AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
This
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (the “Agreement”)
is
made and entered into as of February 10, 2006, by and among SP Holding
Corporation, a Delaware corporation (“Parent”),
PWG
Acquisition Corporation, a Delaware corporation and wholly owned subsidiary
of
Parent (“Merger
Sub”),
and
Planetwide Games, Inc., a Delaware corporation (“Company”).
R
E C I T A L S
A. The
Boards of Directors of Company, Parent and Merger Sub believe it is in the
best
interests of their respective companies and the stockholders of their respective
companies that Company and Merger Sub combine into a single company through
the
statutory merger of Merger Sub with and into Company (the “Merger”)
and,
in furtherance thereof, have approved the Merger.
B. Pursuant
to the Merger, among other things, the outstanding shares of Company Common
Stock, $0.0001 par value (“Company
Common Stock”),
shall
be converted into shares of Parent Common Stock, $0.001 par value (“Parent
Common Stock”),
at
the rate set forth herein.
C. Company,
Parent and Merger Sub desire to make certain representations and warranties
and
other agreements in connection with the Merger.
D. The
parties intend, by executing this Agreement, to adopt a plan of reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the “Code”),
and
to cause the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code.
NOW,
THEREFORE, in consideration of the covenants and representations set forth
herein, and for other good and valuable consideration the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
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
Certificate of Merger attached hereto as Exhibit A
and in
accordance with the applicable provisions of the Delaware General Corporation
Law (“Delaware
Law”),
Merger Sub shall be merged with and into Company, the separate corporate
existence of Merger Sub shall cease and Company shall continue as the surviving
corporation. Company as the surviving corporation after the Merger is
hereinafter sometimes referred to as the “Surviving
Corporation.”
1.2 Closing;
Effective Time.
The
closing of the transactions contemplated hereby (the “Closing”)
shall
take place as soon as practicable after the satisfaction or waiver of each
of
the conditions set forth in Article VI
or at
such other time as the parties hereto agree (the “Closing
Date”).
The
Closing shall take place at the offices of Xxxxx & Xxxxxx, LLP, 000
Xxxxx
Xxxx.,
Xxxxx 0000, Xxxxx Xxxx, Xxxxxxxxxx 00000, or at such other location as the
parties hereto agree. In connection with the Closing, the parties hereto shall
cause the Merger to be consummated by filing the Certificate of Merger with
the
Secretary of State of the State of Delaware, in accordance with the relevant
provisions of Delaware Law (the time of such filing being the “Effective
Time”).
1.3Effect
of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall vest in the
Surviving Corporation, and all debts, liabilities and duties of Company and
Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 Effect
on Capital Stock.
By
virtue of the Merger and without any action on the part of Merger Sub, Company
or the holders of any of the following securities:
(a) Conversion
of Company Common Stock.
At the
Effective Time, each share of 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 1.4(b))
will be
canceled and extinguished and be converted automatically into the right to
receive 0.335598 shares of Parent Common Stock, subject to any adjustments
made
pursuant to Section 1.4(e)
(the
“Exchange
Ratio”).
(b) Cancellation
of Company Common Stock Owned by Company.
At the
Effective Time, all shares of Company Common Stock that are owned by Company
as
treasury stock immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
(c) Options
and Warrants to Purchase Company Common Stock.
At the
Effective Time, all options to purchase Company Common Stock then outstanding,
including any under the Company Stock Option Plans (as defined below), and
all
warrants to purchase Company Common Stock and promissory notes convertible
into
Company Common Stock then outstanding shall be assumed by Parent in accordance
with Section 5.8.
(d) Capital
Stock of Merger Sub.
At the
Effective Time, each share of common stock, $0.001 par value, of Merger Sub
(“Merger
Sub Common Stock”)
issued
and outstanding immediately prior to the Effective Time shall be converted
into
and exchanged for one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation, and the Surviving Corporation shall
be a wholly owned subsidiary of Parent. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence ownership
of
such shares of capital stock of the Surviving Corporation.
(e) Adjustments
to Exchange Ratio.
The
Exchange Ratio shall be adjusted to reflect fully the effect of any stock split,
reverse split, stock dividend (including any dividend or distribution of
securities convertible into Parent Common Stock or Company
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Common
Stock), reorganization, recapitalization or other like change with respect
to
Parent Common Stock or Company Common Stock occurring after the date hereof
and
prior to the Effective Time, so as to provide holders of Company Common Stock
and Parent the same economic effect as contemplated by this Agreement prior
to
such stock split, reverse split, stock dividend, reorganization,
recapitalization or like change.
(f) No
Fractional Shares.
No
fractional shares of Parent Common Stock shall be issued in connection with
the
Merger, and no certificates or scrip for any such fractional shares shall be
issued. Any holder of Company Common Stock who would otherwise be entitled
to
receive a fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock issuable to such holder) shall, in
lieu
of such fraction of a share, be paid in cash the dollar amount (rounded to
the
nearest whole cent), without interest, determined by multiplying such fraction
by the closing bid price of a share of Parent Common Stock on the
Over-the-Counter Bulletin Board (“OTC
BB”) on
the
date the Merger becomes effective.
1.5 Surrender
of Certificates.
(a) Exchange
Agent.
Parent’s transfer agent shall act as exchange agent (the “Exchange
Agent”)
in the
Merger.
(b) Parent
to Provide Common Stock.
Promptly after the Effective Time, Parent shall make available to the Exchange
Agent for exchange in accordance with this Article I,
through
such reasonable procedures as Parent may adopt, the shares of Parent Common
Stock issuable pursuant to Section 1.4(a)
in
exchange for shares of Company Common Stock outstanding immediately prior to
the
Effective Time (provided that delivery of any shares that are subject to vesting
and/or repurchase rights or other restrictions shall be in book entry form
until
such vesting and/or repurchase rights or other restrictions lapse).
(c) Exchange
Procedures.
Promptly after the Effective Time, Parent shall cause the Exchange Agent to
mail
to each holder of record of a certificate or certificates (the “Certificates”)
which
immediately prior to the Effective Time represented outstanding shares of
Company Common Stock or Company Preferred Stock, whose shares were converted
into the right to receive shares of Parent Common Stock pursuant to Section 1.4,
(i) a
letter of transmittal (which shall specify that delivery shall be effected,
and
risk of loss and title to the Certificates shall pass, only upon receipt of
the
Certificates by the Exchange Agent, and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for
use
in effecting the surrender of the Certificates in exchange for certificates
(or
book entries in the case of shares that are subject to vesting and/or repurchase
rights or other restrictions) representing shares of Parent Common Stock. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by Parent, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, the holder of such Certificate shall be entitled to
receive in exchange therefor a certificate (or book entry in the case of shares
that are
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subject
to vesting and/or repurchase rights or other restrictions) representing the
number of whole shares of Parent Common Stock, and the amount in cash in lieu
of
any fractional shares of Parent Common Stock, if any, which such holder has
the
right to receive pursuant to Section 1.4,
and the
Certificate so surrendered shall forthwith be canceled. Until so surrendered,
each outstanding Certificate that, prior to the Effective Time, represented
shares of Company Common Stock and Company Preferred Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends, to evidence the ownership of the number of full shares of Parent
Common Stock into which such shares of Company Common Stock and Company
Preferred Stock shall have been so converted and the right to receive the amount
in cash in lieu of any fractional shares of Parent Common Stock, if any, in
accordance with Section 1.4.
(d)
Distributions With Respect to Unexchanged Shares. No
dividends or other distributions with respect to Parent Common Stock with a
record date after the Effective Time will be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common Stock
represented thereby until the holder of record of such Certificate shall
surrender such Certificate. Subject to applicable law, following surrender
of
any such Certificate, there shall be paid to the record holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefor, without interest, at the time of such surrender, the amount of any
such dividends or other distributions with a record date after the Effective
Time theretofore payable (but for the provisions of this
Section 1.5(d)) with respect to such shares of Parent Common
Stock.
(e) Transfers
of Ownership.
If any
certificate for shares of Parent Common Stock is to be issued in a name other
than that in which the Certificate surrendered in exchange therefor is
registered, it will be a condition of the issuance thereof that the Certificate
so surrendered will be properly endorsed and otherwise in proper form for
transfer and that the person requesting such exchange will have paid to Parent
or any agent designated by it any transfer or other taxes required by reason
of
the issuance of a certificate for shares of Parent Common Stock in any name
other than that of the registered holder of the Certificate surrendered, or
established to the satisfaction of Parent or any agent designated by it that
such tax has been paid or is not payable.
(f) No
Liability.
Notwithstanding anything to the contrary in this Section 1.5,
none of
the Exchange Agent, the Surviving Corporation, Parent or any party hereto shall
be liable to any person for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar
law.
1.6 No
Further Ownership Rights in Company Common Stock.
All
shares of Parent Common Stock issued upon the surrender for exchange of shares
of Company Common Stock in accordance with the terms hereof shall be deemed
to
have been issued in full satisfaction of all rights pertaining to such shares
of
Company Common Stock, and there shall be no further registration of transfers
on
the records of the Surviving Corporation of shares of Company Common Stock
which
were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for
any
reason, they shall be canceled and exchanged as provided in this Article I.
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1.7 Lost,
Stolen or Destroyed
Certificates.
In the
event any Certificates shall have been lost, stolen or destroyed, the Exchange
Agent shall issue in exchange for such lost, stolen or destroyed Certificates,
upon the making of an affidavit of that fact by the holder thereof, such shares
of Parent Common Stock as may be required pursuant to Section 1.4;
provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent, the Surviving
Corporation or the Exchange Agent with respect to the Certificates alleged
to
have been lost, stolen or destroyed.
1.8 Tax
Consequences.
It is
intended by the parties hereto that the Merger shall constitute a reorganization
within the meaning of Section 368 of the Code.
1.9 Withholding
Rights.
Parent
and the Surviving Corporation shall be entitled to deduct and withhold from
the
number of shares of Parent Common Stock otherwise deliverable under this
Agreement, such amounts as Parent and the Surviving Corporation are required,
and Company acknowledges and agrees are required, to deduct and withhold with
respect to such delivery and payment under the Code or any provision of state,
local, provincial or foreign tax law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes of this
Agreement as having been delivered and paid to the holder of shares of Company
Common Stock in respect of which such deduction and withholding was made by
Parent and the Surviving Corporation.
1.10 Termination
of Exchange Agent Obligations.
Any
certificates for shares of Parent Common Stock held by the Exchange Agent which
have not been delivered to holders of Certificates pursuant to this Article I
within
six months after the Effective Time shall promptly be delivered to Parent,
and
thereafter holders of Certificates who have not theretofore complied with the
exchange procedures set forth in and contemplated by Section 1.5
shall
thereafter look only to Parent (subject to abandoned property, escheat and
similar laws) for their claim for shares of Parent Common Stock and any
dividends or distributions (with a record date after the Effective Time) with
respect to Parent Common Stock to which they are entitled.
1.11 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 are fully authorized in the
name of their respective corporations or otherwise to take, and will take,
all
such lawful and necessary action, so long as such action is not inconsistent
with this Agreement.
1.12 Shares
Subject to Appraisal Rights.
(a) Notwithstanding
Section 1.4,
Dissenting Shares (as hereinafter defined) shall not be converted into a right
to receive Parent Common Stock and the holders thereof shall be entitled only
to
such rights as are granted by Delaware Law. Each holder of Dissenting Shares
who
becomes entitled to payment for such shares pursuant to Delaware Law shall
receive payment therefor from the Surviving Corporation in
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accordance
with the Delaware Law, provided, however, that (i) if any stockholder of
Company who asserts appraisal rights in connection with the Merger (a
“Dissenter”)
has
failed to establish his entitlement to such rights as provided in Delaware
Law,
or (ii) if any such Dissenter has effectively withdrawn his demand for
payment for such shares or waived or lost his right to payment for his shares
under the appraisal rights process under Delaware Law the shares of Company
Common Stock held by such Dissenter shall be treated as if they had been
converted, as of the Effective Time, into a right to receive Parent Common
Stock
and as provided in Section 1.4.
Company
shall give Parent prompt notice of any demands for payment received by Company
from a person asserting appraisal rights, and Parent shall have the right to
participate in all negotiations and proceedings with respect to such demands.
Company shall not, except with the prior written consent of Parent, make any
payment with respect to, or settlement or offer to settle, any such
demands.
(b) As
used
herein, “Dissenting
Shares”
means
any shares of Company Common Stock held by stockholders of Company who are
entitled to appraisal rights under Delaware Law, and who have properly
exercised, perfected and not subsequently withdrawn or lost or waived their
rights to demand payment with respect to their shares in accordance with
Delaware Law.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF COMPANY
In
this
Agreement, any reference to any event, change, condition or effect being
“material” with respect to any person means any material event, change,
condition or effect related to the condition (financial or otherwise),
properties, assets (including intangible assets), liabilities, business,
operations or results of operations of such person and its subsidiaries, taken
as a whole. In this Agreement, any reference to a “Material
Adverse Effect”
with
respect to any person means any event, change or effect that is materially
adverse to the condition (financial or otherwise), properties, assets,
liabilities, business, operations or results of operations of such person and
its subsidiaries, taken as a whole.
In
this
Agreement, any reference to a party’s “knowledge” means such party’s actual
knowledge after reasonable inquiry of executive officers and directors (within
the meaning of Rule 405 under the Securities Act of 1933, as amended
(“Securities
Act”)).
Except
as
disclosed in that section of the document of even date herewith delivered by
Company to Parent prior to the execution and delivery of this Agreement (the
“Company
Disclosure Schedule”)
corresponding to the Section of this Agreement to which any of the following
representations and warranties specifically relate or as disclosed in another
section of the Company Disclosure Schedule if it is reasonably apparent from
the
nature of the disclosure that it is applicable to another Section of this
Agreement, Company represents and warrants to Parent and Merger Sub as
follows:
2.1 Organization,
Standing and Power.
Company
is a corporation organized, validly existing and in good standing, and no
certificates of dissolution have been filed under the laws of its jurisdiction
of organization. Company has the power to own its properties and to
carry
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on
its
business as now being conducted and as presently proposed to be conducted and
is
duly authorized and qualified to do business and is in good standing in each
jurisdiction in which the failure to be so qualified and in good standing would
have a Material Adverse Effect on Company. Company has delivered or made
available to Parent a true and correct copy of the Certificate of Incorporation
(the “Certificate
of Incorporation”),
and
the Bylaws, or other charter documents, as applicable, of Company, each as
amended to date. Company is not in violation of any of the provisions of its
bylaws or equivalent organization documents. Company does not directly or
indirectly own any equity or similar interest in, or any interest convertible
or
exchangeable or exercisable for, any equity or similar interest in, any
corporation, partnership, joint venture or other business association or
entity.
2.2 Capital
Structure.
The
authorized capital stock of Company consists of 100,000,000 shares of common
stock, $0.0001 par value, and 30,000,000 shares of preferred stock, $0.0001
par
value, of which there were issued and outstanding as of the close of business
on
December 31, 2005, 41,450,667 shares of common stock and no shares of
Preferred Stock. There are no other outstanding shares of capital stock or
voting securities and no outstanding commitments to issue any shares of capital
stock or voting securities after the date hereof, other than upon the exercise
of options outstanding as of such date under the Company’s 2005 and 2004 Stock
Option Plans (the “Company
Stock Option Plans”),
and
warrants issued in conjunction with various common stock and convertible note
financings. All outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and non-assessable and are free of any liens or
encumbrances other than any liens or encumbrances created by or imposed upon
the
holders thereof, and, except as set forth in Section 8.10 of the Bylaws of
Company, are not subject to preemptive rights or rights of first refusal created
by statute, the Certificate of Incorporation or Bylaws of Company or any
agreement to which Company is a party or by which it is bound. As of
December 31, 2005, Company has reserved (i) 11,000,000 shares of its common
stock for issuance to employees, consultants and directors pursuant to the
Company Stock Option Plans, of which 1,100,000 shares have been issued pursuant
to option exercises or direct stock purchases, 7,033,000 shares are subject
to
outstanding, unexercised options, no shares are subject to outstanding stock
purchase rights, and 7,033,000 shares are available for issuance thereunder,
(ii) 8,755,250 shares of common stock for issuance pursuant to outstanding
warrants to purchase common stock, and (iii) 2,075,000 shares of common
stock for issuance upon conversion of outstanding convertible promissory notes
and exercise of warrants to be issued upon conversion of such convertible
promissory notes. Except for (i) the rights created pursuant to this Agreement
and the Company Stock Option Plans, (ii) Company’s rights to repurchase any
unvested shares under the Company Stock Option Plan or the stock option
agreements thereunder, and (iii) the warrants and convertible securities listed
on Schedule 2.2,
there
are no other options, warrants, calls, rights, commitments or agreements of
any
character to which Company is a party or by which it is bound obligating Company
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Company or
obligating Company to grant, extend, accelerate the vesting and/or repurchase
rights of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to voting, purchase or sale of Company’s
capital stock (i) between or among Company and any of its stockholders and
(ii)
to the best of Company’s knowledge, between or among any of Company’s
stockholders. The terms of the Company Stock Option Plans permit the assumption
or substitution of options to purchase Parent Common Stock as
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provided
in this Agreement, without the consent or approval of the holders of such
securities or stockholders. True and complete copies of all agreements and
instruments relating to or issued under the Company Stock Option Plans have
been
made available to Parent and such agreements and instruments have not been
amended, modified or supplemented, and there are no agreements to amend, modify
or supplement such agreements or instruments in any case from the form made
available to Parent. The shares of Company Common Stock issued under the Company
Stock Option Plans were issued in transactions which qualified for exemptions
under, either Section 4(2) of, or Rule 701 under, the Securities Act for
stock issuances under compensatory benefit plans.
2.3 Authority.
Company
has all requisite corporate power and authority to enter into this Agreement
and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Company, subject only to the adoption of this Agreement by Company’s
stockholders holding a majority of the outstanding shares of Company Common
Stock and approval by certain warrantholders of the terms of the assumption
of
their warrants, as contemplated by Section 6.1(a).
This
Agreement has been duly executed and delivered by Company and constitutes the
valid and binding obligation of Company enforceable against Company in
accordance with its terms, except as enforceability may be limited by bankruptcy
and other laws affecting the rights and remedies of creditors generally and
general principles of equity. The execution and delivery of this Agreement
by
Company does not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Certificate of Incorporation or Bylaws
of
Company, as amended, or (ii) any material mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Company or any of its properties or assets, except where such conflict,
violation, default, termination, cancellation or acceleration with respect
to
the foregoing provisions of (ii) could not have had and could not reasonably
be
expected to have a Material Adverse Effect on Company. No consent, approval,
order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority
or
instrumentality (“Governmental
Entity”)
is
required by or with respect to Company in connection with the execution and
delivery of this Agreement, or the consummation of the transactions contemplated
hereby and thereby, except for (i) the filing of the Certificate of Merger
as
provided in Section 1.2;
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state securities
laws and the securities laws of any foreign country; (iii) such filings, if
any,
as may be required under the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (“HSR”);
and
(iv) such other consents, authorizations, filings, approvals and
registrations which, if not obtained or made, would not have a Material Adverse
Effect on Company and would not prevent, or materially alter or delay any of
the
transactions contemplated by this Agreement.
2.4 Financial
Statements.
(a) Company
has provided to Parent a correct and complete copy of the audited financial
statements (including any related notes thereto) of Company for the
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fiscal
year ended December 31, 2004 (the “Audited
Financial Statements”).
The
Audited Financial Statements were prepared in accordance with generally accepted
accounting principles of the United States (“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.
(b) Company
has provided to Parent a correct and complete copy of the unaudited financial
statements of Company for the nine month period ended September 30, 2005
(the “Unaudited
Financial Statements”).
The
Unaudited Financial Statements were prepared in accordance with GAAP applied
on
a consistent basis throughout the periods involved, and fairly present in all
material respects the financial position of Company at the date thereof and
the
results of its operations and cash flows for the period indicated, except that
such statements do not contain notes and are subject to normal adjustments
that
are not expected to have a Material Adverse Effect on Company.
2.5 Absence
of Certain Changes.
Since
September 30, 2005 (the “Company
Balance Sheet Date”),
Company has conducted its business in the ordinary course consistent with past
practice and there has not occurred: (i) any change, event or condition (whether
or not covered by insurance) that has resulted in, or is reasonably likely
to
result in, or to the best of Company’s knowledge any event beyond Company’s
control that is reasonably likely to result in, a Material Adverse Effect to
Company; (ii) any acquisition, sale or transfer of any material asset of Company
other than in the ordinary course of business and consistent with past practice;
(iii) any change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Company or any revaluation
by
Company of any of its assets; (iv) any declaration, setting aside, or payment
of
a dividend or other distribution with respect to the shares of Company, or
any
direct or indirect redemption, purchase or other acquisition by Company of
any
of its shares of capital stock; (v) any material contract entered into by
Company, other than in the ordinary course of business and as provided to
Parent, or any amendment or termination of, or default under, any material
contract to which Company is a party or by which it is bound; (vi) any amendment
or change to the Certificate of Incorporation or Bylaws; or (vii) any increase
in or modification of the compensation or benefits payable, or to become
payable, by Company to any of its directors or employees, other than pursuant
to
scheduled annual performance reviews, provided that any resulting modifications
are in the ordinary course of business and consistent with Company’s past
practices. Company has not agreed since September 30, 2005 to take any of
the actions described in the preceding clauses (i) through (vii) and is not
currently involved in any negotiations to do any of the things described in
the
preceding clauses (i) through (vii) (other than negotiations with Parent and
its
representatives regarding the transactions contemplated by this
Agreement).
2.6 Absence
of Undisclosed Liabilities.
Company
has no material obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) other than (i) those set forth or adequately provided
for
in the Balance Sheet included in Company Financial Statements for the fiscal
quarter ended September 30, 2005 (the “Company
Balance Sheet”),
(ii)
those incurred in the ordinary course of business and not required to be set
forth in the Company Balance Sheet
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under
GAAP, (iii) those incurred in the ordinary course of business since the Company
Balance Sheet date and not reasonably likely to have a Material Adverse Effect
on Company; and (iv) those incurred in connection with the execution of this
Agreement.
2.7 Litigation.
There
is no private or governmental action, suit, proceeding, claim, arbitration,
audit or investigation pending before any agency, court or tribunal, foreign
or
domestic, or, to the knowledge of Company, threatened against Company or any
of
its properties or any of its officers or directors (in their capacities as
such)
that, individually or in the aggregate, could reasonably be expected to have
a
Material Adverse Effect on Company. There is no injunction, judgment, decree,
order or regulatory restriction imposed upon Company or any of its assets or
business, or, to the knowledge of Company, any of its directors or officers
(in
their capacities as such), that would prevent, enjoin, alter or materially
delay
any of the transactions contemplated by this Agreement, or that could reasonably
be expected to have a Material Adverse Effect on Company. Schedule 2.7
lists
all actions, suits, proceedings, claims, arbitrations, audits and investigations
pending before any agency, court or tribunal that involve Company.
2.8 Restrictions
on Business Activities.
There
is no agreement, judgment, injunction, order or decree binding upon Company
which has or reasonably could be expected to have the effect of prohibiting
or
materially impairing any business practice of Company, any acquisition of
property by Company or the conduct of business by Company.
2.9 Governmental
Authorization.
Company
has obtained each federal, state, county, local or foreign governmental consent,
license, permit, grant, or other authorization of a Governmental Entity (i)
pursuant to which Company currently operates or holds any interest in any of
its
properties or (ii) that is required for the operation of Company’s business or
the holding of any such interest ((i) and (ii) herein collectively called
“Company
Authorizations”),
and
all of such Company Authorizations are in full force and effect, except where
the failure to obtain or have any of such Company Authorizations or where the
failure of such Company Authorizations to be in full force and effect could
not
reasonably be expected to have a Material Adverse Effect on
Company.
2.10 Title
to Property.
Company
has good and valid title to all of its properties, interests in properties
and
assets, real and personal, reflected in the Company Balance Sheet or acquired
after the Company Balance Sheet Date (except properties, interests in properties
and assets sold or otherwise disposed of since the Company Balance Sheet Date
in
the ordinary course of business), or in the case of leased properties and
assets, valid leasehold interests in, free and clear of all mortgages, liens,
pledges, charges or encumbrances of any kind or character, except (i) the lien
of current taxes not yet due and payable, (ii) such imperfections of title,
liens and easements as do not and will not materially detract from or interfere
with the use of the properties subject thereto or affected thereby, or otherwise
materially impair business operations involving such properties, (iii) liens
securing debt which is reflected on the Company Balance Sheet, and (iv) liens
that in the aggregate would not have a Material Adverse Effect on Company.
The
plants, property and equipment of Company that are used in the operations of
their businesses are in good operating condition and repair, except where the
failure to be in good operating condition or repair would not have a Material
Adverse Effect. All properties used in the operations of Company are reflected
in the Company Balance Sheet to the extent generally
-10-
accepted
accounting principles require the same to be reflected. Schedule 2.10
identifies each parcel of real property owned or leased by Company. No lease
relating to a foreign parcel contains any extraordinary payment
obligation.
2.11 Intellectual
Property.
(a) Company
owns or is licensed or otherwise possesses legally enforceable and unencumbered
rights to use, all patents, trademarks, trade names, service marks, domain
names, copyrights, and any applications therefor, maskworks, schematics, trade
secrets, computer software programs (in both source code, except in
circumstances where Company only possesses a license to the object code form,
and object code form), and tangible or intangible proprietary information or
material (“Intellectual
Property”)
that
are used in the business of Company (“Company
Intellectual Property”).
Company owns and possesses source code for all software owned by Company and
owns or has valid licenses and possesses source code for all products owned,
distributed and presently supported by Company. Company has not (i) licensed
any
Company Intellectual Property in source code form to any party or (ii) entered
into any exclusive agreements relating to Company Intellectual Property. No
royalties or other continuing payment obligations are due in respect of Third
Party Intellectual Property Rights (as defined below).
(b) Schedule 2.11(b)
lists
(i) all patents and patent applications and all registered trademarks, trade
names and service marks, registered copyrights, and maskworks included in the
Company Intellectual Property, including the jurisdictions in which each such
Intellectual Property right has been issued or registered or in which any
application for such issuance and registration has been filed, (ii) all material
non-registered Intellectual Property, (iii) all licenses, sublicenses and other
agreements as to which Company is a party and pursuant to which any person
is
authorized to use any Company Intellectual Property (except for non-material
licenses entered into by Company in the ordinary course of business), and (iv)
all licenses, sublicenses and other agreements as to which Company is a party
and pursuant to which Company is authorized to use any third party patents,
trademarks or copyrights, including software (“Third
Party Intellectual Property Rights”)
which
are incorporated in, are, or form a part of any Company product, other than
commercially available, off-the-shelf software.
(c) To
Company’s knowledge, there is no unauthorized use, disclosure, infringement or
misappropriation of any Company Intellectual Property rights, or any
Intellectual Property right of any third party to the extent licensed by or
through Company, to any third party, including any employee or former employee
of Company. Company has not entered into any agreement to indemnify any entity
against any charge of infringement of any Intellectual Property, other than
indemnification provisions contained in purchase orders, license agreements,
and
distribution and other customer agreements.
(d) Company
is not, nor will it be as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any license, sublicense or other agreement relating to the Company
Intellectual Property or Third Party Intellectual Property Rights.
-11-
(e)
To
Company’s knowledge, all patents, trademarks, service marks and copyrights held
by Company are valid and subsisting. Company (i) has not been sued in any suit,
action or proceeding (or received any notice or, to Company’s knowledge, threat)
which involves a claim of infringement of any patents, trademarks, service
marks, copyrights or violation of any trade secret or other proprietary right
of
any third party and (ii) has not brought any action, suit or proceeding for
infringement of Company Intellectual Property or breach of any license or
agreement involving Company Intellectual Property against any third party.
To
Company’s knowledge, the manufacture, use, marketing, licensing or sale of
Company’s products does not infringe any patent, trademark, service xxxx,
copyright, trade secret or other proprietary right of any third
party.
(f) Company
has secured valid written assignments from all consultants and employees who
contributed to the creation or development of Company Intellectual Property
of
the rights to such contributions that Company does not already own by operation
of law.
(g) Company
has taken all reasonably necessary steps to protect and preserve the
confidentiality of all Company Intellectual Property not otherwise protected
by
patents or copyright (“Confidential
Information”).
All
use, disclosure or appropriation of Confidential Information owned by Company
by
or to a third party has been pursuant to the terms of a written agreement
between Company and such third party. All use, disclosure or appropriation
of
Confidential Information not owned by Company has been pursuant to the terms
of
a written agreement between Company and the owner of such Confidential
Information, or is otherwise lawful.
(h) There
are
no actions that must be taken by Company within 60 days of the Closing Date
that, if not taken, will result in the loss of any Company Intellectual
Property, including the payment of any registration, maintenance or renewal
fees
or the filing of any responses to the U.S. Patent and Trademark Office actions,
documents, applications or certificates for the purposes of obtaining,
maintaining, perfecting or preserving or renewing any Company Intellectual
Property.
(i) Company
has not received any opinion of counsel, written or oral, addressing: (i) the
unauthorized use, disclosure, infringement, or misappropriation of any Company
Intellectual Property; (ii) the validity or enforceability of any Company
Intellectual Property; or (iii) the unauthorized use, disclosure, infringement,
or misappropriation of any third party intellectual property by Company.
2.12 Environmental
Matters.
(a) Except
as
disclosed in Schedule 2.12
and
except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect: (i) Company has
complied with all applicable Environmental Laws; (ii) the properties
currently operated by Company (including soils, groundwater, surface water,
buildings or other structures) have not been contaminated with any Hazardous
Substances by any action of Company; (iii) the properties formerly owned by
Company were not
-12-
contaminated
with Hazardous Substances during the period of ownership or operation by Company
or, to Company’s knowledge, during any prior period; (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 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.
(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 “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 to regulatory action by any Governmental Entity pursuant
to
any Environmental Law.
2.13 Taxes.
(a) For
purposes of this Agreement, the following terms have the following meanings:
“Tax”
(and,
with correlative meaning, “Taxes”
and
“Taxable”)
means
(i) any net income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance, stamp, occupation, premium,
property, environmental or windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of any kind whatsoever,
together with any interest or any penalty, addition to tax or additional amount
imposed by any Governmental Entity (a “Tax
authority”)
responsible for the imposition of any such tax (domestic or foreign); (ii)
any
liability for the payment of any amounts of the type described in (i) as a
result of being a member of an affiliated, consolidated, combined or unitary
group for any Taxable period; and (iii) any liability for the payment of any
amounts of the type described in (i) or (ii) as a result of being a transferee
of or successor to any person or as a result of any express or implied
obligation to indemnify any other person, including pursuant to any Tax sharing
or Tax allocation agreement. “Tax
Return”
means
any return, statement, report or form (including, without limitation estimated
Tax returns and reports, withholding Tax returns and reports and information
reports and returns) required to be filed with respect to Taxes.
-13-
(b)
Company and any consolidated, combined, unitary or aggregate group for Tax
purposes of which Company is or has been a member, have properly completed
and
timely filed all Tax Returns required to be filed by them and have paid all
Taxes required to be paid, whether or not shown on any Tax Return. All unpaid
Taxes of Company for periods through September 30, 2005, are reflected in
the Company Balance Sheet. Company has no liability for unpaid Taxes accruing
after September 30, 2005, other than Taxes arising in the ordinary course
of its business subsequent to September 30, 2005.
(c) There
is
(i) no claim for Taxes that is a lien against the property of Company being
asserted against Company other than liens for Taxes not yet due and payable;
(ii) no audit of any Tax Return of Company that is being conducted by a Tax
authority that is currently pending or threatened, and Company has not been
notified of any proposed Tax claims or assessments against Company; (iii) no
extension of the statute of limitations on the assessment of any Taxes that
has
been granted by Company and that is currently in effect; and (iv) no agreement,
contract or arrangement to which Company is a party obligates Company to make
a
payment of any amount that would not be deductible by reason of
Section 280G, 162 or 404 of the Code. Company has not been or will not be
required to include any material adjustment in Taxable income for any Tax period
(or portion thereof) pursuant to Section 481 or 263A of the Code or any
comparable provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the
Merger.
(d) There
are
no Tax sharing or Tax allocation agreements to which Company is a party or
to
which it is bound. Company has not filed any disclosures under Section 6662
or comparable provisions of state, local or foreign law to prevent the
imposition of penalties with respect to any Tax reporting position taken on
any
Tax Return. Company has never been a member of a consolidated, combined or
unitary group of which Company was not the ultimate parent corporation. Company
has in its possession receipts for any Taxes paid to foreign Tax
authorities.
(e) Company
has not been either a “distributing corporation” or a “controlled corporation”
in a distribution of stock qualifying for tax-free treatment under
Section 355 of the Code (x) in the two years prior to the date of this
Agreement or (y) in a distribution which could otherwise constitute part of
a
“plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.
(f) Company
has withheld (and paid over to the appropriate governmental authorities) all
Taxes required to be withheld, including, but not limited to, FICA and FUTA,
with respect to its employees and all third parties.
(g) Company
has never been a United States real property holding corporation within the
meaning of Section 897 of the Code.
2.14 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
-14-
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 “Company
Plans”)
have
been maintained and administered in all material respects in compliance with
their respective terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Company
Plans, and all liabilities with respect to the Company Plans have been properly
reflected in the financial statements and records of Company. No suit, action
or
other litigation (excluding claims for benefits incurred in the ordinary course
of Company Plan activities) has been brought, or, to the knowledge of Company,
is threatened, against or with respect to any Company Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of Company, threatened
by
any governmental agency with respect to any Company Plan. 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 Company Plan, to modify any Company
Plan
(except to the extent required by law or to conform any such Company 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 Company Plan can be amended, terminated or otherwise discounted
after
the Closing in accordance with its terms, without liability to Parent or Company
(other than ordinary administration expenses and expenses for benefits accrued
but not yet paid).
(b) Except
as
disclosed in Schedule 2.14,
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
Company Plan or otherwise, (ii) materially increase any benefits otherwise
payable under any Company Plan, or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
2.15 Labor
Matters.
Company
is not a party to any collective bargaining agreement or other labor union
contract applicable to persons employed by Company nor does Company know of
any
activities or proceedings of any labor union to organize any such
employees.
2.16 Interested
Party Transactions.
Except
as disclosed in Schedule 2.16,
Company
is not indebted to any director or officer of Company (except for amounts due
as
normal salaries and bonuses and in reimbursement of ordinary expenses), and
no
such person is indebted to Company, and there are no other transactions of
the
type required to be disclosed pursuant to Items 402 or 404 of Regulation S-K
under the Securities Act and the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”).
2.17 Insurance.
Company
has policies of insurance and bonds of the type and in amounts customarily
carried by persons conducting businesses or owning assets similar to those
of
Company. There is no claim pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters
of
such policies or bonds. All premiums due and payable under all such policies
and
bonds have been paid and Company is
-15-
otherwise
in compliance in all material respects with the terms of such policies and
bonds. Company has no knowledge of any threatened termination of, or material
premium increase with respect to, any of such policies.
2.18 Compliance
With Laws.
Company
has complied with, are not in violation of, and have not received any notices
of
violation with respect to, any federal, state, local or foreign statute, law
or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply
as
could not be reasonably expected to have a Material Adverse Effect on
Company.
2.19 Minute
Books.
The
minute books of Company made available to Parent contain in all material
respects a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent of Company during the past three
years and through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
2.20 Brokers’
and Finders’ Fees.
Company
has not incurred, nor will it incur, directly or indirectly, any liability
for
brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or
any similar charges in connection with this Agreement or any transaction
contemplated hereby except as disclosed on Schedule 2.20.
2.21 Vote
Required.
The
affirmative vote of Company’s stockholders holding a majority of the outstanding
shares of Company Common Stock outstanding on the record date set for the
Company Stockholders Meeting (as defined in Section 5.1)
is the
only vote of the holders of any of Company’s capital stock necessary to approve
this Agreement and the transactions contemplated hereby.
2.22 Board
Approval.
The
Board of Directors of Company has (i) approved this Agreement and the Merger,
(ii) determined that this Agreement and the Merger are advisable and in the
best
interests of the stockholders of Company and are on terms that are fair to
such
stockholders and (iii) intends to recommend that the stockholders of Company
approve this Agreement and consummation of the Merger.
2.23 Representations
Complete.
None of
the representations or warranties made by Company herein or in any Schedule
hereto, including the Company Disclosure Schedule, or certificate furnished
by
Company pursuant to this Agreement, when all such documents are read together
in
their entirety, contains or will contain at the Effective Time any untrue
statement of a material fact, or omits or will omit at the Effective Time to
state any material fact necessary in order to make the statements contained
herein or therein, in the light of the circumstances under which made, not
misleading. All projected, forecasted or prospective financial information
provided by Company to Parent has been prepared in good faith on the basis
of
assumptions Company believes are reasonable and supportable.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Except
as
disclosed in that section of the document of even date herewith delivered by
Parent to Company prior to the execution and delivery of this Agreement (the
“Parent
Disclosure Schedule”)
corresponding to the Section of this Agreement to which any of the
following
-16-
representations
and warranties specifically relate or as disclosed in another section of the
Parent Disclosure Schedule if it is reasonably apparent on the face of the
disclosure that it is applicable to another Section of this Agreement, Parent
represents and warrants to Company, as of December 31, 2003 through the
date hereof, as follows:
3.1 Organization,
Standing and Power.
Each of
Parent and Merger Sub is a corporation duly organized, validly existing and
in
good standing, and no certificates of dissolutions have been filed under the
laws of its jurisdiction of organization. Each of Parent and Merger Sub has
the
corporate power to own its properties and to carry on its business as now being
conducted and as proposed to be conducted and is duly qualified to do business
and is in good standing in each jurisdiction in which the failure to be so
qualified and in good standing would have a Material Adverse Effect on Parent.
Parent has delivered or made available to Company a true and correct copy of
the
Certificate of Incorporation, and the Bylaws, or other charter documents, as
applicable, of Parent and Merger Sub, each as amended to date. Neither Parent
nor Merger Sub is in violation of any of the provisions of its Certificate
of
Incorporation or Bylaws or equivalent organizational documents. Parent is the
owner of all outstanding shares of capital stock of Merger Sub and all such
shares are duly authorized, validly issued, fully paid and nonassessable. All
of
the outstanding shares of capital stock of Merger Sub are owned by Parent free
and clear of all liens, charges, claims or encumbrances or rights of others.
There are no outstanding subscriptions, options, warrants, puts, calls, rights,
exchangeable or convertible securities or other commitments or agreements of
any
character relating to the issued or unissued capital stock or other securities
of Merger Sub, or otherwise obligating Parent or Merger Sub to issue, transfer,
sell, purchase, redeem or otherwise acquire any such securities. Except for
Merger Sub, Parent does not directly or indirectly own any equity or similar
interest in, or any interest convertible or exchangeable or exercisable for,
any
equity or similar interest in, any corporation, partnership, joint venture
or
other business association or entity. Parent has no committees of its Board
of
Directors, charters, codes of conduct or ethics, or similar
policies.
3.2 Capital
Structure.
The
authorized capital stock of Parent consists of 500,000,000 shares of common
stock, $0.001 par value (“Parent
Common Stock”),
and
10,000,000 shares of preferred stock, $0.001 par value, 60 of which are
designated Series A Convertible Preferred Stock (“Parent
Series A Preferred”).
There
were issued and outstanding as of the close of business on the date hereof,
439,073 shares of Parent Common Stock and 55.4 shares of Parent Series A
Preferred. The shares of Parent Common Stock to be issued pursuant to the Merger
will be duly authorized, validly issued, fully paid, and non-assessable, free
of
any liens or encumbrances. There are no other outstanding shares of capital
stock or voting securities and no outstanding commitments to issue any shares
of
capital stock or voting securities after the date hereof, other than pursuant
to
the exercise of options outstanding as of such date under Parent’s 2000 Equity
Incentive Plan (the “Parent
Stock Option Plan”)
and
pursuant to conversion of the outstanding shares of Parent Series A Preferred.
All outstanding shares of Parent Common Stock and Parent Series A Preferred
are
duly authorized, validly issued, fully paid and non-assessable and are free
of
any liens or encumbrances other than any liens or encumbrances created by or
imposed upon the holders thereof, and are not subject to preemptive rights
or
rights of first refusal created by statute, the Certificate of Incorporation
or
Bylaws of Parent or any agreement to which Parent is a party or by which it
is
bound. As of the date hereof, Parent has reserved 6,500 shares of Parent Common
Stock for issuance to employees, consultants and directors
-17-
pursuant
to the Parent Stock Option Plan, of which no shares have been issued pursuant
to
option exercises or direct stock purchases, 3,873 shares are subject to
outstanding, unexercised options, no shares are subject to outstanding stock
purchase rights, and 2,627 shares are available for issuance thereunder, and
686,755 shares of Parent Common Stock for issuance upon conversion of
outstanding shares of Parent Series A Preferred. Since September 30, 2005,
Parent has not issued or granted additional options under the Parent Stock
Option Plan. Except for (i) the rights created pursuant to this Agreement and
the Parent Stock Option Plan and (ii) Parent’s rights to repurchase any unvested
shares under the Parent Stock Option Plan or the stock option agreements
thereunder, and (iii) warrants and convertible securities listed on Schedule 3.2,
there
are no other options, warrants, calls, rights, commitments or agreements of
any
character to which Parent is a party or by which it is bound obligating Parent
to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any shares of capital stock of Parent or
obligating Parent to grant, extend, accelerate the vesting and/or repurchase
rights of, change the price of, or otherwise amend or enter into any such
option, warrant, call, right, commitment or agreement. There are no contracts,
commitments or agreements relating to voting, purchase or sale of Parent’s
capital stock (i) between or among Parent and any of its stockholders and (ii)
to the best of Parent’s knowledge, between or among any of Parent’s
stockholders. True and complete copies of all agreements and instruments
relating to or issued under the Parent Stock Option Plan have been made
available to Company and such agreements and instruments have not been amended,
modified or supplemented, and there are no agreements to amend, modify or
supplement such agreements or instruments in any case from the form made
available to Company. The shares of Parent Common Stock issued under the Parent
Stock Option Plan have either been registered under the Securities Act or were
issued in transactions which qualified for exemptions under, either
Section 4(2) of, or Rule 701 under, the Securities Act for stock issuances
under compensatory benefit plans.
3.3 Authority.
Parent
and Merger Sub have all requisite corporate power and authority to enter into
this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent and Merger Sub. This Agreement has been
duly executed and delivered by Parent and Merger Sub and constitutes the valid
and binding obligations of Parent and Merger Sub enforceable against Parent
and
Merger Sub in accordance with its terms, except as enforceability may be limited
by bankruptcy and other laws affecting the rights and remedies of creditors
generally and general principles of equity. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default under (with
or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Certificate of Incorporation or Bylaws
of
Parent or Merger Sub, as amended, or (ii) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Merger Sub or their properties or assets, except where
such conflict, violation, default, termination, cancellation or acceleration
with respect to the foregoing provisions of (ii) could not have had and could
not reasonably be expected to have a Material Adverse Effect on Parent. No
consent, approval, order or authorization of, or registration, declaration
or
filing with, any Governmental Entity, is required by or with respect to Parent
or Merger Sub in connection with the execution and delivery of this
-18-
Agreement
by Parent and Merger Sub or the consummation by Parent and Merger Sub of the
transactions contemplated hereby, except for (i) the filing of the Certificate
of Merger as provided in Section 1.2;
(ii)
the filing with the SEC of Form D; (iii) the filing of a Form 8-K with the
SEC within 15 days after the Closing Date; (iv) any filings as may be required
under applicable state securities laws and the securities laws of any foreign
country; (v) such filings as may be required under HSR; (vi) any filings
required with the OTC BB with
respect to the shares of Parent Common Stock issuable upon exchange of Company
Common Stock in the Merger and upon exercise of the options under the Company
Stock Option Plans assumed by Parent; (vii) the filing of a registration
statement on Form S-8 with the SEC, or other applicable form covering the shares
of Parent Common Stock issuable pursuant to outstanding options under the
Company Stock Option Plans assumed by Parent; and (viii) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or
made, would not have a Material Adverse Effect on Parent and would not prevent
or materially alter or delay any of the transactions contemplated by this
Agreement.
3.4 SEC
Documents; Financial Statements.
Parent
has made available to Company a true and complete copy of each statement,
report, registration statement (with the prospectus in the form filed pursuant
to Rule 424(b) of the Securities Act), definitive proxy statement, and other
filings filed with the SEC by Parent since December 31, 2003, and, prior to
the Effective Time, Parent will have furnished or made available to Company
true
and complete copies of any additional documents filed with the SEC by Parent
prior to the Effective Time (collectively, the “Parent
SEC Documents”).
Parent has timely filed all forms, statements and documents required to be
filed
by it with the SEC since December 31, 2003. In addition, Parent has made
available to Company all exhibits to the Parent SEC Documents filed prior to
the
date hereof, and will promptly make available to Company all exhibits to any
additional Parent SEC Documents filed prior to the Effective Time. All documents
required to be filed as exhibits to the Parent SEC Documents have been so filed,
and all material contracts so filed as exhibits are in full force and effect,
except those that have expired in accordance with their terms, and neither
Parent nor Merger Sub is in material default thereunder. As of their respective
filing dates, the Parent SEC Documents complied in all material respects with
the requirements of the Exchange Act and the Securities Act, and none of the
Parent SEC Documents contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
to
make the statements made therein, in light of the circumstances in which they
were made, not misleading, except to the extent corrected by a subsequently
filed Parent SEC Document. Merger Sub is not required to file any forms, reports
or other documents with the SEC. The financial statements of Parent, including
the notes thereto, included in the Parent SEC Documents (the “Parent
Financial Statements”)
were
complete and correct in all material respects as of their respective dates,
complied as to form in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been prepared in
accordance with GAAP applied on a basis consistent throughout the periods
indicated and consistent with each other (except as may be indicated in the
notes thereto or, in the case of unaudited statements included in Quarterly
Reports on Form 10-QSB, as permitted by Form 10-QSB of the SEC). The Parent
Financial Statements fairly present the consolidated financial condition and
operating results of Parent and Merger Sub at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments).
-19-
3.5Xxxxxxxx-Xxxxx
Act of 2002.
There
has been no change in Parent accounting policies since December 31, 2003
except as described in the notes to the Parent Financial Statements. Each
required form, report and document containing financial statements that has
been
filed with or submitted to the SEC since December 31, 2003, was accompanied
by the certifications required to be filed or submitted by Parent’s chief
executive officer and chief financial officer pursuant to the Xxxxxxxx-Xxxxx
Act
of 2002 (the “Xxxxxxxx-Xxxxx
Act”),
and
at the time of filing or submission of each such certification, such
certification was true and accurate and materially complied with the
Xxxxxxxx-Xxxxx Act and the rules and regulations promulgated thereunder. Since
December 31, 2003, neither Parent nor, to the knowledge of the Parent, any
director, officer, employee, auditor, accountant or representative of Parent
or
Merger Sub has received or otherwise had or obtained knowledge of any complaint,
allegation, assertion or claim, whether written or oral, regarding the
accounting or auditing practices, procedures, methodologies or methods of Parent
or Merger Sub or their respective internal accounting controls, including any
complaint, allegation, assertion or claim that Parent has engaged in
questionable accounting or auditing practices, except for (A) any complaint,
allegation, assertion or claim as has been resolved without any resulting change
to Parent’s accounting or auditing practices, procedures methodologies or
methods of Parent or its internal accounting controls and (b) questions
regarding such matters raised and resolved in the ordinary course in connection
with the preparation and review of Parent’s financial statements and periodic
reports. To the knowledge of Parent, no attorney representing Parent, whether
or
not employed by Parent, has reported evidence of a material violation of
securities laws, breach of fiduciary duty or similar violation by Parent or
any
of its officers, directors, employees or agents to the Board of Directors of
Parent or any committee thereof or to any director or officer of Parent. To
the
knowledge of Parent, no employee of Parent has provided or is providing
information to any law enforcement agency regarding the commission or possible
commission of any crime or the violation or possible violation of any applicable
law.
3.6 Absence
of Certain Changes.
Since
September 30, 2005 (the “Parent
Balance Sheet Date”),
Parent has conducted its business in the ordinary course consistent with past
practice and there has not occurred: (i) any change, event or condition (whether
or not covered by insurance) that has resulted in, or is reasonably likely
to
result in, or to the best of Parent’s knowledge any event beyond Parent’s
control that is reasonably likely to result in, a Material Adverse Effect to
Parent; (ii) any acquisition, sale or transfer of any material asset of Parent
or Merger Sub other than in the ordinary course of business and consistent
with
past practice; (iii) any change in accounting methods or practices (including
any change in depreciation or amortization policies or rates) by Parent or
any
revaluation by Parent of any of its or any of Merger Sub’s assets; (iv) any
declaration, setting aside, or payment of a dividend or other distribution
with
respect to the shares of Parent, or any direct or indirect redemption, purchase
or other acquisition by Parent of any of its shares of capital stock; (v) any
material contract entered into by Parent or Merger Sub, other than in the
ordinary course of business and as provided to Company, or any amendment or
termination of, or default under, any material contract to which Parent or
Merger Sub is a party or by which it is bound; (vi) any amendment or change
to
Parent’s Certificate of Incorporation or Bylaws; or (vii) any increase in or
modification of the compensation or benefits payable, or to become payable,
by
Parent to any of its directors or employees, other than pursuant to scheduled
annual performance reviews, provided that any resulting modifications are in
the
ordinary course of business and consistent with Parent’s past practices. Parent
has not agreed since September 30, 2005 to do any of the things described
in
-20-
the
preceding clauses (i) through (vii) and is not currently involved in any
negotiations to take any of the actions described in the preceding clauses
(i)
through (vii) (other than negotiations with Company and its representatives
regarding the transactions contemplated by this Agreement).
3.7 Absence
of Undisclosed Liabilities.
Parent
has no material obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) other than (i) those set forth or adequately provided
for
in the Balance Sheet included in Parent’s Quarterly Report on Form 10-QSB
for the quarter ended September 30, 2005 (the “Parent
Balance Sheet”),
(ii)
those incurred in the ordinary course of business and not required to be set
forth in the Parent Balance Sheet under GAAP, (iii) those incurred in the
ordinary course of business since the Parent Balance Sheet date and not
reasonably likely to have a Material Adverse Effect on Parent, and (iv) those
incurred in connection with this Agreement.
3.8 Litigation.
There
is no private or governmental action, suit, proceeding, claim, arbitration,
audit or investigation pending before any agency, court or tribunal, foreign
or
domestic, or, to the knowledge of Parent or Merger Sub, threatened against
Parent or Merger Sub or any of their respective properties or any of their
respective officers or directors (in their capacities as such) that,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect on Parent. There is no injunction, judgment, decree,
order or regulatory restriction imposed upon Parent or Merger Sub or any of
their respective assets or business, or, to the knowledge of Parent and Merger
Sub, any of their respective directors or officers (in their capacities as
such), that would prevent, enjoin, alter or materially delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Parent. Schedule 3.8
lists
all actions, suits, proceedings, claims, arbitrations, audits and investigations
pending before any agency, court or tribunal that involve Parent or Merger
Sub.
3.9 Restrictions
on Business Activities.
There
is no agreement, judgment, injunction, order or decree binding upon Parent
or
Merger Sub which has or reasonably could be expected to have the effect of
prohibiting or materially impairing any business practice of Parent or Merger
Sub, any acquisition of property by Parent or Merger Sub or the conduct of
business by Parent or Merger Sub.
3.10 Environmental
Matters.
Except
as disclosed in Schedule 3.10
and
except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect: (i) Parent has
complied with all applicable Environmental Laws; (ii) the properties
currently operated by Parent (including soils, groundwater, surface water,
buildings or other structures) have not been contaminated with any Hazardous
Substances by any action of Parent; (iii) the properties formerly owned by
the Parent were not contaminated with Hazardous Substances during the period
of
ownership or operation by Parent or, to Parent’s knowledge, during any prior
period; (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 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.
-21-
3.11 Taxes.
(a) Parent
and any consolidated, combined, unitary or aggregate group for Tax purposes
of
which Parent is or has been a member, have properly completed and timely filed
all Tax Returns required to be filed by them and have paid all Taxes required
to
be paid, whether or not shown on any Tax Return. All unpaid Taxes of Parent
for
periods through September 30, 2005, are reflected in the Parent Balance
Sheet. Parent has no liability for unpaid Taxes accruing after
September 30, 2005, other than Taxes arising in the ordinary course of its
business subsequent to September 30, 2005.
(b) There
is
(i) no claim for Taxes that is a lien against the property of Parent or is
being
asserted against Parent other than liens for Taxes not yet due and payable;
(ii)
no audit of any Tax Return of Parent that is being conducted by a Tax authority
that is currently pending or threatened, and Parent has not been notified of
any
proposed Tax claims or assessments against Parent; (iii) no extension of the
statute of limitations on the assessment of any Taxes that has been granted
by
Parent and that is currently in effect; and (iv) no agreement, contract or
arrangement to which Parent is a party that may result in the payment of any
amount that would not be deductible by reason of Sections 280G, 162 or 404
of the Code. Parent has not been or will not be required to include any material
adjustment in Taxable income for any Tax period (or portion thereof) pursuant
to
Section 481 or 263A of the Code or any comparable provision under state or
foreign Tax laws as a result of transactions, events or accounting methods
employed prior to the Merger.
(c) There
are
no Tax sharing or Tax allocation agreements to which Parent is a party or to
which it is bound. Parent has not filed any disclosures under Section 6662
or comparable provisions of state, local or foreign law to prevent the
imposition of penalties with respect to any Tax reporting position taken on
any
Tax Return. Parent has never been a member of a consolidated, combined or
unitary group of which Parent was not the ultimate parent corporation. Parent
has in its possession receipts for any Taxes paid to foreign Tax
authorities.
(d) Parent
has not been either a “distributing corporation” or a “controlled corporation”
in a distribution of stock qualifying for tax-free treatment under
Section 355 of the Code (x) in the two years prior to the date of this
Agreement or (y) in a distribution which could otherwise constitute part of
a
“plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) in conjunction with the Merger.
(e) Parent
has withheld (and paid over to the appropriate governmental authorities) all
Taxes required to be withheld, including, but not limited to, FICA and FUTA,
with respect to its employees and all third parties.
(f) Parent
has never been a United States real property holding corporation within the
meaning of Section 897 of the Code.
-22-
3.12
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
Parent, or any trade or business (whether or not incorporated) which is under
common control with Parent, with respect to which the Parent has liability
(collectively, the “Parent
Plans”)
have
been maintained and administered in all material respects in compliance with
their respective 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 Parent Plans have been properly reflected
in
the financial statements and records of Parent. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Parent Plan activities) has been brought, or, to the knowledge of Parent, is
threatened, against or with respect to any Parent Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of Parent, threatened
by
any governmental agency with respect to any Parent Plan. 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. Parent does not have
any
plan or commitment to establish any new Parent Plan, to modify any Parent Plan
(except to the extent required by law or to conform any such Parent 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 Parent Plan can be amended, terminated or otherwise discounted after
the Closing in accordance with its terms, without liability to Parent (other
than ordinary administration expenses and expenses for benefits accrued but
not
yet paid).
(b) Except
as
disclosed in Schedule 3.12,
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 under any Parent
Plan or otherwise, (ii) materially increase any benefits otherwise payable
under any Parent Plan, or (iii) result in the acceleration of the time of
payment or vesting of any such benefits.
3.13 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.
3.14 Interested
Party Transactions.
Except
as disclosed in the Parent SEC Documents, Parent is not indebted to any director
or officer of Parent (except for amounts due as normal salaries and bonuses
and
in reimbursement of ordinary expenses), and no such person is indebted to
Parent, and there are no other transactions of the type required to be disclosed
pursuant to Items 402 or 404 of Regulation S-K under the Securities Act and
the
Exchange Act.
3.15 Insurance.
Parent
maintains no insurance of any kind.
3.16 Compliance
With Laws.
Parent
has complied with, is not in violation of, and has not received any notices
of
violation with respect to, any federal, state, local or foreign
statute,
-23-
law
or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, except for such violations or failures to comply
as
would not be reasonably expected to have a Material Adverse Effect on
Parent.
3.17 Broker’s
and Finders’ Fees.
Parent
has not incurred, nor will it incur, directly or indirectly, any liability
for
brokerage or finders’ fees or agents’ commissions or investment bankers’ fees or
any similar charges in connection with this Agreement or any transaction
contemplated hereby.
3.18 Minute
Books.
The
minute books of Parent made available to Company contain in all material
respects a complete and accurate summary of all meetings of directors and
stockholders or actions by written consent of Parent since December 31,
2003 and through the date of this Agreement, and reflect all transactions
referred to in such minutes accurately in all material respects.
3.19 Vote
Required.
The
approval of Parent’s Board of Directors described in Section 3.20
and the
affirmative vote of Parent as sole stockholder of Merger Sub are the only
approvals or votes necessary to approve this Agreement and the transactions
contemplated hereby.
3.20 Board
Approval.
The
Board of Directors of Parent has (i) approved this Agreement and the Merger,
and
(ii) approved the issuance of the shares of Parent Common Stock pursuant to
Section 1.6(a).
The
Board of Directors of Merger Sub has approved this Agreement and the Merger,
and
recommended that the sole stockholder of Merger Sub approve this Agreement
and
the Merger.
3.21 Over-the-Counter
Bulletin Board Quotation.
Parent
Common Stock is quoted on the 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.
3.22 Representations
Complete.
None of
the representations or warranties made by Parent or Merger Sub herein or in
any
Schedule hereto, including the Parent Disclosure Schedule, or certificate
furnished by Parent or Merger Sub pursuant to this Agreement, or the Parent
SEC
Documents, when all such documents are read together in their entirety, contains
or will contain at the Effective Time any untrue statement of a material fact,
or omits or will omit at the Effective Time to state any material fact necessary
in order to make the statements contained herein or therein, in the light of
the
circumstances under which made, not misleading. All projected, forecasted or
prospective financial information provided by Parent to Company has been
prepared in good faith on the basis of assumptions Parent believes are
reasonable and supportable.
ARTICLE
IV
CONDUCT
PRIOR TO THE EFFECTIVE TIME
4.1 Conduct
of Business.
During
the period from the date of this Agreement and continuing until the earlier
of
the termination of this Agreement or the Effective Time, each of Parent and
Company agrees (except to the extent expressly contemplated by this Agreement
or
-24-
as
consented to in writing by the other party), to carry on its and its
subsidiaries’ business in the ordinary course in substantially the same manner
as heretofore conducted, to pay and to cause its subsidiaries to pay debts
and
Taxes when due subject to good faith disputes over such debts or taxes, to
pay
or perform other obligations when due, and to use all reasonable efforts
consistent with past practice and policies to preserve intact its and its
subsidiaries’ present business organizations, use its reasonable best efforts
consistent with past practice to keep available the services of its and its
subsidiaries’ present officers and key employees and use its reasonable best
efforts consistent with past practice to preserve its and its subsidiaries’
relationships with customers, suppliers, distributors, licensors, licensees,
and
others having business dealings with it or its subsidiaries, to the end that
its
and its subsidiaries’ goodwill and ongoing businesses shall be unimpaired at the
Effective Time. Each of Parent and Company agrees to promptly notify the other
of any material event or occurrence not in the ordinary course of its or its
subsidiaries’ business, and of any event that would have a Material Adverse
Effect on Parent or Company.
4.2 Restrictions
on Conduct of Business.
During
the period from the date of this Agreement and continuing until the earlier
of
the termination of this Agreement or the Effective Time, except as expressly
contemplated by this Agreement, neither Parent nor Company shall do, cause
or
permit any of the following, or allow, cause or permit any of its subsidiaries
to do, cause or permit any of the following, without the prior written consent
of the other:
(a) Charter
Documents.
Cause
or permit any amendments to its Certificate of Incorporation or
Bylaws;
(b) Dividends;
Changes in Capital Stock.
Declare
or pay any dividends on or make any other distributions (whether in cash, stock
or property) in respect of any of its capital stock, or split, combine or
reclassify any of its capital stock or issue or authorize the issuance of any
other securities in respect of, in lieu of or in substitution for shares of
its
capital stock, or repurchase or otherwise acquire, directly or indirectly,
any
shares of its capital stock except from former employees, directors and
consultants in accordance with agreements providing for the repurchase of shares
in connection with any termination of service to it or its
subsidiaries;
(c) Stock
Option Plans, Etc.
Except
as required by Section 5.8,
take
any action to accelerate, amend or change the period of exercisability or
vesting of options or other rights granted under its stock plans or authorize
cash payments in exchange for any options or other rights granted under any
of
such plans, except changes that would allow accelerated vesting if holders
of
Company rights or options are terminated without cause within 12 months after
the Effective Time, and except, in the case of Company, as set forth on
Schedule 4.2(c).
(d) Material
Contracts.
Enter
into any contract or commitment, or violate, amend or otherwise modify or waive
any of the terms of any of its contracts, other than in the ordinary course
of
business consistent with past practice and in no event shall such contract,
commitment, amendment, modification or waiver (other than those relating to
sales of products or purchases of supplies in the ordinary course) involve
the
payment by
-25-
Parent
or
Company, as applicable, or their respective subsidiaries in excess of
$5,000,
except
that Company may enter into license agreements in which it is the
licensor;
(e) Issuance
of Securities.
Issue,
deliver or sell or authorize or propose the issuance, delivery or sale of,
or
purchase or propose the purchase of, any shares of its capital stock or
securities convertible into, or subscriptions, rights, warrants or options
to
acquire, or other agreements or commitments of any character obligating it
to
issue any such shares or other convertible securities, other than the issuance
of shares of its common stock pursuant to the conversion of preferred stock,
or
exercise of stock options, warrants or other rights therefor outstanding as
of
the date of this Agreement;
(f) Intellectual
Property.
Transfer or license to any person or entity any rights to any Intellectual
Property other than the license of non-exclusive rights to Intellectual Property
in the ordinary course of business consistent with past practice, place any
Intellectual Property into a source-code escrow, or grant any source-code
license of any kind, except that Company may enter into license agreements
in
which it is the licensor;
(g) Exclusive
Rights.
Enter
into or amend any agreements pursuant to which any other party is granted
exclusive marketing or other exclusive rights of any type or scope with respect
to any of its products or technology, except that Company may enter into license
agreements in which it is the licensor;
(h) Dispositions.
Sell,
lease, license or otherwise dispose of or encumber any of its properties or
assets which are material, individually or in the aggregate, to its and its
subsidiaries’ business, taken as a whole, except in the ordinary course of
business consistent with past practice;
(i) Indebtedness.
Incur
any indebtedness for borrowed money or guarantee any such indebtedness or issue
or sell any debt securities or guarantee any debt securities of
others;
(j) Leases.
Enter
into any operating lease in excess of $5,000;
(k) Payment
of Obligations.
Pay,
discharge or satisfy in an amount in excess of $75,000 in any one case, any
claim, liability or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) arising other than in the ordinary course of business,
other than the payment, discharge or satisfaction of liabilities reflected
or
reserved against in the Parent Financial Statements or the Company Financial
Statements, as applicable;
(l) Capital
Expenditures.
Make
any capital expenditures, capital additions or capital improvements except
in
the ordinary course of business and consistent with past practice that do not
exceed $5,000 individually or in the aggregate;
(m) Insurance.
Materially reduce the amount of any material insurance coverage provided by
existing insurance policies;
-26-
(n)
Termination or Waiver.
Terminate or waive any right of substantial value;
(o) Employee
Benefit Plans; New Hires; Pay Increases.
Adopt
or amend any employee benefit or stock purchase or option plan or hire any
new
director level or officer level employee, pay any special bonus or special
remuneration to any employee or director, or increase the salaries or wage
rates
of its employees other than pursuant to scheduled annual performance reviews,
provided that any resulting modifications are in the ordinary course of business
and consistent with Company’s past practices;
(p) Severance
Arrangements.
Grant
any severance, termination pay or payments or benefits payable as a result
of
the Merger (i) to any director or officer, or (ii) to any other employee except
payments made pursuant to written agreements outstanding on the date
hereof;
(q) Lawsuits.
Commence a lawsuit other than (i) for the routine collection of bills, (ii)
in
such cases where such party in good faith determines that failure to commence
suit would result in the material impairment of a valuable aspect of its
business, provided that it consults with the other party prior to the filing
of
such a suit, (iii) for a breach of this Agreement, or (iv) to clarify such
party’s obligations under this Agreement;
(r) Acquisitions.
Acquire
or agree to acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any business
or
any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which
are
material, individually or in the aggregate, to its and its subsidiaries’
business, taken as a whole, or acquire or agree to acquire any equity securities
of any corporation, partnership, association or business
organization;
(s) Taxes.
Other
than in the ordinary course of business, make or change any material election
in
respect of Taxes, adopt or change any accounting method in respect of Taxes,
file any material Tax Return or any amendment to a material Tax Return, enter
into any closing agreement, settle any claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period applicable to
any
claim or assessment in respect of Taxes;
(t) Accounting
Policies and Procedures.
Make
any change to its accounting methods, principles, policies, procedures or
practices, except as may be required by GAAP, Regulation S-X promulgated by
the
SEC or applicable statutory accounting principles;
(u) Other.
Take or
agree in writing or otherwise to take, any of the actions described in
Sections
4.2(a) through (t)
above,
or any action which would make any of its representations or warranties
contained in this Agreement untrue or incorrect or prevent it from performing
or
cause it not to perform its covenants hereunder.
-27-
ARTICLE
V
ADDITIONAL
AGREEMENTS
5.1 Meeting
of Stockholders.
Company
shall promptly after the date hereof take all action necessary in accordance
with Delaware Law and its Certificate of Incorporation and Bylaws to convene
a
meeting of its stockholders to approve the Merger (the “Company
Stockholders Meeting”)
within
45 days of the date of this Agreement. Company shall use its reasonable best
efforts to secure the vote or consent of stockholders required to effect the
Merger.
5.2 Access
to Information.
(a) Except
as
prohibited by applicable law, each of Parent and Company shall afford the other
and its accountants, counsel and other representatives, reasonable access during
normal business hours during the period prior to the Effective Time to (i)
all
of such party’s and its subsidiaries’ properties, books, contracts, commitments
and records, and (ii) all other information concerning the business, properties
and personnel of such party and its subsidiaries as the other party may
reasonably request. Each of Parent and Company agrees to provide to the other
and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request.
(b) No
information or knowledge obtained in any investigation pursuant to this
Section 5.2
shall
affect or be deemed to modify any representation or warranty contained herein
or
the conditions to the obligations of the parties to consummate the
Merger.
(c) Each
of
Parent and Company shall provide the other and its accountants, counsel and
other representatives reasonable access, during normal business hours during
the
period prior to the Effective Time, to all of such party’s and its subsidiaries’
Tax Returns and other records and workpapers relating to Taxes, and shall also
provide the following information upon the request of the other party or its
subsidiaries: (i) a schedule of the types of Tax Returns being filed by Parent
or Company, as applicable, and each of its subsidiaries in each taxing
jurisdiction, (ii) a schedule of the year of the commencement of the filing
of
each such type of Tax Return, (iii) a schedule of all closed years with respect
to each such type of Tax Return filed in each jurisdiction, (iv) a schedule
of
all material Tax elections filed in each jurisdiction by Parent or Company,
as
applicable, and each of its subsidiaries, (v) a schedule of any deferred
intercompany gain with respect to transactions to which Parent or Company,
as
applicable, or any of its subsidiaries has been a party, and (vi) receipts
for
any Taxes paid to foreign Tax authorities.
5.3 Confidentiality.
The
parties acknowledge that each of Parent and Company have previously executed
a
non-disclosure agreement, which agreement shall continue in full force and
effect in accordance with its terms.
5.4 Public
Disclosure.
Unless
otherwise permitted by this Agreement, Parent and Company shall consult with
each other before issuing any press release or otherwise making any
-28-
public
statement or making any other public (or non-confidential) disclosure (whether
or not in response to an inquiry) regarding the terms of this Agreement and
the
transactions contemplated hereby, and neither shall issue any such press release
or make any such statement or disclosure without the prior approval of the
other
(which approval shall not be unreasonably withheld), except as may be required
by law or by obligations pursuant to any listing agreement with any national
securities exchange or with the NASD, in which case the party proposing to
issue
such press release or make such public statement or disclosure shall use its
commercially reasonable efforts to consult with the other party before issuing
such press release or making such public statement or disclosure.
5.5 Consents;
Cooperation.
(a) Each
of
Parent and Company shall promptly apply for or otherwise seek, and use its
reasonable best efforts to obtain, all consents and approvals required to be
obtained by it for the consummation of the Merger, including those required
under HSR. Company shall use its reasonable best efforts to obtain all necessary
consents, waivers and approvals under any of its material contracts in
connection with the Merger for the assignment thereof or otherwise. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another, in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to HSR or any other federal or state antitrust or fair trade
law.
(b) Each
of
Parent and Company shall use its reasonable best efforts to resolve such
objections, if any, as may be asserted by any Governmental Entity with respect
to the transactions contemplated by this Agreement under HSR, the Xxxxxxx Act,
as amended, the Xxxxxxx Act, as amended, the Federal Trade Commission Act,
as
amended, and any other Federal, state or foreign statutes, rules, regulations,
orders or decrees that are designed to prohibit, restrict or regulate actions
having the purpose or effect of monopolization or restraint of trade
(collectively, “Antitrust
Laws”).
In
connection therewith, if any administrative or judicial action or proceeding
is
instituted (or threatened to be instituted) challenging any transaction
contemplated by this Agreement as violative of any Antitrust Law, each of Parent
and Company shall cooperate and use its reasonable best efforts vigorously
to
contest and resist any such action or proceeding and to have vacated, lifted,
reversed, or overturned any decree, judgment, injunction or other order, whether
temporary, preliminary or permanent (each, an “Order”),
that
is in effect and that prohibits, prevents, or restricts consummation of the
Merger or any such other transactions, unless by mutual agreement Parent and
Company decide that litigation is not in their respective best interests.
Notwithstanding the provisions of the immediately preceding sentence, it is
expressly understood and agreed that neither Parent nor Company shall have
any
obligation to litigate or contest any administrative or judicial action or
proceeding or any Order beyond the Final Date (as defined in Section 7.1(b)).
Each
of Parent and Company shall use its reasonable best efforts to take such action
as may be required to cause the expiration of the notice periods under the
HSR
or other Antitrust Laws with respect to such transactions as promptly as
possible after the execution of this Agreement. Parent and Company also agree
to
take
-29-
any
and
all of the following actions to the extent necessary to obtain the approval
of
any Governmental Entity with jurisdiction over the enforcement of any applicable
laws regarding the transactions contemplated hereby: entering into negotiations;
providing information required by law or governmental regulation; and
substantially complying with any second request for information pursuant to
the
Antitrust Laws.
(c) Notwithstanding
anything to the contrary in Section 5.5(a)
or (b),
(i)
neither Parent nor Merger Sub shall be required to divest any of their
respective businesses, product lines or assets, or to take or agree to take
any
other action or agree to any limitation that could reasonably be expected to
have a Material Adverse Effect on Parent or of Parent combined with the
Surviving Corporation after the Effective Time and (ii) Company shall not be
required to divest any of its businesses, product lines or assets, or to take
or
agree to take any other action or agree to any limitation that could reasonably
be expected to have a Material Adverse Effect on Company.
5.6 Legal
Requirements.
Each of
Parent and Company will, and will cause their respective aries to, take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly cooperate with
and
furnish information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto
in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.7 Blue
Sky Laws.
Parent
shall use its reasonable efforts to comply with the securities and blue sky
laws
of all jurisdictions which are applicable to the issuance of the Parent Common
Stock in connection with the Merger. Company shall use its reasonable best
efforts to assist Parent as may be necessary to comply with the securities
and
blue sky laws of all jurisdictions which are applicable in connection with
the
issuance of Parent Common Stock in connection with the Merger.
5.8
Employee Benefit Plans; Assumption of Options and Warrants and
Convertible Notes.
Company
represents and warrants to Parent that Schedule 5.8
sets
forth a true and complete list as of the date hereof of all holders of (i)
outstanding options under the Company Stock Option Plans, including the number
of shares of Company Common Stock subject to each such option and the exercise
price per share, (ii) outstanding warrants to purchase shares of Company Common
Stock, including the number of shares of Company Common Stock subject to each
such warrant, the exercise price and the term of each such warrant and (iii)
outstanding convertible promissory notes of Company convertible into shares
of
Company Common Stock, including the number of shares of Company Common Stock
subject to each such convertible promissory note, the conversion price and
the
term of each such note. At the Effective Time, Parent shall assume each
outstanding option to purchase shares of Company Common Stock under or outside
of the Company Stock Option Plans, as listed on Schedule 5.8
(the
“Assumed
Options”),
and
each outstanding warrant to purchase shares of Company
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Common
Stock listed on Schedule 5.8
(the
“Assumed
Warrants”),
whether vested or unvested, and each convertible promissory note listed on
Schedule 5.8
(the
“Assumed
Notes”),
as
set forth below. Each of the Assumed Options, Assumed Warrants and Assumed
Notes
shall continue to have, and be subject to, the same terms and conditions set
forth in the applicable Company Stock Option Plans, the applicable stock option
agreements, the applicable warrant certificates or agreements, and the
applicable convertible promissory notes immediately prior to the Effective
Time,
except that (i) each of the Assumed Options and Assumed Warrants will be
exercisable for that number of whole shares of Parent Common Stock equal to
the
product of the number of shares of Company Common Stock that were issuable
upon
exercise of such Assumed Option or Assumed Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio and rounded down to the nearest
whole number of shares of Parent Common Stock, (ii) the per share exercise
price
for the shares of Parent Common Stock issuable upon exercise of such Assumed
Options and Assumed Warrants, other than will be equal to the quotient
determined by dividing the exercise price per share of Company Common Stock
at
which each such Assumed Option or Assumed Warrant was exercisable immediately
prior to the Effective Time by the Exchange Ratio, rounded down to the nearest
whole cent, except as otherwise provided in the “Organic Change” provisions of
the Assumed Warrants, and (iii) the conversion price of each of the Assumed
Notes will be equal to the product of the conversion price of such Assumed
Note
immediately prior to the Effective Time multiplied by the Exchange Ratio. Within
30 days after the Effective Time, Parent will issue to each person who,
immediately prior to the Effective Time, was a holder of an Assumed Option
or an
Assumed Warrant or an Assumed Note, a document evidencing the foregoing
assumption of such Assumed Option or Assumed Warrant or Assumed Note by Parent.
At or prior to the Effective Time, Parent shall take all corporate action
necessary to reserve for future issuance, and shall maintain such reservation
for so long as any of the Assumed Options and Assumed Warrants and Assumed
Notes
remain outstanding, a sufficient number of shares of Parent Common Stock for
delivery upon the exercise of such Assumed Options and Assumed Warrants and
Assumed Notes.
5.9 Form
8-K.
At
least five days prior to Closing, Parent shall prepare a draft Form 8-K
announcing the Closing, together with, or incorporating by reference, the
financial statements prepared by Company and its accountant, and such other
information that may be required to be disclosed with respect to the Merger
in
any report or form to be filed with the SEC (“Merger
Form 8-K”),
which
shall be in a form reasonably acceptable to Company. Prior to Closing, Parent
and Company will prepare the press release announcing the consummation of the
Merger hereunder (“Press
Release”).
Simultaneously with the Closing, Parent shall file the Merger Form 8-K with
the SEC and distribute the Press Release.
5.10 Indemnification.
(a) After
the
Effective Time, Parent will fulfill and honor in all respects the obligations
of
Company pursuant to the indemnification provisions of Company’s Certificate of
Incorporation and Bylaws or any indemnification agreement with Company officers
and directors to which Company is a party, in each case in effect on the date
hereof; provided that such indemnification shall be subject to any limitation
imposed from time to time under applicable law. Without limitation of the
foregoing, in the event any person so indemnified (an “Indemnified
Party”)
is or
becomes involved in any
-31-
capacity
in any action, proceeding or investigation in connection with any matter
relating to this Agreement or the transactions contemplated hereby occurring
on
or prior to the Effective Time, Parent shall, or shall cause the Surviving
Corporation to, pay as incurred such Indemnified Party’s reasonable legal and
other expenses (including the cost of any investigation and preparation)
incurred in connection therewith to the fullest extent permitted by the Delaware
Law upon receipt of any undertaking contemplated by Section 145(e) of the
Delaware Law. Any Indemnified Party wishing to claim indemnification under
this
Section 5.10,
upon
learning of any such claim, action, suit, proceeding or investigation, shall
promptly notify Parent and the Surviving Corporation, and shall deliver to
Parent and the Surviving Corporation the undertaking contemplated by
Section 145(e) of the Delaware Law.
(b) To
the
extent there is any claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time) against an Indemnified Party that
arises out of or pertains to any action or omission in his or her capacity
as
director, officer, employee, fiduciary or agent of Company occurring prior
to
the Effective Time, or arises out of or pertains to the transactions
contemplated by this Agreement for a period lasting until the expiration of
five
years after the Effective Time (whether arising before or after the Effective
Time), in each case for which such Indemnified Party is indemnified under this
Section 5.10,
such
Indemnified Party shall be entitled to be represented by counsel, which counsel
shall be counsel of Parent (provided that if use of counsel of Parent would
be
expected under applicable standards of professional conduct to give rise to
a
conflict between the position of the Indemnified Person and of Parent, the
Indemnified Party shall be entitled instead to be represented by counsel
selected by the Indemnified Party and reasonably acceptable to Parent) and
following the Effective Time the Surviving Corporation and Parent shall pay
the
reasonable fees and expenses of such counsel, promptly after statements therefor
are received and the Surviving Corporation and Parent will cooperate in the
defense of any such matter; provided, however, that neither the Surviving
Corporation nor Parent shall be liable for any settlement effected without
its
written consent (which consent shall not be unreasonably withheld); and
provided, further, that, in the event that any claim or claims for
indemnification are asserted or made prior to the expiration of such five year
period, all rights to indemnification in respect to any such claim or claims
shall continue until the disposition of any and all such claims. The Indemnified
Parties as a group may retain only one law firm (in addition to local counsel)
to represent them with respect to any single action unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the position of any two or more Indemnified Parties.
(c) The
provisions of this Section 5.10
are
intended to be for the benefit of, and shall be enforceable by, each Indemnified
Party, his or her heirs and representatives.
5.11
Tax
Treatment.
For
U.S. federal income tax purposes, it is intended that the Merger qualify as
a
reorganization within the meaning of the Code, and the parties hereto intend
that this Agreement shall constitute a “plan of reorganization” within the
meaning of Section 368 of the Code and Treasury Regulations Sections
1.368-2(g) and 1.368-3(a). Parent will report the Merger on its income tax
returns in a manner consistent with treatment of the Merger as a Code
Section 368(a) reorganization. Neither Parent, Company nor any of there
respective affiliates has taken any action, nor will they take any action,
that
could reasonably be expected to prevent or impede the Merger from qualifying
as
a reorganization under Section 368 of the Code.
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5.12 Best
Efforts and Further Assurances.
Each of
the parties to this Agreement shall use its best efforts to effectuate the
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
ARTICLE
VI
CONDITIONS
TO THE MERGER
6.1 Conditions
to Obligations of Each Party to Effect the Merger.
The
respective obligations of each party to this Agreement to consummate and effect
this Agreement and the transactions contemplated hereby shall be subject to
the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, by agreement of all the
parties hereto:
(a) Stockholder
and Warrantholder Approval.
This
Agreement and the Merger shall have been approved and adopted by the requisite
vote of the stockholders of Company under Delaware Law. The holders of certain
Assumed Warrants shall have approved the terms on which their Assumed Warrants
are being assumed.
(b) No
Injunctions or Restraints; Illegality.
No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing the consummation of the Merger shall be
in
effect, nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced
or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal. In the event an injunction or other order shall have been issued,
each
party agrees to use its reasonable best efforts to have such injunction or
other
order lifted.
(c) Governmental
Approvals.
Parent,
Company and Merger Sub shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for consummation of
or in
connection with the Merger and the several transactions contemplated hereby,
including such approvals, waivers and consents as may be required under the
Securities Act, under state Blue Sky laws, and under HSR.
(d) Dissenters’
Rights.
Holders
of not more than five percent (5%) of the outstanding shares of Company Common
Stock shall have not voted in favor of the Merger or not consented thereto
in
writing and shall have delivered prior to the Effective Time written notice
of
such holders’ intent to demand payment as dissenting stockholders for such
shares in accordance with Delaware Law.
-33-
(e)
Capital Resources.
At the
Effective Time, Company shall have not less than $5,000,000 in cash and cash
equivalents (or shall be party to an escrow agreement pursuant to which at
least
$5,000,000 in cash shall be released to Company or Parent at the
Closing).
6.2 Additional
Conditions to Obligations of Company.
The
obligations of Company to consummate and effect this Agreement and the
transactions contemplated hereby shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Company:
(a) Representations,
Warranties and Covenants.
(i) The
representations and warranties of Parent and Merger Sub in this Agreement shall
be true and correct in all material respects (except for such representations
and warranties that are qualified by their terms by a reference to materiality
which representations and warranties as so qualified shall be true and correct
in all respects) both when made and on and as of the Effective Time as though
such representations and warranties were made on and as of such time (provided
that those representations and warranties which address matters only as of
a
particular date shall be true and correct as of such date) and (ii) Parent
and
Merger Sub shall have performed and complied in all material respects with
all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by them as of the Effective Time.
(b) Certificate
of Parent.
Company
shall have been provided with a certificate executed on behalf of Parent by
its
President and Chief Financial Officer certifying that the condition set forth
in
Section 6.2(a)
shall
have been fulfilled.
(c) Third
Party Consents.
Company
shall have been furnished with evidence satisfactory to it of the consent or
approval of those persons whose consent or approval shall be required in
connection with the Merger under the contracts of Parent set forth on
Schedule 6.2(c).
(d) Injunctions
or Restraints on Conduct of Business.
No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Parent’s conduct or operation of the
business of Parent following the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be
pending.
(e) No
Material Adverse Changes.
There
shall not have occurred any Material Adverse Effect on Parent, or any change
that has a Material Adverse Effect on Parent.
(f) Options
Set-Aside.
The
Board of Directors of Parent shall have adopted resolutions reserving or setting
aside an aggregate of 7,033,000 shares of restricted stock and/or options under
the Company Stock Option Plans assumed by Parent hereunder for issuance after
the Effective Time to persons who were officers, directors,
employees,
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consultants
or contractors of Company prior to the Effective Time and who continue to
provide services to the Surviving Corporation or Parent as an officer, director,
employee, consultant or contractor after the Effective Time.
(g) Officers
and Directors of Parent.
Parent
shall have obtained and delivered to Company copies of the resignations of
those
persons listed on Schedule 6.2(g)
from
their positions as officers and directors of Parent, and shall have taken all
necessary action for the appointment of the persons listed on Schedule 6.2(g)
to the
positions set forth opposite their names, all effective at and as of the
Closing. Immediately prior to the effectiveness of the resignations of the
directors of Parent, the directors of Parent shall have appointed persons
designated by Company to fill vacancies on Parent’s board of directors,
including, if applicable, vacancies created by the resignations described
herein.
(h) Stock
Quotation.
The
Parent Common Stock at Closing shall 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 on the OTC
BB.
(i) SEC
Compliance.
Immediately prior to the Closing, Parent shall be in compliance with the
reporting requirements under the Exchange Act, and shall have timely filed
all
Exchange Act reports for the twelve month period preceding the
Closing.
(j) Payment
of Debts.
All
amounts due to Parent stockholders (including, without limitation, amounts
identified in footnote 5 to the financial statements included in Parent’s Form
10-QSB for the quarter ended September 30, 2005) shall have been
satisfied in full through the issuance of Parent equity securities at least
ten
business days prior to the Closing, and Parent shall have delivered to Company
evidence satisfactory to Company of the release by such stockholders of Parent’s
liability for such amounts. The issuance of Parent equity securities in this
regard shall have been reported by Parent on Form 8-K, and a corresponding
press release issued, at least ten days prior to the Closing.
6.3 Additional
Conditions to the Obligations of Parent and Merger Sub.
The
obligations of Parent and Merger Sub to consummate and effect this Agreement
and
the transactions contemplated hereby shall be subject to the satisfaction at
or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, by Parent:
(a) Representations,
Warranties and Covenants.
(i) The
representations and warranties of Company in this Agreement shall be true and
correct in all material respects (except for such representations and warranties
that are qualified by their terms by a reference to materiality, which
representations and warranties as so qualified shall be true and correct in
all
respects) both when made and on and as of the Effective Time as though such
representations and warranties were made on and as of such time (provided that
those representations and warranties which address matters only as of a
particular date shall be true and correct as of such date) and (ii) Company
shall have performed and complied in all material respects with all covenants,
obligations and conditions of this Agreement required to be performed and
complied with by it as of the Effective Time.
-35-
(b)
Certificate of Company.
Parent
shall have been provided with a certificate executed on behalf of Company by
its
President and Chief Financial Officer certifying that the condition set forth
in
Section 6.3(a)
shall
have been fulfilled.
(c) Injunctions
or Restraints on Conduct of Business.
No
temporary restraining order, preliminary or permanent injunction or other order
issued by any court of competent jurisdiction or other legal or regulatory
restraint provision limiting or restricting Company’s conduct or operation of
the business of Company following the Merger shall be in effect, nor shall
any
proceeding brought by an administrative agency or commission or other
Governmental Entity, domestic or foreign, seeking the foregoing be
pending.
(d) No
Material Adverse Changes.
There
shall not have occurred any Material Adverse Effect on Company, or any change
that has a Material Adverse Effect on Company.
ARTICLE
VII
TERMINATION,
AMENDMENT AND WAIVER
7.1 Termination.
At any
time prior to the Effective Time, whether before or after approval of the
matters presented in connection with the Merger by the stockholders of Company,
this Agreement may be terminated:
(a) by
mutual
consent of Parent and Company;
(b) by
either
Parent or Company, if, without fault of the terminating party, the Closing
shall
not have occurred on or before April 1, 2006, or such later date as may be
agreed upon in writing by the parties hereto (the “Final
Date”);
provided, however, that the Final Date shall be extended to April 15, 2006,
if the only reason the Closing has not occurred by April 1, 2006 is the
failure of the conditions set forth in Section 6.1(a)
(although such extension shall not occur if the failure of such conditions
has
been caused or resulted from one party’s action or failure to act constituting a
breach of this Agreement and the other party does not consent to such
extension); and provided further that the right to terminate this Agreement
under this Section 7.1(b)
shall
not be available to any party whose action or failure to act has been the cause
of or resulted in the failure of the Merger to occur on or before such date
and
such action or failure to act constitutes a breach of this
Agreement;
(c) by
Parent, if Company breaches any of its representations, warranties or
obligations hereunder to an extent that would cause the condition set forth
in
Section 6.3(a)
not
to be
satisfied and such breach shall not have been cured within ten (10) business
days of receipt by Company of written notice of such breach (and Parent has
not
willfully breached any of its covenants hereunder, which breach is not
cured);
(d) by
Company, if Parent breaches any of its representations, warranties or
obligations hereunder to an extent that would cause the condition set forth
in
Section 6.2(a)
not to
be satisfied and such breach shall not have been cured within ten
-36-
(10)
business days of receipt by Parent of written notice of such breach (and Company
has not willfully breached any of its covenants hereunder, which breach is
not
cured); or
(e) by
either
Parent or Company if (i) any permanent injunction or other order of a court
or
other competent authority preventing the consummation of the Merger shall have
become final and nonappealable or (ii) any required approval of the stockholders
of Parent or Company shall not have been obtained by reason of the failure
to
obtain the required vote upon a vote held at a duly held meeting of stockholders
or at any adjournment thereof (provided that the right to terminate this
Agreement under this subsection (ii) shall not be available to Parent or Company
where the failure to obtain such stockholder approval shall have been caused
by
the action or failure to act of Parent or Company and such action or failure
constitutes a breach by Parent or Company of this Agreement).
7.2 Effect
of Termination.
In the
event of termination of this Agreement as provided in Section 7.1,
this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Parent, Merger Sub or Company or their respective
officers, directors, stockholders or affiliates, except to the extent that
such
termination results from the breach by a party hereto of any of its
representations, warranties or covenants set forth in this Agreement; provided
that, the provisions of Section 5.3
(Confidentiality), Section 7.3
(Expenses and Termination Fees), this Section 7.2
and
Section 8.1
(Non-Survival at Effective Time) shall remain in full force and effect and
survive any termination of this Agreement. Nothing herein shall relieve any
party from liability in connection with a breach by such party of the
representations, warranties or covenants of such party to this
Agreement.
7.3 Expenses
and Termination Fees.
(a) Subject
to subsections (b) and (c) of this Section 7.3,
whether
or not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby (including, without
limitation, the fees and expenses of its advisers, accountants and legal
counsel) shall be paid by the party incurring such expense.
(b) If
Parent
terminates this Agreement pursuant to Section 7.1(c)
then
Company shall promptly reimburse Parent for all of the out-of-pocket costs
and
expenses incurred by Parent in connection with this Agreement and the
transactions contemplated hereby (including, without limitation, the fees and
expenses of its advisors, accountants and legal counsel).
(c) If
Company terminates this Agreement pursuant to Section 7.1(d),
Parent
shall promptly reimburse Company for all of the out-of-pocket costs and expenses
incurred by Company in connection with this Agreement and the transactions
contemplated hereby (including, without limitation, the fees and expenses of
its
advisors, accountants and legal counsel).
-37-
7.4
Amendment.
The
Boards of Directors of the parties hereto may cause this Agreement to be amended
at any time by execution of an instrument in writing signed on behalf of each
of
the parties hereto; provided that an amendment made subsequent to adoption
of
the Agreement by the stockholders of Company or Merger Sub shall not (i) alter
or change the amount or kind of consideration to be received on conversion
of
Company Common Stock or Company Preferred Stock, (ii) alter or change any term
of the Certificate of Incorporation of the Surviving Corporation to be effected
by the Merger, or (iii) alter or change any of the terms and conditions of
the
Agreement if such alteration or change would materially adversely affect the
holders of Company Common Stock or Merger Sub Common Stock.
7.5 Extension;
Waiver.
At any
time prior to the Effective Time any party hereto may, to the extent legally
allowed, (i) extend the time for the performance of any of the obligations
or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties made to such party contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall
be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE
VIII
GENERAL
PROVISIONS
8.1 Non-Survival
at Effective Time.
The
representations, warranties and agreements set forth in this Agreement shall
terminate at the Effective Time, except that the agreements set forth in
Article I,
Sections 5.3
(Confidentiality), 5.9
(Form
8-K), 5.10
(Indemnification), 5.12
(Best
Efforts and Further Assurances), 7.3
(Expenses and Termination Fees), 7.4
(Amendment), and this Article VIII
shall
survive the Effective Time.
8.2 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
mailed by registered or certified mail (return receipt requested) or sent via
facsimile (with confirmation of receipt) to the parties at the following address
(or at such other address for a party as shall be specified by like
notice):
(a) if
to
Parent or Merger Sub, to:
SP
Holding
Corporation
0000
Xxxxxx Xx., Xxxxx 000
Xxxxxx,
XX
00000
Attention:
Chief
Executive Officer
Facsimile
No.: (000)
000-0000
Telephone
No.: (000)
000-0000, ext. 12
-38-
with
a copy (which
shall not constitute notice to Parent) to:
Xxxxxx
Xxxxx Xxxxxxxx
& Xxxxxxx LLP
0000
Xxxxxx xx xxx
Xxxxxxxx
Xxx
Xxxx, XX
00000
Attention:
Xxxxxxxxxxx X. Xxxxxxx, Esq.
Facsimile
No.: (000)
000-0000
Telephone
No.: (000)
000-0000
(b) if
to
Company, to:
Planetwide
Games,
Inc.
00
Xxxxxxx, Xxxxx
000
Xxxxx
Xxxxx, XX
00000
Attention:
Chief
Executive Officer
Facsimile
No.: (000)
000-0000
Telephone
No.: (000)
000-0000
with
a copy (which
shall not constitute notice to Company) to:
Xxxxx
&
Xxxxxx,
LLP
000
Xxxxx Xxxx.,
Xxxxx 0000
Xxxxx
Xxxx, XX
00000
Attention:
Xxxxx
Xxxxx, Esq.
Facsimile
No.: (000)
000-0000
Telephone
No.: (000)
000-0000
8.3 Interpretation.
When a
reference is made in this Agreement to Exhibits or Schedules, such reference
shall be to an Exhibit or Schedule to 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 phrase “made
available” in this Agreement shall mean that the information referred to has
been made available if requested by the party to whom such information is to
be
made available. The phrases “the date of this Agreement”, “the date hereof”, and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to February 10, 2006. 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.
8.4 Counterparts.
This
Agreement may be executed in one or more counterparts, all of which shall be
considered one and the same agreement and shall become effective when one or
more counterparts have been signed by each of the parties and delivered to
the
other parties, it being understood that all parties need not sign the same
counterpart.
8.5 Entire
Agreement; Nonassignability; Parties in Interest.
This
Agreement and the documents and instruments and other agreements specifically
referred to herein or delivered pursuant hereto, including the Exhibits, the
Schedules, including the Company Disclosure Schedule and the Parent Disclosure
Schedule (a) constitute the entire agreement among the
-39-
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, except for the Confidentiality Agreement, which shall
continue in full force and effect, and shall survive any termination of this
Agreement or the Closing, in accordance with its terms; (b) are not intended
to
confer upon any other person any rights or remedies hereunder, except as set
forth in Sections
1.5(a)-(c) and (f), 1.6-1.9, 5.8 and 5.10;
and (c)
shall not be assigned by operation of law or otherwise except as otherwise
specifically provided.
8.6 Severability.
If any
provision of this Agreement, or the application thereof, becomes or is declared
by a court of competent jurisdiction to be illegal, void or unenforceable,
the
remainder of this Agreement will continue in full force and effect and the
application of such provision to other persons or circumstances will be
interpreted so as reasonably to effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such void or
unenforceable provision.
8.7 Remedies
Cumulative.
Except
as otherwise provided herein, any and all remedies herein expressly conferred
upon a party will be deemed cumulative with and not exclusive of any other
remedy conferred hereby, or by law or equity upon such party, and the exercise
by a party of any one remedy will not preclude the exercise of any other
remedy.
8.8 Governing
Law.
This
Agreement shall be governed by and construed in accordance with the laws of
the
State of California, without regard to the laws that might otherwise govern
under applicable principles of conflicts of law. Each of the parties hereto
irrevocably consents to the exclusive jurisdiction of any court located within
the State of California in connection with any matter based upon or arising
out
of this Agreement or the matters contemplated herein, agrees that process may
be
served upon them in any manner authorized by the laws of the State of California
for such persons and waives and covenants not to assert or plead any objection
which they might otherwise have to such jurisdiction and such
process.
8.9 Rules
of Construction.
The
parties hereto agree that they have been represented by counsel during the
negotiation, preparation and execution of this Agreement and, therefore, waive
the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document will be construed
against the party drafting such agreement or document.
[Signature
page follows]
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IN
WITNESS WHEREOF, Company, Parent and Merger Sub have caused this Agreement
and
Plan of Merger and Reorganization to be executed and delivered by their
respective officers thereunto duly authorized, all as of the date first written
above.
|
PLANETWIDE
GAMES, INC.
|
By: /s/ Xxxxxx
X.
Xxxxxxx
Xxxxxx
X. Xxxxxxx,
Chief
Executive Officer
|
SP
HOLDING CORPORATION
|
By: /s/
Xxxx
Xxxxxxxxxx
Xxxx
Xxxxxxxxxx, Chief Executive Officer
|
PWG
ACQUISITION CORPORATION
|
By: /s/
Xxxx
Xxxxxxxxxx
Xxxx
Xxxxxxxxxx, Chief Executive Officer
-41-
EXHIBIT A
CERTIFICATE
OF MERGER
of
PWG
Acquisition Corporation
(a
Delaware corporation)
with
and into
Planetwide
Games, Inc.
(a
Delaware corporation)
Under
Section 251(c) of the General
Corporation
Law of the State of Delaware
The
undersigned corporation, Planetwide Games, Inc., hereby certifies
that:
FIRST: The
name
and state of incorporation of each of the constituent corporations is: PWG
Acquisition Corporation, a Delaware corporation (the “Disappearing
Corporation”),
and
Planetwide Games, Inc., a Delaware corporation (the “Surviving
Corporation”).
SECOND: An
agreement of merger has been approved, adopted, certified, executed and
acknowledged by the Disappearing Corporation and by the Surviving Corporation
in
accordance with the provisions of Section 251 of the General Corporation
Law of the State of Delaware.
THIRD: The
name
of the Surviving Corporation is Planetwide Games, Inc.
FOURTH: The
Amended and Restated Certificate of Incorporation, in the form of attached
Exhibit A,
shall
be the Certificate of Incorporation of the Surviving Corporation.
FIFTH: The
executed agreement of merger is on file at the principal place of business
of
the Surviving Corporation at
00
Xxxxxxx, Xxxxx 000
Xxxxx
Xxxxx, XX 00000
SIXTH: A
copy of
the agreement of merger will be furnished by the Surviving Corporation on
request, and without cost, to any stockholder of the Disappearing Corporation
or
the Surviving Corporation.
SEVENTH: This
Certificate of Merger will be effective at 5:00 p.m. Eastern Standard Time
on
____________, 2006.
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IN
WITNESS WHEREOF,
the
undersigned has executed and subscribed to this Certificate of Merger on behalf
of Planetwide Games, Inc. as its authorized officer and hereby affirms, under
penalties of perjury, that this Certificate of Merger is the act and deed of
such corporation and that the facts stated herein are true.
DATED:
____________, 2006
PLANETWIDE
GAMES, INC.,
a
Delaware corporation
By:
_________________________________________
Xxxxxx
X.
Xxxxxxx, Chief Executive Officer
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Exhibit A
AMENDED
AND RESTATED
CERTIFICATE
OF INCORPORATION
OF
PLANETWIDE
GAMES, INC.
FIRST: The
name
of the corporation is Planetwide Games, Inc.
SECOND: The
address, including street, number, city and county, of the registered office
of
the corporation in the State of Delaware is 0000 Xxxxxx Xxxxxx, Xxxx xx
Xxxxxxxxxx, Xxxxxx of New Castle (zip code 19801); and the name of the
registered agent of the Corporation in the State of Delaware at such address
is
The Corporation Trust Company.
THIRD: The
nature of the business or purposes to be conducted or promoted is to engage
in
any lawful act or activity for which corporations may be organized under the
Delaware General Corporation Law.
FOURTH: The
total
number of shares of capital stock that the corporation shall have authority
to
issue is one thousand (1,000) shares of Common Stock, par value of $0.01 per
share.
FIFTH: The
business and affairs of the corporation shall be managed by or under the
direction of the Board of Directors. In addition to the powers and authority
expressly conferred upon them by statute or by this Certificate of Incorporation
or the Bylaws of the corporation, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done
by
the corporation. Election of directors need not be by written ballot, unless
the
Bylaws so provide.
SIXTH: The
Board
of Directors is authorized to make, adopt, amend, alter or repeal the Bylaws
of
the corporation. The stockholders shall also have power to make, adopt, amend,
alter or repeal the Bylaws of the corporation.
SEVENTH: To
the
fullest extent permitted by the Delaware General Corporation Law, as the same
exists or may hereafter be amended, a director of the corporation shall not
be
personally liable to the corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director. Any repeal or modification of the
foregoing provisions of this Article SEVENTH by the stockholders of the
corporation shall not adversely affect any right or protection of a director
of
the corporation existing at the time of, or increase the liability of any
director of the corporation with respect to any acts or omissions occurring
prior to, such repeal or modification.
