AGREEMENT AND PLAN OF MERGER
BY AND AMONG
CHISTE CORPORATION,
ICON ACQUISITION, INC.,
ICON TEXTILE LASER SYSTEMS, INC.,
CERTAIN STOCKHOLDERS OF
ICON TEXTILE LASER SYSTEMS, INC.
AND
XXXXXXX REVERSE MERGER FUND, LLC
DATED AS OF SEPTEMBER 21, 2004
TABLE OF CONTENTS
Page
ARTICLE I THE MERGER..............................................................................................2
1.1 The Merger...............................................................................................2
1.2 Effective Time; Closing..................................................................................2
1.3 Effect of the Merger.....................................................................................2
1.4 Certificate of Incorporation; Bylaws.....................................................................2
1.5 Directors and Officers...................................................................................2
1.6 Effect on Capital Stock..................................................................................3
1.7 Surrender of Certificates................................................................................4
1.8 No Further Ownership Rights in Company Common Stock......................................................5
1.9 Lost, Stolen or Destroyed Certificates...................................................................6
1.10 Tax Consequences.........................................................................................6
1.11 Taking of Necessary Action; Further Action...............................................................6
1.12 Investment Representation................................................................................6
ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMPANY..............................................................8
2.1 Organization and Qualification...........................................................................8
2.2 Subsidiaries. The Company has no subsidiaries...........................................................8
2.3 Capitalization...........................................................................................9
2.4 Authority Relative to this Agreement....................................................................10
2.5 No Conflict; Required Filings and Consents..............................................................10
2.6 Compliance..............................................................................................11
2.7 Financial Statements....................................................................................11
2.8 No Undisclosed Liabilities..............................................................................11
2.9 Absence of Certain Changes or Events....................................................................12
2.10 Litigation..............................................................................................12
2.11 Employee Benefit Plans..................................................................................12
2.12 Labor Matters...........................................................................................13
2.13 Restrictions on Business Activities.....................................................................13
2.14 Title to Property.......................................................................................13
2.15 Taxes...................................................................................................14
2.16 Environmental Matters...................................................................................15
2.17 Brokers; Third Party Expenses...........................................................................16
2.18 Intellectual Property...................................................................................16
2.19 Agreements, Contracts and Commitments...................................................................17
2.20 Insurance...............................................................................................19
2.21 Governmental Actions/Filings............................................................................19
2.22 Interested Party Transactions...........................................................................19
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT.............................................................20
3.1 Organization and Qualification..........................................................................20
3.2 Subsidiaries............................................................................................20
3.3 Capitalization..........................................................................................21
3.4 Authority Relative to this Agreement....................................................................22
3.5 No Conflict; Required Filings and Consents..............................................................22
3.6 Compliance..............................................................................................22
3.7 SEC Filings; Financial Statements.......................................................................23
3.8 No Undisclosed Liabilities..............................................................................23
3.9 Absence of Certain Changes or Events....................................................................24
3.10 Litigation..............................................................................................24
3.11 Employee Benefit Plans..................................................................................24
3.12 Labor Matters...........................................................................................25
3.13 Restrictions on Business Activities.....................................................................25
3.14 Title to Property.......................................................................................25
3.15 Taxes...................................................................................................25
3.16 Environmental Matters...................................................................................26
3.17 Brokers. ..............................................................................................26
3.18 Intellectual Property...................................................................................26
3.19 Agreements, Contracts and Commitments...................................................................26
3.20 Insurance...............................................................................................27
3.21 Governmental Actions/Filings............................................................................27
3.22 Interested Party Transactions...........................................................................27
3.23 Indebtedness; Parent Assets.............................................................................28
3.24 Over-the-Counter Bulletin Board Quotation...............................................................28
3.25 Board Approval..........................................................................................28
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME...................................................................28
4.1 Conduct of Business by Company and Parent...............................................................28
ARTICLE V ADDITIONAL AGREEMENTS..................................................................................31
5.1 Company U.S. GAAP Financial Statements..................................................................31
5.2 Company Proforma Financial Statements...................................................................32
5.3 Board of Directors of Parent............................................................................32
5.4 Undertaking by Company Accountant.......................................................................33
5.5 Consent by Former Accountants; Change of Accountants....................................................33
5.6 Other Actions...........................................................................................33
5.7 Required Information....................................................................................34
5.8 Confidentiality; Access to Information..................................................................34
5.9 No Solicitation.........................................................................................35
5.10 Public Disclosure.......................................................................................36
5.11 Reasonable Efforts; Notification........................................................................37
5.12 Treatment as a Reorganization...........................................................................38
5.13 Absence of Material Liabilities.........................................................................38
5.14 Cash Payments at Closing................................................................................38
5.15 Business Records........................................................................................38
5.16 Registration Statements.................................................................................38
5.17 Stockholder Voting on Merger Agreement. ..............................................................39
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ARTICLE VI CONDITIONS TO THE TRANSACTION.........................................................................39
6.1 Conditions to Obligations of Each Party to Effect the Transaction.......................................39
6.2 Additional Conditions to Obligations of Company.........................................................40
6.3 Additional Conditions to the Obligations of Parent......................................................42
ARTICLE VII SURVIVAL; INDEMNIFICATION............................................................................43
7.1 Survival................................................................................................43
7.2 Stockholder Indemnification Obligation..................................................................43
7.3 KRM Fund Indemnification Obligation.....................................................................44
7.4 Procedure for Indemnification Claims....................................................................45
7.5 Recovery of Damages.....................................................................................46
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER...................................................................46
8.1 Termination.............................................................................................46
8.2 Notice of Termination; Effect of Termination............................................................47
8.3 Fees and Expenses.......................................................................................47
8.4 Amendment...............................................................................................48
8.5 Extension; Waiver.......................................................................................48
ARTICLE IX POST-CLOSING COVENANTS................................................................................48
9.1 Post-Closing Covenants..................................................................................48
9.2 Other Provisions........................................................................................49
ARTICLE X GENERAL PROVISIONS.....................................................................................49
10.1 Notices.................................................................................................49
10.2 Interpretation..........................................................................................50
10.3 Counterparts............................................................................................51
10.4 Entire Agreement; Third Party Beneficiaries.............................................................52
10.5 Severability............................................................................................52
10.6 Other Remedies; Specific Performance....................................................................52
10.7 Governing Law...........................................................................................52
10.8 Rules of Construction...................................................................................52
10.9 Assignment..............................................................................................52
10.10 Arbitration. 53
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of
September 21, 2004, by and among Chiste Corporation, a Nevada corporation
("Parent"), ICON Acquisition, Inc., a Delaware corporation and a wholly-owned
subsidiary of Parent ("Merger Sub"), ICON Textile Laser Systems, Inc., a
Delaware corporation ("Company"), and each of the persons listed under the
caption "Stockholders" on the signature page hereof, such persons being
stockholders of Company, and Xxxxxxx Reverse Merger Fund LLC, a Delaware limited
liability company ("KRM Fund"). The Stockholders shall be referred to herein
collectively as the "Stockholders" and individually as the "Stockholder".
RECITALS
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2) and in accordance with the General Corporation Law of
the State of Delaware (the "DGCL"), Parent and Company intend to enter into a
business combination transaction by means of a merger between Merger Sub and the
Company in which the Company will merge with Merger Sub and be the surviving
entity, through an exchange of all the issued and outstanding shares of capital
stock of the Company for shares of common stock of the Parent.
B. The Board of Directors of Company, Parent and Merger Sub have
determined that the Merger (as defined in Section 1.1) is fair to, and in the
best interests of, their respective companies and their respective stockholders.
C. Concurrently with the execution of this Agreement, and as a
condition to and an inducement to Parent's willingness to enter into this
Agreement, certain directors and officers of Company are entering into Voting
Agreements in substantially the form attached hereto as Exhibit A (the "Voting
Agreements").
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
E. KRM Fund owns the majority of the outstanding shares of common stock
of Parent.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the DGCL, Merger Sub shall be merged with and into
Company (the "Merger"), the separate corporate existence of Merger Sub shall
cease and Company shall continue as the surviving corporation. Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation." The Merger is hereinafter sometimes referred to as
the "Transaction."
1.2 Effective Time; Closing. Subject to the conditions of this Agreement,
the parties hereto shall cause the Merger to be consummated by filing with the
Secretary of State of the State of Delaware in accordance with the relevant
provisions of the DGCL a Certificate of Merger (the "Certificate of Merger")
(the time of such filing with the Secretary of State of the State of Delaware,
or such later time as may be agreed in writing by Company and Parent and
specified in the Certificate of Merger, being the "Effective Time") as soon as
practicable on or after the Closing Date (as herein defined). The term
"Agreement" as used herein refers to this Agreement and Plan of Merger, as the
same may be amended from time to time, and all schedules hereto (including
Company Schedule and Parent Schedule). Unless this Agreement shall have been
terminated pursuant to Section 8.1, the closing of the Merger (the "Closing")
shall take place at the offices of Xxxxxxxx Xxxxxx, 000 Xxxxx Xxxxxx, Xxx Xxxx,
Xxx Xxxx 00000 at a time and date to be specified by the parties, which shall be
no later than the second business day after the satisfaction or waiver of the
conditions set forth in Article VI, or at such other time, date and location as
the parties hereto agree in writing (the "Closing Date").
1.3 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 the
DGCL. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time all the property, rights, privileges, powers and franchises
of Company and Merger Sub shall vest in the Surviving Corporation, and all
debts, liabilities and duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of Incorporation of
Company 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.
(b) The Bylaws of the Company shall be the Bylaws of the Surviving
Corporation.
1.5 Directors and Officers. The initial directors of the Surviving
Corporation shall be the directors of Company immediately prior to the Effective
Time, until their respective successors are duly elected or appointed and
qualified. The initial officers of the Surviving Corporation shall be the
officers of Company immediately prior to the Effective Time.
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1.6 Effect on Capital Stock. Subject to the terms and conditions of this
Agreement, at the Effective Time, by virtue of the Merger and this Agreement and
without any action on the part of Merger Sub, Company or the holders of any of
the following securities, the following shall occur:
(a) Conversion of Company Common Stock. Each share of Common Stock,
par value $0.001 per share, of Company (the "Company Common Stock") issued and
outstanding immediately prior to the Effective Time, other than any shares of
Company Common Stock to be canceled pursuant to Section 1.6(b), will be
automatically converted (subject to Sections 1.6(e) and (f)) into the right to
receive on the Closing Date one (1) share of Common Stock, par value $0.001 per
share, of Parent (the "Parent Common Stock") (the "Exchange Ratio") upon
surrender of the certificate representing such share of Company Common Stock in
the manner provided in Section 1.7 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.9). If any shares of Company Common Stock
outstanding immediately prior to the Effective Time are unvested or are subject
to a repurchase option, risk of forfeiture or other condition under any
applicable restricted stock purchase agreement or other agreement with Company,
then the shares of Parent Common Stock issued in exchange for such shares of
Company Common Stock will also be unvested or subject to the same repurchase
option, risk of forfeiture or other condition, and the certificates representing
such shares of Parent Common Stock may accordingly be marked with appropriate
legends. The Company shall take all action that may be necessary to ensure that,
from and after the Effective Time, Parent is entitled to exercise any such
repurchase option or other right set forth in any such restricted stock purchase
agreement or other agreement.
(b) Cancellation of Parent-Owned Stock. Each share of Company Common
Stock held by Company or owned by Merger Sub, Parent or any direct or indirect
wholly-owned subsidiary of Company or of Parent immediately prior to the
Effective Time shall be canceled and extinguished without any conversion or
payment in respect thereof.
(c) Capital Stock of Merger Sub. Each share of Common Stock, par
value $0.001 per share, of Merger Sub (the "Merger Sub Common Stock") issued and
outstanding immediately prior to the Effective Time shall be converted into one
validly issued, fully paid and nonassessable share of Common Stock, par value
$0.001 per share, of the Surviving Corporation. Each certificate evidencing
ownership of shares of Merger Sub Common Stock shall evidence ownership of such
shares of capital stock of the Surviving Corporation.
(d) Adjustments to Exchange Ratio. The Exchange Ratio shall be
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into Parent Common Stock or Company Common Stock), extraordinary
cash dividends, reorganization, recapitalization, reclassification, combination,
exchange of shares or other like change with respect to Parent Common Stock or
Company Common Stock occurring on or after the date hereof and prior to the
Effective Time; provided, however, that the Exchange Ratio shall not be adjusted
for the Reverse Split (as defined in Section 5.17) involving the Parent Common
Stock which shall be effected prior to the Effective Time.
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(e) Fractional Shares. No fraction of a share of Parent Common Stock
will be issued by virtue of the Merger, and each holder of shares of Company
Common Stock who would otherwise be entitled to a fraction of a share of Parent
Common Stock (after aggregating all fractional shares of Parent Common Stock
that otherwise would be received by such holder) shall, upon surrender of such
holder's Certificates(s) (as defined in Section 1.7(c)) receive from Parent one
(1) share of Parent Common Stock.
1.7 Surrender of Certificates.
(a) Exchange Agent. Computershare Trust Company shall be designated
by the parties hereto to act as the exchange agent (the "Exchange Agent") in the
Merger.
(b) Parent to Provide Common Stock. Promptly after the Effective
Time, and in no event more than three (3) business days thereafter, Parent shall
make available to the Exchange Agent, for exchange in accordance with this
Article I, the shares of Parent Common Stock issuable pursuant to Section 1.6 in
exchange for outstanding shares of Company Common Stock and any dividends or
distributions to which holders of shares of Company Common Stock may be entitled
pursuant to Section 1.7(d).
(c) Exchange Procedures. Promptly after the Effective Time, and in
no event more than three (3) business days thereafter, Parent shall cause the
Exchange Agent to mail to each holder of record (as of the Effective Time) of a
certificate or certificates (the "Certificates"), which immediately prior to the
Effective Time represented outstanding shares of Company Common Stock whose
shares were converted into the right to receive shares of Parent Common Stock
pursuant to Section 1.6: (i) a letter of transmittal in customary form (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall contain such other customary provisions as Parent may reasonably
specify), (ii) instructions for use in effecting the surrender of the
Certificates in exchange for certificates representing shares of Parent Common
Stock and any dividends or other distributions pursuant to Section 1.7(d), and
(iii) an investment representation letter containing such warranties,
representations and agreements by holder as set forth in Section 1.12. Upon
surrender of Certificates for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal and investment representation letter, duly completed and validly
executed in accordance with the instructions thereto, the holders of such
Certificates shall be entitled to receive in exchange therefor certificates
representing the number of shares of Parent Common Stock into which their shares
of Company Common Stock were converted into the right to receive at the
Effective Time and any dividends or distributions payable pursuant to Section
1.7(d), and the Certificates so surrendered shall forthwith be canceled. Until
so surrendered, outstanding Certificates will be deemed from and after the
Effective Time, to evidence only the right to receive the applicable number of
shares of Parent Common Stock issuable pursuant to Section 1.6(a).
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(d) Distributions With Respect to Unexchanged Shares. No dividends
or other distributions declared or made after the date of this Agreement with
respect to Parent Common Stock with a record date after the Effective Time will
be paid to the holders of any unsurrendered Certificates with respect to the
shares of Parent Common Stock to be issued upon surrender thereof until the
holders of record of such Certificates shall surrender such Certificates.
Subject to applicable law, following surrender of any such Certificates with a
properly completed letter of transmittal and investment representation letter,
the Exchange Agent shall promptly deliver to the record holders thereof, without
interest, certificates representing shares of Parent Common Stock issued in
exchange therefor and the amount of any such dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such shares of Parent Common Stock.
(e) Transfers of Ownership. If certificates representing shares of
Parent Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to Parent or any agent designated by it
any transfer or other taxes required by reason of the issuance of certificates
representing shares of Parent Common Stock in any name other than that of the
registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(f) Required Withholding. Each of the Exchange Agent, Parent and the
Surviving Corporation shall be entitled to deduct and withhold from any
consideration payable or otherwise deliverable pursuant to this Agreement to any
holder or former holder of Company Common Stock such amounts as are required to
be deducted or withheld therefrom under the Code or under any provision of
state, local or foreign tax law or under any other applicable legal requirement.
To the extent such amounts are so deducted or withheld, such amounts shall be
treated for all purposes under this Agreement as having been paid to the person
to whom such amounts would otherwise have been paid.
(g) Termination of Exchange Agent Funding. Parent Common Stock held
by the Exchange Agent which have not been delivered to holders of Certificates
within six months after the Effective Time shall promptly be paid or delivered,
as appropriate, to Parent, and thereafter holders of Certificates who have not
theretofore complied with the exchange procedures outlined in and contemplated
by this Section 1.7 shall thereafter look only to Parent (subject to abandoned
property, escheat and similar laws) only as general creditors thereof for their
claim for shares of Parent Common Stock and any dividends or distributions
pursuant to Section 1.7(d) with respect to Parent Common Stock to which they are
entitled.
(h) No Liability. Notwithstanding anything to the contrary in this
Section 1.7, neither the Exchange Agent, Parent, the Surviving Corporation, the
Company nor any party hereto shall be liable to a holder of shares of Parent
Common Stock or Company Common Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar law.
1.8 No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued in accordance with the terms hereof shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Company Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
8
1.9 Lost, Stolen or Destroyed Certificates. In the event that any
Certificates shall have been lost, stolen or destroyed, the Exchange Agent shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, certificates
representing the shares of Parent Common Stock which the shares of Company
Common Stock formerly represented by such Certificates were converted into the
right to receive pursuant to Section 1.6 and any dividends or distributions
payable pursuant to Section 1.7(d); provided, however, that Parent may, in its
discretion and as a condition precedent to the issuance of such certificates
representing shares of Parent Common Stock and other distributions, require the
owner of such lost, stolen or destroyed Certificates to deliver a bond in such
sum as it may reasonably direct as indemnity against any claim that may be made
against Parent, the Surviving Corporation or the Exchange Agent with respect to
the Certificates alleged to have been lost, stolen or destroyed.
1.10 Tax Consequences. It is intended by the parties hereto that the
Merger shall constitute a reorganization within the meaning of Section 368 of
the Code. 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
Income Tax Regulations.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Company and Merger Sub, the officers and directors of Company
and Merger Sub will take all such lawful and necessary action.
1.12 Investment Representation. All shares of Parent Common Stock issued
in accordance with the terms hereof shall, when issued, be restricted shares and
may not be sold, transferred or otherwise disposed of by the holders thereof
without registration under the Securities Act of 1933, as amended ("Securities
Act") or an available exemption from registration under the Securities Act. The
certificates representing the shares of Parent Common Stock issued in accordance
with the terms hereof will contain the appropriate restrictive legends, and the
Parent shall issue appropriate stop-transfer instructions to the Exchange Agent
with respect to such shares of Parent Common Stock. Each holder of record (as of
the Effective Time) of Certificates, which immediately prior to the Effective
Time represented outstanding shares of Company Common Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 1.6, shall provide an investment representation letter containing, among
other things, the following:
(a) Each holder has and shall transfer, good and marketable title to
the shares of Company Common Stock owned by such holder, free and clear of all
liens, claims, charges, encumbrances, pledges, mortgages, security interests,
options, rights to acquire, proxies, voting trusts or similar agreements,
restrictions on transfer or adverse claims of any nature whatsoever ("Liens").
9
(b) Each holder is acquiring the shares of Parent Common Stock for
investment for holder's own account and not as a nominee or agent, and not with
a view to the resale or distribution of any part thereof, and such holders have
no present intention of selling, granting any participation in, or otherwise
distributing the same. Each holder further represents that he does not have any
contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of the shares of Parent Common Stock.
(c) Each holder understands that shares of Parent Common Stock are
not registered under the Securities Act, that the issuance of shares of Parent
Common Stock is intended to be exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that Parent's reliance on such exemption
is predicated on the holder's representations set forth herein. Each holder
represents and warrants that: (i) he is an "accredited investor" as that term is
defined in Rule 501(a) of Regulation D under the Act, (ii) he can bear the
economic risk of his respective investments, and (iii) he possesses such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the investment in shares of Parent Common
Stock.
(d) Holders acknowledge that neither the SEC, nor the securities
regulatory body of any state has received, considered or passed upon the
accuracy or adequacy of the information and representations made in this
Agreement.
(e) Holders acknowledge that they have carefully reviewed such
information as each of them deemed necessary to evaluate an investment in shares
of Parent Common Stock. To the full satisfaction of each holder, he has been
furnished all materials that he has requested relating to Parent and the
issuance of shares of Parent Common Stock hereunder, and each holder has been
afforded the opportunity to ask questions of Parent's representatives to obtain
any information necessary to verify the accuracy of any representations or
information made or given to the holders. Notwithstanding the foregoing, nothing
herein shall derogate from or otherwise modify the representations and
warranties of Parent set forth in this Agreement, on which each of the holders
has relied in making an exchange of his shares of Parent Common Stock.
(f) Each holder understands that shares of Parent Common Stock may
not be sold, transferred, or otherwise disposed of without registration under
the Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering shares of Parent Common Stock or any
available exemption from registration under the Securities Act, the shares of
Parent Common Stock may have to be held indefinitely. Each holder further
acknowledges that shares of Parent Common Stock may not be sold pursuant to Rule
144 promulgated under the Securities Act unless all of the conditions of Rule
144 are satisfied (including, without limitation, Parent's compliance with the
reporting requirements under the Exchange Act).
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF COMPANY
The Company hereby represents and warrants to, and covenants with, Parent
and Merger Sub, as follows:
2.1 Organization and Qualification.
(a) Company is a corporation duly incorporated or organized, validly
existing and in good standing under the laws of the State of Delaware and has
the requisite corporate power and authority to own, lease and operate its assets
and properties and to carry on its business as it is now being or currently
planned by Company to be conducted. Company is in possession of all franchises,
grants, authorizations, licenses, permits, easements, consents, certificates,
approvals and orders ("Approvals") necessary to own, lease and operate the
properties it purports to own, operate or lease and to carry on its business as
it is now being or currently planned by Company to be conducted, except where
the failure to have such Approvals could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect (as defined in Section
10.2 (b)) on Company. Complete and correct copies of the articles of
incorporation or organization and by-laws (or other comparable governing
instruments with different names) (collectively referred to herein as "Charter
Documents") of Company, as amended and currently in effect, have been heretofore
delivered to Parent. Company is not in violation of any of the provisions of the
Company's Charter Documents.
(b) Company is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company.
(c) The minute books of Company contain true, complete and accurate
records of all meetings and consents in lieu of meetings of its Board of
Directors (and any committees thereof), similar governing bodies and
stockholders ("Corporate Records"), since the time of Company's organization.
Copies of such Corporate Records of Company have been heretofore delivered to
Parent.
(d) The stock transfer and ownership records of Company contain
true, complete and accurate records of the stock ownership as of the date of
such records and the transfers involving the capital stock of Company since the
time of Company's organization. Copies of such Stock Records of Company have
been heretofore delivered to Parent.
2.2 Subsidiaries. The Company has no subsidiaries.
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2.3 Capitalization.
(a) The authorized capital stock of Company consists of 10,000,000
shares of common stock, par value $0.001 per share ("Company Common Stock"), and
1,000,000 shares of preferred stock, par value $0.001 per share ("Company
Preferred Stock"). At the close of business on the business day prior to the
date hereof, (i) 2,071,000 shares of Company Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of Company Common Stock were reserved for issuance upon the exercise
of outstanding options to purchase Company Common Stock granted to certain
employees of Company or other parties ("Company Stock Options"), (iii) no shares
of Company Common Stock were reserved for issuance upon the exercise of
outstanding warrants to purchase Company Common Stock ("Company Warrants"), (iv)
no shares of Company Common Stock were reserved for issuance upon the conversion
of any outstanding convertible notes, debentures or securities ("Convertible
Securities"), and (v) no shares of Company Preferred Stock were issued and
outstanding. All shares of Company Common Stock subject to issuance as
aforesaid, upon issuance on the terms and conditions specified in the instrument
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid and nonassessable. Except as described in Schedule 2.3 hereto, there
are no commitments or agreements of any character to which Company is bound
obligating Company to accelerate the vesting of any Company Stock Option as a
result of the Transactions. All outstanding shares of Company Common Stock and
all outstanding Company Stock Options, Company Warrants and Convertible
Securities have been issued and granted in compliance with (i) all applicable
securities laws and (in all material respects) other applicable laws and
regulations, and (ii) all requirements set forth in any applicable Contracts.
Company has heretofore delivered to Parent true, complete an accurate copies of
the Company Stock Options, Company Warrants and Convertible Securities including
any and all documents and agreements relating thereto.
(b) Except as set forth in Schedule 2.3 hereto, there are no equity
securities, partnership interests or similar ownership interests of any class of
any equity security of Company, or any securities exchangeable or convertible
into or exercisable for such equity securities, partnership interests or similar
ownership interests, issued, reserved for issuance or outstanding. Except as set
forth in Schedule 2.3 hereof or as set forth in Section 2.3(a) hereof there are
no subscriptions, options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which Company is a party or by
which it is bound obligating Company to issue, deliver or sell, or cause to be
issued, delivered or sold, or repurchase, redeem or otherwise acquire, or cause
the repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or obligating
Company to grant, extend, accelerate the vesting of or enter into any such
subscription, option, warrant, equity security, call, right, commitment or
agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 2.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Company is a party or by which Company is bound with respect to any
equity security of any class of Company.
12
2.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, to consummate the transactions
contemplated hereby (including the Transaction). The execution and delivery of
this Agreement and the consummation by Company of the transactions contemplated
hereby (including the Transaction) have been duly and validly authorized by all
necessary corporate action on the part of Company (including the approval by its
Board of Directors), and no other corporate proceedings on the part of Company
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, than the approval of this Agreement and the Transaction by
a majority of the Company's stockholders. This Agreement has been duly and
validly executed and delivered by Company and, assuming the due authorization,
execution and delivery thereof by the other parties hereto, constitutes the
legal and binding obligation of Company, enforceable against Company in
accordance with its terms, except as may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity and public policy.
2.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company and
the execution and delivery of the Voting Agreement by the Stockholders do not,
and the performance of this Agreement by the Company and the performance of the
Voting Agreements by the Stockholders shall not, (i) conflict with or violate
the Company's Charter Documents, (ii) subject to obtaining the adoption of this
Agreement and the Transaction by the stockholders of Company, conflict with or
violate any Legal Requirements, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or materially impair Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Company
pursuant to, any Contracts, except, with respect to clauses (ii) or (iii), for
any such conflicts, violations, breaches, defaults or other occurrences that
would not, individually and in the aggregate, have a Material Adverse Effect on
Company.
(b) The execution and delivery of this Agreement by Company and the
Stockholders do not, and the performance of their obligations hereunder will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any court, administrative agency, commission, governmental
or regulatory authority, domestic or foreign (a "Governmental Entity"), except
(i) for applicable requirements, if any, of the Securities Act, the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), state securities laws
("Blue Sky Laws"), and the rules and regulations thereunder, and appropriate
documents with the relevant authorities of other jurisdictions in which Company
is qualified to do business, and (ii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company or, after the Closing, the Parent, or prevent
consummation of the Transaction or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
13
2.6 Compliance. To the knowledge of the Company, it has complied with and
is not in violation of any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Company. To
Company's knowledge, the businesses and activities of Company have not been and
are not being conducted in violation of any Legal Requirements. Company is not
in default or violation of any term, condition or provision of any applicable
Charter Documents or Contracts. Except as set forth on Schedule 2.6, to the
Company's knowledge no written notice of non-compliance with any Legal
Requirements has been received by Company (and the Company has no knowledge of
any such notice delivered to any other Person). The Company is not in violation
of any term of any contract or covenant relating to employment, patents,
proprietary information disclosure, non-competition or non-solicitation.
2.7 Financial Statements.
(a) Company has provided to Parent a correct and complete copy of
the audited financial statements (including, in each case, any related notes
thereto) of Company for the fiscal year ended December 31, 2003, prepared in
accordance with the published rules and regulations of any applicable
Governmental Entity and with generally accepted accounting principles of the
United States ("U.S. GAAP") applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto), and each fairly
presents in all material respects the financial position of Company at the
respective dates thereof and the results of its operations and cash flows for
the periods indicated, and each does not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading.
(b) Company has provided to Parent a correct and complete copy of
the unaudited financial statements (including, in each case, any related notes
thereto) of Company for the six month period ended June 30, 2004, complied as to
form in all material respects with, prepared in accordance with the published
rules and regulations of any applicable Governmental Entity and with U.S. GAAP
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto), and each fairly presents in all material
respects the financial position of Company at the respective dates thereof and
the results of its operations and cash flows for the periods indicated, except
that the unaudited interim financial statements were or are subject to normal
adjustments which were not or are not expected to have a Material Adverse Effect
on Company.
(c) The books of account and other financial records of Company have
been maintained in accordance with good business practice.
2.8 No Undisclosed Liabilities. Except as set forth in Schedule 2.8
hereto, Company has no liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes
to the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Company, except: (i) liabilities provided
for in or otherwise disclosed in the interim balance sheets of Company as of
June 30, 2004 prepared in accordance with U.S. GAAP, which have been delivered
to Parent, and (ii) such liabilities arising in the ordinary course of Company's
business since June 30, 2004, none of which would have a Material Adverse Effect
on the Company.
14
2.9 Absence of Certain Changes or Events. Except as set forth in Schedule
2.9 hereto or in the interim balance sheets of Company as of June 30, 2004,
since December 31, 2003, there has not been: (i) any Material Adverse Effect on
Company, (ii) any declaration, setting aside or payment of any dividend on, or
other distribution (whether in cash, stock or property) in respect of, any of
Company's stock, or any purchase, redemption or other acquisition by the Company
of any of Company's capital stock or any other securities of Company or any
options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of Company's
capital stock, (iv) except for an agreement to pay Xxxx Xxxxxx and Xxxxxx Xxxxx
on Closing each $50,000 for a portion of their accrued and unpaid salary, any
granting by Company of any increase in compensation or fringe benefits, except
for normal increases of cash compensation in the ordinary course of business
consistent with past practice, or any payment by Company of any bonus, except
for bonuses made in the ordinary course of business consistent with past
practice, or any granting by Company of any increase in severance or termination
pay or any entry by Company into any currently effective employment, severance,
termination or indemnification agreement or any agreement the benefits of which
are contingent or the terms of which are materially altered upon the occurrence
of a transaction involving Company of the nature contemplated hereby, (v) entry
by Company into any licensing or other agreement with regard to the acquisition
or disposition of any Intellectual Property (as defined in Section 3.20 hereof)
other than licenses in the ordinary course of business consistent with past
practice or any amendment or consent with respect to any licensing agreement
filed or required to be filed by Company with respect to any Governmental
Entity, (vi) any material change by Company in its accounting methods,
principles or practices, (vii) any change in the auditors of Company, (vii) any
issuance of capital stock of Company, or (viii) any revaluation by Company of
any of their respective assets, including, without limitation, writing down the
value of capitalized inventory or writing off notes or accounts receivable or
any sale of assets of Company other than in the ordinary course of business.
2.10 Litigation. Except as disclosed in Schedule 2.10 hereto, there are no
claims, suits, actions or proceedings pending, or to the knowledge of Company
threatened against Company, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seeks
to restrain or enjoin the consummation of the transactions contemplated by this
Agreement or which could reasonably be expected, either singularly or in the
aggregate with all such claims, actions or proceedings, to have a Material
Adverse Effect on Company or have a Material Adverse Effect on the ability of
the parties hereto to consummate the Transaction.
2.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document) covering any active or former employee, director or
consultant of Company, or any trade or business (whether or not incorporated)
which is under common control with Company, with respect to which Company has
liability (collectively, the "Plans") has been maintained and administered in
all material respects in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations which are
applicable to such Plans, and all liabilities with respect to the Plans have
been properly reflected in the financial statements of Company. No suit, action
or other litigation (excluding claims for benefits incurred in the ordinary
course of Plan activities) has been brought, or to the knowledge of Company is
threatened, against or with respect to any such Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of Company, threatened by
any governmental agency with respect to any Plans. All contributions, reserves
or premium payments required to be made or accrued as of the date hereof to the
Plans have been timely made or accrued. Company does not have any plan or
commitment to establish any new Plan, to modify any Plan (except to the extent
required by law or to conform any such Plan to the requirements of any
applicable law, in each case as previously disclosed to Parent in writing, or as
required by this Agreement), or to enter into any new Plan. Each Plan can be
amended, terminated or otherwise discontinued after the Closing in accordance
with its terms, without liability to Parent Company (other than ordinary
administration expenses and expenses for benefits accrued but not yet paid).
15
(b) Except as disclosed on Schedule 2.11 hereto or set forth herein
in Section 2.9, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute, bonus
or otherwise) becoming due to any Stockholder, director or employee of Company
under any Plan or otherwise, (ii) materially increase any benefits otherwise
payable under any Plan, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
2.12 Labor Matters. Except as disclosed in Schedule 2.12 hereto, Company
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Company nor does the Company know of
any activities or proceedings of any labor union to organize any such employees.
2.13 Restrictions on Business Activities. Except as disclosed on Schedule
2.13 hereto, to the Company's knowledge there is no agreement, commitment,
judgment, injunction, order or decree binding upon Company or to which Company
is a party which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Company, any
acquisition of property by Company or the conduct of business by Company as
currently conducted other than such effects, individually or in the aggregate,
which have not had and could not reasonably be expected to have a Material
Adverse Effect on Company.
2.14 Title to Property.
(a) All real property owned by Company (including improvements and
fixtures thereon, easements and rights of way) (the "Real Property") is shown or
reflected on the interim balance sheets of Company prepared in accordance with
U.S. GAAP. Company has good, valid and marketable fee simple title to the Real
Property, and except as set forth in the financial statements of Company
prepared in accordance with U.S. GAAP or on Schedule 2.14 hereto, all of the
Real Property is held free and clear of (i) all leases, licenses and other
rights to occupy or use the Real Property and (ii) all Liens, rights of way,
easements, restrictions, exceptions, variances, reservations, covenants or other
title defects or limitations of any kind, other than liens for taxes not yet due
and payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby. Schedule 2.14 hereto is a list of all
options or other contracts under which Company has a right to acquire any
interest in real property.
16
(b) All leases of real property held by Company and all personal
property and other property and assets of Company (other than Real Property)
owned, used or held for use in connection with the business of Company (the
"Personal Property") are shown or reflected on the interim balance sheets of
Company prepared in accordance with U.S. GAAP. Company owns and has good and
marketable title to the Personal Property, and all such assets and properties
are in each case held free and clear of all Liens, except for Liens disclosed in
the financial statements of Company prepared in accordance with U.S. GAAP or in
Schedule 2.14 hereto, none of which Liens has or will have, individually or in
the aggregate, a Material Adverse Effect on such property or on the present or
contemplated use of such property in the businesses of Company.
(c) All leases pursuant to which Company leases from others material
real or personal property are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
material default or event of default of Company or, to Company's knowledge, any
other party (or any event which with notice or lapse of time, or both, would
constitute a material default), except where the lack of such validity and
effectiveness or the existence of such default or event of default could not
reasonably be expected to have a Material Adverse Effect on Company.
2.15 Taxes. -----
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all federal, state, local and foreign taxes,
including, without limitation, gross receipts, income, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, assessments, governmental
charges and duties together with all interest, penalties and additions imposed
with respect to any such amounts and any obligations under any agreements or
arrangements with any other person with respect to any such amounts and
including any liability of a predecessor entity for any such amounts.
(b) Tax Returns and Audits. (c) Except as set forth in Schedule 2.15
hereto:
(i) Company has timely filed all federal, state, local and foreign
returns, estimates, information statements and reports relating to Taxes
("Returns") required to be filed by Company with any Tax authority prior to the
date hereof, except such Returns which are not material to Company. All such
Returns are true, correct and complete in all material respects. Company has
paid all Taxes shown to be due on such Returns.
17
(ii) All Taxes that Company is required by law to withhold or
collect have been duly withheld or collected, and have been timely paid over to
the proper governmental authorities to the extent due and payable.
(iii) Company has not been delinquent in the payment of any material
Tax nor is there any material Tax deficiency outstanding, proposed or assessed
against Company, nor has Company executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of Company by any
Tax authority is presently in progress, nor has Company been notified of any
request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by Company has been
proposed in writing, formally or informally, by any Tax authority to the Company
or any representative thereof.
(vi) Company have no liability for any material unpaid Taxes which
have not been accrued for or reserved on Company's balance sheets included in
the audited financial statements for the most recent fiscal year ended, whether
asserted or unasserted, contingent or otherwise, which is material to Company,
other than any liability for unpaid Taxes that may have accrued since the end of
the most recent fiscal year in connection with the operation of the business of
Company in the ordinary course of business, none of which is material to the
business, results of operations or financial condition of Company.
(vii) Company has not taken any action and does not know of any
fact, agreement, plan or other circumstance that is reasonably likely to prevent
the Transaction from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
2.16 Environmental Matters. (a) Except as disclosed in Schedule 2.16
hereto and except for such matters that, individually or in the aggregate, are
not reasonably likely to have a Material Adverse Effect to Company's knowledge:
(i) Company has complied with all applicable Environmental Laws; (ii) the
properties currently owned or operated by Company (including soils, groundwater,
surface water, buildings or other structures) are not contaminated with any
Hazardous Substances; (iii) the properties formerly owned or operated by Company
were not contaminated with Hazardous Substances during the period of ownership
or operation by Company; (iv) Company is not subject to liability for any
Hazardous Substance disposal or contamination on any third party property; (v)
Company has not been associated with any release or threat of release of any
Hazardous Substance; (vi) Company has not received any notice, demand, letter,
claim or request for information alleging that Company may be in violation of or
liable under any Environmental Law; and (vii) Company is not subject to any
orders, decrees, injunctions or other arrangements with any Governmental Entity
or subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
18
(b) As used in this Agreement, the term "Environmental Law" means
any federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources; (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
(c) As used in this Agreement, the term "Hazardous Substance" means
any substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
2.17 Brokers; Third Party Expenses. Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage, finders' fees,
agent's commissions or any similar charges in connection with this Agreement or
any transactions contemplated hereby. Except as disclosed on Schedule 2.17, no
shares of common stock, options, warrants or other securities of either Company
or Parent are payable to any third party by Company as a result of this
Transaction.
2.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or
associated therewith: (i) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations
and continuations-in-part thereof ("Patents"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and
customer lists, and all documentation relating to any of the foregoing;
(iii) copyrights, copyrights registrations and applications therefor,
and all other rights corresponding thereto throughout the world; (iv)
domain names, uniform resource locators ("URLs") and other names and
locators associated with the Internet ("Domain Names"); (v) industrial
designs and any registrations and applications therefor; (vi) trade
names, logos, common law trademarks and service marks, trademark and
service xxxx registrations and applications therefor (collectively,
"Trademarks"); (vii) all databases and data collections and all rights
therein; (viii) all moral and economic rights of authors and inventors,
however denominated, and (ix) any similar or equivalent rights to any
of the foregoing (as applicable).
"Company Intellectual Property" shall mean any Intellectual Property
that is owned by, or exclusively licensed to, Company.
19
"Registered Intellectual Property" means all Intellectual Property that
is the subject of an application, certificate, filing, registration or
other document issued, filed with, or recorded by any private, state,
government or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company.
"Company Products" means all current versions of products or service
offerings of Company.
(a) Except as disclosed on Schedule 2.18, to the Company's
knowledge, the Company Intellectual Property or Company Product is not subject
to any material proceeding or outstanding decree, order, judgment, contract,
license, agreement or stipulation restricting in any manner the use, transfer or
licensing thereof by Company, or which may affect the validity, use or
enforceability of such Company Intellectual Property or Company Product, which
in any such case could reasonably be expected to have a Material Adverse Effect
on Company.
(b) Except as disclosed on Schedule 2.18 hereto, Company owns and
has good and exclusive title to each material item of Company Intellectual
Property owned by it free and clear of any Liens (excluding non-exclusive
licenses and related restrictions granted in the ordinary course); and Company
is the exclusive owner of all material registered Trademarks used in connection
with the operation or conduct of the business of Company including the sale of
any products or the provision of any services by Company.
(c) The operation of the business of Company as such business
currently is conducted, including (i) the design, development, manufacture,
distribution, reproduction, marketing or sale of the products or services of
Company (including Company Products) and (ii) Company's use of any product,
device or process, to the Company's knowledge and except as could not reasonably
be expected to have a Material Adverse Effect, has not and does not and will not
infringe or misappropriate the Intellectual Property of any third party or
constitute unfair competition or trade practices under the laws of any
jurisdiction.
2.19 Agreements, Contracts and Commitments. (a) Schedule 2.19 hereto sets
forth a complete and accurate list of all Material Contracts (as hereinafter
defined), specifying the parties thereto. For purposes of this Agreement, (i)
the term "Contracts" shall mean all contracts, agreements, leases, mortgages,
indentures, note, bond, liens, license, permit, franchise, purchase orders,
sales orders, arbitration awards, judgments, decrees, orders, documents,
instruments, understandings and commitments, or other instrument or obligation
(including without limitation outstanding offers or proposals) of any kind,
whether written or oral, to which Company is a party or by or to which any of
the properties or assets of Company may be bound, subject or affected (including
without limitation notes or other instruments payable to Company) and (ii) the
term "Material Contracts" shall mean (x) each Contract (I) providing for
payments (past, present or future) to Company in excess of $50,000 in the
aggregate or (II) under which or in respect of which Company presently has any
liability or obligation of any nature whatsoever (absolute, contingent or
otherwise) in excess of $50,000, (y) each Contract which otherwise is or may be
material to the businesses, operations, assets, condition (financial or
otherwise) or prospects of Company and (z) without limitation of subclause (x)
or subclause (y), each of the following Contracts:
20
(i) any mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing of
money by or from Company, or any officer, director or 5% or more stockholder
("Insider") of Company;
(ii) any guaranty, direct or indirect, by Company or any
Insider of Company of any obligation for borrowings, or otherwise, excluding
endorsements made for collection in the ordinary course of business;
(iii) any Contract made other than in the ordinary course of
business or (x) providing for the grant to any preferential rights to purchase
or lease any asset of Company or (y) providing for any right (exclusive or
non-exclusive) to sell or distribute, or otherwise relating to the sale or
distribution of, any product or service of Company;
(iv) any obligation to register any shares of the capital
stock or other securities of Company with any Governmental Entity;
(v) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or stock of other
Persons;
(vi) any collective bargaining agreement with any labor union;
(vii) any lease or similar arrangement for the use by Company
of personal property;
(viii) any Contract granting or purporting to grant, or
otherwise in any way relating to, any mineral rights or any other interest
(including, without limitation, a leasehold interest) in real property; and
(ix) any Contract to which any Insider of Company is a party.
(b) Each Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Material Contracts (or written summaries in the case of oral
Material Contracts) and of all outstanding offers or proposals of Company has
have been heretofore delivered to Parent.
(c) Except as set forth in Schedule 2.19, neither Company nor to the
best of Company's knowledge any other party thereto is in breach of or in
default under, and no event has occurred which with notice or lapse of time or
both would become a breach of or default under, any Contract, and no party to
any Contract has given any written notice of any claim of any such breach,
default or event, which, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect on Company. Each agreement, contract or
commitment to which the Company are a party or by which they are bound that has
not expired by its terms is in full force and effect, except where such failure
to be in full force and effect is not reasonably likely to have a Material
Adverse Effect on Company.
21
2.20 Insurance. Schedule 2.20 sets forth the Company's insurance policies
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors (collectively, the "Insurance
Policies") of Company which Company reasonably believes are adequate in amount
and scope for the Business in which they are engaged.
2.21 Governmental Actions/Filings. Company has been granted and holds, and
has made, all Governmental Actions/Filings (including, without limitation, the
Governmental Actions/Filings required for (i) emission or discharge of effluents
and pollutants into the air and the water and (ii) the manufacture and sale of
all products manufactured and sold by it) necessary to the conduct by Company of
its businesses (as presently conducted and as presently proposed to be
conducted) or used or held for use by Company, all of which are listed in
Schedule 2.21 hereto, and true, complete and correct copies of which have
heretofore been delivered to Parent. Each such Governmental Action/Filing is in
full force and effect and, expect as disclosed in Schedule 2.21 hereto, will not
expire prior to December 31, 2005, and Company is in compliance with all of its
obligations with respect thereto. No event has occurred and is continuing which
requires or permits, or after notice or lapse of time or both would require or
permit, and consummation of the transactions contemplated by this Agreement or
any ancillary documents will not require or permit (with or without notice or
lapse of time, or both), any modification or termination of any such
Governmental Actions/Filings. Except as set forth in Schedule 2.21, to Company's
knowledge no Governmental Action/Filing is necessary to be obtained, secured or
made by Company to enable it to continue to conduct its businesses and
operations and use its properties after the Closing in a manner which is
consistent with current practice.
For purposes of this Agreement, the term "Governmental Action/Filing"
shall mean any franchise, license, certificate of compliance, authorization,
consent, order, permit, approval, consent or other action of, or any filing,
registration or qualification with, any federal, state, municipal, foreign or
other governmental, administrative or judicial body, agency or authority.
2.22 Interested Party Transactions. Except as set forth in the Schedule
2.22 hereto, no employee, officer, director or Stockholder of Company or a
member of his or her immediate family is indebted to Company, nor is Company
indebted (or committed to make loans or extend or guarantee credit) to any of
them, other than (i) for payment of salary for services rendered, (ii)
reimbursement for reasonable expenses incurred on behalf of Company, and (iii)
for other employee benefits made generally available to all employees. Except as
set forth in Schedule 2.22, to the Company's knowledge, none of such individuals
has any direct or indirect ownership interest in any Person with whom Company is
affiliated or with whom Company has a contractual relationship, or any Person
that competes with Company, except that each employee, Stockholder, officer or
director of Company and members of their respective immediate families may own
less than 5% of the outstanding stock in publicly traded companies that may
compete with Company. Except as set forth in Schedule 2.22, to the knowledge of
the Company, no officer, director or Stockholder or any member of their
immediate families is, directly or indirectly, interested in any material
contract with Company (other than such contracts as relate to any such
individual ownership of capital stock or other securities of Company).
22
2.23 Board Approval. The board of directors of Company or similar
governing body (including any required committee or subgroup of thereof) has, as
of the date of this Agreement, unanimously approved, subject to the approval of
stockholders, this Agreement and the transactions contemplated hereby, and
resolved to seek the stockholders approval and adoption of this Agreement and
approval of the Transaction.
2.24 Representations and Warranties Complete. The representations and
warranties of Company included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT
Parent represents and warrants to, and covenants with, Company, as
follows:
3.1 Organization and Qualification.
(a) Parent is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Nevada and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Parent to be conducted. Parent is in possession of all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being or currently planned by Parent to be
conducted, except where the failure to have such Approvals could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Parent. Complete and correct copies of the Charter Documents
of Parent, as amended and currently in effect, have been heretofore delivered to
Company. Parent is not in violation of any of the provisions of the Parent's
Charter Documents.
(b) Parent is duly qualified or licensed to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Parent.
3.2 Subsidiaries. Except for Merger Sub which is a wholly-owned subsidiary
of Parent, Parent has no Subsidiaries and does not own, directly or indirectly,
any ownership, equity, profits or voting interest in any Person or has any
agreement or commitment to purchase any such interest, and Parent has not agreed
and is not obligated to make nor is bound by any written, oral or other
agreement, contract, subcontract, lease, binding understanding, instrument,
note, option, warranty, purchase order, license, sublicense, insurance policy,
benefit plan, commitment or undertaking of any nature, as of the date hereof or
as may hereafter be in effect under which it may become obligated to make, any
future investment in or capital contribution to any other entity.
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3.3 Capitalization.
(a) The authorized capital stock of Parent consists of 65,000,000
shares of common stock, par value $0.001 per share ("Parent Common Stock") and
8,552,801 shares of preferred stock, par value $0.001 per share ("Parent
Preferred Stock"). At the close of business on the business day prior to the
date hereof, (i) 9,161,629 shares of Parent Common Stock were issued and
outstanding, all of which are validly issued, fully paid and nonassessable; (ii)
no shares of Parent Preferred Stock were issued and outstanding; (iii) no shares
of Parent Common Stock were reserved for issuance upon the exercise of
outstanding options to purchase Company Common Stock granted to certain
employees of Company or other parties ("Company Stock Options"); (iv) 2,400,000
shares of Parent Common Stock were reserved for issuance upon the exercise of
outstanding warrants to purchase Parent Common Stock ("Parent Warrants"); and
(v) no shares of Parent Common Stock were reserved for issuance upon the
conversion of the Parent Preferred Stock or any outstanding convertible notes,
debentures or securities ("Convertible Securities"). All shares of Parent Common
Stock subject to issuance as aforesaid, upon issuance on the terms and
conditions specified in the instrument pursuant to which they are issuable, will
be duly authorized, validly issued, fully paid and nonassessable. All
outstanding shares of Parent Common Stock and all outstanding Parent Warrants
have been issued and granted in compliance with (i) all applicable securities
laws and (in all material respects) other applicable laws and regulations, and
(ii) all requirements set forth in any applicable Contracts. Parent has
heretofore been delivered to Company true, complete an accurate copies of the
Parent Warrants including any and all documents and agreements relating thereto.
(b) There are no equity securities, partnership interests or similar
ownership interests of any class of any equity security of Parent, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Schedule 3.3 and
except with respect to a private placement offering of up to 1,200,000 units of
the Parent's securities ("Units") currently being conducted by Parent ("Private
Placement"), there are no subscriptions, options, warrants, equity securities,
partnership interests or similar ownership interests, calls, rights (including
preemptive rights), commitments or agreements of any character to which Parent
is a party or by which it is bound obligating Parent to issue, deliver or sell,
or cause to be issued, delivered or sold, or repurchase, redeem or otherwise
acquire, or cause the repurchase, redemption or acquisition of, any shares of
capital stock, partnership interests or similar ownership interests of Parent or
obligating Parent to grant, extend, accelerate the vesting of or enter into any
such subscription, option, warrant, equity security, call, right, commitment or
agreement. (c) Except as contemplated by this Agreement and except as set forth
in Schedule 3.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Parent is a party or by which it is bound with respect to any equity
security of any class of Parent.
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3.4 Authority Relative to this Agreement. Parent has full corporate power
and authority to: (i) execute, deliver and perform this Agreement, and each
ancillary document which Parent has executed or delivered or is to execute or
deliver pursuant to this Agreement, and (ii) carry out Parent's obligations
hereunder and thereunder and, to consummate the transactions contemplated hereby
(including the Transaction). The execution and delivery of this Agreement and
the consummation by Parent of the transactions contemplated hereby (including
the Transaction) have been duly and validly authorized by all necessary
corporate action on the part of Parent (including the approval by its Board of
Directors), and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby, other than the approval of an amendment to the certificate
of incorporation to effect the Reverse Split (as defined in Section 5.6(c)) and
the Name Change (as defined in Section 5.6(c)) by a majority of the Parent's
stockholders. This Agreement has been duly and validly executed and delivered by
Parent and, assuming the due authorization, execution and delivery thereof by
the other parties hereto, constitutes the legal and binding obligation of
Parent, enforceable against Parent in accordance with its terms, except as may
be limited by bankruptcy, insolvency, reorganization or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity and public policy.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Parent and the
execution and delivery of the Voting Agreement by Parent do not, and the
performance of this Agreement by Parent and the performance of the Voting
Agreement by Parent shall not: (i) conflict with or violate Parent's Charter
Documents, (ii) conflict with or violate any Legal Requirements, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or materially impair Parent's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Parent pursuant to, any Contracts, except, with respect to clauses
(ii) or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually and in the aggregate, have a Material
Adverse Effect on Company.
(b) The execution and delivery of this Agreement by Parent does not,
and the performance of its obligations hereunder will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, and the rules and regulations
thereunder, and appropriate documents with the relevant authorities of other
jurisdictions in which Company is qualified to do business, and (ii) where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on Parent, or prevent
consummation of the Transaction or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
3.6 Compliance. To Parent's knowledge, Parent has complied with, is not in
violation of, any Legal Requirements with respect to the conduct of its
business, or the ownership or operation of its business, except for failures to
comply or violations which, individually or in the aggregate, have not had and
are not reasonably likely to have a Material Adverse Effect on Parent. To
Parent's knowledge, the businesses and activities of Parent have not been and
are not being conducted in violation of any Legal Requirements. Parent is not in
default or violation of any term, condition or provision of its Charter
Documents. Except as set forth on Schedule 3.6, to Parent's knowledge, no
written notice of non-compliance with any Legal Requirements has been received
by Parent.
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3.7 SEC Filings; Financial Statements.
(a) Parent has made available to Company a correct and complete copy
of each report, registration statement and definitive proxy statement filed by
Parent with the SEC for the 36 months prior to the date of this Agreement (the
"Parent SEC Reports"), which, to Parent's knowledge, are all the forms, reports
and documents required to be filed by Parent with the SEC for the 36 months
prior to the date of this Agreement. As of their respective dates, to Parent's
knowledge, the Parent SEC Reports: (i) were prepared in accordance and complied
in all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such Parent SEC Reports, and (ii) did not at the time
they were filed (and if amended or superseded by a filing prior to the date of
this Agreement then on the date of such filing and as so amended or superceded)
contain any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Except to the extent set forth in the preceding sentence, Parent
makes no representation or warranty whatsoever concerning the Parent SEC Reports
as of any time other than the time they were filed.
(b) To Parent's knowledge, each set of financial statements
(including, in each case, any related notes thereto) contained in Parent SEC
Reports, including each Parent SEC Report filed after the date hereof until the
Closing, complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
U.S. GAAP applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited
statements, do not contain footnotes as permitted by Form 10-QSB of the Exchange
Act) and each fairly presents in all material respects the financial position of
Parent at the respective dates thereof and the results of its operations and
cash flows for the periods indicated, except that the unaudited interim
financial statements were or are subject to normal adjustments which were not or
are not expected to have a Material Adverse Effect on Parent taken as a whole.
(c) Parent has previously furnished to Company a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by Parent with the SEC
pursuant to the Securities Act or the Exchange Act.
3.8 No Undisclosed Liabilities. Except as set forth in Schedule 3.8
hereto, Parent has no liabilities (absolute, accrued, contingent or otherwise)
of a nature required to be disclosed on a balance sheet or in the related notes
to the financial statements prepared in accordance with U.S. GAAP which are,
individually or in the aggregate, material to the business, results of
operations or financial condition of Parent, except (i) liabilities provided for
in or otherwise disclosed in Parent SEC Reports filed prior to the date hereof,
(ii) liabilities incurred since December 31, 2003 in the ordinary course of
business, none of which would have a Material Adverse Effect on Parent, and
(iii) those liabilities and obligations specifically set forth in Section 5.13.
26
3.9 Absence of Certain Changes or Events. Except as set forth in Schedule
3.9 hereto or in Parent SEC Reports filed prior to the date of this Agreement,
and except as contemplated by this Agreement, since December 31, 2003, there has
not been: (i) any Material Adverse Effect on Parent, (ii) any declaration,
setting aside or payment of any dividend on, or other distribution (whether in
cash, stock or property) in respect of, any of Parent's capital stock, or any
purchase, redemption or other acquisition by Parent of any of Parent's capital
stock or any other securities of Parent or any options, warrants, calls or
rights to acquire any such shares or other securities, (iii) except for the
Reverse Split, any split, combination or reclassification of any of Parent's
capital stock, (iv) any granting by Parent of any increase in compensation or
fringe benefits, except for normal increases of cash compensation in the
ordinary course of business consistent with past practice, or any payment by
Parent of any bonus, except for bonuses made in the ordinary course of business
consistent with past practice, or any granting by Parent of any increase in
severance or termination pay or any entry by Parent into any currently effective
employment, severance, termination or indemnification agreement or any agreement
the benefits of which are contingent or the terms of which are materially
altered upon the occurrence of a transaction involving Parent of the nature
contemplated hereby, (v) entry by Parent into any licensing or other agreement
with regard to the acquisition or disposition of any Intellectual Property other
than licenses in the ordinary course of business consistent with past practice
or any amendment or consent with respect to any licensing agreement filed or
required to be filed by Parent with respect to any Governmental Entity, (vi) any
material change by Parent in its accounting methods, principles or practices,
except as required by concurrent changes in U.S. GAAP, (vii) any change in the
auditors of Parent, (vii) except for the Private Placement, any issuance of
capital stock of Parent, or (viii) any revaluation by Parent of any of their
respective assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale of
assets of Parent other than in the ordinary course of business.
3.10 Litigation. Except as set forth on Schedule 3.10 hereto or in Parent
SEC Reports, there are no claims, suits, actions or proceedings pending or to
Parent's knowledge, threatened against Parent, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on Parent or have a Material Adverse Effect on
the ability of the parties hereto to consummate the Transaction.
3.11 Employee Benefit Plans. Except as disclosed on Schedule 3.11 hereto ,
Parent does not maintain, and has no liability under, any Plan, and neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any stockholder, director or employee of Parent, or (ii) result
in the acceleration of the time of payment or vesting of any such benefits.
27
3.12 Labor Matters. Parent is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by
Parent, nor does Parent know of any activities or proceedings of any labor union
to organize any such employees.
3.13 Restrictions on Business Activities. To Parent's knowledge, there is
no agreement, commitment, judgment, injunction, order or decree binding upon
Parent or to which Parent is a party which has or could reasonably be expected
to have the effect of prohibiting or materially impairing any business practice
of Parent, any acquisition of property by Parent or the conduct of business by
Parent as currently conducted other than such effects, individually or in the
aggregate, which have not had and could not reasonably be expected to have, a
Material Adverse Effect on Parent.
3.14 Title to Property. Parent does not own or lease any Real Property or
Personal Property. There are no options or other contracts under which Parent
has a right or obligation to acquire or lease any interest in Real Property or
Personal Property.
3.15 Taxes. Except as set forth in Schedule 3.15 hereto, to Parent's
knowledge:
(a) Parent has timely filed all Returns required to be filed by
Parent with any Tax authority prior to the date hereof, except such Returns
which are not material to Parent. All such Returns are true, correct and
complete in all material respects. Parent has paid all Taxes shown to be due on
such Returns.
(b) All Taxes that Parent is required by law to withhold or collect
have been duly withheld or collected, and have been timely paid over to the
proper governmental authorities to the extent due and payable.
(c) Parent has not been delinquent in the payment of any material
Tax nor is there any material Tax deficiency outstanding, proposed or assessed
against Parent, nor has Parent executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(d) No audit or other examination of any Return of Parent by any Tax
authority is presently in progress, nor has Parent been notified of any request
for such an audit or other examination.
(e) No adjustment relating to any Returns filed by Parent has been
proposed in writing, formally or informally, by any Tax authority to Parent or
any representative thereof.
(f) Parent has no liability for any material unpaid Taxes which have
not been accrued for or reserved on Parent's balance sheets included in the
audited financial statements for the most recent fiscal year ended, whether
asserted or unasserted, contingent or otherwise, which is material to Parent,
other than any liability for unpaid Taxes that may have accrued since the end of
the most recent fiscal year in connection with the operation of the business of
Parent in the ordinary course of business, none of which is material to the
business, results of operations or financial condition of Parent.
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(g) Parent has not taken any action and does not know of any fact,
agreement, plan or other circumstance that is reasonably likely to prevent the
Transaction from qualifying as a reorganization within the meaning of Section
368(a) of the Code.
3.16 Environmental Matters. Except as disclosed in Schedule 3.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Parent's knowledge: (i)
Parent has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Parent (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Parent were not
contaminated with Hazardous Substances during the period of ownership or
operation by Parent; (iv) Parent is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Parent has
not been associated with any release or threat of release of any Hazardous
Substance; (vi) Parent has not received any notice, demand, letter, claim or
request for information alleging that Parent may be in violation of or liable
under any Environmental Law; and (vii) Parent is not subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
3.17 Brokers. Except for Parent's obligations under the Financial Advisory
Agreement (as defined in Section 5.13) and the Selling Agreement (as defined in
Section 5.13), Parent has not incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders' fees or agent's commissions
or any similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.18 Intellectual Property. Parent does not own, license or otherwise have
any right, title or interest in any Intellectual Property or Registered
Intellectual Property.
3.19 Agreements, Contracts and Commitments.
(a) Except for the Financial Advisory Agreement, the Selling
Agreement , the agreements with Transfer Agent, and as set forth on Schedule
3.19 or in Parent SEC Reports, to Parent's knowledge, there are no contracts,
agreements, leases, mortgages, indentures, note, bond, liens, license, permit,
franchise, purchase orders, sales orders, arbitration awards, judgments,
decrees, orders, documents, instruments, understandings and commitments, or
other instrument or obligation (including without limitation outstanding offers
or proposals) of any kind, whether written or oral, to which Parent is a party
or by or to which any of the properties or assets of Parent may be bound,
subject or affected, which either (a) creates or imposes a liability greater
than $5,000, or (b) may not be cancelled by the Company on less than 30 days' or
less prior notice ("Parent Contracts").
29
(b) Each Parent Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Parent Contracts (or written summaries in the case of oral Parent
Contracts) and of all outstanding offers or proposals of Parent have been
heretofore delivered to Company.
(c) Neither Parent nor, to the knowledge of Parent, any other party
thereto is in breach of or in default under, and no event has occurred which
with notice or lapse of time or both would become a breach of or default under,
any Parent Contract, and no party to any Parent Contract has given any written
notice of any claim of any such breach, default or event, which, individually or
in the aggregate, are reasonably likely to have a Material Adverse Effect on
Parent. Each agreement, contract or commitment to which Parent is a party or by
which it is bound that has not expired by its terms is in full force and effect,
except where such failure to be in full force and effect is not reasonably
likely to have a Material Adverse Effect on Parent.
3.20 Insurance. Parent does not maintain any Insurance Policies.
3.21 Governmental Actions/Filings. Parent has been granted and holds, and
has made, all Governmental Actions/Filings necessary to the conduct by Parent of
its businesses (as presently conducted) or used or held for use by Parent, all
of which are listed in Schedule 3.21 hereto, and true, complete and correct
copies of which have heretofore been delivered to Company. Each such
Governmental Action/Filing is in full force and effect and, expect as disclosed
in Schedule 3.21 hereto, will not expire prior to December 31, 2005, and Parent
is in compliance with all of its obligations with respect thereto. No event has
occurred and is continuing which requires or permits, or after notice or lapse
of time or both would require or permit, and consummation of the transactions
contemplated by this Agreement or the ancillary documents will not require or
permit (with or without notice or lapse of time, or both), any modification or
termination of any such Governmental Actions/Filings. Except as set forth in
Schedule 3.21, to Parent's knowledge, no Governmental Action/Filing is necessary
to be obtained, secured or made by Parent to enable it to continue to conduct
its businesses and operations and use its properties after the Closing in a
manner which is consistent with current practice.
3.22 Interested Party Transactions. Except as set forth in the Schedule
3.22 hereto or in the Parent's SEC Reports, no employee, officer, director or
stockholder of Parent or a member of his or her immediate family is indebted to
Parent, nor is Parent indebted (or committed to make loans or extend or
guarantee credit) to any of them, other than (i) for payment of salary for
services rendered, (ii) reimbursement for reasonable expenses incurred on behalf
of Parent, and (iii) for other employee benefits made generally available to all
employees. Except as set forth in Schedule 3.22, to Parent's knowledge, none of
such individuals has any direct or indirect ownership interest in any Person
with whom Parent is affiliated or with whom Parent has a material contractual
relationship, or any Person that competes with Parent, except that each
employee, stockholder, officer or director of Parent and members of their
respective immediate families may own less than 5% of the outstanding stock in
publicly traded companies that may compete with Parent. Except as set forth in
Schedule 3.22, to Parent's knowledge, no officer, director or stockholder or any
member of their immediate families is, directly or indirectly, interested in any
material contract with Parent (other than such contracts as relate to any such
individual ownership of capital stock or other securities of Parent).
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3.23 Indebtedness; Parent Assets. Except as set forth on Schedule 3.23,
Parent has no indebtedness for borrowed money. Immediately prior to the Closing,
Parent will have no assets, except for cash reserves earmarked for the payment
of certain accounts payable and accrued expenses of Parent with respect to the
period prior to Closing which remain unpaid, which Parent shall be responsible
for payment following the Closing pursuant to Section 5.13 hereof ("Cash
Reserve").
3.24 Over-the-Counter Bulletin Board Quotation. Parent Common Stock is
quoted on the Over-the-Counter Bulletin Board ("OTC BB"). There is no action or
proceeding pending or, to Parent's knowledge, threatened against Parent by
NASDAQ or NASD, Inc. ("NASD") with respect to any intention by such entities to
prohibit or terminate the quotation of Parent Common Stock on the OTC BB.
3.25 Board Approval. The Board of Directors of Parent (including any
required committee or subgroup of the Board of Directors of Parent) has, as of
the date of this Agreement, unanimously (i) declared the advisability of the
Transaction and approved this Agreement and the transactions contemplated
hereby, and (ii) determined that the Transaction is in the best interests of the
stockholders of Parent.
3.26 Representations and Warranties Complete. The representations and
warranties of Parent included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business by Company and Parent. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, each of Company, Parent and
Merger Sub shall, except to the extent that the other party shall otherwise
consent in writing, carry on its business in the usual, regular and ordinary
course consistent with past practices, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations
(except where noncompliance would not have a Material Adverse Effect), pay its
debts and taxes when due subject to good faith disputes over such debts or
taxes, pay or perform other material obligations when due, and use its
commercially reasonable efforts consistent with past practices and policies to
(i) preserve substantially intact its present business organization, (ii) keep
available the services of its present officers and employees and (iii) preserve
its relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has significant business dealings. In addition, except
as required or permitted by the terms of this Agreement, without the prior
written consent of the other party, during the period from the date of this
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Closing, each of Company, Parent and Merger Sub
shall not do any of the following:
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(a) Waive any stock repurchase rights, accelerate, amend or (except
as specifically provided for herein) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or
employee except pursuant to applicable law, written agreements outstanding, or
policies existing on the date hereof and as previously or concurrently disclosed
in writing or made available to the other party, or adopt any new severance
plan, or amend or modify or alter in any manner any severance plan, agreement or
arrangement existing on the date hereof;
(c) Transfer or license to any person or otherwise extend, amend or
modify any material rights to any Intellectual Property of Company or Parent, as
applicable, or enter into grants to transfer or license to any person future
patent rights, other than in the ordinary course of business consistent with
past practices provided that in no event shall Company or Parent license on an
exclusive basis or sell any Intellectual Property of Company, or Parent as
applicable;
(d) Except for the Reverse Split by Parent, declare, set aside or
pay any dividends on or make any other distributions (whether in cash, stock,
equity securities or property) in respect of any capital stock or split, combine
or reclassify any capital stock or issue or authorize the issuance of any other
securities in respect of, in lieu of or in substitution for any capital stock;
(e) Except as set forth in Schedule 4.1(e) hereof, purchase, redeem
or otherwise acquire, directly or indirectly, any shares of capital stock of
Company and Parent, as applicable, except repurchases of unvested shares at cost
in connection with the termination of the employment relationship with any
employee pursuant to stock option or purchase agreements in effect on the date
hereof;
(f) Except the Private Placement by Parent, issue, deliver, sell,
authorize, pledge or otherwise encumber, or agree to any of the foregoing with
respect to, any shares of capital stock or any securities convertible into or
exchangeable for shares of capital stock, or subscriptions, rights, warrants or
options to acquire any shares of capital stock or any securities convertible
into or exchangeable for shares of capital stock, or enter into other agreements
or commitments of any character obligating it to issue any such shares or
convertible or exchangeable securities;
(g) Amend its Charter Documents except as contemplated by the
Reverse Split and Name Change;
(h) Except as disclosed in Schedule 4.1(h) hereto, acquire or agree
to acquire by merging or consolidating with, or by purchasing any equity
interest in or a portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the business of Parent or Company
as applicable, or enter into any joint ventures, strategic partnerships or
alliances or other arrangements that provide for exclusivity of territory or
otherwise restrict such party's ability to compete or to offer or sell any
products or services;
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(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice and, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of such party;
(j) Except as disclosed in Schedule 4.1(j) hereto, incur any
indebtedness for borrowed money in excess of $50,000 in the aggregate or
guarantee any such indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt
securities of Parent or Company, as applicable, enter into any "keep well" or
other agreement to maintain any financial statement condition or enter into any
arrangement having the economic effect of any of the foregoing;
(k) Except as disclosed in Schedule 4.1(k) hereto or as contemplated
by this Agreement, adopt or amend any employee benefit plan, policy or
arrangement, any employee stock purchase or employee stock option plan, or enter
into any employment contract or collective bargaining agreement (other than
offer letters and letter agreements entered into in the ordinary course of
business consistent with past practice with employees who are terminable "at
will"), pay any special bonus or special remuneration to any director or
employee, or increase the salaries or wage rates or fringe benefits (including
rights to severance or indemnification) of its directors, officers, employees or
consultants, except in the ordinary course of business consistent with past
practices;
(l) Except as disclosed in Schedule 4.1(1) hereto, (i) pay,
discharge, settle or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), or litigation
(whether or not commenced prior to the date of this Agreement) other than the
payment, discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practices or in accordance with their terms, or
liabilities recognized or disclosed in the most recent financial statements (or
the notes thereto) of Company or of Parent included in Parent SEC Reports, as
applicable, or incurred since the date of such financial statements, or (ii)
waive the benefits of, agree to modify in any manner, terminate, release any
person from or knowingly fail to enforce any confidentiality or similar
agreement to which Company is a party or of which Company is a beneficiary or to
which Parent is a party or of which Parent is a beneficiary, as applicable;
(m) Except as disclosed on Schedule 4.2(m) and except in the
ordinary course of business consistent with past practices, modify, amend or
terminate any Contract of Company, or Parent, as applicable, or other material
contract or material agreement to which Company, or Parent is a party or waive,
delay the exercise of, release or assign any material rights or claims
thereunder;
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(n) Except as required by U.S. GAAP, revalue any of its assets or
make any change in accounting methods, principles or practices;
(o) Except as set forth in Schedule 4.1(o) hereto or in the ordinary
course of business consistent with past practices, incur or enter into any
agreement, contract or commitment requiring such party to pay in excess of
$50,000 in any 12 month period;
(p) Engage in any action that could reasonably be expected to cause
the Transaction to fail to qualify as a "reorganization" under Section 368(a) of
the Code;
(q) Except as contemplated by Article V herein or as set forth in
Schedule 4.1(q) hereto, settle any litigation;
(r) Make or rescind any Tax elections that, individually or in the
aggregate, could be reasonably likely to adversely affect in any material
respect the Tax liability or Tax attributes of such party, settle or compromise
any material income tax liability or, except as required by applicable law,
materially change any method of accounting for Tax purposes or prepare or file
any Return in a manner inconsistent with past practice;
(s) Form, establish or acquire any Subsidiary except as contemplated
by this Agreement;
(t) Permit any Person to exercise any of its discretionary rights
under any Plan to provide for the automatic acceleration of any outstanding
options, the termination of any outstanding repurchase rights or the termination
of any cancellation rights issued pursuant to such plans; or
(u) Agree in writing or otherwise agree, commit or resolve to take
any of the actions described in Section 4.1 (a) through (t) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Company U.S. GAAP Financial Statements. To the extent not previously
delivered to Parent, at least twenty (20) days prior to the Closing, Company
shall deliver to Parent audited financial statements for Company consisting of a
balance sheet for the fiscal year ended December 31, 2003 and statements of
operations and cash flows for the period of inception (February 18, 2003) to
December 31, 2003 and unaudited financials statements for Company for the
current fiscal year through the most recent interim period ended, which
financial statements shall comply in all material respects with the published
rules and regulations of the SEC, shall be prepared in accordance with U.S. GAAP
applied on a consistent basis throughout the periods involved, shall be in the
English language, and shall fairly present in all material respects the
financial position of Company at the respective dates thereof and the results of
its operations and cash flows for the periods indicated ("Company U.S. GAAP
Financial Statements"). The Company U.S. GAAP Financial Statements shall have
been audited by, and the interim financials statements shall have been reviewed
by, Stonefield Xxxxxxxxx, Inc. ("Accountant").
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5.2 Company Proforma Financial Statements. Provided Parent provides to
Company audited and interim financial statements of Parent at least twenty-five
(25) days prior to Closing and such other accounting work papers and
documentation as are reasonably requested by Company or its accountants, at
least fifteen (15) days prior to the Closing, Company shall deliver to Parent
audited financial statements for the Company, Parent and Merger Sub, on a
consolidated basis, and unaudited financial statements for the Company, Parent
and Merger Sub, on a consolidated basis, giving effect to the Transaction,
together with any proforma financial information or other financial information
required to be included in a Form 8-K or any other report or form required to be
filed with the SEC at or after Closing with respect to the Transaction, all
prepared in all material respects incompliance with the published rules and
regulations of the SEC and in accordance with U.S. GAAP applied on a consistent
basis throughout the periods involved ("Company Combination Financial
Statements"). The Company Combination Financial Statements shall have been
audited by, and the interim financial statements shall have been reviewed by,
the Accountant.
5.3 Board of Directors of Parent. At Closing, the current board of
directors of Parent shall deliver duly adopted resolutions to: (a) set the size
of Parent's initial board of directors at five (5) members effective as of the
Closing; and (b) elect the following persons to the Parent's board of directors
effective as of the Closing: (i) Xxxxxx X. Xxxxx, Xxxx X. Xxxxxx, Xxxxxxx X.
Xxxxxxx and Xxxxx X. Xxxxxxx, each of whom shall be management members of
Parent's board of directors ("Management Members"); and (ii) one member
designated by KRM Fund, which person shall be an independent director and a
financial expert, qualified and available to serve on Parent's audit and
compensation committee, and otherwise acceptable to the Stockholders ("Parent
Designated Member");; and (c) accepting the resignations of the current officers
and directors of the Parent effective as of the Closing ("Resolutions"). At
Closing, the current officers and directors of Parent shall deliver their
resignations, as appropriate, as officers and directors of Parent to be
effective upon the Closing (the "Resignations"). At least twenty (20) days prior
to Closing, the Company and Stockholders shall deliver or cause to be delivered
to Parent completed and signed director and officer questionnaires
("Questionnaires") in the English language for each of the Management Members,
and Parent will provide to Company a copy of the Questionnaire of Parent
Designated Member. The foregoing designations of the Management Members (and the
officers to be appointed by Parent following Closing) shall be subject to
Parent's receipt of the completed and signed Questionnaires and a third party
investigation reports and background checks, which shall be acceptable to Parent
in its sole discretion ("D&O Information"). Parent's board of directors at all
times following the Closing shall satisfy the applicable requirements for board
composition and corporate governance under the Xxxxxxxx-Xxxxx Act of 2002 (the
"SOX Act"), the rules and regulations promulgated by the SEC and other
governmental agencies, and the rules of any exchange on which Parent's
securities are, or are expected to be, listed or quoted. The Stockholders shall
execute and deliver at Closing the Voting Agreement which shall provide, among
other things, that the Stockholders will vote their Parent's Shares to elect
Parent Designated Member to Parent's board of directors for a period of one year
following the Closing.
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5.4 Undertaking by Company Accountant. At least ten (10) days prior to
Closing, the Company shall obtain, and deliver to Parent, an undertaking from
the Accountant, in a form and substance satisfactory to Parent, providing that:
(i) the Accountant has agreed to an engagement with Parent to serve as its
certified public accountants following the Closing for purposes of auditing and
reviewing the financial statements of the Parent and the Company to comply with
the Parent's ongoing reporting requirements under the Exchange Act including,
without limitation, the filing of Forms 10-Q and 10-K, (ii) the transaction
contemplated hereunder will not disqualify or otherwise prohibit the Accountant
from rendering the foregoing engagement services or from undertaking such
services in a timely manner, (iii) the Accountant is duly registered with the
U.S. Public Company Accounting Oversight Board ("PCAOB"), (iv) the Accountant
shall provide its consent to the use of their audited financial statements and
accompanying reports for the Parent and the Company, as applicable, in any
regulatory filing by the Parent prior to or following the Closing, and (v)
consenting to the use of its name and the disclosure of its engagement by Parent
in the Change of Accountant Form 8-K (as defined in Section 5.5) ("Accountant
Undertaking"). A signed copy of the engagement letter between Parent and
Accountant shall be attached to the Accountant Undertaking.
5.5 Consent by Former Accountants; Change of Accountants. At least twenty
five (25) days prior to Closing, Parent shall obtain the written consent from
the former accountants of in a form and substance satisfactory to Company, to
the use of their audited financial statements and accompanying reports for the
Parent to the extent that such financial statements and reports are required to
be included in any regulatory filing by the Parent or following the Closing
("Former Accountant Consents"). Prior to the Closing, Parent shall prepare the
Form 8-K announcing the change in the Parent's certifying accountants from
Xxxxxxx, Xxxxx & Xxxxxxx, PLC ("Parent's Accountant") to the Accountant
effective as of the Closing ("Change of Accountant Form 8-K"). The Change of
Accountant Form 8-K shall be filed with the SEC at Closing, and prior to the
filing thereof, the Parent's Accountant shall have issued its resignation letter
to Parent resigning from the engagement and consenting to the use of its name
and the disclosure of its resignation in the Change of Accountant Form 8-K
("Resignation Letter").
5.6 Other Actions.
(a) At least five (5) days prior to Closing, Parent shall prepare
the Form 8-K announcing the Closing, together with the Company Combination
Financial Statements prepared by the Company and its Accountant, and such other
information that may be required to be disclosed with respect to the Transaction
in any report or form to be filed with the SEC ("Transaction Form 8-K"), which
shall be in a form acceptable to Company and in a format acceptable for XXXXX
filing. Prior to Closing, the Parent and Company shall prepare the press release
announcing the consummation of the Transaction hereunder ("Press Release"). At
the Closing, Parent shall file the Transaction Form 8-K with the SEC and
distribute the Press Release.
(b) At least ten (10) days prior to the Closing, Parent shall
prepare the information statement required by Rule 14f-1 promulgated under the
Exchange Act ("14F Information Statement") in a form acceptable to Company, and
the Parent shall file the 14f-1 Information Statement with the SEC and mail the
same to each of Parent's stockholders.
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(c) At least twenty (20) days prior to Closing, Parent shall take
any and all action to amend its articles of incorporation to change the name of
Parent to ICON Textile Laser Systems Holding Company ("Name Change") and to
effect a 1-for-25 reverse stock split with special treatment to certain
stockholders of Parent to preserve round lot stockholders ("Reverse Split"), to
be in a form of amendment attached hereto as Exhibit C ("Articles of
Amendment"), with such action being contingent upon and effective as of the
Closing of the Merger.
(d) Parent shall prepare the information statement required under
the Rule 14c of the Exchange Act ("14C Information Statement"), in a form
acceptable to Company. The Parent shall file the 14C Information Statement with
the SEC and mail the same to each of Parent's stockholders at least twenty (20)
days prior to the Closing.
Company and Parent shall further cooperate with each other and use their
respective reasonable best efforts to take or cause to be taken all actions, and
do or cause to be done all things, necessary, proper or advisable on its part
under this Agreement and applicable laws to consummate the Transaction and the
other transactions contemplated hereby as soon as practicable, including
preparing and filing as soon as practicable all documentation to effect all
necessary notices, reports and other filings and to obtain as soon as
practicable all consents, registrations, approvals, permits and authorizations
necessary or advisable to be obtained from any third party and/or any
Governmental Entity in order to consummate the Transaction or any of the other
transactions contemplated hereby. Subject to applicable laws relating to the
exchange of information and the preservation of any applicable attorney-client
privilege, work-product doctrine, self-audit privilege or other similar
privilege, each of Company and Parent shall have the right to review and comment
on in advance, and to the extent practicable each will consult the other on, all
the information relating to such party, that appear in any filing made with, or
written materials submitted to, any third party and/or any Governmental Entity
in connection with the Transaction and the other transactions contemplated
hereby. In exercising the foregoing right, each of Company and Parent shall act
reasonably and as promptly as practicable.
5.7 Required Information. In connection with the preparation of the
Transaction Form 8-K, the 14F Information Statement, the 14C Information
Statement, and Press Release, and for such other reasonable purposes, Company
and Parent each shall, upon request by the other, furnish the other with all
information concerning themselves, their respective directors, officers and
stockholders (including the directors of Parent to be elected effective as of
the Closing pursuant to Section 5.3 hereof) and such other matters as may be
reasonably necessary or advisable in connection with the Transaction, or any
other statement, filing, notice or application made by or on behalf of Company
and Parent to any third party and/or any Governmental Entity in connection with
the Transaction and the other transactions contemplated hereby. Each party
warrants and represents to the other party that all such information shall be
true and correct in all material respects and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
5.8 Confidentiality; Access to Information. (a) Any confidentiality
agreement previously executed by the parties shall be superseded in its entirety
by the provisions of this Agreement. Each party agrees to maintain in confidence
any non-public information received from the other party, and to use such
non-public information only for purposes of consummating the transactions
contemplated by this Agreement. Such confidentiality obligations will not apply
to (i) information which was known to the one party or their respective agents
prior to receipt from the other party; (ii) information which is or becomes
generally known; (iii) information acquired by a party or their respective
agents from a third party who was not bound to an obligation of confidentiality;
and (iv) disclosure required by law. In the event this Agreement is terminated
as provided in Article VIII hereof, each party will return or cause to be
returned to the other all documents and other material obtained from the other
in connection with the Transaction contemplated hereby.
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(b) Access to Information.
(i) Company will afford Parent and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of Company during the period prior to the Closing to obtain all
information concerning the business, including the status of product development
efforts, properties, results of operations and personnel of Company, as Parent
may reasonably request. No information or knowledge obtained by Parent in any
investigation pursuant to this Section 5.8 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Transaction.
(ii) Parent will afford Company and its financial advisors,
underwriters, accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Parent during the period prior to the Closing to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of Parent,
as Company may reasonably request. No information or knowledge obtained by
Company in any investigation pursuant to this Section 5.8 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Transaction.
5.9 No Solicitation. Other than with respect to the Transaction, each of
Company and Parent agrees that neither it nor any of its officers and directors
shall, and that it shall direct and use its reasonable best efforts to cause its
agents and other representatives (including any investment banker, attorney or
accountant retained by it) not to, directly or indirectly, initiate, solicit,
encourage or otherwise facilitate any inquiries or the making of any proposal or
offer with respect to (i) a merger, reorganization, share exchange,
consolidation or similar transaction involving it, (ii) any sale, lease,
exchange, mortgage, pledge, transfer or purchase of all or substantially all of
the assets or equity securities of, it and its Subsidiaries, taken as a whole,
in a single transaction or series of related transactions, or (iii) any tender
offer or exchange offer for 20% or more of the outstanding shares of the Parent
Common Stock or Company Common Stock (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal"). Each of Company and
Parent further agrees that neither nor its officers and directors shall, and
that each shall direct and use its reasonable best efforts to cause its agents
and representatives not to, directly or indirectly, engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal.
Each of the Company and Parent agrees that it will immediately cease and cause
to be terminated any existing discussions or negotiations with any parties
conducted heretofore with respect to any Acquisition Proposal. Each of the
Company and Parent agrees that it will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 5.9.
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Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall prevent the board of directors of
Parent, or their respective representatives from, prior to the time Parent's
stockholders have approved this Transaction (if required) (A) complying with
Rule 14e-2 promulgated under the Exchange Act with regard to an Acquisition
Proposal, if applicable, or otherwise complying with the Exchange Act; (B)
providing information in response to a request therefor by a person who has made
a bona fide unsolicited Acquisition Proposal; (C) engaging in any negotiations
or discussions with any person who has made a bona fide unsolicited Acquisition
Proposal or otherwise facilitating any effort or attempt to implement an
Acquisition Proposal; or (D) withdrawing or modifying the approval or
recommendation by Parent's board of directors of this Agreement, approving or
recommending any Acquisition Proposal or causing the applicable party to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement relating to any Acquisition Proposal, if, and only to
the extent that in each such case referred to in clause (B), (C) or (D) above,
the Parent's board of directors determines in good faith, after consultation
with outside legal counsel that such action is necessary to act in a manner
consistent with the directors' fiduciary duties under applicable law and
determines in good faith after consultation with its financial advisors that the
person or group making such Acquisition Proposal has adequate sources of
financing to consummate such Acquisition Proposal and that such Acquisition
Proposal, if consummated as proposed, is materially more favorable to the
stockholders of Parent from a financial point of view (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and determines
in good faith that such Superior Proposal is reasonably capable of being
consummated, taking into account legal, financial, regulatory and other aspects
of the proposal and the person making the proposal.
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5.10 Public Disclosure. Except to the extent previously disclosed or to
the extent the parties believe that they are required by applicable law or
regulation to make disclosure, prior to Closing, no party shall issue any
statement or communication to the public regarding the Transaction without the
consent of the other party, which consent shall not be unreasonably withheld. To
the extent a party hereto believes it is required by law or regulation to make
disclosure regarding the Transaction, it shall, if possible, immediately notify
the other party prior to such disclosure. Notwithstanding the foregoing, the
parties hereto agree that Parent will prepare and file a Current Report on Form
8-K pursuant to the Exchange Act to report the execution of this Agreement and
that Parent and Parent's stockholders may file any reports as required by the
Exchange Act including, without limitation, any reports on Schedule 13D.
5.11 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Transaction and the other transactions contemplated by
this Agreement, including using commercially reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VI to be satisfied, (ii) the obtaining
of all necessary actions or nonactions, waivers, consents, approvals, orders and
authorizations from Governmental Entities and the making of all necessary
registrations, declarations and filings (including registrations, declarations
and filings with Governmental Entities, if any) and the taking of all reasonable
steps as may be necessary to avoid any suit, claim, action, investigation or
proceeding by any Governmental Entity, (iii) the obtaining of all consents,
approvals or waivers from third parties required as a result of the transactions
contemplated in this Agreement, (iv) the defending of any suits, claims,
actions, investigations or proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed and (v)
the execution or delivery of any additional instruments reasonably necessary to
consummate the transactions contemplated by, and to fully carry out the purposes
of, this Agreement. In connection with and without limiting the foregoing,
Parent and its board of directors and Company and its board of directors shall,
if any state takeover statute or similar statute or regulation is or becomes
applicable to the Transaction, this Agreement or any of the transactions
contemplated by this Agreement, use its commercially reasonable efforts to
enable the Transaction and the other transactions contemplated by this Agreement
to be consummated as promptly as practicable on the terms contemplated by this
Agreement. Notwithstanding anything herein to the contrary, nothing in this
Agreement shall be deemed to require Parent or Company to agree to any
divestiture by itself or any of its affiliates of shares of capital stock or of
any business, assets or property, or the imposition of any material limitation
on the ability of any of them to conduct their business or to own or exercise
control of such assets, properties and stock.
40
(b) Company shall give prompt notice to Parent upon becoming aware
that any representation or warranty made by them contained in this Agreement has
become untrue or inaccurate, or of any failure of Company or Stockholders to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it under this Agreement, in each
case, such that the conditions set forth in Article VI would not be satisfied;
provided, however, that no such notification shall affect the representations,
warranties, covenants or agreements of the parties or the conditions to the
obligations of the parties under this Agreement.
(c) Parent shall give prompt notice to Company and Stockholders upon
becoming aware that any representation or warranty made by it contained in this
Agreement has become untrue or inaccurate, or of any failure of Parent to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Article VI would not be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
5.12 Treatment as a Reorganization. Neither Parent nor Company nor
Stockholders shall take any action prior to or following the Transaction that
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
5.13 Absence of Material Liabilities. Immediately prior to Closing, Parent
shall have no material liabilities or obligations requiring the payment of
monies, except for obligations or liabilities under or with respect to: (i) a
certain Financial Advisory Agreement by and between Parent and Xxxxxxx
Securities, LLC ("Xxxxxxx"), in the form attached hereto as Exhibit B
("Financial Advisory Agreement"), (ii) a certain Selling Agreement between
Parent and Xxxxxxx, with respect to the Private Placement, a copy of which has
heretofore been delivered to the Company, (iii) any agreements with the Transfer
Agent, (iv) the Investigation Costs (as defined in Section 9.4 hereof), (v) the
Contracts disclosed under Section 3.19 hereto, and (vi) certain accounts payable
and accrued expenses of Parent with respect to the period prior to Closing and
which remain unpaid, for which Parent has established a Cash Reserve
(collectively, the "Parent Obligations"). At Closing, the Company agrees to pay
and satisfy, or cause the Parent to pay or satisfy, all of the Parent
Obligations and to otherwise abide by the terms and conditions of the Parent
Obligations following the Closing.
5.14 Cash Payments at Closing. At Closing, Parent (or the escrow agent
under the Private Placement) shall disburse to Xxxxxxx from the proceeds of the
Private Placement: (i) all commissions and allowances due and payable to Xxxxxxx
pursuant to the Selling Agreement, (ii) $350,000 in full payment of the reverse
merger fees due to Xxxxxxx under the Financial Advisory Agreement, and (iii) the
amount of the Investigation Costs either directly to the provider of such
investigation services or to KRM Fund as reimbursement for the payment of the
Investigation Costs which will not exceed $10,000 ("Closing Payments").
5.15 Business Records. At Closing, Parent shall cause to be delivered to
Company all records and documents relating to the Company, which Parent
possesses, including, without limitation, books, records, government filings,
Returns, Charter Documents, Stock Records, consent decrees, orders, and
correspondence, director and stockholder minutes and resolutions, stock
ownership records, financial information and records, electronic files
containing any financial information and records, and other documents used in or
associated with Parent ("Business Records").
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5.16 Registration Statements. During the one (1) year period following the
Closing, the Company and each Stockholder agrees not to include any of the
shares of Parent Common Stock received by each of them under this Agreement in
any registration statement filed by the Parent. The provisions of this Section
5.16 shall be binding on all transferees of the Stockholders.
5.17 Stockholder Voting on Merger Agreement. In connection with the
execution of this Agreement, each Stockholder agrees to enter into a separate
agreement with Parent under which they each agree to vote the shares of Company
Common Stock owned by them in favor of this Agreement and the transactions
contemplated under this Agreement.
ARTICLE VI CONDITIONS TO THE TRANSACTION
6.1 Conditions to Obligations of Each Party to Effect the Transaction. The
respective obligations of each party to this Agreement to effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Transaction illegal or
otherwise prohibiting consummation of the Transaction, substantially on the
terms contemplated by this Agreement. All waiting periods, if any, under any
foreign law in any jurisdiction in which the Company or Parent has material
operations relating to the transactions contemplated hereby will have expired or
terminated early and all material foreign antitrust approvals required to be
obtained prior to the Transaction in connection with the transactions
contemplated hereby shall have been obtained.
(b) Tax Opinions. Prior to the Closing, Company shall have received
a written opinion from its tax counsel, in form and substance reasonably
satisfactory to Company and Parent, to the effect that the Transaction will
constitute a reorganization within the meaning of Section 368(a) of the Code and
such opinion shall not have been withdrawn. The parties to this Agreement agree
to make such reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
(c) Debt Holder Consents. The lenders under Company's credit
facilities, secured loans, mortgages and other indebtedness for borrowed money
shall have consented in writing to the Transaction and have agreed to continue
the existing financing agreements on the same or more favorable terms and
conditions as in existence on the date hereof.
(d) Stockholder Approval. This Agreement and the Merger shall have
been duly approved and adopted, by the requisite vote under the laws of the
State of Delaware and the Company Charter Documents, by the stockholders of the
Company, and by the requisite vote under the laws of the State of Nevada and the
Parent Charter Documents, by the stockholders of Parent, if required.
(e) Approval of Articles of Amendment. The Articles of Amendment, in
the form attached hereto as Exhibit C, effecting the Name Change and the Reverse
Split shall have been duly approved by the Parent's Board of Directors, and by
the requisite vote under the laws of the State Nevada and the Parent Charter
Documents, by the stockholders of Parent. The Articles of Amendment shall have
been filed with the Nevada Secretary of State to be effective as of the Closing.
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(f) Information Statements. At least twenty (20) days prior to
Closing, Parent shall have filed the 14F Information Statement and 14C
Information Statements with the SEC, and Parent shall have mailed the 14F
Information Statement and 14C Information Statement to each of the stockholders
of Parent, and Parent shall have otherwise complied with all of the provisions
under Rules 14c and 14f-1 under the Exchange Act and the Reverse Split and Name
Change will be effective.
(g) Private Placement. Parent shall have received signed
subscriptions to purchase Units in the Private Placement under the terms and
conditions as mutually agreed to by Parent and Company, which subscriptions
shall represent gross proceeds of not less than $2,250,000, with such gross
proceeds having been fully funded into an escrow account established for the
Private Placement.
(h) Investment Representation Letter. Parent shall have obtained
from each holder of record (as of the Effective Time) of Certificates, which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock whose shares were converted into the right to receive
shares of Parent Common Stock pursuant to Section 1.6, an investment
representation letter consistent with the provisions of Section 1.12 hereof.
(i) Dissenter's Rights. Holders of no more than 50,000 shares of
Company Common Stock shall have taken action to exercise their dissent's rights
pursuant to Section 262 of the Delaware Business Corporation Law or Section
1300-1304 of the California General Corporation Law.
(j) Transaction 8-K. Parent Company shall have filed the Transaction
Form 8-K with the SEC at Closing.
6.2 Additional Conditions to Obligations of Company. The obligations of
Company to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations and Warranties. Each representation and warranty
of Parent contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on the Closing Date.
Company shall have received a certificate with respect to the foregoing signed
on behalf of Parent by an authorized officer of Parent ("Parent Closing
Certificate").
(b) Agreements and Covenants. Parent shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them on or prior to the
Closing Date, except to the extent that any failure to perform or comply (other
than a willful failure to perform or comply or failure to perform or comply with
an agreement or covenant reasonably within the control of Parent) does not, or
will not, constitute a Material Adverse Effect with respect to Parent, and the
Company shall have received Parent Closing Certificate to such effect.
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(c) Resignations and Resolutions. Parent shall have delivered to
Company the Resignations and Resolutions, in a form reasonably satisfactory to
Company evidence satisfactory to Company of the resignation of all directors and
officers of Parent, effective as of the Closing. Parent shall also have
delivered to Company evidence satisfactory to Company of the appointment of new
directors of Parent in accordance with Section 5.4 hereof.
(d) Consents. Parent shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Parent.
(e) Material Adverse Effect. No Material Adverse Effect with respect
to Parent shall have occurred since the date of this Agreement.
(f) Prior Accountant Consent. Parent shall have obtained and
delivered to Company a copy, of the Prior Accountant Consent in a form
satisfactory to Company.
(g) No Financial Obligations. Immediately prior to the Closing,
Parent shall have no material liabilities or obligations, other than as set
forth in Section 5.13 hereof.
(h) SEC Compliance. Immediately prior to Closing, Parent shall be in
compliance with the reporting requirements under the Exchange Act.
(i) Business Records; Resignation Letter. The Parent shall have
delivered to Company the Business Records and the Resignation Letter from
Parent's Accountant.
(j) OTC Listing. The Parent Common Stock at the Closing will be
quoted on the OTC BB and there will be no action or proceeding pending or
threatened against Parent by the NASD to prohibit or terminate the quotation of
Parent Common Stock from the OTC BB
(k) Voting Agreement. The Voting Agreement shall have been fully
authorized and approved by the Parent's board of directors.
(l) Other Deliveries. At or prior to Closing, Parent shall have
delivered to Company (i) copies of resolutions and actions taken Parent's board
of directors and stockholders (if required) in connection with the approval of
this Agreement and the transactions contemplated hereunder, and (ii) such other
documents or certificates as shall reasonably be required by Company and its
counsel in order to consummate the transactions contemplated hereunder.
(m) Change of Accountant Form 8-K; Press Release. Parent shall have
delivered the Change of Accountant Form 8-K and the Press Release to Company,
each in a form acceptable to Company.
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(n) Financial Advisory Agreement. The Financial Advisory Agreement
between Parent and Xxxxxxx, LLC, in the form of Exhibit B hereto, has been duly
authorized and approved by Parent's board of directors.
6.3 Additional Conditions to the Obligations of Parent. The obligations of
Parent to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Parent:
(a) Representations and Warranties. Each representation and warranty
of Company contained in this Agreement (i) shall have been true and correct as
of the date of this Agreement and (ii) shall be true and correct on and as of
the Closing Date with the same force and effect as if made on and as of the
Closing. Parent shall have received a certificate with respect to the foregoing
signed on behalf of Company by an authorized officer of Company ("Company
Closing Certificate")
(b) Agreements and Covenants. Company shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by them at or prior to the
Closing Date except to the extent that any failure to perform or comply (other
than a willful failure to perform or comply or failure to perform or comply with
an agreement or covenant reasonably within the control of Company) does not, or
will not, constitute a Material Adverse Effect on Company, and Parent shall have
received the Company Closing Certificate to such effect.
(c) Consents. Company shall have obtained all consents, waivers,
permits and approvals required in connection with the consummation of the
transactions contemplated hereby, other than consents, waivers and approvals the
absence of which, either alone or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on Company.
(d) Material Adverse Effect. No Material Adverse Effect with respect
to Company shall have occurred since the date of this Agreement.
(e) Company Financial Statements. Company shall have delivered to
Parent the Company U.S. GAAP Financial Statement and the Company Combination
Financial Statements, all of which shall be acceptable to Parent in its sole
discretion. The U.S. GAAP Financial Statements shall reflect consolidated net
revenues of the Company for the most recent fiscal year ended not less than
$375,000, and net revenues for the first six (6) months of the Company's current
fiscal year not less than $300,000.
(f) Accountant Undertaking; Company shall have delivered to Parent
the Accountant Undertaking in a form satisfactory to Parent.
(g) Employment Agreements. Each Management Member shall have
executed and delivered employment agreements with Parent or the Company, which
agreements shall be in full force and effect as of the Closing and shall be
acceptable to Parent.
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(h) D&O Information. Company shall have delivered the fully
completed and signed Questionnaires, and the D&O Information shall be acceptable
to Parent.
(i) Voting Agreement. The Stockholders have executed and delivered
the Voting Agreement by and between the Stockholders, Parent and KRM Fund, in
the form attached hereto as Exhibit A. The Voting Agreement has been duly
authorized and approved by the Parent's board of directors.
(j) Repayment of Affiliate Obligations. At the Closing Date, all
amounts owed to Company by each Stockholder (regardless of whether such amounts
are due and payable) shall have been paid in full.
(k) Closing Payments. The Closing Payments shall have been disbursed
as provided in Section 5.14.
(l) Other Deliveries. At or prior to Closing, the Company shall have
delivered to Parent: (i) copies of resolutions and actions taken Company's board
of directors and stockholders in connection with the approval of this Agreement
and the transactions contemplated hereunder, and (ii) such other documents or
certificates as shall reasonably be required by Parent and its counsel in order
to consummate the transactions contemplated hereunder.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
7.1 Survival. All representations, warranties, agreements and covenants
contained in or made pursuant to this Agreement (including, without limitation
the covenants set forth in Section 9.1 hereof), or any Exhibit or Schedule
hereto or thereto or any certificate delivered at the Closing, shall survive
(and not be affected by) the Closing, but all claims made by virtue of such
representations, warranties, agreements and covenants shall be made under, and
subject to the limitations set forth in this Article VII.
7.2 Stockholder Indemnification Obligation. Each Stockholder jointly and
severally hereby indemnifies and holds harmless, and agrees to indemnify and
hold harmless, Parent (from and after the Closing), and its directors, officers,
shareholders, employees and agents (collectively, the "Parent Indemnified
Parties") against (i) any and all liabilities, obligations, losses, damages,
claims, actions, Liens and deficiencies which exist, or which may be imposed on,
incurred by or asserted against any one or more of the Parent Indemnified
Parties, based upon, resulting from or arising out of, or as to which there was,
any breach or inaccuracy of any representation or warranty by the Company, or
any agreement or covenant made by the Company, in or pursuant to this Agreement,
or in any Exhibit or Schedule hereto or thereto, or any certificate or document
delivered by the Company, at the Closing (including, without limitation, any
breach of the covenants under Section 9.1 hereof, whether caused by the actions
or inactions of the Company or Parent following Closing), and (ii) any cost or
expense (including reasonable attorneys' fees and court costs) incurred by the
Parent Indemnified Parties or any of them in connection with the foregoing
(including, without limitation, any cost or expense incurred by the Parent
Indemnified Parties in investigating or defending such claims or enforcing their
rights pursuant to this Section 7.2) (collectively, the "Damages").
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No Parent Indemnified Party shall be required to make any claim or demand
against Company or any other Person prior to the making of any claim or demand
for indemnification or at any other time. The rights of the Parent Indemnified
Parties under this Section 7.2 are in addition to such other rights and remedies
which they may have under this Agreement or otherwise. The amount of any and all
Damages suffered by Parent Indemnified Parties under Sections 7.2 shall be
recovered by KRM Fund and the other Parent Indemnified Parties who have suffered
Damages, the amount of which shall be determined in accordance with Section 7.5
below, and all claims of Parent Indemnified Parties pursuant Sections 7.2 shall
be brought by KRM Fund on behalf of such Parent Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
claim or demand for indemnification with respect to which the Company had
Knowledge (as defined in this Section 7.2), no demand or claim for
indemnification under this Section 7.2 may be made after 11:59 p.m. Eastern
standard time on the date which is six months following the Closing Date. No
demand or claim for indemnification under this Section 7.2 for any claim or
demand for indemnification with respect to which the Company had Knowledge may
be made after 11:59 p.m. Eastern standard time on the first anniversary of the
Closing Date if the Company had Knowledge with respect to such claim.
For purposes of this Agreement, the term "Knowledge" means in respect of
any claim or demand for indemnification, as of the Closing Date or at any time
prior thereto, (a) actual knowledge of the breach or inaccuracy upon which such
claim is based or (b) actual knowledge of facts which would cause a reasonable
person, having knowledge and a full understanding of the terms of this
Agreement, to be aware of or recognize the breach or inaccuracy upon which any
claim or demand for indemnification is based; provided that such person shall be
deemed to have knowledge of such facts which a reasonable person conducting a
reasonable due diligence review would ascertain, discover or become aware of.
7.3 KRM Fund Indemnification Obligation. KRM Fund hereby indemnifies and
holds harmless, and agrees to indemnify and hold harmless, Company (from and
after the Closing), and its directors, officers, shareholders, employees and
agents (collectively, the "Company Indemnified Parties") against (i) any and all
liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against any one or more of the Company Indemnified Parties, based upon,
resulting from or arising out of, or as to which there was, any breach or
inaccuracy of any representation or warranty by Parent, or any agreement or
covenant made by Parent, in or pursuant to this Agreement, or in any Exhibit or
Schedule hereto or thereto, or any certificate or document delivered by Parent,
at the Closing (excluding any breach of the covenants under Section 9.1 hereof,
whether caused by the actions or inactions of the Company or Parent following
Closing), and (ii) any cost or expense (including reasonable attorneys' fees and
court costs) incurred by the Company Indemnified Parties or any of them in
connection with the foregoing (including, without limitation, any cost or
expense incurred by the Company Indemnified Parties in investigating or
defending such claims or enforcing their rights pursuant to this Section 7.3)
(collectively, the "Damages").
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No Company Indemnified Party shall be required to make any claim or demand
against Parent or any other Person prior to the making of any claim or demand
for indemnification or at any other time. The rights of the Company Indemnified
Parties under this Section 7.3 are in addition to such other rights and remedies
which they may have under this Agreement or otherwise. The amount of any and all
Damages suffered by Company Indemnified Parties under Sections 7.3 shall be
recovered by the Stockholders and other Company Indemnified Parties who have
suffered Damages, the amount of which shall be determined in accordance with
Section 7.5 below, and all claims of Company Indemnified Parties pursuant
Sections 7.3 shall be brought by the Stockholders on behalf of such Company
Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
claim or demand for indemnification with respect to which the Parent had
Knowledge, no demand or claim for indemnification under this Section 7.3 may be
made after 11:59 p.m. Eastern standard time on the date which is six months
following the Closing Date. No demand or claim for indemnification under this
Section 7.3 for any claim or demand for indemnification with respect to which
the Parent had Knowledge may be made after 11:59 p.m. Eastern standard time on
the first anniversary of the Closing Date if the Parent had Knowledge with
respect to such claim.
7.4 Procedure for Indemnification Claims.
(a) The Persons who are claiming indemnification under this Article
VII are referred to herein as "Indemnified Parties", and the Persons from whom
indemnification is sought pursuant to this Article VIII are referred to herein
as "Indemnifying Parties".
(b) If at any time an Indemnified Party determines to assert a right
to indemnification hereunder, the Indemnified Party shall give to the
Indemnifying Party written notice describing the matter for which
indemnification is sought in reasonable detail. In the event that a demand or
claim for indemnification is made hereunder with respect to a matter the amount
or extent of which is not yet known or certain, the notice of demand for
indemnification shall so state, and, where practicable, shall include an
estimate of the amount of the matter. The failure of an Indemnified Party to
give notice of any matter to the Indemnifying Party shall not relieve the
Indemnifying Party of any liability which the Indemnifying Party may have to any
Indemnified Party.
(c) Within 15 days after receipt of the notice referred to in clause
(b) above, the Indemnifying Party from whom indemnification is sought shall (i)
acknowledge in writing his responsibility for all or part of such matter, and
shall pay or otherwise satisfy the portion of such matter as to which
responsibility is acknowledged or take such other action as is reasonably
satisfactory to the Indemnified Party to resolve any such matter that involves
anyone not a party hereto or (ii) give written notice to the Indemnified Party
of his intention to dispute or contest all or part of such responsibility. Upon
delivery of such notice of intention to contest, the parties shall negotiate in
good faith to resolve as promptly as possible any dispute as to responsibility
for, or the amount of, any such matter. Failure to respond to a notice claiming
indemnification shall be deemed a denial of responsibility therefor.
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(d) In the event that the Indemnified Party is required to expend
any amount in enforcing its rights of indemnification hereunder, the
Indemnifying Parties will, jointly and severally, promptly upon request, pay
such amounts to the Indemnified Party.
(e) Each Indemnifying Party shall have the right to employ separate
counsel in any action or claim which is brought against any Indemnified Party in
respect of which indemnity may be sought from it, and to participate in the
defense of such action or claim, if such Indemnifying Party confirms in writing
its responsibility for such action or claim; provided, however, that (i) the
Indemnified Party or Parties shall retain control of such action or claim and
(ii) the fees and expenses of such separate counsel shall be at the expense of
the Indemnifying Party.
7.5 Recovery of Damages.
(a) Parent Indemnified Parties shall not be entitled to
indemnification pursuant to Section 7.2, unless and until the aggregate amount
of Damages to Parent Indemnified Parties with respect to such matters under
Section 7.2 exceeds $50,000, at which time, subject to a maximum amount of
Damages of $350,000 that may be claimed by Parent Indemnified Parties under
Section 7.2, the Parent Indemnified Parties shall be entitled to indemnification
for the total amount of such Damages in excess of $50,000.
(b) Company Indemnified Parties shall not be entitled to
indemnification pursuant to Section 7.3, unless and until the aggregate amount
of Damages to Company Indemnified Parties with respect to such matters under
Section 7.3 exceeds $50,000, at which time, subject to a maximum amount of
Damages of $350,000 that may be claimed by Company Indemnified Parties under
Section 7.3, the Company Indemnified Parties shall be entitled to
indemnification for the total amount of such Damages in excess of $50,000.
(c) Materiality qualifications to the representations and warranties
of Company and Parent shall not be taken into account in determining the amount
of Damages occasioned by a breach of any such representation and warranty for
purposes of determining whether the baskets set forth in Section 7.5 have been
met
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Parent and the Company at any
time;
(b) by either Parent or the Company if the Transaction shall not
have been consummated by October 31, 2004 for any reason; provided, however,
that the right to terminate this Agreement under this Section 8.1(b) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Transaction to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
49
(c) by either Parent or the Company if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise prohibiting
the Transaction, which order, decree, ruling or other action is final and
nonappealable;
(d) by Company, upon a material breach of any representation,
warranty, covenant or agreement on the part of Parent set forth in this
Agreement, or if any representation or warranty of Parent shall have become
materially untrue, in either case such that the conditions set forth in Article
VI would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Parent's representations and warranties or breach by Parent is
curable by Parent prior to the Closing Date, then the Stockholders may not
terminate this Agreement under this Section 8.1(d) for thirty (30) days after
delivery of written notice from Stockholders to Parent of such breach, provided
Parent continues to exercise commercially reasonable efforts to cure such breach
(it being understood that Stockholders may not terminate this Agreement pursuant
to this Section 8.1(d) if it or Company shall have materially breached this
Agreement or if such breach by Parent is cured during such thirty (30)-day
period);
(e) Parent, upon a material breach of any representation, warranty,
covenant or agreement on the part of Company set forth in this Agreement, or if
any representation or warranty of Company shall have become materially untrue,
in either case such that the conditions set forth in Article VI would not be
satisfied as of the time of such breach or as of the time such representation or
warranty shall have become untrue, provided, that if such inaccuracy in
Company's or Stockholders' representations and warranties or breach by Company
or Stockholders is curable by Company or Stockholders prior to the Closing Date,
then Parent may not terminate this Agreement under this Section 8.1(e) for
thirty (30) days after delivery of written notice from Parent to Company and
Stockholders of such breach, provided Company and Stockholders continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that Parent may not terminate this Agreement pursuant to this Section
8.1(e) if it shall have materially breached this Agreement or if such breach by
Company or Stockholders is cured during such thirty (30)-day period).
8.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 8.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 8.1(d) or Section 8.1(e) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice of
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 8.1, this Agreement shall
be of no further force or effect and the Transaction shall be abandoned, except
for and subject to the following: (i) Section 8.2, Section 8.3 and Article X
(General Provisions) shall survive the termination of this Agreement, and (ii)
nothing herein shall relieve any party from liability for any intentional or
willful breach of this Agreement.
8.3 Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Transaction is consummated;
provided, however, that the Company shall reimburse Parent for its out-of-pocket
expenses incurred to complete investigations and background checks pursuant to
Section 5.3 hereof ("Investigation Costs") in an amount not to exceed $10,000,
whether or not the Transaction is consummated. The parties further agree that,
whether or not the Transaction is consummated, each party shall be responsible
for any and costs and expenses incurred by them in connection with the
preparation of the Transaction Form 8-K (including the U.S. GAAP Financial
Statements and Company Combination Financial Statements contained therein), the
14C Information Statement, and the 14F Information Statement, but Parent shall
pay the costs associated with the filing and mailing (if required) of the
Transaction 8-K, the 14C Information Statement, and the 14F Information
Statement.
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8.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
8.5 Extension; Waiver. At any time prior to the Closing, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
ARTICLE IX
POST-CLOSING COVENANTS
9.1 Post-Closing Covenants. Each of Stockholders, Company and Parent
acknowledge that the agreements contained in this Section 9.1 are an integral
part of the transactions contemplated by this Agreement and that, without these
agreements, KRM Fund would not enter into this Agreement. The parties hereto
acknowledge and agree that the failure by Parent and/or the Company to satisfy,
perform and comply with the covenants set forth in this Section 9.1
("Post-Closing Covenants") following the Closing will have a material adverse
effect on the investment of KRM Fund in Parent. During the period beginning upon
the Closing and ending on the first anniversary of the Closing, Parent agrees to
satisfy, perform and comply with, and Company agrees to cause the Parent to
satisfy, perform, and comply with, the following agreements and covenants:
(a) Without the consent of KRM Fund, Parent shall not issue any of
its securities to any officers, directors, 10% or more shareholders,
consultants, service providers or other parties, except for (i) any issuance
pursuant to any of Parent's options, warrants and convertible securities issued
and outstanding as of Closing, (ii) any grant of options or stock awards to
employees pursuant to a stock plan duly adopted by the Parent's board of
directors and shareholders, (iii) any issuance under the Selling Agreement and
Financial Advisory Agreement or under the Private Placement (including the
warrants included therein), (iv) any public offerings or private placements of
Parent's securities approved by Parent's board of directors, and (v) any
issuance of securities for any arm's-length, third party business transactions
involving business combinations, fixed asset purchases, joint ventures or
strategic alliances which have been approved by Parent's board of directors.
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(b) Parent's certified public accountants shall at all times be
registered with PCAOB. In the event the Parent's certified public accountants
resign or are terminated for any reason, Parent shall promptly engage a new
certified public accountant registered with PCAOB.
(c) Audit and compensation committee charters are duly adopted by
the Parent's board of directors, regular meetings for the audit and compensation
committee meetings are scheduled, with notice to all directors, and such
committee meetings are properly held as scheduled.
(d) Proper disclosure, xxxxxxx xxxxxxx and code of ethics policies
are adopted by the Parent's board and complied with by Parent and its
management.
(e) Parent files within the statutory time limits any required
filings or notifications with the SEC, NASDAQ and any other federal, state or
regulatory agency including any agency or organization with jurisdiction over
any exchange on which the Parent's securities are listed or traded.
(f) The use of proceeds from any financing undertaken simultaneous
with or after the Closing shall be approved by the Parent's board of directors.
(g) Parent shall file all tax returns of any kind in a timely
manner, and Parent shall pay, when due, all tax obligations of any kind or
nature.
(h) Parent shall pay, when due, all transfer agent fees, listing
fees and any other fees the non-payment of which may adversely effect compliance
with applicable laws and regulations (including securities laws and regulations)
or the listing or quotation of its common stock.
(i) Within thirty (30) days following the Closing, Parent shall
engage an investor relations firm and an independent research firm, acceptable
to the Parent's board of directors and KRM Fund.
(j) Respond in a timely manner, and to the satisfaction of the SEC,
to any review or inquiry by the SEC to the Transaction Form 8-K and the Company
Combination Financial Statements contained therein.
9.2 Other Provisions. Notwithstanding anything contained herein to the
contrary, the provisions of this Article IX shall survive (and not be affected
in any respect by) the Closing.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
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(a) if to Parent, to:
Chiste Corporation
Attn: Xxxxx X. Xxxxxxx, President
000X Xxxxxxxxx Xxxxxxxxx, Xxxxx 00
Xxxx Xxxxx, XX XXX 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
(b) if to Company or Stockholders, to:
Xx. Xxxx X. Xxxxxx, CEO
0000 Xxxx 00xx Xxxxxx
Xxxxxx, XX 00000
000-000-0000 telephone
000-000-0000 telecopy
with a copy to:
Xxxxx Xxxxxx, Esq.
Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
000-000-0000 telephone
000-000-0000 telecopy
(c) if to KRM Fund, to:
Xx. Xxxxxxx X. Xxxxxxx, Manager
Xxxxxxx Reverse Merger Fund, LLC
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxxxx Xxxxxxx, Xxxxxxxx XXX 00000-0000
(000) 000-0000 telephone
(000) 000-0000 telecopy
10.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such entity.
Reference to the Subsidiaries of an entity shall be deemed to include all direct
and indirect Subsidiaries of such entity.
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(b) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), revenues, financial condition or results of operations of such entity
(it being understood that neither of the following alone or in combination shall
be deemed, in and of itself, to constitute a Material Adverse Effect: (a)
changes attributable to the public announcement or pendency of the transactions
contemplated hereby, (b) changes in general national or regional economic
conditions, (c) changes affecting the industry generally in which Company or
Parent operates), or (d) any SEC rulemaking requiring enhanced disclosure of
reverse merger transactions with a public shell.
(c) For purposes of this Agreement, the term "Legal Requirements"
means any federal, state, local, municipal, foreign or other law, statute,
constitution, principle of common law, resolution, ordinance, code, edict,
decree, rule, regulation, ruling or requirement issued, enacted, adopted,
promulgated, implemented or otherwise put into effect by or under the authority
of any Governmental Entity (as defined in Section 2.5(b)), and all requirements
set forth in applicable Contracts (as defined in Section 2.21(a)).
(d) For purposes of this Agreement, the term "Subsidiary" shall mean
any Person in which the Company or Parent or any subsidiary thereof directly or
indirectly, owns beneficially securities or interests representing 50% or more
of (x) the aggregate equity or profit interests, or (y) the combined voting
power of voting interests ordinarily entitled to vote for management or
otherwise.
(e) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(f) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
10.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
54
10.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that the letter of intent between Parent and Company dated
July 1, 2004 is hereby terminated in its entirety and shall be of no further
force and effect; and (b) are not intended to confer upon any other person any
rights or remedies hereunder (except as specifically provided in this
Agreement). To the extent that this Agreement is executed in both the English
language and one or more other languages, the English version of this Agreement
shall be controlling notwithstanding anything that may be contained in the
non-English versions of this Agreement.
10.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
10.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
10.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, USA, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
10.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
10.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the first sentence of this Section 10.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
55
10.10 Arbitration. Any disputes or claims arising under or in connection
with this Agreement or the transactions contemplated hereunder shall be resolved
by binding arbitration. Notice of a demand to arbitrate a dispute by either
party shall be given in writing to the other at their last known address.
Arbitration shall be commenced by the filing by a party of an arbitration demand
with the American Arbitration Association ("AAA") in its office in Denver,
Colorado USA. The arbitration and resolution of the dispute shall be resolved by
a single arbitrator appointed by the AAA pursuant to AAA rules. The arbitration
shall in all respects be governed and conducted by applicable AAA rules, and any
award and/or decision shall be conclusive and binding on the parties. The
arbitration shall be conducted in Denver, Colorado. The arbitrator shall supply
a written opinion supporting any award, and judgment may be entered on the award
in any court of competent jurisdiction. Each party shall pay its own fees and
expenses for the arbitration, except that any costs and charges imposed by the
AAA and any fees of the arbitrator for his services shall be assessed against
the losing party by the arbitrator. In the event that preliminary or permanent
injunctive relief is necessary or desirable in order to prevent a party from
acting contrary to this Agreement or to prevent irreparable harm prior to a
confirmation of an arbitration award, then either party is authorized and
entitled to commence a lawsuit solely to obtain equitable relief against the
other pending the completion of the arbitration in a court having jurisdiction
over the parties. All rights and remedies of the parties shall be cumulative and
in addition to any other rights and remedies obtainable from arbitration.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
CHISTE CORPORATION
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx, President
ICON ACQUISITION, INC.
By: /s/ Xxxxx X. Xxxxxxx
------------------------------------
Xxxxx X. Xxxxxxx, President
XXXXXXX REVERSE MERGER FUND, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
------------------------------------
Xxxxxxx X. Xxxxxxx, Manager
ICON TEXTILE LASER SYSTEMS, INC.
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Xxxx X. Xxxxxx, CEO and President
STOCKHOLDERS:
/s/ Xxxx X. Xxxxxx
---------------------------------------
Xxxx X. Xxxxxx, Individually
/s/ Xxxxxx X. Xxxxx
---------------------------------------
Xxxxxx X. Xxxxx, Individually
/s/ Xxxxx X. Xxxxxxx
---------------------------------------
Xxxxx X. Xxxxxxx, Individually
/s/ Xxxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxxx, Individually
57
Index of Exhibits and Schedules
Exhibits
Exhibit A - Voting Agreement
Exhibit B - Financial Advisory Agreement
Exhibit C - Articles of Amendment
Schedules
Company Disclosure Schedules
Parent Disclosure Schedules
58
