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AGREEMENT AND PLAN OF MERGER
BY AND AMONG
STOCK MARKET SOLUTIONS, INC.,
TP ACQUISITION CORP.
AND
TEXAS PROTOTYPES, INC.
June 13, 2005
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TABLE OF CONTENTS
Page
ARTICLE I CERTAIN DEFINITIONS..................................................1
ARTICLE II THE TRANSACTION.....................................................4
2.1 The Merger........................................................4
2.2 Consideration.....................................................4
2.3 The Closing.......................................................5
2.4 Actions at the Closing; Name Change...............................5
2.5 Effect on Capital Stock...........................................6
2.6 Dividends; Liquidation Preferences; and Other Distributions.......6
2.7 Certificate Legends...............................................6
2.8 Articles of Incorporation.........................................7
2.9 Bylaws............................................................7
2.10 Directors and Officers...........................................7
2.11 Closing of Transfer Books........................................7
2.12 Tax and Accounting Consequences..................................7
2.13 Additional Action................................................7
2.14 Taking of Necessary Action; Further Action.......................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................8
3.1 Organization, Qualification and Corporate Power...................8
3.2 Capitalization....................................................8
3.3 Authorization of Transaction......................................9
3.4 Noncontravention..................................................9
3.5 Subsidiaries.....................................................10
3.6 Financial Statements.............................................10
3.7 Absence of Certain Changes.......................................10
3.8 Undisclosed Liabilities..........................................10
3.9 Tax Matters......................................................10
3.10 Assets..........................................................11
3.11 Owned Real Property.............................................11
ii
TABLE OF CONTENTS
(continued)
Page
3.12 Intellectual Property...........................................11
3.13 Real Property Leases............................................12
3.14 Contracts.......................................................12
3.15 Insurance.......................................................14
3.16 Litigation......................................................15
3.17 Legal Compliance; Restrictions on Business Activities...........15
3.18 Employees.......................................................15
3.19 Employee Benefits...............................................16
3.20 Permits.........................................................17
3.21 Brokers' Fees...................................................18
3.22 Books and Records...............................................18
3.23 Banking Relationships and Investments...........................18
3.24 Company Action..................................................18
3.25 Disclosure......................................................18
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE BUYER AND THE MERGER SUB.....19
4.1 Organization.....................................................19
4.2 Capitalization...................................................19
4.3 Authorization of Transaction.....................................20
4.4 Noncontravention.................................................20
4.5 Reports and Financial Statements.................................21
4.6 Undisclosed Liabilities..........................................21
4.7 Litigation.......................................................21
4.8 Legal Compliance; Restrictions on Business Activities............21
4.9 Merger Shares....................................................22
4.10 Business of the Merger Sub......................................22
4.11 Company Action..................................................22
4.12 Absence of Certain Changes......................................22
4.13 Brokers' Fees...................................................23
4.14 Qualification as a Reorganization...............................23
4.15 Disclosure......................................................23
iii
TABLE OF CONTENTS
(continued)
Page
4.16 Absence of Plans................................................23
4.17 Tax Matters.....................................................24
4.18 Assets..........................................................24
4.19 Owned Real Property.............................................25
4.20 Intellectual Property...........................................25
4.21 Permits.........................................................25
4.22 Access to Information...........................................26
4.23 Books and Records...............................................26
ARTICLE V COVENANTS...........................................................26
5.1 Best Efforts.....................................................26
5.2 Securities Laws..................................................26
5.3 Reorganization...................................................27
5.4 Reasonable Commercial Efforts and Further Assurances.............27
5.5 Reverse Stock Split of Target....................................27
5.6 Option to Sell Livermore Business................................28
5.7 Conversion of Certain Target Debt................................28
ARTICLE VI CONDITIONS TO CONSUMMATION OF MERGER...............................28
6.1 Conditions to Each Party's Obligations...........................28
6.2 Conditions to Obligations of the Target and the Merger Sub.......28
6.3 Conditions to Obligations of the Company.........................29
6.4 Certain Waivers..................................................30
ARTICLE VII TERMINATION; INDEMNIFICATION......................................30
7.1 Termination of Agreement.........................................30
7.2 Effect of Termination............................................31
7.3 Amendment........................................................31
7.4 Extension, Waiver................................................31
7.5 Survival of Representations and Warranties.......................32
7.6 Indemnification of Target........................................32
7.7 Indemnification of Company.......................................32
7.8 General Notice and Procedural Requirements for Indemnity Claims..33
7.9 Notice and Procedural Requirements for Third Party Claims........33
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TABLE OF CONTENTS
(continued)
Page
7.10 Notice and Procedural Requirements for Direct Claims............34
7.11 Maximum Liability...............................................35
ARTICLE VIII MISCELLANEOUS....................................................35
8.1 No Third Party Beneficiaries.....................................35
8.2 Entire Agreement.................................................35
8.3 Succession and Assignment........................................35
8.4 Public Announcement..............................................35
8.5 Confidentiality..................................................36
8.6 Counterparts, Facsimile Signatures...............................36
8.7 Headings.........................................................36
8.8 Notices..........................................................36
8.10 Severability....................................................37
8.11 Expenses; Attorney's Fees.......................................38
8.12 Disclosure Letters..............................................38
8.13 Construction....................................................38
8.14 Incorporation of Exhibits and Schedules.........................39
v
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") entered into as of
June 13, 2005, by and among STOCK MARKET SOLUTIONS, INC., a Nevada corporation
(the "Target"), TP ACQUISITION CORP., a Texas corporation and a wholly-owned
subsidiary of the Target (the "Merger Sub"), and TEXAS PROTOTYPES, INC., a Texas
corporation (the "Company"). The Target, the Merger Sub and the Company each,
individually, a "Party" or, collectively, the "Parties."
RECITALS
WHEREAS, this Agreement contemplates a merger of the Merger Sub with and
into the Company (the "Merger") in a transaction that is intended to qualify,
for federal income tax purposes, as a reverse triangular merger under Section
368(a)(2)(E) of the Code (as defined below), in which the stockholders of the
Company will receive capital stock of the Target in exchange for their shares of
capital stock of the Company.
NOW, THEREFORE, in consideration of the foregoing and the representations,
warranties, agreements and covenants herein contained, and for good and other
valuable consideration, the receipt and legal sufficiency of which are hereby
acknowledged, the Parties hereto hereby agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
The following terms undefined in the text of this Agreement shall have the
following meanings:
"Business Day" shall mean any day, other than a Saturday, Sunday or a day
on which banks located in Washington, D.C. shall be authorized or required by
law to close.
"Closing Documents" shall mean documents, certificates or other
instruments delivered or to be delivered by or on behalf of the Company at the
Closing pursuant to Article VI, the Schedules and Exhibits of this Agreement.
"Code" shall mean United States Internal Revenue Code of 1986, as amended.
"Company Shares" shall mean all of the issued and outstanding shares of
capital stock of the Company, consisting of 221,054,400 shares of common stock,
par value $0.001 per share.
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"Employee Benefit Plan" shall mean any "employee pension benefit plan" (as
defined in Section 3(2) of the Employee Retirement Income Security Act of 1974,
as amended), any "employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or arrangement involving
direct or indirect compensation, including, without limitation, insurance
coverage, severance benefits, disability benefits, deferred compensation,
bonuses, options, or other forms of incentive compensation or post-retirement
compensation.
"ERISA Affiliate" shall mean any entity which is a member of (i) a
controlled group of corporations (as defined in Section 414(b) of the Code),
(ii) a group of trades or businesses under common control (as defined in Section
414(c) of the Code), or (iii) an affiliated service group (as defined under
Section 414(m) of the Code or the regulations under Section 414(o) of the Code),
any of which includes the Company.
"GAAP" shall mean Generally Accepted Accounting Principles.
"Governmental Entity" shall mean any court, arbitration tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency.
"including", "include", "includes", shall be construed as if followed by
the phrase "without limitation".
"Intellectual Property" shall mean all intellectual property that the
Company owns or uses in the conduct of its business, as it is currently
conducted, including, but not limited to, (i) all United States and foreign
patents (both issued and applied for) listed on the Company Disclosure Letter,
(ii) all trademarks, trade names, service marks, copyrights, and all
applications for such trademarks, trade names, service marks and copyrights, and
all patent rights in each case listed on the Company Disclosure Letter, and
(iii) all trade secrets, schematics, technology, know-how, computer software
programs or applications and tangible or intangible proprietary information or
material, and all third-party issued United States and foreign patents, patent
rights and patent applications (excluding packaged commercially available
licensed software programs sold to the public).
"knowledge" shall mean, (a) when made with reference to the Company, the
actual knowledge of the executive officers of the Company, and (b) when made
with reference to the Target, the actual knowledge of the executive officers of
the Target.
"Livermore Business" shall mean the business and related software as well
as the book rights of the Target consisting of a teaching and a computer
training program designed to provide educational/instructional assistance and
aid to those stock market traders who wish to learn how to trade in the stock
market using a system previously developed by an early 20th century stock market
trader, Xxxxx Xxxxxxxxx.
"Material Adverse Effect" when used in connection with an entity means any
change, event, circumstance or effect whether or not such change, event,
circumstance or effect is caused by or arises in connection with a breach of a
representation, warranty, covenant or agreement of such entity in this Agreement
that is or is reasonably likely to be materially adverse to the business, assets
(including intangible assets), capitalization, financial condition, operations
or results of operations, employees, or prospects of such entity taken as a
whole with its subsidiaries, except to the extent that any such change, event,
circumstance or effect results from (i) changes in general economic conditions,
(ii) changes affecting the industry generally in which such entity operates
(provided that such changes do not affect such entity in a substantially
disproportionate manner), or (iii) changes in the trading prices for such
entity's capital stock.
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"Merger Shares" shall mean 90,000,000 shares of common stock, par value
$0.001 per share, that shall equal no less than 94.7% of the Target's issued and
outstanding shares of capital stock after taking into effect a one-for-ten
reverse stock split by the Target at or prior to the Closing, which will require
Target to file and clear a Schedule 14A or Schedule 14C with the Securities and
Exchange Commission, wait 20 days prior to mailing, solicit the required
majority vote of its stockholders, secure a new CUSIP number and make or have
made the appropriate filings with the State of Nevada and the NASD (the "Reverse
Stock Split").
"Merger Sub Common Stock" shall mean the common stock, par value $0.001
per share, of the Merger Sub.
"Permits" shall mean all permits, licenses, registrations, certificates,
orders or approvals received from any Governmental Entity (including, without
limitation, those issued or required under applicable export laws or
regulations).
"Person" or "person" shall mean any individual, partnership, joint
venture, corporation, limited liability company, limited liability partnership,
trust or incorporated organization.
"Security Interest" shall mean any mortgage, pledge, security interest,
encumbrance, charge, or other lien (whether arising by contract or by operation
of law), other than (i) mechanic's, materialmen's, and similar liens, (ii) liens
arising under worker's compensation, unemployment insurance, social security,
retirement, and similar legislation, (iii) liens on goods in transit incurred
pursuant to documentary letters of credit, in each case arising in the ordinary
course of business of the Company and not material to the Company, and (iv)
liens for current Taxes that are being contested in good faith.
"Target Stock" shall mean common stock, par value $0.001 per share, of the
Target. It is understood and agreed that the Merger Shares issued in connection
with the transactions contemplated by this Agreement shall be shares of common
stock of the Target that have not been registered under the Securities Act.
"Taxes" shall mean all taxes, charges, fees, levies or other similar
assessments or liabilities, including, without limitation, income, gross
receipts, ad valorem, premium, value-added, excise, real property, personal
property, sales, use, transfer, withholding, employment, payroll and franchise
taxes imposed by the United States of America or any state, local or foreign
government, or any agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines, penalties, assessments
or additions to tax resulting from, attributable to or incurred in connection
with any tax or any contest or dispute thereof and any amounts of Taxes of
another person that the Company or any subsidiary thereof is liable to pay by
law or otherwise.
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"Tax Returns" means all reports, returns, declarations, statements or
other information supplied or required to be supplied to a taxing authority in
connection with Taxes including, without limitation, any schedules, attachments
or amendments thereto.
"Third Party Intellectual Property Rights" shall mean all material written
licenses, sublicenses and other agreements as to which the Company is a party
and pursuant to which the Company is authorized to use any third party patents,
patent rights, trademarks, service marks, trade secrets or copyrights, including
software which is used in the business of the Company or which form a part of
any existing product or service of the Company, excluding commercially available
licensed software programs sold to the public.
"Transaction" shall mean: (i) the acquisition of all or substantially all
of the assets of a company; (ii) the acquisition of more than 50% of the
outstanding capital stock of a company; or (iii) any merger, consolidation,
business combination, joint venture, tender offer, share exchange, or similar
transaction, if immediately after such transaction contemplated in this
subsection (iii) either (A) Target, or any of its subsidiaries controls the
Board of Directors, or (B) Target, or any of its subsidiaries holds a majority
of the voting capital stock of the company immediately after such transaction.
ARTICLE II
THE TRANSACTION
2.1 The Merger.
Upon and subject to the terms and conditions of this Agreement, Merger Sub
shall merge with and into the Company (such merger is referred to herein as the
"Merger") at the Effective Time. From and after the Effective Time, the separate
corporate existence of the Merger Sub shall cease and the Company shall continue
as the surviving corporation in the Merger (the "Surviving Corporation"). The
Surviving Corporation shall be operated as a wholly-owned subsidiary of the
Target. The "Effective Time" shall be the time at which the Articles of Merger
of the Company and the Merger Sub (the "Articles of Merger"), prepared and
executed in accordance with the relevant provisions of the Texas Business
Corporation Act (the "Texas Act"), is filed with and accepted by the Secretary
of State of the State of Texas. The Merger shall have the effects specified in
this Agreement, the Articles of Merger and the applicable provisions of the
Texas Act. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all of the property, rights, privileges, powers
and franchises of the Company and the Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of the Company and the Merger
Sub shall become the debts, liabilities and duties of the Surviving Corporation.
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2.2 Consideration.
(a) Within ten (10) days after the Closing Date, the Target and the Merger
Sub shall deliver to the stockholders of the Company in connection with the
Merger and in consideration for the Company Shares, stock certificates
representing the Merger Shares issued in the names of such stockholders, in the
amounts set forth in Schedule I.
(b) If any of the Merger Shares are to be issued in the name of a person
other than a stockholder of record of the Company, it shall be a condition to
the issuance of such Merger Shares that (A) the request shall be in writing and
properly documented (e.g., assigned, endorsed or accompanied by appropriate
stock powers), (B) such transfer shall otherwise be proper and in accordance
with all applicable federal and state laws, rules, regulations or orders, and
(C) the person requesting such transfer shall pay to the Target any transfer or
other taxes payable by reason of the foregoing or establish to the satisfaction
of the Target that such taxes have been paid or are not required to be paid.
Notwithstanding the foregoing, none of the Target, the Merger Sub or any of
their affiliates, subsidiaries, directors, officers, agents and employees shall
be liable to a stockholder for any Merger Shares issuable to such stockholder
pursuant to this Section 2.2(b) that are delivered to a public official pursuant
to applicable abandoned property, escheat or similar laws.
(c) In the event any stock certificate representing any Company Shares
shall have been lost, stolen or destroyed, the Board of Directors of the Target
may, in its sole discretion and as condition precedent to the issuance of the
Merger Shares issuable in exchange therefor pursuant to this Agreement, require
the owner of such lost, stolen or destroyed stock certificate to submit to the
Target an affidavit stating that such stock certificate was lost, stolen or
destroyed and to give the Target an indemnity in customary form against any
claim that may be made against the Target with respect to the stock certificate
alleged to have been lost, stolen or destroyed.
2.3 The Closing.
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the Washington, DC offices of Xxxxxx Xxxxxx LLP,
on or before August 1, 2005 or, if all of the conditions to the obligations of
the Parties to consummate the transactions contemplated hereby have not been
satisfied or waived by such date, on the third Business Day after the
satisfaction or waiver of all conditions to the obligations of the Parties to
consummate the transactions contemplated hereby (other than those conditions
which by their terms can only be satisfied on the date of the Closing) (the
"Closing Date"). If the Closing is consummated, the Target, the Merger Sub and
the Company will be deemed to have waived any of the conditions set forth in
Article VI to the extent not satisfied at or prior to the Closing.
2.4 Actions at the Closing; Name Change.
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(a) The Company shall deliver the following to the Target: (i)
certificates representing the Company Shares, accompanied by stock powers duly
executed in blank or duly executed instruments of transfer and any other
documents that are necessary to transfer to the Target good and valid title to
the Company Shares free and clear of all liens; and (ii) the various
certificates, instruments and documents referred to in Section 6.2 to be
delivered by the Company, provided, however, that at the time that the Target
files Schedule 14C to effect the Reverse Stock Split, the Target shall amend its
Articles of Incorporation to change its name to Texas Prototypes, Inc. or, if
such name is not available, to TXP Corp. or such other name that is available
and that the Company desires.
(b) The Target shall deliver the following to the Company: (i) the Merger
Shares in accordance with Section 2.2; and (ii) the various certificates,
instruments and documents referred to in Sections 6.1 and 6.3 to be delivered by
the Target or the Merger Sub.
2.5 Effect on Capital Stock.
(a) At the Effective Time, the Company Shares shall, by virtue of the
Merger and without any action on the part of any Party or the holder thereof,
automatically be canceled and extinguished and converted into the right to
receive Merger Shares.
(b) At the Effective Time, each share of the Merger Sub Common Stock
issued and outstanding immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued, fully paid and
nonassessable share of common stock, par value $0.001 per share, of the
Surviving Corporation.
(c) Notwithstanding the foregoing, no fractional shares of Target Stock
shall be issued as part of the Merger Shares. All shares of Target Stock issued
to the holders of the Company Shares at the Effective Time pursuant to this
Section 2.5 shall be rounded up to the next whole number.
2.6 Dividends; Liquidation Preferences; and Other Distributions.
No dividends or other distributions that are, or may be, payable to the
holders of record of Company Shares as of a date on or after the Closing Date
shall be paid to any such holder by reason of the Merger.
2.7 Certificate Legends.
The Merger Shares to be issued pursuant to this Article II shall not have
been registered and shall be characterized as "restricted securities" under the
federal securities laws, and under such laws such shares may be resold without
registration under the Securities Act only in certain limited circumstances.
Each certificate evidencing Merger Shares to be issued pursuant to this Article
II shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SHARES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF
SUCH REGISTRATION WITHOUT AN EXEMPTION UNDER THE SECURITIES ACT OR AN
OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO STOCK MARKET SOLUTIONS,
INC. THAT SUCH REGISTRATION IS NOT REQUIRED.
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2.8 Articles of Incorporation.
At the Effective Time, the Articles of Incorporation of the Company, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation until hereafter amended as provided
by the Texas Act.
2.9 Bylaws.
The Bylaws of the Surviving Corporation shall be the same as the Bylaws of
the Company immediately prior to the Effective Time.
2.10 Directors and Officers.
The directors of the Company shall become the directors of the Surviving
Corporation immediately after the Effective Time. The officers of the Company
shall become the officers of the Surviving Corporation immediately after the
Effective Time, retaining their respective positions. In addition, the officers
and directors of the Company shall be appointed as officers and directors of the
Target immediately after the Effective Time and shall hold office until such
time as their successors are elected and seated.
2.11 Closing of Transfer Books.
Upon execution of this Agreement, the stock transfer books of the Company
shall be closed and no transfer of Company Shares shall thereafter be made
except as may be required by this Agreement.
2.12 Tax and Accounting Consequences.
It is intended by the parties hereto that the Merger shall constitute a
reverse triangular merger reorganization within the meaning of Section
368(a)(2)(E) of the Code.
2.13 Additional Action.
The Surviving Corporation may, at any time after the Effective Time, take
any action, including executing and delivering any document, in the name and on
behalf of the Company, necessary to consummate the Merger and confirm the
effectiveness of the Merger, so long as such action is not inconsistent with
this Agreement.
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2.14 Taking of Necessary Action; Further Action.
If, at any time after the Effective Time, any further action is necessary
or desirable to carry out the purposes of this Agreement and to vest the
Surviving Corporation with full right, title and possession to all assets,
property, rights, privileges, powers and franchises of the Company and the
Merger Sub, the officers and directors of the Company and the Merger Sub are
fully authorized in the name of their respective corporations or otherwise to
take, and will take, all such lawful and necessary action, so long as such
action is not inconsistent with this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the Company Disclosure Letter attached to this
Agreement (the "Company Disclosure Letter"), the Company hereby represents and
warrants to the Target and the Merger Sub as follows:
3.1 Organization, Qualification and Corporate Power.
The Company is a corporation duly organized, validly existing and in
corporate good standing under the laws of the State of Texas. The Company is
duly qualified to conduct business and is in corporate good standing under the
laws of each jurisdiction in which the nature of its businesses or the ownership
or leasing of its properties requires such qualification, except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect on the Company. The Company has the corporate power and authority to
carry on the businesses in which it is engaged and to own and use the properties
owned and used by it. The Company has furnished or made available to the Target
true and complete copies of its Articles of Incorporation and Bylaws, each as
amended and as in effect on the date hereof (hereinafter the "Company Charter"
and "Bylaws", respectively). The Company is not in default under or in violation
of any provision of the Company Charter or Bylaws.
3.2 Capitalization.
The authorized capital stock of the Company consists of 500,000,000 shares
of capital stock, all of which are designated as Common Stock, $0.001 par value
per share, and of which 221,054,400 shares are issued and outstanding. Section
3.2 of the Company Disclosure Letter sets forth a complete and accurate list of
all stockholders of the Company, indicating the number of Company shares held by
each stockholder and their respective addresses. All issued and outstanding
shares of the Company stock have been duly authorized and validly issued, and
are fully paid and nonassessable. All of the outstanding shares of common stock
and other outstanding securities of the Company have been duly and validly
issued in compliance with federal and state securities laws. There are no
outstanding or authorized subscriptions, options, warrants, plans or, except for
this Agreement and as contemplated by this Agreement, other agreements or rights
of any kind to purchase or otherwise receive or be issued, or securities or
obligations of any kind convertible into, any shares of capital stock or other
securities of the Company, and there are no dividends which have accrued or been
declared but are unpaid on the capital stock of the Company. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. All of the issued and outstanding shares of the
Company's capital stock are free and clear of any liens, pledges, encumbrances,
charges, agreements adversely effecting title to such shares or claims (other
than those created by virtue of this Agreement or by the Target), and the
certificates evidencing the ownership of such shares are in proper form for the
enforcement of the rights and limitations of rights pertaining to said shares
which are set forth in the Company Charter and Bylaws.
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3.3 Authorization of Transaction.
Subject to the Company Stockholder Approval (as defined below) of the
Merger and this Agreement, the Company has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution and delivery of this Agreement and, subject to the adoption of this
Agreement and the approval of the Merger by two-thirds of the votes represented
by the outstanding Company Shares entitled to vote on this Agreement and the
Merger, voting in accordance with the corporate laws of the State of Texas and
the Company Charter (the "Company Stockholder Approval"), the performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of the Company. This Agreement has been
duly and validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the Target and the Merger Sub,
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms, except as enforcement may be limited
by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally, and
except that the availability of equitable remedies, including specific
performance, is subject to the discretion of the court before which any
proceeding therefor may be brought.
3.4 Noncontravention.
Subject to receipt of the Requisite Stockholders Approval, compliance with
the applicable requirements of the Securities Act and any applicable state
securities laws and the filing of the Articles of Merger as required by the
State of Texas, neither the execution and delivery of this Agreement by the
Company, nor the consummation by the Company of the transactions contemplated
hereby, will: (a) conflict with or violate any provision of the Company Charter
or the Bylaws; (b) require on the part of the Company any filing with, or any
permit, authorization, consent or approval of, any Governmental Entity, other
than (i) those required solely by reason of the Target's or the Merger Sub's
participation in the transactions contemplated hereby, (ii) those required to be
made by the Target or the Merger Sub, and (iii) any filing, permit,
authorization, consent or approval which if not made or obtained would not have
a Material Adverse Effect on the Company; (c) conflict with, result in a breach
of, constitute (with or without due notice or lapse of time or both) a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify or cancel, or require any notice, consent or
waiver under, any contract listed in Section 3.4 of the Company Disclosure
Letter, except for any conflict, breach, default, acceleration, right to
accelerate, termination, modification, cancellation, notice, consent or waiver
that would not reasonably be expected to have a Material Adverse Effect on the
Company; (d) result in the imposition of any Security Interest upon any assets
of the Company; or (e) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to the Company, any of its properties or assets,
other than such conflicts, violations, defaults, breaches, cancellations or
accelerations referred to in clauses (a) through (e) (inclusive) hereof which
would not have a Material Adverse Effect on the Company.
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3.5 Subsidiaries.
The Company does not have any direct or indirect subsidiaries or any
equity interest in any other firm, corporation, membership, joint venture,
association or other business organization.
3.6 Financial Statements.
Attached as Exhibit A is the unaudited balance sheet as of March 31, 2005
(the "Balance Sheet Date") and unaudited balance sheet, income statement and
statement of cash flows for the year ended December 31, 2004. Such financial
statements (collectively, the "Financial Statements") have been prepared in
accordance with GAAP applied on a consistent basis throughout the periods
covered thereby, fairly and accurately present the financial condition, results
of operations and cash flows of the Company as of the respective dates thereof
and for the periods referred to therein and are consistent with the books and
records of the Company; provided, however, that the Financial Statements
referred to above are subject to normal recurring year-end adjustments (which
will not in the aggregate be material) and do not include footnotes.
3.7 Absence of Certain Changes.
Since the Balance Sheet Date, the Company has conducted its business as
ordinarily conducted consistent with past practice and there has not occurred
any change, event or condition (whether or not covered by insurance) that has
resulted in, or would reasonably be expected to result in any Material Adverse
Effect on the Company.
3.8 Undisclosed Liabilities.
The Company has no liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities accrued, reflected, reserved against on the
Financial Statements, (b) liabilities which have arisen since the Balance Sheet
Date, in the ordinary course of business, (c) contractual or statutory
liabilities incurred in the ordinary course of business, and (d) liabilities
which would not have a Material Adverse Effect on the Company.
-10-
3.9 Tax Matters.
The Company has timely (taking into account extensions of time to file)
filed all Tax Returns that it was required to file and all such Tax Returns were
correct and complete in all material respects. All Taxes that the Company is or
was required by law to withhold or collect have been duly withheld or collected
and, to the extent required, have been paid to the proper Governmental Entity or
deposited in accordance with the law.
3.10 Assets.
The Company has good and marketable title to or, in the case of leased
assets, a valid leasehold interest in, all tangible assets necessary for the
conduct of its businesses as presently conducted. No asset of the Company
(tangible or intangible) is subject to any Security Interest. All machinery and
equipment is in good condition and repair, normal wear and tear excepted. All
leases of personal property to which the Company is a party are fully effective
and afford the Company peaceful and undisturbed possession of the subject matter
of the lease. The Company is not in violation of any zoning, building, safety or
environmental ordinance, regulation or requirement or other law or rule
applicable to the operation of the owned or leased assets (the violation of
which would have a Material Adverse Effect on its business), nor has the Company
received any written notice of violation with which it has not complied.
3.11 Owned Real Property.
The Company does not own any real property.
3.12 Intellectual Property.
Section 3.12 of the Company Disclosure Letter is a true and complete list
of (i) all Intellectual Property presently owned or held by the Company and (ii)
any license agreements under which Company has access to any confidential
information used by the Company in its business (such licenses and agreements,
collectively, the "Intellectual Property Rights") necessary for the conduct of
the Company's business as conducted and as currently proposed to be conducted by
the Company. The Company owns, or has the right to use, free and clear of all
Security Interests, all of the Intellectual Property and the Intellectual
Property Rights. There are no outstanding options, licenses or agreements of any
kind relating to the Intellectual Property and the Intellectual Property Rights,
nor is the Company bound by or a party to any options, licenses or agreements of
any kind with respect to any of the Intellectual Property, the Intellectual
Property Rights and the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
The Company has not received any communications alleging that the Company has
violated or, by conducting its business as conducted and as currently proposed
to be conducted by the Company, violates any Third Party Intellectual Property
Rights and to the Company's knowledge, the business as conducted and as
currently proposed to be conducted by the Company will not cause the Company to
infringe or violate any Third Party Intellectual Property Rights. There is no
defect in the title to any of the Intellectual Property or, to the extent that
the Company has title to Intellectual Property Rights to any Intellectual
Property Rights. To the Company's knowledge, no officer, employee or director is
obligated under any contract (including any license, covenant or commitment of
any nature) or other agreement, or subject to any judgment, decree or order of
any court or administrative agency, that would conflict or interfere with the
performance of such person's duties as an officer, employee or director of the
Company, the use of such person's best efforts to promote the interests of the
Company or the Company's business as conducted or as currently proposed to be
conducted by the Company. No prior employer of any current or former employee of
the Company has any right, title or interest in the Intellectual Property and to
the Company's knowledge, no person or entity has any right, title or interest in
any Intellectual Property. It is not and will not be with respect to the
business as currently proposed to be conducted necessary for the Company to use
any inventions of any of its employees made prior to their employment by the
Company.
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3.13 Real Property Leases.
Section 3.13 of the Company Disclosure Letter lists all real property
leased or subleased to the Company. The Company has delivered or made available
to the Target correct and complete copies of the leases and subleases (as
amended to date) listed in Section 3.13 of the Company Disclosure Letter. With
respect to each lease and sublease listed in Section 3.13 of the Company
Disclosure Letter:
(a) the lease or sublease is legal, valid, binding, enforceable and in
full force and effect with respect to the Company and, to the Company's
knowledge, is legal, valid, binding, enforceable and in full force and effect
with respect to each other party thereto, and will continue to be so following
the Closing in accordance with the terms thereof as in effect prior to the
Closing (in each case except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws affecting the enforcement of creditor's rights generally, and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought);
(b) the Company is not in breach or default under any such lease or
sublease and, to the Company's knowledge, no other party to the lease or
sublease is in breach or default, and, no event has occurred which, with notice
or lapse of time, would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(c) there are no oral agreements or forbearance programs in effect as to
the lease or sublease;
(d) the Company has not received any written notice of any dispute with
regards to any lease or sublease; and
(e) the Company has not assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the leasehold or subleasehold.
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3.14 Contracts.
Section 3.14 of the Company Disclosure Letter lists the following written
arrangements (including, without limitation, written agreements) to which the
Company is a party:
(a) any written arrangement (or group of related written arrangements) for
the lease of personal property from or to third parties providing for lease
payments in excess of $50,000 per annum including such lease arrangements with
purchase commitments or similar obligations known to the Company other than
those listed pursuant to Section 3.14 in excess of $50,000;
(b) any written arrangement (or group other than Reseller Agreements) of
related written arrangements) for the licensing or distribution of software,
products or other personal property or for the furnishing or receipt of
services, (i) which involves more than the sum of $50,000 per annum, (ii) in
which the Company has granted rights to license, sublicense or copy, "most
favored nation" pricing provisions or exclusive marketing or distribution rights
relating to any products or territory or has agreed to purchase a minimum
quantity of goods or services or has agreed to purchase goods or services
exclusively from a certain party, and (iii) which calls for performance by the
Company that as of the date hereof has not been fully completed;
(c) any written arrangement establishing a partnership or joint venture;
(d) any written arrangement (or group of related written arrangements)
under which it has created, incurred, assumed or guaranteed (or may create,
incur, assume or guarantee) indebtedness (including capitalized lease
obligations) involving more than $50,000 or under which it has imposed (or may
impose) a Security Interest on any of its assets, tangible or intangible;
(e) a list of all parties to any written arrangement concerning
confidentiality, non-disclosure or noncompetition;
(f) any written arrangement involving any of the stockholders of the
Company or their affiliates, as defined in Rule 12b-2 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") ("Affiliates");
(g) any written arrangement under which the consequences of a default or
termination could have a Material Adverse Effect on the Company;
(h) any other written arrangement (or group of related written
arrangements) either (i) involving (A) more than $50,000 and (B) performance by
the Company that as of the date hereof has not been fully completed, or (ii) not
entered into in the ordinary course of business;
(i) any written arrangement under which the Company provides maintenance
or support services to any third party with regard to the Company's products and
any written arrangement containing a commitment by the Company to provide
support for any such products for more than one year from the date of this
Agreement involving, in each case, more than $50,000 (other than arrangements
which by their terms permit the customer to extend such services after the
expiration of the initial one year term or Reseller Agreements);
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(j) any written arrangement by which the Company has agreed to make
available any consulting, enablement consulting, or education services (i)
having a value in excess of $50,000 and (ii) providing for performance by the
Company that as of the date hereof has not been fully completed; and
(k) any other material contract or agreement as such terms are defined in
Regulation S-K promulgated under the Securities Act, to which the Company is a
party.
The Company has delivered to or made available to the Target a correct and
complete copy of each written arrangement. With respect to each such written
arrangement so listed: (i) the written arrangement is legal, valid, binding and
enforceable and in full force and effect with respect to the Company and, to the
Company's knowledge, the written arrangement is legal, valid, binding and is
enforceable and in full force and effect with respect to each other party
thereto (in each case except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws affecting the enforcement of creditor's rights generally, and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor may
be brought); (ii) the written arrangement will continue to be legal, valid,
binding and enforceable and in full force and effect against the Company, and to
the Company's knowledge against each other party thereto, immediately following
the Closing in accordance with the terms thereof (in each case except as
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement of
creditor's rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought) as in effect prior to
the Closing; and (iii) the Company is not in breach or default, and, to the
Company's knowledge, no other party thereto is in breach or default, and no
event has occurred which with notice or lapse of time would constitute a breach
or default or permit termination, modification, or acceleration, under the
written arrangement; except, in each case, for breaches, defaults and events
that would not have a Material Adverse Effect on the Company. The Company is not
a party to any oral contract, agreement or other arrangement which, if reduced
to written form, would be required to be listed in Section 3.14 of the Company
Disclosure Letter under the terms of this Section 3.14.
3.15 Insurance.
Section 3.15 of the Company Disclosure Letter lists each insurance policy
(including fire, theft, casualty, general liability, director and officer,
workers compensation, business interruption, environmental, product liability
and automobile insurance policies and bond and surety arrangements) to which the
Company is a party, a named insured, or otherwise the beneficiary of coverage at
any time within the past year. Section 3.15 of the Company Disclosure Letter
lists each person or entity required to be listed as an additional insured under
each such policy. Each such policy is in full force and effect and by its terms
and with the payment of the requisite premiums thereon will continue to be in
full force and effect following the Closing.
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The Company is not in breach or default, and does not anticipate being in
breach or default after Closing (including with respect to the payment of
premiums or the giving of notices) under any such policy, and no event has
occurred which, with notice or the lapse of time, would constitute such a breach
or default or permit termination, modification or acceleration, under such
policy; except for any breach, default, event, termination, modification or
acceleration that would not have a Material Adverse Effect on the Company; and
the Company has not received any written notice or to the Company's knowledge,
oral notice, from the insurer disclaiming coverage or reserving rights with
respect to a particular claim or such policy in general. The Company has not
incurred any material loss, damage, expense or liability covered by any such
insurance policy for which it has not properly asserted a claim under such
policy.
3.16 Litigation.
(a) There are no: (i) unsatisfied judgments, orders, decrees, stipulations
or injunctions; or (ii) claims, complaints, actions, suits, proceedings or
hearings or, to the Company's knowledge, investigations in or before any
Governmental Entity or any arbitrator or to the Company's knowledge expected to
be before any Governmental Entity or any arbitrator; to which the Company, any
officer, director, employee or agent of the Company (in such person's capacity
as an officer, director, employee or agent of the Company and not personally) is
or was (for the two years prior to and including the date hereof) a party or, to
the knowledge of the Company, is threatened to be made a party.
(b) There are no material agreements or other documents or instruments
settling any claim, complaint, action, suit or other proceeding against the
Company.
3.17 Legal Compliance; Restrictions on Business Activities.
The Company and the conduct and operation of its business are in material
compliance with each law (including rules, regulations and requirements
thereunder) of any federal, state, local or foreign government or any
Governmental Entity which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Company or its
business, except where such non-compliance would not reasonably be expected to
have a Material Adverse Effect on the Company. There is no agreement, judgment,
injunction, order or decree binding upon the Company which has or would
reasonably be expected to have the effect of prohibiting or materially impairing
any current or future business practice of the Company, as currently
contemplated by the Company, and any acquisition of property of the Company or
the conduct of business by the Company as currently conducted or proposed to be
conducted.
3.18 Employees.
(a) To the Company's knowledge, no employee has any plans to terminate
employment with the Company within six months of the date hereof. The Company is
not a party to or bound by any collective bargaining agreement, nor has it
experienced any material strikes, grievances, claims of unfair labor practices
or other collective bargaining disputes. The Company has no knowledge of any
organizational effort made or threatened, either currently or within the past
two years, by or on behalf of any labor union with respect to employees of the
Company. The Company is in compliance in all material respects with all
currently applicable laws and regulations respecting wages, hours, occupational
safety, or health, fair employment practices, and discrimination in employment
terms and conditions, and is not engaged in any unfair labor practice except, in
each case, where such practice or failure to comply would not reasonably be
expected to have a Material Adverse Effect. There are no pending claims against
the Company under any workers compensation plan or policy or for long term
disability. There are no proceedings pending or, to the Company's knowledge,
threatened, between the Company and its employees, which proceedings have or
would reasonably be expected to have a Material Adverse Effect on the Company.
-15-
(b) Section 3.17 of the Company Disclosure Letter contains a list of
employees whose employment has been terminated by the Company in the ninety (90)
days prior to Closing; including the name, address, date and reason for such
termination.
3.19 Employee Benefits.
(a) Section 3.18(a) of the Company Disclosure Letter contains a complete
and accurate list of all Employee Benefit Plans maintained, or contributed to,
by the Company, or any ERISA Affiliate. Complete and accurate copies of (i) all
such Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all such unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R for the last three plan
years (or such shorter period with respect to which the Company or any ERISA
Affiliate has an obligation file Form 5500) for each Employee Benefit Plan, have
been delivered or made available to the Target. Each Employee Benefit Plan has
been administered in all material respects in accordance with its terms and each
of the Company, and the ERISA Affiliates has met its obligations in all material
respects with respect to such Employee Benefit Plan and has made all required
contributions thereto within the time frames as prescribed by ERISA and the
Code. The Company and all Employee Benefit Plans are in material compliance with
the currently applicable provisions of ERISA and the Code and the regulations
thereunder.
(b) To the Company's knowledge, there are no investigations by any
Governmental Entity, termination proceedings or other claims (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders), suits or
proceedings against or involving any Employee Benefit Plan or asserting any
rights or claims to benefits under any Employee Benefit Plan that could give
rise to any material liability.
(c) All the Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the Internal
Revenue Service to the effect that such Employee Benefit Plans are qualified and
the plans and the trusts related thereto are exempt from federal income taxes
under Sections 401(a) and 501(a), respectively, of the Code, or the remedial
amendment period for requesting such determination has not yet expired, no such
determination letter has been revoked and revocation has not been threatened,
and no such Employee Benefit Plan has been amended since the date of its most
recent determination letter or application therefor in any respect, and no act
or omission has occurred, that would adversely affect its qualification.
-16-
(d) Neither the Company nor any ERISA Affiliate has ever maintained an
Employee Benefit Plan subject to Section 412 of the Code or Title IV of ERISA.
(e) At no time has the Company or any ERISA Affiliate been obligated to
contribute to any "multi-employer plan" (as defined in Section 4001(a)(3) of
ERISA).
(f) There are no unfunded obligations under any Employee Benefit Plan
providing benefits after termination of employment to any employee of the
Company (or to any beneficiary of any such employee), including but not limited
to retiree health coverage and deferred compensation, but excluding continuation
of health coverage required to be continued under Section 4980B of the Code and
insurance conversion privileges under federal or state law.
(g) No act or omission has occurred and no condition exists with respect
to any Employee Benefit Plan maintained by the Company or any ERISA Affiliate
that would subject the Company or any ERISA Affiliate to any material fine,
penalty, tax or liability of any kind imposed under ERISA or the Code.
(h) No Employee Benefit Plan is funded by, associated with, or related to
a "voluntary employee's beneficiary association" within the meaning of Section
501(c)(9) of the Code.
(i) No Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(j) Section 3.18(j) of the Company Disclosure Letter discloses each: (i)
agreement with any director, executive officer or other key employee of the
Company (A) the benefits of which are contingent, or the terms of which are
altered, upon the occurrence of a transaction involving the Company of the
nature of any of the transactions contemplated by this Agreement, (B) providing
any term of employment or compensation guarantee, or (C) providing severance
benefits or other benefits after the termination of employment of such director,
executive officer or key employee; (ii) agreement, plan or arrangement under
which any person may receive payments from the Company that may be subject to
the tax imposed by Section 4999 of the Code or included in the determination of
such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Company, including, without limitation, any option
plan, stock appreciation right plan, restricted stock plan, stock purchase plan,
severance benefit plan, or any Employee Benefit Plan, any of the benefits of
which will be increased, or the vesting of the benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement.
-17-
3.20 Permits.
Section 3.20 of the Company Disclosure Letter sets forth a list of all
material Permits issued to or held by the Company. Such listed Permits are the
only Permits that are required for the Company to conduct its business as
presently conducted, except for those the absence of which would not have a
Material Adverse Effect on the Company. Each such Permit is in full force and
effect and to the Company's knowledge, no suspension or cancellation of such
Permit is threatened and there is no basis for believing that such Permit will
not be renewable upon expiration. Each such Permit will continue in full force
and effect following the Closing.
3.21 Brokers' Fees.
The Company has no liability or obligation to pay any fees or commissions
to any broker, investment banking firm, finder or agent with respect to the
transactions contemplated by this Agreement.
3.22 Books and Records.
The minute books and other similar records of the Company contain true and
complete records of all material actions taken at any meetings of the Board of
Directors or any committee thereof and of all written consents executed in lieu
of the holding of any such meetings.
3.23 Banking Relationships and Investments.
Section 3.22 of the Company Disclosure Letter sets forth an accurate,
correct and complete list of all banks and financial institutions in which the
Company has an account, deposit, safe-deposit box or borrowing relationship,
factoring arrangement or other loan facility or relationship, including the
names of all persons authorized to draw on those accounts or deposits, or to
borrow under loan facilities, or to obtain access to such boxes. The Company
Disclosure Letter sets forth an accurate, correct and complete list of all
certificates of deposit, debt or equity securities and other investments owned,
beneficially or of record, by the Company (the "Investments"). The Company has
good and legal title to all Investments.
3.24 Company Action.
The Board of Directors of the Company has (i) determined that the Merger
is fair and in the best interests of the Company and its stockholders, (ii)
adopted this Agreement in accordance with the provisions of the corporate laws
of the State of Texas, as applicable, and (iii) directed that this Agreement and
the Merger be submitted to the stockholders for their adoption and approval and
resolved to recommend that the stockholders vote in favor of the adoption of
this Agreement and the approval of the Merger.
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3.25 Disclosure.
No representation or warranty by the Company contained in this Agreement,
including any statement contained in the Company Disclosure Letter or any
Closing Document contains any untrue statement of a material fact or omits to
state any material fact necessary, in light of the circumstances under which it
was made, in order to make the statements herein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE MERGER SUB
Each of the Target and the Merger Sub, jointly and severally, represents
and warrants to the Company that, as of the date hereof, the statements
contained in this Article IV are true and correct, except as set forth in the
schedule provided by the Target and the Merger Sub to the Company and attached
hereto (the "Target Disclosure Letter"):
4.1 Organization.
Each of the Target and the Merger Sub is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation. Each of the Target and the Merger Sub is duly qualified to
conduct business and is in corporate good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect on the
Target or the Merger Sub. Each of the Target and the Merger Sub has the
corporate power and authority to carry on the business in which it is engaged
and to own and use the properties owned and used by it. The Target and the
Merger Sub have each furnished or made available to the Company true and
complete copies of its Certificates of Incorporation and Bylaws, each as amended
and as in effect on the date hereof. Neither the Target nor the Merger Sub is in
default under or in violation of any provision of its Articles of Incorporation,
or Bylaws, as amended.
4.2 Capitalization.
The authorized capital stock of the Target consists of 100,000,000 shares
of Target Stock, all of which are designated as Common Stock, $0.001 par value
per share, and of which 50,000,000 shares pre-reverse split are or will be
issued and outstanding at or prior to Closing. Section 4.2 of the Target
Disclosure Letter sets forth a complete and accurate list of all stockholders of
the Target, indicating the number of shares of Target Stock held by each
stockholder and their respective addresses. All of the issued and outstanding
shares of Target Stock are duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights. All of the outstanding shares
of Target Stock and other securities of the Target have been duly and validly
issued in compliance with federal and state securities laws. The authorized
capital stock of the Merger Sub consists of 100 shares of common stock, par
value $0.001 per share, all of which are issued and outstanding. All of the
issued and outstanding shares of capital stock of Merger Sub are duly authorized
and validly issued, and fully paid and nonassessable, and were issued in
compliance with all applicable laws. There are no outstanding or authorized
subscriptions, options, warrants, plans or, except for this Agreement and as
contemplated by this Agreement, other agreements or rights of any kind to
purchase or otherwise receive or be issued, or securities or obligations of any
kind convertible into, any shares of capital stock or other securities of the
Target or Merger Sub except the Cornell Convertible Debenture and the Standby
Equity Distribution Agreement between the Target and Cornell Capital under which
the Target and Merger Sub will not request an advance prior to Closing, and
there are no dividends which have accrued or been declared but are unpaid on the
capital stock of the Target or Merger Sub.
-19-
4.3 Authorization of Transaction.
Each of the Target and the Merger Sub has the corporate power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery of this Agreement and the performance of
this Agreement and the consummation of the transactions contemplated hereby by
the Target and the Merger Sub (including the Merger) have been duly and validly
authorized by all necessary corporate action on the part of the Target and the
Merger Sub (including the sole stockholder of Merger Sub). This Agreement has
been duly and validly executed and delivered by the Target and the Merger Sub
and, assuming the due authorization, execution and delivery by the Company,
constitutes a valid and binding obligation of the Target and the Merger Sub,
enforceable against them in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally, and except that the availability of
equitable remedies, including specific performance, is subject to the discretion
of the court before which any proceeding therefor may be brought.
4.4 Noncontravention.
Subject to compliance with the applicable requirements of the Securities
Act and any applicable state securities laws, the Exchange Act and the filing of
the Articles of Merger as required by the Texas Act, neither the execution and
delivery of this Agreement, nor the consummation by the Target or the Merger Sub
of the transactions contemplated hereby or thereby, will: (a) conflict with or
violate any provision of the Articles of Incorporation or Bylaws of the Target
or the Merger Sub; (b) require on the part of the Target or the Merger Sub any
filing with, or any permit, authorization, consent or approval of, any
Governmental Entity, other than those (i) required solely by reason of the
Company's participation in the transactions contemplated hereby or (ii) to be
made by the Company or (iii) any filing, permit, authorization, consent or
approval which, if not made or obtained, would not have a Material Adverse
Effect on the Target; (c) conflict with, result in breach of, constitute (with
or without due notice or lapse of time or both) a default under, result in the
acceleration of, create in any party any right to accelerate, terminate, modify
or cancel, or require any notice, consent or waiver under, any contract, lease,
sublease, license, sublicense, franchise, permit, indenture, agreement or
mortgage for borrowed money, instrument of indebtedness, Security Interest or
other arrangement to which the Target or the Merger Sub is a party or by which
either is bound or to which any of their assets are subject, except for any
conflict, breach, default, acceleration, right to accelerate, termination,
modification, cancellation, notice, consent or waiver that would not reasonably
be expected to have a Material Adverse Effect on the Target or the Merger Sub;
(d) result in the imposition of any Security Interest upon any assets of the
Target or the Merger Sub; or (e) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Target or the Merger Sub or any of
their properties or assets, except for any violation that would not have a
Material Adverse Effect on the Target or the Merger Sub.
-20-
4.5 Reports and Financial Statements.
The Target has filed all forms, reports, schedules, registration
statements, proxy statements and other documents (including any document
required to be filed as an exhibit thereto) required to be filed by the Target
with the Securities and Exchange Commission ("SEC") on a timely basis, and has
made available to the Company such forms, reports and documents in the form
filed with the SEC. All such required forms, reports, schedules, registration
statements, proxy statements and other documents (including those that the
Target may file subsequent to the date hereof) are referred to herein as the
"SEC Reports." As of their respective dates, the SEC Reports (including, without
limitation, any financial statements or schedules included or incorporated by
reference therein) (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such SEC Reports and (ii) did
not at the time they were filed (or if amended or superseded by a filing prior
to the date of this Agreement, then on the date of such filing) contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Except as
disclosed in the Target Disclosure Letter, the SEC Reports filed by the Target
and publicly available prior to the date of this Agreement, as of the date
hereof, there has not been any Material Adverse Effect with respect to the
Target that would require disclosure under the Securities Act.
4.6 Undisclosed Liabilities.
The Company has no liability (whether known or unknown, whether absolute
or contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities accrued, reflected, reserved against on the
Financial Statements, (b) liabilities which have arisen since the Balance Sheet
Date, in the ordinary course of business, (c) contractual or statutory
liabilities incurred in the ordinary course of business and loans by Xxxxxxx
Xxxxxxx, the aggregate when combined with those shown in the Financial
Statements shall not exceed $150,000, and (d) liabilities which would not have a
Material Adverse Effect on the Company.
4.7 Litigation.
There are no suits, arbitrations, actions, claims, complaints, grievances,
or to the Target's knowledge, investigations or proceedings pending or, to the
Target's knowledge, threatened against Target or its subsidiaries that, if
resolved against Target or its subsidiaries could be reasonably expected to have
a Material Adverse Effect on the Target, or the Target's or the Merger Sub's
ability to consummate the transactions contemplated by this Agreement.
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4.8 Legal Compliance; Restrictions on Business Activities.
The Target and Merger Sub and the conduct and operation of their business
are in material compliance with each law (including rules, regulations and
requirements thereunder) of any federal, state, local or foreign government or
any Governmental Entity which (a) affects or relates to this Agreement or the
transactions contemplated hereby or (b) is applicable to the Target or the
Merger Sub or their respective businesses, except, in each case, where such
non-compliance would not reasonably be expected to have a Material Adverse
Effect on the Target or the Merger Sub. There is no agreement, judgment,
injunction, order or decree binding upon the Target or the Merger Sub which has
or would reasonably be expected to have the effect of prohibiting or materially
impairing any current or future business practice of the Target or the Merger
Sub, as currently contemplated by the Target or the Merger Sub, and any
acquisition of property of the Target or the Merger Sub or the conduct of
business by the Target and the Merger Sub as currently conducted or proposed to
be conducted.
4.9 Merger Shares.
The Merger Shares have been duly authorized and, when issued in exchange
for the Company Shares pursuant to the terms hereof, will be validly issued,
fully paid and non-assessable, and not subject to any liens, pledges, charges,
encumbrances, restrictions of any kind, preemptive rights or any other rights or
interests of third parties or any other encumbrances, except for applicable
securities law restrictions on transfer, including those imposed by Regulation D
or Section 4(2) of the Securities Act and Rule 144 promulgated under the
Securities Act and under applicable "blue sky" state securities laws. The offer
and sale of the Merger Shares under this Agreement will be exempt from the
registration requirements of the Securities Act and in compliance with all
federal and state securities laws.
4.10 Business of the Merger Sub.
The Merger Sub is not and has never been a party to any material
agreements and has not conducted any activities other than in connection with
the organization of the Merger Sub, the issuance of the Merger Sub Common Stock,
the negotiation and execution of this Agreement and the consummation of the
transactions contemplated hereby. The Merger Sub has not incurred or assumed any
expenses or liabilities prior to the Closing.
4.11 Company Action.
The Board of Directors of the Target and the Merger Sub have (a)
determined that the Merger is fair and in the best interests of the Target and
the Merger Sub, and each of their stockholders, and (b) adopted this Agreement
in accordance with the provisions of the Articles of Incorporation and the
Bylaws of each of the Merger Sub and the Target, as the case may be, and the
corporate laws of the States of Nevada and Texas, respectively. No other
corporate action (including stockholder action) is required to be taken by the
Target or the Merger Sub in connection with the consummation of the Merger and
the transactions contemplated by this Agreement.
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4.12 Absence of Certain Changes.
Since March 31, 2005, the Target has conducted its business as ordinarily
conducted consistent with past practice and there has not occurred any change,
event or condition (whether or not covered by insurance) that has resulted in,
or would reasonably be expected to result in any Material Adverse Effect on the
Target.
4.13 Brokers' Fees.
Neither the Target nor the Merger Sub has any liability or obligation to
pay any fees or commissions to any broker, finder or agent with respect to the
transactions contemplated by this Agreement.
4.14 Qualification as a Reorganization.
Neither the Target nor the Merger Sub has any plan or intention to both
(a) discontinue (or cause the Surviving Corporation to discontinue) the historic
business of the Surviving Corporation (assuming that the business of the Company
as of the date of the Merger is the Surviving Corporation's historic business)
and (b) cease (or cause the Surviving Corporation to cease) to use a significant
portion of the Surviving Corporation's historic business assets in a trade or
business (assuming that the assets of the Company as of the date of the Merger
constitute the Surviving Corporation's historic business assets). Neither the
Target nor the Merger Sub has any plan or intention to cause the Surviving
Corporation to dispose of assets following the Merger such that after the Merger
the Surviving Corporation will no longer continue to hold (as such term is used
in Code Section 368(a)(2)(E)(i)) substantially all of its assets and the assets
of the Merger Sub. For purposes of the foregoing, the term "substantially all"
means at least 90 percent of the fair market value of the net assets and at
least 70 percent of the fair market value of the gross assets of the Merger Sub
and the Surviving Corporation.
4.15 Disclosure.
No representation or warranty by the Target or the Merger Sub contained in
this Agreement, including any statement contained in the Target Disclosure
Letter, or any Closing Document contains any untrue statement of a material fact
or omits to state any material fact necessary, in light of the circumstances
under which it was made, in order to make the statements herein not misleading.
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4.16 Absence of Plans.
Other than the one-for-ten Reverse Stock Split to be consummated by the
Target on or prior to the Closing Date, since December 31, 2004, the Board of
Directors of the Target has not authorized any recapitalization,
reclassification, spin-off, stock split, stock combination, stock or
extraordinary cash dividend, or reverse split with respect to the Target Stock.
4.17 Tax Matters.
(a) The Target (and any consolidated group for tax purposes of which the
Target has been a member) has timely (taking into account extensions of time to
file) filed all Tax Returns that it was required to file. All such Tax Returns
were correct and complete in all material respects. All Taxes owed by the
Target, or for which the Target may be liable (whether or not shown on any Tax
Return), have been or will be timely paid. The Target is not currently the
beneficiary of any extension of time within which to file any Tax Return. No
claim has ever been made by an authority in a jurisdiction where the Target does
not file Tax Returns that it is or may be subject to taxation by that
jurisdiction. There are no Security Interests on any of the assets of the Target
that arose in connection with any failure (or alleged failure) to pay any Tax.
(b) The Target has withheld or collected and paid or deposited in
accordance with law all Taxes required to have been withheld or collected and
paid or deposited by the Target in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Tax liability of the
Target either (i) claimed or raised by any authority in writing or (ii) as to
which the Target has knowledge.
(d) The Target has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time nor has any such waiver or extension
been required with respect to a Tax assessment or deficiency.
(e) Target is in control of Merger Sub within the meaning of Section
368(c) of the Code.
(f) Merger Sub is a newly-formed corporation and does not (nor has it ever
had) any assets.
4.18 Assets.
The Target has good and marketable title to or, in the case of leased
assets, a valid leasehold interest in, all tangible assets necessary for the
conduct of its businesses as presently conducted. No asset of the Target
(tangible or intangible) is subject to any Security Interest. All machinery and
equipment is in good condition and repair, normal wear and tear excepted. All
leases of real or personal property to which the Company is a party are fully
effective and afford the Target peaceful and undisturbed possession of the
subject matter of the lease. The Target is not in violation of any zoning,
building, safety or environmental ordinance, regulation or requirement or other
law or rule applicable to the operation of the owned or leased assets (the
violation of which would have a Material Adverse Effect on its business), nor
has the Target received any written notice of violation with which it has not
complied.
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4.19 Owned Real Property.
The Target does not own any real property.
4.20 Intellectual Property.
Section 4.20 of the Target Disclosure Letter is a true and complete list
of (i) all Intellectual Property presently owned or held by the Target and (ii)
any license agreements under which Target has access to any confidential
information used by the Target in its business (such licenses and agreements,
collectively, the "Intellectual Property Rights") necessary for the conduct of
the Target's business as conducted and as currently proposed to be conducted by
the Target. The Target owns, or has the right to use, free and clear of all
Security Interests, all of the Intellectual Property and the Intellectual
Property Rights. There are no outstanding options, licenses or agreements of any
kind relating to the Intellectual Property and the Intellectual Property Rights,
nor is the Target bound by or a party to any options, licenses or agreements of
any kind with respect to any of the Intellectual Property, the Intellectual
Property Rights and the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information and other proprietary rights
and processes of any other person or entity other than such licenses or
agreements arising from the purchase of "off the shelf" or standard products.
The Target has not received any communications alleging that the Target has
violated or, by conducting its business as conducted and as currently proposed
to be conducted by the Target, violates any Third Party Intellectual Property
Rights and to the Target's knowledge, the business as conducted and as currently
proposed to be conducted by the Target will not cause the Target to infringe or
violate any Third Party Intellectual Property Rights. There is no defect in the
title to any of the Intellectual Property or, to the extent that the Target has
title to Intellectual Property Rights to any Intellectual Property Rights. To
the Target's knowledge, no officer, employee or director is obligated under any
contract (including any license, covenant or commitment of any nature) or other
agreement, or subject to any judgment, decree or order of any court or
administrative agency, that would conflict or interfere with the performance of
such person's duties as an officer, employee or director of the Target, the use
of such person's best efforts to promote the interests of the Target or the
Target's business as conducted or as currently proposed to be conducted by the
Target. No prior employer of any current or former employee of the Target has
any right, title or interest in the Intellectual Property and to the Target's
knowledge, no person or entity has any right, title or interest in any
Intellectual Property. It is not and will not be with respect to the business as
currently proposed to be conducted necessary for the Target to use any
inventions of any of its employees made prior to their employment by the Target
and not already assigned to the Target.
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4.21 Permits.
Section 4.21 of the Target Disclosure Letter sets forth a list of all
material Permits issued to or held by the Target. Such listed Permits are the
only Permits that are required for the Target to conduct its business as
presently conducted, except for those the absence of which would not have a
Material Adverse Effect on the Target. Each such Permit is in full force and
effect and to the Target's knowledge, no suspension or cancellation of such
Permit is threatened and there is no basis for believing that such Permit will
not be renewable upon expiration. Each such Permit will continue in full force
and effect following the Closing.
4.22. Access to Information.
Until the Closing, Target will allow the Company and its agents reasonable
access to the files, books, records and offices of the Target and each
Subsidiary, including, without limitation, any and all information relating to
the Target's taxes, commitments, contracts, leases, licenses, and real, personal
and intangible property and financial condition. Target will cause its
accountants to cooperate with the Company and its agents in making available all
financial information reasonably requested, including without limitation the
right to examine all working papers pertaining to all financial statements
prepared or audited by such accountants.
4.23 Books and Records.
The minute books and other similar records of the Target contain true and
complete records of all material actions taken at any meetings of the Board of
Directors or any committee thereof and of all written consents executed in lieu
of the holding of any such meetings.
ARTICLE V
COVENANTS
5.1 Best Efforts.
Each of the Parties shall use its best efforts, to the extent commercially
reasonable, to take all actions and to do all things necessary, proper or
advisable to consummate the transactions contemplated by this Agreement.
5.2 Securities Laws.
(a) Prior to the Closing, the Company shall not take any action that would
cause the number of its stockholders who are not "accredited investors" pursuant
to Regulation D promulgated under the Securities Act to increase to more than
thirty-five (35) during the term of this Agreement or that would cause any
person who does not meet the standards of Regulation D required for "purchasers"
under Regulation D to become a stockholder; provided, however, that the Company
will not be precluded from issuing Company Shares upon the exercise of options
or warrants.
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(b) The Target, the Merger Sub, and the Surviving Corporation 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 Target Stock in
connection with the Merger. The Company shall use its best efforts, to the
extent commercially reasonable, to assist the Target as may be necessary to
comply with such securities and blue sky laws.
(c) So long as the Target or any successor entity has securities
registered under Securities Act of 1933, as amended (including the rules and
regulations promulgated thereunder, the "Securities Act"), or the Exchange Act,
the Target or such successor entity shall file all reports required to be filed
by it under the Securities Act and the Exchange Act, all to the extent required
pursuant to Rule 144 to enable stockholders who exchange Company Shares for
Target Stock pursuant to the terms of this Agreement to sell Target Stock
pursuant to Rule 144 adopted by the Securities and Exchange Commission under the
Securities Act (as such rule may be amended from time to time) or any similar
rule or regulation hereafter adopted by the Securities and Exchange Commission.
(d) If at any time after the Effective Time, the Target takes or fails to
comply with its obligations under the immediately preceding paragraph (c), or if
the Rule 144 is not available to the stockholders who exchange Company Shares
for Target Stock pursuant to the terms of this Agreement as a result of any
action taken or not taken by the Target, then the Target shall enter into a
registration rights agreement with each such stockholder in form and substance
reasonably acceptable to the Target and such stockholder.
5.3 Reorganization.
Except for the transactions contemplated by this Agreement neither the
Target nor the Merger Sub will take any action, or cause the Surviving
Corporation to take any action, which would have the result of disqualifying the
Merger as a reorganization pursuant to Section 368(a)(2)(E) of the Code. In
addition, neither the Target nor the Merger Sub will adopt any position (or
cause the Surviving Corporation to adopt any position) which is inconsistent
with the treatment of the Merger as a tax-free reorganization.
5.4 Reasonable Commercial Efforts and Further Assurances.
Each Party, at the reasonable request of another Party, and as soon as
practicable, shall execute and deliver at the requesting Party's expense 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.
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5.5 Reverse Stock Split of Target.
As soon as practicable after the execution of this Agreement, Target
agrees to duly call, give notice of, and as soon as applicable law will allow,
convene and hold a special meeting of its stockholders to approve a one-for-ten
Reverse Stock Split of the shares of Target Stock.
5.6 Option to Sell Livermore Business.
The Parties hereto hereby acknowledge that the Target has financial
obligations to its President, Xxxxxxx Xxxxxxx ("Smitten"), in the amount of up
to $150,000. The Parties hereby agree that the Surviving Corporation shall have
the sole right, at its option, to extinguish this debt for up to six months
following the Closing by transferring the Livermore Business to Smitten in a
manner reasonably acceptable to Smitten. In the event that the Livermore
Business is not transferred within six months, in return for forgiving $50,000
of the amount owing to him, Smitten will be granted at no further cost a
perpetual, non-exclusive worldwide license to use the Livermore Business.
ARTICLE VI
CONDITIONS TO CONSUMMATION OF MERGER
6.1 Conditions to Each Party's Obligations.
The respective obligations of each Party to consummate the Merger and the
other transactions contemplated hereby are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the Company
Stockholder Approval;
(b) the Target and the Company shall be satisfied that the issuances of
Target Stock in the transaction shall be exempt under Regulation D of the
Securities Act and Section 4(2) of the Securities Act;
(c) no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other legal or
regulatory restraint or prohibition preventing the consummation of the Merger
shall have been issued, nor shall any proceeding brought by any Governmental
Entity, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger which makes the consummation of the Merger
illegal; and
(d) no proceeding in which the Company, the Target or the Merger Sub shall
be a debtor, defendant or party seeking an order for its own relief or
reorganization shall have been brought or be pending by or against the Company,
the Target or the Merger Sub under any United States or state bankruptcy or
insolvency law.
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6.2 Conditions to Obligations of the Target and the Merger Sub.
The obligation of each of the Target and the Merger Sub to consummate the
Merger is subject to the satisfaction of the following additional conditions:
(a) this Agreement and the Merger shall have been approved and adopted by
the Company Stockholder Approval;
(b) the Company shall have obtained all of the waivers, permits, consents,
assignments, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in the Company Disclosure
Letter, except for any which if not obtained or effected would not have a
Material Adverse Effect on the Company or on the ability of the Parties to
consummate the transactions contemplated by this Agreement;
(c) the representations and warranties of the Company set forth in Article
III shall be true and correct as of the Closing Date, except for representations
and warranties made as of a specified date, which shall be true and correct as
of such date;
(d) the Company shall have performed or complied with, in all material
respects, its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Effective Time;
(e) the Target and the Merger Sub shall have received from the Secretary
of the Company a certificate (i) certifying the Company Charter, (ii) certifying
the Bylaws of the Company, (iii) certifying the resolutions of the Board of
Directors of the Company, (vi) certifying the resolutions of the stockholders of
the Company, and (v) attesting to the incumbency of the officers of the Company;
and
(f) all actions to be taken by the Company in connection with the
consummation of the transactions contemplated hereby, and all certificates,
opinions, instruments and other documents required to effect the transactions
contemplated hereby shall be reasonably satisfactory in form and substance to
the Target and the Merger Sub.
6.3 Conditions to Obligations of the Company.
The obligation of the Company to consummate the Merger is subject to the
satisfaction of the following additional conditions:
(a) the Target and the Merger Sub shall have obtained all of the waivers,
permits, consents, approvals or other authorizations, and effected all of the
registrations, filings and notices (including, but not limited to any filings
that are required with the SEC), except for any which if not obtained or
effected would not have a Material Adverse Effect on the Target or the Merger
Sub or on the ability of the Parties to consummate the transactions contemplated
by this Agreement;
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(b) each of the Target and the Merger Sub shall have performed or complied
with in all material respects its agreements and covenants required to be
performed or complied with under this Agreement as of or prior to the Effective
Time;
(c) the representations and warranties of the Target and the Merger Sub
set forth in Article IV shall be true and correct as of the Closing Date, except
for representations and warranties made as of a specified date, which shall be
true and correct as of such date;
(d) the Company shall have received from the Secretary of the Target a
certificate (i) certifying the Articles of Incorporation of the Target, (ii)
certifying the Bylaws of the Target, (iii) certifying the resolutions of the
Board of Directors of the Target, and (iv) attesting to the incumbency of the
officers of the Target;
(e) the Company shall have received from the Secretary of the Merger Sub a
certificate (i) certifying the Articles of Incorporation of the Merger Sub, (ii)
certifying the Bylaws of the Merger Sub, (iii) certifying the resolutions of the
Board of Directors and the sole stockholder of the Merger Sub, and (iv)
attesting to the incumbency of the officers of the Merger Sub;
(f) all certificates, opinions, instruments and other documents required
to effect the transactions contemplated hereby shall be reasonably satisfactory
in form and substance to the Company;
(g) the Target shall have effectuated a one-for-ten Reverse Stock Split on
or prior to the Closing Date; and
(h) other than obligations to Xxxxxxx Xxxxxxx, Chief Executive Officer of
the Target, in the amount of up to $150,000, the Target shall have no more than
$10,000 in liabilities at the Closing and outstanding convertible debentures of
$240,000 to Cornell Capital Partners, L.P.
6.4 Certain Waivers.
The Parties acknowledge and agree that if a Party has knowledge of any
breach by any other Party of any representation, warranty, agreement or covenant
contained in this Agreement, and such Party proceeds with the Closing, such
Party shall be deemed to have irrevocably waived such breach for that particular
breach only and such Party and its successors and assigns shall not be entitled
to assert any right or to seek any remedy for any damages arising from any
matters relating to such breach, notwithstanding anything to the contrary
contained herein or in any certificate delivered pursuant hereto.
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ARTICLE VII
TERMINATION; INDEMNIFICATION
7.1 Termination of Agreement.
The Parties may terminate this Agreement prior to the Effective Time as
provided below:
(a) the Parties may terminate this Agreement by mutual written consent;
(b) any Party may terminate this Agreement by giving written notice to the
other Parties at any time after the Company's stockholders have voted on whether
to approve this Agreement and the Merger, in the event that this Agreement or
the Merger failed to receive the Company Stockholder Approval;
(c) any Party may terminate this Agreement by giving written notice to the
other Parties upon the entry of any permanent injunction or other order of a
court or other competent authority preventing the consummation of the Merger
that has become final and nonappealable;
(d) the Target and the Merger Sub may terminate this Agreement by giving
written notice to the Company if the Closing shall not have occurred on or
before August 1, 2005, by reason of the failure of any condition precedent under
Section 6.1 or 6.2 hereof (unless the failure results primarily from a breach by
the Target or the Merger Sub of any representation, warranty, agreement or
covenant contained in this Agreement); and
(e) the Company may terminate this Agreement by giving written notice to
the Target and the Merger Sub if the Closing shall not have occurred on or
before August 1, 2005, by reason of the failure of any condition precedent under
Section 6.1 or 6.3 hereof (unless the failure results primarily from a breach by
the Company of any representation, warranty, agreement or covenant contained in
this Agreement).
7.2 Effect of Termination.
If any party terminates this Agreement pursuant to Section 7.1, all
obligations of the Parties hereunder shall terminate without any liability of
any Party to any other Party, including the directors, officers, employees,
agents, consultants, representatives, advisors, stockholders, members or
Affiliates of any Party. Notwithstanding the foregoing, the following
obligations shall survive termination of this Agreement: (i) the liability of
any Party for any breach of this Agreement; (ii) the obligations relating to
press releases and announcements, as provided in Section 8.4; and (iii) each
Party's obligation to bear its own fees and expenses incurred in connection with
the preparation and negotiation of this Agreement and the transactions
contemplated herein as provided in Section 8.11.
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7.3 Amendment.
Subject to applicable law, the Parties may cause this Agreement to be
amended at any time by execution of an instrument in writing signed on behalf of
each of the Parties.
7.4 Extension, Waiver.
At any time prior the Effective Time, any Party may, to the extent legally
allowed (i) extend the time for the performance of any of the obligations or
other acts of the other Parties, (ii) waive any inaccuracies in the
representations and warranties made to such Party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such Party contained herein. Any
agreement on the part of a Party to any such extension or waiver shall be valid
only if set forth in an instrument in writing signed on behalf of such Party.
7.5 Survival of Representations and Warranties.
All representations, warranties and covenants of the parties contained in
this Agreement will remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the other Parties to this Agreement,
until the earlier of the termination of this Agreement or two (2) years after
the Closing Date (the "Survival Period"), whereupon such representations,
warranties and covenants will expire (except for covenants that by their terms
survive for a longer period). The Parties post-closing remedies for a breach are
not limited by the pre-closing discovery of a breach.
7.6 Indemnification of Target.
Subject to the limitations set forth in this Article VII, the Company
agrees to indemnify and hold harmless Target and its officers, directors, agents
and employees, and each person, if any, who controls or may control Target
within the meaning of the Securities Act from and against any and all damages:
(a) Arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants given or
made by the Company in this Agreement or any certificate, document or instrument
delivered by or on behalf of the Company pursuant hereto; or
(b) Resulting from any failure of the stockholders to have good, valid and
marketable title to the issued and outstanding Company Shares held by them, free
and clear of all liens, claims, pledges, options, adverse claims, assessments or
charges of any nature whatsoever, or to have full right, capacity and authority
to vote such Company Shares in favor of the Merger and the other transactions
contemplated by the Merger Agreement.
The foregoing are collectively referred to as the "Target Indemnity
Claims."
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7.7 Indemnification of Company.
Subject to the limitations set forth in this Article VII, the Target and
Target Sub agree to jointly and severally indemnify and hold harmless the
Company and its officers, directors, agents and employees, from and against any
and all damages:
(a) Arising out of any misrepresentation or breach of or default in
connection with any of the representations, warranties and covenants given or
made by the Target or Target Sub in this Agreement or any certificate, document
or instrument delivered by or on behalf of the Target or Target Sub pursuant
hereto; or
(b) Resulting from any failure of Target to have good, valid and
marketable title to the fully paid nonassessable shares of Target Stock
constituting all or any part of the Merger Consideration, free and clear of all
liens, claims, pledges, options, adverse claims, assessments or charges of any
nature whatsoever, or to have full right, capacity and authority to cause all of
the shares representing such Target Stock to be issued to the Company
stockholders in connection with the conversion of each share of the Company
Shares as contemplated by the Merger Agreement.
The foregoing are collectively referred to as the "Company Indemnity
Claims." The Company Indemnity Claims together with the Target Indemnity Claims
are collectively referred to as the "Indemnity Claims."
7.8 General Notice and Procedural Requirements for Indemnity Claims.
Notwithstanding the foregoing, the party or person having the indemnity
obligation under this Article VII (the "Indemnifying Party"), shall be obligated
to indemnify and hold harmless the party or person entitled to indemnity under
this Article VI (the "Indemnified Party"), only with respect to any Indemnity
Claims of which the Indemnified Party notifies with specificity the Indemnifying
Party in accordance with Section 8.8 of this Agreement and, if applicable,
within the following time period: (i) with regard to any representation or
warranty under this Agreement, prior to the end of the Survival Period of such
representation or warranty; or (ii) with regard to any covenant under this
Agreement which by its terms expires, prior to the end of the survival period
relating to such covenant.
7.9 Notice and Procedural Requirements for Third Party Claims.
If a complaint, claim or legal action is brought by a third party (a
"Third Party Claim") as to which an Indemnified Party is entitled to
indemnification, the Indemnified Party shall give written notice of such Third
Party Claim to the Indemnifying Party in accordance with Section 8.8 of this
Agreement promptly after the Indemnified Party receives notice thereof, which
notice shall include a copy of any letter, complaint or similar writing received
by the Indemnified Party; provided however, that any failure to provide or delay
in providing such information shall not constitute a bar or defense to
indemnification except to the extent the Indemnifying Party has been prejudiced
thereby.
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The Indemnifying Party shall have the right to assume the defense of such
Third Party Claim with counsel reasonably satisfactory to the Indemnified Party.
After notice from the Indemnifying Party to the Indemnified Party of the
Indemnifying Party's election so to assume the defense of such Third Party
Claim, the Indemnifying Party shall not be liable to the Indemnified Party for
any legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense of such Third Party Claim except as hereinafter
provided. If the Indemnifying Party elects to assume such defense and select
counsel, the Indemnified Party may participate in such defense through its own
separate counsel, but the fees and expenses of such counsel shall be borne by
the Indemnified Party unless: (i) otherwise specifically agreed by the
Indemnifying Party; or (ii) counsel selected by the Indemnifying Party
determines that because of a conflict of interest between the Indemnifying Party
and the Indemnified Party such counsel for the Indemnifying Party cannot
adequately represent both parties in conducting the defense of such action. In
the event the Indemnified Party maintains separate counsel because counsel
selected by the Indemnifying Party has determined that such counsel cannot
adequately represent both parties because of a conflict of interest between the
Indemnifying Party and the Indemnified Party, then the Indemnifying Party shall
not have the right to direct the defense of such Third Party Claim on behalf of
the Indemnified Party.
The failure of the Indemnifying Party to notify an Indemnified Party of
its election to defend such Third Party Claim within thirty (30) days after
notice thereof was given to the Indemnifying Party shall be deemed a waiver by
the Indemnifying Party of its rights to defend such Third Party Claim.
If the Indemnifying Party assumes the defense of a Third Party Claim, the
obligations of the Indemnifying Party shall include taking all steps necessary
in the defense of such Third Party Claim and holding the Indemnified Party
harmless from and against any and all Damages caused or arising out of any
settlement approved by the Indemnified Party or any judgment in connection with
the claim or litigation.
If the Indemnifying Party does not assume the defense of such Third Party
Claim in accordance with this Section, the Indemnified Party may defend against
such claim or litigation in such manner as it deems appropriate; provided,
however, that the Indemnified Party may not settle such Third Party Claim
without the prior written consent of the Indemnifying Party; provided that the
Indemnifying Party may not withhold such consent unless it has provided security
of a type and in an amount reasonably acceptable to the Indemnified Party for
the payment of its indemnification obligations with respect to such Third Party
Claim. The Indemnifying Party shall promptly reimburse the Indemnified Party for
the amount of Damages caused or arising out of any judgment rendered with
respect to such Third Party Claim, and for all costs and expenses incurred by
the Indemnified Party in the defense of such claim.
The Indemnifying Party may settle any Third Party Claim in its sole
discretion without the prior written consent of the Indemnified Party, provided
that such settlement involves only the payment of cash by the Indemnifying Party
to the claimant and does not impose any other obligation on the Indemnifying
Party or any liability or obligation on the Indemnified Party.
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7.10 Notice and Procedural Requirements for Direct Claims.
Any claim for indemnification by an Indemnified Party on account of
Damages which do not result from a Third Party Claim (a "Direct Claim") shall be
asserted by giving the Indemnifying Party reasonably prompt notice thereof in
accordance with Section 8.8 of this Agreement; provided, however, that any
failure to provide, or delay in providing, such notification shall not
constitute a bar or defense to indemnification except to the extent the
Indemnifying Party has been prejudiced thereby. After receiving notice of a
Direct Claim, the Indemnifying Party will have a period of thirty (30) days
within which to respond in writing to such Direct Claim. If the Indemnifying
Party rejects such claim or does not respond within such thirty (30) day period
(in which case the Indemnifying Party will be deemed to have rejected such
claim), the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party on the terms and subject to the provisions of
this Article VI.
7.11 Maximum Liability.
Notwithstanding anything to the contrary in this Agreement, in no event
will the Company's indemnity obligations under this Article VII in the aggregate
exceed $25,000.00, except for any claims of indemnity based on actual fraud, for
which the Company indemnity obligations under this Article VII in the aggregate
will not exceed $.50,000.00 In no event will the Target's indemnity obligations
under this Article VII exceed the aggregate amount of $25,000.00 except for any
claims of indemnity based on actual fraud, for which the limit on the Target's
indemnity obligation under this Article VII will not exceed $50,000.00.
ARTICLE VIII
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, the Company Disclosure Letter, the Target Disclosure
Letter, the Schedules, the Exhibits, the documents and instruments and other
agreements among the parties referred to herein constitute the entire agreement
among the Parties and supersedes any prior understandings, agreements or
representations by or among the Parties, written or oral, with respect to the
subject matter hereof.
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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, heirs, legal
representatives 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.
8.4 Public Announcement.
Upon execution of this Agreement, the Target and the Company will issue a
press release approved by both parties announcing the Merger. Thereafter, the
Target and the Company may issue such press releases, and make such other
disclosures regarding the Merger, as each determines are required under
applicable securities laws or regulatory rules, any such press releases being
subject to the prior approval, not to be unreasonably withheld, of the other
party. Any press releases by the Target will be filed under Form 8-K with the
Securities Exchange Commission.
8.5 Confidentiality. The Target and the Company each recognize that they
have received and will receive confidential information concerning the other
during the course of the Merger negotiations and preparations. Accordingly,
Target and the Company each agrees (a) to use its respective best efforts to
prevent the unauthorized disclosure of any confidential information concerning
the other that was or is disclosed during the course of such negotiations and
preparations, and is clearly designated in writing as confidential at the time
of disclosure, and (b) to not make use of or permit to be used any such
confidential information other than for the purpose of effectuating the Merger
and related transactions. The obligations of this section will not apply to
information that (i) is or becomes part of the public domain, (ii) is disclosed
by the disclosing party to third parties without restrictions on disclosure,
(iii) is received by the receiving party from a third party without breach of a
nondisclosure obligation to the other party, or (iv) is required to be disclosed
by law, including with the Securities and Exchange Commission. If this Agreement
is terminated, all copies of documents containing confidential information shall
be returned by the receiving party to the disclosing party.
8.6 Counterparts, Facsimile Signatures.
This Agreement may be executed with counterpart signature pages or in two
or more counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by facsimile signatures.
8.7 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.
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8.8 Notices.
All notices, requests, demands, claims, and other communications hereunder
(each a "Notice") shall be in writing. Any Notice shall be (a) sent by
registered or certified mail, return receipt requested, postage prepaid, (b)
sent via a reputable nationwide overnight courier service, charges prepaid or
(c) sent via facsimile (with acknowledgment of complete transmission) with a
confirmation copy by registered or certified mail or overnight courier as
aforesaid, in each case to the intended recipient as set forth below:
If to the Company:
TEXAS PROTOTYPES, INC.
0000 Xxxxxxxx Xxxxx
Xxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxx, President
Facsimile: (000) 000-0000
Copies to:
Xxxxxx Xxxxxx LLP
0000 Xxxxxxxxxxx Xxxxxx
Xxxxx 000
Xxxxxxxxxx, XX 00000
Attention: Xxxxxx Xxxxx, Esq.
Facsimile: (000) 000-0000
If to the Target or Merger Sub:
STOCK MARKET SOLUTIONS, INC.
0000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxx Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxxxxx, President
Facsimile: 000-000-0000
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Copy to:
Xxxxxxxx Law Group, P.A.
0000 Xxxx Xxxxxxx Xxxxx
Xxxxx, Xxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxx, Esq.
Facsimile: (000) 000-0000
Each Notice shall be deemed to have been given and effective upon receipt
(or refusal of receipt). Any Party may change the address to which Notices
hereunder are to be delivered by giving the other Parties notice in the manner
herein set forth.
8.9 Governing Law.
This Agreement shall be governed by and construed in accordance with the
internal laws (and not the law of conflicts) of the State of Texas. In addition,
each of the Parties hereto (a) consents to submit itself to the personal
jurisdiction of the any federal court or state court located in the State of
Texas in the event any dispute arises out of this Agreement or any of the
transactions contemplated by this Agreement, (b) agrees that it will not attempt
to deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (c) agrees that it will not bring any action
relating to this Agreement or any of the transactions contemplated hereby in any
court other than a federal court or a state court located in the State of Texas.
8.10 Severability.
If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement will nevertheless remain in full
force and effect so long as the economic or legal substance of the transactions
contemplated hereby is not affected in any manner adverse to any party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto will negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the maximum extent possible.
8.11 Expenses; Attorney's Fees.
In the event that the Merger is consummated, the Company shall pay all
federal and state regulatory and transfer agent fees of the Target and the
Target Sub in connection with the Merger, other than the fees and expenses of
counsel. In the event that the Merger is not consummated, all fees and expenses
(including all legal and accounting fees and expenses and all other expenses)
incurred by the Target and the Merger Sub in connection with this Agreement and
the transactions contemplated hereby shall be paid by the Target and the Merger
Sub, as the case may be, and all fees and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Company, whether or not the Merger is consummated. Notwithstanding
the foregoing, if any Party hereto initiates any legal action arising out of or
in connection with this Agreement, the prevailing party in such legal action
shall be entitled to recover from the other Party all reasonable attorney's
fees, expert witness fees and expenses incurred by the prevailing party in
connection therewith.
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8.12 Disclosure Letters.
The Company Disclosure Letter shall be arranged in separate parts
corresponding to the numbered and lettered sections contained in this Agreement,
and the information disclosed in any numbered or lettered part shall qualify
only (a) the corresponding section of this Agreement and (b) other sections of
Article III to the extent it is clear (notwithstanding the absence of a specific
cross reference) from a reading of the disclosure that such disclosure is
applicable to such other sections. The Target Disclosure Letter shall be
arranged in separate parts corresponding to the numbered and lettered sections
contained in this Agreement, and the information disclosed in any numbered or
lettered part shall qualify only (c) the corresponding section of this
Agreement, and (d) other sections of Article IV to the extent it is clear
(notwithstanding the absence of a specific cross reference) from a reading of
the disclosure that such disclosure is applicable to such other sections. The
inclusion of any information in the Company Disclosure Letter or the Target
Disclosure Letter shall not be deemed to be an admission or acknowledgment that
such information is required to be included herein, is material, has or would
have a Material Adverse Effect, or is outside the ordinary course of business.
8.13 Construction.
The Parties agree that they have been represented by counsel during the
negotiation, preparation and execution of this Agreement and, therefore, waive
the application of any law, regulation, holding or rule of construction
providing that ambiguities in an agreement or other document will be construed
against the party drafting such agreement or document. 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 requires
otherwise.
8.14 Incorporation of Exhibits and Schedules.
The Exhibits, the Schedules, the Target Disclosure Letter and Company
Disclosure Letter identified in this Agreement are incorporated herein by
reference and made a part hereof.
[Signatures begin on following page]
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IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
TARGET: STOCK MARKET SOLUTIONS, INC.
By: _____________________________
Name: Xxxxxxx Xxxxxxx
Title: President
MERGER SUB: TP ACQUISITION CORP.
By: _____________________________
Name:
Title:
COMPANY: TEXAS PROTOTYPES, INC.
By: _____________________________
Name: Xxxxxxx X. Xxxxxx
Title: President
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