Exhibit 2.1
XYLO, INC.
- and -
WORKSTREAM INC.
-and-
WORKSTREAM ACQUISITION II, INC.
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MERGER AGREEMENT
AUGUST 30, 2002
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Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., counsel for the Corporation
Xxxxxx-Xxxxxxxxx, Hill & XxXxxxxxx LLP, solicitors for the Purchaser
THIS MERGER AGREEMENT is made as of August 30, 2002
BETWEEN:
XYLO, INC., a corporation incorporated pursuant to the laws of
the State of Delaware ("Xylo" or "the Corporation")
- and -
WORKSTREAM INC., a corporation incorporated pursuant to the
laws of Canada (the "Purchaser")
-and-
WORKSTREAM ACQUISITION II, INC., a corporation incorporated
pursuant to the laws of the State of Delaware ("Merger Sub")
RECITALS:
A. Upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware General Corporation Law and the Delaware
Business Corporation Act ("Delaware Law"), Purchaser, Merger Sub and Xylo intend
to enter into a business combination transaction.
B. The Board of Directors of Xylo (i) has determined that the Merger
(as defined below) is advisable and fair to, and in the best interests of, Xylo
and its stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of Xylo adopt and approve this Agreement and
approve the Merger.
C. The Board of Directors of Purchaser (i) has determined that the
Merger is consistent with and in furtherance of the long-term business strategy
of Purchaser and advisable and fair to, and in the best interests of, Purchaser
and its stockholders and (ii) has approved this Agreement, the Merger and the
other transactions contemplated by this Agreement.
D. The parties intend for U.S. federal income tax purposes that the
Merger qualify as a reorganization under the provisions of Section 368(a) of the
Code.
E. It is also intended by the parties hereto that the Merger shall be
accounted for as a "purchase."
THEREFORE, in consideration of the foregoing recitals and the mutual
covenants and agreements contained herein, and other good and valuable
consideration, the receipt and sufficiency of which is hereby acknowledged, the
parties hereby agree as follows:
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ARTICLE 1
DEFINITIONS AND PRINCIPLES OF INTERPRETATION
1.1 Definitions
Whenever used in this Agreement, the following words and terms shall have the
meanings set out below:
"1933 Act" means the U.S. Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder by the SEC;
"1934 Act" means the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder by the SEC;
"Affiliate" shall mean, as to any Person, any Person controlling,
controlled by, or under common control with, such Person;
"Agreement" means this Merger Agreement, and references to "Article" or
"Section" mean and refer to the specified Article or Section of this
Agreement;
"Associate" shall mean (a) a body corporate of which the person
beneficially owns or controls, directly or indirectly, shares or
securities currently convertible into shares carrying more than ten per
cent of the voting rights under all circumstances or by reason of the
occurrence of an event that has occurred and is continuing, or a
currently exercisable option or right to purchase such shares or such
convertible securities;
(b) a partner of that person acting on behalf of the partnership of
which they are partners;
(c) a trust or estate in which that person has a substantial beneficial
interest or in respect of which he serves as a trustee or in a similar
capacity;
(d) a spouse of that person or an individual who is cohabiting with
that person in a conjugal relationship, having so cohabited for a
period of at least one year;
(e) a child of that person or of the spouse or individual referred to
in paragraph (d); and
(f) a relative of that person or of the spouse or individual referred
to in paragraph (d), if that relative has the same residence as that
person
"Benefit Plans" means all plans, arrangements, agreements, programs,
policies, practices or undertakings, whether oral or written, formal or
informal, funded or unfunded, registered or unregistered to which the
Corporation is or has been a party or by which it is or has been bound
or under which the Corporation has, or will have, any liability or
contingent liability, relating to:
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(a) Pension Plans;
(b) Insurance Plans; or
(c) Compensation Plans,
with respect to any of the Employees or former employees (or any
dependants or beneficiaries of any such Employees or former employees),
directors or stockholders of the Corporation, individuals working on
contract with the Corporation or other individuals providing services
to any of them of a kind normally provided by employees or eligible
dependants of such person;
"Books and Records" means all books and records of the Corporation,
including financial, corporate, operations, sales and purchase books
and records, lists of suppliers and customers, business reports, plans
and projections and all other documents, surveys, plans, files,
records, correspondence, and other data and information, financial or
otherwise, including all data and information stored on
computer-related or other electronic media;
"Business" means the development and sale of web-based employee
discount programs carried on by the Corporation, and the term
"Business" shall include any part of the businesses held or carried on
by the Corporation;
"Business Day" means a day, other than a Saturday or Sunday, on which
the principal commercial banks located in Ottawa, Ontario are open for
business during normal banking hours;
"Claims" means any claim, demand, action, assessment or reassessment,
suit, cause of action, damage, loss, charge, judgment, debt, costs,
liability or expense, including reasonable professional fees and all
reasonable costs incurred in investigating or pursuing any of the
foregoing or any proceeding relating to any of the foregoing; provided,
however, that the term "Claims" will not include any overhead costs of
the Indemnified Party's personnel and the amount of Claims incurred by
any Indemnified Party will be reduced by the amount of any insurance
proceeds actually received by such Indemnified Party on account of such
Claims and the amount of any direct tax savings actually recognized by
such Indemnified Party that are directly attributable to such Claims,
but will include any reasonable costs or expense incurred by such
Indemnified Person to recover such insurance proceeds or to obtain such
tax savings;
"Closing" means the completion of the sale to and purchase by the
Purchaser of the Purchased Shares under this Agreement by consummation
of the Merger;
"Closing Date" means September 6, 2002 or such other date as the
Parties may agree in writing as the date upon which the Closing shall
take place;
"Closing Time" means 2 o'clock p.m. Ottawa time on the Closing Date, or
such other time on such date as the Parties may agree in writing as the
time at which the Closing shall take place;
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"Code" means the United States Internal Revenue Code of 1986, as
amended;
"Compensation Plans" means all employment benefits relating to bonus,
incentive pay or compensation, performance compensation, deferred
compensation, profit sharing or deferred profit sharing, share
purchase, share option, stock appreciation, phantom stock, vacation or
vacation pay, sick pay, severance or termination pay, employee loans or
separation from service benefits, or any other type of arrangement
providing for compensation or benefits additional to base pay or
salary;
"Contracts" means all contracts, licences, leases, agreements,
commitments, entitlements and engagements to which the Corporation is a
party or by which it is bound or under which the Corporation has, or
will have, any liability or contingent liability, and includes all
quotations, orders or tenders for contracts which remain open for
acceptance and any warranties, guarantees or commitments (express or
implied);
"Employees" means all persons employed or retained by the Corporation,
including for greater certainty, those employees on disability leave,
parental leave or other absence;
"Encumbrances" means any pledge, lien, charge, security interest,
lease, title retention agreement, mortgage, restriction, development or
similar agreement, easement, right-of-way, title defect, option,
adverse claim or encumbrance of any kind or character whatsoever;
"Environment" means the environment or natural environment as defined
in any Environmental Laws and includes air, surface, water, ground
water, land surface, soil, subsurface strata, any sewer system and the
environment in the workplace and disposal of Hazardous Substances;
"Environmental Approvals" means all approvals, permits, certificates,
licences, authorizations, consents, agreements, instructions or
directions having the force of law, registrations or approvals issued
or required by any Governmental Authority pursuant to Environmental
Laws with respect to the operations, business or assets of the
Corporation;
"Environmental Laws" means all Laws relating in full or in part to the
Environment or employee or public health or safety, and includes those
Environmental Laws relating to the storage, generation, use, handling,
manufacture, processing, labelling, advertising, sale, display,
transportation, treatment, Release and disposal of Hazardous
Substances;
"Equipment Contracts" means all motor vehicle leases, equipment leases,
conditional sales contracts, title retention agreements and other
similar agreements relating to equipment used by the Corporation;
"Escrow Shares" means the number of shares of Purchaser Common Stock
(rounded to the nearest whole share) equal to the quotient obtained by
dividing $800,000 by the Merger Price Per Share.
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"Governmental Authority" means any government, regulatory authority,
governmental department, agency, commission, board, tribunal or court
or other law, rule or regulation-making entity having or purporting to
have jurisdiction on behalf of any nation, or any province, state or
other geographic or political subdivision of any nation;
"Governmental Authorizations" means all authorizations, approvals,
including Environmental Approvals, orders, consents, directions,
notices, licences, permits, variances, registration or similar rights
issued to or by or required by any Governmental Authority;
"Hazardous Substance" means any pollutant, contaminant, waste of any
nature, hazardous substance, hazardous material, toxic substance,
prohibited substance, dangerous substance or dangerous good as defined,
judicially interpreted or identified in any Environmental Laws,
including any asbestos or asbestos-containing materials;
"HSR Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder;
"Independent Auditors" means PricewaterhouseCoopers LLP or such other
independent auditing firm as the Parties may otherwise agree;
"Insurance Plans" means all employment benefits relating to disability
or wage continuation during period of absence from work (including
short term disability, long term disability and workers compensation),
hospitalization, health, medical or dental treatments or expenses, life
insurance, death or survivor's benefits and supplementary employment
insurance, in each case regardless of whether or not such benefits are
insured or self-insured;
"Intellectual Property" means registered and unregistered trade-marks
(including the Trade-marks), copyright, and other intellectual property
rights and all rights (proprietary, contractual or otherwise) in or
relating to all trade secrets, confidential and proprietary
information, methods, procedures, know-how and information;
"Laws" means all applicable laws (including common law), statutes,
by-laws, rules, regulations, orders, ordinances, protocols, codes,
guidelines, tax treaties, policies, notices, directions and judgments
or other requirements of any Governmental Authority;
"Leased Real Property" means all premises which are leased, subleased,
licensed or otherwise occupied by the Corporation, and the interest of
the Corporation in all plants, buildings, structures, fixtures,
erections, improvements, easements, rights-of-way and other
appurtenances situate on or forming part of such premises; all of which
are listed in Section 3.24 of the Disclosure Letter;
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"Material Adverse Effect" when used with reference to any Person, means
any event, change, violation, inaccuracy, circumstance or effect that,
either individually or in the aggregate, is materially adverse, or that
would reasonably be expected to be materially adverse, to the condition
(financial or otherwise), properties, assets (including intangible
assets), business, operations or results of operations of such Person,
taken as a whole; provided that notwithstanding the aforementioned, any
change in excess of $50,000.00 to the condition (financial or
otherwise), properties, assets (including intangible assets), business,
operations or results of operations of such person taken as a whole,
shall be deemed to have a material adverse effect; provided further
that any event, change, violation, inaccuracy, circumstance or effect
that results from (a) changes in general economic conditions, (b)
changes generally affecting the industry in which such Person operates,
(c) performance by such Person of its obligations under this Agreement,
or (d) the announcement or disclosure of the transactions contemplated
by this Agreement shall not be deemed to cause a Material Adverse
Effect.
"Material Contract" means any Contract: (i) involving aggregate
payments to or by the Corporation in excess of $50,000; (ii) involving
rights or obligations of the Corporation that would reasonably be
expected to extend beyond one year; (iii) which is outside the ordinary
course of business; (iv) which does not or cannot be terminated without
penalty on less than six months notice; or (v) which restricts in whole
or in part in any material way the scope of the business or activities
of the Corporation or which restricts in any material way the scope of
the business or activities of any of their Affiliates or Associates;
"Merger Price Per Share" means the average last sale price of Purchaser
Common Stock quoted by the NASD on its automated quotation system for
the last five (5) trading days immediately preceding the Closing Date.
"NASD" means the National Association of Securities Dealers, Inc. or
one or more of its subsidiaries, as the context may require, and any
successor to any of them;
"Notice" shall have the meaning given in Section 11.3;
"Owned Real Property" means all freehold lands which are owned or
purported to be owned, in fee simple, by the Corporation including all
plants, buildings, structures, fixtures, erections, improvements,
easements, rights-of-way and other appurtenances situate on or forming
part of such lands;
"Parties" means all of the parties to this Agreement;
"Pension Plans" means all benefits relating to retirement or retirement
savings including pension plans, pensions or supplemental pensions,
registered retirement savings plans, registered pension plans and
retirement compensation arrangements;
"Permitted Encumbrances" means any mechanics', carriers',
warehousemen's and other similar liens arising in the ordinary course
of business, including liens for taxes not yet due and payable;
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"Person" means any individual, sole proprietorship, partnership,
unincorporated association, unincorporated syndicate, unincorporated
organization, trust, corporation, limited liability company, unlimited
liability company, Governmental Authority, and a natural person in such
person's capacity as trustee, executor, administrator or other legal
representative;
"Purchase Price" shall mean $2,500,000, as adjusted pursuant to Section
2.9 hereof;
"Purchased Shares" means all of the issued and outstanding shares of
Series 1 Preferred Stock of the Corporation;
"Real Property" means the Owned Real Property and the Leased Real
Property;
"Real Property Leases" means those agreements to lease, leases,
subleases or licences or other occupancy rights pursuant to which the
Corporation uses or occupies the Leased Real Property;
"Release" has the meaning prescribed in any Environmental Laws and
includes any release, spill, leak, pumping, pouring, addition,
emission, emptying, discharge, injection, escape, leaching, disposal,
dumping, deposit, spraying, burial, abandonment, incineration, seepage,
or placement;
"Remedial Order" means any administrative complaint, direction, order
or sanction issued, filed, imposed or threatened by any Governmental
Authority pursuant to any Environmental Laws and includes any order
requiring any remediation or clean-up of any Hazardous Substance, or
requiring that any Release or any other activity be reduced, modified
or eliminated or requiring a payment to be made to any Governmental
Authority;
"Required Approvals" means those Governmental Authorizations,
stockholder approval and third Person approvals, consents and notices
referred to in Sections 3.6 and 3.7 of the Disclosure Letter, including
any consents required by any outstanding contract or commitment of the
Corporation that requires the prior approval of third parties prior to
any change of control of the Corporation resulting from the
consummation of the transactions contemplated by this Agreement;
"SEC" means the Securities and Exchange Commission;
"Securities Laws" means the 1933 Act, the 1934 Act, the Investment
Company Act, the Advisers Act, the CEA, the securities or "blue sky"
laws of any state or territory of the United States and the rules and
regulations of the NASD and the comparable laws, rules and regulations
in effect in any relevant other country;
"Series 1 Exchange Ratio" means, with respect to each Purchased Share,
the number of shares of Purchaser Common Stock equal to the quotient
(calculated to the seventh decimal place) obtained by dividing (a) the
Stock Consideration by (b) the total number of shares of the
Corporation's Series 1 Preferred Stock that are issued and outstanding
immediately prior to the Effective Time;
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"Stock Consideration" means the number of shares of Purchaser Common
Stock (rounded to the nearest whole share) equal to the quotient
obtained by dividing the Purchase Price by the Merger Price Per Share.
"Stock Options" means the outstanding options to purchase shares of
Xylo Common Stock pursuant to Xylo's 1999 Stock Plan;
"Subsidiary" of any Person shall mean a corporation, company or other
entity (i) more than 50% of whose outstanding shares or securities
(representing the right to vote for the election of directors or other
managing authority) are, or (ii) which does not have outstanding shares
or securities (as may be the case in a partnership, limited liability
company, joint venture, or unincorporated association), but more than
50% of whose ownership interest representing the right to make
decisions for such other entity is, now or hereafter owned or
controlled, directly or indirectly, by such Person.
"Tax Returns" includes all returns, reports, declarations, elections,
notices, filings, information returns and statements filed or required
to be filed in respect of Taxes;
"Taxes" includes all taxes, duties, fees, premiums, assessments,
imposts, levies and other charges of any kind whatsoever imposed by any
Governmental Authority, together with all interest, penalties, fines,
additions to tax or other additional amounts imposed by any
Governmental Authority in respect thereof, including those levied on,
or measured by, or in respect of income, gross receipts, profits,
capital, gains, capital gains, transfer, land transfer, sales, goods
and services, use, value-added, excise, stamp, withholding, business,
franchise, property, payroll, or employment;
"Trade-marks" means all trade-marks, trade names, brands, trade dress,
business names, Uniform Resource Locators ("URL"), domain names, tag
lines, designs, graphics, logos and other commercial symbols and
indicia of origin, whether registered or not, owned by, licensed to or
used by the Corporation and any goodwill associated with any of them,
including trade-marks, trade names, brands, trade dress, business
names, URL, domain names, tag lines, designs, graphics, logos and other
commercial symbols and indicia of origin owned by, licensed to or used
by the Corporation listed in Section 3.21 of the Disclosure Letter;
"Xylo Capital Stock" means each issued and outstanding share of capital
stock of Xylo.
"Xylo Common Stockholders" means those persons holding shares of Xylo
Common Stock on the Closing Date;
"Xylo Preferred Stockholders" means those persons holding shares of
Xylo Series 1 Preferred Stock on the Closing Date;
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1.2 Certain Rules of Interpretation
In this Agreement and the exhibits and schedules:
(a) Time - time is of the essence in the performance of the
Parties' respective obligations;
(b) Currency - unless otherwise specified, all references to money
amounts are to lawful currency of the United States of
America;
(c) Headings - descriptive headings of Articles and Sections are
inserted solely for convenience of reference and are not
intended as complete or accurate descriptions of the content
of such Articles or Sections;
(d) Singular, etc. - use of words in the singular or plural, or
with a particular gender, shall not limit the scope or exclude
the application of any provision of this Agreement to such
person or persons or circumstances as the context otherwise
permits;
(e) Consent - whenever a provision of this Agreement requires an
approval or consent by a Party to this Agreement and
notification of such approval or consent is not delivered
within the applicable time limited, then, unless otherwise
specified, the Party whose consent or approval is required
shall be conclusively deemed to have withheld its approval or
consent;
(f) Calculation of Time - unless otherwise specified, time periods
within or following which any payment is to be made or act is
to be done shall be calculated by excluding the day on which
the period commences and including the day on which the period
ends and by extending the period to the next Business Day
following if the last day of the period is not a Business Day;
(g) Business Day - whenever any payment is to be made or action to
be taken under this Agreement is required to be made or taken
on a day other than a Business Day, such payment shall be made
or action taken on the next Business Day following such day;
and
(h) Inclusion - where the words "including" or "includes" appear
in this Agreement, they mean "including (or includes) without
limitation".
1.3 Knowledge
Except as specified otherwise in this Agreement, any reference to the knowledge
of any Person that is an individual shall mean the actual knowledge, information
and belief of such Person after reasonable diligence and, with respect to a
Person that is an entity, means the actual knowledge, information and belief of
all officers of such Person.
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1.4 Entire Agreement
This Agreement, together with the agreements and other documents to be delivered
pursuant to this Agreement (the "Ancillary Agreements"), constitute the entire
agreement between the Parties pertaining to the subject matter of this Agreement
and supersede all prior agreements, understandings, negotiations and
discussions, whether oral or written, of the Parties pertaining to that subject
matter, and there are no warranties, representations or other agreements between
the Parties in connection with the subject matter of this Agreement except as
specifically set forth in this Agreement and any document delivered pursuant to
this Agreement. No supplement, modification or waiver or termination of this
Agreement shall be binding unless executed in writing by the Party to be bound
thereby.
1.5 Applicable Law
This Agreement shall be governed and construed in accordance with the laws of
the State of Delaware and the federal laws of the United States of America
applicable in the State of Delaware, and without regard to the conflict of laws
principles applicable in such jurisdiction. All disputes arising out of or in
connection with this Agreement (other than matters subject to arbitration
pursuant to the terms of this Agreement or the other agreements delivered by the
Parties pursuant hereto) shall be solely and exclusively resolved by a court of
competent jurisdiction in the State of Washington. The Parties hereby consent to
the jurisdiction of the Courts of the State of Washington and the United States
District Court of the Western District of Washington and waive any objections or
rights as to forum nonconvenience, lack of personal jurisdiction or similar
grounds with respect to any dispute relating to this Agreement.
1.6 Accounting Principles
All references to generally accepted accounting principles mean generally
accepted accounting principles in the United States as at the Closing Date,
applied on a consistent basis.
1.7 Disclosure Letter
The Disclosure Letter (as defined below) shall modify all representations and
warranties of the Corporation contained in this Agreement. Each party has used
its best efforts to reference the correct section of the Disclosure Letter,
however the failure to properly reference such section shall not be a breach of
a representation or warranty if the party to whom the disclosure is being made
could reasonably ascertain the effect of a disclosure in a section on other
applicable representations and warranties.
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ARTICLE 2
THE MERGER
2.1 The Merger. At the Effective Time and subject to and upon the terms and
conditions of this Agreement and the applicable provisions of Delaware Law,
Merger Sub shall be merged with and into Xylo (the "Merger"), the separate
corporate existence of Merger Sub shall cease and Xylo shall continue as the
surviving corporation. Xylo as the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving Corporation"
2.2 Effective Time; Closing. Subject to the provisions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing a
certificate of merger, in such appropriate form as determined by the parties,
with the Secretary of State of the State of Delaware in accordance with the
relevant provisions of Delaware Law (the "Delaware Certificate of Merger"). The
time of acceptance of the Delaware Certificate of Merger by the Delaware
Secretary of State shall be the "Effective Time."
2.3 Place of Closing. The Closing shall take place at the Closing Time at
the offices of Xxxxxx-Xxxxxxxxx, Xxxx & XxXxxxxxx LLP located at Xxxxx 000, 00
Xxxxxx Xxxxxx, Xxxxxx, Xxxxxxx, X0X 0X0, or at such other place as may be agreed
upon in writing by the Parties.
2.4 Tender. Any tender of documents or money under this Agreement may be
made upon the Parties or their respective counsel and money shall be tendered in
U.S. dollars by official bank certified cheque, bank draft or by such other
method as the Parties agree in writing.
2.5 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of Delaware
Law. Without limiting the generality of the foregoing, at the Effective Time all
the property, rights, privileges, powers and franchises of Xylo and Merger Sub
shall vest in the Surviving Corporation, and all debts, liabilities and duties
of Xylo and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
2.6 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by
law and such Certificate of Incorporation of the Surviving
Corporation; provided however, that at the Effective Time
Article I of the Certificate of Incorporation of the Surviving
Corporation shall be amended to read: "The name of the
corporation is Xylo, Inc."
(b) At the Effective Time, the Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter amended.
2.7 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial corporate officers of the Surviving Corporation shall
be the corporate officers of Merger Sub immediately prior to the Effective Time,
until their respective successors are duly appointed.
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2.8 Effect on Stock and Options. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, Xylo or the holders of
any of the following securities:
(a) Each Purchased Share issued and outstanding immediately prior
to the Effective Time (other than shares, if any, held by
Persons exercising dissenters' rights in accordance with
Delaware Law as provided in Section 2.14 below) will be
cancelled and extinguished and automatically converted into
shares of common stock, no par value, of Purchaser ("Purchaser
Common Stock") at the Series 1 Exchange Ratio upon surrender
of the certificate representing such Purchased Share in the
manner provided in Section 2.11.
(b) Each share of Xylo Common Stock that is issued or outstanding,
or held by Xylo, immediately prior to the Effective Time shall
be cancelled and extinguished without any conversion thereof
and without the issuance or payment of any consideration
therefor.
(c) Each share of Xylo Preferred Stock that is held by Xylo
immediately prior to the Effective Time shall be cancelled and
extinguished without any conversion thereof and without the
issuance or payment of any consideration therefor.
(d) Each share of common stock, $0.00l par value per share, of
Merger Sub issued and outstanding immediately prior to the
Effective Time shall be converted into one validly issued,
fully paid and nonassessable share of common stock, $0.001 par
value per share, of the Surviving Corporation. Each
certificate evidencing ownership of shares of the common stock
of Merger Sub shall evidence ownership of such shares of
capital stock of the Surviving Corporation.
(e) No fraction of a share of Purchaser Common Stock will be
issued by virtue of the Merger, but in lieu thereof each
holder of Purchased Shares who would otherwise be entitled to
a fraction of a share of Purchaser Common Stock (after
aggregating all fractional shares of Purchaser Common Stock
that otherwise would be received by such holder) shall receive
from Purchaser an amount of cash (rounded to the nearest whole
cent) equal to the product of (i) such fraction, (ii)
multiplied by the Merger Price Per Share.
(f) Prior to the Closing Date, Purchaser and the Corporation will
calculate the number of shares of Purchaser Common Stock
issuable to the various holders of the Purchased Shares at the
Effective Time in accordance with this Section 2.8. The number
of shares of Purchaser Common Stock issuable to the various
holders will be set forth on a schedule delivered at the
Closing (the "Continuation Schedule").
(g) At the Effective Time, all Stock Options outstanding
immediately prior to the Effective Time will, by virtue of the
Merger and without any further action on the part of the
Purchaser, Xylo or any holder thereof, be terminated and
cancelled without any conversion or assumption thereof.
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2.9 Adjustments to Purchase Price
2.9.1 The number of shares of Purchaser Common Stock issuable
hereunder shall be adjusted to reflect fully the effect of any
stock split, reverse stock split, stock dividend (including
any dividend or distribution of securities convertible into
Purchaser Common Stock), reorganization, recapitalization or
other like change with respect to Purchaser Common Stock
occurring after the date hereof.
2.9.2 Further, in the event that the liabilities of the Corporation,
excluding deferred liabilities, exceeds $268,000.00 as of the
Closing Date (such amount exceeding $268,000.00, the
"Additional Liabilities"), as described in the closing balance
sheet delivered by the Corporation to the Purchasers on
Closing (the "Closing Balance Sheet"), then the Purchase Price
shall be subject to adjustment as follows:
2.9.2.1 The Purchase Price shall be reduced in an amount equal to
the Additional Liabilities.
2.9.2.2 Notwithstanding Section 2.9.2.1 above, the Purchase Price
will not be so adjusted if the Corporation agrees to
leave an amount of cash equal to the Additional
Liabilities in the Corporation, thereby reducing the
Distribution Amount, as defined in Section 7.11 herein.
2.10 Delivery of the Escrow Shares
2.10.1 At the Closing Time, the Purchaser, the Stockholder
Representative (as defined in Section 11.3), Xxxxxx-Xxxxxxxxx,
Hill & XxXxxxxxx, LLP, as escrow agent, and any other parties
thereto shall enter into the escrow agreement in the form
attached hereto as Exhibit A.
2.10.2 Pursuant to this Agreement and the Escrow Agreement, the
Escrow Shares shall, without any act of any Xylo Preferred
Stockholders, be placed in escrow and released as set forth in
the Escrow Agreement. The Escrow Shares shall be allocated
from each Xylo Preferred Stockholder pro rata based on the
number of Purchased Shares held by such Xylo Preferred
Stockholder as of the Effective Time relative to the total
number of all issued and outstanding Purchased Shares. Each
Xylo Preferred Stockholder's contribution to the Escrow Shares
is listed on the Consideration Schedule.
2.11 Surrender Procedures.
(a) Purchaser shall act as its own exchange agent in the Merger
(except for the Escrow Shares).
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(b) At or as soon as practicable after the Effective Time, each
Xylo Preferred Stockholder shall (i) surrender to the
Purchaser for cancellation the share certificates representing
the Purchased Shares that are not Dissenting Shares (the
"Certificates"), in each case duly endorsed in blank for
transfer, or accompanied by irrevocable security transfer
powers of attorney duly executed in blank, in either case by
the holders of record (to the extent that such Xylo Preferred
Stockholder has not surrendered its Certificates and/or such
executed irrevocable security transfer powers of attorney to
the Purchaser at or prior to the Effective Time) and (ii)
deliver a duly executed Letter of Transmittal in the form
attached hereto as Exhibit B (the "Transmittal Letter")
together with such holder's Certificate(s) (or an affidavit of
lost certificate as described in Section 2.11(c) below) to the
Purchaser. As soon as practicable after receipt of such
Transmittal Letter and Certificates (or affidavits of lost
certificate), the Purchaser will issue to each tendering Xylo
Preferred Stockholder (i) a certificate for the number of
Purchaser Common Shares to which such Xylo Preferred
Stockholder is entitled pursuant to Section 2.8 hereof, less
the Purchaser Common Stock deposited into escrow pursuant to
Section 2.10 hereof, (ii) the cash payable in lieu of a
fractional share to which such Xylo Preferred Stockholder may
be entitled pursuant to Section 2.8 hereof and (iii) any
dividends or distributions to which such Xylo Preferred
Stockholder may be entitled pursuant to Section 2.9.
(c) In the event any Certificates shall have been lost, stolen or
destroyed, the Purchaser shall issue in exchange for such
lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof and, if
reasonably requested by the Purchaser, the posting of
reasonable bond therefore, such number of shares of Purchaser
Common Stock and cash for fractional shares, if any, as may be
required pursuant to Section 2.8 and any dividends or
distributions payable pursuant to Section 2.9.
(d) No dividends or distributions payable to holders of record of
Purchaser Common Stock after the Effective Time will be paid
to the holder of any unsurrendered Certificate(s) with respect
to shares of Purchaser Common Stock represented thereby until
the holder of the Certificate(s) surrenders such
Certificate(s). Subject to the effect, if any, of applicable
escheat and other laws, following surrender of any
Certificate, there will be delivered to the person entitled
thereto, without interest, the amount of any dividends and
distributions therefor paid with respect to Purchaser Common
Stock so withheld as of any date subsequent to the Effective
Time and prior to such date of delivery.
(e) Each of the Corporation, Merger Sub and the Purchaser shall
deliver such other documents as may be reasonably necessary to
complete the transactions contemplated by this Agreement.
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2.12 No Further Ownership Rights. All shares of Purchaser Common Stock
issued in accordance with the terms hereof (including any cash paid in respect
thereof) shall be deemed to have been issued in full satisfaction of all rights
pertaining to the Purchased Shares and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Xylo Common
Stock or Preferred Stock which were outstanding immediately prior to the
Effective Time. If after the Effective Time Certificates are presented to the
Surviving Corporation for any reason, they shall be cancelled and exchanged as
provided in this Agreement.
2.13 Tax and Accounting Consequences
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto adopt this Agreement as a
"plan of reorganization" within the meaning of Sections
1.368-2(g) and 1.368-3(a) of the United States Department of
the Treasury Income Tax Regulations ("Treasury Regulations").
(b) It is intended by the parties hereto that the Merger shall be
treated as a "purchase" for accounting purposes.
2.14 Dissenters' Rights
(a) Notwithstanding any provision of this Agreement to the
contrary, any shares of Xylo Capital Stock held by a holder
who has exercised and perfected appraisal rights for such
shares in accordance with Delaware Law and who, as of the
Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted
into or represent a right to receive the Purchaser Common
Stock, but the holder thereof shall only be entitled to such
rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any
holder of Dissenting Shares shall effectively withdraw or lose
(through failure to perfect or otherwise) his or her appraisal
rights, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right
to receive the Purchaser Common Stock, without interest
thereon, upon surrender of the Certificate representing such
shares.
(c) Xylo shall give Purchaser (i) prompt notice of any written
demand for appraisal received by Xylo pursuant to the
applicable provisions of Delaware Law and (ii) the opportunity
to participate in all negotiations and proceedings with
respect to such demands. Xylo shall not, except with the prior
written consent of Purchaser, voluntarily make any payment
with respect to any such demands or offer to settle or settle
any such demands.
(d) Dissenting Shares, if any, after payments of fair value in
respect thereto have been made to dissenting stockholders of
Xylo pursuant to Delaware Law, shall be cancelled.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE CORPORATION
Except as otherwise provided in the letter addressed to the Purchaser by the
Corporation that is executed by the Chief Operating Officer of the Corporation
and dated as of the date hereof (the "Disclosure Letter"), the Corporation
hereby represents and warrants to the Purchaser the matters set out below.
3.1 Incorporation and Registration
The Corporation is a corporation duly incorporated and validly existing under
the laws of its jurisdiction of incorporation and has all necessary corporate
power, authority and capacity to enter into this Agreement and the Ancillary
Agreements to which it is a party, to carry out its obligations under this
Agreement and the Ancillary Agreements to which it is party, to own its property
and assets and to carry on its business as presently conducted. Neither the
nature of its business nor the location or character of the property owned or
leased by the Corporation requires it to be registered, licensed or otherwise
qualified as an out-of-province or foreign corporation in any other jurisdiction
other than those listed opposite its name in Section 3.1 of the Disclosure
Letter, where it is duly registered, licensed or otherwise qualified for such
purpose and those jurisdictions in which the failure to be so registered,
licensed or otherwise qualified would not reasonably be expected to have a
Material Adverse Effect on the Corporation.
3.2 Right to Sell
The Purchased Shares are not subject to the terms of any agreement to which the
Corporation is a party which would conflict with this Agreement.
3.3 Capitalization
The authorized and issued share capital of the Corporation is as set forth in
Section 3.3 of the Disclosure Letter. All of the shares in the capital of the
Corporation have been duly and validly issued and are outstanding as fully paid
and non-assessable shares of the Corporation, as the case may be. Other than as
set forth in Section 3.3 of the Disclosure Letter, (a) no options, warrants or
other rights to purchase shares or other securities of the Corporation, and no
securities or obligations convertible into or exchangeable for shares or other
securities of the Corporation, have been authorized or agreed to be issued or
are outstanding; and (b) all such securities referenced in subsection (a) shall
have been exercised in full or terminated at or prior to the Effective Time.
16
3.4 Title to Assets
The Corporation is the sole beneficial and legal owner of all of its assets and
interests in assets, real and personal, including all of the assets used in the
Business, with good and valid title, free and clear of all Encumbrances, other
than Permitted Encumbrances and such imperfections of title and Encumbrances, if
any, that are not material in character, amount or extent, and that do not
materially detract from the value. In particular, without limiting the
generality of the foregoing, there has been no assignment, subletting or
granting of any licence (of occupation or otherwise) of or in respect of any of
the assets of the Corporation or any granting of any agreement or right capable
of becoming an agreement or option for the purchase of any of such assets.
Except for co-located assets set forth in Section 3.4 of the Disclosure Letter,
all of the assets of the Corporation are located on the Leased Real Property.
3.5 Due Authorization and Enforceability
The execution and delivery by the Corporation of this Agreement and the
Ancillary Agreements to which it is a party and the performance by the
Corporation of its obligations contemplated by this Agreement and the Ancillary
Agreements to which it is a party have been, or will prior to the Closing Date
be, duly authorized by all necessary corporate action on the part of the
Corporation. This Agreement and the Ancillary Agreements to which it is a party
constitute valid and binding obligations of the Corporation enforceable against
it in accordance with their respective terms.
3.6 Absence of Conflicting Agreements
The Corporation is not a party to, bound or affected by or subject to any
material indenture, mortgage, lease, agreement, obligation, instrument, charter
or by-law provision, or, to its knowledge, any Law or Governmental Authorization
which would be violated, contravened, breached by, or under which default would
occur or an Encumbrance would be created as a result of the execution and
delivery of this Agreement or any other documents or agreements to be delivered
or entered into under the terms of this Agreement, or the performance by the
Corporation of its obligations provided for under this Agreement or any other
documents or agreements to be delivered or entered into under this Agreement,
except for any such violation, contravention, breach or default as would not
individually or in the aggregate have a Material Adverse Effect on the
Corporation.
3.7 Approvals
Except as disclosed in Section 3.7 of the Disclosure Letter, no approval, order
or consent of or notice to or filing with any Governmental Authority is required
on the part of the Corporation in connection with the execution, delivery and
performance of this Agreement or any other documents or agreements to be
delivered under this Agreement or the performance of the obligations of the
Corporation under this Agreement or any other documents or agreements to be
delivered or entered into under this Agreement.
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3.8 Financial Statements
The Corporation has delivered to the Purchaser an audited balance sheet of the
Corporation as of June 30, 2001 and an unaudited balance sheet as of June 30,
2002, and the related statements of income and retained earnings for the periods
ending on those respective dates (the " Company Financial Statements "). The
Company Financial Statements have been prepared in accordance with generally
accepted accounting principles consistently followed by the Corporation
throughout the periods indicated, and fairly present the financial position of
the Corporation as of the respective dates of the balance sheets included in the
Company Financial Statements, and the results of its operations for the
respective periods indicated, provided that the June 30, 2002 financial
statements do not contain footnotes or year-end adjustments required by
generally accepted accounting principles, which, to the knowledge of the
Company, will not be material in the aggregate.
3.9 Absence of Undisclosed Liabilities
Since the date of the most recent of the Company Financial Statements, the
Corporation has not incurred any liabilities or obligations (whether accrued,
absolute, contingent or otherwise) which continue to be outstanding, except
those incurred in the ordinary and usual course of business. The reserves and
accrued liabilities disclosed on or reflected in the Company Financial
Statements and the Books and Records are sufficient in all material respects to
provide for the liabilities in respect of which they have been established.
3.10 Absence of Changes and Unusual Transactions
Except as described in Section 3.10 of the Disclosure Letter, or except as
consented to in advance in writing by the Purchaser, since the date of the most
recent of the Company Financial Statements:
(i) there has not been any Material Adverse Effect with
respect to the Corporation;
(ii) there has not been any damage, destruction, loss,
labour dispute, organizing drive, application for
certification or other event, development or
condition of any character (whether or not covered by
insurance) which constitutes a Material Adverse
Effect with respect to the Corporation;
(iii) the Corporation has not transferred, assigned, sold
or otherwise disposed of any of the material assets
shown or reflected in the Company Financial
Statements or cancelled any material debts or
material entitlements except, in each case, in the
ordinary and usual course of business;
(iv) the Corporation has not incurred or assumed any
material obligation or material liability (fixed or
contingent) except unsecured current obligations and
liabilities incurred in the ordinary and usual course
of business;
18
(v) the Corporation has not discharged or satisfied any
material Encumbrance, or paid any material obligation
or material liability (fixed or contingent) other
than liabilities included in the Company Financial
Statements and liabilities incurred since the date of
the Company Financial Statements in the ordinary and
usual course of business;
(vi) the Corporation has not waived or omitted to take any
action in respect of any rights of substantial value,
or entered into any commitment or transaction not in
the ordinary and usual course of business where such
rights, commitment or transaction is or would be a
Material Adverse Effect in relation to the
Corporation, as the case may be;
(vii) the Corporation has not granted any bonuses, whether
monetary or otherwise, or made any material general
wage, salary or Benefit Plan increases in respect of
its Employees or changed the terms of employment for
any Employee except in the ordinary and usual course
of business and consistent with past practice;
(viii) the Corporation has not hired or dismissed any senior
Employees or hired or dismissed any other Employees
other than in ordinary and usual course of business;
(ix) the Corporation has not mortgaged, pledged, subjected
to lien, granted a security interest in or otherwise
encumbered any of its material assets or material
property, whether tangible or intangible;
(x) the Corporation has not, directly or indirectly,
declared or paid any dividends or declared or made
any other payments or distributions on or in respect
of any of its shares or, directly or indirectly,
purchased or otherwise acquired any of its shares;
(xi) the Corporation has not, directly or indirectly, paid
any material management fees or other amounts (other
than salaries and benefits of employees, the terms of
which are disclosed in Section 3.26 of the Disclosure
Letter) to any of the stockholders of Xylo; and
(xii) the Corporation has not authorized, agreed or
otherwise become committed to do any of the
foregoing.
3.11 Non-Arm's Length Transactions
Except as disclosed in Section 3.11 of the Disclosure Letter, no director or
officer, former director or officer, or stockholder of the Corporation, has any
indebtedness, liability or obligation to the Corporation, and the Corporation is
not indebted or otherwise obligated to or is party to any Contract with any such
person, except for employment arrangements with Employees, the terms of which
are disclosed in Section 3.26 of the Disclosure Letter.
19
3.12 Absence of Guarantees
Except as described in Section 3.12 of the Disclosure Letter, the Corporation
has not given or agreed to give, or is a party to or bound by, any guarantee,
surety or indemnity in respect of any indebtedness or other obligation of any
Person, or any other commitment by which the Corporation is, or is contingently,
responsible for any such indebtedness or other obligation.
3.13 Operating Businesses
The Business is carried on exclusively by the Corporation. All assets used in or
necessary to carry on the Business are owned by the Corporation, or leased or
licensed by the Corporation from Persons acting at arm's length from the
Corporation.
3.14 Major Suppliers
(a) A comprehensive listing of all suppliers of goods and services
to the Corporation (including suppliers of goods and services
to their respective customers, which are arranged for by the
Corporation), where the value of the goods or services
supplied exceeded $50,000, in each case individually or in the
aggregate, during the 12 month period ending June 30, 2002 is
attached as Section 3.14 of the Disclosure Letter.
(b) True and complete copies of all Contracts with those suppliers
of goods and services for the Business (or for customers of
the Business) referred to in subsection 3.14(a) have been made
available to the Purchaser. The Corporation has not received
any oral and/or written communication that that any of such
Contracts will not be honoured in the ordinary and usual
course of business consistent with the past experience of the
Business.
(c) Except as disclosed in Section 3.14 of the Disclosure Letter,
the Corporation is not subject to any Contract under which it
has made any commitment or is subject to any obligation or
would suffer any penalty (financial or otherwise) as a result
of a failure to acquire, or arrange for the acquisition of, a
specified minimum volume of products or services.
(d) Except as disclosed in Section 3.14 of the Disclosure Letter,
the Corporation is not subject to any Contract involving a
commitment of exclusivity whereby its ability to acquire goods
or services from any Person would be restricted in any manner.
(e) None of the suppliers included in the list referred to in
subsection 3.14(a) delivered written notice of its intention
to change its relationship or the terms upon which it conducts
business with the Corporation, including as a result of the
transactions contemplated by this Agreement.
20
3.15 Condition of Assets
The fixed assets, machinery, equipment, fixtures, furniture, furnishings and
vehicles owned or used or held by the Corporation, including any of the
foregoing which are in storage or in transit, and other tangible property and
facilities used by the Corporation, whether located in or on the premises of the
Corporations or elsewhere, are in good condition, repair and (where applicable)
proper working order, having regard to their use and age and such assets have
been reasonably maintained.
3.16 Accounts Receivable
The accounts receivable reflected on the Closing Balance Sheet (a) represent
bona fide sales actually made or services actually performed in the ordinary
course of business, and (b) are not, to the Corporation's knowledge, subject to
any defence, counterclaim or set off.
3.17 Business in Compliance with Law
In all material respects, the business and operations of the Corporation have
been and are now conducted in compliance with all Laws of each jurisdiction in
which the Corporation carries on or has carried on business, and the Corporation
has not received any notice of any alleged violation of any such Laws.
3.18 Governmental Authorizations
Section 3.18 of the Disclosure Letter sets forth a complete list of the
Governmental Authorizations issued to or required by the Corporation to enable
it to carry on business in compliance, in all material respects, with all Laws.
The Governmental Authorizations listed in Section 3.18 of the Disclosure Letter
are, in all material respects, in full force and effect in accordance with their
terms, and there have been no material violations of them and no proceedings are
pending or, to the knowledge of the Corporation, threatened, which could result
in their revocation or limitation.
3.19 Governmental Assistance
Except as disclosed in Section 3.19 of the Disclosure Letter, the Corporation
has not received any grants or other forms of assistance, including loans with
interest below market rates or guarantees of any loans, from any Governmental
Authority that have not been fully repaid or reimbursed and satisfied, and the
Corporation is not a party to any Contract or understanding with respect to any
such grant or form of assistance.
21
3.20 Restrictive Covenants
Except as disclosed in Section 3.20 of the Disclosure Letter, or as set forth in
license agreements made available to the Purchaser in due diligence, the
Corporation is not party to or bound or affected by any Contract or document
limiting the freedom of the Corporation to compete in any line of business,
acquire goods and services from any supplier, sell goods and services to any
customer, or transfer or move any of its assets or operations.
3.21 Intellectual Property
(a) Section 3.21 of the Disclosure Letter sets forth a complete
list of all Intellectual Property owned by the Corporation
(including Trade-marks) that have been registered or for which
applications for registration have been filed by or on behalf
of the Corporation (collectively, the "Owned Intellectual
Property") and all Intellectual Property licensed to the
Corporation (the "Licensed Intellectual Property") except for
commercially available software licensed by the Corporation,
for which the usage rights are licensed subject to the terms
of the applicable, standard form license agreements.
(b) Except as disclosed in Section 3.21 of the Disclosure Letter,
the Corporation has the exclusive right to use and is the
exclusive owner of all right, title and interest in and to all
Owned Intellectual Property (with no breaks in the chain of
title). The Owned Intellectual Property and the Licensed
Intellectual Property are all Intellectual Property used in or
necessary to carry on the Business as currently conducted. All
Licensed Intellectual Property is being used by the
Corporation solely in accordance with a licence from or the
express consent of the rightful owner of such Intellectual
Property, and all such licences and consents are in full force
and effect.
(c) All rights to Owned or Licensed Intellectual Property are in
full force and effect and have not been used, enforced or
licensed or failed to be used, enforced or licensed by the
Corporation in a manner that would result in the abandonment,
cancellation or unenforceability of or any loss of the
Corporation's rights in any of such Intellectual Property.
(d) Except as disclosed in Section 3.21 of the Disclosure Letter,
the Corporation has no knowledge of any claim of adverse
ownership, invalidity or other opposition to or conflict with
any Owned or Licensed Intellectual Property nor of any pending
or threatened action, litigation, investigation, claim,
opposition, complaint, grievance or proceeding of any nature
or kind against any of them relating to such Intellectual
Property.
(e) Except as disclosed in Section 3.21 of the Disclosure Letter ,
to the knowledge of the Corporation:
(i) the use of any of the Intellectual Property owned or
licensed by the Corporation;
(ii) any activity in which the Corporation is or has been
engaged;
22
(iii) any product or service which the Corporation sells,
provides, produces or uses, or has sold, provided,
produced or used; and
(iv) any process, method, advertising, or material that
the Corporation employ or has employed in the
marketing or sale of any such product or service,
does not breach, violate or infringe with any proprietary,
contractual or other rights of any Person relating to
Intellectual Property.
(f) Except as disclosed in Section 3.21 of the Disclosure Letter,
the Corporation has no knowledge of any breach, violation,
infringement or interference with the Intellectual Property
owned or licensed by the Corporation.
3.22 Equipment Contracts
Section 3.22 of the Disclosure Letter sets forth a complete list of all
Equipment Contracts involving aggregate payments in excess of $10,000 per annum,
together with a description of the assets to which the Equipment Contracts
relate. All of the Equipment Contracts are in full force and effect and no
default exists on the part of the Corporation, or, to the knowledge of the
Corporation, on the part of any of the other parties thereto. The entire
interest of the Corporation under each of the Equipment Contracts is held by
them free and clear of any Encumbrances, other than Permitted Encumbrances.
3.23 Owned Real Property. The Corporation does not have now, and has never
had, any Owned Real Property.
3.24 Leased Real Property
(a) Section 3.24 of the Disclosure Letter sets forth a complete
list of the Leased Real Property (by reference to municipal
address) and Real Property Leases (by reference to all
relevant documents including details of parties to the Real
Property leases and dates of documents as well as details of
annual rent payable, any discounts or associated premiums,
current terms, renewal rights, security deposits or prepaid
rent, and area of premises). True copies of all the Real
Property Leases have been provided or made available to the
Purchaser. The Real Property Leases have not been altered or
amended and are in full force and effect.
(b) There are no agreements or understandings between the landlord
and tenant, or sublandlord and subtenant, in respect of any
Leased Real Property other than as contained in the Real
Property Leases, pertaining to the rights and obligations of
the parties to the Real Property Leases relating to the use
and occupation of the Leased Real Property.
(c) All interests held by the Corporation as lessee or occupant
under the Real Property Leases are free and clear of all
Encumbrances other than Permitted Encumbrances and such
encumbrances, if any, as are not material in character, amount
or extent and which do not materially detract from the value
thereof or materially interfere with the use thereof (as
currently used by the Corporation).
23
(d) All payments required to be made by the Corporation pursuant
to the Real Property Leases have been duly paid and none of
the Corporation is otherwise in default in meeting any of its
material obligations under any of the Real Property Leases.
(e) None of the landlords, sublandlords, tenants or subtenants
under any of the Real Property Leases, is in default in
meeting any of its obligations under Real Property Leases to
which it is a party.
(f) To the knowledge of the Corporation, no event exists which,
but for the passing of time or the giving of notice, or both,
would constitute a default by any party to any of the Real
Property Leases and no party to any Real Property Lease is
claiming any such default or taking any action purportedly
based upon any such default.
3.25 Environmental Matters
To the Corporation's knowledge:
(a) There are no Environmental Approvals.
(b) All operations of the Corporation have been and are now in
material compliance with all Environmental Laws.
(c) Neither the Corporation nor any of its operation has been or
is now the subject of any Remedial Order, nor does the
Corporation have any knowledge of any investigation or
evaluation commenced as to whether any such Remedial Order is
necessary nor, to their knowledge, has any threat of any such
Remedial Order been made nor, to their knowledge, are there
any circumstances which would reasonably be expected to in the
issuance of any such Remedial Order.
(d) The Corporation has never been prosecuted for or convicted of
any offence under Environmental Laws, nor has the Corporation
been found liable in any proceeding to pay any fine, penalty,
damages, amount or judgment to any person as a result of any
Release or threatened Release of any Hazardous Substance into
the Environment or as the result of the breach of any
Environmental Law and to the knowledge of the Corporation,
there is no basis for any such proceeding or action.
(e) The Corporation does not have any knowledge of any Hazardous
Substance in, on or under the Leased Real Property or any
other assets of the Corporation.
24
3.26 Employment Matters
(a) Section 3.26(a) of the Disclosure Letter sets forth a complete
list of all Employees, whose current wages, salaries or hourly
rates of pay, and bonus (whether monetary or otherwise) exceed
$40,000 U.S., together with their titles, service dates and
material terms of employment including current wages, and
salaries or hourly rates of pay, and the date upon which each
such Employee was first hired by the Corporation. Except as
disclosed in Section 3.26 of the Disclosure Letter, no
Employee is on disability leave, pregnancy or parental leave,
extended leave of absence or receiving benefits pursuant to
the Laws.
(b) Except for those written employment contracts with salaried
Employees identified in Section 3.26(b) of the Disclosure
Letter, there are no written contracts of employment entered
into with any Employees or any oral contracts of employment
which are not terminable on the giving of reasonable notice in
accordance with applicable law.
(c) There are no written or oral change of control provisions or
Contracts with any of the Employees which provide for any
rights of Employees contingent upon or affected by a change of
control of the Corporation or the sale of any or all of their
assets.
(d) Except for the Benefit Plans, there are no employment policies
or plans which are binding upon the Corporation.
(e) The Corporation has been and is being operated in compliance
in all material respects with all Laws relating to employees,
including employment standards, occupational health and
safety, human rights, labour relations and pay equity.
(f) There are no Legal Actions (as defined in Section 3.31) or
complaints nor, to the knowledge of the Corporation, are there
any threatened Legal Actions or complaints, against the
Corporation pursuant to any Laws relating to employees,
including employment standards, human rights, labour
relations, occupational health and safety, worker's
compensation or pay equity. To the knowledge of the
Corporation, nothing has occurred which might lead to a Legal
Action or complaint against the Corporation under any such
Laws. There are no outstanding decisions or settlements or
pending settlements which place any obligation upon the
Corporation to do or refrain from doing any act.
(g) All current assessments under workers' compensation
legislation in relation to the Corporation have been paid or
accrued and the Corporation has not been subject to any
special or penalty assessment under such legislation which has
not been paid.
25
3.27 Collective Agreements
(a) The Corporation is not a party, either directly or by
operation of law, to any collective agreement, letters of
understanding, letters of intent or other written
communication with any trade union or association which may
qualify as a trade union, which would cover any of the
Employees of the Corporation.
(b) There are no outstanding or, to the knowledge of the
Corporation, threatened labour tribunal proceedings of any
kind, including any proceedings which could result in
certification of a trade union as bargaining agent for
Employees of the Corporation, and there have not been any such
proceedings within the last two years.
(c) To the knowledge of the Corporation, there are no threatened
or apparent union organizing activities involving any
Employees of the Corporation.
(d) The Corporation has good labour relations.
3.28 Benefit Plans
(a) Section 3.28 of the Disclosure Letter sets forth a complete
list of the Benefit Plans.
(b) Current and complete copies of all written Benefit Plans or,
where oral, written summaries of the material terms of them,
have been provided or made available to the Purchaser together
with current and complete copies of all documents relating to
the Benefit Plans, including: all documents establishing,
creating or amending any of the Benefit Plans; all trust
agreements, funding agreements; insurance contracts, and the
most recent financial statements and accounting statements and
reports; all booklets, summaries, manuals and written
communications of a general nature distributed or made
available to any Employees or former employees concerning any
Benefit Plans.
(c) Each Benefit Plan is, and has been, established, registered
(where required), qualified, administered and invested, in
material compliance with (i) the terms thereof, and (ii) all
Laws; and the Corporation has not received, in the last six
years, any notice from any Person questioning or challenging
such compliance (other than in respect of any claim related
solely to that Person).
(d) All material obligations to or under the Benefit Plans
(whether pursuant to their terms or any Laws) have been
satisfied, and there are no outstanding material defaults or
violations under the Benefits Plans by the Corporation nor
does the Corporation have any actual knowledge, without
further enquiry or investigation, of any default or violation
by any other party to any Benefit Plan.
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(e) There have been no material improvements, increases or changes
to, or promised material improvements, increases or changes
to, the benefits provided under any Benefit Plan. None of the
Benefit Plans provides for benefit increases or the
acceleration of or an increase in funding obligations that are
contingent upon or will be triggered by the entering into of
this Agreement or the completion of the transactions
contemplated by this Agreement.
(f) There is no proceeding, action, investigation, suit or claim
(other than routine claims for payment of benefits) pending
or, to the knowledge of the Corporation, threatened involving
any Benefit Plan or its assets, and no facts exist which could
reasonably be expected to give rise to any such proceeding,
action, suit or Legal Action (other than routine claims for
benefits).
(g) No event has occurred respecting any registered Benefit Plan
which would entitle any person (without the consent of the
Corporation) to wind-up or terminate any Benefit Plan, in
whole or in part, or which could otherwise reasonably be
expected to adversely affect the tax status of any such plan.
(h) The Corporation has not received, or applied for, any payment
of surplus or any payments as a result of the demutualization
of the insurer of any Benefit Plan out of or in respect of any
Benefit Plan.
(i) The Corporation has not taken any contribution or premium
holidays under any Benefit Plan and there have been no
withdrawals or transfers of assets from any Benefit Plan.
(j) All employee data necessary to administer each Benefit Plan is
in the possession of the Corporation and, to the Corporation's
knowledge, is complete, correct and in a form which is
sufficient for the proper administration of the Benefit Plan
in accordance with its terms and all Laws.
(k) None of the Benefit Plans provide benefits beyond retirement
or other termination of service to Employees or former
employees or to the beneficiaries or dependants of such
employees, except as required by applicable Laws, including
but not limited to the Consolidated Omnibus Reconciliation Act
of 1985.
(l) None of the Benefit Plans require or permit a retroactive
increase in premiums or payments, or require additional
payments or premiums on the termination of any Benefit Plan or
insurance contract in respect thereof, and the level of
insurance reserves, if any, under any insured Benefit Plan, to
the best of the Corporation's knowledge, is reasonable and
sufficient to provide for all incurred but unreported claims.
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3.29 Insurance
The Corporation maintains the policies of insurance set forth in Section 3.29 of
the Disclosure Letter, copies of which have been made available to the
Purchaser. All such policies of insurance are in full force and effect and the
Corporation is not in default, under the material terms of any such policy.
3.30 Material Contracts
Section 3.30 of the Disclosure Letter sets forth a complete list of the Material
Contracts. The Material Contracts are all in full force and effect unamended and
no default exists under any material provisions of the Material Contracts on the
part of the Corporation or, to the knowledge of the Corporation, on the part of
any other party to such Contracts. Current and complete copies of the Material
Contracts have been delivered or made available to the Purchaser and there are
no current or pending negotiations with respect to the renewal, repudiation or
amendment of any such Contract.
3.31 Litigation
Except as disclosed in Section 3.31 of the Disclosure Letter, there is no
action, suit, litigation, investigation, claim, complaint, grievance or
proceeding, including appeals and applications for review ("Legal Actions"), in
progress or, to the knowledge of the Corporation, pending or threatened against
or relating to the Corporation before any court, Governmental Authority,
commission, board, bureau, agency or arbitration panel which, if determined
adversely to the Corporation, would,
(a) have a Material Adverse Effect on the Corporation;
(b) enjoin, restrict or prohibit the transfer of all or any part
of the Purchased Shares or any of the other transactions
contemplated by this Agreement; or
(c) prevent the Xylo Preferred Stockholders from fulfilling all of
their obligations set out in or arising from this Agreement,
or the Ancillary Agreements to which it is a party;
and the Corporation has no knowledge of any existing ground on which any such
action, suit, litigation or proceeding might be commenced with any reasonable
likelihood of success. Except as disclosed in such Section 3.31 of the
Disclosure Letter, there is not presently outstanding against the Corporation
any judgment, decree, injunction, rule or order of any court, Governmental
Authority, commission, board, bureau, agency or arbitrator.
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3.32 Tax Matters
Except as disclosed in Section 3.32 of the Disclosure Letter:
(a) The Corporation is not, and has never been, a member of an
affiliated group, within the meaning of Section 1504(a) of the
Code, other than a group the common parent of which was the
Corporation. Neither the Corporation nor any entity whose
liabilities the Corporation has succeeded has ever filed a
consolidated United States federal income tax return with (or
been included in a consolidated return or) an affiliated
group;
(b) The Corporation has filed or caused to be filed all tax
returns and reports required to have been filed by or for them
on or before the Closing Date, and all information set forth
in such returns or reports is accurate and complete in all
material respects;
(c) No tax return or report of the Corporation contains any
position which is, or could be subject to, penalties under the
Code Section 6662 or corresponding provision of state, local
or foreign tax law;
(d) The Corporation has paid all taxes due and payable by it;
(e) The Corporation is in material compliance with, and its
records contain all information and documents (including,
without limitation, propertly completed United States Internal
Revenue Services Forms W-9) necessary to comply with, all
applicable information tax reporting and tax withholding
requirements;
(f) There are no unpaid taxes, additions to tax, penalties, or
interest payable by the Corporation or any other person that
are or could become a lien on any assets, or otherwise
adversely affect the business, properties, or financial
condition of the Corporation;
(g) The Corporation has collected or withheld all amounts required
to be collected or withheld by it for any taxes, and all such
amounts have been paid to the appropriate governmental
agencies or set aside in appropriate accounts for future
payment when due;
(h) The balance sheet of the Corporation fully and properly
reflects, as of the Closing Date, the liabilities of the
Corporation for all accrued taxes for all periods ending on or
before the Closing Date;
(i) The Corporation has not granted (nor is subject to) any waiver
currently in effect of the period of limitations for the
assessment or collection of tax, no unpaid tax deficiency has
been asserted against or with respect to the Corporation by
any taxing authority, and there is no pending examination,
administrative or judicial proceeding, or deficiency or refund
litigation with respect to any taxes or tax returns of the
Corporation;
(j) The Corporation have not made or entered into, nor holds any
assets subject to, a consent filed pursuant to Section 341(f)
of the Code and the regulations there under or a "safe harbour
lease" subject to former Section 168(f)(8) of the Internal
Revenue Code of 1954, as amended before the Tax Reform Act of
1984, and the Treasury Regulations thereunder;
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(k) The Corporation is not required to include in income any
amount from an adjustment pursuant to Section 481 of the Code
or the Treasury Regulations thereunder or any similar
provision of state law;
(l) The Corporation is not a party to, nor obligated under, any
agreement or other arrangement providing for the payment of
any amount that is or would be non-deductible under Section
280G of the Code;
(m) The Corporation has not distributed to their stockholders or
security holders stock or securities of a controlled
corporation in a transaction to which Section 355(a) of the
Code applies;
(n) There are no outstanding rulings or requests for rulings from
any taxing authority that are, or if issued would be, binding
on the Corporation;
(o) The Corporation is not, nor have they been at any time within
the last five years, a "United States real property holding
corporation" for the purposes of Section 897 of the Code;
(p) The Corporation does not have and has not had any permanent
establishment, nor are otherwise subject to taxation, in any
country other than the United States;
(q) Schedule 3.32 of the Disclosure Letter attached hereto
describes all material tax elections, consents, and agreements
made by or affecting the Corporation that would be effective
after the Closing, lists all material types of taxes paid and
tax returns filed by or on behalf of the Corporation,
expressly indicates each tax with respect to which the
Corporation is or has been included in a consolidated,
unitary, or combined return and describes the status of all
examinations, administrative or judicial proceedings, and
litigation with respect to taxes of the Corporation;
(r) Fifty percent or less of each of the total voting power and
the total value of the shares of the Purchaser will be owned,
in the aggregate, immediately after the Merger, by United
States persons that are either officers or directors of the
Corporation or that are five-percent stockholders (as defined
in Treasury Regulation Section 1.368(a)-3(c)(5)(iii)) of the
Corporation. For purposes of this representation, any
Purchaser capital stock owned by United States persons
immediately after the transfer will be taken into account,
whether or not it was received in the Merger for Xylo capital
stock.
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3.33 Corporate Records
(a) The certification of incorporation and by-laws for the
Corporation, including any and all amendments, have been
delivered or made available to the Purchaser and such
certificate of incorporation and by-laws as so amended are in
full force and effect unamended.
(b) The corporate records and minute books for the Corporation
have been delivered or made available to the Purchaser. The
minute books include minutes prepared in customary form and
detail of all meetings of the directors and stockholders for
each of the Corporation held to date and resolutions passed by
the directors or stockholders on consent. The share
certificate books, registers of stockholders, registers of
transfers and registers of directors of each of the
Corporation are complete and accurate.
3.34 Management Recommendation Letters
The Corporation has made available to the Purchase all management recommendation
letters received by the Corporation or their boards of directors from any
auditor of the Corporation during the last three years.
3.35 Trade Allowances
The Material Contracts contain all provisions concerning discounts, allowances,
volume rebates, customer vouchers or coupons, preferential terms, customer
credits or similar reductions in price or other trade terms that are applicable
to the transactions to which the Material Contracts relate.
3.36 Bank Accounts, etc.
Section 3.37 of the Disclosure Letter sets forth a complete list of every
financial institution in which the Corporation maintain any depository account,
trust account or safe deposit box, details of all such accounts and safe deposit
boxes and the names of all persons authorized to draw on or who have access to
such accounts or safe deposit boxes.
3.37 No Broker
Each party to this Agreement has carried on all negotiations relating to this
Agreement and the transactions contemplated by this Agreement directly and
without intervention on his, her or its behalf of any other party in such manner
as to give rise to any valid claim for a brokerage commission, finder's fee or
other like payment against the Purchaser or the Corporation.
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser and Merger Sub hereby represent and warrant to the Corporation the
matters set out below.
4.1 Incorporation
The Purchaser and Merger Sub are corporations duly incorporated and validly
existing under the laws of Canada and of Delaware, respectively, and have all
necessary corporate power to own their property and assets and to carry on their
business as presently conducted.
4.2 Due Authorization
The Purchaser and Merger Sub have all necessary corporate power, authority and
capacity to enter into this Agreement and the Ancillary Agreements to which they
are parties, and to carry out their obligations under this Agreement and the
Ancillary Agreements to which they are parties. The execution and delivery of
this Agreement and the consummation of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of the Purchaser and Merger Sub.
4.3 Enforceability of Obligations
This Agreement and the Ancillary Agreements to which they are parties constitute
valid and binding obligations of the Purchaser and Merger Sub enforceable
against them in accordance with their respective terms.
4.4 SEC Documents; Purchaser Financial Statements
Purchaser has furnished the Corporation with a true and complete copy of each
statement, quarterly and other report pursuant to Section 13 or 15(d) of the
1934 Act filed by Purchaser with the SEC since December 1999 (the "Purchaser SEC
Documents"), which are all the documents (other than preliminary material) that
Purchaser was required to file with the SEC under the 1934 Act since such date.
As of their respective filing dates, the Purchaser SEC Documents complied in all
material respects with the requirements of the 1934 Act and none of the
Purchaser SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Purchaser SEC Document provided to the Corporation prior to the Effective
Time. The financial statements of Purchaser included in the Purchaser SEC
Documents (the "Purchaser Financial Statements") comply as to form in all
material respects with applicable accounting requirements and with the published
rules and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles consistently applied
(except as may be indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q of the SEC) and fairly present the
consolidated financial position of Purchaser and its consolidated subsidiaries
at the dates thereof and the consolidated results of their operations and cash
flows for the periods then ended (subject, in the case of unaudited statements,
to normal, recurring audit adjustments). There has been no change in Purchaser's
accounting policies except as described in the notes to the Purchaser Financial
Statements.
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4.5 Absence of Conflicting Agreements
The Purchaser is not a party to, bound or affected by or subject to any
indenture, mortgage, lease, agreement, obligation, instrument, charter or by-law
provision, Law or Governmental Authorization which would be violated,
contravened, breached by, or under which any default would occur or an
Encumbrance would be created as a result of the execution and delivery by it of
this Agreement or the Ancillary Agreements to which it is a party, or the
performance by it of any of its obligations provided for under this Agreement or
the Ancillary Agreements to which it is a party.
4.6 Approvals; Restrictions
Except for the filings and/or notices required (a) under the HSR Act or the
Securities Laws, (b) under a foreign anti-trust or trade regulation law, (c) to
be made with: (i) the NASD and/or its Nasdaq SmallCap Market, (ii) the Boston
Stock Exchange, and (iii) each state securities or "blue sky" authority which
may have jurisdiction, or (d) to be filed by the Purchaser pursuant to the
Investment Canada Act, no approval, order or consent of or filing with any
Governmental Authority is required on the part of the Purchaser in connection
with the execution, delivery and performance of this Agreement or any other
documents or agreements to be delivered under this Agreement or the performance
of the Purchasers' obligations under this Agreement or any other documents or
agreements to be delivered or entered into under this Agreement. Such filings
shall be accomplished in a timely manner, except where failure to accomplish
such filing would not reasonably be expected to have a material adverse change
in the assets (tangible or otherwise), business, financial condition or
prospects of the Corporation or on Xylo Preferred Stockholders. The Purchaser
Common Stock will be of the same class as is currently registered under the 1934
Act and will be listed for trading on the Nasdaq SmallCap Market. The shares of
Purchaser Common Stock to be issued hereunder will constitute "restricted
securities" within the meaning of the federal securities laws of the United
States and may not be offered, sold, transferred or otherwise disposed of by any
other person except in strict compliance with all applicable provisions of such
laws, the rules and regulations thereunder and all state and Canadian securities
laws, rules and regulations. There are no other restrictions on the securities
being issued except as provided in the Escrow Agreement.
4.7 Litigation
There is no action, suit, litigation, investigation, claim, complaint, grievance
or proceeding, including appeals and applications for review, in progress or, to
the knowledge of the Purchaser pending or threatened against or relating to the
Purchaser before any court, Governmental Authority, commission, board, bureau,
agency or arbitration panel, which, if determined adversely to the Purchaser
would:
(a) prevent the Purchaser from paying to the Xylo Preferred
Stockholders the Purchase Price;
(b) enjoin, restrict or prohibit the transfer of all or any part
of the Purchased Shares contemplated by this Agreement;
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(c) prevent the Purchaser from fulfilling all of its obligations
set out in or arising from this Agreement or the Ancillary
Agreements to which it is a party, or
(d) have a material adverse effect on the condition (financial or
otherwise), properties, assets (including intangible assets),
business, operations or results of operations of the
Purchaser;
and the Purchaser has no knowledge of any existing ground on which any such
action, suit, litigation or proceeding might be commenced with any reasonable
likelihood of success.
4.8 No Broker
The Purchaser has carried on all negotiations relating to this Agreement and the
transactions contemplated by this Agreement directly and without the
intervention on their behalf of any other party in such manner as to give rise
to any valid claim for a brokerage commission, finder's fee or other like
payment against the Purchaser, Merger Sub, the Corporation or any of the
stockholders of Xylo.
4.9 Shares.
All Purchased Shares issued in the transaction shall be fully-paid and
non-assessable shares of Common Stock of the Purchaser.
4.10 Experience.
The Purchaser has carefully reviewed the representations concerning the
Corporation contained in this Agreement and has made detailed inquiry concerning
the Company, its business and its personnel; the officers of the Corporation
have made available to the Purchaser any and all written information which it
has requested and have answered to the Purchaser's satisfaction all inquiries
made by the Purchaser as of the date of this Agreement. The Purchaser has
sufficient knowledge and experience in finance and business that it is capable
of evaluating the risks and merits of this transaction, and the Purchaser is
able financially to bear the risks thereof.
5.11 Merger Sub.
Merger Sub is a wholly-owned subsidiary of Purchaser and Purchaser shall cause
Merger Sub to perform as provided in this Agreement. Merger Sub was formed
solely for the purpose of engaging in the transactions contemplated hereby.
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ARTICLE 5
NON-WAIVER; SURVIVAL
5.1 Non-Waiver
No investigations made by or on behalf of the Purchaser at any time shall have
the effect of waiving, diminishing the scope of or otherwise affecting any
representation or warranty made by the Corporation. No waiver of any condition
or other provision, in whole or in part, shall constitute as a waiver of any
other condition or provision (whether or not similar) nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
5.2 Nature and Survival
(a) All representations, warranties and covenants contained in
this Agreement on the part of each of the Parties shall
survive the Closing, the execution and delivery under this
Agreement of any share or security transfer instruments or
other documents of title to any of the Purchased Shares and
the payment of the consideration for the Purchased Shares.
(b) The representations and warranties of the Corporation
contained in Article 3 shall survive the Closing until one
year from the date of this Agreement, unless a bona fide
notice of a Claim shall have been given in writing before the
expiry of such period, in which case the representation and
warranty to which such notice relates shall survive in respect
of that Claim until final determination or settlement of such
Claim. The covenants of the Corporation contained in this
Agreement will survive according to their respective terms.
(c) The representations and warranties of the Purchaser contained
in Article 4 shall survive the Closing until one year from the
date of this Agreement, unless a bona fide notice of a Claim
shall have been given in writing before the expiry of such
period, in which case the representation and warranty to which
such notice relates shall survive in respect of that Claim
until final determination or settlement of such Claim. The
covenants of the Purchaser contained in this Agreement will
survive according to their respective terms.
ARTICLE 6
PURCHASER'S CONDITIONS PRECEDENT
The obligation of the Purchaser and Merger Sub to complete the purchase of the
Purchased Shares under this Agreement shall be subject to the satisfaction of,
or compliance with, at or before the Closing Time, each of the following
conditions precedent (each of which is acknowledged to be inserted for the
exclusive benefit of the Purchaser and Merger Sub and may be waived by them in
whole or in part).
6.1 Truth and Accuracy of Representations of Corporation at the Closing
Time
All of the representations and warranties of the Corporation made in or pursuant
to this Agreement shall be true and correct in all material respects as at the
Closing Time and with the same effect as if made at and as of the Closing Time
and the Purchaser shall have received a certificate from the COO of the
Corporation, to the best of his or her knowledge, information and belief, the
truth and correctness in all material respects of such representations and
warranties.
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6.2 Performance of Obligations
The Corporation shall have performed or complied with, in all material respects,
all their obligations and covenants under this Agreement.
6.3 Receipt of Closing Documentation
All documentation relating to the due authorization and completion of the sale
and purchase of the Purchased Shares under this Agreement and all actions and
proceedings taken on or prior to the Closing in connection with the performance
by the Corporation shall be satisfactory to the Purchaser, acting reasonably,
and the Purchaser shall have received copies of all such documentation or other
evidence as it may reasonably request in order to establish the consummation of
the transactions contemplated by this Agreement and the taking of all corporate
proceedings in connection with such transactions in compliance with these
conditions, in form (as to certification and otherwise) and substance reasonably
satisfactory to the Purchaser.
6.4 Opinion of Counsel for Corporation
The Purchaser shall have received an opinion dated the Closing Date from
counsel for the Corporation, Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C., in the
form and substance acceptable to the Purchaser and its counsel, acting
reasonably.
6.5 Consents, Authorizations and Registrations
The Required Approvals shall have been obtained at or before the Closing Time on
terms acceptable to the Purchaser, acting reasonably.
6.6 No Proceedings
There shall be no injunction or restraining order issued preventing, and no
claim, action, suit, litigation or proceeding, judicial or administrative, or
investigation against any Party pending by any Person, or pending or threatened
by any Governmental Authority, for the purpose of enjoining or preventing, the
consummation of the transactions contemplated by this Agreement or otherwise
claiming that this Agreement or the consummation of those transactions is
improper or would give rise to proceedings under any Laws.
6.7 Material Damage
No material damage by fire or other hazard to the assets or business of the
Corporation shall have occurred prior to the Closing Time.
6.8 No Laws
No Laws shall have been enacted, introduced or announced which would be
reasonably likely to materially and adversely affect the Corporation or the
Business carried on by it.
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6.9 No Material Change
There shall have been no Material Adverse Effect with respect to the Corporation
since the date of this Agreement.
6.10 Directors and Officers of the Corporations
There shall have been delivered to the Purchaser on or before the Closing Time,
the resignations of all individuals who are currently directors or officers of
the Corporation (except to the extent that the Corporation has been notified to
the contrary by the Purchaser) and duly executed comprehensive releases from
each such individual in favour of the Corporation.
6.11 Satisfactory Completion of Due Diligence
Purchaser and its representatives (including, without limitation, attorneys
agents and accountants) shall have completed their due diligence review of the
business and affairs, assets and liabilities and conditions of the Corporation,
and shall not have discovered any information previously unknown to them that
could reasonably be expected to have a material adverse effect on the
Corporation.
6.12 Letter of Transmittal
Purchaser shall have received Transmittal Letters from the holders of at least
eighty percent (80%) of Xylo's outstanding Series 1 Preferred Stock.
6.13 Xylo Stockholder Approval
The stockholders of Xylo shall have approved this Agreement in accordance with
the Certificate of Incorporation of Xylo and as provided by Delaware Law.
6.14 Broker Fee
Seven Hills Partners LLC shall have agreed with the Corporation that it has
received full and complete payment of outstanding fees (excluding reimbursable
expenses, if any) payable to it in connection with the Merger.
6.15 Disclosure Letters
Xylo shall have delivered to the Purchaser the Disclosure Letter that qualifies
and sets forth matters required by the representations and warranties contained
in Article 3 of this Agreement.
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ARTICLE 7
CORPORATION'S CONDITIONS PRECEDENT
The obligations of the Corporation to complete the sale of the Purchased Shares
under this Agreement shall be subject to the satisfaction of or compliance with,
at or before the Closing Time, each of the following conditions precedent (each
of which is acknowledged to be inserted for the exclusive benefit of the
Corporation and may be waived by the Corporation, in whole or in part).
7.1 Truth and Accuracy of Representations of the Purchaser at the Closing
Time
All of the representations and warranties of the Purchaser made in or pursuant
to this Agreement shall be true and correct in all material respects as at the
Closing Time and with the same effect as if made at and as of the Closing Time
and the Corporation shall have received a certificate from an officer of the
Purchaser confirming to the best of his or her knowledge, information and
belief, the truth and correctness in all material respects of such
representations and warranties.
7.2 Performance of Obligations
The Purchaser shall have performed or complied with, in all respects, all its
obligations and covenants under this Agreement.
7.3 Receipt of Closing Documentation
All documentation relating to the due authorization and completion of the sale
and purchase of the Purchased Shares under this Agreement and all actions and
proceedings taken on or prior to the Closing in connection with the performance
by the Purchaser of its obligations under this Agreement, shall be satisfactory
to the Corporation, acting reasonably, and the Corporation shall have received
copies of all extra documentation or other evidence as they may reasonably
request in order to establish the consummation of the transactions contemplated
by this Agreement and the taking of all corporate proceedings in connection with
such transactions in compliance with these conditions in form (as to
certification and otherwise) and substance satisfactory to the Corporation.
7.4 Consents, Authorizations and Registrations
The Required Approvals shall have been obtained at or before the Closing Time on
terms acceptable to the Corporation, acting reasonably.
7.5 No Proceedings
There shall be no injunction or restraining order issued preventing, and no
pending or threatened claim, action, suit, litigation or proceeding, judicial or
administrative, or investigation against any Party by any Person, for the
purpose of enjoining or preventing, the consummation of the transactions
contemplated by this Agreement or otherwise claiming that this Agreement or the
consummation of those transactions is improper or would give rise to proceedings
under any Laws.
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7.6 Opinion of Counsel for Purchaser
The Corporation shall have received an opinion dated as of the Closing Date
from counsel to the Purchaser, Xxxxxx-Xxxxxxxxx, Hill & XxXxxxxxx LLP, in form
and substance acceptable to the Corporation and its counsel, acting
reasonably.
7.7 Securities Laws
Corporation shall have reasonably satisfied itself that all applicable
requirements of any and all applicable Securities Laws relating to the
transaction have been met, including the form and substance of any information
statement or other disclosure document provided to the stockholders and/or
optionholders of Xylo in connection with the transactions contemplated by this
Agreement.
7.8 Xylo Stockholder Approval
The stockholders of Xylo shall have approved this Agreement in accordance with
the Certificate of Incorporation of Xylo and as provided by Delaware Law.
7.9 Broker Fee
Seven Hills Partners LLC shall have agreed with the Corporation that it has
received full and complete payment of outstanding fees (excluding reimbursable
expenses, if any) payable to it in connection with the Merger.
7.10 [Intentionally Omitted]
7.11 Distribution.
The Board of Directors of the Corporation shall have approved, and the
Corporation shall have effected, a distribution of cash to the Xylo Preferred
Stockholders in an amount equal to (i) the sum of all of the cash then held by
the Corporation plus the aggregate expenses paid by the Corporation on or after
September 1, 2002 (other than bonuses paid pursuant to the Corporation's
Acquisition Bonus Plan and fees paid to Seven Hills Partners LLC in connection
with the Merger), less (ii) the sum of $262,500 and the aggregate cash received
by the Corporation on or after September 1, 2002 (the "Distribution Amount").
39
ARTICLE 8
OTHER COVENANTS OF THE PARTIES
8.1 Conduct of Business Prior to Closing
During the period from the date of this Agreement to the Closing Time, the
Corporation will do the following:
(a) Conduct Business in the Ordinary Course - Except as otherwise
expressly contemplated under this Agreement, conduct its
business in the ordinary and usual course, consistent with
past practice and regular customer service and business
policies and not, without the prior written consent of the
Purchaser, enter into any transaction or Contract which, if
effected before the date of this Agreement, would constitute a
breach of the representations, warranties or covenants of the
Corporation contained in this Agreement.
(b) Maintain Good Relations - Use all reasonable efforts to
maintain good relations with the Employees, its customers and
suppliers.
(c) Continue Insurance - Continue in force all policies of
insurance maintained by or for the benefit of the Corporation
and give all notices and present claims under all insurance
policies in a timely fashion.
(d) Perform Obligations - Comply in all material respects with all
Laws affecting the operation of the Corporation.
(e) Prevent Certain Changes - Not, without the prior written
consent of the Purchaser, take any of the actions, do any of
the things or perform any of the acts described in Section
3.10(iii)-(ix) or 3.10(xi) (other than the payment of employee
bonuses pursuant to the Corporation's Acquisition Bonus Plan).
(f) Approvals - Co-operate with the Purchaser and use all
reasonable efforts and diligently pursue obtaining the
Required Approvals.
(g) Distribution - The Corporation shall effect a distribution of
cash to the Xylo Preferred Stockholders in an amount equal to
the Distribution Amount.
8.2 Access for Investigation
(a) The Corporation shall permit the Purchaser and its
representatives, on reasonable notice to the Corporation,
between the date of this Agreement and the Closing Time,
without interference to the ordinary conduct of the Business,
to have reasonable access during normal business hours to (i)
the Real Property; (ii) all other locations where Books and
Records or other material relevant to the Business are stored;
(iii) all the Books and Records; and (iv) the properties and
assets used in the Business. The Corporation shall furnish to
the Purchaser copies of Books and Records (subject to any
confidentiality agreements or covenants relating to any Books
and Records) as the Purchaser shall from time to time
reasonably request to enable confirmation of the matters
warranted in Article 3. Without limiting the generality of the
foregoing, it is agreed that the accounting representatives of
the Purchaser shall be afforded reasonable opportunity to make
a full investigation of all aspects of the financial affairs
of the Corporation.
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(b) Notwithstanding subsection (a), the Corporation shall not be
required to disclose any information, records, files or other
data to the Purchaser where prohibited by Laws or
confidentiality obligations, or where the information,
records, files or other data would be subject to
attorney-client privilege.
8.3 Confidentiality
(a) Prior to the Closing, the Purchaser shall keep confidential
all information disclosed to it by the Corporation or their
agents relating to the Corporation, except information which:
(i) is or becomes generally available to the public;
(ii) the Purchaser received from an independent third
Person, who had obtained the information lawfully and
was under no obligation of secrecy, or
(iii) the Purchaser can show was in its possession before
receipt of such information from the Corporation or
their agents.
If this Agreement is terminated without completion of the
transactions contemplated by this Agreement, the Purchaser
shall (A) promptly return all documents, work papers and other
written material (including all copies) obtained from the
Corporation or their agents in connection with this Agreement
and not previously made public, and shall continue to maintain
the confidence of all such information, and (B) not solicit,
offer or otherwise attempt to entice the Employees to leave
the employ of Xylo to work for the Purchaser for a period of
one (1) year from the date of termination of this Agreement.
8.4 Actions to Satisfy Closing Conditions
Each of the Parties shall take all such reasonable actions as are within its
power to control, and shall use its reasonable efforts to cause other actions to
be taken which are not within its power to control, so as to ensure compliance
with each of the conditions and covenants set forth in Articles 6, 7 and 8 which
are for the benefit of any other Party.
8.5 Investment Canada Notification; U.S. Securities Filings
The Purchaser shall file the notification required to be filed by the Purchaser
under the Investment Canada Act in respect of the transactions contemplated
under this Agreement within 10 days following the Closing, and shall timely
complete all filings required under U.S. federal securities laws or the
securities laws of any state thereof.
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8.6 Stub Period Returns
The Purchaser shall cause to be prepared and filed on a timely basis all Tax
Returns for the Corporation for any period which ends on or before the Closing
Date and for which Tax Returns have not been filed as of such date. The
Purchaser shall also cause to be prepared and filed on a timely basis all Tax
Returns of the Corporation for periods beginning before and ending after the
Closing Date. The Purchaser shall prepare such Tax Returns in a manner
consistent with past practices employed by the Corporation.
8.7 Post Effective Time Operation.
The Purchaser shall solely be responsible for all acts and omissions of the
Surviving Corporation after the Effective Time.
8.8 [Intentionally Omitted]
8.9 Tax Matters
(a) The Purchaser recognizes that in order for the Xylo Preferred
Stockholders to receive tax-free treatment in the Merger, the
Purchaser must satisfy the active business requirements set
forth in Treasury Regulations Section 1.367(a)-3(c)(3), along
with other requirements set forth in Treasury Regulations
Section 1.367(a), and in connection therewith covenants and
agrees as follows:
(i) the Purchaser shall cooperate with the Corporation to
satisfy the reporting requirements set forth in
Treasury Regulations Section 1.367(a)-3(c)(6),
including reporting of information required thereby;
(ii) the Purchaser shall cooperate with the obligations of
the Corporation's stockholders that hold five percent
(5%) or more of either the total outstanding voting
power or the total value of the capital stock of the
Purchaser (the "Five Percent Stockholders") to enter
into gain recognition agreements with the Internal
Revenue Service pursuant to Treasury Regulations
Sections 1.367(a)-3(c)(1)(iii)(B) and 1.367(a)-8 and
satisfy their continuing obligations pursuant to such
gain recognition agreements, including the provision
of information to the Five Percent Stockholders if
the Purchaser makes a disposition that causes the
Five Percent Stockholders to recognize gain pursuant
to such gain recognition agreements;
(iii) the Purchaser shall not dispose of the Corporation's
assets, either through an asset or stock sale, in a
transaction that causes the Five Percent Stockholders
to recognize gain pursuant to Treasury Regulations
Sections 1.367(a)-3(c)(iii)(B) and 1.367(a)-8 until
such time as all shares of Purchaser Common Stock
received by the Xylo Preferred Stockholders in
connection with the Merger have been registered with
the SEC or are otherwise freely transferable on the
open market;
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(iv) The Purchaser will have been engaged in an active
trade or business outside of the United States,
within the meaning of the Treasury Regulation Section
1.367(a)-2T(b)(2) and (3), for the entire 36-month
period immediately before the Effective Time, and
satisfies the substantiality test contained in
Treasury Section 1.367(a)-3(c)(3); and
(v) The Purchaser Common Stock issued pursuant to the
Merger will represent less than fifty percent (50%)
of both the total voting power and the total value of
stock of the Purchaser immediately after the Merger.
(b) The Corporation and Purchaser agree not to take any action
prior to, on or after the Effective Time that would reasonably
be expected to cause the Merger to fail to qualify as a
reorganization within the meaning of Section 368(a) of the
Code.
8.10 Indemnification
From and after the Effective Time, the Purchaser and/or the Surviving
Corporation shall fulfill the obligations of the Corporation to indemnify each
person who is or was a director or officer of the Corporation against losses
such person may incur based upon matters existing or occurring prior to the
Effective Time pursuant to (and subject to the terms and conditions hereof) any
applicable indemnification agreements and any indemnification provision of the
certificate of incorporation or bylaws of Company as each is in effect on the
date hereof. The Purchaser will cause the Surviving Corporation to maintain in
effect (for the current duration of such policy and with such other terms as are
currently effective) the Corporation's directors' and officers' liability
insurance policy covering those persons who are currently covered by such
policy.
ARTICLE 9
INDEMNIFICATION
9.1 Mutual Indemnification for Breaches of Covenants and Warranty, etc.
The Corporation and the Purchaser agree (the Party or Parties so covenanting and
agreeing to indemnify another Party being referred to as the "Indemnifying
Party" and the Party so to be indemnified being referred to as the "Indemnified
Party") to indemnify and save harmless, on an after-tax basis, the Indemnified
Party effective as and from the Closing Time, from and against all Claims that
may be made or brought against the Indemnified Party, or that it may suffer or
incur, directly or indirectly as a result of or in connection with (i) any
non-fulfilment of any covenant or agreement on the part of the Indemnifying
Party under this Agreement or any incorrectness in or breach of any
representation or warranty of the Indemnifying Party contained in this Agreement
or in any certificate or other document furnished by the Indemnifying Party
pursuant to this Agreement, (ii) any payments made with respect to Dissenting
Shares pursuant to Section 2.14 to the extent that such payments, in the
aggregate, exceed the value of the shares of Purchaser Common Stock (valued at
the Merger Price Per Share) otherwise issuable pursuant to Section 2.8 upon
conversion of such Dissenting Shares, or (iii) the Corporation's breach, prior
to the Effective Time, of its obligations under the Corporation's 1999 Stock
Plan or under any warrant agreements that are outstanding as of the Effective
Time. The foregoing obligations of indemnification shall be subject to the
procedures and limitations set out in the Escrow Agreement, and shall be the
sole and exclusive remedy of the Indemnified Parties with respect to any and all
claims in connection with this Agreement or the transactions contemplated
herein.
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ARTICLE 10 TERMINATION
10.1 Termination (a) Certain of the Parties may terminate
this Agreement as provided below:
(i) The Parties may terminate this Agreement by their mutual
written consent at any time prior to the Closing;
(ii) Purchaser may terminate this Agreement by giving written
notice to the Corporation at any time prior to the Closing (A) in the event the
Purchaser is not in breach of any representation, warranty or covenant continued
in the Agreement in any material respect and the Corporation has breached any
material representation, warranty, or covenant contained in this Agreement in
any material respect, Purchaser has notified the Corporation of the breach, and
the breach has continued without cure for a period of 10 days after the notice
of breach, or (B) if the Closing shall not have occurred on or before September
15, 2002 (unless the Purchaser's breach of covenant or obligation under this
Agreement resulted in the failure of the Merger to occur on or before such
date); and
(iii) Corporation may terminate this Agreement by giving
written notice to Purchaser at any time prior to the Closing (A) in the event
Purchaser has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, the Corporation has
notified Purchaser of the breach, and the breach has continued without cure for
a period of 10 days after the notice of breach or (B) if the Closing shall not
have occurred on or before September 15, 2002 (unless the Corporation's breach
of a covenant or obligation under this Agreement has resulted in the failure of
the Merger to occur on or before such date), or (C) Corporation has failed to
obtain Required Approvals.
(b) Effect of Termination. If any Party properly terminates this
Agreement pursuant to Section 11.1(a) hereof, all rights and obligations of the
Parties hereunder shall terminate without any liability of any Party to any
other Party (except for any liability of any Party then in breach); provided,
however, that the provisions of this Section 10(b), Section 8.3, and Article 11
will survive termination.
ARTICLE 11
GENERAL
11.1 Public Notices
All public notices to third Persons and all other publicity concerning the
transactions contemplated by this Agreement shall be jointly planned and
co-ordinated by the Corporation, on the one hand, and the Purchaser, on the
other hand, and no Party shall act unilaterally in this regard without the prior
approval of the other Parties, such approval not to be unreasonably withheld,
except where required to do so by law or by the applicable regulations or
policies of any Governmental Authority or any stock exchange in circumstances
where prior consultation with the other Parties is not practicable.
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11.2 Expenses
Each Party shall be responsible for and pay their own respective legal,
accounting, and other professional advisory fees, costs and expenses incurred in
connection with the purchase and sale of the Purchased Shares and the
preparation, execution and delivery of this Agreement and all documents and
instruments executed pursuant to this Agreement and any other costs and expenses
incurred.
11.3 Notices
Any notice or other writing required or permitted to be given under this
Agreement or for the purposes of this Agreement (a "Notice") shall be in writing
and shall be sufficiently given if delivered, or if sent by prepaid registered
mail or if transmitted by facsimile or other form of recorded communication
tested prior to transmission to such Party:
(a) in the case of a Notice to the Corporation:
Stockholder Representative:
Xxxxxxx Xxxxxx
c/o Benchmark Capital
0000 Xxxx Xxxx Xxxx, Xxx. 000
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
with copies to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
0000 Xxxxxxxx Xxxxx
Xxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxxxxx
Facsimile: (000) 000-0000
(b) in the case of a Notice to the Purchaser or Merger Sub:
Workstream Inc.
000 Xxxxx Xxxx, Xxxxx 000
Xxxxxx, XX X0X 0X0
Attention: Xxxxxxx Xxxxxxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxxxx-Xxxxxxxxx, Hill & XxXxxxxxx LLP
00 Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxx, XX X0X 0X0
Attention: Xxxxxxx X. Xxxxxxx
Facsimile: (000) 000 0000
45
or at such other address as the Party to whom such Notice is to be given shall
have last notified the Party giving the Notice in the manner provided in this
Section. Any Notice delivered to the Party to whom it is addressed as provided
above shall be deemed to have been given and received on the day it is so
delivered at such address, provided that if such day is not a Business Day then
the Notice shall be deemed to have been given and received on the next Business
Day. Any Notice sent by prepaid registered mail shall be deemed to have been
given and received on the fifth Business Day following the date of its mailing.
Any Notice transmitted by facsimile or other form of recorded communication
shall be deemed to have been given and received on the first Business Day after
its transmission.
11.4 Assignment
Neither party may assign this Agreement without the written consent of the other
party.
11.5 Further Assurances
The Parties shall, with reasonable diligence, do all such things and provide all
such reasonable assurances as may be required to consummate the transactions
contemplated by this Agreement, and each Party shall provide such further
documents or instruments required by any other Party as may be reasonably
necessary or desirable to effect the purpose of this Agreement and carry out its
provisions, whether before or after the Closing.
11.6 Counterparts
This Agreement may be executed by the Parties in separate counterparts each of
which when so executed and delivered shall be an original, but all such
counterparts shall together constitute one and the same instrument.
11.7 Enurement
This Agreement shall enure to the benefit of and be binding upon the Parties
hereto and their respective successors and permitted assigns.
[Signature Page Follows]
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IN WITNESS OF WHICH the Parties have duly executed this Agreement as of the date
first set forth above.
SIGNED, SEALED & DELIVERED
XYLO, INC.
Per: /s/ Xxxxx Xxxxx
------------------------
Name: Xxxxx Xxxxx
Title: COO
WORKSTREAM INC.
Per: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: CEO
WORKSTREAM ACQUISITION II, INC.
Per: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Director
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