AGREEMENT AND PLAN OF MERGER BY AND AMONG LIMELIGHT MEDIA GROUP, INC., LIMELIGHT MERGER II CORP. AND IMPART, INC. DATED: June 30, 2005
Exhibit
2.1
AGREEMENT
AND PLAN OF MERGER
BY
AND AMONG
LIMELIGHT
MEDIA GROUP, INC.,
LIMELIGHT
MERGER II
CORP.
AND
IMPART,
INC.
DATED:
June 30, 2005
TABLE
OF CONTENTS
PAGE
|
|
ARTICLE
I
THE MERGER
|
1
|
SECTION
1.1
The Merger
|
1
|
SECTION
1.2 Closing
|
2
|
SECTION
1.3
Effective Time
|
2
|
SECTION
1.4
Effects of the Merger
|
2
|
SECTION
1.5
Articles of Incorporation and By-laws of the Surviving
Corporation
|
2
|
SECTION
1.6
Directors and Officers
|
2
|
ARTICLE
II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF CERTIFICATES
|
3
|
SECTION
2.1
Effect on Capital Stock
|
3
|
SECTION
2.2
Fractional Shares
|
4
|
SECTION
2.3
Exchange of Certificates.
|
4
|
SECTION
2.4
Certain Adjustments
|
6
|
SECTION
2.5
Shares of Dissenting Shareholders
|
6
|
SECTION
2.6
Stock Options.
|
7
|
SECTION
2.7 Warrants.
|
7
|
SECTION
2.8
Tax-Free Reorganization
|
8
|
ARTICLE
III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
|
8
|
SECTION
3.1
Organization, Standing and Corporate Power
|
8
|
SECTION
3.2
Subsidiaries
|
8
|
SECTION
3.3
Capital Structure
|
9
|
SECTION
3.4
Authority; Noncontravention.
|
10
|
SECTION
3.5
Financial Statements; Undisclosed Liabilities.
|
11
|
SECTION
3.6
Material Contracts.
|
11
|
SECTION
3.7
Absence of Certain Changes.
|
12
|
SECTION
3.8
Permits; Compliance with Applicable Laws.
|
12
|
SECTION
3.9
Absence of Litigation
|
13
|
SECTION
3.10
Tax Matters.
|
13
|
SECTION
3.11
Employee Benefit Plans.
|
14
|
SECTION
3.12
Labor Matters.
|
17
|
SECTION
3.13
Environmental Matters
|
19
|
SECTION
3.14
Intellectual Property.
|
20
|
SECTION
3.15
Insurance Matters
|
23
|
SECTION
3.16
Transactions with Affiliates
|
23
|
SECTION
3.17
Voting Requirements
|
23
|
SECTION
3.18 Brokers
|
23
|
SECTION
3.19
Real Property.
|
23
|
SECTION
3.20
Tangible Personal Property
|
24
|
SECTION
3.21
Investment Company
|
24
|
SECTION
3.22
Board Approval
|
24
|
SECTION
3.23
Books and Records
|
25
|
SECTION
3.24
Host Licenses
|
25
|
SECTION
3.25
Advertising Contracts
|
26
|
SECTION
3.26
Full Disclosure
|
26
|
|
|
ARTICLE
IV
REPRESENTATIONS AND WARRANTIES OF PARENT
|
26
|
SECTION
4.1
Organization, Standing and Corporate Power.
|
26
|
SECTION
4.2
Subsidiaries.
|
27
|
SECTION
4.3
Capital Structure.
|
27
|
SECTION
4.4
Authority; Noncontravention
|
28
|
SECTION
4.5
Parent Documents.
|
29
|
SECTION
4.6
Material Contracts.
|
29
|
SECTION
4.7
Absence of Certain Changes
|
30
|
SECTION
4.8
Permits; Compliance with Applicable Laws.
|
30
|
SECTION
4.9
Absence of Litigation
|
31
|
SECTION
4.10
Tax Matters.
|
31
|
SECTION
4.11
Employee Benefit Plans.
|
32
|
SECTION
4.12
Labor Matters.
|
34
|
SECTION
4.13
Environmental Matters
|
35
|
SECTION
4.14
Intellectual Property.
|
36
|
SECTION
4.15
Insurance Matters
|
38
|
SECTION
4.16
Transactions with Affiliates
|
38
|
SECTION
4.17
Voting Requirements
|
38
|
SECTION
4.18 Brokers
|
38
|
SECTION
4.19
Real Property
|
38
|
SECTION
4.20
Tangible Personal Property
|
40
|
SECTION
4.21
Investment Company
|
40
|
SECTION
4.22
Board Approval
|
40
|
SECTION
4.23
Books and Records
|
40
|
SECTION
4.24
Full Disclosure
|
40
|
|
|
ARTICLE
V
COVENANTS RELATING TO CONDUCT OF BUSINESS
|
41
|
SECTION
5.1
Conduct of Business by the Company
|
41
|
SECTION
5.2
Advice of Changes
|
42
|
SECTION
5.3
No
Solicitation by the Company.
|
42
|
SECTION
5.4
Conduct of Business by Parent
|
42
|
SECTION
5.5
No
Solicitation by Parent.
|
44
|
SECTION
5.6
Transition
|
45
|
|
|
ARTICLE
VI
ADDITIONAL AGREEMENTS
|
45
|
SECTION
6.1
Access to Information; Confidentiality.
|
45
|
SECTION
6.2
Commercially Reasonable Efforts
|
46
|
SECTION
6.3
Indemnification, Exculpation and Insurance.
|
46
|
SECTION
6.4
Fees and Expenses
|
47
|
SECTION
6.5
Public Announcements
|
47
|
SECTION
6.6
Employee Benefits.
|
47
|
ii
SECTION
6.7
Company Shareholder
Approval
|
48
|
SECTION
6.8
Regulation D
|
48
|
SECTION
6.9
Name Change
|
48
|
SECTION
6.10
Company Mergers
|
49
|
SECTION
6.11
Loan to Company
|
49
|
|
|
ARTICLE
VII
CONDITIONS PRECEDENT
|
49
|
SECTION
7.1
Conditions to Each Party’s Obligation to Effect the Merger
|
49
|
SECTION
7.2
Conditions to Obligations of Parent and Merger Sub
|
50
|
SECTION
7.3
Conditions to Obligations of the Company
|
51
|
SECTION
7.4
Frustration of Closing Conditions
|
53
|
|
|
ARTICLE
VIII
TERMINATION, AMENDMENT AND WAIVER
|
53
|
SECTION
8.1
Termination
|
53
|
SECTION
8.2 Amendment
|
55
|
SECTION
8.3
Extension; Waiver
|
55
|
|
|
ARTICLE
IX
GENERAL PROVISIONS
|
55
|
SECTION
9.1
Nonsurvival of Representations, Warranties and Agreements
|
55
|
SECTION
9.2 Notices
|
55
|
SECTION
9.3
Definitions
|
56
|
SECTION
9.4
Interpretation
|
57
|
SECTION
9.5
Counterparts
|
58
|
SECTION
9.6
Entire Agreement; No Third-Party Beneficiaries
|
58
|
SECTION
9.7
Governing Law
|
58
|
SECTION
9.8
Assignment
|
58
|
SECTION
9.9
Consent to Jurisdiction
|
58
|
SECTION
9.10 Headings
|
59
|
SECTION
9.11
Severability
|
59
|
SECTION
9.12
Enforcement
|
59
|
iii
EXHIBITS
Exhibit
A
|
-
|
Articles
of Incorporation of Surviving Corporation
|
Exhibit
B
|
-
|
Form
of Lock-Up Agreement
|
Exhibit
B-1
|
-
|
Form
of Xxxx Lock-Up Agreement
|
Exhibit
C
|
-
|
Form
of Registration Rights Agreement
|
Exhibit
D
|
-
|
Reserved
|
Exhibit
E
|
-
|
Reserved
|
Exhibit
F
|
-
|
Form
of Employment Agreements
|
Exhibit
G
|
-
|
Form
of Re-Incorporation Stockholder Consent
|
Exhibit
H
|
-
|
Form
of Re-Incorporation Merger Agreement
|
iv
INDEX
OF DEFINED TERMS
DEFINED
TERMS
|
SECTION
DEFINED
|
Adjustment
Event
|
Section
2.4
|
affiliate
|
Section
9.3(a)
|
Agreement
|
Preamble
|
Articles
of Merger
|
Section
1.3
|
Closing
|
Section
1.2
|
Closing
Balance Sheet
|
Section
2.4(b)
|
Closing
Date
|
Section
1.2
|
Code
|
Section
2.6(a)
|
Company
|
Preamble
|
Company
Acquisition Proposal
|
Section
5.3(a)
|
Company
Advertising Contracts
|
Section
3.25
|
Company
Articles of Incorporation
|
Section
2.1(c)
|
Company
Common Stock
|
Recitals
|
Company
Disclosure Schedule
|
Article
III
|
Company
Financial Statements
|
Section
3.5
|
Company
Host Licenses
|
Section
3.24 (b)
|
Company
IP Agreements
|
Section
3.14(g)
|
Company
Material Contracts
|
Section
3.6(b)
|
Company
Mergers
|
Section
9.3(b)
|
Company
Target
|
Section
9.3(d)
|
Company
Warrant
|
Section
2.7(b)
|
Company
Shareholder Approval
|
Section
3.17
|
Company
Shareholders Meeting
|
Recitals
|
Company
Stock Certificates
|
Section
2.3(a)
|
Company
Stock Plans
|
Section
3.3(a)
|
Company
Trade Secrets
|
Section
3.14(h)
|
Company
Warrant
|
Section
2.7(a)
|
Continuing
Employees
|
Section
6.3(a)
|
Delaware
Merger Corp.
|
Section
9.3
|
Dissenting
Shares
|
Section
2.5
|
Director
Indemnification Agreement
|
Section
7.3(j)
|
Effective
Time
|
Section
1.3
|
Employee
Plans
|
Section
3.11(a)
|
Employment
Agreements
|
Section
9.3(g)
|
Environmental
Laws
|
Section
3.13(d)(i)
|
Environmental
Permits
|
Section
3.13(d)(ii)
|
ERISA
|
Section
3.11(a)
|
ERISA
Affiliate
|
Section
3.11(a)
|
Exchange
Act
|
Section
4.4(c)
|
Fiduciary
|
Section
3.11(e)
|
GAAP
|
Section
3.5
|
v
Government
Entities
|
Section
3.4(c)
|
Governmental
Entity
|
Section
3.4(c)
|
Hazardous
Substances
|
Section
3.13(d)(iii)
|
Holdback
Shares
|
Section
2.8
|
Indemnified
Parties
|
Section
6.4(a)
|
Indoor
Advertising Display
|
Section
3.24(b)
|
Intellectual
Property
|
Section
3.14(a)
|
IRS
|
Section
3.11(g)
|
ISO
|
Section
2.6(a)
|
knowledge
|
Section
9.3(e)
|
Letter
of Transmittal
|
Section
2.3(b)
|
Liens
|
Section
3.4(c)
|
Lock-Up
Agreement
|
Section
2.1(d)
|
Lock-Up
Period
|
Section
2.1(d)
|
material
adverse change
|
Section
9.3(b)
|
material
adverse effect
|
Section
9.3(b)
|
Merger
|
Recitals
|
Merger
Consideration
|
Section
2.1(d)
|
Merger
Sub
|
Preamble
|
NVGCL
|
Recitals
|
Other
Company Documents
|
Section
3.8(c)
|
Other
Parent Documents
|
Section
4.8(c)
|
Parent
|
Preamble
|
Parent
Acquisition Proposal
|
Section
5.5
|
Parent
Common Stock
|
Section
4.3(a)
|
Parent
Disclosure Schedule
|
Article
IV
|
Parent
IP Agreements
|
Section
4.14(g)
|
Parent
Material Contracts
|
Section
4.6(b)
|
Parent
Re-incorporation Merger
|
Section
9.3
|
Parent
SEC Documents
|
Section
4.5
|
Parent
Trade Secrets
|
Section
4.14(h)
|
Permits
|
Section
3.8(a)
|
Company
Permitted Liens
|
Section
3.9(b)
|
Person
|
Section
9.3(c)
|
Re-Incorporation
Stockholder Consent
|
Section
7.2 (j)
|
Release
|
Section
3.13(d)(iv)
|
Registration
Rights Agreement
|
Section
2.1(f)
|
Requisite
Regulatory Approvals
|
Section
7.1(b)
|
Restraints
|
Section
7.2(c)
|
Sarbanes
Oxley Act
|
Section
4.24
|
SEC
|
Section
4.5
|
Secretary
|
Section
1.3
|
Securities
Act
|
Section
2.1(f)
|
Software
|
Section
3.14(a)
|
Subsidiary
|
Section
9.3(d)
|
Surviving
Corporation
|
Section
1.1
|
vi
Tangible
Personal Property
|
Section
3.20
|
Tax
|
Section
3.10(i)(i)
|
Taxes
|
Section
3.10(i)(i)
|
Tax
Return
|
Section
3.10(i)(ii)
|
Third
Party Rights
|
Section
3.14(d)
|
WBCA
|
Recitals
|
vii
THIS
AGREEMENT AND PLAN OF MERGER
(this
“Agreement”)
is
made and entered into on this 30th
day of
June 2005, by and among LIMELIGHT
MEDIA GROUP,
INC.,
a Nevada
corporation (“Parent”),
LIMELIGHT
MERGER II CORP.,
a
Washington corporation and wholly-owned subsidiary of Parent (“Merger
Sub”),
and
IMPART,
INC.,
a
Washington corporation (the “Company”).
W
I T N E S S E T H:
WHEREAS,
each
of
Parent, Merger Sub, and the Company desires Parent to consummate a business
combination with the Company in a transaction whereby, upon the terms and
subject to the conditions set forth in this Agreement, Merger Sub will merge
with and into the Company (the “Merger”),
each
outstanding share of Common Stock, $.001 par value per share, of the Company
(“Company
Common Stock”)
(other
than shares cancelled and retired pursuant to Section 2.1(b) and Dissenting
Shares (as defined herein), will be converted into the right to receive the
Merger Consideration, and the Company will be the surviving corporation in
the
Merger;
WHEREAS,
the
Board of Directors of the Company unanimously has determined and resolved that
the Merger and all of the transactions contemplated by this Agreement are in
the
best interest of the holders of Company Common Stock and that the Merger is
fair
and advisable, and has approved this Agreement in accordance with the Washington
Business Corporation Act, as amended (the “WBCA”),
and
has further resolved unanimously to recommend to all holders of Company Common
Stock that they authorize, approve, and adopt this Agreement and the
transactions contemplated hereby at
a
meeting of such holders to be duly called and convened for such purpose (the
“Company
Shareholders Meeting”);
and
WHEREAS,
the
Board of Directors of Parent unanimously has determined and resolved that the
Merger and all of the transactions contemplated by this Agreement are in the
best interest of Parent and the holders of Parent Common Stock and has adopted
this Agreement in accordance with the Nevada General Corporation Law, as amended
(the “NVGCL”)
and
Parent, as sole stockholder of Merger Sub, has adopted this Agreement in
accordance with the WBCA.
NOW,
THEREFORE,
in
consideration of the mutual premises recited above and the representations,
warranties, covenants, and agreements contained in this Agreement, the parties
hereto (each a “Party,”
and
together, the “Parties”),
intending to be legally bound, hereby agree as follows:
ARTICLE
I
THE
MERGER
SECTION
1.1 The
Merger.
Upon the terms and subject to the conditions set forth in this Agreement
and in accordance with the WBCA, at the Effective Time, Merger Sub shall be
merged with and into the Company and the Company shall be the surviving
corporation in the Merger (the “Surviving
Corporation”)
and,
as such, the Company shall continue its corporate existence as a direct,
wholly-owned subsidiary of Parent under the laws of the State of Washington,
and
the separate corporate existence of Merger Sub thereupon shall
cease.
1
SECTION
1.2 Closing.
Subject to the satisfaction or, to the extent permitted by applicable
law,
waiver of the conditions to consummation of the Merger contained in Article
VII
hereof, the closing of the Merger (the “Closing”)
shall
take place at 10:00 a.m., New York time, on a date to be specified by the
Parties (the “Closing
Date”),
which
date shall not be later than the third (3rd) business day next following the
satisfaction or, to the extent permitted by applicable law, waiver of the
conditions set forth in Article VII (other than those conditions that by their
nature are to be satisfied at the Closing, but subject to the fulfillment or,
to
the extent permitted by applicable law, waiver of those conditions), unless
another time or date is agreed to by the Parties. The Closing will be held
at
the offices of Xxxxx Xxxxxxx Xxxxxxx & Xxxxx, LLP, legal counsel to Parent,
located at 000 Xxxx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000 or at such
other location as is agreed to by the Parties.
SECTION
1.3 Effective
Time.
Upon the terms and subject to the conditions set forth in this Agreement,
at the Closing the Parties shall cause the Merger to be consummated by filing
with the Secretary of State of the State of Washington (the “Secretary”)
articles of merger (the “Articles
of Merger”)
duly
executed and so filed in accordance with the WBCA and shall make all other
filings and recordings required under the WBCA to effectuate the Merger and
the
transactions contemplated by this Agreement. The Merger shall become effective
at such time as the Articles of Merger are duly filed with the Secretary, or
at
such subsequent date or time as Parent and the Company mutually shall agree
and
specify in the Articles of Merger (the time the Merger becomes so effective
being hereinafter referred to as the “Effective
Time”).
SECTION
1.4 Effects
of the Merger.
The Merger shall have the effects set forth in the WBCA.
SECTION
1.5 Articles
of Incorporation and By-laws of the Surviving
Corporation.
The articles of incorporation of the Surviving Corporation shall be
amended and restated to read as set forth in Exhibit
A
attached
hereto and as so amended shall be the articles of incorporation of the Surviving
Corporation until thereafter amended or restated as provided therein or by
applicable law. The by-laws of Merger Sub in effect immediately prior to the
Effective Time shall be the by-laws of the Surviving Corporation until
thereafter amended or restated as provided therein or by applicable
law.
SECTION
1.6 Directors
and Officers.
The directors of Merger Sub at the Effective Time shall, from and
after
the Effective Time, be and become the directors of the Surviving Corporation
until their successors shall have been duly elected and qualified or until
their
earlier death, resignation, or removal in accordance with the articles of
incorporation and by-laws of the Surviving Corporation and the WBCA. The
officers of Merger Sub at the Effective Time shall, from and after the Effective
Time, be and become the officers of the Surviving Corporation until their
successors shall have been duly appointed and qualified or until their earlier
death, resignation, or removal in accordance with the articles of incorporation
and the by-laws of the Surviving Corporation.
2
ARTICLE
II
EFFECT
OF THE MERGER ON THE CAPITAL STOCK
OF
THE CONSTITUENT CORPORATIONS;
EXCHANGE
OF CERTIFICATES
SECTION
2.1 Effect
on Capital Stock.
At the Effective Time, by virtue of the Merger and automatically without
any action on the part of any holder of capital stock of Parent, Merger Sub,
or
the Company, respectively:
(a)
Capital
Stock of Merger Sub.
Each then-outstanding share of common stock, no par value, of Merger
Sub
shall be converted into and become one (1) duly authorized, validly issued,
fully paid and nonassessable share of common stock, no par value, of the
Surviving Corporation.
(b)
Cancellation
of Treasury Stock and Parent Owned Stock.
Each share of Company Common Stock then issued and held in the Company's
treasury and each share of Company Common Stock then owned by Parent, Merger
Sub, or any other wholly owned subsidiary of Parent, shall be canceled and
retired and shall cease to exist, and no consideration shall be delivered in
exchange therefor.
(c)
Company
Common Stock.
Each then-outstanding share of Company Common Stock (but excluding
shares
cancelled and retired pursuant to Section 2.1(b) and Dissenting Shares), shall
be converted into and become the right to receive, subject to Sections 2.2
and
2.8, 14.614568 duly authorized, validly issued, fully paid, and nonassessable
shares of Parent Common Stock ((the
shares of Parent Common Stock to be issued in exchange for the Company Common
Stock are hereinafter referred to as the
“Merger
Consideration”).
(d)
Lock
Up.
At the Closing, the holders of Parent Common Stock issued as Merger
Consideration, will execute a Lock-Up Agreement in form substantially similar
to
Exhibit B attached hereto (the “Lock-Up Agreement”), which shall contain a
lock-up period (the “Lock Up Period”) reasonably requested by the Parent’s
financial advisors on the same terms as the other Parent stockholders required
to execute a Lock-Up Agreement by the terms hereof.
(e)
Registration
Rights.
The holders of Parent Common Stock issued as Merger Consideration shall be
entitled to receive certain demand and “piggy-back” registration rights with
respect to such shares. Accordingly, at the Closing, Parent and the holders
of
Parent Common Stock issued as Merger consideration shall enter into (i) the
Registration Rights Agreement attached hereto as Exhibit
C
(the
“Registration
Rights Agreement”).
3
SECTION
2.2 Fractional
Shares.
No certificates representing fractional shares of Parent
Common Stock
shall be issued upon the surrender for exchange of Company Stock Certificates,
no dividend or distribution by Parent shall relate to such fractional share
interests, and such fractional share interests shall not entitle the owner
thereof to vote or to any rights as a stockholder of Parent. Further, no holder
of a Company Stock Certificate who otherwise would have been entitled to receive
in the Merger a fractional share interest in exchange for such Company Stock
Certificate shall have the right to receive cash payment in lieu thereof. In
lieu of any such fractional shares or cash payment, (x) any such fractional
share interest greater than or equal to one-half of a share (0.5) shall be
rounded up to the next whole share number, and (y) any such fractional share
less than one-half of a share (0.5) shall be rounded down to the preceding
whole
share number and the certificates representing shares of Parent Common Stock
to
be issued in the Merger shall reflect such adjustments.
SECTION
2.3 Exchange
of Certificates.
(a)
Subject
to the provisions of Section 2.8 hereof, as soon as reasonably practicable
after
the Effective Time, Parent shall mail or otherwise deliver to each holder of
record of a certificate (or certificates) which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock (the
“Company
Stock Certificates”)
(i) a
letter of transmittal (which shall specify that delivery shall be effected,
and
risk of loss and title to the Company Stock Certificate(s) shall pass, only
upon
delivery of the Company Stock Certificate(s) (or affidavits of loss in lieu
of
such certificates) (the “Letter
of Transmittal”)
to the
Parent and shall be in such form and have such other provisions as Parent
reasonably may specify, and (ii) instructions for use thereof in surrendering
Company Stock Certificate(s) in exchange for the Merger Consideration. Upon
surrender to the Parent of a Company Stock Certificate in proper form for
cancellation, together with a duly executed letter of transmittal, the holder
of
such Company Stock Certificate shall be entitled to receive in exchange therefor
(i) a certificate (or certificates) representing such whole number of shares
of
Parent Common Stock as such holder is entitled to receive pursuant to Article
II
in such denominations and registered in such names as such holder may request.
The shares represented by the Company Stock Certificate so surrendered shall
forthwith be cancelled. Without limiting the generality of the foregoing (and
notwithstanding any other provisions of this Agreement), no interest shall
be
paid or accrued in respect of any of the Merger Consideration payable to holders
of Company Common Stock in accordance with this Article II. The Letter of
Transmittal shall provide (A) procedures for holders whose Company Stock
Certificates are lost, stolen, or destroyed to receive the Merger Consideration,
and (B) procedures for the transfer of ownership of shares of the Company Common
Stock that is not registered on the stock transfer books and records of the
Company. Until surrendered in accordance with this Section 2.3 and as specified
in the Letter of Transmittal, each Company Stock Certificate shall be deemed
at
all times from and after the Effective Time to represent only the right to
receive upon such surrender the Merger Consideration.
4
(b)
Notwithstanding
any other provisions of this Agreement, no dividends or other distributions
declared or made after the Effective Time in respect of shares of Parent Common
Stock having a record date after the Effective Time shall be paid to the holder
of any unsurrendered Company Stock Certificate until the holder shall surrender
such Company Stock Certificate as provided in this Section 2.3. Subject to
applicable law, following surrender of any such Company Stock Certificate,
there
shall be paid to the holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, in each case without any
interest thereon, (i) at the time of such surrender, the amount of dividends
or
other distributions, if any, having a record date after the Effective Time
theretofore payable with respect to such whole shares of Parent Common Stock
and
not paid, less the amount of all required withholding Taxes in respect thereof,
and (ii) at the appropriate payment date subsequent to surrender, the amount
of
dividends or other distributions having a record date after the Effective Time
but prior to the date of such surrender and having a payment date subsequent
to
the date of such surrender and payable with respect to such whole shares of
Parent Common Stock, less the amount of all required withholding Taxes in
respect thereof.
(c)
All
shares of Parent Common Stock issued upon surrender of Company Stock
Certificates in accordance with this Article II and as specified in the Letter
of Transmittal shall be deemed to have been issued and paid in full satisfaction
of all rights pertaining to such shares of Company Common Stock represented
thereby and, as of the Effective Time, the stock transfer books and records
of
the Company shall be closed and there shall be no further registration of
transfers on the stock transfer books and records of the Company of shares
of
Company Common Stock or Company Preferred Stock outstanding immediately prior
to
the Effective Time. If, after the Effective Time, Company Stock Certificates
are
properly presented to the Surviving Corporation for any reason (but otherwise
in
accordance with this Article II and as specified in the Letter of Transmittal),
they shall be cancelled and exchanged for the Merger Consideration as provided
in this Section 2.3.
SECTION
2.4 Certain
Adjustments
(a)
If,
after
the date hereof and prior to the Effective Time and to the extent permitted
by
this Agreement, the outstanding shares of Parent Common Stock and Company Common
Stock shall be changed into a different number, class, or series of shares
by
reason of any reclassification, recapitalization, or combination, forward stock
split, reverse stock split, stock dividend, or rights issued in respect of
such
stock, or any similar event shall occur (any such action, an “Adjustment
Event”),
the
Merger Consideration shall be adjusted correspondingly to provide to the holders
of Company Common Stock the right to receive shares of Parent Common Stock
having the same economic value as contemplated by this Agreement immediately
prior to such Adjustment Event and Parent’s payment obligations likewise shall
be correspondingly adjusted such that it shall be required to pay and deliver
not more than the aggregate Merger Consideration contemplated by this
Agreement.
5
(b)
Not
later
than thirty (30) days following the Closing Date, the Company shall deliver
to
Parent an audited balance sheet of the Company dated as at June 30, 2005, which
balance sheet shall be prepared in accordance with generally accepted accounting
principles and certified by the chief executive officer of the Company (the
“Closing
Balance Sheet”).
If
the total liabilities of the Company reflected on the Closing Balance Sheet
(“Actual
Closing Liabilities”)
are
greater than $1.7 million (“Target
Closing Liabilities”),
the
aggregate Merger Consideration shall be reduced by an amount equal to (i) the
difference between Actual Closing Liabilities and Target Closing Liabilities
divided by (ii) $0.08.
In the
case of any such adjustment, the number of Holdback Shares issuuable by Parent
after the Closing Date pursuant to Section 2.8 hereof shall reduced accordingly.
Upon
Parent’s
request, Company shall provide Parent with copies of all workpapers and other
books and records utilized by Company in preparing the Closing Balance
Sheet.
SECTION
2.5 Shares
of Dissenting Shareholders.
Notwithstanding anything in this Agreement to the contrary, any shares
of
Company Common Stock or Company Preferred Stock that are outstanding as of
the
Effective Time and that are held by a shareholder
who has
properly exercised his appraisal rights under Title 23B of the WBCA (the
“Dissenting
Shares”)
shall
not be converted into the right to receive the Merger Consideration; provided,
however, if any such holder shall have failed to perfect or shall have
effectively withdrawn or lost his right to dissent from the Merger under the
WBCA and to receive such consideration as may be determined to be due with
respect to such Dissenting Shares pursuant to and subject to the requirements
of
the WBCA, each share of such holder’s Company Common Stock thereupon shall be
deemed to have been converted into and to have become, as of the Effective
Time,
the right to receive, without any interest thereon, the Merger Consideration
in
accordance with Article II. The Company shall give Parent prompt written notice
of (i) all demands for appraisal or payment for shares of Company Common Stock
received by the Company prior to the Effective Time in accordance with
the
WBCA,
and
(ii) any settlement or offer to settle any such demands.
SECTION
2.6 Reserved.
SECTION
2.7 Tax-Free
Reorganization.
The Merger is intended to qualify as a reorganization described in Section
368(a)(1)(B) of the Code, and the Parties agree not take any action which could
result in the Merger failing to so qualify. The Parties hereto further agree
to
report the Merger for all purposes as a reorganization under Section 368 of
the
Code, and that this Agreement is intended to be a “plan of reorganization”
within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States
Treasury Regulations.
6
SECTION
2.8 Holdback.
The
parties hereto acknowledge that Parent does not presently, and at the Closing
will not, have a sufficient number of duly authorized but unissued shares of
Parent Common Stock to issue all of the shares
of
Parent Common Stock to be issued as Merger Consideration hereunder.
Accordingly, the parties agree that, subject to the rights of Parent under
Sections 2.4 and 6.3(f) hereof, fifty-seven
million five hundred thousand (57,500,000) shares of Parent Common Stock (as
adjusted to give effect to the Parent Re-incorporation Merger, the “Holdback
Shares”) out of
the
total
number of shares of Parent Common Stock to be issued as Merger Consideration
hereunder shall be withheld from the aggregate number of shares of Parent Common
Stock to be issued as Merger Consideration upon the Closing (which shares shall
be withheld on a pro rata basis from each Company Shareholder) and shall be
issued to the holders of Company Common Stock as of the Closing Date on a pro
rata basis not later than ten (10) days following the later of (i) the effective
date of the Parent Re-Incorporation Merger or (ii) Parent’s receipt of the
audited financial statements of the Company for the years ended December 31,
2003 and 2004 and the three and six months ended June 30, 2005. Thereafter,
stock certificates representing the Holdback Shares shall be issued in
accordance with Section 2.2 hereof.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
Except
as
set forth on the Disclosure Schedule delivered by the Company to Parent prior
to
the execution of this Agreement which hereby is incorporated by reference in
and
constitutes an integral part of this Agreement (the “Company
Disclosure Schedule”),
the
Company hereby represents and warrants to Parent and Merger Sub as
follows:
SECTION
3.1
|
Organization,
Standing and Corporate
Power.
|
(a)
Each
of
the Company and its subsidiaries is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Washington and
has
the requisite corporate power and authority to carry on its business as
presently being conducted. Each of the Company and its subsidiaries is duly
qualified or licensed to conduct business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing
or
operation of its properties makes such qualification or licensing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing individually or in the aggregate would not reasonably
be expected to have a material adverse effect on the Company.
7
(b)
The
Company has delivered or made available to Parent prior to the execution of
this
Agreement complete and correct copies of the articles of incorporation and
by-laws of the Company and its subsidiaries, each as in effect at the date
of
this Agreement.
SECTION
3.2 Subsidiaries.
Section 3.2 of the Company Disclosure Schedule lists the names and jurisdiction
of incorporation or organization of all the subsidiaries of the Company,
whether
consolidated or unconsolidated. The outstanding securities of the subsidiaries
of Company are set forth in Section 3.2 of the Company Disclosure Schedule
and
all outstanding shares of capital stock of, or other equity interests in,
each
such subsidiary: (i) have been duly authorized, validly issued, and are fully
paid and nonassessable, and (ii) are owned directly or indirectly by Company,
free and clear of all Liens (as defined below). Except as set forth above
or in
Section 3.2 of the Company Disclosure Schedule, the Company does not own,
directly or indirectly, any capital stock of or other equity or voting interests
in any person.
SECTION
3.3 Capital
Structure. The
authorized capital stock of the Company consists of 40 million shares of Company
Common Stock and no shares
of
preferred stock. As of the date hereof:
(a)
(i)
10,477,559 shares of Company Common Stock are issued and outstanding; (ii)
no
shares of Company Common Stock are held by the Company in its treasury and
no
shares of Company Common Stock are held by subsidiaries of the Company; (iii)
no shares
of
Company Common Stock were reserved for issuance pursuant to any plans,
agreements and arrangements providing for equity-based compensation to any
director, employee, consultant or independent contractor of the Company or
any
of its subsidiaries (collectively, the “Company
Stock Plans”)
and
(iv) no
options
or warrants
to purchase shares of Company Common Stock are issued and outstanding;
(b)
The
Company has delivered to Parent a true and complete list, as of the close of
business on the date hereof, of all outstanding Company Stock Options, the
number of shares subject to each such Company Stock Option, the grant date,
exercise price, term and vesting schedule of each such Company Stock Option
and
the names of the holders thereof.
(c)
All
outstanding shares of capital stock of the Company have been duly authorized
and
validly issued and are fully paid and nonassessable and, except as set forth
on
Section 3.3 of the Company Disclosure Schedule, are not subject to preemptive
rights created by statute, the Company’s articles of incorporation (the
“Company
Articles of Incorporation”)
or any
agreement to which the Company is a party or by which the Company may be bound.
Except as set forth in this Section and except for changes since the date of
this Agreement resulting from the exercise of Company Stock Options outstanding
on such date, there are outstanding (i) no shares of capital stock or other
voting securities of the Company, (ii) no securities of the Company convertible
into or exchangeable for shares of capital stock or voting securities of the
Company, and (iii) no options or other rights to acquire from the Company,
and
no obligation of the Company to issue, any capital stock, voting securities
or
securities convertible into or exchangeable for capital stock of the Company.
8
SECTION
3.4 Authority;
Noncontravention.
(a)
The
Company has the corporate power and authority to execute, deliver, and perform
this Agreement and to consummate the transactions contemplated hereby. Except
for any required approval by the Company’s shareholders
in
connection with the consummation of the Merger, all corporate acts and
proceedings required to be taken by or on the part of the Company to authorize
the Company to execute, deliver, and perform this Agreement and to consummate
the transactions contemplated hereby have been duly and validly taken. This
Agreement constitutes a valid and binding agreement of the Company.
(b)
The
execution and delivery of this Agreement does not, and the consummation of
the
transactions contemplated hereby will not, conflict with or result in a
violation of, or default (with or without notice or lapse of time, or both)
under, or give rise to a right of termination, cancellation, or acceleration
of
any material obligation under (i) any provision of the Company Articles of
Incorporation, (ii) any material loan or credit agreement, note, mortgage,
indenture, lease, or other material agreement or (iii) material instrument,
permit, license, judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to the Company or its properties or assets.
(c)
The
execution, delivery, and performance by the Company of this Agreement and the
consummation of the Merger by the Company require no consent, approval, order
or
authorization of, action by or in respect of, or registration or filing with,
any governmental body, court, agency, official or authority (each, a
“Governmental
Entity”,
collectively “Government
Entities”)
other
than the filing of the Articles of Merger with the Secretary of State of the
State of Washington.
(d)
The
execution and delivery of this Agreement and the consummation of the Merger
will
not result in the creation of any pledges, claims, liens, charges, encumbrances,
adverse claims, mortgages, and security interests of any kind or nature
whatsoever (collectively, “Liens”)
upon
any asset of the Company.
9
(e)
Except
as
set forth in Section 3.4(e) of the Company Disclosure Schedule, no consent,
approval, waiver, or other action by any person (other than the Governmental
Entities referred to in (c) above) under any Company Material Contract (as
defined below) is required or necessary for, or made necessary by reason of,
the
execution, delivery, and performance of this Agreement by the Company or the
consummation of the Merger.
SECTION
3.5 Financial
Statements; Undisclosed Liabilities.
(a)
The
Company will furnish prior to Closing to the Parent true, correct, and complete
copies of: (i) unaudited balance sheets of the Company as of December 31, 2003
and December 31, 2004 and an unaudited balance sheet of the Company as of March
31, 2005 reviewed by the Company’s independent accountants; (ii) unaudited
income statements of the Company for the fiscal years ended December 31, 2003
and December 31, 2004 and an unaudited income statement of the Company for
the
three (3) month period ended March 31, 2005 reviewed by the Company’s
independent accountants and (iii) unaudited statements of cash flows of the
Company for the fiscal year ended December 31, 2003 and December 31, 2004 and
an
unaudited statement of cash flows of the Company for the three (3) month period
ended March 31, 2005 reviewed by the Company’s independent accountants
(collectively, the “Company
Financial Statements”).
The
Company Financial Statements have been prepared by the Company on the basis
of
the books and records maintained by the Company in the ordinary course of
business in a manner consistently used and applied throughout the periods
involved. The Company Financial Statements have been prepared in all material
respects in accordance with generally accepted accounting principles
(“GAAP”)
and
fairly present in all material respects the financial condition of the Company
and its subsidiaries as at the respective dates thereof, except that the
Company’s reviewed balance sheet as of March 31, 2005 and its income statement
and statement of cash flows for the three (3) month period then ended are
subject to normal year end adjustments in the ordinary course of business.
(b)
Except
for liabilities (i) set forth in Section 3.5 of the Company Disclosure Schedule,
(ii) reflected in the Company Financial Statements or (iii) incurred in the
ordinary course of business, consistent with past practice or in connection
with
this Agreement or the transactions contemplated hereby, neither the Company
nor
any of its subsidiaries has any material liabilities or obligations of any
nature.
SECTION
3.6 Material
Contracts.
(a)
Each
Company Material Contract (as defined below) is valid and binding on and
enforceable against the Company (or, to the extent a subsidiary is a party,
such
subsidiary) and, to the knowledge of the Company, each other party thereto
and
is in full force and effect. Neither the Company nor any of its subsidiaries
is
in breach or default under any Company Material Contract. Neither the Company
nor any of its subsidiaries knows of, and has not received notice of, any
material violation or default under (nor, to the knowledge of the Company,
does
there exist any condition which with the passage of time or the giving of notice
or both would result in such a violation or default under) any Company Material
Contract by any other party thereto. Prior to the date hereof, the Company
has
made available to Parent true and complete copies of all Company Material
Contracts.
10
(b)
As
used
in this Agreement, “Company
Material Contracts”
shall
mean any contract, license agreement, commitment, lease, or restriction of
any
kind, including without limitation, any Company Host License or Company
Advertising Contract) to which the Company is a party or by which the Company
or
any of its subsidiaries is bound or to which any of the Company’s or any of its
subsidiaries’ assets are subject which involve payments to or from the Company
of at least Fifty Thousand Dollars ($50,000).
SECTION
3.7 Absence
of Certain Changes.
Except
for liabilities incurred in connection with this Agreement or the transactions
contemplated hereby, and except as set forth in Section 3.7 of the Company
Disclosure Schedule, (i) since December 31, 2004, there has not been any
material adverse change in the Company or any of its subsidiaries or any event
which either individually or when aggregated with other event(s) has or
reasonably would be expected to have a material adverse effect on the Company
or
any of its subsidiaries taken as a whole, and (ii) there are not, to the
Company’s knowledge, any facts, circumstances, or events that make it reasonably
likely that the Company will not be able to fulfill its obligations under this
Agreement in all material respects.
SECTION
3.8 Permits;
Compliance with Applicable Laws.
(a)
The
Company and its subsidiaries own and/or possess all material permits, licenses,
variances, authorizations, exemptions, orders, registrations, and approvals
of
all Governmental Entities which are required for the operation of the business
of the Company and its subsidiaries (the “Permits”)
as
presently conducted. The Company and its subsidiaries are in compliance in
all
material respects with the terms of the Permits, and all the Permits are in
full
force and effect and no suspension, modification, or revocation of any of them
is pending or, to the knowledge of the Company, threatened nor, to the knowledge
of the Company, do grounds exist for any such action.
(b)
Each
of
the Company and its subsidiaries is in compliance in all material respects
with
all applicable statutes, laws, regulations, ordinances, Permits, rules, writs,
judgments, orders, decrees, and arbitration awards of each Governmental Entity
applicable to the Company or any of its subsidiaries.
11
(c)
Except
for filings with respect to Taxes, which are the subject of Section 3.10 and
not
covered by this Section 3.8(c), each of the Company and each of its subsidiaries
has timely filed all regulatory reports, schedules, forms, registrations, and
other documents, together with any amendments required to be made with respect
thereto, that they were required to file with each Governmental Entity (the
“Other
Company Documents”),
and
have timely paid all fees and assessments, if any, due and payable in connection
therewith, except where the failure to make such payments and filings
individually or in the aggregate would not have a material adverse effect on
the
Company.
SECTION
3.9 Absence of Litigation.
Section 3.9 of the Company Disclosure Schedule contains a true
and current
summary description of each pending and, to the Company’s knowledge, threatened
litigation, action, suit, case, proceeding, investigation, or arbitration.
Except as set forth in Section 3.9 of the Company Disclosure Schedule,
no
action, inquiry, demand, charge, requirement, or investigation by any
Governmental Entity and no litigation, action, suit, case, proceeding,
investigation, or arbitration by any person or Governmental Entity, in
each case
with respect to the Company or any of its subsidiaries or any of their
respective properties or Permits, is pending or, to the knowledge of the
Company, threatened.
SECTION
3.10 Tax
Matters.
(a)
Each
of
the Company and its subsidiaries has (i) filed with the appropriate Governmental
Entities all United States federal income and other material Tax Returns
required to be filed by it (giving effect to all extensions) and such Tax
Returns are true, correct, and complete in all material respects; (ii) paid
in
full all United States federal income and other material Taxes required to
have
been paid by it; and (iii) made adequate provision for all accrued Taxes not
yet
due. The accruals and provisions for Taxes reflected in the Company Financial
Statements are adequate in accordance with GAAP for all Taxes accrued or
accruable through the date of such statements.
(b)
As
of the
date of this Agreement, no Federal, state, local, or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Company or any of its subsidiaries,
and neither the Company nor any of its subsidiaries has received a written
notice of any material pending or proposed claims, audits, or proceedings with
respect to Taxes.
(c)
No
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted, or assessed in
writing by any Governmental Entity against, or with respect to, the Company
or
any of its subsidiaries. There is no action, suit, or audit now in progress,
pending or, to the knowledge of the Company, threatened against or with respect
to the Company or any of its subsidiaries with respect to any material
Tax.
12
(d)
Neither
the Company nor any of its subsidiaries has been included in any
“consolidated,”“unitary” or “combined” Tax Return (other than Tax Returns which
include only the Company) provided for under the laws of the United States,
any
foreign jurisdiction or any state or locality with respect to Taxes for any
taxable year.
(e)
No
election under Section 341(f) of the Code has been made by the Company or any
of
its subsidiaries.
(f)
No
claim
has been made in writing by any Governmental Entities in a jurisdiction where
the Company or any of its subsidiaries does not file Tax Returns that the
Company is, or may be, subject to taxation by that jurisdiction.
(g)
Each
of
the Company and its subsidiaries has made available to Parent correct and
complete copies of (i) all of its material Tax Returns filed within the past
three (3) years, (ii) all audit reports, letter rulings, technical advice
memoranda, and similar documents issued by a Governmental Entity within the
past
three (3) years relating to the Federal, state, local, or foreign Taxes due
from
or with respect to the Company or any of its subsidiaries, and (iii) any closing
letters or agreements entered into by the Company with any Governmental Entities
within the past three (3) years with respect to Taxes.
(h)
Neither
the Company nor any of its subsidiaries has received any notice of deficiency
or
assessment from any Governmental Entity for any amount of Tax that has not
been
fully settled or satisfied, and to the knowledge of the Company, no such
deficiency or assessment is proposed.
(i)
For
purposes of this Agreement:
(i)
“Tax”
or
“Taxes”
shall
mean shall mean all federal, state, county, local, foreign, and other taxes
of
any kind whatsoever (including, without limitation, income, profits, premium,
excise, sales, use, occupancy, gross receipts, franchise, ad valorem, severance,
capital levy, production, transfer, license, stamp, environmental, withholding,
employment, unemployment compensation, payroll related, and property taxes,
import duties, and other governmental charges and assessments), whether or
not
measured in whole or in part by net income, and including deficiencies,
interest, additions to tax or interest, and penalties with respect thereto,
and
including expenses associated with contesting any proposed adjustment related
to
any of the foregoing.
13
(ii)
“Tax
Return”
shall
mean any return, information report, or filing with respect to Taxes, including
any schedules attached thereto and including any amendments
thereof.
SECTION
3.11 Employee
Benefit Plans.
(a)
Section
3.11 of the Company Disclosure Schedule contains a true and complete list of
all
pension, stock option, stock purchase, benefit, welfare, profit-sharing,
retirement, disability, vacation, severance, hospitalization, insurance,
incentive, deferred compensation, and other similar fringe or employee benefit
plans, funds, programs or arrangements, whether written or oral, in each of
the
foregoing cases which (i) covers, is maintained for the benefit of, or relates
to any or all current or former employees of the Company or any of its
subsidiaries and any other entity (“ERISA
Affiliate”)
related to the Company under Section 414(b), (c), (m) and (o) of the Code and
(ii) is not a “multiemployer plan” as defined in Section 3(37) or Section
4001(a)(3) of the Employee Retirement Income Security Act of 1974, as amended
(“ERISA”)
or
Section 414 of the Code (the “Employee
Plans”).
Section 3.11 of the Company Disclosure Schedule identifies and includes but
is
not limited to, each of the Employee Plans that is subject to Section 302 or
Title IV of ERISA or Section 412 of the Code. Neither the Company, any of its
subsidiaries nor any ERISA Affiliate of the Company or any of its subsidiaries
has any commitment or formal plan, whether or not legally binding, to create
any
additional employee benefit plan or modify or change any existing Employee
Plan
other than as may be required by the express terms of such Employee Plan or
applicable law.
(b)
With
respect to each Employee Plan that has been qualified or is intended to be
qualified under the Code or that is an “Employee Benefit Plan” within the
meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved
and
adopted by all necessary and appropriate action of the board of directors of
the
Company (or a duly constituted committee thereof).
(c)
With
respect to the Employee Plans, all required contributions for all periods ending
before the Closing Date have been or will be paid in full by the Closing Date.
Subject only to normal retrospective adjustments in the ordinary course, all
required insurance premiums have been or will be paid in full with regard to
such Employee Plans for policy years or other applicable policy periods ending
on or before the Closing Date by the Closing Date. As of the date hereof, none
of the Employee Plans has unfunded benefit liabilities, as defined in Section
4001(a)(16) of ERISA.
(d)
The
Company has no “multi-employer plans,” as defined in Section 3(37) or Section
4001(a)(3) of ERISA or Section 414 (“Multi-Employer
Plans”),
and
never has had any such plans.
14
(e)
With
respect to each Employee Plan (i) no prohibited transactions as defined in
Section 406 of ERISA or Section 4975 of the Code have occurred or are expected
to occur as a result of the Merger or the transactions contemplated by this
Agreement, (ii) no action, suit, grievance, arbitration, or other type of
litigation, or claim with respect to the assets of any Employee Plan (other
than
routine claims for benefits made in the ordinary course of plan administration
for which plan administrative review procedures have not been exhausted) is
pending or, to the knowledge of the Company, threatened or imminent against
the
Company, any ERISA Affiliate or any fiduciary, as such term is defined in
Section 3(21) of ERISA (“Fiduciary”),
including, but not limited to, any action, suit, grievance, arbitration, or
other type of litigation, or claim regarding conduct that allegedly interferes
with the attainment of rights under any Employee Plan. To the knowledge of
the
Company, neither the Company, nor its directors, officers, employees or any
Fiduciary has any material liability for failure to comply with ERISA or the
Code for any action or failure to act in connection with the administration
or
investment of such plan. None of the Employee Plans is subject to any pending
investigations or to the knowledge of the Company threatened investigations
from
any Governmental Agencies who enforce applicable laws under ERISA and the
Code.
(f)
Each
of
the Employee Plans is, and has been, operated in all material respects in
accordance with its terms and each of the Employee Plans, and administration
thereof, is, and has been, in all material respects in compliance with the
requirements of any and all applicable statutes, orders, or governmental rules
or regulations currently in effect, including, but not limited to, ERISA and
the
Code. All required reports and descriptions of the Employee Plans (including
but
not limited to Form 5500 Annual Reports, Form 1024 Application for Recognition
of Exemption Under Section 501(a), Summary Annual Reports and Summary Plan
Descriptions) have been timely filed and distributed as required by ERISA and
the Code. Any notices required by ERISA or the Code or any other state or
federal law or any ruling or regulation of any state or federal administrative
agency with respect to the Employee Plans, including but not limited to any
notices required by Section 4980B of the Code, have been appropriately
given.
(g)
The
Internal Revenue Service (the “IRS”)
has
issued a favorable determination letter or opinion letter with respect to each
Employee Plan intended to be “qualified” within the meaning of Section 401(a) of
the Code that has not been revoked and, to the knowledge of the Company, no
circumstances exist that could adversely affect the qualified status of any
such
plan and the exemption under Section 501(a) of the Code of the trust maintained
thereunder. Each Employee Plan intended to satisfy the requirements of Section
125, 501(c)(9) or 501(c)(17) of the Code has satisfied such requirements in
all
material respects.
(h)
With
respect to each Employee Plan to which the Company or any ERISA Affiliate made,
or was required to make, contributions on behalf of any employee during the
five-year period ending on the last day of the most recent plan year end prior
to the Closing Date, (i) no liability under Title IV or Section 302 of ERISA
has
been incurred by the Company or any ERISA Affiliate that has not been satisfied
in full, and (ii) to the knowledge of the Company, no condition exists that
presents a material risk to the Company or any ERISA Affiliate of incurring
any
such liability, and (iii) the present value of accrued benefits under such
plan,
based upon the actuarial assumptions used for funding purposes in the most
recent actuarial report prepared by such plan’s actuary with respect to such
plan did not exceed, as of its latest valuation date, the then current value
of
the assets of such plan allocable to such accrued benefits. No Employee Plan
or
any trust established thereunder has incurred any “accumulated funding
deficiency” (as defined in Section 302 of ERISA and Section 412 of the Code),
whether or not waived, as of the last day of the most recently ended fiscal
year.
15
(i)
Except
as
set forth in Section 3.11 of the Company Disclosure Schedule, no Employee Plan
provides medical, surgical, hospitalization, death or similar benefits (whether
or not insured) for employees for periods extending beyond their retirement
or
other termination of service, other than (i) coverage mandated by Section 4980B
of the Code, Section 601 of ERISA or other applicable law, (ii) death benefits
under any “pension plan,” (iii) benefits the full cost of which is borne by the
employee (or his beneficiary), or (iv) Employee Plans that can be amended or
terminated by the Company without consent. The Company does not have any current
or projected liability with respect to post-employment or post-retirement
welfare benefits for retired, former, or current employees of the
Company.
(j)
No
material amounts payable under the Employee Plans will fail to be deductible
for
Federal income tax purposes by virtue of Section 162(m) of the
Code.
(k)
To
the
extent that the Company is deemed to be a fiduciary with respect to any Plan
that is subject to ERISA, the Company (i) during the past five (5) years has
complied with the requirements of ERISA and the Code in the performance of
its
duties and responsibilities with respect to such employee benefit plan and
(ii)
has not knowingly caused any of the trusts for which it serves as an investment
manager, as defined in Section 3(38) of ERISA, to enter into any transaction
that would constitute a “prohibited transaction” under Section 406 of ERISA or
Section 4975 of the Code, with respect to any such trusts, except for
transactions that are the subject of a statutory or administrative
exemption.
(l)
No
person
will be entitled to a “gross up” or other similar payment in respect of excise
taxes under Section 4999 of the Code with respect to the transactions
contemplated by this Agreement.
(m)
None
of
the Employee Plans have been completely or partially terminated and none has
been the subject of a “reportable event” as that term is defined in Section 4043
of ERISA. No amendment has been adopted which would require the Company or
any
ERISA Affiliate to provide security pursuant to Section 307 of ERISA or Section
401(a)(29) of the Code.
16
SECTION
3.12 Labor
Matters.
(a)
With
respect to employees of the Company or its subsidiaries: (i) to the knowledge
of
the Company, no senior executive or key employee has any plans to terminate
employment with the Company or any of its subsidiaries; (ii) there is no unfair
labor practice charge or complaint against the Company pending or, to the
knowledge of the Company, threatened before the National Labor Relations Board
or any other comparable Governmental Entity; (iii) there is no demand for
recognition made by any labor organization or petition for election filed with
the National Labor Relations Board or any other comparable Governmental Entity;
(iv) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the knowledge of Company,
no
claims therefor have been threatened other than grievances or arbitrations
incurred in the ordinary course of business; (v) the execution and delivery
of
this Agreement and the consummation of the transactions contemplated hereby
and
thereby will not give rise to termination of any existing collective bargaining
agreement or permit any labor organization to commence or initiate any
negotiations in respect of wages, hours, benefits, severance, or working
conditions under any such existing collective bargaining agreements; and (vi)
there is no litigation, arbitration proceeding, governmental investigation,
administrative charge, citation or action of any kind pending or, to the
knowledge of the Company, proposed or threatened against the Company relating
to
employment, employment practices, terms and conditions of employment or wages,
benefits, severance, and hours.
(b)
Section
3.12(b) of the Company Disclosure Schedule lists the name, title, date of
employment, and current annual salary of each current salaried employee whose
total annual compensation exceeds $75,000. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby and
thereby will not (i) result in any payment (including severance, unemployment
compensation, tax gross-up, bonus or otherwise) becoming due to any current
or
former director, employee or independent contractor of the Company or any of
its
subsidiaries, from the Company or any of its subsidiaries under any Employee
Plan or other agreement, (ii) materially increase any benefits otherwise payable
under any Employee Plan or other agreement, or (iii) result in the acceleration
of the time of payment, exercise, or vesting of any such benefits.
(c)
Section
3.12(c) of the Company Disclosure Schedule sets forth all contracts, agreements,
plans, or arrangements covering any employee of the Company or its subsidiaries
containing “change of control,”“stay-put,” transition, retention, severance,or
similar provisions, and sets forth the names and titles of all such employees,
the amounts payable under such provisions, whether such provisions would become
payable as a result of the Merger and the transactions contemplated by this
Agreement, and when such amounts would be payable to such employees, all of
which are in writing, have heretofore been duly approved by the Company’s board
of directors, and true and complete copies of all of which have heretofore
been
delivered to Parent. There is no contract, agreement, plan, or arrangement
(oral
or written) covering any employee of the Company that individually or
collectively could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
17
SECTION
3.13 Environmental
Matters.
Except for such matters which would not, individually or in the aggregate,
reasonably be expected to result in a material adverse effect on the Company
or
are listed in Section 3.13 of the Company Disclosure Schedule:
(a)
Compliance.
To the
Company’s knowledge, (i) The Company and its subsidiaries are in compliance in
all material respects with all applicable Environmental Laws; (ii) neither
the
Company nor any of its subsidiaries has received any written communication
from
any person or governmental entity that alleges that the Company or any of its
subsidiaries is not in compliance with applicable Environmental Laws; and (iii)
there have not been any Releases of Hazardous Substances by the Company or
any
of its subsidiaries, or, by any other party, at any property currently or
formerly owned or operated by the Company or any of its subsidiaries that
occurred during the period of the Company’s or any of its subsidiaries’
ownership or operation of such property.
(b)
Environmental
Permits.
The
Company and its subsidiaries have all Environmental Permits necessary for the
conduct and operation of its business, and all such permits are in good standing
or, where applicable, a renewal application has been timely filed and is pending
agency approval, and the Company or its subsidiaries are in compliance with
all
terms and conditions of all such Environmental Permits and is not required
to
make any expenditure in order to obtain or renew any Environmental
Permits.
(c)
Environmental
Claims.
There
are no Environmental Claims pending or, to the Company’s knowledge, threatened,
against the Company, or against any real or personal property or operation
that
the Company owns, leases or manages.
(d)
As
used
in this Agreement:
(i)
“Environmental
Laws”
shall
mean any and all binding and applicable local, municipal, state, federal or
international law, statute, treaty, directive, decision, judgment, award,
regulation, decree, rule, code of practice, guidance, order, direction, consent,
authorization, permit, or similar requirement, approval or standard concerning
(A) occupational, consumer and/or public health and safety, and/or (B)
environmental matters (including clean-up standards and practices), with respect
to buildings, equipment, soil, sub-surface strata, air, surface water, or ground
water, whether set forth in applicable law or applied in practice, whether
to
facilities such as those of the Company Properties in the jurisdictions in
which
the Company Properties are located or to facilities such as those used for
the
transportation, storage or disposal of Hazardous Substances generated by the
Company or otherwise.
18
(ii)
“Environmental
Permits”
shall
mean Permits required by Environmental Laws.
(iii)
“Hazardous
Substances”
shall
mean any and all dangerous substances, hazardous substances, toxic substances,
radioactive substances, hazardous wastes, special wastes, controlled wastes,
oils, petroleum and petroleum products, hazardous chemicals, and any other
materials which are regulated by the Environmental Laws or otherwise found
or
determined to be potentially harmful to human health or the
environment.
(iv)
“Release”
shall
mean any spilling, leaking, pumping, emitting, emptying, discharging, injecting,
escaping, leaching, migrating, dumping, or disposing of Hazardous Substances
(including the abandonment or discarding of barrels, containers, or other closed
receptacles containing Hazardous Substances) into the environment.
SECTION
3.14 Intellectual
Property.
(a)
Section
3.14(a) of the Company Disclosure Schedule sets forth, for the Intellectual
Property (as defined below) owned or purported to be owned by the Company or
any
of its subsidiaries, a complete and accurate list of all U.S. and foreign (i)
patents and patent applications, (ii) trademarks and service marks which are
registered or the subject of an application for registration and material
unregistered trademarks or service marks, (iii) copyrights which are registered
or the subject of an application for registration, and (iv) Internet domain
names. The Company or one of its subsidiaries owns or has the valid right to
use
all patents and patent applications, patent rights, trademarks, service marks,
trademark or service xxxx registrations and applications, trade names, logos,
designs, Internet domain names, slogans, and general intangibles of like nature,
together with all goodwill related to the foregoing, copyrights, copyright
registrations, renewals, and applications, Software (as defined below),
technology, inventions, discoveries, trade secrets, and other confidential
information, know-how, proprietary processes, designs, processes, techniques,
formulae, algorithms, models and methodologies, licenses, and all other
proprietary rights (collectively, the “Intellectual
Property”)
that
it owns or purports to own or is licensed to Company in a manner sufficient
for
the conduct of the business of the Company as it currently is conducted.
“Software”
means
any and all (i) computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source
code
or object code, (ii) databases and compilations, including any and all data
and
collections of data, whether machine readable or otherwise, (iii) descriptions,
flow-charts, and other work product used to design, plan, organize, and develop
any of the foregoing, (iv) the technology supporting and content contained
on
any owned or operated Internet site(s), and (v) all documentation, including
user manuals and training materials, relating to any of the
foregoing.
19
(b)
All
of
the Intellectual Property owned or purported to be owned by the Company or
any
of its subsidiaries is free and clear of all Liens. The Company or one of its
subsidiaries is listed in the records of the appropriate United States, state,
or foreign agency as, the sole owner of record for each patent and patent
application and trademark, service xxxx, and copyright which is registered
or
the subject of an application for registration that is listed in Section 3.14(a)
of the Company Disclosure Schedule.
(c)
All
of the
patents, patent applications (to the Company’s knowledge), trademarks, service
marks, and copyrights owned or purported to be owned by Company which have
been
issued by, or registered or the subject of an application filed with, as
applicable, the U.S. Patent and Trademark Office, the U.S. Copyright Office,
or
in any similar office or agency anywhere in the world, including, but not
limited to the items listed in Section 3.14(a) of the Company Disclosure
Schedule are subsisting, enforceable, in full force and effect, and have not
been cancelled, expired, abandoned, or otherwise terminated, and all renewal
fees in respect thereof have been duly paid and are currently in compliance
with
all formal legal requirements (including the timely post-registration filing
of
affidavits of use and incontestability and renewal applications) and are, to
the
Company’s knowledge, valid. There is no pending or, to the Company’s knowledge,
threatened opposition, interference, invalidation, or cancellation proceeding
before any court or registration authority in any jurisdiction against any
of
the items listed in Section 3.14(a) of the Company Disclosure Schedule or,
to
the Company’s knowledge, against any other Intellectual Property used by the
Company or its subsidiaries.
(d)
To
the
Company’s knowledge, the conduct of the Company’s or each of its subsidiaries’
business as currently conducted does not infringe upon (either directly or
indirectly such as through contributory infringement or inducement to infringe),
dilute, misappropriate, or otherwise violate (i) any Intellectual Property
owned
or controlled by any third party (“Third
Party Rights”),
other
than the rights of any third party under any patent, or (ii) to the Company’s
knowledge, the rights of any third party under any patent. There are no pending,
or, to the knowledge of the Company, threatened claims against the Company
or
any of its subsidiaries alleging that the operation of the business as currently
conducted, infringes on or conflicts with any Third Party Rights.
20
(e)
To
the
Company’s knowledge, no third party is misappropriating, infringing, diluting,
or violating any Intellectual Property owned or purported to be owned by or
licensed to or by the Company or its subsidiaries and no such claims have been
made against a third party by the Company or any of its
subsidiaries.
(f)
Each
material item of Software, which is used by the Company or any of its
subsidiaries in connection with the operation of its business as currently
conducted, is either (i) owned by the Company or any of its subsidiaries, (ii)
currently in the public domain or otherwise available to the Company without
the
need of a license, lease or consent of any third party, or (iii) used under
rights granted to the Company or any of its subsidiaries pursuant to a written
agreement, license or lease from a third party.
(g)
Section
3.14(g) of Company Disclosure Schedule sets forth a complete list of all
agreements under which the Company or any of its subsidiaries is granted rights
to acquire or use the Intellectual Property of a third party (other than
shrink-wrap general purpose software) (the “Company
IP Agreements”).
Except as set forth in Section 3.14(g) of Company Disclosure Schedule, the
Company is not under any obligation to pay royalties or other payments in
connection with any Company IP Agreement, nor restricted from assigning its
rights respecting Intellectual Property nor will the Company otherwise be,
as a
result of the execution and delivery of this Agreement or the performance of
its
obligations under this Agreement, in breach of any Company IP Agreement. Each
Company IP Agreement is in full force and effect and has not been amended.
Neither the Company nor, to the knowledge of the Company, any other party
thereto, is in default or breach under any such Company IP Agreement. No event
has occurred which, with the passage of time or the giving of notice or both,
would cause a breach of or default by the Company under any of the Company
IP
Agreements and, to the knowledge of the Company, there is no breach or
anticipated breach by any other party to any Company IP Agreement.
SECTION
3.15 Insurance
Matters.
The Company and its subsidiaries have all material primary insurance providing
insurance coverage that is customary in amount and scope for other companies
in
the industry in which the Company and its subsidiaries operate. Section 3.15
of
the Company Disclosure Schedule comprises a true and complete list of all
insurance policies of the Company covering any of its assets, employees and
operations, except for Employee Plans. All such policies are in full force
and
effect, all premiums due and payable thereon have been paid and no written
or
oral notice of cancellation or termination has been received and is
outstanding.
SECTION
3.16 Transactions
with Affiliates.
Except
as
set forth on Section 3.16 of the Company Disclosure Schedule, there are no
outstanding amounts payable to or receivable from, or advances by the Company
or
any of its subsidiaries to, and neither the Company nor any of its subsidiaries
is otherwise a creditor of or debtor to, or a party to any transaction or
agreement with, any shareholder,
director, employee, or affiliate of the Company or any of its subsidiaries,
other than (i) transactions or agreements with Parent or its subsidiaries or
their respective affiliates, stockholders, directors, or executive officers,
or
(ii) as part of the normal and customary terms of such persons’ employment or
service as a director with the Company or any of its subsidiaries.
21
SECTION
3.17 Voting
Requirements.
The affirmative vote (in person or by duly authorized and valid proxy at a
Company shareholders’
meeting
or by written consent) of the holders of a majority of the outstanding shares
of
each of the Company Common Stock , in favor of the adoption of this Agreement
is
the only vote of the holders of any class or series of the Company’s capital
stock required by applicable law and the Company’s organizational instruments to
duly effect such adoption (the
“Company Shareholder Approval”).
SECTION
3.18 Brokers.
No broker, investment banker, financial advisor, finder, consultant, or other
person is entitled to any broker’s, finder’s, financial advisor’s or other
similar fee, compensation or commission, however and whenever payable, in
connection with the Merger and the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION
3.19 Real
Property.
(a)
Each
of
the Company and its subsidiaries has good and marketable title in fee simple
to
all real properties owned by it and all buildings, structures, and other
improvements located thereon and valid leaseholds in all real estate leased
by
it, other than Company Permitted Liens. Section 3.19(a) of the Company
Disclosure Schedule sets forth a complete list of all (i) real property owned
by
the Company or its subsidiaries as of the date hereof and (ii) real property
leased, subleased, or otherwise occupied or used by the Company or any of its
subsidiaries as lessee. With respect to each parcel of real property leased,
subleased, or otherwise occupied or used by the Company or any of its
subsidiaries as lessee: (i) the Company or the applicable subsidiary has a
valid
leasehold interest or other right of use and occupancy, free and clear of any
Liens on such leasehold interest or other rights of use and occupancy, or any
covenants, easements or title defects known to or created by the Company or
the
applicable subsidiary, except as do not materially affect the occupancy or
uses
of such property. Each of the Company’s and its subsidiaries’ agreement with
respect to real property leased, subleased, or otherwise occupied or used by
the
Company as lessee is in full force and effect and has not been amended. Neither
the Company or the applicable subsidiary nor, to the knowledge of the Company
or
the applicable subsidiary, any other party thereto, is in material default
or
material breach under any such agreement. No event has occurred which, with
the
passage of time or the giving of notice or both, would cause a breach of or
default by the Company or the applicable subsidiary under any of such agreement
and, to the knowledge of the Company or the applicable subsidiary, there is
no
breach or anticipated breach by any other party to such agreements.
22
(b)
As
used
in this Agreement, Company Permitted Liens shall mean: (i) Any Lien reflected
in
Section 3.19(b)(i) of the Company Disclosure Schedule, (ii) Liens for Taxes
not
yet due or delinquent or as to which there is a good faith dispute and for
which
there are adequate provisions on the books and records of the Company in
accordance with GAAP, (iii) with respect to real property, any Lien, encumbrance
or other title defect which is not in a liquidated amount (whether material
or
immaterial) and which does not, individually or in the aggregate, interfere
materially with the current use or materially detract from the value or
marketability of such property (assuming its continued use in the manner in
which it is currently used) and (iv) inchoate materialmen’s, mechanics’,
carriers’, workmen’s, and repairmen’s liens arising in the ordinary course and
not past due and payable or the payment of which is being contested in good
faith by appropriate proceedings.
23
SECTION
3.20 Tangible
Personal Property.
Except as would not materially impair the Company and its operations, the
machinery, equipment, furniture, fixtures, and other tangible personal property
(the “Tangible
Personal Property”)
owned,
leased, or used by the Company or any of its subsidiaries is in the aggregate
sufficient and adequate to carry on business in all material respects as
presently conducted and is, in the aggregate and in all material respects,
in
good operating condition and repair, normal wear and tear excepted. The Company
is in possession of and has good title to, or valid leasehold interests in
or
valid rights under contract to use, the Tangible Personal Property material
to
the Company, taken as a whole, free and clear of all Liens, other than Company
Permitted Liens.
SECTION
3.21 Investment
Company.
Neither the Company nor or any of its subsidiaries is an investment company
required to be registered as an investment company pursuant to the Investment
Company Act.
SECTION
3.22 Board
Approval.
Pursuant to meetings duly noticed and convened in accordance with all applicable
laws and at each of which a quorum was present, the board of directors of the
Company, after full and deliberate consideration, unanimously (other than for
directors who abstain) has (i) duly approved this Agreement and resolved that
the Merger and the transactions contemplated hereby are fair to, advisable,
and
in the best interests of the Company’s shareholders,
(ii)
resolved to unanimously recommend that the Company’s shareholders
approve
the Merger and the transactions contemplated hereby and (iii) directed that
the
Merger be submitted for consideration by the holders of Company Common Stock
and
Company Preferred Stock.
SECTION
3.23 Books
and Records.
Each of the Company and its subsidiaries maintains and has maintained accurate
(in all material respects) books and records reflecting its assets and
liabilities and accounts, notes and other receivables and inventory are recorded
accurately (in all material respects), and proper and adequate procedures are
implemented to effect the collection thereof on a current and timely basis.
SECTION
3.24 Host
Licenses.
(a)
Section 3.24 of the Company Disclosure Schedule sets forth a true, correct
and
complete list of the all Company Host Licenses used in connection with, or
necessary to conduct, Company’s or any of its subsidiary’s business as now
conducted. Section 3.24 of the Company Disclosure Schedule further sets forth
for each such Company Host License (a) the name of the hosting company, (b)
the
location of each facility covered by such Company Host License, (c) the number
of Indoor Advertising Displays available for installation pursuant to each
such
Company Host License, on a per facility basis, and the number of Indoor
Advertising Displays actually installed and operational at each such facility,
and (d) the expiration date. Neither the Company nor any of its subsidiaries
is
in breach or default under any Company Host License. Each Company Host License
is valid and binding on and enforceable against the Company (or, to the extent
a
subsidiary is a party, such subsidiary) and, to the knowledge of the Company,
each other party thereto and is in full force and effect. Neither the Company
nor any of its subsidiaries knows of, and has not received notice of, any
violation or default under (nor, to the knowledge of the Company, does there
exist any condition which with the passage of time or the giving of notice
or
both would result in such a violation or default under) any Company Host License
by any other party thereto. Prior to the date hereof, the Company has made
available to Parent true and complete copies of all Company Host
Licenses.
24
(b)
As
used
herein,
(i)
“Indoor
Advertising Displays”
means
all LCD or plasma video screens for the display of video advertising
content.
(ii)
“Company
Host Licenses”
means
all leases, licenses, and other grants of the right to enter upon or otherwise
use real property not owned in fee by the Company or any of its subsidiaries
for
the use, installation, operation, or management of Indoor Advertising Displays,
and all extensions, modifications or renewals (whether or not pursuant to
different terms and conditions) thereof to which the Company or any of its
subsidiaries is was a party.
25
SECTION
3.25 Advertising
Contracts.
(a) Section 3.24 of the Company Disclosure Schedule sets forth a true, correct
and complete list of all contracts, commitments and agreements, whether written
or oral, for advertising services to be provided by the Company or any of its
subsidiaries (“Company
Advertising Contracts”).
Neither the Company nor any of its subsidiaries is in breach or default under
any Company Advertising Contract. Each Company Advertising Contract is valid
and
binding on and enforceable against the Company (or, to the extent a subsidiary
is a party, such subsidiary) and, to the knowledge of the Company, each other
party thereto and is in full force and effect. Neither the Company nor any
of
its subsidiaries knows of, and has not received notice of, any violation or
default under (nor, to the knowledge of the Company, does there exist any
condition which with the passage of time or the giving of notice or both would
result in such a violation or default under) any Company Advertising Contract
by
any other party thereto. Prior to the date hereof, the Company has made
available to Parent true and complete copies of all Company Advertising
Contract.
SECTION
3.26 Full
Disclosure.
No
representation or warranty made by the Company herein nor in any certificate,
document, or other written instrument furnished or to be furnished pursuant
hereto contains or will contain any untrue statement of a material fact nor
shall any such certificate, document, or written instrument omit any material
fact necessary in order to make any statement herein or therein not
misleading.
ARTICLE
IV
REPRESENTATIONS
AND WARRANTIES OF PARENT
Except
as
set forth on the Disclosure Schedule delivered by Parent to the Company prior
to
the execution of this Agreement which is incorporated by reference in and
constitutes an integral part of this Agreement (the “Parent
Disclosure Schedule”),
Parent hereby represents and warrants to the Company as provided
in this Article IV. For the purposes of this Article IV, the terms “subsidiary”
and “subsidiaries” shall exclude OTR Media, Inc., a Nevada
corporation.
SECTION
4.1 Organization,
Standing and Corporate Power.
(a)
Each
of
Parent, its subsidiaries, and Merger Sub is a corporation or other legal entity
duly organized, validly existing, and in good standing under the laws of the
jurisdiction in which it is organized and has the requisite corporate power
and
requisite authority to carry on its business as presently being conducted.
Each
of Parent and its subsidiaries is duly qualified or licensed to do business
and
is in good standing in each jurisdiction in which the nature of its business
or
the ownership, leasing, or operation of its properties makes such qualification
or licensing necessary, except for those jurisdictions where the failure to
be
so qualified or licensed or to be in good standing individually or in the
aggregate would not reasonably be expected to have a material adverse effect
on
Parent.
26
(b)
Parent
has delivered or made available to the Company prior to the execution of this
Agreement complete and correct copies of the articles of incorporation and
by-laws or other organizational documents of Parent, its subsidiaries and Merger
Sub, each as in effect at the date of this Agreement.
SECTION
4.2 Subsidiaries.
(a)
Section
4.2 of the Parent Disclosure Schedule lists the names and jurisdiction of
incorporation or organization of all the subsidiaries of the Parent,
whether
consolidated or unconsolidated. The outstanding securities of the subsidiaries
of Parent are set forth in Section 4.2 of the Parent Disclosure Schedules and
all outstanding shares of capital stock of, or other equity interests in, each
such subsidiary: (i) have been duly authorized, validly issued, and are fully
paid and nonassessable and (ii) are owned directly or indirectly by Parent,
free
and clear of all Liens. Except as set forth above or in Section 4.2 of Parent
Disclosure Schedule, the Parent does not own, directly or indirectly, any
capital stock of or other equity or voting interests in any person.
(b)
Merger
Sub is a newly formed corporation with no material assets or liabilities, except
for liabilities arising under this Agreement. Merger Sub will not conduct any
business or activities other than the issuance of its capital stock to Parent
prior to the Merger.
SECTION
4.3 Capital
Structure.
The
authorized capital stock of Parent consists of 250,000,000 shares of common
stock, $.001 par value (the “Parent
Common Stock”),
and
no shares of preferred stock. As of the date hereof: (i) 138,458,161
shares
of
Parent Common Stock were issued and outstanding; ; (ii) no shares of Parent
Common Stock were held by subsidiaries of Parent; (iv) 4,508,829
shares
of Parent Common Stock were reserved for issuance pursuant to various
acquisition agreements and warrant agreements. All
outstanding shares of capital stock of Parent have been, and all shares thereof
which may be issued pursuant to this Agreement or otherwise will be, when issued
in accordance with the terms hereof, duly authorized and validly issued and
are
fully paid and nonassessable and are not subject to preemptive rights created
by
statute, the Parent’s articles of incorporation or any agreement to which Parent
is a party or by which Parent may be bound. Except as set forth in this Section
and except for changes since the date of this Agreement resulting from the
exercise of Parent’s employee stock options outstanding on such date, there are
outstanding (i) no shares of capital stock or other voting securities of Parent,
(ii) no securities of Parent convertible into or exchangeable for shares of
capital stock or voting securities of Parent, and (iii) no options or other
rights to acquire from Parent, and no obligation of Parent to issue, any capital
stock, voting securities, or securities convertible into or exchangeable for
capital stock of Parent.
27
(a)
Parent
has a sufficient number of duly authorized but unissued shares of Parent Common
Stock to issue at the Closing the maximum number of such shares issuable as
the
Merger Consideration at the Closing as contemplated by Article II of this
Agreement. Parent does not presently, and at the Closing will not, have a
sufficient number of duly authorized but unissued shares of Parent Common Stock
to issue the Holdback Shares.
SECTION
4.4 Authority;
Noncontravention.
(a)
Parent
and Merger Sub have the corporate power and authority to execute, deliver,
and
perform this Agreement and the other agreements to be executed and delivered
by
Parent and/or Merger Sub in connection herewith and to consummate the
transactions contemplated hereby and thereby. All corporate acts and proceedings
required to be taken by or on the part of Parent and Merger Sub to authorize
Parent and Merger Sub, as the case may be, to execute, deliver, and perform
this
Agreement and the other agreements to be executed and delivered by Parent and/or
Merger Sub in connection herewith and to consummate the transactions
contemplated hereby and thereby have been duly and validly taken. This Agreement
constitutes a valid and binding agreement, and the other agreements to be
executed and delivered by Parent and/or Merger Sub in connection herewith when
so executed and delivered will constitute valid and binding agreements, of
Parent and Merger Sub.
(b)
The execution and delivery of this Agreement does not, the execution
and
delivery of the other agreements to be executed and delivered by Parent and/or
Merger Sub in connection herewith, and the consummation of the transactions
contemplated hereby or thereby will not conflict with or result in a violation
of, or default (with or without notice or lapse of time, or both) under, or
give
rise to a right of termination, cancellation or acceleration of any material
obligation under (i) any provision of Parent’s or Merger Sub’s articles of
incorporation, (ii) any material loan or credit agreement, note, mortgage,
indenture, lease, or other material agreement or (iii) material instrument,
permit, license, judgment, order, decree, statute, law, ordinance, rule, or
regulation applicable to Parent or Merger Sub or their properties or
asset
(c)
The execution, delivery, and performance by Parent and Merger Sub of
this
Agreement and the other agreements to be executed and delivered by Parent and/or
Merger Sub in connection herewith and the consummation of the Merger by Parent
and Merger Sub requires no consent, approval, order, or authorization of, action
by or in respect of, or registration or filing with, any Governmental Entity
other than (i) the filing of the Articles of Merger and with the Secretary
of
State of the State of Washington, and, with respect to Parent, (ii) compliance
with any applicable requirement of the Securities Exchange Act of 1934, as
amended (the “Exchange
Act”);
(iii)
compliance with the Securities Act; and (iv) compliance with any state
securities or blue sky laws.
28
(d)
The execution and delivery of this Agreement and the other agreements to be
executed and delivered by Parent and/or Merger Sub in connection herewith and
the consummation of the Merger will not result in the creation of any Lien
upon
any asset of Parent.
(e)
Except as set forth in Section 4.4(e) of the Parent Disclosure Schedule,
no consent, approval, waiver or other action by any person (other than the
Government Entities referred to in (c) above) under any Parent Material Contract
is required or necessary for, or made necessary by reason of, the execution,
delivery and performance of this Agreement by Parent or the consummation of
the
Merger.
SECTION
4.5 Parent
Documents.
(a)
As
of
their respective filing dates, (i) all reports filed by Parent with the
Securities and Exchange Commission (the “SEC”)
pursuant to the Exchange Act (the
“Parent
SEC Documents”)
complied in all material respects with the requirements of the Exchange Act,
as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such Parent SEC Documents, and (ii) no Parent SEC Documents, as of their
respective dates, except as amended or supplemented by a subsequently filed
Parent SEC Document, contained any untrue statement of a material fact or
omitted, and no Parent SEC Document filed subsequent to the date hereof will
omit as of their respective dates, to state a material fact required to be
stated therein or necessary to make the statements therein (in the case of
registration statements of the Parent under the Securities Act, in light of
the
circumstances under which they were made) not misleading.
(b)
The
financial statements of Parent included in the Parent SEC Documents (including
the related notes) complied as to form, as of their respective dates of filing
with the SEC, in all material respects with applicable accounting requirements
and the published rules and regulations of the SEC with respect thereto, have
been prepared in accordance with GAAP (except, in the case of unaudited
statements, as permitted in Quarterly Reports on Form 10-QSB) applied on a
consistent basis during the periods and at the dates involved (except as may
be
indicated in the notes thereto) and fairly present the consolidated financial
condition of Parent and its subsidiaries at the dates thereof and the
consolidated results of operations and cash flows of Parent and its subsidiaries
for the periods then ended (subject, in the case of unaudited statements, to
notes and normal year-end audit adjustments that were not material in amount
or
effect). Except for liabilities (i) reflected in Parent’s unaudited balance
sheet as of March 31, 2005 or described in any notes thereto (or for which
neither accrual nor footnote disclosure is required pursuant to GAAP), (ii)
incurred in the ordinary course of business since March 31, 2005 consistent
with
past practice or in connection with this Agreement or the transactions
contemplated hereby, or (iii) set forth on Schedule 4.5(b) of the Parent
Disclosure Schedule, neither Parent nor any of its subsidiaries has any material
liabilities or obligations of any nature.
29
SECTION
4.6 Material
Contracts.
(a)
Each
Parent Material Contract is valid and binding on and enforceable against Parent
(or, to the extent a subsidiary of Parent is a party, such subsidiary) and,
to
the knowledge of Parent, each other party thereto and is in full force and
effect. Neither Parent nor any of its subsidiaries is in breach or default
under
any Parent Material Contract. Neither the Parent nor any subsidiary of the
Parent knows of, or has received notice of, any violation or default under
(nor,
to the knowledge of Parent, does there exist any condition which with the
passage of time or the giving of notice or both would result in such a violation
or default under) any Parent Material Contract by any other party thereto.
Prior
to the date hereof, Parent has made available to the Company true and complete
copies of all Parent Material Contracts.
(b)
As
used
in this Agreement, “Parent
Material Contracts”
shall
mean any contract, license agreement, commitment, lease, or restriction of
any
kind to which the Parent or any of its subsidiaries is a party or by which
the
Parent or any of its subsidiaries is bound or to which any of the Parent’s or
any of its subsidiaries’ assets are subject which involve payments to or from
Parent of at least Ten Thousand Dollars ($10,000).
SECTION
4.7 Absence
of Certain Changes.
Except for liabilities incurred in connection with this Agreement or the
transactions contemplated hereby, and except as disclosed in the Parent SEC
Documents filed and publicly available prior to the date hereof, (i) since
December 31, 2004, there has not been any material adverse change in Parent
or
any event which either individually or when aggregated with other event(s)
has
or reasonably would be expected to have a material adverse effect on Parent
and
its subsidiaries taken as a whole, and (ii) there are not, to Parent’s
knowledge, any facts, circumstances or events that make it reasonably likely
that Parent will not be able to fulfill its obligations under this Agreement
in
all material respects.
SECTION
4.8 Permits;
Compliance with Applicable Laws.
(a)
Parent
and its subsidiaries own and/or possess all Permits which are required for
the
operation of the respective businesses of Parent and its subsidiaries as
presently conducted. Each of Parent and its subsidiaries is in compliance in
all
material respects with the terms of the Permits and all the Permits are in
full
force and effect and no suspension, modification or revocation of any of them
is
pending or, to the knowledge of Parent, threatened nor, to the knowledge of
Parent, do grounds exist for any such action.
30
(b)
Each
of
Parent and its subsidiaries is in compliance in all material respects with
all
applicable statutes, laws, regulations, ordinances, permits, rules, writs,
judgments, orders, decrees, or arbitration awards of any Governmental Entity
applicable to Parent or its subsidiaries.
(c)
Except
for filings with the SEC and filings with respect to Taxes, which are the
subjects of Sections 4.5 and 4.10, respectively, and not covered by this Section
4.8(c), the Parent and each of its subsidiaries have timely filed all regulatory
reports, schedules, forms, registrations, and other documents, together with
any
amendments required to be made with respect thereto, that they were required
to
file with each Governmental Entity (the “Other
Parent Documents”),
and
have timely paid all fees and assessments due and payable in connection
therewith, except where the failure to make such payments and filings
individually or in the aggregate would not have a material adverse effect on
the
Parent.
SECTION
4.9 Absence
of Litigation.
Section 4.9 of Parent Disclosure Schedule contains a true and current summary
description of each pending and, to Parent’s knowledge, threatened litigation,
action, suit, case, proceeding, investigation, or arbitration, the forum, the
parties thereto, the subject matter thereof and the amount of damages claimed
or
other remedies requested. Except as set forth on Section 4.9 of the Parent
Disclosure Schedule, no action, inquiry, demand, charge, requirement, or
investigation by any Governmental Entity and no litigation, action, suit, case,
proceeding, investigation, or arbitration by any person or Governmental Entity,
in each case with respect to Parent or any of its subsidiaries or any of their
respective properties or Permits, is pending or, to the knowledge of Parent,
threatened.
SECTION
4.10 Tax
Matters.
(a)
Each
of
the Parent and each of its subsidiaries has (i) filed (or there have been filed
on its behalf) with the appropriate Governmental Entities all United States
federal income and other material Tax Returns required to be filed by it (giving
effect to all extensions) and such Tax Returns are true, correct and complete
in
all material respects; (ii) paid in full (or there has been paid in full on
its
behalf) all income and other material Taxes required to have been paid by it;
and (iii) made adequate provision (or adequate provision has been made on its
behalf) for all accrued Taxes not yet due. The accruals and provisions for
Taxes
reflected in the Parent’s audited consolidated balance sheet as of December 31,
2003 (and the notes thereto) and the most recent quarterly financial statements
(and the notes thereto) are adequate in accordance with GAAP for all Taxes
accrued or accruable through the date of such statements.
31
(b)
As
of the
date of this Agreement, no Federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any Taxes or Tax Returns of the Parent or any of its subsidiaries,
and
neither the Parent nor any subsidiary of the Parent has received a written
notice of any material pending or proposed claims, audits or proceedings with
respect to Taxes.
(c)
No
deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Tax has been proposed, asserted, or assessed by
any
Governmental Entity against, or with respect to, the Parent or any of its
subsidiaries. There is no action, suit or audit now in progress, pending or,
to
the knowledge of Parent, threatened against or with respect to the Parent or
any
of its subsidiaries with respect to any Tax.
(d)
Neither
the Parent nor any of its subsidiaries has been included in any
“consolidated,”“unitary” or “combined” Tax Return (other than Tax Returns which
include only the Parent and any of its subsidiaries) provided for under the
laws
of the United States, any foreign jurisdiction or any state or locality with
respect to Taxes for any taxable year.
(e)
No
election under Section 341(f) of the Code has been made by Parent or any of
its
subsidiaries.
(f)
No
claim
has been made in writing by any Governmental Entities in a jurisdiction where
Parent or any of its subsidiaries does not file Tax Returns that any such entity
is, or may be, subject to taxation by that jurisdiction.
(g)
Each
of
the Parent and each of its subsidiaries has made available to the Company
correct and complete copies of (i) all of their material Tax Returns filed
within the past six years, (ii) all audit reports, letter rulings, technical
advice memoranda and similar documents issued by a Governmental Entity within
the past five years relating to the Federal, state, local or foreign Taxes
due
from or with respect to the Parent or any of its subsidiaries, and (iii) any
closing letters or agreements entered into by the Parent or any of its
subsidiaries with any Governmental Entities within the past five years with
respect to Taxes.
(h)
Neither
the Parent nor any of its subsidiaries has received any notice of deficiency
or
assessment from any Governmental Entity for any amount of Tax that has not
been
fully settled or satisfied, and to the knowledge of the Parent and its
subsidiaries no such deficiency or assessment is proposed.
32
SECTION
4.11 Employee
Benefit Plans.
(a)
Section
4.11 of the Parent Disclosure Schedule contains a true and complete list of
all
of Parent’s and its subsidiaries’ Employee Plans. Neither Parent nor any ERISA
Affiliate of Parent has any commitment or formal plan, whether or not legally
binding, to create any additional employee benefit plan or modify or change
any
existing Employee Plan other than as may be required by the express terms of
such Employee Plan or applicable law.
(b)
With
respect to each Employee Plan that has been qualified or is intended to be
qualified under the Code or that is an “Employee Benefit Plan” within the
meaning of Section 3.3 of ERISA, such Employee Plan has been duly approved
and
adopted by all necessary and appropriate action of the Board of Directors of
Parent (or a duly constituted committee thereof).
(c)
With
respect to the Employee Plans, all required contributions for all periods ending
before the Closing Date have been or will be paid in full by the Closing Date.
Subject only to normal retrospective adjustments in the ordinary course, all
required insurance premiums have been or will be paid in full with regard to
such Employee Plans for policy years or other applicable policy periods ending
on or before the Closing Date by the Closing Date.
(d)
The
Parent does not have any Multi-Employer Plans or any Employee Plans that are
subject to Section 302 or Title IV of ERISA or Section 412 of the Code, nor
has
it ever had such plans.
(e)
With
respect to each Employee Plan (i) no prohibited transactions as defined in
Section 406 of ERISA or Section 4975 of the Code have occurred or are expected
to occur as a result of the Merger or the transactions contemplated by this
Agreement, (ii) no action, suit, grievance, arbitration or other type of
litigation, or claim with respect to the assets of any Employee Plan (other
than
routine claims for benefits made in the ordinary course of plan administration
for which plan administrative review procedures have not been exhausted) is
pending or, to the knowledge of Parent, threatened or imminent against Parent,
any ERISA Affiliate or any Fiduciary, including, but not limited to, any action,
suit, grievance, arbitration or other type of litigation, or claim regarding
conduct that allegedly interferes with the attainment of rights under any
Employee Plan. To the knowledge of Parent, neither Parent, nor its directors,
officers, employees or any Fiduciary has any liability for failure to comply
with ERISA or the Code for any action or failure to act in connection with
the
administration or investment of such plan. None of the Employee Plans is subject
to any pending investigations or to the knowledge of Parent threatened
investigations from any Governmental Agencies who enforce applicable laws under
ERISA and the Code.
33
(f)
Each
of
the Employee Plans is, and has been, operated in accordance with its terms
and
each of the Employee Plans, and administration thereof, is, and has been, in
all
material respects in compliance with the requirements of any and all applicable
statutes, orders or governmental rules or regulations currently in effect,
including, but not limited to, ERISA and the Code. All required reports and
descriptions of the Employee Plans (including but not limited to Form 5500
Annual Reports, Form 1024 Application for Recognition of Exemption Under Section
501(a), Summary Annual Reports and Summary Plan Descriptions) have been filed
and distributed as required by ERISA and the Code. Any notices required by
ERISA
or the Code or any other state or federal law or any ruling or regulation of
any
state or federal administrative agency with respect to the Employee Plans,
including but not limited to any notices required by Section 4980B of the Code,
have been appropriately given.
(g)
The
IRS
has issued a favorable determination letter or opinion letter with respect
to
each Employee Plan intended to be “qualified” within the meaning of Section
401(a) of the Code that has not been revoked and, to the knowledge of the
Company, no circumstances exist that could adversely affect the qualified status
of any such plan and the exemption under Section 501(a) of the Code of the
trust
maintained thereunder. Each Employee Plan intended to satisfy the requirements
of Section 125, 501(c)(9) or 501(c)(17) of the Code has satisfied such
requirements in all material respects.
(h)
No
Employee Plan provides medical, surgical, hospitalization, death or similar
benefits (whether or not insured) for employees for periods extending beyond
their retirement or other termination of service, other than (i) coverage
mandated by Section 4980B of the Code, Section 601 of ERISA or other applicable
law, (ii) death benefits under any “pension plan,” (iii) benefits the full cost
of which is borne by the employee (or his beneficiary) or (iv) Employee Plans
that can be amended or terminated by Parent without consent. Parent does not
have any current or projected liability with respect to post-employment or
post-retirement welfare benefits for retired, former, or current employees
of
Parent.
(i)
No
material amounts payable under the Employee Plans will fail to be deductible
for
Federal income tax purposes by virtue of Section 162(m) of the
Code.
(j)
To
the
extent that Parent or any of its subsidiaries is deemed to be a fiduciary with
respect to any Plan that is subject to ERISA, Parent or such subsidiary (i)
during the past five years has complied with the requirements of ERISA and
the
Code in the performance of its duties and responsibilities with respect to
such
employee benefit plan and (ii) has not knowingly caused any of the trusts for
which it serves as an investment manager, as defined in Section 3(38) of ERISA,
to enter into any transaction that would constitute a “prohibited transaction”
under Section 406 of ERISA or Section 4975 of the Code, with respect to any
such
trusts, except for transactions that are the subject of a statutory or
administrative exemption.
34
(k)
No
person
will be entitled to a “gross up” or other similar payment in respect of excise
taxes under Section 4999 of the Code with respect to the transactions
contemplated by this Agreement.
SECTION
4.12 Labor
Matters.
(a)
With
respect to employees of Parent and its subsidiaries: (i) to the knowledge of
Parent, no senior executive or key employee has any plans to terminate
employment with Parent or any of its subsidiaries; (ii) there is no unfair
labor
practice charge or complaint against Parent or any of its subsidiaries pending
or, to the knowledge of Parent, threatened before the National Labor Relations
Board or any other comparable Governmental Entity; (iii) there is no demand
for
recognition made by any labor organization or petition for election filed with
the National Labor Relations Board or any other comparable Governmental Entity;
(iv) no grievance or any arbitration proceeding arising out of or under
collective bargaining agreements is pending and, to the knowledge of Parent,
no
claims therefor have been threatened other than grievances or arbitrations
incurred in the ordinary course of business; (v) the execution and delivery
of
this Agreement and the consummation of the transactions contemplated hereby
and
thereby will not give rise to termination of any existing collective bargaining
agreement or permit any labor organization to commence or initiate any
negotiations in respect of wages, hours, benefits, severance or working
conditions under any such existing collective bargaining agreements; and (vi)
there is no litigation, arbitration proceeding, governmental investigation,
administrative charge, citation or action of any kind pending or, to the
knowledge of Parent, proposed or threatened against Parent relating to
employment, employment practices, terms and conditions of employment or wages,
benefits, severance and hours.
(b)
Section
4.12(b) of the Parent Disclosure Schedule lists the name, title, date of
employment, and current annual salary of each current salaried employee whose
total annual compensation exceeds Seventy-Five Thousand Dollars ($75,000).
The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby and thereby will not (i) result in any payment
(including severance, unemployment compensation, tax gross-up, bonus or
otherwise) becoming due to any current or former director, employee or
independent contractor of Parent or any of its subsidiaries, from Parent or
any
of its subsidiaries under any Employee Plan or other agreement, (ii) materially
increase any benefits otherwise payable under any Employee Plan or other
agreement, or (iii) result in the acceleration of the time of payment, exercise
or vesting of any such benefits.
(c)
Section
4.12(c) of the Parent Disclosure Schedule sets forth all contracts, agreements,
plans or arrangements covering any employee of Parent or its subsidiaries
containing “change of control,”“stay-put,” transition, retention, severance or
similar provisions, and sets forth the names and titles of all such employees,
the amounts payable under such provisions, whether such provisions would become
payable as a result of the Merger and the transactions contemplated by this
Agreement, and when such amounts would be payable to such employees, all of
which are in writing, have heretofore been duly approved by the Parent’s Board
of Directors, and true and complete copies of all of which have heretofore
been
delivered to the Company. There is no contract, agreement, plan or arrangement
(oral or written) covering any employee of Parent that individually or
collectively could give rise to the payment of any amount that would not be
deductible pursuant to the terms of Section 280G of the Code.
35
SECTION
4.13 Environmental
Matters.
Except
for such matters which would not, individually or in the aggregate, reasonably
be expected to result in a material adverse effect on the Parent or are set
forth in Section 4.13 of the Parent Disclosure Schedule:
(a)
Compliance.
(i) The
Parent and its subsidiaries are in compliance in all material respects with
all
applicable Environmental Laws; (ii) neither the Parent nor any of its
subsidiaries has received any written communication from any person or
governmental entity that alleges that Parent or any of its subsidiaries are
not
in compliance with applicable Environmental Laws; and (iii) there have not
been
any Releases of Hazardous Substances by Parent or any of its subsidiaries,
or,
by any other party, at any property currently or formerly owned or operated
by
Parent or any of its subsidiaries that occurred during the period of Parent’s or
any of its subsidiaries’ ownership or operation of such property.
(b)
Environmental
Permits.
Parent
and its subsidiaries have all Environmental Permits necessary for the conduct
and operation of its business, and all such permits are in good standing or,
where applicable, a renewal application has been timely filed and is pending
agency approval, and Parent and its subsidiaries are in compliance with all
terms and conditions of all such Environmental Permits and are not required
to
make any expenditure in order to obtain or renew any Environmental
Perm
(c)
Environmental
Claims.
There
are no Environmental Claims pending or, to Parent’s knowledge, threatened,
against Parent or any of its subsidiaries, or against any real or personal
property or operation that Parent or any of its subsidiaries owns, leases or
manages.
SECTION
4.14 Intellectual
Property.
(a)
Section
4.14(a) of Parent Disclosure Schedule sets forth, for the Intellectual Property
owned or purported to be owned by Parent or any of its subsidiaries, a complete
and accurate list of all U.S. and foreign (i) patents and patent applications,
(ii) trademarks and service marks which are registered or the subject of an
application for registration and material unregistered trademarks or service
marks , (iii) copyrights which are registered or the subject of an application
for registration, and (iv) Internet domain names. Parent or one of its
subsidiaries owns or has the valid right to use the Intellectual Property,
used
in the business of Parent as it currently is conducted.
36
(b)
All
of
the Intellectual Property owned or purported to be owned by Parent or any of
its
subsidiaries is free and clear of all Liens. Parent or any of its subsidiaries
(as applicable) is listed in the records of the appropriate United States,
state
or foreign agency as, the sole owner of record for each patent and patent
application and trademark, service xxxx and copyright which is registered or
the
subject of an application for registration that is listed in Section 4.14(a)
of
Parent Disclosure Schedule.
(c)
All
of
the patents, patent applications, trademarks, service marks and copyrights
owned
or purported to be owned by Parent which have been issued by, or registered
or
the subject of an application filed with, as applicable, the U.S. Patent and
Trademark Office, the U.S. Copyright Office or in any similar office or agency
anywhere in the world, including, but not limited to the items listed in Section
4.14(a) of Parent Disclosure Schedule are subsisting, enforceable, in full
force
and effect, and have not been cancelled, expired, abandoned or otherwise
terminated and all renewal fees in respect thereof have been duly paid and
are
currently in compliance with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and renewal
applications) and are, to Parent’s knowledge, valid. There is no pending or, to
Parent’s knowledge, threatened opposition, interference, invalidation or
cancellation proceeding before any court or registration authority in any
jurisdiction against any of the items listed in Section 4.14(a) of Parent
Disclosure Schedule or, to Parent’s knowledge, against any other Intellectual
Property used by Parent or its subsidiaries.
(d)
The
conduct of Parent’s and its subsidiaries’ business as currently conducted does
not infringe upon (either directly or indirectly such as through contributory
infringement or inducement to infringe), dilute, misappropriate or otherwise
violate (i) any Third Party Rights, other than the rights of any third party
under any patent, or (ii) to Parent’s knowledge, the rights of any third party
under any patent. There are no pending, or, to the knowledge of Parent,
threatened claims against Parent or any of its subsidiaries alleging that the
operation of the business as currently conducted, infringes on or conflicts
with
any Third Party Rights.
(e)
To
Parent’s knowledge, no third party is misappropriating, infringing, diluting, or
violating any Intellectual Property owned or purported to be owned by or
licensed to or by Parent or any of its subsidiaries and no such claims have
been
made against a third party by Parent or any of its subsidiaries.
37
(f)
Each
material item of Software, which is used by Parent or any of its subsidiaries
in
connection with the operation of their businesses as currently conducted, is
either (i) owned by Parent or any of its subsidiaries, (ii) currently in the
public domain or otherwise available to Parent without the need of a license,
lease or consent of any third party, or (iii) used under rights granted to
Parent or any of its subsidiaries pursuant to a written agreement, license
or
lease from a third party.
(g)
Section
4.14(g) of Parent Disclosure Schedule sets forth a complete list of all
agreements under which Parent is granted rights to acquire or use the
Intellectual Property of a third party (other than shrink-wrap general purpose
software) (the “Parent
IP Agreements”).
Except as set forth in Section 4.14(g) of Parent Disclosure Schedule, Parent
is
not under any obligation to pay royalties or other payments in connection with
any Parent IP Agreement, nor restricted from assigning its rights respecting
Intellectual Property nor will Parent otherwise be, as a result of the execution
and delivery of this Agreement or the performance of its obligations under
this
Agreement, in breach of any Parent IP Agreement. Each Parent IP Agreement is
in
full force and effect and has not been amended. Neither Parent nor, to the
knowledge of Parent, any other party thereto, is in default or breach under
any
such Parent IP Agreement. No event has occurred which, with the passage of
time
or the giving of notice or both, would cause a breach of or default by Parent
under any of Parent IP Agreements and, to the knowledge of Parent, there is
no
breach or anticipated breach by any other party to any Parent IP
Agreement.
SECTION
4.15 Insurance
Matters.
Parent and its subsidiaries have all material primary insurance providing
insurance coverage that is customary in amount and scope for other companies
in
the industry in which Parent and its subsidiaries operate including, without
limitation, directors and officers liability insurance. All such policies are
in
full force and effect, all premiums due and payable thereon have been paid
and
no written or oral notice of cancellation or termination has been received
and
is outstanding.
SECTION
4.16 Transactions
with Affiliates.
Except
as
set forth on Section 4.16 of the Parent Disclosure Schedule, there are no
outstanding amounts payable to or receivable from, or advances by the Parent
or
any of its subsidiaries to, and neither the Parent nor any of its subsidiaries
is otherwise a creditor of or debtor to, or a party to any transaction or
agreement with, any stockholder, director, employee or affiliate of the Parent
or any of its subsidiaries, other than (i) Parent’s outstanding indebtedness to
the Company, any of its shareholders,
directors or executive officers, (ii) transactions or agreements with the
Company or any of its shareholders,
directors or executive officers, or (iii) as part of the normal and customary
terms of such persons’ employment or service as a director with the Parent or
any of its subsidiaries.
SECTION
4.17 Voting
Requirements.
Other
than the stockholder approval of the Re-Incorporation Merger as described in
the
Re-Incorporation Merger Stockholder Consent, no consent or approval of the
holders of the outstanding shares of Parent Common Stock or any other class
of
Parent capital stock is required to approve the Merger and the transactions
contemplated by this Agreement under applicable law or the Parent’s
organizational instruments.
38
SECTION
4.18 Brokers.
No
broker, investment banker, financial advisor, finder, consultant or other person
is entitled to any broker’s, finder’s, financial advisor’s or other similar fee,
compensation or commission, however and whenever payable, in connection with
the
Merger and the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Merger Sub.
SECTION
4.19 Real
Property.
(a)
Each
of
Parent and its subsidiaries has good and marketable title in fee simple to
all
real properties owned by it and all buildings, structures and other improvements
located thereon and valid leaseholds in all real estate leased by it, other
than
Parent Permitted Liens. Section 4.19 of the Parent Disclosure Schedule sets
forth a complete list of all (i) real property owned by Parent or its
subsidiaries as of the date hereof; and (ii) real property leased, subleased,
or
otherwise occupied or used by Parent and its Subsidiaries as lessee. With
respect to each parcel of real property leased, subleased, or otherwise occupied
or used by the Parent or any of its Subsidiaries as lessee: (i) the Parent
or
the applicable subsidiary has a valid leasehold interest or other right of
use
and occupancy, free and clear of any Liens on such leasehold interest or other
rights of use and occupancy, or any covenants, easements or title defects known
to or created by the Parent or the applicable subsidiary, except as do not
materially affect the occupancy or uses of such property. Each of the Parent’s
and its subsidiaries’ agreements with respect to real property leased,
subleased, or otherwise occupied or used by the Parent as lessee is in full
force and effect and has not been amended. Neither the Parent or the applicable
subsidiary nor, to the knowledge of the Parent or the applicable subsidiary,
any
other party thereto, is in material default or material breach under any such
agreement. No event has occurred which, with the passage of time or the giving
of notice or both, would cause a breach of or default by the Parent or the
applicable subsidiary under any of such agreement and, to the knowledge of
the
Parent or the applicable subsidiary, there is no breach or anticipated breach
by
any other party to such agreements.
(b)
As
used
in this Agreement, Parent Permitted Liens shall mean: (i) any Lien reflected
in
Section 4.19(b)(i) of the Parent Disclosure Schedule, (ii) Liens for Taxes
not
yet due or delinquent or as to which there is a good faith dispute and for
which
there are adequate provisions on the books and records of Parent in accordance
with GAAP, (iii) with respect to real property, any Lien, encumbrance or other
title defect which is not in a liquidated amount (whether material or
immaterial) and which does not, individually or in the aggregate, interfere
materially with the current use or materially detract from the value or
marketability of such property (assuming its continued use in the manner in
which it is currently used) and (iv) inchoate materialmen’s, mechanics’,
carriers’, workmen’s and repairmen’s liens arising in the ordinary course and
not past due and payable or the payment of which is being contested in good
faith by appropriate proceedings.
39
SECTION
4.20 Tangible
Personal Property.
Except
as
would not materially impair Parent and its operations or the operations of
its
subsidiaries, the Tangible Personal Property owned, leased or used by Parent
or
any of its subsidiaries is in the aggregate sufficient and adequate to carry
on
their respective businesses in all material respects as presently conducted
and
is, in the aggregate and in all material respects, in good operating condition
and repair, normal wear and tear excepted. Parent and its subsidiaries are
in
possession of and have good title to, or valid leasehold interests in or valid
rights under contract to use, the Tangible Personal Property material to Parent
and its subsidiaries, taken as a whole, free and clear of all Liens, other
than
Parent Permitted Liens.
SECTION
4.21 Investment
Company.
Neither
Parent nor any of its subsidiaries is an investment company required to be
registered as an investment company pursuant to the Investment Company
Act.
SECTION
4.22 Board
Approval. Pursuant
to meetings duly noticed and convened in accordance with all applicable laws
and
at each of which a quorum was present, the Board of Directors of Parent, after
full and deliberate consideration, unanimously (other than for directors who
abstain) has duly adopted this Agreement and resolved that the Merger and the
transactions contemplated hereby are fair to, advisable and in the best
interests of Parent’s stockholders. The Board of Directors of Merger Sub
unanimously has duly approved this Agreement and has determined that the Merger
is advisable.
SECTION
4.23 Books
and Records.
Each
of Parent and its subsidiaries maintains and has maintained accurate books
and
records reflecting its assets and liabilities and accounts, notes and other
receivables and inventory are recorded accurately, and proper and adequate
procedures are implemented to effect the collection thereof on a current and
timely basis.
SECTION
4.24 Full
Disclosure.
No
representation or warranty made by Parent or Merger Sub herein nor in any
certificate, document, or other written instrument furnished or to be furnished
pursuant hereto contains or will contain any untrue statement of a material
fact
nor shall any such certificate, document, or written instrument omit any
material fact necessary in order to make any statement herein or therein not
misleading.
40
ARTICLE
V
COVENANTS
RELATING TO CONDUCT OF BUSINESS
SECTION
5.1 Conduct
of Business by the Company.
Except as
required by applicable law or regulation and except as otherwise contemplated
by
this Agreement, until the earlier of the termination of this Agreement or the
Effective Time, the Company shall, and cause each of its subsidiaries to,
conduct its and their respective businesses in the ordinary course and
consistent with past practices. Except as set forth in Section 5.1 of the
Company Disclosure Schedule, as required by applicable law or regulation and
except as otherwise contemplated by this Agreement or except as previously
consented to by Parent,
in
writing, after the date hereof and until the earlier of the termination of
this
Agreement or the Effective Time, Company shall
not
and
shall not permit any of its subsidiaries to:
(a)
amend
or
otherwise change its articles of incorporation or by-laws;
(b)
issue,
sell, pledge, dispose of, encumber, or authorize the issuance, sale, pledge,
disposition, grant, or encumbrance of (i) any shares of its capital stock of
any
class, or options, warrants, convertible securities, or other rights of any
kind
to acquire shares of such capital stock, or any other ownership interest,
thereof, other than exercises of Company warrants or Company Stock Options
by
the holders thereof in accordance with their terms or (ii) any of its assets,
tangible or intangible;
(c)
declare,
set aside, make, or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to its capital stock;
(d)
reclassify,
combine, split, subdivide, or redeem, purchase or otherwise acquire, directly
or
indirectly, any of its capital stock;
(e)
(i)
acquire (including, without limitation, for cash or shares of stock, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, or other business organization or division thereof
or
any assets, or make any investment either by purchase of stock or securities,
contributions of capital, or property transfer, or, except in the ordinary
course of business, consistent with past practice, purchase any property or
assets of any other person, (ii) incur any indebtedness for borrowed money
or
issue any debt securities or assume, guarantee or endorse or otherwise as an
accommodation become responsible for, the obligations of any person, or make
any
loans or advances, or (iii) enter into any Company Material
Contract;
41
(f)
make
any
capital expenditure in excess of Fifty Thousand Dollars ($50,000) or enter
into
any contract or commitment therefore;
(g)
amend,
terminate, or extend any Company Material Contract;
(h)
delay
or
accelerate payment of any account payable or other liability of the Company
beyond or in advance of its due date or the date when such liability would
have
been paid in the ordinary course of business consistent with past practice;
or
(i)
agree,
in
writing or otherwise, to take or authorize any of the foregoing actions or
any
action which would make any representation or warranty contained in Article
III
untrue or incorrect.
SECTION
5.2 Advice
of Changes.
Each of the Company, as one Party, and Parent and Merger Sub, together
as
the second Party, shall promptly advise the other Party orally and in writing
to
the extent it has knowledge of (i) any representation or warranty made by it
contained in this Agreement that is qualified as to materiality becoming untrue
or inaccurate in any respect or any such representation or warranty that is
not
so qualified becoming untrue or inaccurate in any material respect, (ii) the
failure by it to comply with or satisfy any covenant, condition or agreement
to
be complied with or satisfied by it under this Agreement; (iii) any suspension,
termination, limitation, modification, change or other alteration of any
agreement, arrangement, business or other relationship with any of its
customers, suppliers or sales or design personnel; or (iv) any change or event
having, or which, insofar as reasonably can be foreseen, could have a material
adverse effect on such Party or on the accuracy and completeness of its
representations and warranties or the ability of such Party to satisfy the
conditions set forth in Article VII; provided,
however,
that no
such notification shall affect the representations, warranties, covenants or
agreements of the Parties (or remedies with respect thereto) or the conditions
to the obligations of the Parties under this Agreement; and provided further
that a
failure to comply with this Section 5.2 shall not constitute a failure to be
satisfied of any condition set forth in Article VII unless the underlying
untruth, inaccuracy, failure to comply or satisfy, or change or event would
independently result in a failure of a condition set forth in Article VII to
be
satisfied.
SECTION
5.3 No
Solicitation by the Company.
(a)
The
Company will promptly notify Parent after receipt of any offer or indication
that any person is considering making an offer with respect to a Company
Acquisition Proposal or any request for nonpublic information relating to the
Company or for access to the properties, books, or records of the Company by
any
person that may be considering making, or has made, an offer with respect to
a
Company Acquisition Proposal and will keep Parent fully informed of the status
and details of any such offer, indication or request. “Company
Acquisition Proposal”
means
any proposal for a merger or other business combination involving the Company
or
the acquisition of any equity interest in, or a substantial portion of the
assets of, the Company, other than the transactions contemplated by this
Agreement.
42
From
the
date hereof until the termination hereof pursuant to Section 8.1, the Company
and the officers of the Company will not and the Company will use its
commercially reasonable best efforts to cause its directors, employees, and
agents not to, directly, (i)
take
any action to solicit, initiate or encourage any offer or indication of interest
from any person or entity with respect to any
Company
Acquisition Proposal or (ii) engage in negotiations with, disclose any nonpublic
information relating to the Company to, or afford access to the properties,
books or records of the Company to, any person or entity that may be considering
making, or has made, an offer with respect to a
Company
Acquisition Proposal; provided,
however,
that
Company may respond to (i) unsolicited offers if doing so is necessary or
appropriate in the view of Company’s counsel in order for the Company’s board of
directors to comply with applicable corporate and fiduciary duties, and (ii)
offers from those
companies set forth on Section 5.3 of the Company Disclosure
Schedule.
SECTION
5.4 Conduct
of Business by Parent.
Except as required
by applicable law or regulation and except as otherwise contemplated by this
Agreement, until the earlier of the termination of this Agreement or the
Effective Time, Parent shall, and cause each of its subsidiaries to, conduct
its
and their respective businesses in the ordinary course and consistent with
past
practices. Except as set forth in Section 5.4 of the Parent Disclosure Schedule,
as required by applicable law or regulation and except as otherwise contemplated
by this Agreement or except as previously consented to by the Company, in
writing, after the date hereof until the earlier of the termination of this
Agreement or the Effective Time, Parent shall not, and shall not permit any
of
its subsidiaries to:
(a)
amend
or
otherwise change its articles of incorporation or by-laws;
(b)
other
than pursuant to agreements in existence on the date hereof, issue, sell,
pledge, dispose of, encumber, or authorize the issuance, sale, pledge,
disposition, grant, or encumbrance of (i) any shares of its capital stock of
any
class, or options, warrants, convertible securities, or other rights of any
kind
to acquire shares of such capital stock, or any other ownership interest,
thereof, or (ii) any of its assets, tangible or intangible;
(c)
declare,
set aside, make or pay any dividend or other distribution, payable in cash,
stock, property or otherwise, with respect to its capital stock, other than
from
any subsidiary of Parent to Parent or to any other subsidiary of
Parent;
43
(d)
reclassify,
combine, split, subdivide or redeem, purchase, or otherwise acquire, directly
or
indirectly, any of its capital stock;
(e)
(i)
other
than pursuant to agreements in existence on the date hereof,
acquire
(including, without limitation, for cash or shares of stock, by merger,
consolidation, or acquisition of stock or assets) any interest in any
corporation, partnership, or other business organization or division thereof
or
any assets, or make any investment either by purchase of stock or securities,
contributions of capital, or property transfer, or, except in the ordinary
course of business, consistent with past practice, purchase any property or
assets of any other person, (ii) other than in the ordinary course of business
consistent with past practices,
incur
any indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible for,
the obligations of any person, or make any loans or advances, or (iii) enter
into any Parent Material Contract;
(f)
make
any
capital expenditure or enter into any contract or commitment therefore, other
than in the ordinary course of business consistent with past
practices;
(g)
amend,
terminate or extend any Parent Material Contract;
(h)
delay
or
accelerate payment of any account payable or other liability of the Company
beyond or in advance of its due date or the date when such liability would
have
been paid in the ordinary course of business consistent with past practice;
or
(i)
agree,
in
writing or otherwise, to take or authorize any of the foregoing actions or
any
action which would make any representation or warranty contained in Article
IV
untrue or incorrect.
SECTION
5.5 No
Solicitation by Parent.
(a)
Parent
will promptly notify the Company after receipt of any offer or indication that
any person is considering making an offer with respect to a Parent Acquisition
Proposal or any request for nonpublic information relating to Parent or for
access to the properties, books or records of Parent by any person that may
be
considering making, or has made, an offer with respect to a Parent Acquisition
Proposal and will keep the Company fully informed of the status and details
of
any such offer, indication or request. “Parent
Acquisition Proposal”
means
any proposal for a merger or other business combination involving Parent or
the
acquisition of any equity interest in, or a substantial portion of the assets
of, Parent, other than the transactions contemplated by this Agreement and
any
transaction described in a letter of intent executed by Parent prior to the
date
hereof, a copy of which shall have been provided to the Company.
44
(b)
From
the
date hereof until the termination hereof pursuant to Section 8.1, Parent and
the
officers of Parent will not and Parent will use its best efforts to cause its
directors, employees and agents not to, directly or indirectly, subject to
the
directors’ fiduciary obligations under applicable law, (i) take any action to
solicit, initiate or encourage any offer or indication of interest from any
person or entity with respect to any Parent Acquisition Proposal, (ii) engage
in
negotiations with, or disclose any nonpublic information relating to Parent
or
(iii) afford access to the properties, books or records of Parent to, any person
or entity that may be considering making, or has made, an offer with respect
to
a Parent Acquisition Proposal.
SECTION
5.6 Transition.
To
the extent permitted by applicable law, Parent and the Company shall, and shall
cause their respective subsidiaries, affiliates, officers and employees to,
use
their commercially reasonable efforts to facilitate the integration of the
Company and its subsidiaries with the businesses of Parent and its subsidiaries
to be effective as of the Closing Date.
ARTICLE
VI
ADDITIONAL
AGREEMENTS
SECTION
6.1 Access
to Information; Confidentiality.
(a)
Each
Party shall, and shall cause its respective subsidiaries to, afford to the
other
Party and to the officers, current employees, accountants, counsel, financial
advisors, agents, lenders, and other representatives of such Party and its
subsidiaries, reasonable access during normal business hours during the period
prior to the Effective Time to all its respective properties, books, contracts,
commitments, personnel and records and, during such period, each Party shall,
and shall cause each of its subsidiaries to, furnish promptly to the other
Party
(i) a copy of each material report, schedule, registration statement and other
document filed by it with any Governmental Entity, and (ii) all other
information concerning its business, properties and personnel as such other
Party may reasonably request.
(b)
The
Parties will hold, and will use their best efforts to cause their officers,
directors, employees, consultants, advisors and agents to hold, in confidence,
unless compelled to disclose by judicial or administrative process or by other
requirements of law, all confidential documents and information concerning
the
other Party and its subsidiaries furnished to it in connection with the
transactions contemplated hereby, except to the extent that such information
can
be shown to have been (i) previously known on a nonconfidential basis by the
disclosing Party, (ii) in the public domain through no fault of the disclosing
Party, or (iii) later lawfully acquired by the disclosing Party from other
sources;
provided,
however,
that
each
Party may disclose such information to its officers, directors, employees,
consultants, advisors, and agents in connection with the Merger so long as
such
persons are informed of the confidential nature of such information and are
directed to treat such information confidentially. Each Parties’ obligation to
hold such information in confidence shall be satisfied if it exercises the
same
care with respect to such information as it would exercise to preserve the
confidentiality of its own similar information. Notwithstanding any other
provision of this Agreement, if this Agreement is terminated, such confidence
shall be maintained and all confidential materials shall be destroyed or
delivered to their owner, upon request.
45
SECTION
6.2 Commercially
Reasonable Efforts.
Except where otherwise provided in this Agreement, each Party will
use its
commercially reasonable efforts to take, or cause to be taken, all action and
to
do, or cause to be done, all things necessary, proper, or advisable under
applicable laws and regulations to consummate the Merger as soon as practicable
after the satisfaction of the conditions set forth in Article VII hereof,
provided,
however,
that
the
foregoing shall not require the Company, Parent, or Merger Sub to take any
action or agree to any condition that might, in the reasonable judgment of
the
Company or Parent, as the case may be, have a material adverse effect on the
Company or Parent, respectively.
SECTION
6.3 Indemnification,
Exculpation and Insurance.
(a)
All
rights to indemnification and exculpation from liabilities for acts or omissions
occurring at or prior to the Effective Time now existing in favor of the current
or former directors or officers of the Company as provided in its articles
of
incorporation or by-laws and any existing indemnification agreements or
arrangements of the Company shall survive the Merger and shall continue in
full
force and effect in accordance with their terms, and shall not be amended,
repealed, or otherwise modified for a period of five (5) years after the
Effective Time in any manner that would adversely affect the rights thereunder
of such individuals for acts or omissions occurring at or prior to the Effective
Time.
(b)
In
the
event of any threatened or actual claim, action, suit, proceeding, or
investigation, whether civil, criminal or administrative, including, without
limitation, any such claim, action, suit, proceeding or investigation in which
any individual who is now or has been at any time prior to the date of this
Agreement, or who becomes prior to the Effective Time, a director or officer
of
the Company (the “Indemnified
Parties”
and
each an “Indemnified
Party”),
is,
or is threatened to be, made a party, or arising out of or pertaining to (i)
the
fact that he is or was a director, officer or current employee of the Company
or
its predecessors or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the Parties agree to cooperate and use their reasonable best efforts
to
defend against and respond thereto.
46
(c)
For
a
period of five (5) years after the Effective Time, the Surviving Corporation
shall maintain in effect the Company’s current directors’ and officers’
liability insurance covering acts or omissions occurring prior to the Effective
Time with respect to those persons who are currently covered by the Company’s
directors’ and officers’ liability insurance policy on terms with respect to
such scope of coverage and amount no less favorable to the Company’s directors
and officers currently covered by such insurance than those of such policy
in
effect on the date hereof; provided,
however,
that
the Surviving Corporation may substitute therefor policies of Parent or its
subsidiaries (including self-insurance) containing terms with respect to scope
of coverage and amount no less favorable to such directors or
officers.
(d)
From
and
after the Effective Time, the Surviving Corporation shall maintain in effect
a
directors’ and officer’s liability insurance policy covering acts or omissions
occurring after the Effective Time.
(e)
Parent
shall cause the Surviving Corporation or any successor thereto, whether by
consolidation, merger or transfer of substantially all of its properties or
assets, to comply with its obligations under this Section 6.3. The provisions
of
this Section 6.3 shall survive the Effective Time and are intended to be for
the
benefit of, and shall be enforceable by, each Indemnified Party and other person
named herein and his or her heirs and representatives.
(f)
The
Company shall indemnify, defend and hold Parent and its respective officers,
directors, consultants, employees, owners, agents and affiliates, harmless
from
and against any and all damages, losses, obligations, deficiencies, liabilities,
claims, encumbrances, penalties, costs, and expenses, including reasonable
attorneys’ fees and costs (“Losses”),
in
connection with any Loss which Parent may suffer or incur, resulting from,
related to or arising out of: (i) any breach of a representation or warranty
of
the Company contained in this Agreement (which survives pursuant to Section
9.1
hereof and only for so long as such survival) or the non-fulfillment of any
covenant of the Company contained in this Agreement. If an indemnification
claim
is made by Parent under this Section 6.3(f), Parent may, at its option, elect
to
satisfy any claim, in whole or part, (without limiting any other rights its
may
have at law or equity) by setting off against the Holdback Shares. For the
purposes hereof, the number of Holdback Shares to be set-off shall equal the
amount obtained by dividing the amount of the Loss by $0.08.
SECTION
6.4 Fees
and Expenses.
All costs, fees and expenses incurred in connection with the Merger,
this
Agreement (including all instruments and agreements prepared and delivered
in
connection herewith), and the transactions contemplated by this Agreement shall
be paid by Parent.
47
SECTION
6.5 Public
Announcements.
Parent and the Company shall consult with each other before issuing,
and
shall provide each other the opportunity to review, comment upon and concur
with, and shall use reasonable efforts to agree on, any press release or other
public statements or announcements (including pursuant to Rule 165 under the
Securities Act and Rule 14a-12 under the Exchange Act) and any broadly
distributed internal communications with respect to the Merger, this Agreement
and the transactions contemplated by this Agreement, and shall not issue any
such press release or make any such public statement or announcement prior
to
such consultation, except as either Party may determine is required by
applicable law or court process (provided prior written notice is given to
the
other Party with a copy of any such disclosure). The Parties agree that the
initial press releases (or joint press release if the Parties so determine)
to
be issued with respect to the Merger, this Agreement and the transactions
contemplated by this Agreement shall be in the form heretofore agreed to by
the
Parties.
SECTION
6.6 Employee
Benefits.
(a)
Parent
shall, or shall cause the Surviving Corporation and its subsidiaries to, (i)
give those employees who are, as of the Effective Time, employed by the Company
(the “Continuing
Employees”)
full
credit for purposes of eligibility, vesting and benefit accruals (other than
for
purposes of benefit calculations and accruals under any defined benefit pension
plan) under any employee benefit plans or arrangements maintained by Parent,
the
Surviving Corporation or any subsidiary of Parent or the Surviving Corporation
for such Continuing Employees’ service with the Company (or any predecessor
entity) to the same extent recognized by the Company, and (ii) waive all
limitations as to preexisting conditions, exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Continuing
Employees under any welfare plan that such employees may be eligible to
participate in after the Effective Time, other than limitations or waiting
periods that are already in effect with respect to such employees and that
have
not been satisfied as of the Effective Time under any welfare plan maintained
for the Continuing Employees by the Company immediately prior to the Effective
Time, and provide credit under any such welfare plan for any copayments,
deductibles and out-of-pocket expenditures for the remainder of the coverage
period during which any transfer of coverage occurs.
(b)
From
and
after the Effective Time, Parent shall provide, or shall cause to be provided,
to the Continuing Employees compensation and employee benefit plans, programs
and arrangements that are, in the aggregate, substantially comparable to those
generally provided to such employees as of the date hereof.
48
(c)
Subject
to Section 6.6(a) and (b) above, from and after the Effective Time, Parent
shall, or shall cause the Surviving Corporation to, assume and honor all
Employee Plans, as in effect on the date hereof; provided,
however,
nothing
herein shall restrict Parent’s or the Surviving Corporation’s ability to amend
or terminate such Employee Plans in accordance with their terms.
SECTION
6.7 Company
Shareholder
Approval.
The Company shall,
as
promptly as practicable after the date hereof, duly call, give notice
of,
convene
and
hold
the
Company Shareholders
Meeting in accordance with the WBCA, its articles of incorporation and by-laws,
as applicable, for the purpose of obtaining the Company Shareholder Approval
and
the board of
directors of the Company shall
recommend to the Company’s shareholders that they affirmatively vote for the
adoption of this Agreement.
SECTION
6.8 Regulation
D.
Each Party shall use all its reasonable efforts to cause the shares
of
Parent Common Stock to be issued hereunder in connection with the Merger to
be
issued in accordance with the exemption from registration provided by Regulation
D promulgated under the Securities Act. Each Party shall cooperate with the
other Parties hereto with respect to all filings required pursuant to Regulation
D promulgated under the Securities Act and shall not knowingly take any action
or fail to act to the extent such action or failure to act would jeopardize
the
issuance of the shares of Parent Common Stock hereunder in accordance with
such
Regulation D.
SECTION
6.9 Parent
Re-Incorporation Merger.
Parent shall use its commercially reasonable efforts to effect, not
later
than ninety (90) days following the Effective Time, the Parent Re-incorporation
Merger.
SECTION
6.10 Company
Mergers.
The Parties acknowledge and agree that the consummation of the Company
Mergers upon terms and conditions satisfactory to Parent is a material condition
to Parent’s obligations at the Closing and that the Merger Consideration
specified herein has been determined assuming the consummation of the Company
Mergers upon terms and conditions satisfactory to Parent. Toward that end,
the
Company hereby agrees to (i) use commercially reasonable efforts to consummate
the Company Mergers not later than seven (7) days following the date hereof,
(ii) keep Parent informed of the status of all negotiations with the Company
Targets and, upon request, promptly provide Parent with copies of drafts of
agreements and due diligence materials relating to each Company Merger and
(iii)
request and obtain Parent’s written approval of the terms and conditions prior
to consummating a Company Merger, or entering into any agreement to effect
a
Company Merger.
49
ARTICLE
VII
CONDITIONS
PRECEDENT
SECTION
7.1 Conditions
to Each Party’s Obligation to Effect the Merger.
The respective obligation of each Party to effect the Merger is subject
to
the satisfaction or, to the extent permitted by applicable law, waiver by each
of Parent and the Company on or prior to the Closing Date of the following
conditions:
(a)
Shareholder
Approvals.
The Company shall have obtained the Company
Shareholder Approval to
the
Merger, this Agreement, and the transactions contemplated hereby.
(b)
Governmental
and Regulatory Approvals.
Other than the filing of the Articles of Merger provided for under Section
1.3,
all consents, approvals, and actions of, filings with and notices to any
Governmental Entity required by the Company, Parent or any of their subsidiaries
under applicable law or regulation to consummate the Merger and the transactions
contemplated by this Agreement, the failure of which to be obtained or made
would result in a material adverse effect on Parent’s ability to conduct the
business of the Company in substantially the same manner as presently conducted,
shall have been obtained or made (all such approvals and the expiration of
all
such waiting periods, the “Requisite
Regulatory Approvals”)
(c)
No
Injunctions or Restraints.
No judgment, order, restraining order and/or injunction (temporary
or
otherwise), decree, statute, law, ordinance, rule or regulation, entered,
enacted, promulgated, enforced or issued by any court or other Governmental
Entity or other legal restraint or prohibition (collectively, “Restraints”)
shall
be in effect preventing or materially delaying the consummation of the Merger;
provided,
however,
that
each of the Parties shall have used its commercially reasonable efforts to
have
such Restraint lifted, vacated or rescinded.
SECTION
7.2 Conditions
to Obligations of Parent and Merger Sub.
The obligation of Parent and Merger Sub to effect the Merger is further
subject to satisfaction or waiver of the following conditions:
(a)
Representations
and Warranties of the Company.
The representations and warranties of the Company set forth herein and in the
Company Disclosure Schedule shall be true and correct in all material respects
at and as of the Closing Date, as if made at and as of such time (except to
the
extent expressly made as of an earlier date, in which case such representations
and warranties shall be true and correct as of such date). Parent shall have
received a certificate of the Company’s Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
50
(b)
Performance
of Obligations of the Company.
The Company shall have performed in all material respects all obligations
required to be performed by it at or prior to the Closing Date under this
Agreement. Parent shall have received a certificate of the Company’s Chief
Executive Officer and Chief Financial Officer to the foregoing
effect.
(c)
Regulatory
Condition.
No condition or requirement shall have been imposed by one or more
Governmental Entities in connection with any required approval by them of the
Merger that requires the Company or any of its subsidiaries to be operated
in a
manner that would have a material adverse effect on the Company.
(d)
Registration
Rights Agreement.
Parent and each holder of Company Common Stock on the Closing Date shall have
entered into the Registration Rights Agreement.
(e)
Lock-Up
Agreement.
Each holder of Parent Common Stock issued as Merger Consideration shall have
executed the Lock-Up Agreement.
(f)
Closing
Balance Sheet.
The Company shall have delivered the Closing Balance Sheet, certified by
Company’s chief executive officer and chief financial officer, to
Parent.
(g)
Employment
Agreements.
The respective parties thereto
shall have executed the Employment Agreements.
(h)
Approval
of Parent Re-Incorporation Merger.
Each holder of the shares of Parent Common Stock issued as Merger Consideration
shall have delivered his or her executed counterpart signature page to the
Parent’s stockholder consent approving the Parent Re-incorporation Merger,
substantially in the form attached hereto as Exhibit
G
(the
“Re-Incorporation
Stockholder Consent”).
SECTION
7.3 Conditions
to Obligations of the Company.
The obligation of the Company to effect the Merger is further subject
to
satisfaction or waiver of the following conditions:
(a)
Representations
and Warranties.
The representations and warranties of Parent set forth herein and in
the
Parent Disclosure Schedule shall be true and correct in all material respects
at
and as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case such representations
and warranties shall be true and correct as of such date). The Company shall
have received a certificate of Parent’s Chief Executive Officer and Chief
Financial Officer to the foregoing effect.
51
(b)
Performance
of Obligations of Parent.
Parent shall have performed in all material respects all obligations
required to be performed by it at or prior to the Closing Date under this
Agreement. The Company shall have received a certificate of Parent’s Chief
Executive Officer and Chief Financial Officer to the foregoing
effect.
(c)
Regulatory
Condition.
No condition or requirement shall have been imposed by one or more
Governmental Entities in connection with any required approval by them of the
Merger that requires Parent or any of its subsidiaries to be operated in a
manner that would have a material adverse effect on Parent.
(d)
Registration
Rights Agreement.
Parent and each holder of Company Common Stock on the Closing Date shall have
entered into the Registration Rights Agreement and the Company shall have
received a fully executed copy thereof.
(e)
Lock-Up
Agreement.
Parent, Xxxxx Xxxx and each holder of Company Common Stock on the Closing
Date shall have entered into the Lock-Up Agreement and the Company shall have
received a fully executed copy thereof.
(f)
Resignation
of Director.
Xxxx Xxxxxxxxx and Xxxxxx Xxxxxx shall have tendered their resignations,
effective upon the Closing, as directors of Parent.
(g)
Additional
Directors.
Parent’s Board of Directors shall have resolved that, effective upon the
Closing, the vacancies created by the resignations referenced in clause (g)
above shall be filled by Xxxxxx
Xxxxxxxx (Vice Chairman) and Xxxxx Xxxxx
and that
such resolutions shall not have been rescinded, amended or otherwise
modified.
(h)
Employment
Agreements.
The respective parties thereto shall have executed the Employment
Agreements.
52
SECTION
7.4 Frustration
of Closing Conditions.
Neither Parent nor the Company may rely on the failure of any condition
set forth in Section 7.1, 7.2 or 7.3, as the case may be, to be satisfied if
such failure was caused by such Party’s failure to use its own commercially
reasonable efforts to consummate the Merger and the other transactions
contemplated by this Agreement, as required by and subject to Section
6.2.
ARTICLE
VIII
TERMINATION,
AMENDMENT AND WAIVER
SECTION
8.1 Termination.
This Agreement may be terminated at any time prior to the Effective
Time,
whether or not the Company’s shareholders
have
approved the Agreement:
(a)
by
mutual
written consent of Parent and the Company;
(b)
by
either
Parent or the Company;
(i)
if
the
Merger shall not have been consummated at or prior to 5:00 p.m., New York time,
on August
31, 2005, provided,
however,
that
the right to terminate this Agreement pursuant to this Section 8.1(b)(i) shall
not be available to any Party whose failure to perform any of its obligations
under this Agreement results in the failure of the Merger to be consummated
by
such time and date.
(ii)
if
any
Restraint having any of the effects set forth in Section 7.1(c) shall be in
effect and shall have become final and nonappealable; provided,
however,
that
the Party seeking to terminate this Agreement pursuant to this Section 8.1(b)
(iii) shall have used its commercially reasonable efforts to prevent the entry
of such Restraint and to have such Restraint vacated or removed;
(iii)
if
any
Governmental Entity that must grant a Requisite Regulatory Approval shall have
denied the applicable Requisite Regulatory Approval and such denial shall have
become final and nonappealable; or
(c)
by
Parent,
if the
Company
fails to
obtain the Company Shareholder Approval at the Company Shareholders
Meeting,
and by
the Company if
Parent
fails to obtain Parent’s required (if any) shareholder approval of the
transaction contemplated herein;
53
(d)
by
Parent, if the Company shall have breached any of its representations,
warranties, covenants or other agreements contained in this Agreement, which
breach (i) would give rise to the failure of a condition set forth in Section
7.2(a) or (b), and (ii) is either incapable of being cured by the Company or,
if
curable, is not cured within 15 days of receipt from Parent of written notice
thereof; or
(e)
by
the
Company, if Parent shall have breached any of its representations, warranties,
covenants or other agreements contained in this Agreement, which breach (i)
would give rise to the failure of a condition set forth in Section 7.3(a) or
(b), and (ii) is either incapable of being cured by Parent or, if curable,
is
not cured within 15 days of receipt from the Company written notice
thereof.
The
Party
desiring to terminate this Agreement pursuant to clause (b) or (c) of this
Section 8.1 shall provide written notice of such termination to the other Party
in accordance with Section 9.2, specifying in reasonable detail the provision
hereof pursuant to which such termination is effected.
(f)
Effect
of Termination.
If this
Agreement is terminated by either the Company or Parent as provided in Section
8.1, this Agreement forthwith shall become void and have no effect, without
any
liability or obligation on the part of Parent or the Company; provided, however,
that nothing herein shall relieve any Party from any liability (in contract,
tort or otherwise, and whether pursuant to an action at law or in equity) for
any knowing or willful breach by such Party of any of its representations,
warranties, covenants or agreements set forth in this Agreement or in respect
of
fraud by any Party. Notwithstanding the foregoing, the provisions of this
Article VIII, Section 6.1(b), Section 6.4, Section 6.5, Section 6.8,
Section 6.9, Section 9.7,
Section 9.9 and Section 9.12 shall survive any termination of this Agreement.
SECTION
8.2 Amendment.
This Agreement may be amended by the Parties at any time; provided,
however,
that
after receipt of approval by the Company’s shareholders,
there
shall not be made any amendment that by law requires any further approval by
the
shareholders
of the
Company without the further approval of such shareholders.
This
Agreement may not be amended except by an instrument in writing signed on behalf
of all of the Parties to be bound thereby.
SECTION
8.3 Extension;
Waiver.
At any time prior to the Effective Time, a Party may (a) extend the
time
for the performance of any of the obligations or other acts of the other Party,
(b) waive any inaccuracies in the representations and warranties of the other
Party contained in this Agreement or in any document delivered pursuant to
this
Agreement or (c) subject to the proviso of Section 8.2,
waive
compliance by the other Party with any of the agreements or conditions contained
in this Agreement. Any agreement on the part of a Party to any such extension
or
waiver shall be valid only if set forth in an instrument in writing signed
on
behalf of such Party. The failure of any Party to this Agreement to assert
any
of its rights under this Agreement or otherwise shall not constitute a waiver
of
such rights.
54
ARTICLE
IX
GENERAL
PROVISIONS
SECTION
9.1 Survival
of Representations, Warranties and Agreements.
The representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Effective Time for a
period of two (2) years after the Closing Date, except for tax-related
representations and warranties which shall survive for the applicable statute
of
limitation period. This Section 9.1 shall not limit any covenant or agreement
of
the Parties which by its terms contemplates performance after the Effective
Time.
SECTION
9.2 Notices.
All notices, requests, claims, demands and other communications under
this
Agreement shall be in writing and shall be deemed given if delivered personally,
telecopied (which is confirmed) or sent by overnight courier (providing proof
of
delivery) to the Parties at the following addresses (or at such other address
for a Party as shall be specified by like notice):
(a)
|
If
to Parent or Merger Sub, to:
|
Limelight
Media Group, Inc.
|
0000
Xxxxxxxxxx Xxxxxxx
|
Xxxxxxx,
Xxxxxxxxx 00000
|
Fax
No.: (000) 000-0000
|
Attention:
Xxxxx X. Xxxx
|
with
a copy (which shall not constitute
notice
|
pursuant
to this Section 9.2 to:
|
Xxxxx
Xxxxxxx Xxxxxxx & Xxxxx LLP
|
000
Xxxx Xxxxxx
|
Xxx
Xxxx, Xxx Xxxx 00000
|
Fax
No.: (000) 000-0000
|
Attention:
Xxxx X. Xxxxxxx, Esq.
|
55
(b)
|
If
to the Company, to:
|
IMPART,
Inc.
|
0000
Xxxxx Xxxxxxxxx Xxx
|
Xxxxxxx,
Xxxxxxxxxx 00000-0000
|
Attention:
Xxxxxx Xxxxxxxx
|
Fax
No.:
000-000-0000
|
with
a copy (which shall not constitute notice
|
pursuant
to this Section 9.2) to:
|
Beacon
Law Advisors, P.L.L.C.
|
000
0xx
Xxxxxx, Xxxxx 000
|
Xxxxxxx,
XX 00000
|
Attention:
Xxxxx Xxxxxx
|
Fax
No.: 000-
000-0000
|
SECTION
9.3 Definitions.
For purposes of this Agreement:
(a)
an
“affiliate”
of any
person means another person that directly or indirectly, through one or more
intermediaries, controls, is controlled by, or is under common control with,
such first person, where “control” means the possession, directly or indirectly,
of the power to direct or cause the direction of the management policies of
a
person, whether through the ownership of voting securities, by contract, as
trustee or executor, or otherwise.
(b)
the
“Employment
Agreements”
means,
collectively, an employment agreement substantially in the form attached hereto
as Exhibit
F
by and
between Parent and each of Xxxxx Xxxxx, Xxxxxx Xxxxx,
Xxxxxx
Xxxxxxxx,
Xxxxxx
Xxxxx and Xxxxx Xxxx.
(c)
“knowledge”
means,
(i) with respect to the Company, the knowledge after reasonable due inquiry,
of
the Company’s executive officers and (ii) with respect to Parent, the knowledge
after reasonable due inquiry, of Parent’s executive officers.
(d)
“material
adverse change”
or
“material
adverse effect”
means,
when used in reference to the Company or Parent, any change, effect, event,
circumstance, occurrence or state of facts that is, or which reasonably could
be
expected to be, materially adverse to the business, assets, liabilities,
condition (financial or otherwise), cash flows or results of operations of
such
Party and its subsidiaries, considered as an entirety.
56
(e)
“Parent
Re-Incorporation Merger”
means
the merger of Parent with and into a Delaware corporation to be formed by Parent
after the date hereof for the purpose of changing Parent’s state of
incorporation from Nevada to Delaware, which merger shall be effected pursuant
to a Merger Agreement in form substantially similar to Exhibit H attached hereto
and Section 18-209 of the Delaware General Corporation Law.
(f)
“person”
means
an individual, corporation, partnership, limited liability company, joint
venture, association, trust, unincorporated organization or other
entity.
(g)
a
“subsidiary”
of any
person means another person, an amount of the voting securities, other voting
ownership or voting partnership interests of which is sufficient to elect not
less than a majority of its Board of Directors or other governing body (or,
if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by such first person.
57
SECTION
9.4 Interpretation.
Whenever the words “include,”“includes” or “including” are used in this
Agreement, they shall be deemed to be followed by the words “without
limitation.” The words “hereof,”“herein” and “hereunder” and words of similar
import when used in this Agreement shall refer to this Agreement as a whole
and
not to any particular provision of this Agreement. The Parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the Parties and no presumption or burden
of proof shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Agreement.
SECTION
9.5 Counterparts.
This Agreement may be executed in one or more counterparts, all of
which
shall be considered one and the same agreement and shall become effective when
one or more counterparts have been signed by each of the Parties and delivered
to the other Parties. A facsimile copy of a signature page shall be deemed
to be
an original signature page.
SECTION
9.6 Entire
Agreement; No Third-Party Beneficiaries.
This Agreement (including the documents and instruments referred to
herein) (a) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, between the Parties with
respect to the subject matter of this Agreement and (b) except for the
provisions of Section 6.4 which shall inure to the benefit of and be enforceable
by the persons referred to therein, are not intended to confer upon any person
other than the Parties any rights or remedies.
SECTION
9.7 Governing
Law.
This Agreement shall be governed by, and construed in accordance with,
the
internal substantive and procedural laws of the State of
Delaware, regardless of the laws that might otherwise govern under applicable
principles of conflicts of law of such state.
SECTION
9.8 Assignment.
Neither this Agreement nor any of the rights, interests or obligations
under this Agreement shall be assigned, in whole or in part, by operation of
law
or otherwise by any of the Parties without the prior written consent of the
other Parties. Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of, and be enforceable by, the Parties and their
respective successors and assigns.
SECTION
9.9 Consent
to Jurisdiction.
Each of the Parties (a) consents to submit itself to the personal
jurisdiction of any Federal court located in the State of Washington
in the
event any dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (b) agrees that it will not attempt to deny
or
defeat such personal jurisdiction by motion or other request for leave from
any
such court, and (c) agrees that it will not bring any action relating to this
Agreement or any of the transactions contemplated by this Agreement in any
court
other than a Federal court sitting in the Seattle,
Washington.
The
Parties irrevocably and unconditionally waive any objection to the laying of
venue of any action, suit or proceeding arising out of this Agreement or any
of
the transactions contemplated by this Agreement in any Federal court located
in
the State of Washington,
and
hereby further irrevocably and unconditionally waive and agree not to plead
or
claim in any such court that any such action, suit or proceeding brought in
any
such court has been brought in an inconvenient forum.
58
SECTION
9.10 Headings.
The headings contained in this Agreement are for reference purposes
only
and shall not affect in any way the meaning or interpretation of this
Agreement.
SECTION
9.11 Severability.
If any term or other provision of this Agreement is invalid, illegal
or
incapable of being enforced by any rule of law or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision
is
invalid, illegal or incapable of being enforced, the Parties shall negotiate
in
good faith to modify this Agreement so as to effect the original intent of
the
Parties as closely as possible to the fullest extent permitted by applicable
law
in an acceptable manner to the end that the transactions contemplated hereby
are
fulfilled to the extent possible.
SECTION
9.12 Enforcement.
The Parties agree that irreparable damage would occur in the event
that
any of the provisions of this Agreement were not performed in accordance with
their specific terms or were otherwise breached. It is accordingly agreed that
the Parties shall be entitled to an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
of this Agreement, this being in addition to any other remedy to which they
are
entitled at law or in equity.
[The
remainder of this page is intentionally left blank.]
59
IN
WITNESS WHEREOF,
Parent,
the Company and Merger Sub have caused this Agreement to be signed by their
respective officers thereunto duly authorized, all as of the date first written
above.
LIMELIGHT
MEDIA GROUP, INC.
|
|
By:
/s/Xxxxx
Xxxx
|
|
Name:
Xxxxx Xxxx
|
|
Title:
Chief Executive Officer
|
|
LIMELIGHT
MERGER II CORP.
|
|
By:
/s/Xxxxx
Xxxx
|
|
Name:
Xxxxx Xxxx
|
|
Title:
Chief Executive Officer
|
|
IMPART,
INC.
|
|
By:
/s/Xxxxx
Xxxxx
|
|
Name:
Xxxxx Xxxxx
|
|
Title:
President
|