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Exhibit 2.1
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EXECUTION VERSION
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
Dynatronics Corporation
a Utah corporation ("Buyer"),
Dynatronics Distribution Company, LLC
a Utah limited liability company (the "Company"),
Xxxxxx Therapy Sales Associates,
a California corporation ("Target"),
the Shareholders of Target
(the "Target Shareholders"),
and
Xxxx Xxxxxx, as representative of the
Target Shareholders for certain purposes
described herein (the "Shareholders'
Representative").
June 30, 2007
TABLE OF CONTENTS
Article 1 Definitions.........................................................1
Article 2 THE MERGER..........................................................4
2.1 The Merger..........................................................4
2.2 The Closing.........................................................4
2.3 Actions at the Closing..............................................5
2.4 Effect of Merger....................................................5
2.5 Escrow Reserve.....................................................10
2.6 Working Capital Adjustment.........................................10
Article 3 Representations and Warranties of Target...........................12
3.1 Organization and Standing..........................................12
3.2 Subsidiaries.......................................................12
3.3 Corporate Power and Authority......................................12
3.4 Capitalization of Target...........................................12
3.5 Conflicts; Consents and Approvals..................................13
3.6 Financial Statements...............................................14
3.7 Absence of Certain Changes.........................................14
3.8 Taxes..............................................................16
3.9 Compliance with Law................................................17
3.10 Intellectual Property..............................................17
3.11 Title to and Condition of Properties...............................17
3.12 Litigation.........................................................18
3.13 Brokerage and Finder's Fees; Expenses..............................18
3.14 Employee Benefit Plans.............................................18
3.15 Contracts..........................................................18
3.16 Accounts Receivable................................................19
3.17 Labor Matters......................................................19
3.18 Undisclosed Liabilities............................................20
3.19 Operation of Target's Business; Relationships......................20
3.20 Insurance..........................................................21
3.21 Books of Account; Records..........................................21
3.22 Officers, Employees and Consultants and Compensation...............21
3.23 Product Warranty...................................................21
3.24 Product Liability..................................................22
3.25 Questionable Payments..............................................22
3.26 Disclosure.........................................................22
Article 4 Representations and Warranties of Buyer............................22
4.1 Organization, Standing and Power...................................22
4.2 Capital Structure..................................................23
4.3 Authority..........................................................23
4.4 SEC Documents; Financial Statements................................24
4.5 Absence of Certain Changes.........................................25
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4.6 Absence of Undisclosed Liabilities.................................25
4.7 Litigation.........................................................25
4.8 Governmental Authorization.........................................26
4.9 Broker's and Finders' Fees.........................................26
4.10 Interim Operations of Company......................................26
4.11 Disclosure.........................................................26
Article 5 Covenants..........................................................26
5.1 Sale of Shares Pursuant to Section 4(2) of the Securities Act......26
5.2 Confidentiality....................................................26
5.3 Public Disclosure..................................................27
5.4 Legal Requirements.................................................27
5.5 Blue Sky Laws......................................................27
5.6 Reasonable Commercial Efforts and Further Assurances...............27
5.7 Notice of Developments.............................................27
5.8 Tax Treatment......................................................28
5.9 Indemnification....................................................28
5.10 Target 401(k) Plan.................................................28
5.11 Target Health Plan.................................................28
5.12 USBank Loan........................................................28
5.13 Employee Matters...................................................29
5.14 Transfer of Vehicles...............................................29
5.15 Disclaimer Regarding Estimates and Projections.....................29
Article 6 Indemnification....................................................30
6.1 Indemnification....................................................30
6.2 Procedure for Indemnification - Third Party Claims.................30
6.3 Procedure for Indemnification - Other Claims.......................32
6.4 Dispute Resolution.................................................32
6.5 Limitations........................................................33
6.6 Exclusive Remedy...................................................33
6.7 Escrow Reserve; Insurance Proceeds; Tax Benefits...................33
6.8 Fraud..............................................................34
Article 7 Appointment of the Shareholders' Representative....................34
7.1 Powers of Attorney.................................................34
7.2 Liability of the Shareholders' Representative......................35
7.3 Actions of the Shareholders' Representative........................36
Article 8 Miscellaneous......................................................36
8.1 No Third-Party Beneficiaries.......................................36
8.2 Entire Agreement...................................................36
8.3 Succession and Assignment..........................................36
8.4 Counterparts.......................................................36
8.5 Headings...........................................................37
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8.6 Notices............................................................37
8.7 Governing Law......................................................38
8.8 Amendments and Waivers.............................................38
8.9 Severability.......................................................39
8.10 Construction.......................................................39
8.11 Incorporation of Exhibits and Schedules............................39
8.12 Attorneys' Fees....................................................39
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Exhibit Index
Schedule A - Target Shareholders
Target Disclosure Schedule
Buyer Disclosure Schedule
Exhibit A-1 - Articles of Merger (Utah)
Exhibit A-2 - Certificate of Merger (California)
Exhibit B - Reserve Escrow Agreement
Exhibit C - Employment Agreement with Xxxxx Xxxxxx
Exhibit D - Employment Agreement with Xxxx Xx Xxxxxx
Exhibit E - Employment Agreement with Xxxxxx Xxxxxx
Exhibit F - Employment Agreement with Xxxx Xxxxxx
Exhibit G - Noncompetition Agreement with Xxxxx Xxxxxx
Exhibit H - Noncompetition Agreement with Xxxx Xx Xxxxxx
Exhibit I - Noncompetition Agreement with Xxxxxx Xxxxxx
Exhibit J - Noncompetition Agreement with Xxxx Xxxxxx
Exhibit K -Lease Agreement
Exhibit L - Tax Certificate
Exhibit M - Joinder Agreement
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AGREEMENT AND PLAN OF MERGER
Agreement and Plan of Merger ("Agreement") is entered into on June 30,
2007, by and among Dynatronics Corporation, a Utah corporation ("Buyer"),
Dynatronics Distribution Company, LLC a Utah limited liability company and
wholly-owned subsidiary of Buyer (the "Company"), Xxxxxx Therapy Sales
Associates, a California corporation ("Target"), the shareholders of Target
listed on Schedule A who agree to be bound by this Agreement pursuant to a
Joinder Agreement (as defined herein) (individually each such Person is referred
to herein as a "Target Shareholder" and collectively, as "Target Shareholders")
and Xxxx Xxxxxx, as representative of the Target Shareholders for certain
purposes described herein (the "Shareholders' Representative"). The Buyer, the
Company, the Target, the Target Shareholders and the Shareholders'
Representative are referred to collectively herein as the "Parties."
Recitals
A. The Boards of Directors of Target, Buyer and the Company believe
it is in the best interests of their respective companies that Target and the
Company combine into a single company through the statutory merger of Target
with and into the Company (the "Merger") and, in furtherance thereof, have
approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares
of Target common stock ("Target Common Stock") shall be converted into the right
to receive the Merger Consideration, as defined herein, upon the terms and
subject to the conditions set forth herein.
C. 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(a) of the Code.
Agreement
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein made, and in consideration of the representations, warranties,
and covenants herein contained, the Parties agree as follows.
Article 1
Definitions
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Buyer" has the meaning set forth in the preface above.
"Buyer Disclosure Schedule" has the meaning set forth in Article 4
below.
"Buyer Share" means any share of the common stock, no par value per
share, of Buyer.
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"California Corporations Code" means the Corporations Code of the State
of California, as amended.
"Closing Cash Payment" means the quotient obtained by dividing (i) one
million dollars ($1,000,000), by (ii) the total number of outstanding Target
Shares.
"Closing" has the meaning set forth in Section 2.2 below.
"Closing Date" has the meaning set forth in Section 2.2 below.
"Closing Date Working Capital Calculation" has the meaning set forth in
Section 2.6(a) below.
"Dissenting Share" means any Target Share with respect to which the
holder thereof has exercised such holder's appraisal rights under the California
Corporations Code.
"Dissenting Shareholder" has the meaning set forth in Section 2.4(j)
below.
"Effective Time" has the meaning set forth in Section 2.4(a) below.
"Escrow Reserve" has the meaning set forth in Section 2.5 below.
"GAAP" means United States generally accepted accounting principles as
in effect from time to time.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"IRS" means the Internal Revenue Service.
"Joinder Agreement" has the meaning set forth in Section 8.4 below.
"Knowledge" means, with respect to an entity, the actual knowledge of
the executive officers or directors, or any of them, of such entity, or of any
employee having responsibility for such matter, without duty of inquiry or
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investigation. An individual will be deemed to have actual knowledge of a
particular fact or other matter if (i) such individual is actually aware of such
fact or other matter; or (ii) a prudent individual could be expected to discover
or otherwise become aware of such fact or other matter based on such
individual's actual knowledge of the existence of other facts or matters.
"Material Adverse Effect" means any event, change or effect that is
materially adverse to the financial condition, properties, assets, liabilities,
business, operations or results of operations of such entity and its
subsidiaries, taken as a whole.
"Measurement Period" has the meaning set forth in Section 2.4(e) below.
"Merger" has the meaning set forth in the recitals above.
"Merger Consideration" has the meaning set forth in Section 2.4(l)
below.
"Merger Filings" has the meaning set forth in Section 2.3 below.
"Merger Shares" shall have the meaning set forth in Section 2.4(e)
below.
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party or Parties" has the meaning set forth in the preface above.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a limited liability company, a
joint venture, an unincorporated organization, or a governmental entity (or any
department, agency, or political subdivision thereof).
"Proceeding" shall mean any action, arbitration, audit, contest,
hearing, investigation, litigation, or suit (whether civil, criminal,
administrative, investigative, or informal) commenced, brought, conducted, or
heard by or before, or otherwise involving, any governmental body or arbitrator.
"Requisite Target Shareholder Approval" means the affirmative vote or
written consent of a majority of Target Shares in favor of this Agreement and
the Merger.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance,
charge, or other security interest, other than (a) mechanic's, materialmen's,
and similar liens, (b) liens for taxes not yet due and payable or for taxes that
the taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
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"Shareholders' Representative" means Xxxx Xxxxxx.
"Sophisticated Shareholders" has the meaning set forth in Section
2.4(f) below.
"Surviving Company" has the meaning set forth in Section 2.1 below.
"Target" has the meaning set forth in the preface above.
"Target Certificate" means any certificate representing Target Shares.
"Target Disclosure Schedule" has the meaning set forth in Article 3
below.
"Target Share" means any issued and outstanding share of the common
stock, no par value per share, of Target.
"Target Shareholder" has the meaning set forth in the preface above.
"Target Unaudited Statements" has the meaning set forth in Section
3.6(a) below.
"Unqualified Shareholder" has the meaning set forth in Section 2.4(f)
below.
"Utah Business Corporation Law" means the Utah Revised Business
Corporation Act as set forth in the Utah Code Annotated, Section 16-10a-1 et
seq., as amended.
"Utah Revised Limited Liability Company Act" means the Utah Revised
Limited Liability Company Act as set forth in the Utah Code Annotated, Section
48-2c-101 et seq., as amended.
"Working Capital" means Target's Current Assets minus Current
Liabilities, where "Current Assets" equals the sum of cash and cash equivalents,
accounts receivable, inventory, marketable securities, prepaid expenses and
other assets that could be converted to cash in less than one year, and "Current
Liabilities" equals short term debt, accounts payable, accrued liabilities and
other debts accrued and payable within one year.
Article 2
THE MERGER
2.1 The Merger. On and subject to the terms and conditions of this
Agreement, Target will merge with and into Company (the "Merger") at the
Effective Time, as defined below. The Company shall be the entity surviving the
Merger (the "Surviving Company").
2.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Durham Xxxxx &
Xxxxxxx, P.C., 000 Xxxx Xxxxxxxx, Xxxxx 000, Xxxx Xxxx Xxxx, Xxxx 00000, upon
the signing of this Agreement (the "Closing Date").
2.3 Actions at the Closing. At the Closing, (i) Target will deliver to
Buyer the various certificates, instruments, and documents required to be
delivered hereunder, (ii) Buyer will deliver to Target the various certificates,
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instruments, and documents required to be delivered hereunder, (iii) the Company
and Target will file Articles of Merger with the Utah Department of Commerce,
Division of Corporations and Commercial Code, and a Certificate of Merger with
the Secretary of State of the State of California, in the forms attached hereto
as Exhibits A-1 and A-2, respectively (collectively the "Merger Filings"), and
(iv) Buyer will deliver to the Target Shareholders in the manner provided below
in this Section 2 the certificates evidencing Buyer Shares issued in the Merger.
2.4 Effect of Merger.
(a) General. The Merger shall become effective at the time (the
"Effective Time") Company and Target file a Certificate of Merger with the
Secretary of State of the State of California and Articles of Merger with the
Utah Department of Commerce, Division of Corporations and Commercial Code. The
Merger shall have the effect set forth in the California Corporations Code and
the Utah Revised Limited Liability Company Act. The Surviving Company may, at
any time after the Effective Time, take any action (including executing and
delivering any document) in the name and on behalf of either Company or Target,
in order to carry out the transactions contemplated by this Agreement.
(b) Articles of Organization. The Articles of Organization of Company
in effect at and as of the Effective Time will remain the Articles of
Organization of the Surviving Company, without any modification or amendment in
the Merger.
(c) Operating Agreement. The Operating Agreement of the Company in
effect at and as of the Effective Time will remain the Operating Agreement of
the Surviving Company without any modification or amendment in the Merger.
(d) Manger. The manager of the Company in office at and as of the
Effective Time will remain the manager of the Surviving Company (retaining such
manager's position and term of office).
(e) Conversion of Target Shares. At and as of the Effective Time, and
without any further action by any of the Target Shareholders and subject to the
provisions set forth in this Section 2.4, each outstanding Target Share (other
than Dissenting Shares) shall be converted into the right to receive in cash an
amount equal to (i) the Closing Cash Payment (a portion of which shall be
subject to Section 2.5 for the Escrow Reserve) and (ii) that number of validly
issued, fully paid and nonassessable unregistered Buyer Shares (the "Merger
Shares") equal to one million five hundred thousand (1,500,000) divided by the
total number of Target Shares, subject to adjustment pursuant to the following
principles. The total number of Merger Shares issued in the Merger will be
1,500,000, provided that the average closing bid price (the "Closing Price") of
Buyer's common stock as reported on the Nasdaq Capital Market is between $1.00
and $1.20 per share for the six trading day period (the "Measurement Period")
ending on the Closing Date. If the average Closing Price during the Measurement
Period is higher than $1.20 per share, then the total number of Merger Shares
shall be equal to quotient obtained by dividing (i) one million eight hundred
thousand dollars ($1,800,000), by (ii) the average Closing Price during the
Measurement Period. If the average Closing Price during the Measurement Period
is lower than $1.00 per share, then the number of Merger Shares shall be equal
to the quotient obtained by dividing (i) one million five hundred thousand
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dollars ($1,500,000), by (ii) the average Closing Price during the Measurement
Period; however, notwithstanding the foregoing, in no event will the number of
Merger Shares issued exceed nineteen percent (19%) of the total number of Buyer
Shares outstanding on the Closing Date. No Target Share shall be deemed to be
outstanding or to have any rights other than those set forth in this Section 2.4
after the Effective Time.
(f) Regulation D Restrictions. Notwithstanding Section 2.4(e), Buyer
shall not offer, sell, issue or deliver Merger Shares to any Target Shareholder
or any holder of Target Options (each an "Unqualified Shareholder"), who Buyer
does not reasonably believe to be either: (i) an "accredited investor," as that
term is defined in Regulation D promulgated under the Securities Act, or (ii) a
person who has, either alone or with his or its purchaser representative, such
knowledge and experience in financial and business matters that he or it is
capable of evaluating the merits and risks of exchanging his or its Target
Shares for Merger Shares ("Sophisticated Shareholders"). Additionally, Buyer
shall not offer, sell, issue or deliver Merger Shares to more than 35
Sophisticated Shareholders who are not accredited investors.
(g) Membership Interests in Company. At the Effective Time, all
membership interests in the Company ("Company Membership Interests") issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding and owned by Buyer. Each certificate or other evidence of ownership
of Company Membership Interests shall continue to evidence ownership of such
membership interests of the Surviving Company.
(h) Adjustments to Number of Merger Shares Issued. The number of
Merger Shares to be issued pursuant to Section 2.4(e) 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 Buyer
Shares or Target Shares), reorganization, recapitalization or other like change
with respect to Buyer Shares or Target Shares occurring prior to the Effective
Time.
(i) Fractional Shares. No fraction of a Merger Share will be issued,
but in lieu thereof, and to the extent not waived in writing, the number of
Merger Shares issued to any Target Shareholder that otherwise would be entitled
to a fraction of a Merger Share (after aggregating all fractional Merger Shares
to be received by such person) shall be rounded up to the nearest whole number
of Merger Shares.
(j) Dissenters' Rights. Dissenting Shares, if any, shall not be
converted into the Merger Consideration but shall instead be converted into the
right to receive such consideration as may be determined to be due with respect
to such Dissenting Shares pursuant to the California Corporations Code. Target
shall give Buyer prompt notice of any demand received by Target to require
Target to purchase outstanding Target Shares, and Buyer shall have the right to
direct and participate in all negotiations and proceedings with respect to such
demand. Target agrees that, except with the prior written consent of Buyer, or
as required under the California Corporations Code, it will not voluntarily make
any payment with respect to, or settle or offer to settle, any such purchase
demand. Each holder of Dissenting Shares ("Dissenting Shareholder") who,
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pursuant to the provisions of the California Corporations Code, becomes entitled
to payment of the fair value for Dissenting Shares shall receive payment
therefor from the Surviving Company (but only after the value therefor shall
have been agreed upon or finally determined pursuant to such provisions). If,
after the Effective Time, any Dissenting Shares shall lose their status as
Dissenting Shares, Buyer shall issue and deliver, upon surrender by such
Dissenting Shareholder of a certificate or certificates representing shares of
Target Shares, the Merger Consideration to which such Target Shareholder would
otherwise be entitled under this Section 2.4 and the Merger Filings.
(k) Certificate Legends. When issued as contemplated by this
Agreement, the Merger Shares shall not have been registered under the Securities
Act, and shall be characterized as "restricted securities" under the federal
securities laws, and such shares may not be resold without registration under
the Securities Act, or the availability of an exemption from registration under
the Securities Act. Each certificate evidencing Merger Shares shall bear a
legend in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"). SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT AN EXEMPTION
UNDER THE ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO
BUYER THAT SUCH REGISTRATION IS NOT REQUIRED."
and any additional legends required by state securities laws. Buyer
will cause any such legend to be removed from the certificate or certificates
representing the Merger Shares upon receipt from the holder thereof of an
opinion of counsel to the effect that the Merger Shares represented by such
certificate may be resold pursuant to SEC Rule 144(k).
(l) Closing Conditions; Procedure for Payment. Upon satisfaction of
the following conditions, at the Effective Time, Buyer will deliver to each
Target Shareholder (other than a Dissenting Shareholder) (A) a stock certificate
(issued in the name of the Target Shareholder or its nominees) representing that
number of whole Merger Shares issuable to the Target Shareholder and (B) a check
or wire transfer representing presently available funds payable to the Target
Shareholder in amounts equal to the sum of (1) cash (without interest) in the
amount of the Closing Cash Payment which such holder has the right to receive in
accordance with Section 2.4(e) in respect of the Target Shares formerly
evidenced by such tendered certificates, and (2) any dividends or other
distributions to which such holder is entitled pursuant to Section 2.4(h)
(collectively such Merger Shares and cash consideration, the "Merger
Consideration"):
(i) The Board of Directors of Target shall have approved the
Merger and this Agreement and Target shall have obtained the Requisite Target
Shareholder Approval;
(ii) The Board of Directors of the Buyer and the manager of the
Company shall have approved the Merger and this Agreement and the Board of
Directors of the Buyer shall have approved the issuance of the Merger Shares,
each in accordance with Utah Business Corporation Law and the Articles of
Incorporation and Bylaws of the Buyer and the Utah Revised Limited Liability
Company Act and the Articles of Organization and Operating Agreement of the
Company;
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(iii) Each Target Shareholder (other than a Dissenting
Shareholder) shall have executed any customary documents required by Buyer,
including without limitation, a Form W-9 for the record holder of outstanding
Target Shares to use in surrendering the certificates which represent such
Target Shares in exchange for the Merger Consideration payable to such holder;
(iv) Each Target Shareholder (other than a Dissenting
Shareholder) shall have surrendered to the Buyer all of such Target
Shareholder's Target Certificates for cancellation;
(v) The Company and each of Xxxxx Xxxxxx, Xxxx Xx Xxxxxx, Xxxxxx
Xxxxxx, and Xxxx Xxxxxx shall have entered into employment agreements in the
forms attached hereto as Exhibits C, D, E, and F, respectively;
(vi) The Company and each of Xxxxx Xxxxxx, Xxxx Xx Xxxxxx, Xxxxxx
Xxxxxx, and Xxxx Xxxxxx shall have entered into noncompetition agreements in the
forms attached hereto as Exhibits G, H, I, and J, respectively;
(vii) The Xxxxxx Family Trust, as lessor, shall have terminated
its current lease agreement with the current lessees for the property located at
0000 Xxxxxx Xxx, xxxxx X xxx X, Xxxxxxxxxx, XX 00000. Buyer and Company shall
have entered into a Lease for the property located at 0000 Xxxxxx Xxx, xxxx X,
Xxxxxxxxxx, XX 00000, with the Xxxxxx Family Trust, for the period from the
Closing Date up to October 31, 2007, in the form attached hereto as Exhibit K;
and
(viii) The Buyer and Target shall have delivered to each other a
tax certificate in the form attached hereto as Exhibit L.
(m) Effect on Target Certificates. Upon delivery of payment of the
Merger Consideration to the Target Shareholder, each Target Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each outstanding
Target Certificate that, prior to the Effective Time, represented Target Shares
will be deemed from and after the Effective Time, for all corporate purposes,
other than the payment of dividends, which shall be paid in full upon surrender
of such Target Certificate or affidavit of lost certificate as described below,
to evidence ownership of the Merger Consideration.
(n) Lost, Stolen, or Destroyed Certificate. If any Target Certificates
shall have been lost, stolen or destroyed, Buyer shall cause to be issued in
exchange for such lost, stolen or destroyed Target Certificates, upon the making
of an affidavit of that fact by the holder thereof in form acceptable to Buyer,
such Merger Consideration as may be required pursuant to this Section 2.4;
provided, however, that any such affidavit shall include a covenant by such
Target Shareholder indemnifying Buyer for any claim that may be made against
Buyer or the Surviving Company with respect to the Target Certificates alleged
to have been lost, stolen or destroyed.
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(o) Distributions on Merger Shares. Buyer will not pay any dividend or
make any distribution on Merger Shares (with a record date at or after the
Effective Time) to any record holder of outstanding Target Shares until the
holder surrenders for exchange his or its certificates (or an affidavit of lost
certificate) which represented Target Shares.
(p) Transfers of Ownership. At the Effective Time, the stock transfer
books of Target shall be closed and there shall be no further registration of
transfers of capital stock of Target thereafter on the records of Target. If any
certificate for Merger Shares is to be issued in a name other than in which the
Target Certificate surrendered in exchange therefor is registered, it will be a
condition of the issuance thereof that the Target Certificate so surrendered
will be properly endorsed and otherwise in proper form for transfer (or that an
affidavit of lost, stolen or destroyed certificate as required in Section 2.4(m)
shall be provided in lieu of such Target Certificate) and that the person
requesting such exchange will have paid to Buyer or any agent designated by it
any transfer or other taxes required by reason of the issuance of a certificate
for Merger Shares in any name other than that of the registered holder of the
Target Certificate surrendered, or established to the satisfaction of Buyer or
any agent designated by it that such tax has been paid or is not payable.
(q) Dissenting Shares. The provisions of this Section 2.4 shall also
apply to Dissenting Shares that lose their status as such, except that the
obligations of Buyer under this Section 2.4 shall commence on the date of loss
of such status, and the holder of such shares shall be entitled to receive in
exchange for such shares the Merger Consideration to which such holder is
entitled pursuant to Section 2.4(e).
(r) No Further Ownership Rights in Target Shares. The Merger
Consideration delivered upon the surrender for exchange of Target Shares in
accordance with the terms hereof (including any dividends or distributions)
shall be deemed to have been issued in full satisfaction of all rights
pertaining to such Target Shares, and there shall be no further registration of
transfers on the records of the Surviving Company of Target Shares which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Target Certificates are presented to the Surviving Company for any reason,
they shall be canceled and exchanged as provided in this Section 2.4.
(s) Tax Consequences. It is intended by the Parties hereto that the
Merger shall constitute a tax-free reorganization within the meaning of Section
368(a) of the Code.
(t) Taking of Necessary Action; Further Action. Each of Buyer, Target
and Company will take all such reasonable and lawful action as may be necessary
or desirable in order to effectuate the Merger in accordance with this Agreement
as promptly as possible. 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 Company with full right, title and possession to all
assets, property, rights, privileges, powers and franchises of Target and
Company, the officers and directors of Target and the manager of the Company are
fully authorized in the name of their respective entities or otherwise to take,
and will take, all such lawful and necessary action, so long as such action is
not inconsistent with this Agreement.
9
2.5 Escrow Reserve. On the Closing Date, Buyer shall transfer to the
Escrow Agent one hundred fifty thousand dollars ($150,000) (the "Escrow
Reserve"). The Escrow Reserve shall be held by the Escrow Agent pursuant to this
Agreement and the Reserve Escrow Agreement, in the form attached hereto as
Exhibit B (the "Reserve Escrow Agreement") to be entered into at Closing, for a
period of four (4) months following the Closing Date, except to the extent
earlier released to Buyer to satisfy any indemnity obligations of Target
pursuant to the terms of the Reserve Escrow Agreement, including the
satisfaction of claims regarding the Working Capital of Target as of the Closing
Date pursuant to Section 2.6(e)(i) below. The Escrow Reserve, or any portion
thereof that remains on deposit with the Escrow Agent as of the four month
anniversary of the Closing Date, plus accrued interest, shall be disbursed to
Target Shareholders in accordance with the Reserve Escrow Agreement.
Notwithstanding the foregoing, the Escrow Reserve shall not be disbursed to
Target Shareholders at the end of such four month period to the extent that any
indemnity claims by Buyer are pending at such time and, in such case, a portion
of the Escrow Reserve sufficient to satisfy such pending claims in full shall be
retained in escrow until a final resolution of any such claims. Promptly
following final and conclusive resolution of any such claims, the Escrow Agent
shall pay to Buyer any amounts due to Buyer under the Target's indemnity set
forth herein and shall disburse the remainder of the Escrow Reserve, if any, and
any accrued interest to Target Shareholders. Except as provided in, and subject
to the provisions of, Article 6 hereof, no payment of the Escrow Reserve by the
Escrow Agent shall limit in any way Target's obligation to satisfy any indemnity
award due to Buyer in excess of the Escrow Reserve.
2.6 Working Capital Adjustment.
(a) Calculation. As soon as practicable, but in any event no later
than thirty (30) calendar days after the Closing, the Buyer shall deliver to the
Shareholders' Representative the Buyer's calculation of the Target's Working
Capital as of the Closing Date (the "Closing Date Working Capital Calculation"),
prepared in accordance with GAAP consistently applied in a manner consistent
with the Target Unaudited Statements. Buyer shall make available to the
Shareholders' Representative (and its accountants, attorneys and other
professional consultants, agents or representatives) all books, records and
other documents used in preparing the Closing Date Working Capital Calculation.
(b) Review of Calculation and Schedules. The Shareholders'
Representative (and its accountants, attorneys and other professional
consultants, agents or representatives) may review the Closing Date Working
Capital Calculation and the books of accounts of Target and may make inquiry of
the representatives of Buyer and its accountants used in preparing the Closing
Date Working Capital Calculation. The Closing Date Working Capital Calculation
shall be binding and conclusive upon, and deemed accepted by, all Parties unless
the Shareholders' Representative shall have notified the Buyer in writing within
thirty (30) calendar days after receipt of the Closing Date Working Capital
Calculation of any objections thereto. A notice under this Section 2.6(b) shall
specify in reasonable detail the items in the Closing Date Working Capital
Calculation which are being disputed, and a summary of the reasons for such
dispute.
(c) Disputes. At the request of Buyer or the Shareholders'
Representative, any dispute relating to the Closing Date Working Capital
Calculation which cannot be resolved by them within thirty (30) days after
receipt of notice of any objections to such Closing Date Working Capital
10
Calculation pursuant to Section 2.6(b) shall be referred to an independent firm
of certified public accountants mutually acceptable to the Buyer and the
Shareholders' Representative (the "Independent Accountant") for determination of
the Target's Working Capital as of the Closing Date, which shall be final and
binding on all Parties. The Independent Accountant shall render its decision
within thirty (30) days after referral of the dispute to the Independent
Accountant for decision pursuant hereto.
(d) Final Working Capital Schedule. The Closing Date Working Capital
Calculation shall become final and binding on all Parties and Target
Shareholders upon the earliest of (i) the expiration of the period within which
the Shareholders' Representative may notify Buyer of any objections thereto
pursuant to Section 2.6(b), if no such notice has been given, (ii) agreement by
the Shareholders' Representative and Buyer that such Closing Date Working
Capital Calculation, together with any modifications thereto agreed by Target
and Buyer, shall be final and binding and (iii) the date on which the
Independent Accountant shall issue its decision with respect to any dispute
relating to such Closing Date Working Capital Calculation. The Closing Date
Working Capital Calculation, as it may be adjusted pursuant to any agreement
between the Buyer and Shareholders' Representative or pursuant to the decision
of the Independent Accountant, when final and binding on all Parties, is herein
referred to as the "Final Working Capital Schedule".
(e) Adjustment. Within ten (10) business days after determination of
the Final Working Capital Schedule:
(i) if the Working Capital of Target on the Closing Date as
reflected on the Final Working Capital Schedule is greater than five hundred
thousand dollars ($500,000), Buyer shall pay to the Target Shareholders (in
relative proportion to the number of Target Shares held by the Target
Shareholders immediately prior to the Closing), in cash by check or wire
transfer in immediately available funds, an amount equal to such excess.
(ii) if the Working Capital of Target on the Closing Date as
reflected on the Final Working Capital Schedule is less than five hundred
thousand dollars ($500,000) (the "Working Capital Deficit"), Buyer shall be
permitted to recover such deficit out of the Escrow Reserve pursuant to the
provisions of the Reserve Escrow Agreement. Buyer shall have the right to
recover from the Target Shareholders, prorated based upon their ownership of
Target Shares, any amount by which the Working Capital Deficit exceeds the
amount available in the Escrow Reserve.
Article 3
Representations and Warranties of Target
Target represents and warrants to Buyer and Company that the statements
contained in this Article 3 are correct and complete as of the date of this
Agreement, except as set forth elsewhere in this Agreement or in the disclosure
schedule of Target accompanying this Agreement (the "Target Disclosure
Schedule").
3.1 Organization and Standing. Target is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
with full corporate power and authority to own, lease, use and operate its
properties and to conduct its business as and where now owned, leased, used,
11
operated and conducted. Target is duly qualified to do business and in good
standing in each jurisdiction in which the nature of the business conducted by
it or the property it owns, leases or operates makes qualification necessary,
except where the failure to be so qualified or in good standing in such
jurisdiction would not have a Material Adverse Effect on Target. Target is not
in default in the performance, observance or fulfillment or otherwise in
violation of any provision of its Articles of Incorporation, as amended and
restated (the "Target Articles"), or its Bylaws, as in effect on the date hereof
(the "Target Bylaws"). Target has heretofore furnished to Buyer a complete and
correct copy of the Target Articles and the Target Bylaws.
3.2 Subsidiaries. Target does not own, directly or indirectly, any
equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise. Target is not subject to any obligation
or requirement to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any corporation, partnership, joint
venture or other entity or enterprise.
3.3 Corporate Power and Authority. Target has all requisite corporate
power and authority to enter into this Agreement and, subject to authorization
and adoption of the Merger and the transactions contemplated hereby by Target
Shareholders, to consummate the transactions contemplated by this Agreement. 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 Target, including approval of this Agreement and
the transactions contemplated hereby, including the Merger, by the Target
Shareholders. The Board of Directors of Target has (i) unanimously approved this
Agreement and the Merger, (ii) determined that the Merger is in the best
interests of the Target Shareholders and (iii) recommended that the Target
Shareholders approve this Agreement and the Merger. This Agreement has been duly
executed and delivered by Target and constitutes the legal, valid and binding
obligation of Target, enforceable against Target in accordance with its terms.
3.4 Capitalization of Target. As of the date hereof, Target's
authorized capital stock consists of five hundred thousand (500,000) shares of
common stock, no par value per share ("Target Shares"), of which (i) one hundred
twenty-four thousand (124,000) shares are issued and outstanding and (ii) no
shares are held in treasury. Section 3.4 of the Target Disclosure Schedule
lists, for each Target Shareholder, such Target Shareholder's name, home
address, home telephone number, and the number of shares held. Each outstanding
share of Target capital stock is duly authorized and validly issued, fully paid
and nonassessable, and has not been issued in violation of any preemptive or
similar rights. Other than as set forth in the first sentence hereof, there are
no outstanding subscriptions, options, warrants, puts, calls, agreements,
understandings, claims or other commitments or rights of any type relating to
the issuance, sale or transfer of any securities of Target, nor are there
outstanding any securities which are convertible into or exchangeable for any
shares of capital stock of Target, and Target has no obligation of any kind to
issue any additional securities or to pay for securities of Target or any
predecessor of Target. Target has not agreed to register any securities under
the Securities Act or under any state securities law or granted registration
rights to any person or entity. There are no other contracts, commitments or
agreements relating to voting, purchase or sale of capital stock of Target (i)
between or among Target and the holders of Target's capital stock, and (ii) to
Target's Knowledge, between or among the holders of Target's capital stock.
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3.5 Conflicts; Consents and Approvals. Neither the execution and
delivery of this Agreement by Target nor the consummation of the transactions
contemplated hereby will:
(a) conflict with, or result in a breach of any provision of, the
Target Articles or the Target Bylaws;
(b) violate, or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which, with the giving of notice, the
passage of time or otherwise, would constitute a default) under, or entitle any
party (with the giving of notice, the passage of time or otherwise) to
terminate, accelerate, modify or call a default under, or result in the creation
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of Target under, any of the terms, conditions or provisions of any
note, bond, mortgage, indenture, deed of trust, license, contract, undertaking,
agreement, lease or other instrument or obligation to which Target is a party;
(c) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Target; or
(d) require any action or consent or approval of, or review by, or
registration or filing by Target or any of its Affiliates with, any third party
or any governmental entity, other than (i) authorization of the Merger and the
transactions contemplated hereby by Target Shareholders, (ii) filings by Target
with the Secretary of State of the State of California necessary to consummate
the Merger, and (iv) consents or approvals of any governmental entity set forth
in Section 3.5 to the Target Disclosure Schedule; except in the case of clause
(ii) and (iii) for any of the foregoing that are set forth in Section 3.5 of the
Target Disclosure Schedule or that would not individually or in the aggregate
have a Material Adverse Effect on Target or upon the ability of the Parties to
consummate the transactions contemplated hereby.
3.6 Financial Statements.
(a) Target has furnished to Buyer the unaudited balance sheet of
Target as of April 30, 2007 (the "Target Balance Sheet"), and the unaudited
balance sheets of Target as of September 30, 2006, and September 30, 2005, and
the related statements of income, and cash flows for the 12 months ended
September 30, 2006, and September 30, 2005, and the seven months ended April 30,
2007 (collectively, the "Target Unaudited Statements").
(b) The Target Unaudited Statements have been prepared from and are in
accordance with the books and records of Target, and have been prepared in
conformity with GAAP applied on a consistent basis (except for the absence of
footnote disclosure and year-end adjustments that are not material in nature),
and fairly present the financial condition and results of operations of Target
as of the date stated or period reported therein.
3.7 Absence of Certain Changes. Except as set forth in Section 3.7 to
the Target Disclosure Schedule, since the date of the Target Balance Sheet,
there has not been:
13
(a) Any change in the business, operations, assets, properties,
customer base, prospects, rights or condition (financial or otherwise) of Target
or any occurrence, circumstance, or combination thereof which reasonably could
be expected to result in a Material Adverse Effect on Target;
(b) Any declaration, setting aside or payment of any dividend or any
distribution (in cash or in kind) to any shareholder of Target, or any direct or
indirect redemption, purchase or other acquisition by Target of any of its
capital stock or any options, warrants, rights or agreements to purchase or
acquire such stock;
(c) Any increase in amounts payable by Target to or for the benefit
of, or committed to be paid by Target to or for the benefit of, any shareholder,
director, officer or other consultant, agent or employee of Target whose total
annual compensation exceeds $75,000 or any relatives of such person, or any
increase in any benefits granted under any bonus, stock option, profit-sharing,
pension, retirement, severance, deferred compensation, group health, insurance,
or other direct or indirect benefit plan, payment or arrangement made to, with
or for the benefit of any such person (except in the Ordinary Course of
Business, consistent with past practice);
(d) Any borrowing or agreement to borrow funds by Target or any
incurring by Target of any other obligation or liability (contingent or
otherwise), except liabilities incurred in the Ordinary Course of Business
(consistent with past practices), or any endorsement, assumption or guarantee of
payment or performance of any loan or obligation of any other person by Target;
(e) Any material change in Target's method of doing business or any
material change in its accounting principles or practices or its method of
application of such principles or practices;
(f) Any mortgage, pledge, lien, security interest, hypothecation,
charge or other encumbrance imposed or agreed to be imposed on or with respect
to the property or assets of Target other than in the Ordinary Course of
Business, consistent with past practice;
(g) Any sale, lease or other disposition of, or any agreement to sell,
lease or otherwise dispose of any of the properties or assets of Target, other
than sales in the usual and Ordinary Course of Business for fair equivalent
value to persons other than directors, officers, shareholders, or other
Affiliates of Target;
(h) Any purchase of or any agreement to purchase assets (other than
purchases in the Ordinary Course of Business consistent with past practices) for
an amount in excess of $20,000 for any one purchase or $50,000 for all such
purchases made by Target or any lease or any agreement to lease, as lessee, any
capital assets with payments over the term thereof to be made by Target
exceeding an aggregate of $50,000;
(i) Any loan or advance made by Target to any person other than loans
made to Target's customers in the Ordinary Course of Business consistent with
past practices and not exceeding $20,000, in the aggregate, to any customer;
14
(j) Any modification, waiver, change, amendment, release, rescission
or termination of, or accord and satisfaction with respect to, any material
term, condition or provision of any material contract, agreement, license or
other instrument to which Target is a party, other than any satisfaction by
performance in accordance with the terms thereof in the Ordinary Course of
Business;
(k) Any labor dispute or disturbance having a Material Adverse Effect
on Target, including without limitation the filing of any petition or charge of
unfair labor practice with any governmental or regulatory authority, efforts to
effect a union representation election, actual or threatened employee strike,
work stoppage or slow down;
(l) Any grant by Target of any license or sublicense of any rights
under or with respect to any Intellectual Property, or any other transfer or
grant of a right under, in or to Intellectual Property other than transfers or
grants in the Ordinary Course of Business;
(m) Any issuance, sale or other disposal by Target of any of its
capital stock, or any grant of any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any of its
capital stock;
(n) Any material damage, destruction, or loss (not covered by
insurance) to Target's property;
(o) Any other material occurrence, event, incident, action, failure to
act, or transaction outside the Ordinary Course of Business involving Target
which has had or is reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect; or
(p) Any commitment by Target to do any of the foregoing.
3.8 Taxes.
(a) Other than as reserved for on the balance sheets of Target, Target
has paid or caused to be paid all Taxes required to be paid by it through the
date hereof.
(b) Target has filed or caused to be filed all Tax Returns required to
be filed by it through the date hereof, except where the failure to file would
not reasonably be expected to result in an Material Adverse Effect on Target.
All such Tax Returns that have been filed are true, complete and correct in all
material respects. Neither the IRS nor any other governmental entity is now
auditing or asserting or, to the Knowledge of Target, threatening to assert
against Target, any deficiency or claim for additional Taxes. Target currently
is not the beneficiary of any extension of time within which to file any Tax
Return. To Target's Knowledge, no claim has ever been made by any authority in a
jurisdiction where Target does not file Tax Returns that it is or may be subject
to taxation by that jurisdiction and there are no Security Interests on any of
the assets of any of Target that arose in connection with any failure (or
alleged failure) to pay any Tax. Target has no Knowledge that any authority
intends to assess any additional Taxes for any period for which Tax Returns have
been filed. Target has not waived any statute of limitations in respect of Taxes
or agreed to any extension of time with respect to a Tax assessment or
deficiency.
15
(c) Target has delivered to Buyer copies of material portions of all
federal income Tax Returns, examination reports, and statements of deficiencies
assessed against or agreed to by Target since 2004.
(d) Target is not obligated by any contract, agreement or other
arrangement to indemnify any other person with respect to Taxes. Target is not
now nor ever has been a party to or bound by any tax sharing agreement or any
agreement or arrangement (whether or not written and including, without
limitation, any arrangement required or permitted by law) binding Target which
(i) requires Target to make any tax payment to or for the account of any other
person, (ii) affords any other person the benefit of any net operating loss, net
capital loss, investment tax credit, foreign tax credit, charitable deduction or
any other credit or tax attribute which could reduce Taxes (including, without
limitation, deductions and credits related to alternative minimum Taxes) of
Target, (iii) requires or permits the transfer or assignment of income,
revenues, receipts or gains to Target, from any other person, or (iv) otherwise
requires Target to indemnify any other person in respect of Taxes.
(e) Target has withheld and paid all Taxes required to have been
withheld and paid in connection with amounts paid or owing to any employee,
independent contractor, creditor, shareholder or other third party.
(f) "Tax Returns" means returns, information returns, reports, forms
and other documents (including, any related or supporting information) required
to be filed with any governmental authority of the United States or any other
jurisdiction responsible for the imposition, administration or collection of
Taxes.
(g) "Taxes" means (i) all Taxes (whether federal, state, local or
foreign) based upon or measured by income and any other tax whatsoever,
including, without limitation, gross receipts, estimated, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
employment, excise, or property Taxes, together with any interest or penalties,
additions to Taxes or additional amounts, imposed with respect thereto, (ii) any
liability for payments of amounts of Taxes described in the immediately
preceding clause (i) as a result of being a "transferee" (within the meaning of
Section 6901 of the Code or any other applicable law) of another person,
successor or a member of any affiliated, consolidated or combined group and
(iii) any obligations under any agreements or arrangements with respect to any
Taxes described in clause (i) above.
3.9 Compliance with Law. To Target's Knowledge, Target is in
compliance in all material respects with all applicable laws, statutes, orders,
rules, regulations, policies or guidelines promulgated, or judgments, decisions
or orders entered by any governmental authority (collectively, "Applicable
Laws") relating to Target or its business or properties. Target has heretofore
made available to Buyer copies of all material correspondence in Target's
possession from and to the Occupational Safety and Health Administration and any
other governmental authority and inspectors.
3.10 Intellectual Property. To Target's Knowledge, except as set forth
in Section 3.10 to the Target Disclosure Schedule, Target has not interfered
with, infringed upon, misappropriated, or violated any material Intellectual
16
Property rights of third parties in any material respect, and none of Target and
the directors and officers of Target have ever received any charge, complaint,
claim, demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that Target must license or
refrain from using any Intellectual Property rights of any third party). To the
Knowledge of Target, no third party has interfered with, infringed upon,
misappropriated, or violated any material Intellectual Property rights of Target
in any material respect.
3.11 Title to and Condition of Properties. Except as set forth in
Section 3.11 to the Target Disclosure Schedule, Target has good and marketable
title to all of its assets and properties which it owns of every kind, nature
and description, tangible or intangible, wherever located. Except as set forth
in Section 3.11 to the Target Disclosure Schedule, all such assets and
properties are owned free and clear of all mortgages, pledges, liens, security
interests, encumbrances and restrictions of any nature whatsoever, including,
without limitation, (a) rights or claims of parties in possession; (b) easements
or claims of easements; (c) encroachments, overlaps, boundary line or water
drainage disputes or any other matters; (d) any lien or right to a lien for
services, labor or material furnished; (e) special tax or other assessments; (f)
options to purchase, leases, tenancies, or land contracts; (g) contracts,
covenants, or reservations which restrict the use of such properties and (h) to
the Target's Knowledge, violations of any Applicable Laws applicable to such
properties, except where such mortgages, pledges, liens, security interests,
encumbrances or restrictions arise in the ordinary course of business or could
not reasonably be expected to have a Material Adverse Effect on Target. Section
3.11 to the Target Disclosure Schedule contains a complete and accurate list of
the location of all real property which is owned, leased or operated by Target.
Except as set forth in Section 3.11 to the Target Disclosure Schedule, all
machinery and equipment and tangible personal property owned, leased or used by
Target and material to the operation of its business are reasonably suitable for
the purpose or purposes for which they are being used and are in good condition
and repair, ordinary wear and tear excepted.
3.12 Litigation. There is no suit, claim, action, proceeding or, to the
Knowledge of Target, investigation (an "Action") pending or, to the Knowledge of
Target, threatened against Target or any officer or director of Target which,
individually or in the aggregate, if adversely determined, would have a Material
Adverse Effect on Target. Target is not subject to any outstanding order, writ,
injunction or decree which, individually or in the aggregate, insofar as can be
reasonably foreseen, could have a Material Adverse Effect on Target or a
Material Adverse Effect on the ability of Target to consummate the transactions
contemplated hereby.
3.13 Brokerage and Finder's Fees; Expenses. Neither Target nor any
shareholder, director, officer or employee thereof, has incurred or will incur
on behalf of Target, any brokerage, finder's or similar fee in connection with
the transactions contemplated by this Agreement.
3.14 Employee Benefit Plans. Except as set forth in Section 3.14 to the
Target Disclosure Schedule, and except for medical benefit plans with respect to
which Target has made all required contributions and has complied with all
applicable laws, the Target does not have or otherwise contribute to or
participate in any employee benefit plan subject to the Employee Retirement
Income Security Act of 1974.
17
3.15 Contracts.
(a) Section 3.15 to the Target Disclosure Schedule lists all written
or oral contracts, agreements, guarantees, leases and executory commitments
(each a "Contract") to which Target is a party and which fall within any of the
following categories: (i) Contracts not entered into in the Ordinary Course of
Business of Target, (ii) joint venture, partnership and similar agreements,
(iii) Contracts which are service contracts or equipment leases involving
payments by Target of more than $20,000 annually, (iv) Contracts containing
covenants purporting to limit the freedom of Target to compete in any line of
business in any geographic area or to hire any individual or group of
individuals, (v) Contracts which after the Effective Time would have the effect
of limiting the freedom of Buyer or its subsidiary (other than Target) to
compete in any line of business in any geographic area or to hire any individual
or group of individuals, including any Contracts with distributors granting any
exclusive rights, (vi) Contracts which contain minimum purchase conditions or
requirements or other terms that restrict or limit the purchasing relationships
of Target or its Affiliates, or any customer, licensee or lessee thereof, (vii)
Contracts relating to any outstanding commitment for capital expenditures in
excess of $20,000, (viii) Contracts relating to the lease or sublease of or sale
or purchase of real or personal property involving any annual expense or price
in excess of $20,000 and not cancelable by Target (without premium or penalty)
within one month, (ix) Contracts with any labor organization, (x) indentures,
mortgages, promissory notes, loan agreements, guarantees of amounts in excess of
$20,000, letters of credit or other agreements or instruments of Target or
commitments for the borrowing or the lending of amounts in excess of $20,000 by
Target or providing for the creation of any charge, security interest,
encumbrance or lien upon any of the assets of Target, (xi) Contracts which are
fixed price, capitation or other risk sharing agreements with customers not
cancelable by Target (without premium or penalty) within one month; (xii)
Contracts involving annual revenues or expenditures to the business of Target in
excess of five percent (5%) of Target's annual revenues, (xiii) Contracts
providing for "earn-outs" or other contingent payments involving more than
$10,000 over the term of the Contract; (xiv) any agreement concerning
confidentiality; (xv) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement for the benefit of its current or former directors, officers, and
employees.
(b) All such Contracts are valid and binding obligations of Target
and, to the Knowledge of Target, the valid and binding obligation of each other
party thereto, and will continue to be legal, valid, binding, enforceable, and
in full force and effect on identical terms following the consummation of the
transactions contemplated. Neither Target nor, to the Knowledge of Target, any
other party thereto is in violation of or in default in any material respect in
respect of, nor has there occurred an event or condition which with the passage
of time or giving of notice (or both) would constitute a material default under
or permit the termination of, any Contract.
(c) Except as set forth in Section 3.15 of the Target Disclosure
Schedule or as contemplated by the transactions contemplated hereby, there are
no Contracts or other transactions between Target, on the one hand, and any (i)
officer or director of Target, (ii) record or beneficial owner of five percent
or more of the voting securities of Target or (iii) Affiliate of any such
officer, director or beneficial owner, on the other hand.
18
3.16 Accounts Receivable. As of the Effective Time, all accounts and
notes receivable (including lease and finance notes receivable) and accrued
interest receivable of Target have arisen in the Ordinary Course of Business and
the accounts receivable reserves reflected on the Target Balance Sheet are as of
such date established in accordance with GAAP consistently applied.
3.17 Labor Matters. Except as set forth in Section 3.17 to the Target
Disclosure Schedule, Target does not have any labor contracts, collective
bargaining agreements or employment or consulting agreements with any persons
employed by Target or any persons otherwise performing personal services
primarily for Target (the "Target Business Personnel"). To Target's Knowledge,
Target has not engaged in any unfair labor practice with respect to Target
Business Personnel, and there is no unfair labor practice complaint pending or,
to the Knowledge of Target, threatened, against Target with respect to Target
Business Personnel. There is no labor strike, dispute, slowdown or stoppage
pending or, to the Knowledge of Target, threatened against Target. Target is in
compliance with all currently applicable laws and regulations respecting
discrimination in employment, terms and conditions of employment, wages, hours
and occupational safety and health and employment practices, except for such
noncompliance as has not and would not reasonably be expected to have had a
Material Adverse Effect on Target, and is not engaged in any unfair labor
practice. There are no pending claims against Target under any workers'
compensation plan or policy or for long term disability. Target has no material
obligations under COBRA with respect to any former employees or beneficiaries
thereunder. There are no proceedings pending or, to the Knowledge of Target,
threatened, between Target and its employees or former employees, which
proceedings have or could reasonably be expected to have a Material Adverse
Effect on Target. There has been no claim against Target based on actual or
alleged race, age, sex, disability or other harassment or discrimination, or
similar tortious conduct, nor, to Target's Knowledge, is there any basis for
such claim. In addition, Target has provided all employees with all
compensation, stock options, bonuses and incentives earned up through the date
of this Agreement.
3.18 Undisclosed Liabilities. Target 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 Target Balance Sheet, (ii)
those incurred in the Ordinary Course of Business and not required to be set
forth in the Target Balance Sheet under GAAP, (iii) those incurred in the
Ordinary Course of Business since the date of the Target Balance Sheet and
consistent with past practice, and (iv) those set forth in Section 3.18 to the
Target Disclosure Schedule.
3.19 Operation of Target's Business; Relationships.
(a) Target believes that the relationships of Target with its
customers are satisfactory and that the execution of this Agreement, the Merger
and the transactions contemplated hereby will not have a Material Adverse Effect
on the relationships of Target with such customers.
(b) Target is in possession of all governmental franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals and orders necessary to own, lease and operate its
properties and to carry on its business as it is now being conducted
19
(collectively, the "Target Permits") except where the failure to possess such
Target Permits, individually or in the aggregate, could not reasonably be
expected to have a Material Adverse Effect on Target, and there is no action
pending or, to the Knowledge of Target, threatened regarding any of the Target
Permits. To Target's Knowledge, Target is not in conflict with, or in default or
violation of any of the Target Permits in any material respect, except for any
such conflicts, defaults or violations which, individually or in the aggregate,
could not reasonably be expected to have a Material Adverse Effect on Target.
(c) As of the date hereof, no customer which individually accounted
for more than 5% of Target's gross revenues during the 12 month period preceding
the date hereof has canceled or otherwise terminated, or made any written threat
to Target to cancel or otherwise terminate its relationship with Target or its
usage of the services or products of Target, and to Targets Knowledge, no such
customer has indicated either orally or in writing that it will cancel or
otherwise terminate its relationship with Target or its usage of the services or
products of Target.
3.20 Insurance. Target is covered by valid and currently effective
insurance policies in favor of Target that Target believes are customary for
companies of similar size and financial condition.
3.21 Books of Account; Records. Target's general ledgers, stock record
books, minute books and other material records relating to the assets,
properties, contracts and outstanding legal obligations of Target are, in all
material respects, complete and correct and the matters contained therein are
appropriate and accurately reflected in the Target Unaudited Statements.
3.22 Officers, Employees and Consultants and Compensation. Section 3.22
to the Target Disclosure Schedule sets forth the names of all directors and
officers of Target, the total salary, bonus, fringe benefits and perquisites
each received from Target in the year ended December 31, 2006, and except as set
forth on Section 3.22 to the Target Disclosure Schedule, there have been no
changes to the foregoing which have occurred subsequent to December 31, 2006,
other than changes in the Ordinary Course of Business consistent with past
practice. Except as disclosed in Section 3.22 to the Target Disclosure Schedule,
there are no other forms of compensation paid to any such director or officer of
Target. Except as set forth in Section 3.22 to the Target Disclosure Schedule,
Target has not become obligated, directly or indirectly, to any shareholder,
director or officer of Target or any person related to such person by blood or
marriage, except for current liability for such compensation. Except as set
forth in Section 3.22 to the Target Disclosure Schedule, to the Knowledge of
Target, no shareholder, director, officer, agent or employee of Target or any
person related to such person by blood or marriage holds any position or office
with or has any material financial interest, direct or indirect, in any
supplier, customer or account of, or other outside business which has material
transactions with, Target. To Target's Knowledge, no executive, key employee, or
group of employees has any plans to terminate employment with Target.
3.23 Product Warranty. Each product sold, leased, or delivered by
Target has been in conformity, in all material respects, with all applicable
contractual commitments of Target and, to Target's Knowledge, all express and
implied product warranties provided by the manufacturers of those products, and,
20
to Target's Knowledge, Target has no liability (and there is no basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand giving rise to any liability) for replacement or
repair of any product sold, leased or delivered by Target or other damages in
connection therewith which would have a Material Adverse Effect on Target.
Except as set forth on Section 3.23 of the Target Disclosure Schedule, no
product sold, leased, or delivered by Target is subject to any guaranty,
warranty, or other indemnity from Target beyond the applicable standard terms
and conditions of sale or lease (including any express or implied warranty).
3.24 Product Liability. To Target's Knowledge, Target does not have any
liability (and there is no basis for any present or future action, suit,
proceeding, hearing, investigation, charge, complaint, claim, or demand giving
rise to any liability) arising out of any injury to individuals or property as a
result of the ownership, possession, or use of any product manufactured, sold,
leased, or delivered by Target. No product liability claims have been
communicated in writing to or threatened against Target.
3.25 Questionable Payments. Neither Target nor to its Knowledge any
director, officer or other employee of Target has: (i) made any payments or
provided services or other favors in the United States of America or in any
foreign country in order to obtain preferential treatment or consideration by
any governmental entity with respect to any aspect of the business of Target; or
(ii) made any political contributions which would not be lawful under the laws
of the United States and the foreign country in which such payments were made.
Neither Target nor, to its Knowledge, any director, officer, employee, customer
or supplier of Target has been the subject of any inquiry or investigation by
any governmental entity in connection with payments or benefits or other favors
to or for the benefit of any governmental or armed services official, agent,
representative or employee with respect to any aspect of the business of Target
or with respect to any political contribution.
3.26 Disclosure. The representations and warranties contained in this
Article 3 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 3 not misleading.
Article 4
Representations and Warranties of Buyer
Buyer represents and warrants to Target that the statements contained
in this Article 4 are correct and complete as of the date of this Agreement,
except as set forth elsewhere in this Agreement or in the disclosure schedule of
Buyer accompanying this Agreement and initialed by the Parties (the "Buyer
Disclosure Schedule"). The Buyer Disclosure Schedule will be arranged in
paragraphs corresponding to the numbered and lettered paragraphs contained in
this Article 4.
4.1 Organization, Standing and Power. Buyer is a corporation, and the
Company is a limited liability company, in each case duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization. Buyer has the corporate power, and the Company has the limited
liability 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
21
qualified and in good standing would have a Material Adverse Effect on Buyer or
the Company. Buyer has delivered a true and correct copy of the Articles of
Incorporation and Bylaws of Buyer, and the Articles of Organization and
Operating Agreement of the Company, or other charter documents of Buyer and the
Company, as applicable, each as amended to date, to Target. Buyer is not in
violation of any of the provisions of its Articles of Incorporation or Bylaws or
equivalent organizational documents. The Company is not in violation of any of
the provisions of its Articles of Organization or Operating Agreement or
equivalent organizational documents.
4.2 Capital Structure. Buyer has an authorized capitalization
consisting of fifty million (50,000,000) shares of Common Stock, no par value
per share, and five million shares of Preferred Stock, no par value. As of the
date hereof, Buyer has issued and outstanding 8,817,620 shares of Common Stock
and no shares of Preferred stock are issued and outstanding. All of the shares
of Common Stock of Buyer issued to date have been duly and validly authorized
and issued and are fully paid and non-assessable. Except as set forth above,
disclosed in Buyer's public filings with the SEC, or as disclosed in Section 4.2
of the Buyer Disclosure Schedule, as of the date of this Agreement, (i) there
are no outstanding options, warrants, script, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of Buyer or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
Buyer or any of its subsidiaries is or may become bound to redeem or issue
additional shares of capital stock of Buyer or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to calls or commitments of any
character whatsoever relating, or securities or rights convertible into, any
shares of capital stock of Buyer or any of its subsidiaries, (ii) there are no
outstanding debt securities and (iii) there are no agreements or arrangements
under which Buyer or any of its subsidiaries is obligated to register the sale
of any of their securities under the Securities Act. Except as disclosed in
Section 4.2 of the Buyer Disclosure Schedule, there are no securities or
instruments containing any anti-dilution, right of first refusal, preemptive
rights or similar provisions that will be triggered by the issuance of the
Shares as described in this Agreement. Upon issuance of the Merger Shares, such
securities will be duly and validly issued, fully paid and non-assessable.
4.3 Authority. Buyer has all requisite corporate power and authority,
and the Company has all requisite 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 Buyer and action on the part of the Company. This Agreement has
been duly executed and delivered by Buyer and Company and constitutes the valid
and binding obligations of Buyer and Company. 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 material obligation or loss of
a material benefit under (i) any provision of the Articles of Incorporation or
Bylaws of Buyer or any of its subsidiaries, as amended, or the Articles of
Organization or Operating Agreement of the Company, as amended, or (ii) to
Buyer's Knowledge, 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 Buyer or any
of its subsidiaries or their properties or assets. No consent, approval, order
or authorization of or registration, declaration or filing with, any
22
governmental entity, is required by or with respect to Buyer or any of its
subsidiaries in connection with the execution and delivery of this Agreement by
Buyer and Company or the consummation by Buyer and Company of the transactions
contemplated hereby, except for (i) the filing of the Merger Filings, (ii) the
filing of a Form 8-K with the SEC and Nasdaq Stock Market within four days after
the Closing Date, (iii) any filings as may be required under applicable state
securities laws and the securities laws of any foreign country, (iv)
notification filing to Nasdaq of the proposed Merger, (v) the filing with the
Nasdaq Capital Market of a Notification Form of Listing of Additional Shares
with respect to the shares of Buyer Common Stock issuable to Target Shareholders
in the Merger, and (vi) such other consents, authorizations, filings, approvals
and registrations which, if not obtained or made, would not have a Material
Adverse Effect on Buyer or the Surviving Company and would not prevent,
materially alter or delay any of the transactions contemplated by this
Agreement.
4.4 SEC Documents; Financial Statements. Buyer has furnished or
otherwise made available to Target a true and complete copy of each statement,
report, registration statement, definitive proxy statement, and other filing
filed with the SEC by Buyer since December 31, 2005 (collectively, the "Buyer
SEC Documents"). In addition, Buyer has made available to Target all material
exhibits to the Buyer SEC Documents filed prior to the date hereof. All
documents required to be filed as exhibits to the Buyer SEC Documents have been
so filed, and all material contracts so filed as exhibits are in full force and
effect except those which have expired in accordance with their terms, and
neither Buyer nor any of its subsidiaries is in default thereunder. As of their
respective filing dates, the Buyer SEC Documents complied in all material
respects with the requirements of the Securities Exchange Act, and the
Securities Act and none of the Buyer 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 Buyer SEC Document prior to the date hereof.
The financial statements of Buyer, including the notes thereto, included in the
Buyer SEC Documents (the "Buyer Financial Statements"), 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-Q or Form 10-QSB, as
permitted by Form 10-Q or Form 10-QSB of the SEC). The Buyer Financial
Statements fairly present the consolidated financial condition and operating
results of Buyer and its subsidiaries at the dates and during the periods
indicated therein (subject, in the case of unaudited statements, to normal,
recurring year-end adjustments). There has been no material change in Buyer's
accounting policies except as described in the notes to the Buyer Financial
Statements. Since June 30, 2006, no event has occurred that would have required
the filing of any report that otherwise would have been included among the Buyer
SEC Documents and for which an appropriate report was not filed.
4.5 Absence of Certain Changes. Since March 31, 2007, (the "Buyer
Balance Sheet Date"), except as described in the Buyer SEC Documents, Buyer has
conducted its business in the Ordinary Course of Business 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 might reasonably be
23
expected to result in, a Material Adverse Effect to Buyer; (ii) any acquisition,
sale or transfer of any material asset of Buyer or any of its subsidiaries other
than in the Ordinary Course of Business and consistent with past practice; (iii)
any material change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Buyer or any revaluation by
Buyer of any of its assets; (iv) any declaration, setting aside, or payment of a
dividend or other distribution with respect to the shares of Buyer, or any
direct or indirect redemption, purchase or other acquisition by Buyer of any of
its shares of capital stock; (v) any material contract entered into by Buyer,
other than in the Ordinary Course of Business and as provided to Target or any
material amendment or termination of, or default under, any material contract to
which Buyer is a party or by which it is bound; (vi) any amendment or change to
Buyer's Articles of Incorporation or Bylaws; or (vii) any negotiation or
agreement by Buyer or any of its subsidiaries to do any of the things described
in the preceding clauses (i) through (vi) (other than negotiations with Target
and its representatives regarding the transactions contemplated by this
Agreement). Notwithstanding anything in these representations and warranties to
the contrary, the Parties acknowledge that Buyer has disclosed to Target that it
is currently pursuing acquisitions of additional distributors and anticipates
consummating additional transactions prior to, simultaneous with, and/or
subsequent to the Closing of this Agreement ("Additional Acquisitions"). Buyer
has provided to Target all information requested by Target with respect to the
Additional Acquisitions that is material to the decision of Target Shareholders
to consider and approve the transactions contemplated by this Agreement.
4.6 Absence of Undisclosed Liabilities. Buyer 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 Buyer's Quarterly Report on Form 10-Q for the period
ended March 31, 2007 (the "Buyer Balance Sheet"), (ii) those incurred in the
Ordinary Course of Business and not required to be set forth in the Buyer
Balance Sheet under GAAP, (iii) those incurred in the Ordinary Course of
Business since the Buyer Balance Sheet Date and consistent with past practice,
and (iv) those incurred in connection with the Additional Acquisitions.
4.7 Litigation. Except as described in the Buyer SEC Documents, there
is no private or governmental action, suit, proceeding, claim, arbitration or
investigation pending before any agency, court or tribunal, foreign or domestic,
or, to the Knowledge of Buyer or any of its subsidiaries, threatened against
Buyer or any of its subsidiaries 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 Buyer. There is no judgment, decree or order against
Buyer or any of its subsidiaries or, to the Knowledge of Buyer or any of its
subsidiaries, any of their respective directors or officers (in their capacities
as such) that could prevent, enjoin, or materially alter or delay any of the
transactions contemplated by this Agreement, or that could reasonably be
expected to have a Material Adverse Effect on Buyer or the Surviving Company.
4.8 Governmental Authorization. Buyer and each of its subsidiaries
have obtained each federal, state, county, local or foreign governmental
consent, license, permit, grant, or other authorization of a governmental entity
(i) pursuant to which Buyer or any of its subsidiaries currently operates or
holds any interest in any of its properties or (ii) that is required for the
operation of Buyer's or any of its subsidiaries' business or the holding of any
such interest ((i) and (ii) herein collectively called "Buyer Authorizations"),
and all of such Buyer Authorizations are in full force and effect, except where
the failure to obtain or have any of such Buyer Authorizations could not
reasonably be expected to have a Material Adverse Effect on Buyer.
24
4.9 Broker's and Finders' Fees. Buyer 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.
4.10 Interim Operations of Company. The Company was formed solely for
the purpose of engaging in the transactions contemplated by this Agreement, is a
wholly-owned subsidiary of Buyer, has engaged in no other business activities
and has conducted its operations only as contemplated by this Agreement.
4.11 Disclosure. The representations and warranties contained in this
Article 4 do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements and
information contained in this Article 4 not misleading.
Article 5
Covenants
5.1 Sale of Shares Pursuant to Section 4(2) of the Securities Act. The
Parties hereto acknowledge and agree that the Merger Shares shall be issued and
sold pursuant to the exemption available by Section 4(2) of the Securities Act
and the rules and regulations promulgated thereunder including, without
limitation, Regulation D promulgated under the Securities Act. As such, the
Merger Shares, shall constitute "restricted securities" within the Securities
Act. The certificates representing the Merger Shares shall bear the legends set
forth in Section 2.4(k) hereof.
5.2 Confidentiality. The Parties acknowledge that Buyer and Target
have previously executed a Non-Disclosure Agreement dated as of January 23, 2007
(the "Confidentiality Agreement"), which Confidentiality Agreement is
incorporated herein by reference and shall continue in full force and effect in
accordance with its terms.
5.3 Public Disclosure. Unless otherwise permitted by this Agreement,
Buyer and Target shall consult with each other before issuing any press release
or otherwise making any 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 Nasdaq Capital Market.
5.4 Legal Requirements. Each of Buyer, Company and Target will, and
will cause their respective subsidiaries 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
25
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.
5.5 Blue Sky Laws. Buyer shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Merger Shares. Target shall use its reasonable
best efforts to assist Buyer 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 the Merger Shares.
5.6 Reasonable Commercial Efforts and Further Assurances. Each of the
Parties to this Agreement shall use reasonable commercial 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.
5.7 Notice of Developments. Each Party will give prompt written notice
to the other of any material adverse development causing a breach of any of its
own representations and warranties in Articles 3 and 4 above. No disclosure by
any Party pursuant to this Section 5.7, however, shall be deemed to amend or
supplement the Disclosure Schedule or to prevent or cure any misrepresentation,
breach of warranty, or breach of covenant.
5.8 Tax Treatment. Neither Buyer nor the Surviving Company shall take
or agree to take any action that would prevent the Merger from constituting a
reorganization qualifying under the provisions of Section 368(a) of the Code.
5.9 Indemnification. Buyer agrees that from and after the Effective
Time, all rights to indemnification with respect to claims arising from facts or
events which occurred at or before the Effective Time now existing in favor of
any individual who at or prior to the Effective Time was a director, officer,
employee or agent of Target as provided in the Target's Articles of
Incorporation and Bylaws or any indemnification as in effect on the date of this
Agreement shall continue in full force and effect as provided in such
instruments. The Surviving Company shall not, nor shall Buyer permit the
Surviving Company to, amend its Articles of Organization or Operating Agreement
with respect to the indemnification provisions in a manner which would adversely
affect such rights to indemnification of such Persons.
5.10 Target 401(k) Plan. Buyer and the Surviving Company shall cause
the Surviving Company to terminate the Safe Harbor 401(k) Profit Sharing Plan of
Target (the "Target 401(k)") as soon as reasonably practicable after the Closing
Date. All costs up to a maximum of $6,000 with such termination shall be borne
by the Surviving Company (and not included in calculations of the Final Working
Capital Schedule). Buyer and the Surviving Company shall use best efforts to
provide Target Employees the option to "rollover" their accounts from the Target
401(k) to a qualifying 401(k) plan of Buyer or the Surviving Company and allow
Target Employees to participate in such qualifying plan.
26
5.11 Target Health Plan. Buyer and the Surviving Company shall use best
efforts to cause the Surviving Company to assume Target's rights and obligations
under Target's health plan with Xxxxxx Foundation Health Plan, Inc.
5.12 USBank Loan. Buyer and the Surviving Company shall use best
efforts to cause, as soon as practicable after the Closing, but in any event no
later than four months after the Closing, the termination or release of the
guarantees of any Target Shareholder (the "Target Shareholder Guarantees") with
respect to the $450,000 line of credit with U.S. Bank National Association Loan
No. 312-18/26, entered into by Target and assigned to the Surviving Company in
connection with the Merger. Buyer and Surviving Company make no guarantee that
U.S. Bank National Association will release the Target Shareholder Guarantees.
5.13 Employee Matters. The Buyer shall offer employment to all of
Target's employees upon such terms and pursuant to such employment agreements as
the Buyer shall determine (other than the Employment Agreements). All such
individuals who accept offers of employment with the Buyer as of the Closing
shall be referred to herein as "Transferred Employees. All Transferred employees
will be at-will employees. Target shall assist the Buyer in effecting such
Transferred Employees' change of employment as of the Closing Date in an orderly
fashion.
5.14 Transfer of Vehicles. To the extent not accomplished prior to the
Effective Time, Buyer and the Company shall use their best efforts to, as soon
as practicable but in any event no later than forty-five (45) days after the
Effective Time, (a) transfer to Xxxx Xxxxxx the vehicle title to the 2006 Honda
Pilot, VIN 0XXXX00000X000000, and make arrangements for Xxxx Xxxxxx to assume
legal responsibility for the remaining payments for such vehicle, and (b)
transfer to Xxxxx Xxxxxx the vehicle title to the 2007 Ford Expedition EL, VIN
0XXXX00000XX00000, and make arrangements for Xxxxx Xxxxxx to assume legal
responsibility for the remaining payments for such vehicle. Each of Xxxx Xxxxxx
and Xxxxx Xxxxxx agree to cooperate in good faith with Buyer and the Company in
fulfillment of the obligations under this Section 5.14. Notwithstanding the
forgoing, Xxxx Xxxxxx and Xxxxx Xxxxxx shall be obligated for any payments or
obligations related to the vehicles in excess of the amounts provided by Buyer
in Buyer's employment agreements with Xxxx Xxxxxx and Xxxxx Xxxxxx,
respectively.
5.15 Disclaimer Regarding Estimates and Projections. In connection with
Buyer's investigation of Target, Buyer has received from Target certain
estimates, forecasts, plans and financial projections of Target. Buyer
acknowledges that there are uncertainties inherent in attempting to make such
estimates, forecasts, plans and projections, that Buyer is familiar with such
uncertainties, that Buyer is taking full responsibility for making its own
evaluation of the adequacy and accuracy of all estimates, forecasts, plans and
projections so furnished to it (including the reasonableness of the assumptions
underlying such estimates, forecasts, plans and projections). Accordingly, the
Target makes no representation or warranty with respect to such estimates,
forecasts, plans and projections (including any such underlying assumptions).
27
Article 6
Indemnification
6.1 Indemnification.
(a) Survival of Warranties. All representations and warranties made by
Target or Buyer herein, or in any certificate, schedule or exhibit delivered
pursuant hereto, shall continue in full force and effect until the first
anniversary of the Closing Date.
(b) Indemnification by Buyer. Subject to the limitations and other
provisions set forth in this Article 6 , Buyer shall indemnify and hold harmless
Target, and its officers, directors, agents, attorneys, employees, and each
person, if any, who controls or may control Target, and the Target Shareholders
(hereinafter referred to individually as a "Target Indemnified Person" and
collectively as "Target Indemnified Persons") from and against any and all
losses, costs, damages, liabilities and expenses arising from claims, demands,
actions and causes of action, including, without limitation, legal fees
(collectively, "Damages") arising out of any misrepresentation or breach of or
default in connection with any of the representations, warranties, covenants and
agreements given or made by Buyer in this Agreement, the Buyer Disclosure
Schedules or any exhibit or schedule hereto, or arising out of the Target
Shareholder Guarantees. Target and its Affiliates and the Target Shareholders
shall act in good faith and in a commercially reasonable manner to mitigate any
Damages they may suffer.
(c) Indemnification by Target and Target Shareholders. Subject to the
limitations and other provisions set forth in this Article 6, the Target
Shareholders shall, severally but not jointly, indemnify and hold harmless Buyer
and the Surviving Company and their respective officers, directors, agents,
attorneys and employees, and each person, if any, who controls or may control
Buyer or the Surviving Company within the meaning of the Securities Act
(hereinafter referred to individually as a "Buyer Indemnified Person" and
collectively as "Buyer Indemnified Persons") (the Target Indemnified Persons and
the Buyer Indemnified Persons shall be referred to collectively in Article 6 as
"Indemnified Persons") from and against any and all Damages arising out of any
misrepresentation or breach of or default in connection with any of the
representations, warranties, covenants and agreements given or made by Target in
this Agreement, the Target Disclosure Schedules or any exhibit or schedule
hereto. Buyer, the Surviving Company and their respective Affiliates shall act
in good faith and in a commercially reasonable manner to mitigate any Damages
they may suffer.
6.2 Procedure for Indemnification - Third Party Claims
(a) Promptly after receipt by an Indemnified Person of notice of the
commencement of any Proceeding against it, such Indemnified Person will, if a
claim is to be made against an Indemnitor under such Section, give notice to the
Indemnitor of the commencement of such Proceeding and the claim for indemnity,
but the failure to notify the Indemnitor will not relieve the Indemnitor of any
liability that it may have to any Indemnified Person, except to the extent that
the Indemnitor demonstrates that the defense of such action is prejudiced by the
Indemnified Person's failure to give such notice or as provided in Sections
6.5(a), (c) and (d).
28
(b) If any Proceeding referred to in Section 6.2(a) is brought against
an Indemnified Person and it gives notice to the Indemnitor of the commencement
of such Proceeding, the Indemnitor will be entitled to participate in such
Proceeding and, to the extent that it wishes (unless (i) the Indemnitor is also
a party to such Proceeding and the Indemnified Person determines in good faith
that joint representation would be inappropriate, or (ii) the Indemnitor fails
to provide reasonable assurance to the Indemnified Person of its financial
capacity to defend such Proceeding and provide indemnification with respect to
such Proceeding), to assume the defense of such Proceeding with counsel
satisfactory to the Indemnified Person and, after notice from the Indemnitor to
the Indemnified Person of its election to assume the defense of such Proceeding,
the Indemnitor will not, as long as it diligently conducts such defense, be
liable to the Indemnified Person under this Article 6 for any fees of other
counsel or any other expenses with respect to the defense of such Proceeding, in
each case subsequently incurred by the Indemnified Person in connection with the
defense of such Proceeding, other than reasonable costs of investigation. If the
Indemnitor assumes the defense of a Proceeding, (i) it will be conclusively
established for purposes of this Agreement that the claims made in that
Proceeding are within the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected by the Indemnitor
without the Indemnified Person's consent (which consent shall not be
unreasonably withheld) unless (A) there is no finding or admission of any
violation of any law, ordinance, principle of common law, regulation, statute,
or treaty of a governmental body or any violation of the rights of any Person
and no effect on any other claims that may be made against the Indemnified
Person, and (B) the sole relief provided is monetary damages that are paid in
full by the Indemnitor; and (iii) the Indemnified Person will have no liability
with respect to any compromise or settlement of such claims effected without its
consent. If notice is given to an Indemnitor of the commencement of any
Proceeding and the Indemnitor does not, within ten days after the Indemnified
Person's notice is given, give notice to the Indemnified Person of its election
to assume the defense of such Proceeding, the Indemnitor will be bound by any
determination made in such Proceeding or any compromise or settlement effected
by the Indemnified Person.
(c) Notwithstanding the foregoing, if an Indemnified Person determines
in good faith that there is a reasonable probability that a Proceeding may
adversely affect it or its affiliates other than as a result of monetary damages
for which it would be entitled to indemnification under this Agreement, the
Indemnified Person may, by notice to the Indemnitor, assume the exclusive right
to defend, compromise, or settle such Proceeding, but the Indemnitor will not be
bound by any determination of a Proceeding so defended or any compromise or
settlement effected without its consent (which may not be unreasonably
withheld).
(d) The Indemnified Parties hereby consent to the non-exclusive
jurisdiction of any court in which a Proceeding may be brought against any
Indemnified Person for purposes of any claim that an Indemnified Person may have
under this Agreement with respect to such Proceeding or the matters alleged
therein.
(e) Notwithstanding any other provision of this Article 6, the
Indemnified Person must give written notice of its claim for indemnification for
the third party claim to the Indemnitor within one year following the Closing.
The notice of indemnity claim shall specify in reasonable detail each individual
item of damage, loss, or expense included in the aggregate amount stated, the
date each item was paid or properly accrued or the basis for any anticipated
29
liability, and the nature of the misrepresentation, breach of warranty, or claim
to which each item is related. The Indemnitor shall have thirty (30) days after
delivery of the notice of indemnity claim to object in writing to the claim.
Notice of objection shall be given within the thirty-day period. If no notice of
objection is given, the thirty-first (31st) day after the notice of claim shall
be deemed to be the date of the final determination of the right to indemnity.
6.3 Procedure for Indemnification - Other Claims
(a) A claim for indemnification for any matter not involving a
third-party claim may be asserted within one year following the Closing by
written notice to the Indemnitor. An Indemnified Person shall promptly give such
written notice to the persons against whom indemnification is sought after
obtaining knowledge of any such claim. Such notice shall set forth in reasonable
detail the facts and circumstances underlying the claim, the basis for
indemnification and shall specify the estimated amount thereof. Failure to give
timely notice as provided in this Section 6.3 will not affect the rights or
obligations of the Indemnitors or the Indemnified Persons hereunder, except to
the extent that the Indemnitors shall have been actually harmed by such delay or
as provided in Sections 6.5(a), (c) and (d).
(b) The Indemnitor shall have thirty (30) days after delivery of the
notice of indemnity claim to object in writing to the claim. Notice of objection
shall be given within the thirty-day period. If no notice of objection is given,
the thirty-first (31st) day after the notice of claim shall be deemed to be the
date of the final determination of the right to and amount of the indemnity
claim and it shall be paid in accordance with the provisions of this Article 6.
6.4 Dispute Resolution.
(a) If the Indemnitor has objected in writing to any indemnity claim
made pursuant to this Article 6 or in any other manner, Target Shareholders
through the Shareholders' Representative and Buyer will attempt in good faith to
agree on the rights of the respective parties regarding each disputed indemnity
claim. If they agree, a memorandum setting forth the agreement will be prepared
and signed by both parties and payment will be made in accordance with the
memorandum.
(b) If no such agreement can be reached after good faith negotiation,
either Buyer or Shareholders' Representative may demand arbitration of the
matter; and in such event the American Arbitration Association will be asked to
appoint one arbitrator to rule on the matter, such appointment to be in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect. Any such arbitration will be held under the rules of
the American Arbitration Association then in effect. The decision of the
arbitrator about the validity of any indemnity claim will be binding and
conclusive on the Indemnitors and the Indemnified Parties to the agreement; and
payments, if any due, will be made in accordance with this Article 6. Each party
to the arbitration will pay its own expenses, and the fee of the arbitrator and
the administrative fee of the American Arbitration Association will be paid one
half by Indemnitor and one half by Indemnified Person. Judgment on any award
rendered by the arbitrator may be entered in any court having jurisdiction over
the matter.
30
6.5 Limitations. Notwithstanding anything in this Article 6 to the
contrary:
(a) No party shall be liable for any Damages pursuant to this Article
6 unless a written claim for indemnification of such Damages is given by the
Indemnified Person prior to the one year anniversary of the Closing;
(b) No Party shall be obligated to indemnify any Indemnified Person
pursuant to this Article until the aggregate Damages incurred by such
Indemnified Person exceeds $20,000, in which event the entire aggregate amount
of the Damages shall be indemnifiable;
(c) With respect to claims made by the Buyer or Surviving Company
prior to the six-month anniversary of the Closing, no individual Target
Shareholder shall be liable for any aggregate Damages of the Buyer and Surviving
Company that are in excess of (i) seventy-five percent (75%) of the aggregate
Closing Cash Payment received by such Target Shareholder minus (ii) the
aggregate amount of all Damages recovered previously from such Target
Shareholder pursuant to this Article 6;
(d) With respect to claims made by the Buyer or Surviving Company
after the six-month anniversary of the Closing and prior to the one-year
anniversary of the Closing, no individual Target Shareholder shall be liable for
any aggregate Damages of the Buyer and Surviving Company that are in excess of
(i) fifty percent (50%) of the aggregate Closing Cash Payment received by such
Target Shareholder minus (ii) the aggregate amount of all Damages recovered
previously from such Target Shareholder pursuant to this Article 6; and
(e) Neither Buyer nor Surviving Company shall be liable for aggregate
Damages of the Target Shareholders in excess of the Closing Cash Payment.
6.6 Exclusive Remedy. Except as provided in Section 6.8, the Parties
hereby acknowledge and agree that after the Closing the indemnification
provisions of this Article 6 shall be the sole and exclusive remedy available to
each Indemnified Person in connection with this Agreement, the Merger and the
transactions contemplated hereby.
6.7 Escrow Reserve; Insurance Proceeds; Tax Benefits.
(a) Any payment to the Surviving Company or the Buyer out of the
Escrow Reserve (other than amounts paid to Buyer or the Company as the result of
determination of the Working Capital of Target pursuant to Section 2.6), shall
be considered as payments made under this Article 6 and shall be applied toward
the limitations and other provisions set forth herein.
(b) The amount of Damages payable to the Buyer Indemnified Persons
shall be net of any (A) amounts recovered or recoverable by the Buyer
Indemnified Persons under applicable insurance policies and (B) tax benefit
realized by the Buyer Indemnified Persons arising from the incurrence or payment
of any such Damages.
6.8 Fraud. Nothing in this Agreement shall limit the liability in
amount or otherwise of Buyer, the Company, Target or the Target Shareholders
with respect to fraud, willful misconduct or intentional misrepresentation by
such Party.
31
Article 7
Appointment of the Shareholders' Representative.
7.1 Powers of Attorney. Effective on the Effective Time, each of the
Target Shareholders irrevocably constitutes and appoints Xxxx Xxxxxx as the
Shareholders' Representative to act as such Target Shareholder's true and lawful
attorney-in-fact and agent and authorizes the Shareholders' Representative
acting for such Target Shareholder and in such Target Shareholder's name, place
and stead, in any and all capacities to do and perform every act and thing
required or permitted to be done in connection with the transactions
contemplated by this Agreement and any agreements executed in connection
herewith, including without limitation the Reserve Escrow Agreement, as fully to
all intents and purposes as such Target Shareholder might or could do in person,
including, without limitation:
(a) to take any and all action on behalf of the Target Shareholders
from time to time as the Shareholders' Representative may deem necessary or
desirable to fulfill the interests and purposes of this Agreement and the
Reserve Escrow Agreement to engage agents and representatives (including
accountants and legal counsel) to assist in connection therewith;
(b) to deliver all notices required to be delivered by the Target
Shareholders or any of them;
(c) to receive all notices required to be delivered to the Target
Shareholders or any of them;
(d) to negotiate, execute and deliver, and take all actions necessary
or advisable, or which may be required, in connection with the Escrow Reserve
and the Reserve Escrow Agreement;
(e) to take all actions necessary to handle and resolve claims by
Buyer and/or the Company against the Target Shareholders under this Agreement
(including, without limitation, claims for indemnification) and any agreement
executed in connection herewith;
(f) to retain legal counsel in connection with any and all matters
referred to herein or relating hereto (which counsel may, but need not, be
counsel for the Target);
(g) to make, acknowledge, verify and file on behalf of any Target
Shareholder applications, consents to service of process and such other
documents, undertakings or reports as may be required by any legal requirement
as determined by the Shareholders' Representative in his sole discretion after
consultation with counsel; and
(h) to make, exchange, acknowledge and deliver all such other
contracts, powers of attorney, orders, receipts, notices, requests,
instructions, certificates, letters and other writings, and in general to do all
things and to take all actions, that the Shareholders' Representative in his
sole discretion may consider necessary or proper in connection with or to carry
out the aforesaid, as fully as could the undersigned if personally present and
acting.
Each of the Target Shareholders grants unto said attorney-in-fact and
agent full power and authority to do and perform each and every act and thing
necessary or desirable to be done in connection with the matters described
32
above, as fully to all intents and purposes as said Target Shareholder might or
could do in person, hereby ratifying and confirming all that the Shareholders'
Representative may lawfully do or cause to be done by virtue hereof. EACH TARGET
SHAREHOLDER ACKNOWLEDGES THAT IT IS HIS, HER OR ITS EXPRESS INTENTION TO HEREBY
GRANT A DURABLE POWER OF ATTORNEY UNTO THE SHAREHOLDERS' REPRESENTATIVE AND THAT
THIS DURABLE POWER OF ATTORNEY IS NOT AFFECTED BY SUBSEQUENT INCAPACITY OF SUCH
TARGET SHAREHOLDER EXCEPT AS PROVIDED UNDER CALIFORNIA LAW. Each of the Target
Shareholders further acknowledges and agrees that upon execution of this
Agreement, any delivery by the Shareholders' Representative of any waiver,
amendment, agreement, opinion, release of claims, certificate, consent, notice,
election or other documents executed by the Shareholders' Representative
pursuant to this Article 7, such Target Shareholder shall be bound by such
documents as fully as if such Target Shareholder had executed and delivered such
documents. Upon the death or incapacity of the Shareholders' Representative,
Target Shareholders that represent more than fifty percent (50%) of the Target
Shares shall be entitled to appoint his successor.
Notwithstanding anything herein to the contrary, prior to the Effective
Time, Shareholders' Representative shall furnish such addenda or other
instruments reasonably acceptable to Buyer and the Company from any Target
Shareholder to the extent such Target Shareholder is not a signatory to this
Agreement agreeing to be bound by the terms and conditions of Article 7 of this
Agreement, including the appointment of Shareholders' Representative, in such
capacity, pursuant hereto, so that he, as Shareholders' Representative, has full
power and authority to act for and on behalf of, and to bind by his decision,
all the Target Shareholders in accordance with the terms hereof.
7.2 Liability of the Shareholders' Representative. The Shareholders'
Representative shall not have, by reason of this Agreement or the performance of
services as the Shareholders' Representative, a fiduciary relationship with any
Target Shareholder. The Shareholders' Representative shall not be liable to any
Target Shareholder for any action taken or omitted by him hereunder or under any
other document executed or delivered hereunder, or in connection therewith,
except that the Shareholders' Representative shall not be relieved of any
liability imposed by law for willful misconduct. The Shareholders'
Representative shall not be liable to any Target Shareholder for any
apportionment or distribution of payments made by him in good faith, and if any
such apportionment or distribution is subsequently determined to have been made
in error, the sole recourse of any Target Shareholder to whom payment was due,
but not made, shall be to recover from other Target Shareholders any payment in
excess of the amount to which they are determined to have been entitled. The
Shareholders' Representative shall not be required to make any inquiry
concerning either the performance or observance of any of the terms, provisions
or conditions of this Agreement. Each of the Target Shareholders acknowledges
and agrees that the Shareholders' Representative shall not be obligated to take
any actions and shall be entitled to take such actions as the Shareholders'
Representative deems appropriate in the Shareholders' Representative's sole
discretion.
7.3 Actions of the Shareholders' Representative. Each Target
Shareholder agrees that Buyer and the Company shall be entitled to rely on any
action taken collectively by the Shareholders' Representative, on behalf of the
Target Shareholders pursuant to this Article 7 (each, an "Authorized Action"),
and that each Authorized Action shall be binding on each Target Shareholder as
fully as if such Target Shareholder had taken such Authorized Action.
33
Article 8
Miscellaneous
8.1 No Third-Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.
8.2 Entire Agreement. This Agreement (including the documents referred
to herein) constitutes the entire agreement between the Parties and supersedes
any prior understandings, agreements, or representations by or between the
Parties, written or oral, to the extent they related in any way to the subject
matter hereof.
8.3 Succession and Assignment. This Agreement shall be binding upon
and inure to the benefit of the Parties named herein and their respective
successors and permitted assigns. No Party may assign either this Agreement or
any of its rights, interests, or obligations hereunder without the prior written
approval of the other Parties hereto.
8.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument. Further, each Target
Shareholder shall be presented with the Joinder Agreement substantially in the
form of Exhibit M attached hereto (the "Joinder Agreement"). The parties
acknowledge and agree that, upon a Target Shareholder's execution and delivery
of the Joinder Agreement, such Target Shareholder shall for all purposes become
a party to this Agreement, bound by all of the terms, conditions and obligations
of this Agreement, and with all rights, privileges, powers under this Agreement,
the same as if such Target Shareholder had executed this Agreement in a
signature block hereto. The Joinder Agreement executed and delivered by the
Target Shareholders shall be attached to this Agreement immediately following
the signature pages.
8.5 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.6 Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to Target, to it at:
00 Xxx Xxxxx Xxxxx
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
Attn. Xxxx and Xxxx Xx Xxxxxx
34
With a copy to:
Pillsbury Xxxxxxxx Xxxx Xxxxxxx LLP
000 Xxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attn. Xxxxxxxx Xxxx Xxxxxxxx
If to Buyer or Company, to either of them at:
Dynatronics Corporation
0000 Xxxx Xxxxxx Xxxxx
Xxxx Xxxx Xxxx, Xxxx
Fax: (000) 000-0000
Attn. Xxxxxx X. Xxxxxxxxx, Xx.
Email: xxxxxx@xxxxxxxx.xxx
With a copy to:
Durham Xxxxx & Xxxxxxx, P.C.
000 Xxxx Xxxxxxxx, Xxxxx 000
Xxxx Xxxx Xxxx, Xxxx 00000
Fax: (000) 000-0000
Attn. Xxxxx X. Xxxx, Esq.
Email: xxxxx@xxxxxx.xxx
If to Shareholders' Representative, at:
Xxxx Xxxxxx
00 Xxx Xxxxx Xxxxx
Xxxxxxxx, XX 00000
Fax: (000) 000-0000
With a copy to:
Pillsbury Xxxxxxxx Xxxx Xxxxxxx LLP
000 Xxxxxxx Xxxx, Xxxxx 0000
Xxxxxxxxx, XX 00000
Fax: (000) 000-0000
Attn. Xxxxxxxx Xxxx Xxxxxxxx
Any Party may send any notice, request, demand, claim, or other
communication hereunder to the intended recipient at the address set forth above
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail, or electronic mail), but no such
notice, request, demand, claim, or other communication shall be deemed to have
35
been duly given unless and until it actually is received by the intended
recipient. Any Party may change the address to which notices, requests, demands,
claims, and other communications hereunder are to be delivered by giving the
other Party notice in the manner herein set forth.
8.7 Governing Law. This Agreement shall be governed by and construed
in accordance with the domestic laws of the State of Utah without giving effect
to any choice or conflict of law provision or rule (whether of the State of Utah
or any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Utah. Except to the extent otherwise
required by Utah law, each of the Parties hereto irrevocably consents to the
exclusive jurisdiction of any court located within Salt Lake County, State of
Utah, in connection with any matter based upon or arising out of this Agreement
or the matters contemplated hereby and it agrees that process may be served upon
it in any manner authorized by the laws of the State of Utah for such persons
and waives and covenants not to assert or plead any objection which it might
otherwise have to such jurisdiction and such process.
8.8 Amendments and Waivers. The Parties may mutually amend any
provision of this Agreement at any time prior to the Effective Time with the
prior authorization of their respective boards of directors; provided, however,
that any amendment effected subsequent to Target Shareholder approval will be
subject to the restrictions contained in the California Corporations Code. No
amendment of any provision of this Agreement shall be valid unless the same
shall be in writing and signed by both of the Parties. No waiver by any Party of
any default, misrepresentation, or breach of warranty or covenant hereunder,
whether intentional or not, shall be deemed to extend to any prior or subsequent
default, misrepresentation, or breach of warranty or covenant hereunder or
affect in any way any rights arising by virtue of any prior or subsequent such
occurrence.
8.9 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
8.10 Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof shall
arise favoring or disfavoring any Party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context otherwise requires. The
word "including" shall mean including without limitation.
8.11 Incorporation of Exhibits and Schedules. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof.
8.12 Attorneys' Fees. If any legal action or other proceeding is
brought for the enforcement of this Agreement, or because of an alleged dispute,
breach, default, or misrepresentation in connection with any of the provisions
of this Agreement, the successful or prevailing party shall be entitled to
recover reasonable attorneys' fees, and any other fees and costs incurred in the
36
action or proceeding, in addition to any other relief to which such party may be
entitled. Without limiting the generality of the foregoing, any reasonable costs
and expenses, including without limitation reasonable attorneys' fees, incurred
in enforcing any judgment or arbitration award shall be recoverable by the
prevailing party as a separate item of recovery, and this provision is intended
to be severable from the other provisions of this Agreement and shall survive
any judgment or arbitration award and shall not be deemed to be merged into the
judgment or award.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
[SIGNATURE PAGE FOLLOWS IMMEDIATELY]
37
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement and Plan of Merger as of the date first written above.
BUYER
Dynatronics Corporation
/s/ Xxxxxx X. Xxxxxxxxx, Xx.
-----------------------------
By: Xxxxxx X. Xxxxxxxxx, Xx.
Title: President
COMPANY
Dynatronics Distribution Company, LLC
/s/ Xxxxxx X. Xxxxxxxxx, Xx.
-----------------------------
By: Xxxxxx X. Xxxxxxxxx, Xx.
Title: Manager
TARGET
Xxxxxx Therapy Sales Associates
/s/ Xxxx Xxxxxx
---------------
By: Xxxx Xxxxxx
Title: President
SHAREHOLDERS' REPRESENTATIVE
/s/ Xxxx Xxxxxx
---------------
By: Xxxx Xxxxxx
38
Schedule A
----------
TARGET SHAREHOLDERS
The Xxxxxx Family Trust, est. Sept. 22, 1989
Xxxx Xxxxxx
Xxxx Xx Xxxxxx
Xxxxx Xxxxxx
Xxxxxx Xxxxxx
Xxx Xxxxxxxx
Xxxxx Xxxxxxx
1
Target Disclosure Schedule
--------------------------
[attached]
2
Buyer Disclosure Schedule
------------------------
[attached]
3
Exhibit A-1
-----------
Articles of Merger
(Utah)
[attached]
4
Exhibit A-2
-----------
CERTIFICATE OF MERGER
(California)
[attached]
5
Exhibit B
---------
Reserve Escrow Agreement
[attached]
6
Exhibit C
---------
Employment Agreement with Xxxxx Xxxxxx
[attached]
7
Exhibit D
---------
Employment Agreement with Xxxx Xx Xxxxxx
[attached]
8
Exhibit E
---------
Employment Agreement with Xxxxxx Xxxxxx
[attached]
9
Exhibit F
---------
Employment Agreement with Xxxx Xxxxxx
[attached]
10
Exhibit G
---------
Noncompetition Agreement with Xxxxx Xxxxxx
[attached]
11
Exhibit H
---------
Noncompetition Agreement with Xxxx Xx Xxxxxx
[attached]
12
Exhibit I
---------
Noncompetition Agreement with Xxxxxx Xxxxxx
[attached]
13
Exhibit J
---------
Noncompetition Agreement with Xxxx Xxxxxx
[attached]
14
Exhibit K
---------
LEASE Agreement
[attached]
15
Exhibit L
---------
Tax Certificate
[attached]
16
Exhibit M
----------
Joinder Agreement
[attached]
17
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