount in
excess of $50,000 for any single liability to a particular creditor;
(f) purchase, license, sale, assignment or other disposition
or transfer, or any agreement or other arrangement for the purchase,
license, sale, assignment or other disposition or transfer, of any of
the assets, properties or goodwill of NGRU other than a license or sale
of any product or products of NGRU or any of the NGRU Subsidiaries made
in the ordinary course of NGRU's business and other than as
contemplated in connection with the NGRU Divestiture;
(g) damage, destruction or loss of any property or asset,
whether or not covered by insurance, having (or likely with the passage
of time to have) a NGRU Material Adverse Effect;
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(h) declaration, setting aside or payment of any dividend on,
or the making of any other distribution in respect of, the capital
stock of NGRU, any split, combination or recapitalization of the
capital stock of NGRU or any direct or indirect redemption, purchase or
other acquisition of the capital stock of NGRU or any change in any
rights, preferences, privileges or restrictions of any outstanding
security of NGRU, other than the NGRU Dividend and the Reverse Split;
(i) except as provided in the employment agreements
contemplated to be entered into with Xxxxx Xxxxxx and Xxxxxxx Xxxxx
prior to the Closing Date, increase in the compensation payable or to
become payable to any of the officers, directors, or employees of NGRU
or any of the NGRU Subsidiaries, or any bonus or pension, insurance or
other benefit payment or arrangement (including without limitation
stock awards, stock option grants, stock appreciation rights or stock
option grants) made to or with any of such officers, employees or
agents;
(j) obligation or liability incurred by NGRU or any of the
NGRU Subsidiaries to any of its officers, directors or stockholders
except for normal and customary compensation and expense allowances
payable to officers in the ordinary course of NGRU's business
consistent with past practice;
(k) making by NGRU or any of the NGRU Subsidiaries of any
loan, advance or capital contribution to, or any investment in, any
officer, director or stockholder of NGRU or any NGRU Subsidiary or any
firm or business enterprise in which any such Person had a direct or
indirect material interest at the time of such loan, advance, capital
contribution or investment;
(l) entering into, amendment of, relinquishment, termination
or non-renewal by NGRU or any NGRU Subsidiary of any contract, lease,
transaction, commitment or other right or obligation other than in the
ordinary course of its business or any written or oral indication or
assertion by the other party thereto of any material problems with
NGRU's or any NGRU Subsidiary's services or performance under such
contract, lease, transaction, commitment or other right or obligation
or of such other party's demand to amend, terminate or not renew any
such contract, lease, transaction, commitment or other right or
obligation;
(m) material change in the manner in which NGRU or any NGRU
Subsidiary extends discounts, credits or warranties to customers or
otherwise deals with its customers;
(n) entering into by NGRU or any of the NGRU Subsidiaries of
any transaction, contract or agreement that by its terms requires or
contemplates a required minimum current and/or future financial
commitment, expenses (inclusive of overhead expenses) or obligation on
the part of NGRU or any of the NGRU Subsidiaries involving in excess of
$50,000 (provided that the amount of such financial commitments and
expenses for all such transactions, contracts or agreements does not
exceed $150,000 in the aggregate, excluding legal and accounting fees
associated with this Agreement and the transactions contemplated hereby
and fees described in Section 5.15) or that is not entered into in the
ordinary course of NGRU's business, or the conduct of any business or
operations by NGRU or any NGRU Subsidiary that is other than in the
ordinary course of NGRU's or such NGRU Subsidiary's business; or
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(o) license, transfer or grant of a right under any NGRU
Intellectual Property (as defined in Section 5.18 below), other than
those licensed, transferred or granted in the ordinary course of
business consistent with its past practices.
Section 5.10 OWNERSHIP OF BPOMS SHARES.
As of the date hereof, and during the three (3) year period immediately
preceding the date hereof, neither NGRU nor, to NGRU's knowledge, any affiliate
or associate (as defined in Section 203 of the DGCL) thereof, is an "interested
stockholder" of BPOMS within the meaning of Section 203 of the DGCL.
Section 5.11 TAXES.
Except as set forth in Section 5.11 of the NGRU Disclosure Letter or
where such failure would not have, individually or in the aggregate, a NGRU
Material Adverse Effect:
(a) NGRU and each of the NGRU Subsidiaries has paid or caused
to be paid all Taxes, owed or accrued by it and due and payable through
the date hereof (including any Taxes payable pursuant to Treasury
Regulation ss.1.1502-6 (and any similar state, local or foreign
provision)).
(b) NGRU and each of the NGRU Subsidiaries has timely filed
all Tax Returns required to be filed by any of them through the date
hereof, and all such returns accurately set forth the amount of any
Taxes relating to the applicable period.
(c) NGRU and each of the NGRU Subsidiaries has withheld and
paid all Taxes required to have been withheld and paid in connection
with amounts paid or owing to any employee, independent contractor,
creditor, shareholder or other party.
(d) The financial statements included in the NGRU SEC
Documents reflect adequate reserves for Taxes payable by NGRU and each
NGRU Subsidiary for all taxable periods and portions thereof through
the date of such financial statements.
(e) Since March 31, 2006, each of NGRU and the NGRU
Subsidiaries has made sufficient accrual for Taxes in accordance with
GAAP with respect to periods for which Tax Returns have not been filed.
(f) There are no outstanding agreements, waivers or
arrangements extending the statutory period of limitations applicable
to any claim for, or the period for the collection or assessment of,
Taxes due from NGRU or any NGRU Subsidiary for any taxable period and
there have been no deficiencies proposed, assessed or asserted for such
Taxes.
(g) There are no closing agreements that could affect Taxes of
NGRU or any NGRU Subsidiary for periods after the Effective Time
pursuant to Section 7121 of the Code or any similar provision under
state, local or foreign tax laws.
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(h) No audit or other proceedings by any court, governmental
or regulatory authority or similar authority has occurred, been
asserted or is pending and none of NGRU or any NGRU Subsidiary has
received notice that any such audit or proceeding may be commenced.
(i) No election has been made or filed by or with respect to,
and no consent to the application of, Section 341(f)(2) of the Code has
been made by or with respect to, NGRU, any NGRU Subsidiary or any of
their properties or assets.
(j) None of NGRU or any NGRU Subsidiary has agreed to, or
filed application for, or is required, to make any changes or
adjustment to its accounting method.
(k) There is no contract, agreement, plan or arrangement
covering any Person that, individually or collectively, could give rise
to the payment of any amount that would not be deductible by NGRU or
any NGRU Subsidiary by reason of Section 280G or Section 162(m) of the
Code.
Section 5.12 BOOKS AND RECORDS.
(a) The books of account and other financial records of NGRU
and each of the NGRU Subsidiaries are true, complete and correct in all
material respects, have been maintained in accordance with good
business practices, and are accurately reflected in all material
respects in the NGRU SEC Documents.
(b) The minute books and other records of NGRU and each of the
NGRU Subsidiaries contain accurate records of all meetings and
accurately reflect all other action of the stockholders and Board of
Directors and any committees of the Board of Directors of NGRU and each
of the NGRU Subsidiaries.
Section 5.13 PROPERTIES.
(a) Section 5.13(a) of the NGRU Disclosure Letter sets forth a
list of all real property currently owned or leased by NGRU or any of
the NGRU Subsidiaries, and, with respect to all real property currently
leased by NGRU or any of the NGRU Subsidiaries, the name of the lessor,
the date of the lease and each amendment thereto and the aggregate
annual rental and/or other fees payable under any such lease. All such
current leases are, to the knowledge of NGRU, in full force and effect,
are valid and effective in accordance with their respective terms, and
there is not to the knowledge of NGRU any existing material default or
event of default under any such lease (or event which with notice or
lapse of time, or both, would constitute such a material default).
(b) NGRU and each of the NGRU Subsidiaries has good and valid
title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its tangible properties and assets,
real, personal and mixed, used or held for use in its business, free
and clear of any liens, except as reflected in the NGRU SEC Documents
or in Section 5.13(b) of the NGRU Disclosure Letter and except for
liens for taxes not yet due and payable and such imperfections of title
and encumbrances, if any, which are not material in character, amount
or extent, and which do not materially detract from the value, or
materially interfere with the present use, of the property subject
thereto or affected thereby.
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Section 5.14 ENVIRONMENTAL MATTERS.
Except as set forth in Section 5.14 of the NGRU Disclosure Letter,
neither NGRU nor any of the NGRU Subsidiaries is in violation of any
Environmental Laws which violation could reasonably be expected to result in a
NGRU Material Adverse Effect. Except as set forth in Section 5.14 of the NGRU
Disclosure Letter, neither NGRU, any of the NGRU Subsidiaries, nor, to the
knowledge of NGRU, any third party, has used, released, discharged, generated,
manufactured, produced, stored, or disposed of in, on, or under or about its
owned or leased property or other assets, or transported thereto or therefrom,
any hazardous substances or hazardous wastes, including asbestos, lead and
petroleum, during the period of NGRU's or the NGRU Subsidiary's ownership or
lease of such property in a manner that could reasonably be expected to subject
NGRU or any NGRU Subsidiary to a material liability under the Environmental
Laws. None of NGRU or any of the NGRU Subsidiaries has received written notice
from any governmental authority that any property owned or leased by NGRU or any
of the NGRU Subsidiaries is in violation of any Environmental Laws. There is no
pending civil, criminal or administrative suit or other legal proceeding against
NGRU or any of the NGRU Subsidiaries with respect to any Environmental Laws.
NGRU has provided BPOMS complete copies of all environmental reports,
assessments and studies in NGRU's possession and control with respect to
properties owned or leased by NGRU or any NGRU Subsidiary.
Section 5.15 NO BROKERS.
Neither NGRU nor Merger Sub has entered into any contract, arrangement
or understanding with any Person or firm which may result in the obligation of
such entity or BPOMS to pay any finder's fees, brokerage or agent's commissions
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except as
set forth in the NGRU Disclosure Letter. Except as set forth in the NGRU
Disclosure Letter, neither NGRU nor Merger Sub is aware of any claim for payment
directly by NGRU or Merger Sub of any finder's fees, brokerage or agent's
commissions or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
Section 5.16 RELATED PARTY TRANSACTIONS.
Except as set forth in the NGRU SEC Documents, or the NGRU Disclosure
Letter, since March 31, 2006, no event has occurred that would be required to be
reported by NGRU pursuant to Item 404 of Regulation S-B promulgated under the
Securities Act.
Section 5.17 EMPLOYEE MATTERS AND BENEFIT PLANS.
(a) Section 5.17(a) of the NGRU Disclosure Letter contains an
accurate and complete list of each NGRU Employee Plan (including for
each such plan a description of any of the benefits of which will be
increased, or the vesting of benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this
Agreement of the value of any of the benefits of which will be
calculated on the basis of any transactions contemplated by this
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Agreement) and each Employee Agreement of NGRU. Except as set forth in
Section 5.17(a) of the NGRU Disclosure Letter, neither NGRU nor any of
the NGRU Subsidiaries or Affiliates has any announced plan or
commitment, whether legally binding or not, to establish any new
Employee Plan or Employee Agreement, to modify any Employee Plan or
Employee Agreement (except to the extent required by law or to conform
any such Employee Plan or Employee Agreement to the requirements of any
applicable law, in each case as previously disclosed to BPOMS in
writing, or as required by this Agreement), or to enter into any
Employee Plan or Employee Agreement, nor does it have any intention or
commitment to do any of the foregoing.
(b) NGRU has provided or made available to BPOMS correct and
complete copies of all material documents embodying or relating to each
NGRU Employee Plan and Employee Agreement including: (i) all amendments
thereto and written interpretations thereof; (ii) the most recent
annual actuarial valuations, if any, prepared for each NGRU Employee
Plan; (iii) the three most recent annual reports (Series 5500 and all
schedules thereto), if any, required under ERISA or the Code in
connection with each NGRU Employee Plan or related trust; (iv) if the
NGRU Employee Plan is funded, the most recent annual and periodic
accounting of Employee Plan assets; (v) the most recent summary plan
description together with the most recent summary of material
modifications, if any, required under ERISA with respect to each NGRU
Employee Plan; (vi) all IRS determination letters and rulings relating
to NGRU Employee Plans and copies of all applications and
correspondence to or from the IRS or DOL with respect to any NGRU
Employee Plan; and (vii) all communications material to any Employee or
Employees relating to any NGRU Employee Plan and any proposed NGRU
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of
payments or vesting schedules or other events which would result in any
material liability to NGRU or any NGRU Subsidiary.
(c) (i) Except as set forth in Section 5.17(c) of the NGRU
Disclosure Letter, NGRU and each of the NGRU Subsidiaries and
Affiliates has performed in all material respects all obligations
required to be performed by them under each NGRU Employee Plan, and
each NGRU Employee Plan has been established and maintained in all
material respects in accordance with its terms and in compliance with
all applicable laws, statutes, orders, rules and regulations, including
but not limited to ERISA and the Code; (ii) no "prohibited
transaction," within the meaning of Section 4975 of the Code or Section
406 of ERISA for which no class or statutory exemption is available,
has occurred with respect to any NGRU Employee Plan; (iii) there are no
material actions, suits or claims pending or, to the knowledge of NGRU,
threatened or anticipated (other than routine claims for benefits)
against any NGRU Employee Plan or against the assets of any NGRU
Employee Plan; (iv) such NGRU Employee Plan can be amended, terminated
or otherwise discontinued after the Effective Time in accordance with
its terms, without material liability to NGRU or any of the NGRU
Subsidiaries or any of its Affiliates (other than ordinary
administration expenses typically incurred in a termination event); (v)
there are no audits, inquiries or proceedings pending or, to the
knowledge of NGRU, threatened by the IRS or DOL with respect to any
NGRU Employee Plan; (vi) neither NGRU nor any of the NGRU Subsidiaries
is subject to any penalty or tax with respect to any NGRU Employee Plan
under Section 402(i) of ERISA or Section 4975 through 4980 of the Code;
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and (vii) all contributions, including any top heavy contributions,
required to be made prior to the Closing by NGRU or any ERISA Affiliate
to any Employee Plan have been made or shall be made on or before the
Closing Date.
(d) Neither NGRU nor any of the NGRU Subsidiaries or
Affiliates currently maintain, sponsor, participate in or contribute
to, nor have they ever maintained, established, sponsored, participated
in, or contributed to, any Pension Plan which is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the
Code.
(e) At no time has NGRU or any of the NGRU Subsidiaries or
Affiliates contributed to or been requested or obligated to contribute
to any Multiemployer Plan.
(f) Except as set forth in Section 5.17(f) of the NGRU
Disclosure Letter or as required by local, state or federal law, no
Employee Plan or any other Employment Agreement to which NGRU is a
party provides, or is required to provide, life insurance, medical or
other employee benefits to any Employee upon his or her retirement or
termination of employment for any reason, and NGRU and each of the NGRU
Subsidiaries has never represented, promised or contracted (whether in
oral or written form) to any Employee (either individually or to
Employees as a group) that such Employee(s) would be provided with life
insurance, medical or other employee welfare benefits upon their
retirement or termination of employment.
(g) The execution of this Agreement and the consummation of
the transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any NGRU Employee Plan, Employee Agreement, trust or loan that
will or may result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any NGRU Employee, except as set forth in Schedule 5.17(g)
of the NGRU Disclosure Letter.
(h) NGRU and each of the NGRU Subsidiaries (i) is in
compliance in all respects with all applicable foreign, federal, state
and local laws, rules and regulations respecting employment, employment
practices, terms and conditions of employment and wages and hours, in
each case, with respect to Employees except as would not have an NGRU
Material Adverse Effect; (ii) has withheld all amounts required by law
or by agreement to be withheld from the wages, salaries, and other
payments to Employees; (iii) is not liable for any arrears of wages of
any taxes or any penalty for failure to comply with any of the
foregoing; and (iv) 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 Employees (other than routine payments to
be made in the normal course of business and consistent with past
practice).
(i) No work stoppage or labor strike against NGRU or any NGRU
Subsidiary is pending or, to the knowledge of NGRU, threatened. Neither
NGRU nor any of the NGRU Subsidiaries is involved in or, to the
knowledge of NGRU, threatened with, any labor dispute, grievance,
administrative proceeding or litigation relating to labor, safety,
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employment practices or discrimination matters involving any Employee,
including, without limitation, charges of unfair labor practices or
discrimination complaints, which, if adversely determined, would,
individually or in the aggregate, have a NGRU Material Adverse Effect.
Neither NGRU nor any of the NGRU Subsidiaries has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act
which would, individually or in the aggregate, directly or indirectly
have a NGRU Material Adverse Effect. Neither NGRU nor any of the NGRU
Subsidiaries or Affiliates has ever been a party to any agreement with
any labor organization or union, and none of the NGRU Employees are
represented by any labor organization or union, nor have any NGRU
Employees threatened to organize or join a union or filed a petition
for representation with the National Labor Relations Board.
(j) Section 5.17(j) of the NGRU Disclosure Letter sets forth
(i) the aggregate amounts of bonus and severance payments that could be
payable to Employees of NGRU under existing Employee Agreements or
Employee Plans on account of the transactions contemplated by this
Agreement (without regard to termination of employment), and (ii) the
aggregate amounts of severance obligations that could be payable to
Employees of NGRU under existing Employee Agreements and Employee Plans
on account of terminations of employment following the Effective Time,
separately stating the amounts that are payable by reason of a
termination following a change of control of NGRU.
Section 5.18 INTELLECTUAL PROPERTY.
(a) Section 5.18(a) of the NGRU Disclosure Letter lists all
material proceedings or actions known to NGRU before any court,
tribunal (including the PTO or equivalent authority anywhere in the
world) related to any Intellectual Property owned by, or licensed to,
or controlled by NGRU or any of the NGRU Subsidiaries (the "NGRU
INTELLECTUAL PROPERTY"). No NGRU Intellectual Property is the subject
of any outstanding decree, order, judgment, agreement, or stipulation
restricting in any manner the use, transfer, or licensing thereof by
NGRU or any of the NGRU Subsidiaries, or which may affect the validity,
use or enforceability of any NGRU Intellectual Property.
(b) Section 5.18(b) of the NGRU Disclosure Letter lists all
United States, international and foreign: (a) patents and patent
applications (including provisional applications); (b) registered
trademarks and service marks, applications to register trademarks or
service marks, intent to use applications, or other registrations or
applications related to trademarks or service marks; and (c) registered
copyrights and applications for copyright registration owned by NGRU
(collectively, the "NGRU REGISTERED INTELLECTUAL PROPERTY"). With
respect to each item of NGRU Registered Intellectual Property, all
material registration, maintenance and renewal fees necessary in
connection with such NGRU Registered Intellectual Property have been
made and all material documents and certificates necessary in
connection with such NGRU Registered Intellectual Property have been
filed with the relevant patent, trademark or copyright authorities in
the United States or other jurisdictions for the purposes of
maintaining such NGRU Registered Intellectual Property.
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(c) NGRU and each NGRU Subsidiary has the right to prevent
others from using, marketing, distributing, selling or licensing all
NGRU Intellectual Property used in its business as presently conducted
and as it is expected to be conducted as of the Effective Time,
including without limitation, all Intellectual Property used or to be
used in the NGRU Products (as defined below), and such rights to
Utilize are sufficient for such conduct of their respective businesses.
(d) To NGRU's knowledge, neither the manufacture, development,
publication, marketing, license, sale, distribution or use intended by
NGRU or any of the NGRU Subsidiaries of any NGRU Intellectual Property
currently being licensed, produced or sold by NGRU or any of the NGRU
Subsidiaries or currently under development or consideration by NGRU or
any of the NGRU Subsidiaries (the "NGRU PRODUCTS") violates any license
or agreement between NGRU or any of the NGRU Subsidiaries and any third
party or, to NGRU's knowledge, infringes any Intellectual Property
right, moral right or right of publicity or privacy of any other party,
and, except as set forth in Section 5.18(d) of the Disclosure Letter,
NGRU has not received notice of any pending or threatened claim or
litigation contesting the validity, ownership or right to Utilize any
NGRU Intellectual Property nor, to the knowledge of NGRU, is there any
basis for any such claim under applicable law, nor has NGRU or any of
the NGRU Subsidiaries received any notice asserting that any NGRU
Intellectual Property or Utilization thereof conflicts or will conflict
with the rights of any other party. Section 5.18(d) of the NGRU
Disclosure Letter sets forth a list of all NGRU Products.
(e) NGRU and the NGRU Subsidiaries have timely and
satisfactorily fulfilled their respective obligations under all
material agreements pursuant to which NGRU or any of the NGRU
Subsidiaries, as the case may be, has agreed to program, design or
develop on behalf of a third party, whether for original use or for
porting or conversion (for use on a different hardware platform or in a
different language), any software products or any part thereof, except
where the failure to so comply would not reasonably be expected to have
a NGRU Material Adverse Effect.
(f) Except as set forth in Section 5.18(f) of the NGRU
Disclosure Letter, to the extent that any work, invention, or material
has been developed or created by a third party for NGRU or any of the
NGRU Subsidiaries, to NGRU's knowledge, NGRU and each of the NGRU
Subsidiaries has a written agreement with such third party with respect
thereto and NGRU and each of the NGRU Subsidiaries thereby has obtained
ownership of, and is the exclusive owner of, or has a valid license to
use, all NGRU Intellectual Property in such work, material or invention
by operation of law or by valid assignment or by agreement, as the case
may be.
(g) Section 5.18(g) of the NGRU Disclosure Letter lists all
material contracts, licenses and agreements to which NGRU or any of the
NGRU Subsidiaries is a party that are currently in effect (i) with
respect to NGRU Intellectual Property licensed or offered to any third
party; or (ii) pursuant to which a third party has licensed or
transferred any Intellectual Property to NGRU or any of the NGRU
Subsidiaries. Except as set forth in Section 5.18(g) of the NGRU
Disclosure Letter, neither NGRU nor any of the NGRU Subsidiaries has
transferred ownership of, or granted any exclusive license with respect
to, any NGRU Intellectual Property, to any third party.
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(h) Except as set forth in Section 5.18(h) of the NGRU
Disclosure Letter, the contracts, licenses and agreements listed in
Section 5.18(h) are in full force and effect to NGRU's knowledge. The
consummation of the transactions contemplated by this Agreement will
not violate or result in the breach, modification, cancellation,
termination, or suspension of such contracts, licenses and agreements
listed in Section 5.18(h) and will not cause the forfeiture or
termination or give rise to a right of forfeiture or termination of any
rights of NGRU to any NGRU Intellectual Property or impair the right of
NGRU or any of the NGRU Subsidiaries to Utilize any NGRU Intellectual
Property or portion thereof (other than that part of NGRU Intellectual
Property being sold or transferred as part of the NGRU Divestiture).
NGRU and each of the NGRU Subsidiaries is in material compliance with,
and has not materially breached any term any of such contracts,
licenses and agreements listed in Section 5.18(h) and, to the knowledge
of NGRU, all other parties to such contracts, licenses and agreements
listed in Section 5.18(h) are in compliance with, and have not breached
any term of, such contracts, licenses and agreements. Except as set
forth in Section 5.18(h) of the NGRU Disclosure Letter, following the
Effective Time NGRU and each of the NGRU Subsidiaries will be permitted
to exercise all of NGRU's and each of the NGRU Subsidiaries', if any,
respective rights under the contracts, licenses and agreements listed
in Section 5.18(h) to the same extent NGRU and such NGRU Subsidiary
would have been able to had the transactions contemplated by this
Agreement not occurred and without the payment of any additional funds
other than ongoing fees, royalties or payments which NGRU or such NGRU
Subsidiary would otherwise be required to pay.
(i) [Reserved]
(j) Except as set forth in Section 5.18(j) of the NGRU
Disclosure Letter, (a) NGRU and each of the NGRU Subsidiaries
(including each of their executive officers, directors and, to the
knowledge of NGRU, employees) has not received any notice or claim
(whether written, oral or otherwise) challenging NGRU's ownership or
rights in the NGRU Intellectual Property or claiming that any other
Person or entity has any legal or beneficial ownership with respect
thereto; (b) all the NGRU Intellectual Property rights owned by NGRU
and embodied in its products are, to NGRU's knowledge, legally valid
and enforceable without any material qualification, limitation or
restriction on their use, and NGRU has not received any notice or claim
(whether written or oral) challenging the validity or enforceability of
any of the NGRU Intellectual Property rights; and (c) to NGRU's
knowledge, no third party is infringing or misappropriating any part of
the NGRU Intellectual Property.
(k) NGRU and each of the NGRU Subsidiaries has taken
reasonable and practicable measures designed to protect their
respective rights in their respective confidential information and
trade secrets or any trade secrets or confidential information of third
parties provided to NGRU or any of the NGRU Subsidiaries. None of NGRU
or any of the NGRU Subsidiaries, or any employees or, to NGRU's
knowledge, consultants of NGRU or any of the NGRU Subsidiaries, has
permitted any such confidential information or trade secrets to be
used, divulged or appropriated for the benefit of Persons to the
material detriment of NGRU or any of the NGRU Subsidiaries.
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(l) Section 5.18(l) of the NGRU Disclosure Letter sets forth a
list of all Internet domain names used by NGRU in its business
(collectively, the "NGRU DOMAIN NAMES"). To NGRU's knowledge, NGRU has
a valid registration and all material rights (free of any material
restriction) in and to the NGRU Domain Names, including, without
limitation, all rights necessary to continue to conduct NGRU's business
as it is currently conducted.
(m) Neither NGRU nor any of the NGRU Subsidiaries is or has
been a party to any Government Contract relating to or affecting
ownership or Utilization of any NGRU Intellectual Property.
Section 5.19 ANTI-TAKEOVER MATTERS.
NGRU and Merger Sub have taken all action necessary to exempt the
merger and the other transactions contemplated by this Agreement from the
operation of any "fair price," "moratorium," "control share acquisition," or
other similar anti-takeover statute or regulation enacted under the state or
federal laws of the United States, including without limitation, Section 203 of
the DGCL. Neither NGRU nor any NGRU Subsidiary has in effect any plan, scheme,
device or arrangement commonly or colloquially known as a "poison pill" or an
"anti-takeover" plan or any similar plan, scheme, device or arrangement.
Section 5.20 VOTE REQUIRED.
The affirmative vote of the holders of a majority of the shares of NGRU
Common Stock entitled to vote at the NGRU Stockholders Meeting is the only vote
of the holders of any class or series of NGRU's capital stock necessary to
approve the (i) issuance of NGRU Common Stock in the Merger; (ii) the change of
control of NGRU for purposes of NASD Rule 4350(i)(B); (iii) the Charter
Amendment and the Reverse Split; and the NGRU Divestiture (collectively, the
"NGRU STOCKHOLDER VOTE").
Section 5.21 UNDISCLOSED LIABILITIES.
Except as set forth in Section 5.21 of the NGRU Disclosure Letter and
except as and to the extent reflected, reserved against or otherwise disclosed
in NGRU's consolidated balance sheet dated March 31, 2006 (including the notes
thereto), neither NGRU nor the NGRU Subsidiaries have any liabilities or
obligations of any kind, whether accrued, absolute, asserted or unasserted,
contingent or otherwise, whether or not such liabilities would have been
required to be reflected in a balance sheet prepared in accordance with GAAP
consistently applied, which would be reasonably expected to have, individually
or in the aggregate, a NGRU Material Adverse Effect.
Section 5.22 INSURANCE.
NGRU maintains, and has maintained or caused to be maintained, without
interruption, during its existence, policies or binders of insurance covering
such risk, and events, including personal injury, property damage, errors and
omissions and general liability in amounts NGRU reasonably believes adequate for
its business and operations, and its current insurance policies (other than
directors' and officers' insurance) will not terminate due to the consummation
of the Merger. Section 5.22 of the NGRU Disclosure Letter sets forth a summary
of all current insurance policies (including, without limitation, limits,
deductibles and terms) maintained by NGRU and the NGRU Subsidiaries.
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Section 5.23 RELATIONSHIPS WITH SUPPLIERS, LICENSORS AND
CUSTOMERS.
No current distributor, customer of NGRU or supplier to NGRU or any of
the NGRU Subsidiaries has notified NGRU or such NGRU Subsidiary of an intention
to terminate or substantially alter its existing business relationship with NGRU
or such NGRU Subsidiary, nor has any licensor under a license agreement with
NGRU or any of the NGRU Subsidiaries notified NGRU or such NGRU Subsidiary of an
intention to terminate or substantially alter NGRU's or such NGRU Subsidiary's
rights under such license, which termination or alteration would not be
reasonably expected to have a NGRU Material Adverse Effect.
Section 5.24 CONTINUITY OF BUSINESS ENTERPRISE.
It is the present intention of NGRU to continue at least one
significant historic business line of BPOMS, or to use at least a significant
portion of BPOMS's historic assets in a business, in each case within the
meaning of the United States Treasury Regulations Section 1.368-1(d).
Section 5.25 SEC FILINGS; FINANCIAL STATEMENTS.
(a) NGRU has delivered to BPOMS accurate and complete copies
of all registration statements, proxy statements, Certifications (as
defined below) and other statements, reports, schedules, forms and
other documents filed by NGRU with the SEC since March 31, 2003 (the
"NGRU SEC DOCUMENTS"), other than such documents that can be obtained
on the SEC's website at xxx.xxx.xxx. Except as set forth on Section
5.25(a) of the NGRU Disclosure Letter or as would not have a NGRU
Material Adverse Effect, all statements, reports, schedules, forms and
other documents required to have been filed by NGRU with the SEC have
been filed on a timely basis. None of the NGRU Subsidiaries is required
to file any documents with the SEC under the Exchange Act. As of the
time it was filed with the SEC (or, if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing): (i) each of the NGRU SEC Documents complied in all material
respects with the applicable requirements of the Securities Act or the
Exchange Act (as the case may be); and (ii) none of the NGRU SEC
Documents contained any untrue statement of a material fact or omitted
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The certifications and
statements required by (A) Rule 13a-14 under the Exchange Act and (B)
18 U.S.C. ss.1350 (Section 906 of the Xxxxxxxx-Xxxxx Act) relating to
the NGRU SEC Documents (collectively, the "CERTIFICATIONS") are
accurate and complete and comply as to form and content with all
applicable laws or rules of applicable governmental and regulatory
authorities.
(b) Except as described in the NGRU SEC Documents, (i) NGRU
maintains disclosure controls and procedures that satisfy the
requirements of Rule 13a-15 under the Exchange Act, and (ii) such
disclosure controls and procedures are designed to ensure that all
material information concerning NGRU is made known on a timely basis to
the individuals responsible for the preparation of NGRU's filings with
the SEC and other public disclosure documents. Except as set forth in
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Section 5.25(b) of the NGRU Disclosure Letter, NGRU is in compliance
with the applicable listing and other rules and regulations of the
Nasdaq Capital Market and has not received any notice from the Nasdaq
Capital Market asserting any present non-compliance with such rules and
regulations.
(c) The financial statements (including any related notes)
contained or incorporated by reference in the NGRU SEC Documents: (i)
complied as to form in all material respects with the published rules
and regulations of the SEC applicable thereto; (ii) were prepared in
accordance with GAAP (except as may be indicated in the notes to such
financial statements or, in the case of unaudited financial statements,
as permitted by Form 10-QSB of the SEC, and except that the unaudited
financial statements may not contain footnotes and are subject to
normal and recurring year-end adjustments that are not reasonably
expected to be material in amount) applied on a consistent basis unless
otherwise noted therein throughout the periods indicated; and (iii)
fairly present the consolidated financial position of NGRU and the NGRU
Subsidiaries as of the respective dates thereof and the consolidated
results of operations and cash flows of NGRU and the NGRU Subsidiaries
for the periods covered thereby.
(d) NGRU's auditor has at all required times since the date of
enactment of the Xxxxxxxx-Xxxxx Act been: (i) to the knowledge of NGRU,
a registered public accounting firm (as defined in Section 2(a)(12) of
the Xxxxxxxx-Xxxxx Act); (ii) "independent" with respect to NGRU and
the NGRU Subsidiaries within the meaning of Regulation S-X under the
Exchange Act; and (iii) to the knowledge of NGRU, in compliance with
subsections (g) through (l) of Section 10A of the Exchange Act and the
rules and regulations promulgated by the SEC and the Public Company
Accounting Oversight Board thereunder. Section 5.25(d) of the NGRU
Disclosure Letter contains an accurate and complete description of all
non-audit services performed by NGRU's auditors for NGRU and the NGRU
Subsidiaries since March 31, 2003 and the fees paid for such services.
All such non-audit services were approved as required by Section 202 of
the Xxxxxxxx-Xxxxx Act.
(e) Section 5.25(f) of the NGRU Disclosure Letter lists, and
NGRU has delivered to BPOMS accurate and complete copies of the
documentation creating or governing, all securitization transactions
and "off-balance sheet arrangements" (as defined in Item 303(c) of
Regulation S-K under the Exchange Act) effected by NGRU since March 31,
2003.
ARTICLE 6
COVENANTS AND OTHER AGREEMENTS
Section 6.1 CONDUCT OF BUSINESSES.
(a) During the period from the date of this Agreement until
the Effective Time, except as specifically permitted by this Agreement,
unless the other Party has consented in writing thereto:
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(i) BPOMS and NGRU shall use their reasonable best
efforts, and shall cause their respective Subsidiaries to use
their reasonable best efforts, to preserve intact their
business organizations and goodwill;
(ii) BPOMS and NGRU shall confer on a regular basis
with one or more representatives of the other to report on
material operational matters relating to the business of BPOMS
and the BPOMS Subsidiaries;
(iii) NGRU will cooperate with and, at the request of
BPOMS, provide reasonable assistance to BPOMS to seek to
reduce or avoid disruptions to BPOMS's business that may
result from or arise out of the announcement or pendency of
the transactions contemplated hereby;
(iv) BPOMS and NGRU shall promptly notify the other
of any material emergency or other material change in the
condition (financial or otherwise), business, properties,
assets, liabilities or the normal course of its businesses or
in the operation of their properties, any material
governmental complaints, investigations or hearings (or
communications indicating that the same may be contemplated);
(v) NGRU shall promptly deliver to BPOMS true and
correct copies of any report, statement or schedule filed with
the SEC subsequent to the date of this Agreement other than
those reports, statements or schedules that are available
through the SEC's website; and
(vi) In the event either Party becomes aware that any
of its respective representations or warranties set forth in
Sections 4 and 5 hereof will not be true and correct in all
material respects on the Closing Date as if made at and as of
the Closing Date, such Party shall give prompt written notice
thereof to the other Party, and shall give access to all
appropriate information related thereto that is in its
possession or control.
(b) Prior to the Closing Date, except as expressly provided in
this Agreement or unless BPOMS has first obtained written consent of
NGRU, BPOMS:
(i) Shall, and shall cause each BPOMS Subsidiary to,
conduct its operations according to their usual, regular and
ordinary course in substantially the same manner as heretofore
conducted, preserve and protect the BPOMS Intellectual
Property and keep available the services of its officers and
employees;
(ii) Shall not amend BPOMS's Certificate of
Incorporation or By-laws, and shall cause each BPOMS
Subsidiary not to amend its certificates of incorporation,
bylaws or equivalent organizational documents;
(iii) Shall not, and shall cause each BPOMS
Subsidiary not to, (A) issue or authorize for issue any BPOMS
Common Stock or any other capital stock or security
convertible into or exercisable for any of the foregoing
(except for (I) shares of BPOMS Common Stock issued upon the
exercise of options or warrants outstanding as of the date of
this Agreement, (II) options issued as permitted under the
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following clause (B), (III) up to 200,000 shares of BPOMS
Common Stock that may be issued if BPOMS enters into a
definitive agreement for or closes the proposed acquisition as
permitted by Section 6.9(a)(C), (IV) warrants to purchase up
to a maximum of 1,000,000 shares of BPOMS common stock as
permitted under the terms of the Bridge Loan Agreement as
entered into on August 18, 2006 among BPOMS, Xxxxxxx Xxxxx and
Xxxxx Xxxxxxx ("BRIDGE LOAN AGREEMENT"), (V) the entry into an
agreement to authorize the issuance of securities in a
financing transaction permitted by Section 6.9(a)(B), (VI)
such number of shares, if any, of BPOMS Series C Preferred
Stock that may be issued in accordance with Section 6.11 and
the Bridge Loan Agreement), effect any share split, reverse
share split, share dividend, recapitalization or other similar
transaction or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
BPOMS capital stock or capital stock of any BPOMS Subsidiary,
(B) grant, confer or award any option, warrant, conversion
right or other right not existing on the date hereof to
acquire, redeem or repurchase any BPOMS capital stock except
for the grant to BPOMS employees who are not currently
officers, directors or stockholders of BPOMS of stock options
to purchase up to an aggregate of 400,000 shares of BPOMS
Common Stock under BPOMS' existing 2005 stock option plan on
terms consistent with past practice (including initial vesting
no earlier than six months after the date of grant), and the
grant of options to Xxxxx Xxxxxx or Xxxxxxx Xxxxx in
connection with employment agreements contemplated to be
entered into prior to the Closing Date, (C) increase any
compensation or enter into or amend any employment agreement
with any of its present or future officers, directors or
employees, other than Xxxxx Xxxxxx and Xxxxxxx Xxxxx, (D)
adopt any new Employee Plan or (except as contemplated in this
Agreement) amend any existing BPOMS Employee Plan or severance
or termination pay policies in any material respect, except
for changes which are less favorable to participants in such
plans; or (E) authorize, declare, set aside or pay any
dividends or make any other distribution or payments with
respect to any BPOMS capital stock, directly or indirectly
redeem, purchase or otherwise acquire any BPOMS capital stock
or capital stock of any of the BPOMS Subsidiaries, or make any
commitment for any such action;
(iv) Shall not, and shall not permit any of the BPOMS
Subsidiaries to, pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or
contemplated by, the BPOMS Financials (or the notes thereto)
or incurred after the date thereof in the ordinary course of
business consistent with past practice, and other than the
settlement of the two litigation matters named in Section 4.9
of the BPOMS Disclosure Letter if such litigation settlement
would not have a material effect on BPOMS' financial condition
or results of operations or BPOMS' ability to fulfill its
obligations under this Agreement;
(v) Shall not, and shall not permit any of the BPOMS
Subsidiaries to, enter into or amend, modify or terminate any
contract which may result in total fixed or guaranteed
payments or liability by or to it in excess of $100,000 other
than contracts for expenses of attorneys and accountants
incurred in connection with the Merger and office space leases
on commercially reasonable terms;
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(vi) Shall not, and shall not permit any of the BPOMS
Subsidiaries to, enter into or amend any contract with any
officer, trustee, director, consultant or affiliate of BPOMS
or any of the BPOMS Subsidiaries;
(vii) Shall, and shall cause each BPOMS Subsidiary
to, timely prepare, in a manner consistent with past practice,
and file all Tax Returns required to be filed the due date of
which (including reasonable extensions) occurs on or before
the Effective Time and pay all Taxes due with respect to any
such Tax Returns;
(viii) Shall not make or rescind any express or
deemed election relating to Taxes, settle or compromise any
claim, suit, litigation, proceeding, investigation, audit or
controversy relating to Taxes (unless required by law);
(ix) Shall not enter into, terminate or materially
amend or renew any contract other than with third parties in
the ordinary course of operating its business consistent with
past practice, except that BPOMS may enter into or terminate
office space leases on commercially reasonable terms; and
(x) Shall not incur any indebtedness or other
obligation for borrowed money other than trade payables and
other accruals made in the ordinary course of business
consistent with past practice.
(c) Prior to the Closing Date, except as expressly provided in
this Agreement or the NGRU Divestiture Agreement unless NGRU has first
obtained written consent of BPOMS, NGRU:
(i) Shall, and shall cause each NGRU Subsidiary to,
conduct its operations according to their usual, regular and
ordinary course in substantially the same manner as heretofore
conducted, preserve and protect the NGRU Intellectual
Property, except as such operations relate to the NGRU
Divestiture;
(ii) Except as otherwise expressly provided in this
Agreement or the NGRU Divestiture Agreement, shall not amend
NGRU's Certificate of Incorporation or By-laws, and shall
cause each NGRU Subsidiary not to amend its certificates of
incorporation, bylaws or equivalent organizational documents;
(iii) Shall not, and shall cause each NGRU Subsidiary
not to, (A) issue or authorize for issue any NGRU Common Stock
(except for shares issued upon the exercise of currently
outstanding share options or warrants therefor) or any other
capital stock or security convertible into or exercisable for
any of the foregoing, effect any share split, reverse share
split, share dividend, recapitalization or other similar
transaction or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for
NGRU capital stock or capital stock of any NGRU Subsidiary,
(B) grant, confer or award any option, warrant, conversion
right or other right not existing on the date hereof to
acquire, redeem or repurchase any NGRU Common Stock, (C)
increase any compensation or enter into or amend any
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employment agreement with any of its present or future
officers, directors or employees, other than Xxxxx Xxxxxx and
Xxxxxxx Xxxxx, (D) adopt any new employee benefit plan or
amend any existing NGRU Employee Plan or severance or
termination pay policies in any material respect, except for
changes which are less favorable to participants in such
plans; or (E) authorize, declare, set aside or pay any
dividends (except as expressly provided in this Agreement) or
make any other distribution or payments with respect to any
NGRU Common Stock, directly or indirectly redeem, purchase or
otherwise acquire any NGRU capital stock or capital stock of
any of the NGRU Subsidiaries, or make any commitment for any
such action;
(iv) Shall not, and shall not permit any of the NGRU
Subsidiaries to, pay, discharge or satisfy any claims,
liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business
consistent with past practice or in accordance with their
terms, of liabilities reflected or reserved against in, or
contemplated by, the NGRU SEC Documents (or the notes thereto)
or incurred after the date thereof in the ordinary course of
business consistent with past practice;
(v) Shall not, and shall not permit any of the NGRU
Subsidiaries (other than the Divested Subsidiary) to, enter
into or amend, modify or terminate any contract which may
result in total fixed or guaranteed payments or liability by
or to it in excess of $100,000 other than contracts for
expenses of attorneys and accountants incurred in connection
with the Merger and the NGRU Divestiture;
(vi) Except as expressly contemplated by this
Agreement or the NGRU Divestiture Agreement, shall not, and
shall not permit any of the NGRU Subsidiaries to, enter into
any contract with any officer, trustee, director, consultant
or affiliate of NGRU or any of the NGRU Subsidiaries;
(vii) Shall, and shall cause each NGRU Subsidiary to,
timely prepare, in a manner consistent with past practice, and
file all Tax Returns required to be filed the due date of
which (including reasonable extensions) occurs on or before
the Effective Time and pay all Taxes due with respect to any
such Tax Returns;
(viii) Shall not make or rescind any express or
deemed election relating to Taxes, settle or compromise any
claim, suit, litigation, proceeding, investigation, audit or
controversy relating to Taxes (unless required by law);
(ix) Shall not enter into, terminate or materially
amend or renew any contract other than with third parties in
the ordinary course of operating its business consistent with
past practice; and
(x) Shall not incur any indebtedness or other
obligation for borrowed money other than trade payables and
other accruals made in the ordinary course of business
consistent with past practice.
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Section 6.2 MEETING OF STOCKHOLDERS.
(a) NGRU will take all action necessary in accordance with
applicable law and its respective Certificate of Incorporation, to
convene an annual or special meeting of its stockholders (the "NGRU
MEETING") as promptly as practicable to consider and vote upon the
approval of this Agreement and the transactions contemplated hereby
including the change of control of NGRU, the Charter Amendment, the
Reverse Split and the NGRU Divestiture. The Board of Directors of NGRU
shall recommend that its stockholders approve this Agreement and the
transactions contemplated hereby and NGRU shall use its reasonable best
efforts to obtain such approval; provided, however, that nothing
contained in this Section 6.2 shall prohibit the directors of NGRU from
failing to make or withdrawing such recommendation or using their
reasonable best efforts to obtain such approval if such directors have
determined in good faith, based upon the advice of their respective
outside legal counsel, that such action is necessary for such directors
to comply with their fiduciary duties to NGRU's stockholders under
applicable law.
(b) As promptly as practicable following the date hereof, but
in any event no later than the later of the fifth business day (or, if
such day is not a date on which the SEC is open to receive filings,
then the next such day thereafter) after NGRU has received all of the
information it reasonably requires from BPOMS in connection with the
preparation of the Proxy Statement (as defined below) and September 22,
0000, XXXX shall prepare and, following review and incorporation of
reasonable comments by BPOMS (which review period shall be no greater
than two business days), file with the SEC a preliminary proxy
statement and form of proxy, or preliminary information statement, as
permitted by Regulation 14A or 14C, as applicable, under the Securities
Exchange Act of 1934, as amended ("EXCHANGE ACT") relating to the NGRU
Meeting and the vote of the stockholders of NGRU with respect to this
Agreement, the Merger, the transactions contemplated by this Agreement,
the change of control of NGRU, the Charter Amendment, the Reverse Split
and the NGRU Divestiture. As soon as practicable and permitted under
applicable laws, NGRU shall prepare the related final proxy statement
or final information statement (such final proxy statement or final
information statement, the "PROXY STATEMENT"), mail such Proxy
Statement to its shareholders and file such Proxy Statement with the
SEC. BPOMS shall promptly furnish all information about itself and its
business and operations and all necessary financial information to NGRU
as it may reasonably request in connection with the preparation of the
Proxy Statement, it being understood that prior to execution of this
Agreement, NGRU has requested BPOMS to provide NGRU with all financial
and other information required by Regulation 14A under the Exchange Act
to be disclosed in the Proxy Statement with regard to BPOMS and its
business, operations and financial condition, and the acquisition and
financing transactions permitted by Sections 6.9(a)(B) and 6.9(a)(C).
BPOMS shall ensure that the financial statements to be included in the
Proxy Statement (i) are prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be
indicated in the footnotes thereto and that the interim financial
statements may not have notes thereto and other presentation items that
may be required by GAAP and are subject to normal and recurring
year-end adjustments that are not reasonably expected to be material in
amount), (ii) fairly present in all material respects the consolidated
financial position and operating results and cash flows of the issuer
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of the financial statements as of the dates and for the periods
indicated therein, (iii) comply as to form in all material respects
with the published rules and regulations of the SEC as would be
applicable thereto if the issuer of the financial statements were
subject to the reporting requirements of the Exchange Act, and (iv) in
the case of the interim financial statements, have been reviewed by the
auditor of BPOMS to the same extent as if the issuer of the financial
statements were subject to the reporting requirements of the Exchange
Act.
(c) As promptly as practicable following the date hereof, and
in any event on or before September 12, 2006 ("INFORMATION DEADLINE"),
NGRU shall deliver to BPOMS a draft of the preliminary proxy statement
containing all information required to be included therein, other than
such information as is to be provided by or is dependent upon
information provided by BPOMS pursuant to Section 6.2(b) above.
(d) For each day, if any, past the Information Deadline that
any information requested prior to the Information Deadline pursuant to
Section 6.2(b) above has not been delivered to NGRU, BPOMS shall pay to
NGRU in cash $5,000, with such payments to be made in arrears, through
and including the final date of delivery to NGRU of the information, on
a weekly basis every Friday, commencing September 15, 2006, with the
final payment to be made on the final date of delivery to NGRU of the
information. If, on or after the Information Deadline, NGRU reasonably
requests additional information or clarification from BPOMS in
connection with the preparation of the proxy statement, then BPOMS
shall have one (1) business day to provide the additional requested
information or clarification to NGRU. If such additional requested
information or clarification is not provided to NGRU within such
timeframe, then BPOMS shall pay to NGRU in cash $5,000 for each day
that delivery of such information is delayed, with payments to be made
on a weekly basis in the manner described above in this Section 6.2(c).
Section 6.3 APPROVALS; OTHER ACTION.
Subject to the terms and conditions herein provided, BPOMS and NGRU
shall: (i) use all reasonable best efforts to cooperate with one another in (x)
determining which filings are required to be made prior to the Effective Time
with, and which consents, approvals, permits or authorizations are required to
be obtained prior to the Effective Time from, governmental or regulatory
authorities of the United States, the several states and any third parties in
connection with the execution and delivery of this Agreement, the consummation
of the transactions contemplated by this Agreement and (y) timely making all
such filings and timely seeking all such consents, approvals, permits or
authorizations; (ii) use all reasonable best efforts to obtain in writing any
consents required from third parties to effectuate the Merger, such consents to
be in form reasonably satisfactory to BPOMS and NGRU; and (iii) use all
reasonable best efforts to take, or cause to be taken, all other actions and do,
or cause to be done, all other things necessary, proper or appropriate to
consummate and make effective the transactions contemplated by this Agreement.
If, at any time after the Effective Time, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and
directors NGRU and BPOMS shall take all such necessary action.
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Section 6.4 ACCESS TO INFORMATION; DUE DILIGENCE.
(a) Upon reasonable notice and subject to restrictions
contained in confidentiality agreements by which BPOMS and NGRU are
bound, BPOMS and NGRU shall (and shall cause their respective
Subsidiaries to) afford to the officers, employees, accountants,
counsel and other representatives of the other reasonable access,
during normal business hours during the period prior to the Effective
Time, to all their properties, books, contracts, commitments and
records and permit such Persons to make such inspections as they may
reasonably require and, during such period, each of BPOMS and NGRU
shall (and shall cause their respective Subsidiaries to) furnish
promptly to the other all information concerning its business,
properties and Personnel as the other may reasonably request; provided
that if a Party is withholding information because it is obligated to
do so pursuant to a confidentiality agreement by which it is bound, the
Party shall give the other notice of such withholding.
(b) In the event of termination of this Agreement for any
reason each Party shall promptly return all such information obtained
from the other, and any copies made of, or reports or analyses based
on, such information, to the other and not use any such information for
any purpose that would be competitive with or cause material harm to
the other.
Section 6.5 PUBLICITY.
NGRU and BPOMS shall consult with each other before issuing any press
release or otherwise making any public statements with respect to this Agreement
or any transaction contemplated herein and shall not issue any such press
release or make any such public statement without the prior consent of the other
Party, which consent shall not be unreasonably withheld; provided, however, that
a Party may, without the prior consent of the other Party, issue such press
release or make such public statement as may be required by law or the rules of
the Nasdaq Stock Market if it has used its reasonable best efforts to consult
with the other Party and to obtain such Party's consent but has been unable to
do so in a timely manner.
Section 6.6 LISTING OF NGRU COMMON STOCK.
NGRU shall use its reasonable best efforts to maintain its listing on
the Nasdaq Capital Market and to cause the NGRU Shares to be listed, upon
official notice of issuance, on the Nasdaq Capital Market prior to the Effective
Time.
Section 6.7 FURTHER ACTION.
Each Party hereto shall, subject to Article 8 and subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may reasonably be required to effect the Merger.
Section 6.8 TAX TREATMENT.
No Party shall take any action either prior to or after the Effective
Time that could reasonably be expected to cause the Merger to fail to qualify as
a "reorganization" under Section 368(a) of the Code. BPOMS covenants that at the
time of the Merger, its assets will satisfy the "substantially all" test within
the meaning of Revenue Procedure 77-37, 1977-2 C.B. 568.
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Section 6.9 NO SOLICITATION.
(a) For purposes of this Agreement, "ACQUISITION PROPOSAL"
shall mean, with respect to a Party, any offer or proposal (other than
an offer or proposal made or submitted by BPOMS, on the one hand or
NGRU, on the other hand, to the other Party and other than the NGRU
Divestiture) contemplating or otherwise relating to any Acquisition
Transaction with such Party. "ACQUISITION TRANSACTION" shall mean any
transaction or series of transactions (other than (A) the NGRU
Divestiture, (B) a private placement of shares of NGRU Common Stock or
securities convertible into or exercisable for shares of NGRU Common
Stock, which private placement would be for the purpose of raising up
to $15,000,000 of working capital for NGRU, would close after the
Effective Time on terms consistent with the proxy statement information
provided by BPOMS to NGRU on or prior to the Information Deadline, and
would not require a stockholder vote, and (C) the proposed acquisition
described in Section 6.9 of the BPOMS Disclosure Letter, provided that
the terms of such acquisition and all required financial and other
information regarding the acquisition required to be disclosed in the
Proxy Statement pursuant to Regulation 14A under the Exchange Act are
fully disclosed in the proxy statement information provided by BPOMS to
NGRU on or prior to the Information Deadline) involving:
(i) any merger, consolidation, amalgamation, share
exchange, business combination, issuance of securities,
acquisition of securities, reorganization, recapitalization,
tender offer, exchange offer or other similar transaction: (i)
in which a Party is a constituent corporation; (ii) in which a
Person or "group" (as defined in the Exchange Act and the
rules promulgated thereunder) of Persons directly or
indirectly acquires beneficial or record ownership of
securities representing more than 15% of the outstanding
securities of any class of voting securities of a Party or any
of its Subsidiaries; (iii) in which a Party or any of its
Subsidiaries issues securities representing more than 15% of
the outstanding securities of any class of voting securities
of such Party or any of its Subsidiaries; or (iv) in which a
Party or any of its Subsidiaries would acquire a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X
promulgated under the Exchange Act.
(ii) any sale, lease, exchange, transfer, license,
acquisition or disposition of any business or businesses or
assets that constitute or account for: (i) 15% or more of the
consolidated net revenues of a Party and its Subsidiaries,
taken as a whole, consolidated net income of a Party and its
Subsidiaries, taken as a whole, or consolidated book value of
the assets of a Party and its Subsidiaries, taken as a whole;
or (ii) 15% or more of the fair market value of the assets of
a Party and its Subsidiaries, taken as a whole; or
(iii) any liquidation or dissolution of a Party.
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(b) For purposes of this Agreement, "SUPERIOR OFFER" shall
mean an unsolicited bona fide written offer made to NGRU or any of its
Subsidiaries by a third party to enter into (i) a merger,
consolidation, amalgamation, share exchange, business combination,
issuance of securities, acquisition of securities, reorganization,
recapitalization, tender offer, exchange offer or other similar
transaction as a result of which either (A) the Party's stockholders
prior to such transaction in the aggregate cease to own at least 50% of
the voting securities of the entity surviving or resulting from such
transaction (or the ultimate parent entity thereof) or (B) in which a
Person or "group" (as defined in the Exchange Act and the rules
promulgated thereunder) directly or indirectly acquires beneficial or
record ownership of securities representing 50% or more of the Party's
capital stock or (ii) a sale, lease, exchange transfer, license,
acquisition or disposition of any business or other disposition of at
least 50% of the assets of the Party or its Subsidiaries, taken as a
whole, in a single transaction or a series of related transactions
that: (a) was not obtained or made as a direct or indirect result of a
breach of (or in violation of) the Agreement; and (b) is on terms and
conditions that the board of directors of NGRU determines, in its
reasonable, good faith judgment, after obtaining and taking into
account such matters that its board of directors deems relevant
following consultation with its outside legal counsel and financial
advisor: (x) is reasonably likely to be more favorable, from a
financial point of view, to NGRU's stockholders, than the terms of the
transactions contemplated by the Merger Agreement; and (y) is
reasonably capable of being consummated; provided, however, that any
such offer shall not be deemed to be a "Superior Offer" if any
financing required to consummate the transaction contemplated by such
offer is not committed and is not reasonably capable of being obtained
by such third party.
(c) Each Party agrees that neither it nor any of its
Subsidiaries shall, nor shall it nor any of its Subsidiaries authorize
or permit any of the officers, directors, investment bankers, attorneys
or accountants retained by it or any of its Subsidiaries to, and that
it shall use commercially reasonable efforts to cause its and its
Subsidiaries' non-officer employees and other agents not to (and shall
not authorize any of them to) directly or indirectly: (i) solicit,
initiate, encourage, induce or knowingly facilitate the communication,
making, submission or announcement of any Acquisition Proposal; (ii)
furnish any information regarding such Party to any Person in
connection with or in response to an Acquisition Proposal; (iii) engage
in discussions or negotiations with any Person with respect to any
Acquisition Proposal; (iv) approve, endorse or recommend any
Acquisition Proposal; or (v) execute or enter into any letter of intent
or similar document or any agreement contemplating or otherwise
relating to any Acquisition Transaction; provided, however, that,
nothing contained in this Agreement shall prevent NGRU or its board of
directors from (1) complying with its disclosure obligations under
Sections 14d-9 and 14e-2 of the Exchange Act with regard to an
Acquisition Proposal; provided, further however, that, if such
disclosure has the substantive effect of withdrawing, modifying or
qualifying the directors' recommendation in a manner adverse to BPOMS
or the adoption of this Agreement by the NGRU Board of Directors, BPOMS
and NGRU each shall have the right to terminate this Agreement as set
forth in Section 8.1(e); and (2) at any time prior to the approval of
the transactions contemplated by this Agreement by NGRU's stockholders,
NGRU may furnish nonpublic information regarding NGRU or its
Subsidiaries to, and enter into discussions or negotiations with, any
Person in response to an Acquisition Proposal that is submitted to NGRU
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or any of its Subsidiaries by such Person (and not withdrawn) if: (A)
neither NGRU nor any Representative of NGRU shall have breached this
Section; (B) the Board of Directors of NGRU concludes in good faith
based on the advice of outside legal counsel, that such action is
reasonably necessary to comply with its fiduciary duties; (C) at least
two business days prior to furnishing any such nonpublic information
to, or entering into discussions with, such Person, NGRU gives BPOMS
written notice of the identity of such Person and of NGRU's intention
to furnish nonpublic information to, or enter into discussions with,
such Person; (D) NGRU receives from such Person an executed
confidentiality agreement containing provisions (including
nondisclosure provisions, use restrictions, non-solicitation
provisions, no hire provisions and "standstill" provisions) at least as
favorable to such Party as those contained in the Non-Disclosure
Agreement; and (E) concurrently with furnishing any such nonpublic
information to such Person, NGRU furnishes such nonpublic information
to BPOMS (to the extent such nonpublic information has not been
previously furnished by NGRU to BPOMS). Without limiting the generality
of the foregoing, each Party acknowledges and agrees that, in the event
any officer, director, employee, controlling stockholder, agent or
representative (including, without limitation, any investment banker,
attorney or accountant retained by it or any of its Subsidiaries) of
such Party (each, a "Representative") (whether or not such
Representative is purporting to act on behalf of such Party) takes any
action that, if taken by such Party, would constitute a breach of this
Section by such Party, the taking of such action by such Representative
shall be deemed to constitute a breach of this Section by such Party
for purposes of this Agreement.
(d) If any Party or any Representative of such Party receives
an Acquisition Proposal at any time prior to the Closing Date, then
such Party shall promptly (and in no event later than one (1) business
day after such Party becomes aware of such Acquisition Proposal) advise
the other Party orally and in writing of such Acquisition Proposal
(including the identity of the Person making or submitting such
Acquisition Proposal, and the terms thereof). Such Party shall keep the
other Party fully informed with respect to the status and terms of any
such Acquisition Proposal and any modification or proposed modification
thereto.
(e) Each Party shall immediately cease and cause to be
terminated any existing discussions with any Person that relate to any
Acquisition Proposal as of the date of this Agreement.
(f) Each Party shall not release or permit the release of any
Person from, or waive or permit the waiver of any provision of or right
under, any confidentiality, non-solicitation, no hire, "standstill" or
similar agreement (whether entered into prior to or after the date of
this Agreement) to which such Party is a party or under which such
Party has any rights, and shall enforce or cause to be enforced each
such agreement to the extent requested by the other Party. Each Party
shall promptly request each Person that has executed a confidentiality
or similar agreement in connection with its consideration of a possible
Acquisition Transaction or equity investment to return to such Party
all confidential information heretofore furnished to such Person by or
on behalf of such Party.
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Section 6.10 NOTICE OF CERTAIN EVENTS.
Each of BPOMS and NGRU shall as promptly as reasonably practicable
notify the other of: (i) any notice or other communication from any Person
alleging that the consent of such Person (or another Person) is or may be
required in connection with the transactions contemplated by this Agreement
and/or that such consent will or may be withheld or unobtainable on a timely
basis or without unreasonable effort or expense; (ii) any notice or other
communication from any governmental or regulatory agency or authority in
connection with the transactions contemplated by this Agreement; (iii) any
actions, suits, claims, investigations or proceedings commenced or threatened
against, relating to or involving or otherwise affecting such Party or any of
its Subsidiaries that, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 4.9 or 5.8, as applicable,
or which relate to the consummation of the transactions contemplated by this
Agreement; and (iv) of any fact or occurrence between the date of this Agreement
and the Effective Time of which it becomes aware which makes any of its
representations and warranties contained in this Agreement untrue in any
material respect (without regard to any materiality qualification contained in
such representation or warranty) or causes any breach of its obligations under
this Agreement in any material respect (without regard to any materiality
qualification contained in such obligation).
Section 6.11 CAPITAL SURPLUS AND CASH.
(a) BPOMS shall take all necessary and appropriate actions,
including if necessary the issuance of shares of BPOMS Series C
Preferred Stock or the causing to be purchased shares of NGRU Series C
Preferred Stock in accordance with the Bridge Loan Agreement to ensure
that as of the second (2nd) business day immediately preceding the
Dividend Payable Date and through the Dividend Payable Date, the
capital surplus (as that term is used in the DGCL) carried from BPOMS
to NGRU as a result of the Merger is at least $1,500,000 and BPOMS's
unrestricted cash that shall remain unrestricted and available for
payment of the NGRU Dividend ("BPOMS AVAILABLE CASH") is at least
$1,500,000. This Section 6.11 shall survive consummation of the Merger
at the Effective Time, is intended to benefit NGRU and each of its
directors, officers, managers, partners, employees and each person, if
any, who controls NGRU within the meaning of the Securities Act, and
shall be binding on all successors and assigns of BPOMS.
(b) NGRU shall take all necessary and appropriate actions to
ensure that the Divestiture Proceeds shall be reserved for payment of
the NGRU Dividend.
Section 6.12 DIRECTORS AND OFFICERS.
At or prior to the Effective Time, NGRU shall obtain the resignation of
each of the directors of NGRU and of Xxxxx Xxx, Chairman and Chief Executive
Officer, to be effective as of the Effective Time. At the Effective Time, NGRU
shall accept the resignations of each of the directors of NGRU and Xx. Xxx (as
to all of his officer and director positions), and shall cause such Persons to
be elected to the NGRU Board of Directors as BPOMS shall designate in writing
prior to the filing of the preliminary Proxy Statement. The Board of Directors
of NGRU shall appoint each of the individuals to serve as officers of NGRU,
effective as of the Effective Time, as BPOMS shall designate in writing prior to
the filing of the preliminary Proxy Statement.
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Section 6.13 INDEMNIFICATION AND INSURANCE.
(a) The By-Laws and Certificate of Incorporation of NGRU and
the Surviving Corporation shall contain the provisions with respect to
indemnification set forth in the By-Laws and Certificate of
Incorporation of NGRU and BPOMS respectively which provisions shall not
be amended, repealed or otherwise modified for a period of six (6)
years from the Effective Time in any manner that would adversely affect
the rights thereunder as of the Effective Time of individuals who at
the Effective Time were directors, officers, employees or agents of
NGRU or BPOMS, respectively, unless such modification is required after
the Effective Time by law.
(b) Notwithstanding the foregoing, NGRU and the Surviving
Corporation shall, to the fullest extent permitted under applicable law
or under NGRU's or the Surviving Corporation's Certificate of
Incorporation or By-Laws, indemnify and hold harmless, each present and
former director, officer or employee of NGRU or BPOMS, as applicable,
or any of their respective Subsidiaries (collectively, the "INDEMNIFIED
PARTIES") against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities and amounts paid
in settlement in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or
investigative, (x) arising out of or pertaining to the transactions
contemplated by this Agreement or (y) otherwise with respect to any
acts or omissions occurring at or prior to the Effective Time, to the
same extent as provided in NGRU's or BPOMS's Certificate of
Incorporation or By-Laws, as applicable, or any applicable contract or
agreement as in effect on the date hereof, in each case for a period of
six (6) years after the Effective Time. In the event of any such claim,
action, suit, proceeding or investigation (whether arising before or
after the Effective Time), (i) the Indemnified Parties may retain any
counsel reasonably satisfactory to NGRU, (ii) after the Effective Time,
NGRU shall advance to the Indemnified Party the reasonable fees and
expenses of such counsel, and other reasonable costs incurred in the
defense of such matter, and (iii) NGRU and the Surviving Corporation
will cooperate in the defense of any such matter; provided, however,
that NGRU and/or the Surviving Corporation shall not 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
within such six (6) year period, all rights to indemnification in
respect of 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 to represent them in each applicable
jurisdiction with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified
Parties, in which case each Indemnified Person with respect to whom
such a conflict exists (or group of such Indemnified Persons who among
them have no such conflict) may retain one separate law firm in each
applicable jurisdiction.
(c) This Section 6.13 shall survive the consummation of the
Merger at the Effective Time, is intended to benefit NGRU, BPOMS, the
Surviving Corporation and the Indemnified Parties, shall be binding on
all successors and assigns of the Surviving Corporation and NGRU and
shall be enforceable by the Indemnified Parties.
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(d) NGRU shall, until the sixth (6th) anniversary of the
Effective Time, cause to be maintained in effect, to the extent
available, the policies of directors' and officers' liability insurance
maintained by NGRU and the NGRU Subsidiaries as of the date hereof (or
policies of at least the same coverage and amounts containing terms
that are not less advantageous to the insured parties) with respect to
claims arising from facts that occurred on or prior to the Effective
Time, including without limitation all claims based upon, arising out
of, directly or indirectly resulting from, in consequence of, or in any
way involving the Merger and any and all related events. In lieu of the
purchase of such insurance by NGRU, NGRU may purchase a six (6)-year
extended reporting period endorsement ("Reporting Tail Coverage") under
NGRU's existing directors' and officers' liability insurance coverage,
providing that such Reporting Tail Coverage shall extend the directors'
and officers' liability coverage in force as of the date hereof for a
period of at least six (6) years from the Effective Time for any claim
based upon, arising out of, directly or indirectly resulting from, in
consequence of, or any way involving acts or omissions occurring or
prior to the Effective Time, including without limitation all claims
based upon, arising out of, directly or indirectly resulting from, in
consequence of, or any way involving the Merger or any and all related
events. BPOMS shall cooperate with NGRU in obtaining such insurance
coverage.
Section 6.14 SHELF REGISTRATION.
(a) Within 120 days following the Closing Date, NGRU shall
prepare and file with the SEC a shelf registration statement (the
"RESALE REGISTRATION STATEMENT") on Form S-3 (or, if Form S-3 is not
available, Form SB-2) covering (i) all of the NGRU Shares issued
hereunder, (ii) all of the shares of NGRU Common Stock that are
issuable upon exercise of the BPOMS Options and BPOMS Warrants assumed
pursuant to Section 2.4(a) hereof that are not eligible for inclusion
on Form S-8 under applicable securities laws, and (iii) all of the
shares of NGRU Common Stock that are issuable upon exercise of the NGRU
Series A Preferred Stock, NGRU Series B Preferred Stock and NGRU Series
C Preferred Stock issued pursuant to Section 2.3 hereof (collectively,
the "REGISTRABLE SECURITIES"); provided that no holder of Registrable
Securities shall be entitled to be named as a selling security holder
in the Resale Registration Statement or to use the prospectus contained
therein for offers or resales of Registrable Securities at any time,
unless such holder first timely supplies NGRU with all information
reasonably requested by NGRU in connection with the preparation of the
Resale Registration Statement or such prospectus. NGRU shall use its
commercially reasonable efforts to cause the Resale Registration
Statement to be declared effective under the Securities Act within 180
days following the Closing Date and to keep such Resale Registration
Statement continuously effective under the Securities Act until the
earlier of the date which is two years following the Effective Time or
the date on which all of the Registrable Securities covered thereby
have been sold or may be sold without restriction pursuant to Rule 144
under the Securities Act.
(b) NGRU shall use its commercially reasonable efforts to
register or qualify (or meet an exemption from such registration or
qualification) of such Registrable Securities for offer and sale under
the securities or "blue sky" laws of such jurisdictions within the
United States as any holder reasonably requests in writing, to keep
each such registration or qualification (or exemption therefrom)
effective for a reasonable time and to do any and all other acts or
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things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by the Resale
Registration Statement; provided, however, that in no event shall NGRU
be obligated to (i) qualify as a foreign corporation or as a dealer in
securities in any jurisdiction where it would not otherwise be required
to so qualify but for this Section, or (B) file any general consent to
service of process in any jurisdiction where it is not then so subject.
(c) All fees and expenses incident to the filing of the Resale
Registration Statement and keeping it effective shall be borne by NGRU.
(d) NGRU covenants that, for so long as it is required to file
reports with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act, it will take such action as any holder of Registrable Securities
may reasonably request, all to the extent required from time to time to
enable such Person to sell the Registrable Securities without
registration under the Securities Act pursuant to Rule 144 under the
Securities Act, including providing any legal opinions relating to such
sale pursuant to Rule 144.
(e) To the extent permitted by law, NGRU shall indemnify and
hold harmless each holder of Registrable Securities (and, if such
holder is not an individual, each of its directors, officers, managers,
partners, employees and each person, if any, who controls such holder
within the meaning of the Securities Act), against any losses, claims,
damages, or liabilities, joint or several, to which they may become
subject under the Securities Act or otherwise, insofar as such losses,
claims, damages or liabilities (or actions in respect thereof) arise
out of or are based on any untrue or alleged untrue statement of any
material fact contained in the Resale Registration Statement, including
any preliminary prospectus or final prospectus, or any amendments or
supplements thereto, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or
arise out of any violation by NGRU of any federal, state or common law,
rule or regulation applicable to NGRU in connection with any
registration; and shall promptly reimburse each of the foregoing
persons for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that NGRU shall not be
liable in any such case for any such loss, claim, damage, liability,
expenses, or action to the extent that it arises out of or is based
upon an untrue statement or alleged untrue statement or omission or
alleged omission made in connection with such Resale Registration
Statement, preliminary prospectus, final prospectus, or amendments or
supplements thereto, in reliance upon and in conformity with written
information furnished for use in connection with such registration by a
holder. If for any reason the indemnification provided for in the
preceding sentence is unavailable to an indemnified party or
insufficient to hold it harmless as contemplated by the preceding
sentence, then the indemnifying party will contribute to the amount
paid or payable by the indemnified party as a result of the loss,
claim, damage, liability or expense in the proportion as is appropriate
to reflect (i) the relative benefits received by the indemnified party
and the indemnifying party, (ii) the relative failure of the
indemnified party and the indemnifying party, and (iii) any other
relevant equitable considerations.
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(f) This Section 6.14 shall survive consummation of the Merger
at the Effective Time, is intended to benefit the holders of
Registrable Securities (and, if such holder is not an individual, each
of its directors, officers, managers, partners, employees and each
person, if any, who controls such holder within the meaning of the
Securities Act), shall be binding on all successors and assigns of NGRU
and shall be enforceable by the holders of Registrable Securities.
ARTICLE 7
CONDITIONS
Section 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER.
The respective obligation of each Party to effect the Merger and the
other transactions contemplated herein shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions, any or all of which may
be waived, in whole or in part by the parties hereto, to the extent permitted by
applicable law:
(a) This Agreement and the transactions contemplated hereby
shall have been approved by the requisite vote of stockholders of NGRU.
(b) The NGRU Divestiture shall be effective at the Effective
Time.
(c) The Reverse Split shall have been consummated.
Section 7.2 CONDITIONS TO OBLIGATIONS OF BPOMS TO EFFECT THE
MERGER.
The obligation of BPOMS to effect the Merger shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, unless
waived by BPOMS:
(a) Each of the representations and warranties of NGRU
contained in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except to the extent that any changes, circumstances
or events making such representations and warranties not true or
correct would not, individually or in the aggregate, constitute a NGRU
Material Adverse Effect (without regard to any materiality
qualification contained in such representation or warranty), and BPOMS
shall have received a certificate, dated the Closing Date, signed on
behalf of NGRU by the Chairman, Chief Executive Officer or Chief
Financial Officer of NGRU to the foregoing effect.
(b) NGRU shall have performed or complied in all material
respects (without regard to any materiality qualification contained in
such representation or warranty) with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Closing Date, and BPOMS shall have received a certificate,
dated the Closing Date, signed on behalf of NGRU by the Chairman, Chief
Executive Officer or Chief Financial Officer of NGRU to the foregoing
effect.
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(c) From the date of this Agreement through the Effective
Time, there shall not have occurred any change, circumstance or event
concerning NGRU and the NGRU Subsidiaries, taken as a whole, that has
had or could be reasonably likely to have a NGRU Material Adverse
Effect, and BPOMS shall have received a certificate, dated the Closing
Date, signed on behalf of NGRU by the Chairman, Chief Financial
Officer, or Chief Financial Officer of NGRU to the foregoing effect to
such officer's knowledge.
(d) Immediately prior to the Effective Time, total combined
cash and cash equivalents of NGRU and its Subsidiaries shall be at
least equal to the U.S. Reserved Cash as defined in Section 1.2(b)(i).
(e) NGRU shall have received, in form satisfactory to BPOMS,
written resignations dated and effective as of the Closing Date,
executed by the directors and officers of NGRU who are not to continue
as directors and officers of NGRU pursuant to Section 6.12, and each of
the individuals who are to be officers of NGRU pursuant to that Section
shall have been appointed officers of NGRU in such capacity as of the
Effective Time.
(f) Neither the principal executive officer nor the principal
financial officer of NGRU shall have failed to provide, with respect to
any NGRU SEC Document filed (or required to be filed) with the SEC on
or after the date of this Agreement, any necessary certification in the
form required under Rule 13a-14 under the Exchange Act and 18 U.S.C.
ss.1350.
Section 7.3 CONDITIONS TO OBLIGATIONS OF NGRU AND MERGER SUB
TO EFFECT THE MERGER.
The obligations of NGRU and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions, unless waived by NGRU:
(a) Each of the representations and warranties of BPOMS
contained in this Agreement shall be true and correct as of the date of
this Agreement and as of the Closing Date as though made on and as of
the Closing Date, except to the extent that any changes, circumstances
or events making such representations and warranties not true or
correct would not, individually or in the aggregate, constitute a BPOMS
Material Adverse Effect (without regard to any materiality
qualification contained in such representation or warranty), and NGRU
shall have received a certificate, dated the Closing Date, signed on
behalf of BPOMS by the Chief Executive Officer or the President of
BPOMS to the foregoing effect.
(b) BPOMS shall have performed or complied in all material
respects (without regard to any materiality qualification contained in
such representation or warranty) with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
prior to the Effective Time, and NGRU shall have received a
certificate, dated the Closing Date, signed on behalf of BPOMS by the
Chief Executive Officer or the Chief Financial Officer of BPOMS to the
foregoing effect.
(c) From the date of this Agreement through the Effective
Time, there shall not have occurred any change, circumstance or event,
concerning BPOMS and the BPOMS Subsidiaries, taken as a whole, that has
had or could be reasonably likely to have a BPOMS Material Adverse
Effect and NGRU shall have received a certificate, dated the Closing
Date, signed on behalf of BPOMS by the Chief Executive Officer or the
Chief Financial Officer of BPOMS to the foregoing effect.
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(d) NGRU shall have received from each holder of shares of
BPOMS capital stock or securities convertible or exchangeable or
exercisable for BPOMS Common Stock, an investor suitability
questionnaire in form and substance satisfactory to NGRU, containing
customary investment representations and certifying that such holder
qualifies as an "accredited investor" as defined in Regulation D, or if
such holder does not qualify as an "accredited investor," that such
holder is not a "U.S. person" as defined in Regulation S and is not
acquiring NGRU securities for the account or benefit of any U.S.
person.
(e) Immediately prior to the Effective Time, BPOMS's
unrestricted cash that shall remain unrestricted and available for
payment of the NGRU Dividend through the Dividend Payable Date shall be
at least $1,500,000, and its capital surplus (as that term is used in
the DGCL) shall be at least $1,500,000, and NGRU shall have received a
certificate to such effect signed by the Chief Financial Officer of
BPOMS.
(f) Holders of not more than zero percent (0%) of the
outstanding shares of BPOMS Common Stock and holders of not more than
zero percent (0%) of the outstanding shares of BPOMS Series A Preferred
Shares, BPOMS Series B Preferred Shares and BPOMS Series C Preferred
Shares shall have not voted in favor of the Merger or not consented
thereto in writing and shall have delivered prior to the Effective Time
written notice of such holders' intent to demand payment as dissenting
stockholders for such shares in accordance with the DGCL.
(g) BPOMS stockholders holding a majority of the disinterested
shares of BPOMS Common Stock, BPOMS Series A Preferred Shares, BPOMS
Series B Preferred Sharesand BPOMS Series C Preferred Shares, voting as
separate classes, shall have approved any amendment to the terms of any
certificate of designation of BPOMS and all other required approval by
BPOMS stockholders shall have been obtained, and NGRU shall have
received a certificate to such effect signed by the Secretary of BPOMS.
ARTICLE 8
TERMINATION
Section 8.1 TERMINATION.
This Agreement may be terminated and abandoned at any time prior to the
Effective Time (whether before or after approval and adoption of this Agreement
and/or approval of the issuance of the NGRU Shares by the stockholders of NGRU):
(a) by mutual written consent authorized by the Board of
Directors of NGRU and BPOMS;
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(b) by either NGRU or BPOMS if any United States federal or
state court of competent jurisdiction or other governmental entity shall have
issued a final order, decree or ruling or taken any other action permanently
restraining, enjoining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and non appealable, provided that the Party seeking to terminate shall
have used its commercially reasonable efforts to appeal such order, decree,
ruling or other action;
(c) by NGRU upon a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of BPOMS and as a
result of such breach the conditions set forth in Section 7.3(a) or Section
7.3(b), as the case may be, would not then be satisfied; provided, that if such
breach is capable of being cured by the Termination Date and BPOMS diligently
proceeds to cure the breach, then NGRU shall not have the right to terminate
this Agreement under this Section 8.1(c) unless such breach has not been so
cured by the Termination Date;
(d) by BPOMS upon a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of NGRU or Merger
Sub and as a result of such breach the conditions set forth in Section 7.2(a) or
Section 7.2(b), as the case may be, would not then be satisfied; provided, that
if such breach is capable of being cured by the Termination Date and NGRU
diligently proceeds to cure the breach, then BPOMS shall not have the right to
terminate this Agreement under this Section 8.1(d) unless such breach has not
been so cured by the Termination Date;
(e) by BPOMS or NGRU if (i) the Board of Directors of NGRU
pursuant to Section 6.9 withdraws or modifies adversely to BPOMS its approval or
recommendation of this Agreement or (ii) NGRU enters into a definitive agreement
providing for the implementation of any Acquisition Proposal in accordance with
the provisions of Section 6.9;
(f) by NGRU if (i) the Board of Directors of BPOMS pursuant to
Section 6.9 withdraws or modifies adversely to NGRU its approval or
recommendation of this Agreement or (ii) BPOMS enters into or engages in
negotiations regarding an Acquisition Proposal or otherwise violates the
provisions of Section 6.9;
(g) by either NGRU or BPOMS, if the Merger shall not have been
consummated on or before December 22, 2006 ("TERMINATION DATE") (other than due
to the failure of the Party seeking to terminate this Agreement to perform its
obligations under this Agreement required to be performed by it at or prior to
the Effective Time or a breach by such Party of this Agreement);
(h) by NGRU or BPOMS if this Agreement and the transactions
contemplated hereby shall have failed to receive the requisite vote for approval
and adoption by the stockholders of NGRU upon the holding of a duly convened
stockholders meeting and any adjournments thereof;
(i) by NGRU if BPOMS suffers a BPOMS Material Adverse Effect,
or by BPOMS if NGRU suffers a NGRU Material Adverse Effect;
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(j) by NGRU if immediately prior to the Effective Time BPOMS's
capital surplus (as that term is used in the DGCL) is less than $1,500,000 or
BPOMS's unrestricted cash that shall remain unrestricted and available for
payment of the NGRU Dividend through the Dividend Payable Date is less than
$1,500,000; or
(k) by either Party, if the other Party becomes unable to pay
its liabilities as they come due or seeks protection under any bankruptcy,
receivership, trust deed, creditors arrangement, composition or comparable
proceeding, or if any such proceeding is instituted against such other Party
(and not dismissed within sixty (60) days).
The right of any Party hereto to terminate this Agreement pursuant to
this Section 8.1 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Party hereto, any Person
controlling any such Party or any of their respective employees, officers,
directors, agents, representatives or advisors, whether prior to or after the
execution of this Agreement.
Section 8.2 EFFECT OF TERMINATION.
In the event of the termination and abandonment of this Agreement
pursuant to Section 8.1 hereof, this Agreement shall forthwith become void and
have no effect, without any liability on the part of any Party hereto or its
affiliates, directors, officers or stockholders and all rights and obligations
of any Party hereto shall cease except for the agreements contained in this
Section 8.2 (Effect of Termination), Section 8.3 (Expenses and Termination
Fees), Section 8.4 (Extension; Waiver) and Section 9.5 (Confidentiality);
provided, however, that nothing contained in this Section 8.2 shall relieve any
Party from liability for any breach of this Agreement.
Section 8.3 EXPENSES AND TERMINATION FEES.
(a) Except as set forth in this Section 8.3, all fees and
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the Party incurring such expenses, whether
or not the Merger is consummated and irrespective of the failure of any closing
condition set forth in Article 7 hereof to be met.
(b) BPOMS shall pay as and when requested all fees and
expenses incurred by NGRU in listing the NGRU Shares on the Nasdaq Capital
Market in connection with the Merger and in connection with the substitute
listing for the Reverse Split.
(c) Except as otherwise provided in Section 8.3(e), NGRU shall
pay BPOMS a termination fee of $200,000 upon the termination of this Agreement
(i) by BPOMS pursuant to Section 8.1(d), (ii) by BPOMS or NGRU pursuant to
Section 8.1(e), or (iii) by NGRU other than as expressly permitted by Section
8.1.
(d) BPOMS shall pay NGRU a termination fee of $400,000 upon
the termination of this Agreement (i) by NGRU pursuant to Section 8.1(c),
Section 8.1(f) or Section 8.1(j), or (iii) by BPOMS other than as expressly
permitted by Section 8.1.
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(e) NGRU shall pay BPOMS a termination fee of $200,000 upon
the termination of this Agreement by NGRU or BPOMS in the event that the NGRU
Divestiture Agreement is terminated and Das Family Holdings pays a termination
fee to NGRU in connection therewith; provided, however, that to the extent that
Das Family Holdings pays NGRU less than $400,000 upon termination of the NGRU
Divestiture Agreement (other than upon mutual agreement of the parties thereto),
NGRU shall pay BPOMS 50% of such lesser amount.
(f) If either Party fails to pay when due any amount payable
by such Party under Section 8.3, then (i) such Party shall reimburse the other
Party for reasonable costs and expenses (including reasonable fees and
disbursements of counsel) incurred in connection with the collection of such
overdue amount and the enforcement by the other Party of its rights under this
Section 8.3, and (ii) such Party shall pay to the other Party interest on such
overdue amount (for the period commencing as of the date such overdue amount was
originally required to be paid and ending on the date such overdue amount is
actually paid to the other Party in full) at a rate per annum equal to the
"PRIME RATE" (as announced by Bank of America or any successor thereto) in
effect on the date such overdue amount was originally required to be paid.
Section 8.4 EXTENSION; WAIVER.
At any time prior to the Effective Time, any Party hereto, by action
taken by its Board of Directors, may, to the extent legally allowed, (a) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (b) waive any inaccuracies in the representations and
warranties made to such Party contained herein or in any document delivered
pursuant hereto and (c) 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 9
GENERAL PROVISIONS
Section 9.1 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS.
The representations and warranties of NGRU, Merger Sub, and BPOMS
contained in this Agreement or any certificate or instrument delivered pursuant
to this Agreement shall terminate at the Effective Time, and only the covenants
that by their terms survive the Effective Time and this Article 9 shall survive
the Effective Time.
Section 9.2 NOTICES.
Any notice required to be given hereunder shall be in writing and shall
be sent by facsimile transmission (confirmed by any of the methods that follow),
courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first class postage prepaid) and
addressed as follows:
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If to BPOMS: BPO Management Services, Inc.
00000 XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
With a copy to (which shall not constitute notice):
Xxxxxxx & Xxxxxx
00000 XxxXxxxxx Xxxx., Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxx X. Xxxxxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
and
Xxxxx Xxxx LLP
0000 Xxxx Xxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx X. Xxxx, Esq.
Tel.: (000) 000-0000
Fax: (000) 000-0000
If to NGRU: netGuru, Inc.
00000 Xxxx Xxxxx Xxxxxxx
Xxxxx Xxxxx, XX 00000
Attn: Chief Financial Officer
Tel.: (000) 000-0000
Fax: (000) 000-0000
With a copy to (which shall not constitute notice):
Xxxxx & Xxxxxx, LLP
000 Xxxxx Xxxxxxxxx, Xxxxx 0000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx, Esq.
Tel: (000) 000-0000
Fax: (000) 000-0000
or to such other address as any Party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date received.
Section 9.3 ASSIGNMENT; BINDING EFFECT; BENEFIT.
Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by any of the parties hereto (whether by operation
of law or otherwise) without the prior written consent of the other parties;
provided, however, NGRU and Merger Sub may each assign their respective rights,
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interests or obligations hereunder to any affiliate provided that NGRU remains
obligated hereunder and such assignment does not alter the rights, interests or
obligations of BPOMS hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, nothing in this Agreement,
expressed or implied, is intended to confer on any Person other than the parties
hereto or their respective heirs, surviving corporations, executors,
administrators and assigns any rights, remedies, obligations or liabilities
under or by reason of this Agreement.
Section 9.4 ENTIRE AGREEMENT.
This Agreement, the BPOMS Disclosure Letter, the NGRU Disclosure Letter
and any documents delivered by the parties in connection herewith constitute the
entire agreement among the Parties with respect to the subject matter hereof and
supersede all prior agreements and understandings among the parties with respect
thereto, except that the Non-Disclosure Agreement (as hereinafter defined) shall
remain in effect and shall be binding upon NGRU and BPOMS in accordance with its
terms. No addition to or modification of any provision of this Agreement shall
be binding upon any Party hereto unless made in writing and signed by all
parties hereto.
Section 9.5 CONFIDENTIALITY.
NGRU and BPOMS understand and agree that they are and shall remain
bound by and subject to the terms of the non-disclosure agreement, dated as of
May 3, 2006, by and between NGRU and BPOMS (the "NON-DISCLOSURE AGREEMENT").
Section 9.6 AMENDMENT.
This Agreement may be amended by the parties hereto, by action taken by
their respective authorized Person, Persons or governing bodies, at any time
before or after approval of matters presented in connection with the Merger by
the stockholders of BPOMS and NGRU, but after any such stockholder approval, no
amendment shall be made which by law requires the further approval of
stockholders without obtaining such further approval. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
Section 9.7 GOVERNING LAW; ATTORNEYS' FEES.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware without regard to its
rules of conflict of laws. Each of NGRU and BPOMS hereby irrevocably
and unconditionally consent to submit to the exclusive jurisdiction of
the courts of the State of Delaware and the United States of America
located in the State of Delaware (the "DELAWARE COURTS") for any
litigation arising out of or relating to this Agreement and the
transactions contemplated hereby (and agree not to commence any
litigation relating thereto except in such courts), consent to the
service of process in such Delaware Courts, waive any objection to the
laying of venue of any such litigation in the Delaware Courts and agree
not to plead or claim in any Delaware Court that such litigation
brought therein has been brought in any inconvenient forum.
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(b) In any action at law or suit in equity to enforce this
Agreement or the rights of any Parties under this Agreement, the
prevailing Party in such action or suit shall be entitled to receive a
reasonable sum for its attorney's fees and all other reasonable costs
and expenses incurred in such action or suit.
Section 9.8 COUNTERPARTS.
This Agreement may be executed by the parties hereto in separate
counterparts, each of which so executed and delivered shall be an original, but
all such counterparts shall together constitute one and the same instrument.
Each counterpart may consist of a number of copies hereof each signed by less
than all, but together signed by all of the parties hereto. In the event that
any signature is delivered by facsimile transmission, such signature shall
create a valid and binding obligation of the Party executing (or on whose behalf
such signature is executed) the same with the same force and effect as if such
facsimile signature were the original thereof.
Section 9.9 HEADINGS.
Headings of the Articles and Sections of this Agreement are for the
convenience of the parties only, and shall be given no substantive or
interpretive effect whatsoever.
Section 9.10 WAIVERS.
Except as provided in this Agreement, no action taken pursuant to this
Agreement, including, without limitation, any investigation by or on behalf of
any Party, shall be deemed to constitute a waiver by the Party taking such
action of compliance with any representations, warranties, covenants or
agreements contained in this Agreement. The waiver by any Party hereto of a
breach of any provision hereunder shall not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
Section 9.11 INCORPORATION.
The BPOMS Disclosure Letter and the NGRU Disclosure Letter and all
Schedules and Exhibits attached hereto and thereto and referred to herein and
therein are hereby incorporated herein and made a part hereof for all purposes
as if fully set forth herein.
Section 9.12 SEVERABILITY.
Any term or provision of this Agreement which is invalid or
unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective
to the extent of such invalidity or unenforceability without rendering invalid
or unenforceable the remaining terms and provisions of this Agreement or
affecting the validity or enforceability of any of the terms or provisions of
this Agreement in any other jurisdiction. If any provision of this Agreement is
so broad as to be unenforceable, the provision shall be interpreted to be only
so broad as is enforceable.
Section 9.13 INTERPRETATION AND CERTAIN DEFINITIONS.
(a) In this Agreement, unless the context otherwise requires,
words describing the singular number shall include the plural and vice
versa, and words denoting any gender shall include all genders.
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(b) As used in this Agreement, the word "SUBSIDIARY" or
"SUBSIDIARIES" when used with respect to any Party means any corporation,
partnership, joint venture, business trust or other entity, of which such Party
directly or indirectly owns or controls at least a majority of the securities or
other interests having by their terms ordinary voting power to elect a majority
of the board of directors or others performing similar functions with respect to
such corporation or other organization.
(c) As used in this Agreement, the word "PERSON" means an
individual, a corporation, a partnership, an association, a joint stock company,
a trust, a limited liability company, any unincorporated organization or any
other entity.
(d) As used in this Agreement unless otherwise indicated, the
word "AFFILIATE" shall have the meaning set forth in Rule 12b-2 of the Exchange
Act.
Section 9.14 SPECIFIC PERFORMANCE.
The parties hereto agree that if any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached, irreparable damage would occur, no adequate remedy at law
would exist, and damages would be difficult to determine, and that the parties
shall be entitled to specific performance of the terms hereof, without the
posting of any bond whatsoever in addition to any other remedy at law or equity.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
BPO MANAGEMENT SERVICES, INC.
By /S/ XXXXXXX X. XXXXX
---------------------------------
Name: Xxxxxxx X. Xxxxx
Title: Chairman & CEO
NETGURU, INC.
By /S/ XXXXX X. XXXXXX
---------------------------------
Name: Xxxxx X. Xxxxxx
Title: Chief Financial Officer
BPO ACQUISITION CORP.
By /S/ XXXXX X. XXXXXX
---------------------------------
Name: Xxxxx X. Xxxxxx
Title: President
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
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EXHIBIT A
TERMS OF PREFERRED STOCK
ARTICLE I SERIES A PREFERRED STOCK
----------------------------------
The designated powers, preferences and relative participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the Series A Preferred Stock are as follows.
(1) DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series A Preferred Stock" (the "SERIES A PREFERRED STOCK") and the
number of shares constituting such series shall be Two Million Two Hundred
Twenty Thousand (2,220,000).
(2) DIVIDENDS. The holders of Series A Preferred Stock shall be
entitled to receive an eight percent (8%) per annum paid in kind dividend in
accordance with the following terms:
(a) Unless the context otherwise requires, the terms defined
in this subsection (2) of Article I herein shall have, for all purposes of
Article I, the meanings herein specified (with terms defined in the singular
having comparable meanings when used in the plural).
"ANNUAL PER SHARE PIK DIVIDEND AMOUNT" shall mean a fraction
of one share of Series A Preferred Stock equal to eight percent (8%) per annum
of one share of the Series A Preferred Stock.
"BUSINESS DAY" shall mean a day other than a Saturday, a
Sunday or any other day on which banking institutions in Los Angeles, California
are authorized or obligated by law to close.
"HOLDER" shall mean the record holder of one or more shares of
Series A Preferred Stock, as shown on the books and records of the Corporation.
"PIK DIVIDENDS" shall mean the paid-in-kind dividends as set
forth in subparagraph 2(b) below.
"PIK DIVIDEND PAYMENT DATE" shall mean March 31, June 30,
September 30, and December 31, of each year during the PIK Dividend Payment
Period.
"PIK DIVIDEND PAYMENT PERIOD" shall mean the period from, and
after, the Series A Initial Issue Date, to and including the date that the
Series A Preferred Stock is converted to Common Stock or otherwise redeemed.
"PIK DIVIDEND PERIOD" shall mean the period from, and after,
the Series A Initial Issue Date, to, but not including, the first PIK Dividend
Payment Date and thereafter, each quarterly period, including any PIK Dividend
Payment Date to, but not including, the next PIK Dividend Payment Date.
"PIK RECORD DATE" shall mean the date that is five Business
Days prior to any PIK Dividend Payment Date.
"SERIES A INITIAL ISSUE DATE" shall mean the date that shares
of Series A Preferred Stock are first issued by the Corporation.
(b) The record holders of Series A Preferred Stock on each PIK
Record Date shall receive on each PIK Dividend Payment Date during the PIK
Dividend Payment Period per share dividends in additional fully paid and
nonassessable shares of Series A Preferred Stock legally available for such
purpose (such dividends being herein called "PIK DIVIDENDS"). PIK Dividends
shall be paid by delivering to the record holders of Series A Preferred Stock a
number of shares of Series A Preferred Stock equal to (i) the number of shares
of Series A Preferred Stock held by such holder on the applicable PIK Record
Date, multiplied by (ii) twenty-five percent (25%) of the Annual Per Share PIK
Dividend Amount. The Corporation shall issue fractional shares of Series A
Preferred Stock to which holders may become entitled pursuant to this
subparagraph 2(b).
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(c) Prior to each PIK Record Date immediately preceding each
PIK Dividend Payment Date, the Board of Directors of the Corporation shall
declare PIK Dividends on the Series A Preferred Stock in accordance with
subparagraph 2(b) above, payable on the next PIK Dividend Payment Date. PIK
Dividends on shares of Series A Preferred Stock shall accrue and be cumulative
from the later of (i) the Series A Initial Issue Date and (ii) the date of
issuance of such shares, notwithstanding the failure of the Board of Directors
to declare and/or issue PIK Dividends with respect to any PIK Dividend Period.
PIK Dividends shall be cumulative and payable in arrears during the PIK Dividend
Payment Period on each PIK Dividend Payment Date, commencing on the first PIK
Dividend Payment Date subsequent to the Series A Initial Issue Date, and for
shares issued as PIK Dividends, commencing on the first PIK Dividend Payment
Date after such shares are issued. If any PIK Dividend Payment Date occurs on a
day that is not a Business Day, any accrued PIK Dividends otherwise payable on
such PIK Dividend Payment Date shall be paid on the next succeeding Business
Day. PIK Dividends shall be paid on each PIK Dividend Payment Date to the
holders of record of the Series A Preferred Stock as their names shall appear on
the share register of the Corporation on the PIK Record Date immediately
preceding such PIK Dividend Payment Date. PIK Dividends on account of arrears
for any past PIK Dividend Periods may be declared and paid at any time to the
holders of record on the PIK Record Dates applicable to such past PIK Dividend
Periods.
(d) Notwithstanding anything contained herein to the contrary,
no dividends on shares of Series A Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
(e) It is intended that the Series A Preferred Stock not
constitute "preferred stock" within the meaning of Section 305 of the Internal
Revenue Code of 1986, as amended, and the Treasury Regulations promulgated
thereunder, and neither the Corporation nor the Holders shall treat the Series A
Preferred Stock as such. Accordingly, payment of any and all PIK Dividends to be
made hereunder or under any other transaction document by the Corporation to or
for the benefit of any Holder is intended to be made free and clear of, and
without deduction for, U.S. federal income and withholding taxes ("U.S. TAXES").
If the Corporation shall be required by law to deduct any such U.S. Taxes from
or in respect of any PIK Dividends to be paid hereunder by the Corporation to or
for the benefit of any Holder, then (a) the Holder shall pay to the Corporation
the amount of such U.S. Taxes not to exceed ten percent (10%) of the fair market
value of such PIK Dividend on the date such PIK Dividend is distributed in
accordance with this Article I (the "FAIR MARKET VALUE"), and (b) upon payment
by the applicable Holder the Corporation shall pay to or for the benefit of the
applicable Holder, in addition to such PIK Dividend, an additional amount (the
"TAX GROSS-UP AMOUNT"), in cash, as necessary so that after making all required
deductions on account of U.S. Taxes (including deductions applicable to
additional sums required to be paid or deposited under this subparagraph 2(e))
the amount received by such Holder (disregarding the payment made by such Holder
to the Corporation pursuant to this sentence) shall be equal to the sum that
would have been so received had no such deductions been made. If a Holder is
required to pay any U.S. Taxes (other than U.S. Taxes determined on a net income
basis) with respect to any PIK Dividends (as a result of the Corporation's
failure to withhold such U.S. Taxes or otherwise) in excess of ten percent (10%)
of the Fair Market Value of such PIK Dividends, the Corporation shall indemnify
and hold harmless such Holder from any such U.S. Taxes in an amount equal to the
Tax Gross-Up Amount, and if the Corporation is required to pay any such U.S.
Taxes with respect to any PIK Dividends, the Holder shall indemnify and hold
harmless the Corporation from any such U.S. Taxes in an amount up to ten percent
(10%) of the Fair Market Value of such PIK Dividends.
A-2
(f) The amount to be paid by the Corporation under Section
2(e) above shall be reduced by the amount of any credit, against any other tax
due in any other jurisdiction, available to the Holder or its affiliates by
reason of the payment of U.S. Taxes pursuant to Section 2(e) above. In no event
shall the Corporation be liable for any U.S. Taxes required to be deducted from
or in respect of any PIK Dividends by reason of any change in applicable law
after the Series A Initial Issue Date (which shall be the responsibility of the
Holder). Each Holder shall, if requested in writing by the Corporation, promptly
provide the Corporation with a properly completed Form W-8 BEN or Form W-8 IMY
(or successor forms), as applicable, including, if applicable, the eligibility
of such Holder for a reduced rate of withholding pursuant to an applicable
treaty.
(3) VOTING RIGHTS.
The holder of each share of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which each such share of Series A Preferred Stock could be converted on the
record date set for the vote or written consent of shareholders and, except as
otherwise required by law or this Article I, shall have voting rights and powers
equal to the voting rights and powers of the Common Stock (voting together with
the Common Stock as a single class). The holder of each share of Series A
Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation and shall vote with holders of the
Common Stock upon any matter submitted to a vote of shareholders, except those
matters required by law or by this Designation of Rights to be submitted to a
class vote. Fractional votes shall not, however, be permitted, and any
fractional voting rights resulting from the above formula (after aggregating all
shares of Common Stock into which shares of Series A Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number
(with one-half rounded upward to one). Each holder of Common Stock shall be
entitled to one (1) vote for each share of Common Stock held.
In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the approval (by vote or written
consent) of the holders of not less than a majority of the total number of
outstanding shares of the Series A Preferred Stock voting as a single class,
cause any Liquidation Event as defined below. Each of the following shall be
deemed a "LIQUIDATION EVENT" for purposes of the preceding sentence: (a) the
sale, lease or other transfer of all or substantially all of the assets of the
Corporation; (b) the merger or consolidation of the Corporation into or with any
other corporation resulting in the transfer of more than 50 percent of the
voting power of the Corporation; and (c) the acquisition in any manner or form,
including through the issuance of debt and/or stock and/or payment of cash, of
all or substantially all of the assets or business or capital stock or ownership
interest of another entity or business.
The Series A Preferred Stock holders, voting together as a
single class, shall be entitled to elect two (2) two members of the Board of
Directors of the Corporation at each meeting or pursuant to each consent of the
Corporation's shareholders for the election of directors.
(4) LIQUIDATION, DISSOLUTION OR WINDING UP.
4.1 For purposes hereof, the "SERIES A ORIGINAL PURCHASE
PRICE" is $1.00 per share of Series A Preferred Stock. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, then after the payment in full of the Series C Liquidation
Preference to the holders of the Series C Preferred Stock and the distribution
of the assets or surplus of the funds of the Corporation with respect thereto,
pursuant to Article III herein, the holders of Series A Preferred Stock then
outstanding shall be entitled to receive, and prior to and in preference of any
distribution of any of the assets or surplus of the funds of the Corporation to
the holders of the Common Stock or any junior or other preferred stock
subsequently designated (other than Series C Preferred Stock), including,
without limitation, the Series B Preferred Stock as provided for in Article II,
by reason of their ownership thereof, an amount equal to the Series A Original
A-3
Purchase Price per share (as adjusted for stock splits, stock dividends,
recapitalizations and the like) plus an amount equal to all accrued and unpaid
dividends thereon. if any, without interest, and no more (all of the preceding
collectively, the "SERIES A LIQUIDATION PREFERENCE"). If the assets of the
Corporation available for distribution to the holders of Series A Preferred
Stock shall be insufficient to permit such payment in full to the holders of
Series A Preferred Stock, then the entire assets or remaining assets of the
Corporation available for distribution shall be distributed ratably among the
holders of the Series A Preferred Stock based on the number of shares held by
each holder of Series A Preferred Stock.
4.2 After the payment of all preferential amounts required to
be paid to the holders of the Series C Preferred Stock then issued and
outstanding upon the dissolution, liquidation or winding up of the Corporation,
and then after the payment of all preferential amounts required to be paid to
the holders of the Series A Preferred Stock then issued and outstanding upon the
dissolution, liquidation or winding up of the Corporation, and then after the
payment of all preferential amounts required to be paid to the holders of any
junior series of Preferred Stock then issued and outstanding upon the
dissolution, liquidation or winding up of the Corporation, any remaining assets
and funds of the Corporation available for distribution to the Corporation's
stockholders shall be distributed ratably among the holders of the Common Stock.
4.3 For purposes of this Article I, a "liquidation,
dissolution or winding-up" means: any liquidation, dissolution or winding-up,
either voluntary or involuntary, of the Corporation, (ii) a merger or
consolidation of the Corporation with or into any other corporation or
corporations as a result of which the stockholders of this Corporation
immediately prior to the consummation of the merger or consolidation hold less
than 50% of the voting securities of the surviving entity, or (iii) the sale,
transfer or lease of all or substantially all of the assets of the Corporation.
(5) NO REDEMPTION RIGHTS. The Series A Preferred Stock shall not be
subject to redemption, whether at the option of either the Corporation or any
holder of the Series A Preferred Stock.
(6) CONVERSION RIGHTS.
6.1 OPTIONAL CONVERSION. Each share of Series A Preferred
Stock will be convertible, at the option of the holder thereof at the office of
the Corporation or any transfer agent for the Series A Preferred Stock, into one
share of Common Stock.
6.2 AUTOMATIC CONVERSION OF SERIES A PREFERRED STOCK. Each
share of Series A Preferred Stock will be converted automatically into such
number of shares of Common Stock as equals the number of shares issuable upon
optional conversion, under Section 6.1 of this Article I above, immediately
prior to the closing of a firmly underwritten public offering pursuant to a
registration statement (other than a registration statement relating either to
the sale of securities to employees of the Corporation pursuant to a stock
option, stock purchase or similar plan or a transaction pursuant to Rule 145
under the Securities Act of 1933 ("SECURITIES ACT")) under the Securities Act
covering the Corporation's Common Stock, which results in aggregate gross cash
proceeds (prior to underwriters' commissions and expenses) to the Corporation of
at least $10,000,000 and which has a public offering price of not less than
$5.00 per share (as appropriately adjusted for stock splits, combinations,
reclassifications and the like).
6.3 MECHANICS OF CONVERSION. No fractional shares of Common
Stock shall be issued upon the conversion of the Series A Preferred Stock, and
any fractional shares of Common Stock shall be rounded up to the next whole
number. Before any holder of Series A Preferred Stock will be entitled to
convert the same into shares of Common Stock, he or she will surrender the
certificate or certificates therefor duly endorsed, at the office of the
Corporation or of any transfer agent for the Series A Preferred Stock and he or
A-4
she will give written notice to the Corporation stating the name or names in
which he or she wishes the certificate or certificates for shares of Common
Stock to be issued. The Corporation, as soon as practicable thereafter, will
issue and deliver at such office to such holder or to his or her nominee or
nominees, a certificate or certificates for the number of shares of Common Stock
to which he or she will be entitled as aforesaid. Such conversion will be deemed
to have been made immediately prior to the close of business on the date of
notice of conversion provided by the holder to the Corporation, and the person
or persons entitled to receive the shares of Common Stock issuable upon
conversion will be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
6.4 ADJUSTMENT FOR SUBDIVISIONS OR COMBINATIONS OF COMMON
STOCK. In the event the Corporation at any time or from time to time alters the
effective date of the initial sale of the Series A Preferred Stock, effects a
subdivision or combination of its outstanding Common Stock into a greater or
lesser number of shares without a proportionate and corresponding subdivision or
combination of its outstanding shares of the Series A Preferred Stock, then the
number of shares into which each share of Series A Preferred Stock is
convertible will be decreased or increased proportionately.
(7) NO IMPAIRMENT. The Corporation, whether by amendment of this
Article I or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, will not
avoid or seek to avoid the observance or performance of any terms to be observed
or performed under this Article I by the Corporation, but all times in good
faith will assist in the carrying out all actions necessary or appropriate to
protect the conversion rights of the holders of Series A Preferred Stock against
impairment.
(8) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders or any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation will mail to each
holder of Series A Preferred Stock at least five (5) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or rights, and the
amount and character of such dividend, distribution or right.
(9) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation at
all times will reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series A Preferred Stock such number of its shares of Common Stock as
from time to time would be required to effect the conversion of all then
outstanding shares of Series A Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all then outstanding shares of Series A Preferred Stock, in
addition to such other remedies as may be available to the holders of Series A
Preferred Stock for such failure, the Corporation will take such corporate
action as, in the opinion of its counsel, may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as will
be sufficient for such purpose.
(10) NOTICES. Any notices required by the provisions of this Article I
to be given to the holders of shares or Series A Preferred Stock shall be given
in writing and shall be conclusively deemed effectively given to persons located
in the United States five (5) days after deposit in the United States mail, by
registered or certified mail postage prepaid, or upon actual receipt if given by
any other method or to persons located outside of the United States, addressed
to such holder at his address appearing on the books of the Corporation.
A-5
(11) RECAPITALIZATIONS. If at any time, or from time to time, there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
this Article I), provision shall be made so that the holders of the Series A
Preferred Stock shall thereafter be entitled to receive upon conversion of such
shares of such Series A Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock issued upon conversion of such Series A Preferred Stock would have
been entitled on such recapitalization. In any such case, appropriate
adjustments shall be made in the application of the provisions of this Article I
with respect to the rights of the holders of the Series A Preferred Stock after
the recapitalization to the end that the provisions of this Article I shall be
applicable after that event in as nearly an equivalent manner as may be
practicable.
(12) RANKING. Except for Series C Preferred Stock which shall rank
senior to all Preferred Stock with respect to the payment of dividends and the
distribution of assets, the Series A Preferred Stock shall rank senior to all
other series of the Corporation's Preferred Stock as to the payment of dividends
and the distribution of assets. Further, so long as any shares of Series A
Preferred Stock are outstanding, no new class or series of stock shall hereafter
be created or authorized which is entitled to dividends or shares in
distribution of assets on a parity with or in priority to the Series A Preferred
Stock, nor shall there be created or authorized any securities convertible into
shares of any such stock, unless the holders of record of not less than
two-thirds of the number of shares of the Series A Preferred Stock then
outstanding (as a single class separate from the holders of all other classes of
stock) shall vote therefore in person or by proxy at the meeting of stockholders
at which the creation or authorization of such new class of stock or such
convertible securities is considered.
(13) AMENDMENT. This Article I shall not be further amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series A Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series A Preferred Stock, voting separately as a class.
(14) FRACTIONAL SHARES. Series A Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series A Preferred
Stock.
ARTICLE II SERIES B PREFERRED STOCK
-----------------------------------
The designated powers, preferences and relative participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the Series B Preferred Stock are as follows.
(1) DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series B Preferred Stock" (the "SERIES B PREFERRED STOCK") and the
number of shares constituting such series shall be Two Million (2,000,000).
(2) DIVIDENDS. The holders of Series B Preferred Stock shall not be
entitled to receive any dividends.
(3) VOTING RIGHTS. The holder of each share of Series B Preferred Stock
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which each such share of Series B Preferred Stock could be converted
on the record date set for the vote or written consent of shareholders and,
except as otherwise required by law or this Article II, shall have voting rights
and powers equal to the voting rights and powers of the Common Stock (voting
together with the Common Stock as a single class). The holder of each share of
Preferred Stock shall be entitled to notice of any shareholders' meeting in
accordance with the bylaws of the Corporation and shall vote with holders of the
Common Stock upon any matter submitted to a vote of shareholders, except those
matters required by law or by this Designation of Rights to be submitted to a
class vote. Fractional votes shall not, however, be permitted, and any
fractional voting rights resulting from the above formula (after aggregating all
shares of Common Stock into which shares of Series B Preferred Stock held by
each holder could be converted) shall be rounded to the nearest whole number
(with one-half rounded upward to one). Each holder of Common Stock shall be
entitled to one (1) vote for each share of Common Stock held.
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(4) LIQUIDATION, DISSOLUTION OR WINDING UP.
4.1 For purposes hereof, the "SERIES B ORIGINAL PURCHASE
PRICE" is $1.00 per share of Series B Preferred Stock. In the event of any
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, then after the payment in full of the Series C Liquidation
Preference to the holders of the Series C Preferred Stock and the distribution
of the assets or surplus of the funds of the Corporation with respect thereto,
pursuant to Article IIIof this Designation of Rights, and thereafter, after the
payment in full of the Series A Liquidation Preference to the holders of the
Series A Preferred Stock and the distribution of the assets or surplus of the
funds of the Corporation with respect thereto, pursuant to Article I herein, the
holders of Series B Preferred Stock then outstanding shall then be entitled to
receive, by reason of their ownership thereof, an amount equal to the Series B
Original Purchase Price per share (as adjusted for stock splits, stock
dividends, recapitalizations and the like). If the assets of the Corporation
available for distribution to the holders of Series B Preferred Stock shall be
insufficient to permit such payment in full to the holders of Series B Preferred
Stock, then the entire assets or remaining assets of the Corporation available
for distribution shall be distributed ratably among the holders of the Series B
Preferred Stock based on the number of shares held by each holder of Series B
Preferred Stock.
4.2 After the payment of all preferential amounts required to
be paid to the holders of the Series C Preferred Stock then issued and
outstanding upon the dissolution, liquidation or winding up of the Corporation,
and then thereafter the payment of all preferential amounts required to be paid
to the Series A Preferred Stock then issued and outstanding upon the
dissolution, liquidation or winding up of the Corporation, and then thereafter
the payment of all preferential amounts required to be paid to the Series B
Preferred Stock then issued and outstanding upon the dissolution, liquidation or
winding up of the Corporation, and then after the payment of all preferential
amounts required to be paid to the holders of any junior series of Preferred
Stock then issued and outstanding upon the dissolution, liquidation or winding
up of the Corporation, any remaining assets and funds of the Corporation
available for distribution to the Corporation's stockholders shall be
distributed ratably among the holders of the Common Stock.
(5) NO REDEMPTION RIGHTS. The Series B Preferred Stock shall not be
subject to redemption, whether at the option of either the Corporation or any
holder of the Series B Preferred Stock.
(6) CONVERSION RIGHTS.
6.1 OPTIONAL CONVERSION. Each share of Series B Preferred
Stock will be convertible, at the option of the holder thereof at the office of
the Corporation or any transfer agent for the Series B Preferred Stock, into one
share of Common Stock.
6.2 AUTOMATIC CONVERSION OF SERIES B PREFERRED STOCK. Each
share of Series B Preferred Stock will be converted automatically into such
number of shares of Common Stock as equals the number of shares issuable upon
optional conversion, under Section 6.1 of Article II above, immediately prior to
the closing of a firmly underwritten public offering pursuant to a registration
statement (other than a registration statement relating either to the sale of
securities to employees of the Corporation pursuant to a stock option, stock
purchase or similar plan or a transaction pursuant to Rule 145 under the
Securities Act of 1933 ("SECURITIES ACT")) under the Securities Act covering the
Corporation's Common Stock, which results in aggregate gross cash proceeds
(prior to underwriters' commissions and expenses) to the Corporation of at least
$10,000,000 and which has a public offering price of not less than $5.00 per
share (as appropriately adjusted for stock splits, combinations,
reclassifications and the like).
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6.3 MECHANICS OF CONVERSION. As necessary, fractional shares
of Common Stock shall be rounded up to the next whole number and issued upon the
conversion of the Series B Preferred Stock. Before any holder of Series B
Preferred Stock will be entitled to convert the same into shares of Common
Stock, he or she will surrender the certificate or certificates therefor duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred Stock and he or she will give written notice to the
Corporation stating the name or names in which he or she wishes the certificate
or certificates for shares of Common Stock to be issued. The Corporation, as
soon as practicable thereafter, will issue and deliver at such office to such
holder or to his or her nominee or nominees, a certificate or certificates for
the number of shares of Common Stock to which he or she will be entitled as
aforesaid. Such conversion will be deemed to have been made immediately prior to
the close of business on the date of notice of conversion provided by the holder
to the Corporation, and the person or persons entitled to receive the shares of
Common Stock issuable upon conversion will be treated for all purposes as the
record holder or holders of such shares of Common Stock on such date.
6.4 ADJUSTMENT FOR SUBDIVISIONS OR COMBINATIONS OF COMMON
STOCK. In the event the Corporation at any time or from time to time alters the
effective date of the initial sale of the Series B Preferred Stock, effects a
subdivision or combination of its outstanding Common Stock into a greater or
lesser number of shares without a proportionate and corresponding subdivision or
combination of its outstanding shares of the Series B Preferred Stock, then the
number of shares into which each share of Series B Preferred Stock is
convertible will be decreased or increased proportionately.
(7) NO IMPAIRMENT. The Corporation, whether by amendment of this
Article II or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, will not
avoid or seek to avoid the observance or performance of any terms to be observed
or performed under this Article II by the Corporation, but all times in good
faith will assist in the carrying out all actions necessary or appropriate to
protect the conversion rights of the holders of Series B Preferred Stock against
impairment.
(8) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders or any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation will mail to each
holder of Series B Preferred Stock at least five (5) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or rights, and the
amount and character of such dividend, distribution or right.
(9) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation at
all times will reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of Series B Preferred Stock such number of its shares of Common Stock as
from time to time would be required to effect the conversion of all then
outstanding shares of Series B Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock is not sufficient to effect the
conversion of all then outstanding shares of Series B Preferred Stock, in
addition to such other remedies as may be available to the holders of Series B
Preferred Stock for such failure, the Corporation will take such corporate
action as, in the opinion of its counsel, may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as will
be sufficient for such purpose.
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(10) NOTICES. Any notices required by the provisions of this Article II
to be given to the holders of shares or Series B Preferred Stock shall be given
in writing and shall be conclusively deemed effectively given to persons located
in the United States five (5) days after deposit in the United States mail, by
registered or certified mail postage prepaid, or upon actual receipt if given by
any other method or to persons located outside of the United States, addressed
to such holder at his address appearing on the books of the Corporation.
(11) RECAPITALIZATIONS. If at any time, or from time to time, there
shall be a recapitalization of the Common Stock (other than a subdivision,
combination or merger or sale of assets transaction provided for elsewhere in
Article II), provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of such
shares of such Series B Preferred Stock the number of shares of stock or other
securities or property of the Corporation or otherwise, to which a holder of
Common Stock issued upon conversion of such Series B Preferred Stock would have
been entitled on such recapitalization. In any such case, appropriate
adjustments shall be made in the application of the provisions of this Article
II with respect to the rights of the holders of the Series B Preferred Stock
after the recapitalization to the end that the provisions of Article II shall be
applicable after that event in as nearly an equivalent manner as may be
practicable.
(12) RANKING. The Series B Preferred Stock shall rank junior to Series
C Preferred Stock and Series A Preferred Stock as to the distribution of assets,
and the Series B Preferred Stock shall rank senior to all other series of the
Corporation's Preferred Stock (other than Series C Preferred Stock and Series A
Preferred Stock which shall be senior at all times to the Series B Preferred
Stock with respect to the distribution of assets and the payment of dividends)
as to the distribution of assets. Further, so long as any shares of Series B
Preferred Stock are outstanding, except for the Series C Preferred Stock and the
Series A Preferred Stock which shall rank senior to the Series B Preferred
Stock, no new class or series of stock shall hereafter be created or authorized
which is entitled to shares in distribution of assets on a parity with or in
priority to the Series B Preferred Stock, nor shall there be created or
authorized any securities convertible into shares of any such stock, unless the
holders of record of not less than two-thirds of the number of shares of the
Series B Preferred Stock then outstanding (as a single class separate from the
holders of all other classes of stock) shall vote therefore in person or by
proxy at the meeting of stockholders at which the creation or authorization of
such new class of stock or such convertible securities is considered.
Notwithstanding any provision in this Article II to the
contrary, however, no approval by the holders of Series B Preferred Stock shall
be required with respect to any changes that are made to the rights,
preferences, and privileges of Series B Preferred Stock if such changes are
substantially similar to the changes to the rights, preferences and privileges
to the Series A Preferred Stock that have been approved by a vote in person or
by proxy of two-thirds of the number of shares of the Series A Preferred Stock
then outstanding (as a single class separate from the holders of all other
classes of stock).
(13) AMENDMENT. This Article II shall not be further amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series B Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series B Preferred Stock, voting separately as a class.
(14) FRACTIONAL SHARES. Series B Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends; participate in distributions
and to have the benefit of all other rights of holders of Series B Preferred
Stock.
(15) OBSERVER SEAT. The majority of the outstanding shares of Series B
Preferred Stock shall have the right to appoint a representative (the "SERIES B
REPRESENTATIVE") who shall have the right to attend all meetings of the
Corporation's Board of Directors in a nonvoting observer capacity, to receives
notice of such meetings and to receive the information provided by the
Corporation to the Board of Directors; provided, however, that the Corporation
may require as a condition precedent to the right to exercise such observer
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rights under this subsection (15) that each person proposing to attend any
meeting of the Corporation's Board of Directors and each person to have access
to any of the information provided by the Corporation to the Board of Directors
shall agree to hold in confidence and trust and to act in a fiduciary manner
with respect to all information so received during such meetings or otherwise;
and, provided further, that the Corporation reserves the right to require the
Series B Representative to execute a nondisclosure agreement in a form
reasonably acceptable to the Corporation and which provides that such Series B
Representative shall not disclose or use any trade secrets of the Corporation.
Notwithstanding the foregoing, holders of Series B Preferred Stock shall have no
rights under this subsection (15) during any period in which any holder of
Series B Preferred Stock is serving as a director of the Corporation.
ARTICLE III SERIES C PREFERRED STOCK
------------------------------------
The designated powers, preferences and relative participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, of the Series C Preferred Stock are as follows.
(1) DESIGNATION AND AMOUNT. The shares of such series shall be
designated "Series C Preferred Stock" (the "SERIES C PREFERRED STOCK") and the
number of shares constituting such series shall be Thirty Million (30,000,000).
(2) DIVIDENDS. The holders of Series C Preferred Stock shall be
entitled to receive a monthly dividend out of the retained earnings of the
Corporation in accordance with the following terms:
(a) Unless the context otherwise requires, the terms defined
in this subsection (2) of Article III herein shall have, for all purposes of
Article III, the meanings herein specified (with terms defined in the singular
having comparable meanings when used in the plural).
"MONTHLY PER SHARE SERIES C DIVIDEND AMOUNT" shall mean for
each one share of Series C Preferred Stock an amount derived from the following
formula: (i) during each of the first 12 months following the date of issuance
of the relevant shares of Series C Preferred Stock, the product of (a) the
Series C Original Issue Price per share divided by one dollar, which quotient is
(b) multiplied by $.00750; (ii) during each of the next succeeding 36 months
thereafter, the product of (a) the Series C Original Issue Price per share
divided by one dollar, which quotient is (b) multiplied by $.03180; and (iii)
from and after the 48th month following the date of issuance of the relevant
shares of Series C Preferred Stock, such shares shall bear no dividend.
"BUSINESS DAY" shall mean a day other than a Saturday, a
Sunday or any other day on which banking institutions in Los Angeles, California
are authorized or obligated by law to close.
"HOLDER" shall mean the record holder of one or more shares of
Series C Preferred Stock, as shown on the books and records of the Corporation.
"SERIES C DIVIDENDS" shall mean the cash dividends as set
forth in subparagraph 2(b) below.
"SERIES C DIVIDEND PAYMENT DATE" shall mean the first day of
each calendar month of each year during the Series C Dividend Payment Period.
"SERIES C DIVIDEND PAYMENT PERIOD" shall mean the period from,
and including, the Initial Issue Date, to and including the date that the Series
C Preferred Stock is redeemed.
"SERIES C DIVIDEND PERIOD" shall mean the period from, and
including, the Initial Issue Date, to, but not including, the first Series C
Dividend Payment Date and thereafter, each monthly period, including any Series
C Dividend Payment Date to, but not including, the next Series C Dividend
Payment Date.
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"SERIES C INITIAL ISSUE DATE" shall mean the date that shares
of Series C Preferred Stock are first issued by the Corporation.
"SERIES C RECORD DATE" shall mean the date that is five
Business Days prior to any Series C Dividend Payment Date.
(b) The record holders of Series C Preferred Stock on each
Series C Record Date shall receive on each Series C Dividend Payment Date during
the Series C Dividend Payment Period per share dividends legally available for
such purpose (such dividends being herein called "SERIES C DIVIDENDS"). Series C
Dividends shall be paid by delivering to the record holders of Series C
Preferred Stock the cash dividend per share then due.
(c) Prior to each Series C Record Date immediately preceding
each Series C Dividend Payment Date, the Board of Directors of the Corporation
shall declare Series C Dividends on the Series C Preferred Stock in accordance
with subparagraph 2(b) above, payable on the next Series C Dividend Payment
Date. Series C Dividends on shares of Series C Preferred Stock shall accrue and
be cumulative from the date of issuance of such shares, notwithstanding the
failure of the Board of Directors to declare and/or pay such Series C Dividends
with respect to any Series C Dividend Period. Series C Dividends shall be
cumulative and payable in arrears during the Series C Dividend Payment Period on
each Series C Dividend Payment Date, commencing on the first Series C Dividend
Payment Date. If any Series C Dividend Payment Date occurs on a day that is not
a Business Day, any accrued Series C Dividends otherwise payable on such Series
C Dividend Payment Date shall be paid on the next succeeding Business Day.
Series C Dividends shall be paid on each Series C Dividend Payment Date to the
holders of record of the Series C Preferred Stock as their names shall appear on
the share register of the Corporation on the Series C Record Date immediately
preceding such Series C Dividend Payment Date. Series C Dividends on account of
arrears for any past Series C Dividend Periods may be declared and paid at any
time to the holders of record on the Series C Record Dates applicable to such
past Series C Dividend Periods.
(d) Notwithstanding anything contained herein to the contrary,
no dividends on shares of Series C Preferred Stock shall be declared by the
Board of Directors of the Corporation or paid or set apart for payment by the
Corporation at such time if such declaration or payment shall be restricted or
prohibited by law.
(e) Dividends on the Series C Preferred Stock shall be payable
in preference and prior to any payment of any dividend on any other series of
Preferred Stock or on the Common Stock of the Corporation. No dividends or other
distributions (other than those payable solely in the Common Stock or Series A
Preferred Stock of the Corporation) may be declared or paid on any shares of
Common Stock or Series A Preferred Stock of the Corporation during any fiscal
year of the Corporation until all declared dividends on the Series C Preferred
Stock for the fiscal year in question are paid or set apart for payment
(3) VOTING RIGHTS.
The holder of each share of Series C Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Series C
Preferred Stock held on the record date set for the vote or written consent of
shareholders and, except as otherwise required by law or this Article III, shall
have voting rights and powers equal to the voting rights and powers of the
Common Stock (voting together with the Common Stock as a single class). The
holder of each share of Series C Preferred Stock shall be entitled to notice of
any shareholders' meeting in accordance with the bylaws of the Corporation and
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shall vote with holders of the Common Stock upon any matter submitted to a vote
of shareholders, except those matters required by law or by this Designation of
Rights to be submitted to a class vote. Fractional votes shall not, however, be
permitted, and any fractional voting rights resulting from the above formula
(after aggregating all shares of Common Stock into which shares of Series C
Preferred Stock held by each holder could be converted) shall be rounded to the
nearest whole number (with one-half rounded upward to one). Each holder of
Common Stock shall be entitled to one (1) vote for each share of Common Stock
held.
In addition to any other rights provided by law, the
Corporation shall not, without first obtaining the approval (by vote or written
consent) of the holders of not less than a majority of the total number of
outstanding shares of the Series C Preferred Stock voting as a single class,
cause any "liquidation, dissolution or winding-up" as such term is defined in
subsection 4.3 of Article I herein.
(4) LIQUIDATION, DISSOLUTION OR WINDING UP.
4.1 For purposes hereof, the "SERIES C ORIGINAL ISSUE PRICE"
shall mean the original issuance price per share upon which each share of Series
C Preferred Stock was issued as determined by the Board with respect to each
such issuance (as adjusted for any stock dividends, combinations or splits with
respect to such shares). For purposes hereof, the "SERIES C REDEMPTION PRICE" is
125% of the Series C Original Issue Price. In the event of any voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, the
holders of Series C Preferred Stock then outstanding shall be entitled to
receive, and prior to and in preference of any distribution of any of the assets
or surplus of the funds of the Corporation to the holders of the Common Stock,
Series A Preferred Stock and Series B Preferred Stock, or any junior or other
preferred stock subsequently designated by reason of their ownership thereof, an
amount equal to the Series C Redemption Price per share (as adjusted for stock
splits, stock dividends, recapitalizations and the like) plus an amount equal to
all accrued and unpaid dividends thereon. if any, together with interest on the
accrued but unpaid dividends at 10% percent per annum, and no more (all of the
preceding collectively, the "SERIES C LIQUIDATION PREFERENCE".) If the assets of
the Corporation available for distribution to the holders of Series C Preferred
Stock shall be insufficient to permit such payment in full to the holders of
Series C Preferred Stock, then the entire assets or remaining assets of the
Corporation available for distribution shall be distributed ratably among the
holders of the Series C Preferred Stock based on the number of shares held by
each holder of Series C Preferred Stock.
4.2 After the payment of all preferential amounts required to
be paid to the holders of the Series C Preferred Stock then issued and
outstanding upon the dissolution, liquidation or winding up of the Corporation,
and then after the payment of all preferential amounts required to be paid to
the holders of Series A Preferred Stock then issued and outstanding upon the
dissolution, liquidation or winding up of the Corporation, and then thereafter,
the payment of all preferential amounts required to be paid to the holders of
Series B Preferred Stock then issued and outstanding upon the dissolution,
liquidation or winding up of the Corporation, and then thereafter any junior
Series of Preferred Stock then issued and outstanding upon the dissolution,
liquidation or winding up of the Corporation, any remaining assets and funds of
the Corporation available for distribution to the Corporation's stockholders
shall be distributed ratably among the holders of the Common Stock.
(5) REDEMPTION RIGHTS. The Series C Preferred Stock may be redeemed in
full or in part, to the extent it may lawfully do so, at the Corporation's
election from time to time and subject to the following:
5.1 The Corporation may redeem the number of shares of Series
C Preferred Stock specified in a declaration by the Board of directors (the
"REDEMPTION NOTICE") delivered to the holders of Series C Preferred Stick and
which Redemption Notice will specify the date of payment (each a "REDEMPTION
Date"), by paying in cash therefore a sum equal to the Series C Redemption Price
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per share of such Series C Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus any dividends declared
but unpaid (the "REDEMPTION PRICE"). Shares of Series C Preferred Stock shall be
redeemed on a pro rata basis among all of the issued and outstanding shares of
Series C Preferred Stock determined as of the date that the Redemption Notice is
sent to the holders of Series C Preferred Stock.
5.2 SURRENDER OF CERTIFICATE. The holder of any shares of
Series C Preferred Stock redeemed pursuant to the redemption rights herein shall
not be entitled to receive payment for such shares until such holder shall cause
to be delivered to the Corporation's principal office or such other place as the
corporation may specify, (i) the certificates representing such shares of Series
C Preferred Stock and (ii) transfer instrument(s) satisfactory to the
corporation and sufficient to transfer such shares of Series C Preferred Stock
to the Corporation free of any adverse interest.
5.3 EFFECT OF REDEMPTION. From and after the Redemption Date,
unless there shall have been a default in payment of the Redemption Price, all
rights of the holders of shares of the Series C Preferred Stock designated for
redemption in the Redemption Notice as holders of such Series of Preferred Stock
(except the right to receive the Redemption Price without interest upon
surrender of their certificate or certificates) shall cease with respect to such
shares, and such shares shall not thereafter be transferred on the books of the
Corporation or be deemed to be outstanding for any purpose whatsoever.
5.4 PAYMENT FOR SHARES. If the funds of the Corporation
legally available for redemption of shares of Series C Preferred Stock on any
Redemption Date are insufficient to redeem the total number of shares of such
Series C Preferred Stock to be redeemed on such date, those funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed based upon the
holdings of such Series C Preferred Stock. The shares of Series C Preferred
Stock not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series C
Preferred Stock, such funds will immediately be used to redeem the balance of
the shares which the Corporation has become obligated to redeem on any
Redemption Date, but which it has not redeemed.
(6) NO IMPAIRMENT. The Corporation, whether by amendment of this
Article III or through any reorganization, transfer of assets, merger,
dissolution, issue or sale of securities or any other voluntary action, will not
avoid or seek to avoid the observance or performance of any terms to be observed
or performed under this Article III by the Corporation, but all times in good
faith will assist in the carrying out all actions necessary or appropriate to
protect the liquidation rights of the holders of Series C Preferred Stock
against impairment.
(7) NOTICES OF RECORD DATE. In the event of any taking by the
Corporation of a record of the holders or any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend or other distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation will mail to each
holder of Series C Preferred Stock at least five (5) days prior to the date
specified therein, a notice specifying the date on which any such record is to
be taken for the purpose of such dividend, distribution or rights, and the
amount and character of such dividend, distribution or right.
(8) NOTICES. Any notices required by the provisions of this Article III
to be given to the holders of shares or Series C Preferred Stock shall be given
in writing and shall be conclusively deemed effectively given to persons located
in the United States five (5) days after deposit in the United States mail, by
registered or certified mail postage prepaid, or upon actual receipt if given by
any other method or to persons located outside of the United States, addressed
to such holder at his address appearing on the books of the Corporation.
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(9) RANKING. The Series C Preferred Stock shall rank senior to all
other series of the Corporation's Preferred Stock as to redemption, payment of
dividends and the distribution of assets. Further, so long as any shares of
Series C Preferred Stock are outstanding, no new class or series of stock shall
hereafter be created or authorized which is entitled to dividends or shares in
distribution of assets on a parity with or in priority to the Series C Preferred
Stock, nor shall there be created or authorized any securities convertible into
shares of any such stock or which provide for mandatory redemption rights, nor
shall the Corporation redeem any shares of Common Stock or Preferred Stock
(other than Series C Preferred Stock) or any other preferred stock to be created
hereafter by the Corporation, unless the holders of record of not less than
two-thirds of the number of shares of the Series C Preferred Stock then
outstanding (as a single class separate from the holders of all other classes of
stock) shall vote therefore in person or by proxy at the meeting of stockholders
at which the creation or authorization of such new class of stock or such
convertible securities is considered.
(10) AMENDMENT. This Article III shall not be further amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series C Preferred Stock so as to affect them adversely without
the affirmative vote of the holders of two-thirds or more of the outstanding
shares of Series C Preferred Stock, voting separately as a class.
(11) FRACTIONAL SHARES. Series C Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion to such
holder's fractional shares, to receive dividends, participate in distributions
and to have the benefit of all other rights of holders of Series C Preferred
Stock.
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