AGREEMENT AND PLAN OF MERGER BY AND AMONG PARAGON DYNAMICS, INC. ZANETT, INC. ZANETT INC. MERGER SUB PDI, INC. and THE SHAREHOLDERS OF PARAGON DYNAMICS, INC. Dated as of January 31, 2003
Exhibit
2.3
BY AND
AMONG
PARAGON
DYNAMICS, INC.
ZANETT,
INC.
ZANETT
INC. MERGER SUB PDI, INC.
and
THE
SHAREHOLDERS OF PARAGON DYNAMICS, INC.
Dated as
of January 31, 2003
TABLE OF
CONTENTS
DEFINITIONS
AND CONSTRUCTION
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2
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ARTICLE
II.
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THE
MERGER
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8
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ARTICLE
III.
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EFFECT
OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT
CORPORATIONS; MERGER CONSIDERATION
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9
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ARTICLE
IV.
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REPRESENTATIONS
AND WARRANTIES OF PDI
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14
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ARTICLE
V.
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REPRESENTATIONS
AND WARRANTIES OF THE PDI SHAREHOLDERS
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27
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ARTICLE
VI.
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REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB.
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28
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ARTICLE
VII.
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SURVIVAL
OF REPRESENTATIONS; INDEMNIFICATION
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31
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ARTICLE
VIII.
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COVENANTS.
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32
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CONDITIONS
TO CLOSING.
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34
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ARTICLE
X.
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MISCELLANEOUS.
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36
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THIS
AGREEMENT AND PLAN OF MERGER (this “Agreement”) is entered into as of January
31, 2003, among PARAGON DYNAMICS, INC., a Colorado corporation (“PDI”), ZANETT,
INC., a Delaware corporation (“Parent”), ZANETT INC. MERGER SUB PDI, INC., a
Delaware corporation and a wholly-owned subsidiary of Parent (“Merger Sub”), and
the shareholders of PDI identified on the signature page(s) hereto (each, a “PDI
Shareholder” and, together, the “PDI Shareholders”).
W I
T N E S S
E T H:
WHEREAS,
each of the Boards of Directors of PDI, Parent and Merger Sub have approved the
merger of PDI with and into Merger Sub (the “Merger”), upon the terms and
subject to the conditions set forth herein and in accordance with the Delaware
General Corporation Law and the Colorado Business Corporation Act;
WHEREAS,
Parent, Merger Sub, PDI and the PDI Shareholders desire to make certain
representations, warranties and agreements in connection with, and establish
various conditions precedent to, the Merger; and
NOW,
THEREFORE, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
representations, warranties, covenants and agreements of the parties hereto
agree as follows:
ARTICLE
I. DEFINITIONS
AND CONSTRUCTION
1.1 Definitions
“Affiliate”
shall mean, as to any Person, any other Person controlled by, under the control
of, or under common control with, such Person. As used in this
definition, “control” shall mean possession, directly or indirectly, of the
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise).
“Benefit
Plans” shall mean any profit sharing, group insurance, medical, dental and/or
hospitalization, stock option, pension, retirement, bonus, deferred
compensation, stock bonus or stock purchase plan, or collective bargaining
agreements, contracts or other arrangements under which pensions, deferred
compensation or other retirement benefits are being paid or may become payable
by a party, or any other employee welfare or benefit agreements, plans or
arrangements, as defined in Section 3(3) of ERISA, any plan created in
accordance with Section 125 of the Code, or any nonqualified employee benefit
plans or deferred compensation, bonus, stock or incentive plans, or other
employee benefit or fringe benefit programs, established for the benefit of a
party’s former or current officers, directors or employees, including each trust
or other agreement with any custodian or any trustee for funds held under any
such agreement plan or agreement.
“Books
and Records” shall mean (i) the minute books containing the minutes of all
meetings and written consents of the shareholders and directors (and all
committees thereof), shareholder seal of PDI, and (ii) all books and records of
PDI prior to the Closing Date, including customer lists, reports, plans,
projections and advertising and marketing materials and financial and accounting
books and records.
“Business”
shall mean the business currently carried on by PDI pursuant to which PDI
provides information technology consulting services.
“Business
Day” shall mean any day other than a Saturday, Sunday or legal holiday in the
State of New York.
“Cash
Percentage Interest” shall mean the quotient obtained by dividing one by the
number of Cash Election Shares (as defined in Section 3.2(a)(i) hereof) issued
and outstanding immediately prior to the Effective Time.
“CBCA”
shall mean the Colorado Business Corporation Act, as amended.
“Closing”
shall mean the exchange of the Shares for the Initial Cash Payment and Initial
Stock Payment as set forth herein.
“Closing
Balance Sheet” shall mean the balance sheet of PDI included in the Final Closing
Financial Statements.
“Closing
Date” shall mean the date on which the Closing is completed.
“Code”
shall mean the Internal Revenue Code of 1986, as amended.
“Contingent
Payment EBITDA Target” means (i) for the first Performance Period, $1,040,000,
(ii) for the second Performance Period, $1,352,000, and (iii) for the third
Performance Period, $1,757,600.
“Current
Assets” shall mean, in respect of any period, all assets expected to be
converted into cash or otherwise realized in the twelve months following the
balance sheet date and recorded as current assets in PDI’s Financial Statements
and the Closing Financial Statements in accordance with GAAP, including, but not
limited to, cash and cash equivalents, accounts receivable, notes receivable,
interest receivable, prepaid expenses, and current assets and any provisions
recorded thereon.
2
“Current
Liabilities” shall mean, in respect of any period, all liabilities expected to
be settled in the twelve months following the balance sheet date and recorded as
current liabilities in PDI’s Financial Statements and the Closing Financial
Statements in accordance with GAAP, including, but not limited to, accounts
payable, accrued expenses, accrued payroll liabilities, interest payable,
deferred revenue and the current portion of any debt obligations.
“DGCL”
shall mean the Delaware General Corporation Law, as amended.
“Disclosure
Documents” shall mean all agreements and documents referred to in any of the
Schedules, together with all other agreements and documents disclosed by PDI to
Parent during Parent’s due diligence investigation conducted prior to the
Closing Date.
“EBITDA”
means, for any period, earnings before (i) interest income and interest expense,
(ii) taxes based on income, and (iii) depreciation and amortization expense for
that period, calculated in accordance with GAAP.
“EBITDA
Target” means (i) for the first Performance Period, $920,000, (ii) for the
second Performance Period, $1,058,000, and (iii) for the third Performance
Period, $1,216,700.
“Encumbrance”
shall mean a mortgage, charge, pledge, lien, option, restriction, claim, right
of first refusal, right of preemption, third party right or interest or other
encumbrance or security interest of any kind or similar right or any other
matter affecting title.
“Environmental
Laws” means all federal, state and local, provincial and foreign, civil and
criminal laws, regulations, rules, ordinances, codes, decrees, judgments,
directives or judicial or administrative orders, agreements or settlements
relating to pollution or protection of the environment, natural resources or
human health and safety, including, without limitation, laws relating to
releases or threatened releases of Hazardous Substances (including, without
limitation, releases or threatened releases to ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, release,
transport, disposal or handling of Hazardous
Substances. “Environmental Laws” include, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act (42
U.S.C. 9601 et seq.), the Hazardous Materials Transportation Law (49
U.S.C. 5101 et seq.), the Resource Conservation and Recovery Act (42
U.S.C. 6901 et seq.), the Federal Water Pollution Control Act (33
U.S.C. 1251 et seq.), the Clean Air Act (42 U.S.C. 7401 et seq.), the
Toxic Substances Control Act (15 U.S.C. 2601 et seq.), the Oil
Pollution Act (33 U.S.C. 2701 et seq.), the Emergency Planning and
Community Right-to-Know Act (42 U.S.C. 11001 et seq.), the
Occupational Safety and Health Act (29 U.S.C. 651 et seq.), each as
amended to date and all other state laws similar to any of the
above.
“Environmental
Liabilities” means all liabilities of PDI that (i) arise under or relate to
violations of Environmental Laws or arise in connection with or related to any
matter disclosed or required to be disclosed on Schedule 4.20 and (ii) are
attributable to actions or omissions occurring or conditions existing on or
prior to the Closing Date.
“ERISA”
shall mean the Employee Retirement Income Security Act of 1974, as
amended.
“Estimated
Net Working Capital” shall be equal to $760,000.
“Exchange
Act” shall mean the Securities Exchange Act of 1934, as amended, together with
all rules and regulations promulgated thereunder.
“Final
Performance Period” shall mean the three-year period commencing on February 1,
2003 and ending on January 31, 2006.
“Financial
Statements” shall mean PDI’s unaudited balance sheets as of December 31, 1999,
2000, 2001 and 2002 and related statements of income, statements of change in
shareholders’ equity and statements of cash flows for such years, each prepared
in accordance with GAAP.
3
“GAAP”
shall mean, at any particular time, accounting principles generally accepted in
the United States of America, consistently applied on a going concern basis and,
with respect to interim financial statements, subject to normal year-end
adjustments.
“Hazardous
Substances” means all elements, compounds, substances, matrices or mixtures
(“Materials or Substances”) that are hazardous, toxic, ignitable, reactive or
corrosive including, without limitation, the following: (i) all Materials or
Substances (whether or not wastes, contaminants or pollutants) that are or
become regulated by any of the Environmental Laws; (ii) all Materials or
Substances that are or become defined or described by any of the Environmental
Laws as “hazardous” or “toxic” or a “pollutant,” “contaminant,” “hazardous
substance,” “hazardous waste,” “extremely hazardous waste,” “acutely hazardous
waste” or “acute hazardous waste;” and (iii) petroleum, including crude oil or
any fraction thereof, asbestos, including asbestos containing materials, and
polychlorinated biphenyls.
“Management
Committee” shall mean the Management Committee appointed from time to time by
the Board of Directors of Parent.
“Net
Working Capital” shall mean (i) Current Assets including cash, minus (ii)
Current Liabilities, all as recorded on the Closing Balance Sheet.
“Parent
Stock” shall mean the Parent’s common stock, $0.001 par value per
share.
“Performance
Period” shall mean each of the three successive annual periods commencing on
February 1 and ending on January 31 following the Closing Date.
“Performance
Period Financial Statements” shall mean the Quarterly Financial Statements, the
Semi-Annual Financial Statements and the Annual Financial
Statements.
“Person”
shall mean an individual, company, partnership, limited liability company,
limited liability partnership, joint venture, trust or unincorporated
organization, joint stock corporation or other similar organization, government
or any political subdivision thereof, or any other legal entity.
“Receivables”
shall mean the accounts receivable, trade receivables, notes receivable and
other receivables arising out of or related to PDI’s operations, as of (i)
December 31, 2002 and (ii) the close of business on January 31, 2003, determined
in accordance with GAAP.
“Related
Agreements” shall mean all instruments, agreements and other documents executed
and delivered or to be executed and delivered pursuant to this Agreement
including without limitation the Ownership and Nondisclosure Agreements, the
Employment Agreements, the Non-Competition Agreements and the Lock-up
Agreements.
“Reserves”
shall mean those reserves for bad debts, contractual adjustments and
disallowances, self-insured risks, risk management and unspecified uninsured
liabilities, established and maintained by PDI and reflected in the Financial
Statements.
“Schedules”
shall mean the disclosure schedules delivered by PDI to Parent pursuant to this
Agreement.
“Shares”
shall mean all issued and outstanding shares of (i) PDI’s voting common stock,
no par value and (ii) PDI’s non-voting common stock, no par value.
“Stock
Percentage Interest” shall mean the quotient obtained by dividing one by the
number of Stock Election Shares (as defined in Section 3.2 (a)(ii) hereof)
issued and outstanding immediately prior to the Effective Time.
“Taxes”
shall mean all taxes, assessments, charges, duties, fees, levies or other
governmental charges, including but not limited to, all federal, state local,
foreign or other income, profits, unitary, business, franchise, capital stock,
real property, personal property, intangible taxes, withholding, FICA, medicare,
unemployment compensation, disability, transfer, sales, use, excise and other
taxes, assessments, charges, duties, fees, or levies of any kind whatsoever
(whether or not requiring the filing of Tax Returns) and all deficiency
assessments, additions to tax, penalties and interest.
4
“Tax
Returns” shall mean any return, amended return or other report (including but
not limited to elections, declarations, disclosures, schedules, estimates and
information returns) required to be filed with any taxing or governmental
authority.
1.2 Location
of Certain Defined Terms. The following terms used in this Agreement
are defined in the Section indicated:
Term
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Section
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Adjusted
Net Working Capital
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3.4(c)(i)
|
Agreement
|
Preamble
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Annual
Financial Statements
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8.5(c)
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Annual
Deposit Requirement
|
3.4(d)
|
Articles
of Merger
|
2.2
|
Balance
Sheet
|
4.13(a)
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Balance
Sheet Date
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4.13(a)
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Cash
Merger Consideration
|
3.3(a)
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Catch-up
Cash Deposit
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3.4(f)
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Catch-up
Statement
|
3.4(f)
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Certificate
of Merger
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2.2
|
Claim
|
4.9
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Closing
Date
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2.3
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Confidential
Information
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8.2
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Contingent
Cash Payment
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3.3(a)(ii)
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Contingent
Stock Payment
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3.3(b)(ii)
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Contracts
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4.10(i)
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Damages
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7.2(a)
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Default
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4.10(i)
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Disputed
Amounts
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8.6
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5
Effective
Time
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2.2
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Employment
Agreements
|
9.2(g)
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Exchange
Act
|
6.1(b)
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Existing
Long Term Debt
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8.9
|
Final
Adjusted Net Working Capital
|
3.4(c)
|
Final
Closing Financial Statements
|
3.4(c)
|
Final
Contingent Stock Payment
|
3.3(b)(iii)
|
Final
Performance Period Requirement
|
3.4(g)
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Final
Purchase Price Adjustment
|
3.4(c)
|
Indemnified
Party
|
7.3
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Indemnifying
Party
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7.3
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Independent
Accounting Firm
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8.7
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Initial
Cash Payment
|
3.3(a)(i)
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Initial
Stock Payment
|
3.3(b)(i)
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Intellectual
Property
|
4.15(a)
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Laws
|
4.18(a)
|
Lock-up
Agreements
|
9.2(h)
|
Material
adverse change
|
1.3
|
Merger
|
Preamble
|
Merger
Sub
|
Preamble
|
Merger
Sub Common Stock
|
6.1(d)
|
Ownership
and Nondisclosure Agreement
|
4.15(g)
|
Parent
|
Preamble
|
Parent
account
|
3.4(d)
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Parent
Closing Financial Statements
|
3.4(c)(i)
|
Parent
Financials
|
6.4(b)
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Parent
Indemnified Parties
|
7.2(a)
|
6
Parent
Option
|
8.4
|
Parent
SEC Report
|
6.4(a)
|
PDI
|
Preamble
|
PDI
Indemnified Parites
|
7.2(b)
|
PDI
Shareholders
|
Preamble
|
PDI
Shareholders Closing Financial Statements
|
3.4(c)(ii)
|
Performance
Period Requirements
|
3.4(d)
|
Quarterly
Financial Statements
|
8.6(a)
|
Quarterly
Deposit Requirement
|
3.4(d)
|
Regulation
D
|
5.2
|
Securities
Act
|
6.4
|
SEC
|
6.4
|
Semi-Annual
Deposit Requirement
|
3.4(d)
|
Semi-Annual
Financial Statements
|
8.5(b)
|
Stock
Merger consideration
|
3.3(b)
|
Subsequent
Quarter
|
3.4(f)
|
Surviving
Corporation
|
2.1
|
1.3 Construction.
(a) The
headings and captions used herein are intended for convenience of reference
only, and shall not modify or affect in any manner the meaning or interpretation
of any of the provisions of this Agreement.
(b) As
used herein, the singular shall include the plural, the masculine and feminine
genders shall include the neuter, and the neuter gender shall include the
masculine and feminine, unless the context otherwise requires.
(c) The
words “hereof”, “herein”, and “hereunder”, and words of similar import, when
used in this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement.
(d) All
references herein to Sections, Schedules or Exhibits shall be deemed to refer to
Sections of and Schedules or Exhibits to this Agreement, unless specified to the
contrary. All Exhibits and Schedules to this Agreement are integral
parts of this Agreement as if fully set forth herein.
(e) The
words “include,” “includes” and “including” when used herein shall be deemed in
each case to be followed by the words “without limitation.”
7
(f) “To
the knowledge”, “to the best knowledge, information and belief” or any similar
phrase shall be deemed to mean that an individual or the directors or executive
officers of an entity (i) is actually aware of a particular fact or matter or
(ii) could be expected to discover or otherwise become aware of that fact or
matter in the course of conducting a reasonably comprehensive investigation
regarding the accuracy of any representation or warranty contained in this
Agreement.
(g) “Material
adverse change” or “material adverse effect” means, with respect to a specified
party, any change or effect, as the case may be, that has, or is reasonably
likely to have, individually or in the aggregate, a material adverse impact on
the assets, business, prospects or financial position of such party and its
subsidiaries taken as a whole.
(h) The
parties agree that, because all parties participated in negotiating and drafting
this Agreement, no rule of construction shall apply to this Agreement which
construes ambiguous language in favor of or against any party by reason of that
party’s role in drafting this Agreement.
ARTICLE II. THE
MERGER
2.1 The
Merger. Upon the terms and subject to the conditions set forth in
this Agreement and in accordance with the DGCL and the CBCA, at the Effective
Time (as defined in Section 2.2 hereof), PDI shall be merged with and into
Merger Sub in accordance with the provisions of Section 252 of the DGCL and
Section 0-000-000 of the CBCA. Following the Effective Time, the separate
existence of PDI shall cease, and Merger Sub shall continue as the surviving
corporation in the Merger (hereinafter sometimes referred to as the “Surviving
Corporation”) as a business corporation incorporated under the laws of the State
of Delaware under the name “Paragon Dynamics, Inc.” and shall succeed to and
assume all the rights and obligations of PDI in accordance with the DGCL and the
CBCA.
2.2 Effective
Time Of The Merger. The Merger shall become effective at such time
(the “Effective Time”) as a duly executed Certificate of Merger (the
“Certificate of Merger”) is filed with the Secretary of State of the State of
Delaware and duly executed Articles of Merger (the “Articles of Merger”) are
filed with the Secretary of State of the State of Colorado.
2.3 Closing. The
Closing will occur simultaneously with the execution of this
Agreement. The Closing shall be held at the offices of Drinker Xxxxxx
& Xxxxx LLP, One Xxxxx Square, 18th and Xxxxxx Xxxxxxx, XX 00000-0000 fax:
(000) 000-0000 or at such other place as Parent, Merger Sub and PDI may
agree.
2.4 Surviving
Corporation.
(a) The
certificate of incorporation of Merger Sub shall be the certificate of
incorporation of the Surviving Corporation, until duly amended in accordance
with the terms thereof and of the DGCL.
(b) The
by-laws of Merger Sub shall be the by-laws of the Surviving Corporation, until
duly amended in accordance with their terms and as provided by the certificate
of incorporation of the Surviving Corporation and the DGCL.
(c) Those
individuals designated as directors on Schedule 2.4 shall, from and after the
Effective Time, be the directors of the Surviving Corporation until their
respective successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation’s certificate of incorporation and by-laws.
(d) Those
individuals designated as officers on Schedule 2.4 shall, from and after the
Effective Time, be the officers of the Surviving Corporation until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation’s certificate of incorporation and by-laws
8
(e) If
at any time after the Effective Time, any party shall consider that any further
deeds, assignments, conveyances, agreements, documents, instruments or
assurances in law or any other things are necessary or desirable to vest,
perfect, confirm or record in the Surviving Corporation the title to any
property, rights, privileges, powers and franchises of PDI by reason of, or as a
result of, the Merger, or otherwise to carry out the provisions of this
Agreement, the remaining parties, as applicable, shall execute and deliver, upon
request, any instruments or assurances, and do all other things necessary or
proper to vest, perfect, confirm or record title to such property, rights,
privileges, powers and franchises in the Surviving Corporation, and otherwise to
carry out the provisions of this Agreement.
ARTICLE III. EFFECT
OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS;
MERGER CONSIDERATION
3.1 Effect
on Merger Sub Capital Stock. As of the Effective Time, by virtue of
the Merger and without any action on the part of the holder of any shares of
capital stock of Merger Sub, each issued and outstanding share of capital stock
of Merger Sub shall be converted into and exchanged for one validly issued,
fully paid and nonassessable share of common stock of the Surviving
Corporation.
3.2 Effect
on Shares; Exchange of Certificates.
(a) As
of the Effective Time, by virtue of the Merger and without any action on the
part of the holder of any Shares, each Share issued and outstanding immediately
prior to the Effective Time shall be converted into the right to receive the
following:
(i) for
each Share with respect to which an election to receive cash has been
effectively made on Schedule 3.2 (collectively, the “Cash Election Shares”), the
right to receive one Cash Percentage Interest of the Cash Merger Consideration;
and
(ii) for
each Share with respect to which an election to receive stock has been
effectively made on Schedule 3.2 (collectively, the “Stock Election Shares”),
the right to receive one Stock Percentage Interest of the Stock Merger
Consideration; and
(b) At
the Closing, immediately after the Effective Time, the PDI Shareholders shall
surrender to the Surviving Corporation all of the outstanding certificates
representing the Cash Election Shares in exchange for the Cash Merger
Consideration payable to the PDI Shareholders at Closing.
(c) At
the Closing, immediately after the Effective Time, the PDI Shareholders shall
surrender to the Surviving Corporation all of the outstanding certificates
representing the Stock Election Shares in exchange for the Stock Merger
Consideration payable to the PDI Shareholders at Closing.
(d) Until
such certificates are surrendered, outstanding certificates formerly
representing Cash Election Shares shall be deemed for all purposes as evidencing
the right to receive the Cash Merger Consideration into which such Shares have
been converted as though said surrender and exchange had taken
place. In no event will a holder of Cash Election Shares be entitled
to interest on the Cash Merger Consideration payable in respect of such
Shares.
(e) Until
such certificates are surrendered, outstanding certificates formerly
representing Stock Election Shares shall be deemed for all purposes as
evidencing the right to receive the Stock Merger Consideration into which such
Shares have been converted as though said surrender and exchange had taken
place. In no event will a holder of Stock Election Shares be entitled
to interest on the Stock Merger Consideration issuable in respect of such
Shares.
3.3 Merger
Consideration.
(a) The
“Cash Merger Consideration” shall consist of:
(i) $1,200,000
of cash payable to the PDI Shareholders at the Closing in accordance with
Section 3.4(a), subject to adjustment in accordance with Section 3.4(c) below
(the “Initial Cash Payment”); and
9
(ii) up
to $1,200,000 of cash payable to the PDI Shareholders after the Closing in
accordance with Section 3.4(d) (the “Contingent Cash Payments”).
(b) The
“Stock Merger Consideration” shall consist of:
(i) up
to a number of shares of Parent Stock calculated by dividing $1,200,000 by the
average closing price of a share of Parent Stock as reported on NASDAQ for the
ten (10) consecutive trading days ending on the day prior to the Closing Date,
such shares to be issuable to the PDI Shareholders at the Closing in accordance
with Section 3.4(b) (the “Initial Stock Payment”). Parent shall not
be required to issue any fractional shares or scrip with respect to the Initial
Stock Payment. All fractional shares shall be rounded up to the
nearest whole number of shares of Parent Stock;
(ii) up
to a number of shares of Parent Stock calculated by dividing $1,200,000 by the
average closing price of a share of Parent Stock as reported on NASDAQ for the
ten (10) consecutive trading days ending on the day prior to the applicable
issuance date, such shares to be issuable to the PDI Shareholders after the
Closing in accordance with Section 3.4(e)(the “Contingent Stock
Payments”). Parent shall not be required to issue any fractional
shares or scrip with respect to the Contingent Stock Payments. All
fractional shares shall be rounded up to the nearest whole number of shares of
Parent Stock; and
(iii) up
to a number of shares of Parent Stock calculated by dividing $800,000 by the
average closing price of a share of Parent Stock as reported on NASDAQ for the
ten (10) consecutive trading days ending on the day prior to the applicable
issuance date, such shares to be issuable to the PDI Shareholders after the
Closing in accordance with Section 3.4(g) (the “Final Contingent Stock
Payment”). Parent shall not be required to issue any fractional
shares or scrip with respect to the Final Contingent Stock
Payment. All fractional shares shall be rounded up to the nearest
whole number of shares of Parent Stock.
3.4 Payment
of Merger Consideration.
(a) Initial
Cash Payment. Subject to Section 3.4(c) below, at the Closing, upon
surrender to Parent of certificates representing all and not less than all of
the Cash Election Shares issued and outstanding immediately prior to the
Effective Time, Parent shall pay to each PDI Shareholder an amount of
cash equal to the product of (i) the number of Cash Election Shares held by such
PDI Shareholder immediately prior to the Effective Time, (ii) the Cash
Percentage Interest, and (iii) the Initial Cash Payment. The Initial
Cash Payment will be payable by means of wire transfers to accounts specified in
writing to Parent not less than five Business Days before the Closing
Date.
(b) Initial
Stock Payment. At the Closing, upon surrender to Parent of
certificates representing all and not less than all of the Stock Election Shares
issued and outstanding immediately prior to the Effective Time, Parent shall
issue and deliver to each PDI Shareholder a certificate, registered in the name
of such PDI Shareholder, representing a number of shares of Parent Stock equal
to the product of (i) the number of Stock Election Shares held by such PDI
Shareholder immediately prior to the Effective Time, (ii) the Stock Percentage
Interest, and (iii) the Initial Stock Payment.
(c) Adjustment.
(i) Within
60 days after the Closing Date, with the cooperation and support of the PDI
Shareholders and the Surviving Corporation, Parent shall cause to be
prepared unaudited financial statements, including a balance sheet
and statements of income, changes in stockholders’ equity and cash flow, of PDI
as of the Closing Date (the “Parent Closing Financial
Statements”). Parent shall deliver the Parent Closing Financial
Statements to the PDI Shareholders, together with an initial calculation of the
adjusted Net Working Capital (the “Adjusted Net Working Capital”).
10
(ii) The
PDI Shareholders shall have 30 days after the receipt of the Parent Closing
Financial Statements to review and to provide written notice of its acceptance
of, or disagreement with, such statements. In case of disagreement,
the PDI Shareholders shall deliver to Parent within such 30-day period restated
Closing Financial Statements of PDI as of the Closing Date (the “PDI
Shareholders Closing Financial Statements”), together with a statement setting
forth in reasonable detail, the revised Adjusted Net Working
Capital. If no such notice is sent within such 30-day period, then
the initial calculation of the Adjusted Net Working Capital shall constitute the
“Final Adjusted Net Working Capital”.
(iii) Unless
Parent objects in writing within 15 days after receipt of the PDI Shareholders
Closing Financial Statements referred to above to the completeness or accuracy
of such statements, such PDI Shareholders Closing Financial Statements shall
constitute the “Final Closing Financial Statements” and the revised Adjusted Net
Working Capital shall constitute the “Final Adjusted Net Working
Capital”. In the event Parent makes such objection within such 15-day
period, the PDI Shareholders and Parent each agree to use their best efforts to
resolve the dispute. In the event such dispute is not resolved within 20 days
following a notice of objection, Parent or the PDI Shareholders may elect to
have the dispute resolved by any Big Four accounting firm independent of Parent,
PDI and the PDI Shareholders. The PDI Shareholders and Parent hereby agree that
the results of such independent accounting firm shall be conclusive and binding
on each of them and the financial statements and Purchase Price Adjustment as
approved by such firm shall constitute the “Final Closing Financial Statements”
and the “Final Adjusted Net Working Capital”. The Surviving Corporation, the PDI
Shareholders and Parent each agree to pay one-third of the fees and
disbursements of such accounting firm.
(iv) If
the Final Adjusted Net Working Capital is equal to the Estimated Net Working
Capital, then there shall be no re-payment from the PDI Shareholders to Parent
and the Parent shall not be required to pay any additional cash in respect of
the Initial Cash Payment to the PDI Shareholders. If the Final
Adjusted Net Working Capital is less than the Estimated Net Working Capital,
then the PDI Shareholders shall pay to Parent an amount equal to such
difference, by wire transfer of immediately available funds within five Business
Days. If the Final Adjusted Net Working Capital is greater than the Estimated
Net Working Capital, then Parent shall pay to the PDI Shareholders an amount
equal to such excess, by wire transfer of immediately available funds within
five Business Days.
(d) Contingent
Cash Payment. For each Performance Period, upon complete satisfaction of the
Performance Period Requirements set forth below, Parent shall pay each PDI
Shareholder an amount of cash determined in accordance with the following
formula:
CCP =
CES * CPI * 400,000 Where:
CCP =
The amount of cash payable by Parent to such PDI Shareholder with
respect to such Performance Period.
CES =
The number of Cash Election Shares held by such PDI
Shareholder immediately prior to the Effective Time.
CPI =
The Cash Percentage Interest.
With
respect to each Performance Period, the requirements set forth in paragraphs 1-6
below (the “Performance Period Requirements”) must be satisfied as a condition
precedent to Parent’s obligation to pay the Contingent Cash Payments for such
Performance Periods:
1. During
each Performance Period, the EBITDA of the Surviving Corporation must be equal
to or exceed that Performance Period’s EBITDA Target; and
2. During
each Performance Period, the Surviving Corporation must, and Parent shall permit
Surviving Corporation to, deposit in an account in a commercial bank depository
to be designated by and under the control of Parent (the “Parent Account”), an
aggregate amount of cash equal to or exceeding $725,000 for each applicable
Performance Period (the “Annual Deposit Requirement”); provided, however, that
the PDI Shareholders shall have the right to elect that the Surviving
Corporation apply future Catch-Up Cash Deposits to such Performance Period to
the extent necessary to meet the Annual Deposit Requirement;
11
3. During
each of the semi-annual six-month periods during each Performance Period, the
Surviving Corporation must, and Parent shall permit Surviving Corporation to,
deposit in Parent Account an aggregate amount of cash equal to or exceeding
$362,500 (the “Semi-Annual Deposit Requirement”) and such deposit shall be
applied to the Annual Deposit Requirement for such Performance
Period;
4. During
the four quarterly periods during each Performance Period, the Surviving
Corporation must, and Parent shall permit Surviving Corporation to, deposit in
Parent Account an aggregate amount of cash equal to or exceeding $175,000 in
three out of the four quarterly periods and $100,000 in one of the four
quarterly periods (the “Quarterly Deposit Requirement”) and such deposit shall
be applied to the Semi-Annual Deposit Requirement and Annual Deposit Requirement
for such Performance Period; provided, however, that the PDI Shareholders shall
have the right to elect that the Surviving Corporation apply Cash Deposits in
excess of $175,000 in any quarterly period to the subsequent quarterly period to
meet the Quarterly Deposit Requirement for such subsequent period;
5. Procuring
and maintaining key-man life insurance in the amount of $2,400,000 for each of
Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxxxxx, with Parent listed as owner and
beneficiary of such policies; and
6. With
respect to each of Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxxxxx, such PDI
Shareholder shall be in compliance with Section 14 of the Employment Agreement
(as defined in Section 9.2(g) hereof) to which such PDI Shareholder is a
party. With respect to Xxxxxxx X. Xxxxxx, such PDI Shareholder shall
be in compliance with Sections 1, 2, 3 and 4 of the Non- Competition Agreement
(as defined in Section 9.2(g) hereof) to which such PDI Shareholder is a
party. For purposes of this Section 3.4(d), any attempt by any PDI
Shareholder to have the above referenced sections of the Employment Agreements
or the Non-Competition Agreement to which such PDI Shareholder is a party deemed
void or unenforceable by a court of law or equity shall be deemed to be a
violation of the Performance Period Requirements with respect to such PDI
Shareholder.
(e) Contingent
Stock Payment. Upon complete satisfaction of the Performance Period
Requirements, for each Performance Period, Parent shall deliver to each PDI
Shareholder a certificate representing a number of shares of Parent
Stock (not to exceed in value $400,000 in the aggregate for each
Performance Period based upon the 10-day trading average of a share of Parent
Stock prior to the applicable issuance date) determined in accordance with the
formula set forth below within 30 days of Parent’s delivery to the PDI
Shareholders of the applicable Performance Period Financial Statements (which
delivery shall not be later than 30 days following the end of such Performance
Period):
CSP =
SES * SPI * (400,000 / ZTA)
Where:
CSP =
The number of shares of Parent Stock issuable by Parent
to such PDI Shareholder with respect to such Performance
Period.
SES =
The number of Stock Election Shares held by such
PDI Shareholder immediately prior to the Effective Time.
SPI =
The Stock Percentage Interest.
ZTA =
The average closing price of a share of Parent Stock as reported
on NASDAQ for the ten (10) consecutive trading days ending on
the date immediately preceding the issue date.
With
respect to each Performance Period, the Performance Period Requirements must be
satisfied as a condition precedent to Parent’s obligation to issue and deliver
the Contingent Stock Payments for such Performance Period.
12
(f) Catch-up
Payments. In the event that the 2nd, 3rd or 4th Performance Period Requirements
have not been completely satisfied for the first or second Performance Period,
and as a result the PDI Shareholders do not receive the Contingent Cash Payment
or the Contingent Stock Payment for such Performance Period, then, within 30
days following the end of the three- month period immediately following the end
of such Performance Period (a “Subsequent Quarter”), the PDI Shareholders may
(i) prepare and deliver to Parent a statement (a “Catch-up Statement”) that
specifies an amount of cash from such Subsequent Quarter that has been deposited
in the Parent Account to fulfill the Quarterly Deposit Requirement for such
Subsequent Quarter as set forth in the Quarterly Financial Statements for such
fiscal quarter to be applied to the unsatisfied Annual Deposit Requirement,
Semi-Annual Deposit Requirement and/or Quarterly Deposit Requirement from such
prior Performance Period (a “Catch-up Cash Deposit”). Within 30 days
after receiving a Catch- up Statement, Parent shall pay the Contingent Cash
Payment and issue the Parent Stock representing the Contingent Stock Payment for
such Performance Period. Any amount of cash that is borrowed from or
applied during a Subsequent Quarter to satisfy the Performance Period
Requirement for the prior Performance Period shall, for purposes of this Article
III, not be counted towards meeting the Annual Deposit Requirements, Semi-Annual
Deposit Requirements or Quarterly Deposit Requirements for the Performance
Period that includes the Subsequent Quarter. In the event that the
Surviving Corporation has deposited in the Parent Account during the three
Performance Periods taken as a whole a combined amount of cash equal to or
higher than $2,175,000 then within 30 days after the end of the third
Performance Period, the PDI Shareholders may issue a Catch-up Statement that
recalculates the Contingent Cash Payment and Contingent Stock Payment for any
Performance Period in respect of which no contingent payment was previously
made, subject to the Surviving Corporation satisfying the other Performance
Period Requirements for such Performance Period. Contingent Cash
Payments and Contingent Stock Payments made under this Section 3.4(f) instead of
under Sections 3.4(d) or (e) shall be considered “Merger Consideration” under
this Agreement.
(g) Final
Contingent Stock Payment. Upon complete satisfaction of the Final Performance
Period Requirement set forth below, Parent shall deliver to each PDI Shareholder
a certificate representing a number of shares of Parent Stock determined in
accordance with the formula set forth below within 30 days of Parent’s delivery
to the PDI Shareholders of the final Performance Period Financial Statements
(which delivery shall not be later than 30 days following the end of the Final
Performance Period):
FCSP =
SES * SPI * (800,000 / ZTA)
Where:
FCSP =
The number of shares of Parent Stock issuable by Parent
to such PDI Shareholder with respect to the Final
Performance Period.
SES =
The number of Stock Election Shares held by such
PDI Shareholder immediately prior to the Effective Time.
SPI =
The Stock Percentage Interest.
ZTA =
The average closing price of a share of Parent Stock as reported
on NASDAQ for the ten (10) consecutive trading days ending on
the date immediately preceding the issue date.
During
each Performance Period, the EBITDA of the Surviving Corporation must be equal
to or exceed that Performance Period’s Contingent Payment EBITDA Target (the
“Final Performance Period Requirement”) as a condition precedent to Parent’s
obligation to issue and deliver the Final Contingent Stock Payment.
(h) Taxes. All
Taxes incurred in connection with this Agreement, the Related Agreements and the
transactions contemplated hereby and thereby shall be paid by the Surviving
Corporation, excluding any such Taxes incurred by a holder of
Shares. The PDI Shareholders shall prepare or cause to be prepared
and file or cause to be filed all Tax Returns for PDI for all periods prior to
the Closing Date which are filed after the Closing Date. The PDI
Shareholders shall permit the Surviving Corporation to review and comment on
each such Tax Return described in the preceding sentence. All Tax
sharing agreements or similar agreements with respect to or involving PDI shall
be terminated as of the Closing Date and, after the Closing Date, Surviving
Corporation shall not be bound thereby or have any liability
thereunder.
13
ARTICLE
IV. REPRESENTATIONS AND WARRANTIES OF PDI
As a
material inducement for Parent and Merger Sub to enter into this Agreement and
to consummate the transactions contemplated hereby, PDI and the PDI Shareholders
hereby jointly and severally make the following representations and warranties
as of the date hereof, each of which is relied upon by Parent and Merger Sub
regardless of any investigation made or information obtained by or on behalf of
Parent:
4.1 Organization;
Qualification and Capital Stock; Corporate Records.
(a) PDI
is a corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado, and has the corporate power to own all of its
property and assets, to incur all of its liabilities and to carry on its
Business as now being conducted.
(b) PDI
is duly qualified to do business and in good standing in each jurisdiction in
which the nature or conduct of the Business or the character or location of its
properties makes such qualification necessary, listed on Schedule 4.1(b), except
for such failures to be so qualified which would not have a material adverse
effect.
(c) The
names of the directors and officers of PDI, together with the offices they hold,
are set forth on Schedule 4.1(c). Attached to Schedule 4.1(c) are
true and complete copies of (i) the articles of incorporation of PDI, together
with all amendments thereto and (ii) the by- laws of PDI, together with all
amendments thereto, as currently in effect.
(d) The
authorized capital stock of PDI consists of (i) 10,000,000 shares of voting
common stock, 3,100,000 of which shares are duly and validly issued and
outstanding, are fully paid and non-assessable, (ii) 1,000,000 shares of
non-voting common stock, 300,000 of which shares are duly and validly issued and
outstanding, are fully paid and non-assessable. Other than the
Shares, since its date of incorporation, PDI has not issued any shares of its
capital stock, nor has PDI effected any stock split or otherwise changed its
capitalization.
(e) None
of the outstanding shares of PDI’s capital stock has been issued in violation of
any preemptive rights of the current or past shareholders of PDI, or any stock
purchase agreement or other agreement to which PDI was or is a party or
bound.
(f) There
are no issued or outstanding options, warrants, rights to subscribe for, calls,
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of the capital stock of PDI, or
contracts, commitments, understandings or arrangements by which PDI is or may be
obligated to issue additional shares of its capital stock or options, warrants
or rights to purchase or acquire any additional shares of its capital
stock.
(g) Except
as set forth on Schedule 4.1(g), since December 31, 2001, PDI has not (i) paid
any dividend to any of its equity owners, (ii) made any other distribution on or
with respect to, or redeemed or otherwise acquired, any equity interest in PDI,
(iii) made or permitted any change in the authorized, issued, or treasury shares
of its equity securities, or (iv) taken any action which, if taken after the
date of this Agreement, would require the prior written consent of Parent and/or
Merger Sub pursuant to this Agreement. There is no liability for
dividends declared or accumulated but unpaid with respect to any of the
Shares.
(h) PDI
has not made any distributions to any holders of Shares or participated in or
effected any issuance, exchange or retirement of Shares, or otherwise changed
the equity interests of holders of Shares in contemplation of effecting the
Merger within the one year immediately preceding the date of this
Agreement.
(i) Except
as set forth on Schedule 4.1(i), PDI has not conducted business under any name
other than its own. Schedule 4.1(i) includes a list of all of PDI’s fictitious
name registrations.
14
(j) Subject
to the satisfaction of the conditions precedent set forth herein, PDI has the
corporate power to execute, deliver and perform this Agreement and the Related
Agreements to which PDI is a party, and, subject to the satisfaction of the
conditions precedent set forth herein, has taken all action required by its
certificate of incorporation, by-laws or otherwise, to authorize the execution,
delivery and performance of this Agreement and the Related
Agreements. The execution and delivery of this Agreement has been
approved by the Board of Directors of PDI. This Agreement is a valid
obligation of PDI, legally binding upon it and enforceable in accordance with
its terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors’ rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(k) The
Books and Records of PDI are complete and correct and have been maintained in
accordance with good business practice. True and complete copies of
all minutes, resolutions, stock certificates and stock transfer ledgers of PDI
are contained in the minute books and stock transfer ledgers that have been
delivered to the Parent for inspection and will be delivered to the Parent at
the Closing. The minute books, stock certificate books, stock
transfer records and such other books and other corporate records as may be
requested by Parent, are complete and correct in all material
respects.
4.2 No
Violations of Laws or Agreements, Consents or Defaults.
(a) The
execution and delivery of this Agreement and the consummation of the
transactions contemplated by this Agreement and the Related Agreements will not
result in any breach or violation of any of the terms or provisions of, or
constitute a default under, (i) the certificate of incorporation or by-laws of
PDI or (ii) any statute, order, decree, proceeding, rule, or regulation of any
court or governmental agency or body, United States or foreign, having
jurisdiction over PDI, any assets of PDI or the PDI Shareholders.
(b) Except
as set forth in Schedule 4.2(b), the delivery of this Agreement, the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation of the term of, or constitute a
default under, or require notice to any third party under, any agreement,
instrument, or commitment to which PDI or any of the PDI Shareholders is party,
by which it or any of the PDI Shareholders is bound, or to which any of PDI’s
property is subject, and no consent or approval is required from any third party
for the Merger.
(c) PDI
is not in default under, or in violation of any provision of, its certificate of
incorporation, by-laws, any promissory note, indenture or any evidence of
indebtedness or security thereto, lease, purchase contract or other commitment,
or any other agreement that is material to the Business of PDI.
4.3 No
Subsidiaries. Except as disclosed on Schedule 4.3, PDI does not own
stock in and does not control, directly or indirectly, any other corporation,
association or business organization. PDI is not a party to any joint venture or
partnership.
4.4 Financial
Information.
(a) Attached
hereto as Schedule 4.4(a) are true and complete copies of the Financial
Statements. Except as set forth on Schedule 4.4(a), the Financial Statements
have been prepared in accordance with GAAP (except as may be disclosed therein),
fairly present in all material respects the financial position and the results
of operations, changes in shareholders equity and cash flows of PDI as of the
dates and for the periods indicated, and do not include or omit any material
fact, the result of which inclusion or omission is to make the Financial
Statements materially misleading. The Financial Statements provide in all
material respects for all bad and doubtful debts, material liabilities (actual,
contingent, deferred or otherwise) and material financial commitments existing
as of the dates thereof.
(b) Except
for obligations incurred in the ordinary course of business since December 31,
2002, PDI has no material unrecorded liability or obligation required to be
reflected or disclosed in the Financial Statements under GAAP which is not so
reflected or disclosed, and PDI has no material liability or obligation in the
amount of $25,000 or more, whether accrued, absolute, contingent or otherwise,
as of the respective dates of the Financial Statements not required to be
reflected or disclosed in the Financial Statements.
15
(c) Except
as set forth on Schedule 4.4(c), there are no liabilities or obligations of PDI
whether known or unknown, asserted or unasserted, absolute or contingent accrued
or unaccrued, liquidated or unliquidated, due or to become due, required in
accordance with GAAP to be reserved against or disclosed in the Financial
Statements, which, are not so reserved or disclosed, nor is there any past or
present fact, situation, circumstance, condition or other basis for any present
or future action, suit or proceeding, hearing, charge, complaint, claim or
demand against PDI giving rise to any such liability or obligation.
(d) Except
as disclosed on Schedule 4.4(d) and to the knowledge of Parent, the Financial
Statements do not reflect any material income or expense that was unusual in
nature, nonrecurring, extraordinary, or otherwise not in the ordinary course of
PDI’s Business, consistent with past practices.
(e) All
tangible assets used by PDI in the Business are reflected in the Financial
Statements.
4.5 Absence
of Certain Changes. Since December 31, 2002, except as set forth on
Schedule 4.5, PDI has conducted the Business only in the ordinary course and
consistent with past practice, and has not:
(a) suffered
any material adverse change in its operations, condition, financial or
otherwise, assets, liabilities, earnings or working capital;
(b) except
to the knowledge of Parent, incurred any liabilities or obligations (absolute,
accrued, contingent or otherwise) except current liabilities incurred and
liabilities under contracts entered into in the ordinary course of business and
consistent with past practice (including obligations or liabilities arising from
one transaction or a series of related or similar transactions, and all periodic
installments or payments under any lease or other agreement providing for
periodic installments or payments, as a single obligation or liability), or
increased, or experienced any change in any assumptions underlying or methods of
calculating any bad debt, contingency or other reserves;
(c) declared,
set aside or paid any dividend or distribution in respect of shares of the
capital stock of PDI or redeemed, purchased or otherwise acquired any PDI
capital stock;
(d) issued,
delivered, or sold, or authorized the issuance, delivery or sale of, any share
of capital stock or any option or rights with respect thereto, or modification
or amendment of any right of any holder of outstanding shares of capital stock
or options with respect thereto;
(e) paid,
discharged or satisfied any claims, liabilities or obligations (absolute,
accrued, contingent, known or unknown, or otherwise) other than the payment,
discharge or satisfaction in the ordinary course of business and consistent with
past practice of liabilities and obligations reflected or reserved against in
the Balance Sheet or incurred in the ordinary course of business and consistent
with past practice since the Balance Sheet Date;
(f) permitted
or allowed any of the assets or properties of PDI to be subjected to any
mortgage, pledge, lien, security interest encumbrance, restriction or charge of
any kind;
(g) written
down the value of any inventory or written off as uncollectible any notes or
accounts receivable;
(h) canceled
any debts, or waived any claims or rights of substantial value;
(i) sold,
transferred or otherwise disposed of any of its properties or assets, except in
the ordinary course of business and consistent with past practice;
16
(j) disposed
of or permitted to lapse any rights to the use of any patent, trademark, trade
name or copyright, or disposed of or disclosed to any person other than an
Affiliate any invention, discovery, know-how, trade secret, formula, process or
other intellectual property not theretofore a matter of public
knowledge;
(k) granted
any general increase in the compensation of employees of PDI (including any such
increase pursuant to any bonus, pension, profit sharing or other plan or
commitment) or any increase in the compensation payable or to become payable to
any employee of PDI in excess of merit increases consistent with past practice,
and no such increase is customary on a periodic basis or required by agreement
or understanding;
(l) made
any capital expenditure or commitment for capital expenditures, other than those
capital expenditures or commitments that have been paid in full;
(m) made
any change in any method of accounting or accounting practice or failed to
maintain the books and records of PDI in the ordinary course of business and
consistent with past practice;
(n) failed
to maintain any of its properties or equipment in good operating condition and
repair, subject to ordinary wear and tear;
(o) failed
to maintain in full force and effect all existing policies of insurance at least
at such levels as were in effect prior to such date or canceled any such
insurance or, to its knowledge, taken or failed to take any action that would
enable the insurers under such policies to avoid liability for claims arising
out of occurrences prior to the Closing;
(p) entered
into any transaction or made or entered into any material contract or
commitment, or terminated or amended any material contract or commitment, except
in the ordinary course of business and consistent with past practice, and not in
excess of current requirements;
(q) taken
any action that could reasonably be expected to have a material adverse effect
on the business organization of PDI or PDI’s current relationships with its
customers, employees, suppliers, distributors, advertisers, subscribers or
others having business relationships with PDI; or
(r) agreed
in writing or otherwise to take any action with respect to any of the matters
described in this Section 4.5.
4.6 Licenses;
Regulatory Approvals. PDI holds all licenses, certificates and other
regulatory approvals required or necessary to be applied for or obtained in
connection with the Business as presently conducted by PDI. All such licenses,
certificates and other approvals are listed on Schedules 4.6 Except
as set forth on Schedule 4.6, all such licenses, certificates and other
regulatory approvals relating to the Business, operations and facilities of PDI
are in full force and effect. Any and all past litigation concerning such
licenses, certificates and regulatory approvals, and all claims and causes of
action raised therein, have been finally adjudicated, and, in the case of such
litigation finally adjudicated since the Balance Sheet Date such adjudication
has not had a material adverse effect on PDI. Except as set forth on Schedule
4.6, no such license, certificate or regulatory approval has been revoked,
conditioned (except as may be customary) or restricted, and no action
(equitable, legislative or administrative), arbitration or other process is
pending, or to the best knowledge of PDI, threatened, which in any way
challenges the validity of, or seeks to revoke, condition or restrict any such
license, certificate or regulatory approval.
4.7 Regulatory
Matters.
(a) Except
as may be disclosed in Schedule 4.7(a), (i) PDI is not the subject of any
outstanding, and is not aware of any threatened, investigation, audit, review or
other examination of PDI by any federal or state governmental agency having
supervisory or regulatory authority with respect to PDI or the Business, and
(ii) PDI is not subject to, nor has PDI received any notice or advice that it
may become subject to, any order, agreement, memorandum of understanding or
other regulatory enforcement action or proceeding with any federal or state
governmental agency having supervisory or regulatory authority with respect to
PDI or the Business.
17
(b) PDI
is not aware of any proposed or pending change in any law or regulation
affecting the Business which would materially adversely affect the operations,
financial condition or prospects of PDI.
4.8 Tax
Matters.
(a) Except
as set forth on Schedule 4.8(a), PDI has prepared and filed in accordance with
applicable laws, rules and regulations all federal, state and local income,
franchise, excise, sales, use, real and personal property and other Tax Returns,
information statements and reports required to be filed by it, or PDI has
prepared and filed appropriate requests for extensions to file such Tax Returns
and all such requests have been timely filed and granted and have not expired in
accordance with applicable laws, rules and regulations. All such Tax Returns for
the last three (3) years have been previously disclosed in full to Parent and
are listed on Schedule 4.8(a).
(b) Except
as set forth in Schedule 4.8(b), all such Tax Returns correctly and completely
reflect the information required to be presented therein, and PDI has not paid
any penalty, surcharge, fine or interest in connection with any alleged
underpayment of Taxes.
(c) Except
as set forth in Schedule 4.8(c), PDI has paid all Taxes that have become due and
payable to (or claimed to be due and payable by) any federal, state, county,
local, foreign or other taxing authority. PDI has made full provision
or reserve in the Financial Statements for all Taxes for which PDI is or may be
accountable with respect to income, profits or gains earned, accrued or received
on or before the dates thereof, including distributions made on or before such
dates or provided for in such Financial Statements, and full and proper
provision has been made in such Financial Statements for deferred Tax in
accordance with GAAP and in the aggregate do not materially fail to provide for
potential Tax liabilities. All estimated Tax payments that have
become due and payable prior to the date of this Agreement have been
paid. No claim has ever been made by an authority in a jurisdiction
where PDI does not file Tax Returns that it is or may be subject to taxation by
that jurisdiction. There are no liens for Taxes (other than Taxes not yet due
and payable) upon any of the assets of PDI.
(d) PDI
has properly withheld from the salaries, wages or other compensation paid or
payable to officers, employees or other persons, and has paid to the appropriate
federal, state or local taxing authorities, any amounts required to be withheld
therefrom under applicable laws, rules or regulations.
(e) To
PDI’s knowledge, no event, transaction, act or omission has occurred which could
result in PDI becoming liable for any Tax which is primarily or directly
chargeable against or attributable to a Person other than PDI or which is
charged by reference to the income or gains of another Person. In the event that
PDI has been part of a consolidated group of taxpayers, PDI is not liable for
any Tax obligations of the other members of the group.
(f) To
PDI’s knowledge, no Tax Return (or item in a Tax Return) is currently under
audit by any taxing authority, and there are no agreements for the waiver of any
statute of limitations in respect of any Taxes or for the extension of time for
the assessment or payment of any Tax. PDI is not, and does not expect
to be, involved in any material dispute in relation to any Tax matters, and to
PDI’s knowledge no taxing authority has investigated or indicated that it
intends to investigate PDI’s Tax matters. PDI is not aware of any facts which
may constitute the basis for the proposal of any Tax deficiencies for any
unexamined year.
(g) PDI
is not a party to any agreement, contract, arrangement or plan that has resulted
or would result, separately or in the aggregate, in the payment of (i) any
“excess parachute payment” within the meaning of Code 280G (or any
corresponding provision of state, local or foreign Tax law) and any amount that
will not be fully deductible as a result of Code 162(m) (or any corresponding
provision of state, local or foreign Tax law). PDI has not been a
United States real property holding corporation within the meaning of
Code 897(c)(2) during the applicable period specified in
Code 897(c)(1)(A)(ii). PDI has disclosed on its federal
income Tax Returns all positions taken therein that could give rise to a
substantial understatement of federal income Tax within the meaning of
Code 6662. PDI is not a party to or bound by any Tax
allocation or sharing agreement. PDI has not been a member of an
“Affiliated Group” filing a consolidated federal income Tax Return and (ii) has
not liability for the Taxes of any Person under Reg. 1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
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(h) PDI
has not entered into any transaction or course of conduct (other than
legitimate, good faith Tax planning) designed in whole or in part to avoid
Taxes.
(i) Since
it began business, PDI has been an S corporation in accordance with the
provisions of Section 1361 of the Code and will continue to qualify as an S
corporation for all periods through the Closing Date. PDI is not, has
not and will not be subject to the built-in-gains tax under Section 1374 of the
Code or to the tax on passive income under Section 1375 of the
Code. PDI has not and will not acquire any bulk assets from another
corporation by purchase, merger or otherwise. Schedule 4.8(i) lists
all of the states and localities with respect to which PDI is required to file
any corporate, income (or equivalent assessments based upon receipts, revenue or
income), sales, use and/or franchise Tax Returns and sets forth whether PDI is
treated in such states and localities where it is required to file any income or
equivalent Tax Return as the equivalent of an S corporation by or with respect
to each such state and/or locality. None of the PDI Shareholders are
subject to back-up withholding from any taxing authority.
(j) PDI
will not be required to include any item of income in, or exclude any item of
deduction from, taxable income for any taxable period (or portion thereof)
ending after the Closing Date as a result of any: (i) change in method of
accounting for a taxable period ending on or prior to the Closing Date in
accordance with Code 481 (or any corresponding or similar provision
of state, local or foreign income Tax law); (ii) “closing agreement” as
described in Code 7121 (or any corresponding or similar provision of
state, local or foreign income Tax law) executed on or prior to the Closing
Date; (iii) intercompany transactions or any excess loss account described in
Treasury Regulations under Code 1502 (or any corresponding or similar
provision of state, local or foreign income Tax law); (iv) installment sale or
open transaction disposition made on or prior to the Closing Date; (v) prepaid
amount received on or prior to the Closing Date; transfer of intangible property
to which Code 367(d) or Code 482 may apply.
4.9 Litigation
Claims.
(a) There
is no action, suit, claim, investigation or proceeding, whether at law or in
equity (a “Claim”), pending or, to the knowledge of PDI, threatened that
questions the validity of this Agreement or the Related Agreements or any action
taken or to be taken by PDI or the PDI Shareholders in connection with the
consummation of the transactions contemplated hereby or thereby or which seeks
to prohibit, enjoin or otherwise challenge any of the transactions contemplated
hereby or thereby.
(b) Schedule
4.9(b) sets forth an accurate and complete list, and a brief description
(setting forth the names of the parties involved, the court or other
governmental or mediating entity involved, the relief sought and the substantive
allegations and the status thereof), of each Claim pending or, to the knowledge
of PDI, threatened against or affecting PDI. None of the pending or
threatened Claims set forth on Schedule 4.9(b), if adversely determined, would
individually or in the aggregate, result in a materially adverse effect on
PDI. To the knowledge of PDI no event has occurred and no
circumstance, matter or set of facts exist which would constitute a valid basis
for the assertion by any third party of any claim or Claim, other than those
listed on Schedule 4.9(b). Except as set forth in Schedule 4.9(b) there is no
outstanding or, to the knowledge of PDI, threatened judgment, injunction,
judgment, order or consent or similar decree or agreement (including, without
limitation, any consent or similar decree or agreement with any governmental
entity) against, affecting or naming PDI.
(c) To
PDI’s knowledge, except as disclosed in Schedule 4.9(c), there is no claim
(whether based on statute, negligence, breach of warranty, strict liability or
any other theory) relating directly or indirectly to any product manufactured or
sold, or any services performed, by PDI.
4.10 Properties,
Contracts; Leases and Other Agreements; Bank Accounts.
(a) PDI
does not own any real estate.
(b) All
leasehold interests for real property and any material personal property used by
PDI in the Business are held pursuant to lease agreements which are valid and
enforceable in accordance with their terms, the agreements for which are listed
on Schedule 4.10(b). To the knowledge of PDI, all such properties
comply in all material respects with all applicable private agreements, zoning
requirements and other governmental laws and regulations relating thereto and
there are no condemnation proceedings pending or, to the knowledge of PDI,
threatened with respect to such properties. PDI has not assigned or subleased
its interests under such leases or the assets covered thereby. Each such lease
has been duly and validly executed, is in full force and effect and constitutes
the valid and binding agreement of the parties thereto. Any additional business
offices maintained by PDI during the past two (2) years are also listed by
location on Schedule 4.10(b).
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(c) Except
as set forth on Schedule 4.10(c), and excluding trade accounts payable incurred
in the ordinary course of business and payable to Persons other than Affiliates
of PDI, PDI does not have any liabilities for borrowed funds, extensions of
credit or other advances that are subject to repayment whether pursuant to a
written agreement, oral understanding or course of conduct, and whether
reflected on the Financial Statements as indebtedness, accounts payable or
otherwise, and any such liability set forth on Schedule 4.10(c) may be prepaid
at any time without premium or penalty.
(d) Except
as set forth in Schedule 4.10(d), PDI is not a party to any agreements,
contracts or commitments relating to the acquisition of the assets or capital
stock of any other business enterprise.
(e) Except
as set forth in Schedule 4.10(e), PDI is not a party to any
agreements, loans, contracts, leases, guarantees, letters of credit, lines of
credit or commitments of PDI not referred to elsewhere in this Agreement which:
(i) involve potential payments by PDI or incurring by PDI of costs or
obligations, of more than $25,000 in the aggregate; (ii) involve payments based
on profits of PDI; (iii) relate to the future purchase of goods or services in
excess of the requirements of the Business at current levels or for normal
operating purposes; (iv) include powers of attorney or grants of agency by PDI;
(v) cannot be canceled by PDI without penalty or premium on no more than thirty
(30) days’ notice; (vi) were not made in the ordinary course of business; or
(vii) otherwise materially affect the Business or financial condition of
PDI.
(f) Except
as set forth in Schedule 4.10(f), no contracts material to the Business will
terminate or are subject to modification by reason of the Merger and PDI has not
received notice, of any potential termination or modification of such
contracts.
(g) Except
as set forth in Schedule 4.10(g), neither PDI, not any other party, is in
default, technical or otherwise, of any real estate lease, equipment lease, loan
or credit agreement, or any other contract or agreement to which PDI is a party,
and no event or condition has occurred or exists which, with the passage of
time, giving of notice or both, would cause any party to be in default
thereunder.
(h) Set
forth on Schedule 4.10(h) is an accurate and complete list showing the name and
address of each bank, securities broker, mutual fund, investment company,
investment adviser or other financial institution or similar Person with which
PDI has an account, including the account or box number and the names of all
persons and entities authorized to draw thereon or have access
thereto.
(i) All
material contracts and agreements to which PDI is a party (“Contracts”) (i) are
valid and enforceable in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors’ rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity); (ii) no Default (as
defined below) exists under any Contract either by PDI or by any other party
thereto; (iii) PDI is not aware of the assertion by any third party of any claim
of Default or breach under any of the Contracts; and (iv) PDI is not aware of
any present intention on the part of any significant customer or supplier or
other business partner of PDI to either (a) terminate or significantly change
its existing business relationship with PDI either now or in the foreseeable
future, or (b) fail to renew or extend its existing business relationship with
PDI at the end of the term of any existing contractual arrangement such entity
may have with PDI. For purposes of this Agreement, the term “Default”
means, with respect to any Contract, (x) any breach of or default under such
Contract, (y) any event, other than the normal passage of time, which would
(either with or without notice or lapse of time or both) give rise to any right
of termination, cancellation or acceleration of any obligation to repay with
respect to such Contract, or (z) any event, other than the normal passage of
time, which would result in either a significant increase in the obligations or
liabilities of, or a loss of any significant benefit of, the party in question
under such Contract.
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(j) Set
forth on Schedule 4.10(j) is an accurate and complete list showing all Contracts
whereby PDI is providing or expects to provide products or services of any kind
to a third party.
(k) Except
as set forth on Schedule 4.10(k), PDI has not granted any right of first refusal
or similar right in favor of any third party with respect to any material
portion of its properties or assets or entered into any non-competition
agreement or similar agreement restricting its ability to engage in any business
in any location.
4.11 Employee
Matters; Benefit Plans; ERISA.
(a) Except
as may be disclosed in Schedule 4.11(a), PDI has not entered into any collective
bargaining agreement with any labor organization with respect to any group of
employees of PDI and, to the knowledge of PDI, there is no present effort nor
existing proposal to attempt to unionize any group of employees of
PDI.
(b) Except
as may be disclosed in Schedule 4.11(b):
(i) PDI
is and has been in material compliance with all applicable laws relating to
employment and employment practices, terms and conditions of employment and
wages and hours, including, without limitation, any such laws respecting
employment discrimination and occupational safety and health requirements, and
PDI is not engaged in any unfit labor practices;
(ii) There
is no material unfair labor practice complaint against PDI pending or, to the
knowledge of PDI, threatened before the National Labor Relations
Board;
(iii) There
is no labor dispute, strike, slowdown or stoppage actually pending or, to the
knowledge of PDI, threatened against or directly relating to PDI;
and
(iv) PDI
has not experienced any material work stoppage or other material labor
difficulty during the past year.
(c) Except
as described and attached to Schedule 4.11(c), PDI is not a party to any
agreement for the employment, retention or engagement or severance of any
officer, employee, agent, advisor or consultant.
(d) Schedule
4.11(d) contains a correct and complete list of all Benefit Plans maintained by
PDI or to which PDI or any ERISA Affiliate (as defined below)
contributes. PDI has delivered or made available to Parent, with
respect to all such Benefit Plans, complete and correct copies of the
following: all plan documents, handbooks, manuals, collective
bargaining agreements and similar documents governing employment policies,
practices and procedures; the most recent summary plan descriptions
and any subsequent summaries of material modifications and all other material
employee communications discussing any employee benefit; Forms series
5500 as filed with the IRS for the three most recent plan years (including all
attachments thereto); the most recent report of the enrolled actuary
for any plans requiring actuarial valuation; all trust agreements
with respect to the Benefit Plans; plan contracts with service
providers or insurers providing benefits for participants or liability insurance
for fiduciaries and other parties in interest or bonding; the most
recent annual audit and accounting of plan assets for all funded
plans; and the most recent Internal Revenue Service (“IRS”)
determination letter or opinion letter for all plans qualified under Section
401(a) of the Code.
(e) Neither
PDI nor any ERISA Affiliate participates in or maintains or has ever maintained
or been obligated to contribute to a multi- employer plan (as defined in Section
3(37) of ERISA), and neither PDI nor any ERISA Affiliate has withdrawal
liability with respect to any multi-employer plan.
(f) Neither
PDI nor any ERISA Affiliate maintains or has ever maintained or been obligated
to contribute to an employee pension benefit plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA.
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(g) PDI
has made full payment of all amounts it is required, under applicable law or the
terms of each Benefit Plan, to have contributed thereto before the Closing Date
for all periods through and including the close of the last plan year ending
prior to the Closing Date, or proper accruals for such contributions have been
made and are reflected on its balance sheet and books and
records. PDI will pay such contributions to the Benefit Plans for the
current plan year prior to the Closing Date, or, if any such contributions will
not be due prior to the Closing Date, has made adequate provision for reserves
therefor. All such contributions are fully deductible by PDI for
purposes of PDI’s federal income taxes, and PDI has no actual or potential
liability for the 10 percent tax imposed by section 4972 of the
Code.
(h) All
Taxes, penalties, interest charges and other financial obligations to federal,
state and local governments and to participants or beneficiaries under the
Benefit Plans with respect to any period ending on or before the Closing Date
have been or will be met in full on or before the Closing Date.
(i) All
reports, returns, notices and similar documents with respect to the Benefit
Plans required to be filed with any governmental agency or distributed to any
Benefit Plan participant or beneficiary have been duly and timely filed or
distributed.
(j) Each
Benefit Plan required to be listed on Schedule 4.11(d) that is intended to be
qualified under Section 401 of the Code is (and from its establishment has been)
the subject of a favorable determination letter or opinion letter issued by the
IRS, and no such determination letter or opinion letter has been revoked nor, to
PDI’s knowledge, has revocation been threatened, nor has any Benefit Plan been
amended since the date of its most recent determination letter or application
therefor in any respect which would adversely affect its qualification or
materially increase its cost, and no Benefit Plan has been amended in a manner
that would require security to be provided in accordance with Section 401(a)(29)
of the Code. Each trust maintained under any such Benefit Plan is
(and from its establishment has been) exempt from federal income tax under
Section 501 of the Code.
(k) Each
Benefit Plan required to be listed on Schedule 4.11(d) complies, in both form
and operation, with the applicable requirements of ERISA, the Code and other
applicable law. There are no pending investigations by any
governmental agency involving such Benefit Plans, no termination proceedings
involving the Benefit Plans, and, to PDI’s knowledge, no threatened or pending
claims (except for routine claims for benefits), suits or proceedings against
any Benefit Plan or asserting any rights or claims to benefits under any Benefit
Plan which could give rise to any liability nor, to PDI’s knowledge, are there
any facts which could give rise to any liability in the event of any such
investigation, claim, suit or proceeding.
(l) Neither
PDI nor any “party in interest” (as defined in section 3(14) of ERISA) or
“disqualified person” (as defined in section 4975(e)(2) of the Code) with
respect to any Benefit Plan has engaged in a “prohibited transaction” (as
defined in Section 4975 of the Code or Section 406 of ERISA) for which a
statutory, administrative, or regulatory exemption is not
available. No Benefit Plan has been (or will be as a result of the
transactions contemplated hereby) completely or partially terminated or has been
(or will be as a result of the transactions contemplated hereby) subject to a
“reportable event” (as defined in section 4043 of ERISA) or to any event
requiring disclosure under section 4062(e) or 4063(a) of ERISA.
(m) PDI
is in full compliance with the continuation coverage requirements of the
Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and the
health insurance obligations (sometimes referred to as “HIPAA”) imposed by
section 9801 of the Code and Part 7 of Subtitle B of Title I of
ERISA.
(n) Other
than the group health plan continuation coverage requirements required by
applicable law (as described in subsection (m) above), the cost of which is
fully paid by the former employee or his or her dependent, PDI does not maintain
retiree life or retiree health plans providing for continuing coverage for any
employee or any beneficiary of an employee after the employee’s termination of
employment.
(o) Prior
to the Closing Date, PDI will not establish any new Benefit Plan for the
employees of PDI, except with the written consent of Parent, nor will PDI amend
or modify any existing Benefit Plan as to any benefit or in any other way,
except with the written consent of Parent.
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(p) Except
as set forth on Schedule 4.11(p), PDI is not a party to any oral or written
agreement with any director, executive, officer or other key employee, the
benefits of which are contingent or the terms of which are materially altered or
permit termination, upon the occurrence of a transaction of the nature
contemplated by this Agreement, and which provides for the payment of in excess
of Fifty Thousand Dollars ($50,000), or agreement or plan, including any stock
option plan, stock appreciation rights plan, restricted stock plan or stock
purchase plan, any of the benefits of which will be increased, or the vesting 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.
4.12 Personnel. Schedule
4.12 contains (i) the list of all persons employed by, or engaged as an
independent contractor by, PDI and (ii) an accurate and complete list of the
wage rates for all such persons employed by PDI by
classification. PDI is not in default with respect to any material
obligation to any of its employees or independent contractors.
4.13 Title
to and Condition of Properties.
(a) Except
as described in Schedule 4.13(a), PDI collectively owns or uses all of the
personal property included in the balance sheet (the “Balance Sheet”) dated as
of December 31, 2002, (the “Balance Sheet Date”) (except assets as have been
disposed of in the ordinary course of PDI’s business since the Balance Sheet
Date), which owned assets are free and clear of all Encumbrances and rights to
possession of third parties, of every type and nature. The assets of
PDI are sufficient to carry on the business of PDI in the ordinary course as
presently conducted. Other than as disclosed in Schedule 4.13(a) or
specifically provided for in this Agreement, PDI has not entered into any
leases, licenses, easements or other agreements, recorded or unrecorded,
granting rights to third parties in any real or personal property of PDI, and,
except for property leased by PDI, to PDI’s knowledge, no person or other
company has any right to possession, use or occupancy of any of the property
used by PDI.
(b) Except
for inventory that is excess, damaged or obsolete, for which PDI has established
in the aggregate an adequate reserve in the Balance Sheet in accordance with
GAAP, the inventory reflected in the Balance Sheet and not disposed of or
reserved since such date is of good and merchantable quality, of a quantity and
quality saleable in the ordinary course of business of PDI in accordance with
past practices and is adequate as of the date hereof for the business of PDI as
conducted as of such date.
(c) Equipment
used by PDI in the conduct of its business is, as of the date hereof, taken as a
whole in good and operating condition (reasonable wear and tear excepted) and is
sufficient to carry on the business of PDI in the ordinary course as it is
presently conducted.
4.14 Product
and Service Warranties. Except as set forth on Schedule 4.14, each
product or service delivered or licensed by PDI has been in conformity in all
material respects with all applicable federal, state, local or foreign laws and
regulations, contractual commitments and all express and implied warranties, and
PDI has no liability for replacement or repair thereof or other damages in
connection therewith, except for liabilities incurred in the ordinary course of
business, and no product or service delivered or licensed by PDI is subject to
any guaranty, warranty, or other indemnity.
4.15 Intellectual
Property.
(a) Except
as set forth on Schedule 4.15(a), PDI owns, free and clear of all liens,
mortgages, security interests, charges and encumbrances of every nature, kind
and description, and has good and merchantable title to, or holds adequate
licenses or otherwise possesses all rights necessary to use, all patents,
trademarks, service marks, trade names, copyrights (including any applications
for any of the foregoing), the domain name xxx.xxxxxxxxxxxxxxx.xxx, all other
names embodying business or product goodwill (or both), inventions, discoveries
and improvements, processes, know-how, trade secrets, scientific, technical,
engineering and marketing data, computer programs, software, including all
object and source codes, programming tools and all other techniques used or
necessary for the conduct of the Business as now conducted (collectively, the
“Intellectual Property”).
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(b) Schedule
4.15(b) contains an accurate and complete list of (i) all such patents,
trademarks, trade names, service marks, assumed names and copyrights, and all
applications therefor, and, with respect to registered items, contains a list of
all jurisdictions in which such items are registered and all registration
numbers; (ii) all licenses, permits and other agreements relating thereto; and
(iii) all agreements relating to any of the Intellectual Property that PDI is
licensed or authorized to use by others. The patents, trademarks,
service marks and copyrights, licenses, permits and other agreements
constituting a part of the Intellectual Property and solely owned by PDI are
valid, subsisting and enforceable, and are duly recorded in the name of
PDI.
(c) All
software, other than generally available software such as Microsoft Word, Lotus
1-2-3, and the like, and generally available system development tools, that is
either marketed to customers of PDI as a program or as part of a service to
support the Business is owned by PDI or PDI has the right to use, modify, copy,
sell, distribute, sublicense and make derivative works free and clear of any
limitations or Encumbrance, except as may be set forth in any license agreement
listed in Schedule 4.15(c). To the extent third party software is marketed to
customers of PDI together with the Intellectual Property solely owned by PDI,
the third party rights have been identified in Schedule 4.15(c), all necessary
licenses have been obtained and no royalties or payments are due from PDI to
third parties except as identified on Schedule 4.15(c).
(d) Except
as set forth on Schedule 4.15(d), PDI has the sole and exclusive right to use
the patents, service marks and copyrights listed in Schedule 4.15(b) and, to the
knowledge of PDI, the trademarks and trade names listed in Schedule 4.15(b), in
each case, in all jurisdictions in which the Business is conducted or in which
any products of the Business are distributed, and the consummation of the
transactions contemplated hereby will not alter or impair any such
rights.
(e) No
claims have been asserted by any Person challenging or questioning the
ownership, validity, enforceability or use by PDI of any of the Intellectual
Property and, to the knowledge of PDI, there is no valid basis for any such
claim, and the use or other exploitation of the Intellectual Property by PDI
does not infringe on or dilute the rights of any Person; and, to the knowledge
of PDI, no Person is infringing on the rights of PDI with respect to any of the
Intellectual Property.
(f) PDI
has taken all reasonable security measures to protect the secrecy,
confidentiality and value of the Intellectual Property of PDI, including
computer programs, trade secrets and other confidential
information. Except as disclosed in Schedule 4.15(f), no Person has
any marketing rights to the Intellectual Property of PDI. No Person
listed in such schedule is in breach or default under its
obligations.
(g) Each
employee, officer, consultant and contractor of PDI and/or any other person or
entity developing intellectual property on behalf of PDI as identified on
Schedule 4.15(g) has entered into and executed an ownership and nondisclosure
agreement (collectively, the “Ownership and Nondisclosure Agreements”)
substantially in the form attached to this Agreement as Exhibit A.
(h) PDI
has made available to Parent all documents in PDI’s custody, possession or
control with respect to any invention, discovery, process, design, computer
program or other know-how or trade secret included in the Intellectual Property,
which documents shall be accurate in all material respects and reasonably
sufficient in detail and content to identify and explain such invention,
discovery, process, design, computer program or other know-how or trade secret
and to facilitate its full and proper use.
4.16 Insurance. All
material insurable properties owned or held by PDI, and all insurable risks
related to the Business, are adequately insured by insurers which are, to PDI’s
knowledge, financially sound and reputable, in such amounts and against fire and
other risks insured against by extended coverage and public liability insurance,
property damage, product liability, general liability, workers compensation,
fidelity bonds, professional liability insurance and errors and omissions
insurance, and against other risks and in such amounts as would be prudently
insured against by comparable businesses and as may be required by law or any
agreement to which PDI is a party. Schedule 4.16 lists all policies
of insurance owned or held by PDI or insuring its assets. All current premiums
and any other obligations under such insurance have been paid, and, to the
knowledge of PDI, all such policies are valid and enforceable and in full force
and effect on the date hereof. PDI has not received any notice of
cancellation or of premium increase under any such policies within the last
ninety (90) days.
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4.17 Relationships.
(a) PDI
has no knowledge of any present or future conditions or state of facts or
circumstances which would materially adversely affect PDI after the Closing
Date.
(b) Schedule
4.17(b) lists the 10 most important customers of PDI as a percentage of revenues
for fiscal years 2001 and 2002. PDI’s relationships with its customers, clients
and vendors are satisfactory, and PDI has no knowledge of any facts or
circumstances, including a change of control in the ownership of PDI, that might
materially alter, negate, impair or in any way materially adversely affect the
continuity of any such relationships and the Business.
(c) Except
as disclosed in Schedule 4.17(c), PDI has no knowledge of and has not received
notice of any complaints, claims or threats, plans or intentions to discontinue
commercial relations or transactions from any customer of PDI, any purchaser of
goods or services from PDI, any employee or independent contractor significant
to the conduct or operation of PDI or any party to any agreement to which PDI is
a party.
(d) PDI
has no knowledge of any present or future condition or state of facts or
circumstances, including a change of control in the ownership of PDI, that would
materially prevent the Business of PDI from being carried on after the Closing
Date in essentially the same manner as it is presently being carried
on.
4.18 Compliance
With Laws.
(a) Except
as set forth in Schedule 4.18(a), the operations and activities of PDI has
previously and continues to comply in all material respects with all applicable
Federal, state and local laws, statutes, codes, ordinances, rules, regulations,
permits, judgments, orders, writs, awards, decrees or injunctions (collectively,
the “Laws”) as in effect on or before the date of this Agreement, including
without limitation, all rules and regulations of the Occupational Safety and
Health Administration. The conduct of the business of PDI as
presently conducted does not conflict with the rights of any other Person or
violate or, with or without the giving of notice or the passage of time, or
both, will violate, conflict with or result in a default, right to accelerate or
loss of rights under, any terms or provisions of its certificate of
incorporation or by-laws as presently in effect or any Encumbrance, lease,
license, agreement, Laws or understanding to which PDI is a party or by which it
may be bound or affected. PDI has received no notice or communication
from any Person asserting a failure to comply with any Laws, nor has PDI
received any notice that any authority or third party intends to seek
enforcement against PDI to compel compliance with any such Laws.
(b) (i)
PDI has not made, and, to the knowledge of PDI, no officer, director, employee,
agent or other representative of any of them acting on behalf thereof has made,
directly or indirectly, with respect to the business of PDI, any illegal bribes,
kickbacks or other illegal payments of a similar nature, or illegal political
contributions with corporate funds not recorded in the corporate records of PDI,
illegal payments from corporate funds to governmental officials, or illegal
payments from corporate funds to obtain or retain business either within the
United States or abroad, and (ii) neither PDI nor any officer, employee or agent
of PDI acting on its behalf, nor any other Person acting on its behalf has,
directly or indirectly, within the past three (3) years given or agreed to give
any gift or similar benefit to any customer, supplier, governmental employee or
other Person who is or may be in a position to help or hinder PDI (or assist PDI
in connection with any actual or proposed transaction) which (A) might subject
PDI to any damage or penalty in any civil, criminal or governmental litigation
or proceeding, (B) if not given in the past might have had an adverse effect on
the assets, business or operation of PDI, or (C) if not continued in the future,
might adversely affect the assets, the Business or the operations or prospects
of PDI.
4.19 Environmental
Matters.
(a) PDI
has not obtained and is not required to obtain, any permits, licenses or other
authorizations under any applicable Environmental Laws.
(b) Except
as set forth on Schedule 4.19, PDI is, to its knowledge, in full compliance with
all limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws. Except as set forth on Schedule 4.19, since PDI’s
incorporation, no written notice, demand, request for information, citation,
summons or complaint has been received or order has been issued, no complaint
has been filed, no suit or action has been instituted, no penalty has been
assessed and no investigation or review is pending or, to the knowledge of PDI,
threatened by any governmental entity or other Person with respect to any (i)
alleged violation by PDI of any Environmental Law or liability thereunder, (ii)
alleged failure by PDI to have any permit, certificate, license, approval,
registration or authorization required under any Environmental Law, (iii)
release of Hazardous Substances by or on behalf of PDI, or (iv) any
Environmental Liabilities attributed to PDI.
25
(c) Except
as set forth on Schedule 4.19, there are no Environmental Liabilities that have
had, or could reasonably be expected to have individually, or in the aggregate,
a material adverse effect with respect to PDI.
(d) Except
as set forth on Schedule 4.19, to the knowledge of PDI, no state of facts exists
as to environmental matters or Hazardous Substances that involves the reasonable
likelihood of a material capital expenditure by PDI or a material fine or
penalty imposed on or attributable to PDI, or that may otherwise have a material
adverse effect with respect to PDI or does or could interfere with or prevent
compliance with any Environmental Laws or give rise to any common law or other
legal liability.
(e) No
Hazardous Substances have been manufactured, treated, stored, transported or
disposed of by PDI, or otherwise deposited by PDI, in or on or are present
beneath properties currently or formerly owned, leased or used by PDI in
violation of, or which may be required to be investigated or remediated under,
any applicable Environmental Laws.
(f) There
has been no disposal, escape, seepage, leakage, spillage, discharge, emission,
release or threatened release of any Hazardous Substance as a result of the
actions or omissions of PDI (i) on, from or affecting any properties owned,
leased or used by PDI, or (ii) for which PDI is, is alleged or may be held to
be, responsible as a result of conduct occurring or conditions existing at or
before Closing.
4.20 No
Undisclosed Liabilities or Obligations. PDI has no material liability
or obligation, known or unknown, asserted or unasserted, absolute or contingent,
accrued or unaccrued, liquidated or unliquidated, and due or to become due (and
there is no past or present fact, situation, circumstance, condition or other
bias for any present or future action, suit or proceeding, hearing, charge,
complaint, claim or demand against PDI giving rise to any such liability),
except:
(a) for
liabilities or obligations accrued for or reserved against on the Financial
Statements;
(b) for
liabilities or obligations of the same type incurred in the ordinary course of
business of PDI since the date of the most recent balance sheet included in the
Financial Statements; and
(c) as
may be disclosed in Schedule 4.20(c).
4.21 Receivables. Schedule
4.21 sets forth a true and complete list of all Receivables and the aging
thereof. All Receivables represent sales actually made or services
actually performed in the ordinary course of business with no additional
services required to entitle PDI to collect such Receivables, and have been
fully collected or are fully collectible as of the Closing Date or are fully
reserved against in the Balance Sheet.
4.22 Documentation. True
and complete copies of all Disclosure Documents referred to in the Schedules
have been delivered by PDI to Parent or are attached to the relevant
Schedules.
4.23 Related
Party Transactions. Except as set forth on Schedule 4.23 or on any
other Schedule and except for de minimus transactions having an aggregate fair
market value less than or equal to $10,000, there have been no transactions or
contractual relationships during the two (2) fiscal years ended December 31,
2000 or between December 31, 2000 and the date hereof, and no agreement or
understanding to enter into or consummate any transactions or contractual
relationships between PDI on the one hand and (a) any of PDI’s officers,
directors, employees, representatives, or agents or (b) any family member (by
blood or marriage) or Affiliate of any of the foregoing, directly or indirectly,
on the other hand. All such transactions have been on terms and
conditions no less favorable to PDI than could have been obtained from any
independent party after arms-length negotiations. Schedule 4.23 sets
forth the relationship between any such Person and PDI.
26
4.24 Vote
Required. The affirmative vote of the holders of a majority of the
outstanding Shares is the only vote of the holders of any class or series of PDI
capital stock necessary to approve this Agreement, the Merger and the
transactions contemplated hereby.
4.25 Brokers. No
Person other than KKCO, Inc. will have, as a result of the transactions
contemplated by this Agreement, any valid right to, interest in or claim upon
Parent or the Surviving Corporation for any commission, fee or other
compensation as a finder or broker because or any act or omission by PDI or the
PDI Shareholders.
4.26 Disclosure. No
representation or warranty by PDI contained in this Agreement, and no statement
contained in any document, list (including, without limitation, the Schedules),
certificate or other communication furnished or to be furnished by or on behalf
of PDI to Parent or any of its representatives in connection with the
transactions contemplated hereby, contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary,
in light of the circumstances under which it was or will be made, in order to
make the statements herein or therein not misleading or necessary in order to
fully and fairly provide the information required to be provided in any such
document, list, certificate or other writing. PDI has not knowingly
failed to disclose to Parent any facts material to the operations, condition
(financial or otherwise), liabilities, assets, earnings, prospects or working
capital of PDI or the Business.
ARTICLE
V. REPRESENTATIONS AND WARRANTIES OF THE PDI
SHAREHOLDERS
As a
material inducement for Parent and Merger Sub to enter into this Agreement and
to consummate the transactions contemplated hereby, each PDI Shareholder hereby
makes the following representations and warranties as of the date hereof, each
of which is relied upon by Parent and Merger Sub regardless of any investigation
made or information obtained by or on behalf of Parent:
5.1 Shareholder
Power and Authority; Ownership.
(a) Each
PDI Shareholder is an adult individual with full power and authority to own his
or her properties, to manage his or her fiscal affairs and to enter into this
Agreement and each of the Related Agreements to which he or she is a party and
to agree to the transactions contemplated hereby and thereby and to perform all
of his obligations hereunder and thereunder. No PDI Shareholder is
subject to any legal disability which would prevent him or her from performing
under this Agreement or any Related Agreement, and no order has been entered
appointing a receiver for any PDI Shareholder or his or her
assets. There is no claim, action, suit or proceeding (including,
without limitation, current investigations by governmental agencies) pending
against such PDI Shareholder seeking to enjoin the execution and delivery of
this Agreement, the Related Agreements or consummation of the transactions
contemplated hereby or thereby.
(b) This
Agreement and each of the Related Agreements to which such PDI Shareholder is a
party constitutes the legal, valid and binding obligations of such PDI
Shareholder, enforceable against such PDI Shareholder in accordance with his
respective terms, subject to applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors’ rights and remedies generally and subject, as to enforceability, to
general principles of equity (regardless of whether enforceability is considered
in a proceeding at law or in equity).
(c) Each
PDI Shareholder owns that number of Shares set forth in Schedule 5.1(c), which
in the aggregate constitute all of the issued and outstanding capital stock of
PDI. Each PDI Shareholder has good and marketable title to all of the
Shares set forth opposite such PDI Shareholder’s name on Schedule 5.1(c), free
and clear of all Encumbrances and restrictions, legal or equitable, of every
kind. Each PDI Shareholder has full and unrestricted legal right, power, and
authority to sell, assign, and transfer the Shares without obtaining the consent
or approval of any other person, entity, or governmental authority and the
delivery of the Shares to Parent pursuant to this Agreement will transfer valid
title thereto, free and clear of all Encumbrances, claims, and restrictions of
every kind, except for restrictions on transferability imposed by federal and
state securities laws. Each PDI Shareholder hereby waives, as of the
Closing Date, all rights that exist pursuant to all shareholder agreements and
other contractual rights or charter document provisions relating to the
transferability of their respective Shares, as and to the extent necessary to
permit the consummation of the transactions provided for herein.
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5.2 Securities
Matters.
(a) Each
PDI Shareholder understands that none of the shares of Parent Stock included in
the Merger Consideration has been registered under the Securities Act, on the
grounds that the issuance thereof to the PDI Shareholders in connection with the
Merger is exempt from registration pursuant to Section 4(2) of the Securities
Act and/or Regulation D promulgated under the Securities Act (“Regulation D”),
and that the reliance of Parent on such exemptions is predicated in part on the
representations, warranties, covenants and acknowledgements set forth in this
Section 5.2.
(b) The
Parent Stock will be acquired by each PDI Shareholder for his or her own
account, not as a nominee or agent, for investment and without a view to resale
or other distribution within the meaning of the Securities Act, and such PDI
Shareholder will not distribute or transfer any of the Parent Stock in violation
of the Securities Act.
(c) Each
PDI Shareholder: (i) acknowledges that the Parent Stock to be issued
to such PDI Shareholder is not registered under the Securities Act and must be
held indefinitely by such PDI Shareholder unless the Parent Stock is
subsequently registered under the Securities Act or an exemption from
registration is available, (ii) is aware that any routine sales of the Parent
Stock made under Rule 144 of the Securities and Exchange Commission under the
Securities Act may be made only in limited amounts and in accordance with the
terms and conditions of that Rule and that in such cases where the Rule is not
applicable, registration or compliance with some other registration exemption
will be required, (iii) is aware that Rule 144 is not now and for a period of at
least one year following the Closing Date hereof will not be, available for use
by such PDI Shareholder for resale of the Parent Stock, and (iv) is aware that
Parent is not obligated to register any sale, transfer or other disposition of
the Parent Stock.
(d) Each
PDI Shareholder has such knowledge and experience in financial and business
matters that such PDI Shareholder is fully capable of evaluating the risks and
merits of such Shareholder’s investment in the Parent Stock.
(e) Each
PDI Shareholder acknowledges and agrees that the certificates representing the
Parent Stock issuable to such PDI Shareholder will contain a restrictive legend
noting the restrictions on transfer described in this Section and under federal
and applicable state securities laws, and that appropriate “stop-transfer”
instructions will be given to Parent’s stock transfer agent.
ARTICLE
VI. REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER
SUB.
As a
material inducement for PDI to enter into this Agreement and to consummate the
transactions contemplated hereby, Parent and Merger Sub hereby jointly and
severally make the following representations and warranties as of the date
hereof, each of which is relied upon by PDI regardless of any investigation made
or information obtained by PDI:
6.1 Organization,
Existence and Capital Stock.
(a) Each
of Parent and Merger Sub is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has all necessary
corporate power to own all of its property and assets, to incur all of its
liabilities and to carry on its business as presently conducted.
28
(b) The
authorized capital stock of Parent consists of preferred stock, $.001 par value
per share, 10,000,000 shares of which are validly authorized and none of which
is issued or outstanding and of common stock, $.001 par value per share,
50,000,000 shares of which are validly authorized and 26,856,971 shares of which
are validly issued, outstanding, fully paid and non-assessable.
(c) The
Parent’s common stock has been duly and validly registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)
which registration is in full force and effect. Merger Sub’s
authorized capital consists of One Thousand (1,000) shares of common stock, par
value $.001 per share (the “Merger Sub Common Stock”), all of which shares are
issued and registered in the name of Parent.
(d) All
of the Merger Sub Common Stock is validly issued and outstanding, fully paid and
non-assessable, free and clear of all liens and encumbrances. Parent has the
corporate power to vote such shares of Merger Sub Common Stock pursuant to this
Agreement. Parent has, or will by the Effective Time have, taken all
such actions as may be required in its capacity as the sole stockholder of
Merger Sub to approve the Merger.
(e) None
of the outstanding shares of Parent’s capital stock has been issued in violation
of any preemptive rights of the current or past stockholders of Parent, or any
agreement to which Parent was or is a party or bound. All of the
shares of Parent Stock issued in connection with the Merger will be, when issued
in accordance with this Agreement, duly authorized, validly issued fully paid,
nonassessable and free of all preemptive rights
(f) Except
as set forth on Schedule 6.1(f) there are no issued or outstanding options,
warrants, rights to subscribe for, calls, or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of the capital stock of Parent, or contracts, commitments,
understandings or arrangements by which Parent is or may be obligated to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock.
6.2 Power
and Authority. Subject to the satisfaction of the conditions
precedent set forth herein, each of Parent and Merger Sub has the corporate
power to execute, deliver and perform this Agreement and the Related Agreements
and to consummate the transactions contemplated hereby, and, subject to the
satisfaction of the conditions precedent set forth herein, has taken all action
required by law, its certificate of incorporation, its by-laws or otherwise, to
authorize the execution and delivery of this Agreement and such related
documents. The execution and delivery of this Agreement does not, and
the consummation of the Merger contemplated hereby will not, violate any
provisions of the certificate of incorporation or by-laws of Parent or Merger
Sub or any mortgage, lien, lease, agreement, instrument, order, arbitration
award, judgment or decree to which Parent or Merger Sub is a party or by which
it or its properties is bound, any legal or other restrictions of any kind to
which Parent or Merger Sub is subject, or result in the creation of any lien,
charge or encumbrance upon any of the property or assets of Parent or Merger
Sub. The execution and delivery of this Agreement and the Related
Agreements, and the consummation of the Merger contemplated hereby, have been
approved by the Board of Directors of Merger Sub and the stockholder of Merger
Sub and no other corporate proceedings on the part of Parent or Merger Sub and
the stockholder of Merger Sub are necessary to authorize the execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby. This Agreement is a valid obligation of Parent and Merger Sub
and is legally binding on each in accordance with its terms.
6.3 No
Violations of Laws or Agreements, Consents or Defaults.
(a) The
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement and the Related Agreements will not result in any breach or
violation of any of the terms or provisions of, or constitute a default under,
(i) the certificate of incorporation or by- laws of Parent or Merger Sub or (ii)
any statute, order, decree, proceeding, rule, or regulation of any court or
governmental agency or body, United States or foreign, having jurisdiction over
Parent or Merger Sub or any assets of Parent or Merger Sub.
29
(b) Except
as set forth in Schedule 6.3(b) the delivery of this Agreement, the Related
Agreements and the consummation of the transactions contemplated hereby and
thereby will not result in a breach or violation of the term of, or constitute a
default under, any agreement, instrument, or commitment to which Parent is
party, by which it is bound, or to which any of Parent’s property is subject,
and no consent or approval is required from any third party for the
Merger.
(c) Parent
is not in default under, or in violation of any provision of, its certificate of
incorporation, by-laws, or any promissory note, indenture or any evidence of
indebtedness or security thereto, lease, purchase contract or other commitment
or any other agreement which is material to Parent.
6.4 SEC
Filings.
(a) Parent
has provided or made available to PDI and the PDI Shareholders copies of each of
the periodic reports and other documents filed by Parent with the Securities and
Exchange Commission (“SEC”). Parent has filed all reports, documents
and other information required of it to be filed with the SEC (the “Parent SEC
Reports”). The Parent SEC Reports were prepared in accordance with
the requirements of the Securities Act of 1933, as amended (the “Securities
Act”), or the Exchange Act, as the case may be, and the rules and regulations of
the SEC thereunder applicable to such Parent SEC Reports. None of
Parent’s subsidiaries is required to file any form, reports or other documents
with the SEC. No disclosure included in any of the Parent SEC Reports included
any statement that, when made or, if such Parent SEC Reports were subsequently
amended, when amended, contained an untrue statement of a material fact or
omitted to state a material fact necessary in order to make the statements
therein, in light of the circumstances in which such statements were made, not
materially misleading. Since the filing of the most recent Parent SEC Report,
Parent has not omitted to disclose to the PDI Shareholders any material adverse
change.
(b) Each
of the consolidated financial statements (including, in each case, any related
notes thereto) contained in the Parent SEC Reports (the “Parent Financials”) (x)
complies as to form in all material respects with the published rules and
regulations of the SEC with respect thereto, (y) was prepared in accordance with
GAAP and (z) fairly presented the consolidated financial position of Parent and
its subsidiaries as at the respective dates thereof and the consolidated results
of its operations and cash flows for the periods indicated.
6.5 Subsidiaries. Merger
Sub does not own stock in and does not control, directly or indirectly, any
other corporation, association or business organization. Merger Sub is not a
party to any joint venture or partnership.
6.6 No
Contracts or Liabilities. Other than the obligations created under
this Agreement, Merger Sub has no obligations or liabilities (contingent or
otherwise) under any contracts, claims, leases, loans or otherwise.
6.7 Related
Party Transactions. Except as disclosed in the Parent SEC Reports, no
director, officer or employee of Parent is indebted to Parent, nor is Parent
indebted (or committed to make loans or extend or guarantee credit) to any such
person, nor is any such person a party to any transaction (other than as an
employee) with Parent providing for the furnishing of services by, or rental of
real or personal property from, or otherwise requiring cash payments to, any
such person.
6.8 Brokers.
No Person other than Bayme Capital Group will have, as a result of the
transactions contemplated by this Agreement, any valid right to, interest in or
claim upon the PDI Shareholders or the Surviving Corporation for any commission,
fee or other compensation as a finder or broker because or any act or omission
by Parent or its Affiliates.
30
ARTICLE
VII. SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
7.1 Survival
of Representations. All representations and warranties made by any
party to this Agreement or pursuant hereto, as modified by any Schedule,
exhibit, certificate or other document executed and delivered pursuant hereto
shall survive the Closing and any investigation made by or on behalf of any
party hereto for a period of eighteen months following the Closing Date;
provided, however, that the representations and warranties contained in Sections
4.1 and 6.1 (Organization; Qualification and Capital Stock; Corporate Records),
Section 5.1(c) (Shareholder Power and Authorization; Ownership), Section 4.8
(Tax Matters) and 4.11 (Employee Matters; Benefit Plans; ERISA) shall survive
the Closing and any investigations made by or on behalf of the relevant party
until expiration of the applicable statute of limitations. All
statements contained herein or in any schedule, exhibit, certificate or other
document executed and delivered pursuant hereto shall be deemed representations
and warranties for purposes of Sections 7.1, 9.2(a), and
9.3(a). Notwithstanding the foregoing, the covenants and agreements
of the Parent and the PDI Shareholders made herein shall survive the Closing and
shall continue in full force and effect indefinitely. The right to
indemnification or other remedy based upon such representations and warranties
shall not be affected by any investigation conducted with respect to, or any
knowledge acquired at any time, whether before or after execution and delivery
of this Agreement or the Closing Date, with respect to the accuracy or
inaccuracy of any such representation or warranty.
7.2 Indemnification.
(a) Subject
to the terms and conditions of this Article VII, the PDI Shareholders jointly
and severally shall indemnify, defend and hold harmless Parent and the Surviving
Corporation (and their respective officers, directors, employees, Affiliates,
successors or assigns other than the PDI Shareholders) (collectively, the
“Parent Indemnified Parties”), from and against all Claims, assessments, losses,
damages, liabilities, deficiencies, judgments, settlements, costs and expenses,
including interest, penalties and reasonable attorneys’ fees and expenses
incurred in enforcing this indemnification or in any litigation between the
parties or with third parties (collectively, “Damages”) asserted against,
resulting to, imposed upon, suffered or incurred by a Parent Indemnified Party,
directly or indirectly, by reason of or resulting from (i) any failure of PDI to
duly perform or observe any term, provision, instrument, covenant or agreement
to be performed or observed by it, prior to the Closing, pursuant to this
Agreement or any Related Agreement and/or (ii) a breach of any representation,
warranty, covenant or agreement of PDI or any PDI Shareholder contained in or
made pursuant to this Agreement or any of the Related Agreements; provided,
however, that this Section 7.2(a) shall not apply to any Damages suffered by the
Parent Indemnified Parties as a result of Purchase Price Adjustment for which a
payment has been received by Parent pursuant to Section 3.4(c)(iv)
hereof.
(b) Subject
to the terms and conditions of this Article VII, Parent shall indemnify, defend
and hold harmless the PDI Shareholders (and their respective heirs,
representatives and assigns) (collectively, the “PDI Indemnified Parties”) at
any time after consummation of the Closing, from and against all Damages
asserted against, resulting to, imposed upon or incurred by the PDI Indemnified
Parties, directly or indirectly, by reason of or resulting from: (i) any failure
of Parent or Merger Sub to duly perform or observe any term, provision,
instrument, covenant or agreement to be performed or observed by it, prior to
the Closing, pursuant to this Agreement or any Related Agreement; or (ii) a
breach of any representation, warranty, covenant or agreement of Parent or
Merger Sub contained in or made pursuant to this Agreement provided, however,
that this Section 7.2(b) shall not apply to any Damages suffered by the PDI
Indemnified Parties as a result of Purchase Price Adjustment for which a payment
has been received by the PDI Shareholders pursuant to Section 3.4(c)(iv)
hereof.
7.3 Conditions
of Indemnification. The obligations and liabilities of Parent, on the
one hand, and the PDI Shareholders, on the other hand, as indemnifying parties
(each, an “Indemnifying Party”) to indemnify the PDI Indemnified Parties or the
Parent Indemnified Parties, as applicable (each, an “Indemnified Party”), under
Section 7.2 with respect to Claims made by third parties shall be subject to the
following terms and conditions:
The
Indemnified Party shall give written notice to the Indemnifying Party of any
Damages with respect to which it seeks indemnification promptly after the
discovery by such party of any matters giving rise to such Claim for
indemnification; provided, however, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under Section 7.2 unless it shall have been prejudiced by the
omission to provide such notice. In case any Claim is brought against
an Indemnified Party, the Indemnifying Party shall be entitled to participate in
the defense thereof and, to the extent that it may wish, to assume the defense
thereof, with counsel reasonably satisfactory to the Indemnified Party, and
after notice from the Indemnifying Party of its election so to assume the
defense thereof, the Indemnifying Party will not be liable to the Indemnified
Party under Section 7.2 for any legal or other expense subsequently incurred by
the Indemnified Party in connection with the defense thereof; provided, however,
that (i) if the Indemnifying Party shall elect not to assume the defense of such
claim or action or (ii) if the Indemnified Party reasonably determines that
there may be a conflict between the positions of the Indemnifying Party and the
Indemnified Party in defending such Claim, then separate counsel shall be
entitled to participate in and conduct such defense, and the Indemnifying Party
shall be liable for any reasonable legal or other expenses incurred by the
Indemnified Party in connection with such defense (but not more than one
counsel). The Indemnifying Party shall not be liable for any
settlement of any Claim effected without its written consent, which consent
shall not be unreasonably withheld. The Indemnifying Party shall not,
without the Indemnified Party’s prior written consent, which consent shall not
be unreasonably withheld, settle or compromise any Claim to which the
Indemnified Party is a party or consent to entry of any judgment in respect
thereof. The Indemnifying Party further agrees that it will not,
without the Indemnified Party’s prior written consent, settle or compromise any
claim or consent to entry of any judgment in respect thereof in any pending or
threatened Claim in respect of which indemnification may be sought hereunder
(whether or not the Indemnified Party is an actual or potential party to such
Claim) unless such settlement or compromise includes an unconditional release of
the Indemnified Party from all liability arising out of such Claim.
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7.4 Remedies
Cumulative. Except as expressly provided in this Agreement, the
remedies provided herein shall be cumulative and shall not preclude assertion by
any party hereto of any other rights or the seeking of any other remedies
against any other party hereto.
ARTICLE
VIII. COVENANTS.
8.1 Public
Disclosures. Parent and PDI will consult with each other before
issuing any press release or otherwise making any public statement with respect
to the transactions contemplated by this Agreement, and shall not issue any such
press release or make any such public statement prior to such consultation
except as may be required by applicable law or requirements of
NASDAQ. The parties shall issue a joint press release, mutually
acceptable to PDI and Parent, promptly upon execution and delivery of this
Agreement.
8.2 Confidentiality. Parent,
PDI, the Surviving Corporation and the PDI Shareholders and shall hold, and
shall use their best efforts to cause their respective auditors, attorneys,
financial advisors, bankers and other consultants and advisors to hold in strict
confidence, unless compelled to disclose by judicial or administrative process
or by other requirements of law, all documents and information concerning the
other party furnished to it by the other party or its representatives in
connection with the transactions contemplated by this Agreement, including,
without limitation, the terms and conditions of the Agreement (except to the
extent that such information shall be shown to have been (a) already known by
the party to which it was furnished, (b) in the public domain through no fault
of such party or (c) later lawfully acquired from other sources by the party to
which it was furnished) (“Confidential Information”), and each party shall not
release or disclose such Confidential Information to any other Person, except
its auditors, attorneys, financial advisors, bankers and other consultants and
advisors in connection with the transactions contemplated by this
Agreement.
8.3 Creation
of PDI Stock Option Plan.
(a) At
the Effective Time, Parent shall reserve options to purchase 160,000 shares of
Parent Stock (each, a “Parent Option”) for employees of the Surviving
Corporation.
(b) The
number of Parent Options reserved for employees of the Surviving Corporation
shall be increased by 0.2 Parent Options for each $1.00 that the actual EBITDA
generated by the Surviving Corporation during any Performance Period exceeds
such Performance Period’s EBITDA Target, such increase to become effective
within 30 days of the delivery of the Annual Financial Statements pursuant to
Section 8.5(b) hereof.
(c) All
material terms and conditions of the Parent Options, including the expiration
dates and vesting schedules, shall be determined by the Management Committee,
subject to ratification by the Board of Directors of Parent.
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(d) The
Management Committee shall review on an annual basis the number of Parent
Options available for grant to the Surviving Corporation’s employees and reserve
additional Parent Options for grant to the Surviving Corporation’s employees if
the Executive Committee shall determine, in its sole discretion, that
reservation of additional Parent Options is appropriate.
8.4 Xxxxxxx
X. Xxxxxxxx to be Appointed to Management Committee. Promptly after
the Closing, Parent will cause Xxxxxxx X. Xxxxxxxx to become a member of the
Management Committee.
8.5 Performance
Period Financial Statements.
(a) Quarterly
Reports. Within 30 days after the end of each fiscal quarter of the
Surviving Corporation, the Surviving Corporation shall deliver to Parent and the
PDI Shareholders an unaudited income statement for such quarter and an unaudited
balance sheet as of the end of such quarter. These quarterly
financial statements (“Quarterly Financial Statements”) shall (i) be prepared in
accordance with GAAP, (ii) set forth the EBITDA of the Surviving Corporation for
such quarter (including the figures used and calculations made to determine the
EBITDA); provided, however, that the EBITDA set forth in the Quarterly Financial
Statements shall not be normalized by the amount of any notional contribution to
Parent for Parent’s public company expenses, (iii) calculate the amount of cash
deposited into the Parent Account during such quarter and (iv) be certified by
the Chief Executive Officer of the Surviving Corporation.
(b) Semi-Annual
Reports. Within 30 days after the end of each six-month period
consisting of two fiscal quarters of the Surviving Corporation, the Surviving
Corporation shall deliver to Parent and the PDI Shareholders an unaudited income
statement for such quarter and an unaudited balance sheet as of the end of such
quarter. These semi-annual financial statements (“Semi-Annual
Financial Statements”) shall (i) be prepared in accordance with GAAP, (ii) set
forth the EBITDA of the Surviving Corporation for such six-month period
(including the figures used and calculations made to determine the EBITDA);
provided, however, that the EBITDA set forth in the Semi-Annual Financial
Statements shall not be normalized by the amount of any notional contribution to
Parent for Parent’s public company expenses, (iii) calculate the amount of cash
deposited into the Parent Account during such six-month period and (iv) be
certified by the Chief Executive Officer of the Surviving
Corporation.
(c) Annual
Reports. Within 60 days after the end of each fiscal Performance
Period of the Surviving Corporation, the Surviving Corporation shall deliver to
Parent and the PDI Shareholders an income statement for such Performance Period
and a balance sheet as of the end of such Performance Period. These
annual financial statements (“Annual Financial Statements”) shall (i) be
prepared in accordance with GAAP, (ii) set forth the EBITDA of the Surviving
Corporation for such Performance Period (including the figures used and
calculations made to determine the EBITDA); provided, however, that the EBITDA
set forth in the Annual Financial Statements shall not be normalized by the
amount of any notional contribution to Parent for Parent’s public company
expenses, (iii) calculate the amount of cash deposited into the Parent Account
during such Performance Period, (iv) be certified by the Chief Executive Officer
of the Surviving Corporation and (v) be prepared on a basis consistent with the
Financial Statements.
8.6 Accounting
Disputes. Notwithstanding anything to the contrary in this Agreement,
if the PDI Shareholders or Parent have any dispute relating to the amount of
EBITDA or cash deposited into the Parent Account reported on any Performance
Period Financial Statement, then the PDI Shareholders or Parent, as applicable,
will notify the other, in writing, of each disputed amount (collectively, the
“Disputed Amounts”), specifying the grounds for such dispute, within 15 Business
Days after delivery of such Performance Period Financial
Statement. If Parent and the PDI Shareholders cannot resolve any such
dispute within 10 Business Days after delivery of such notice, then such dispute
will be resolved by an independent accounting firm reasonably acceptable to
Parent and the PDI Shareholders (the “Independent Accounting
Firm”). If Parent and the PDI Shareholders do not agree upon a
mutually acceptable Independent Accounting Firm within the 10 Business Day
period after delivery of the notice, Parent and the PDI Shareholders will each
select an independent accounting firm, and the Independent Accounting Firm will
be selected by the firms chosen by Parent and the PDI
Shareholders. The determination of the Independent Accounting Firm
(i) will be made as promptly as practicable; (ii) will be prepared in accordance
with GAAP and this Agreement; and (iii) will be final and binding on the
parties, absent manifest error, which error may only be corrected by such
Independent Accounting Firm. Any expenses relating to the engagement
of the Independent Accounting Firm will be allocated evenly between Parent and
the PDI Shareholders, provided, however, that if the determination of the
Independent Accounting Firm results in a restatement of more or less than 10% of
the EBITDA or cash deposited into the Parent Account claimed by the party
raising the Disputed Amounts, then the other party shall pay all expenses
related to the engagement of the Independent Accounting Firm.
33
8.7 Audit;
Cooperation. Following the Closing, the PDI Shareholders jointly and
severally shall cooperate with Parent and the Surviving Corporation in
connection with Parent’s preparation of financial statements, and, if necessary,
an audit (the “Audit”) of the financial performance of PDI, for all periods
required in connection with Parent’s reporting obligations under the United
States securities laws. Such cooperation shall include, but not be
limited to, providing full access to the Books and Records, any work papers
generated in connection therewith, PDI personnel, PDI’s outside auditors and
assisting Parent in obtaining any required consent of such outside auditors in
connection with Parent’s reporting obligations under the United Stated
securities laws.
8.8 Key
Man Life Insurance. Within 30 days of Closing, the PDI Shareholders
shall use their best efforts to deliver to Parent the $2,400,000 key-man life
insurance policies on the life of each of Xxxxxxx X. Xxxxxxxx and Xxxxx X.
Xxxxxxxxx. Until January 31, 2007, the PDI Shareholders shall be responsible for
payment of all premiums applicable to the $2,400,000 key-man life insurance
policies on the life of each of Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxxxxx, with
Parent being the owner and beneficiary of such policies.
ARTICLE
IX. CONDITIONS TO CLOSING.
9.1 Mutual
Conditions. The respective obligations of each party to effect the
Merger shall be subject to the satisfaction, at or prior to the Closing Date, of
the following conditions (any of which may be waived in writing by Parent,
Merger Sub and PDI):
(a) None
of Parent, Merger Sub or PDI nor any of their respective subsidiaries shall be
subject to any order, decree or injunction by a court of competent jurisdiction
which (i) prevents or materially delays the consummation of the Merger or (ii)
would impose any material limitation on the ability of Parent effectively to
exercise full rights of ownership of the common stock of the Surviving
Corporation or any material portion of the assets or business of PDI, taken as a
whole.
(b) No
statute, rule or regulation, shall have been enacted by the government (or any
governmental agency) of the United States or any state, municipality or other
political subdivision thereof that makes the consummation of the Merger or any
other significant transaction contemplated hereby illegal.
(c) Parent,
Merger Sub and PDI shall have received all consents, approvals and
authorizations of third parties that are required of such third parties prior to
the consummation of the Merger, in form and substance acceptable to Parent or
PDI, as the case may be, except where the failure to obtain such consent,
approval or authorization would not have a material adverse effect on the
business of the Surviving Corporation.
9.2 Conditions
to the Obligations of Parent and Merger Sub. The obligations of
Parent and Merger Sub under this Agreement are subject to the satisfaction, at
or before the Closing, of each of the following conditions:
(a) The
representations and warranties of PDI and the PDI Shareholders contained herein
that are qualified as to materiality shall be true in all respects on and as of
the Closing Date (except for the representations and warranties made as of a
specific date which shall be true in all material respects as of such date) with
the same force and effect as though made on and as of such date, and each of the
representations and warranties of PDI and the PDI Shareholders that are not so
qualified shall be true in all material respects.
(b) PDI
and the PDI Shareholders shall have performed and complied in all material
respects with all covenants, agreements, obligations and conditions required by
this Agreement to be performed or complied with by them at or prior to the
Closing.
34
(c) There
shall not be threatened, instituted or pending any suit, action, investigation,
inquiry or other proceeding by or before any court or governmental or other
regulatory or administrative agency or commission requesting or looking toward
an order, judgment or decree that (a) restrains or prohibits the consummation of
the transactions contemplated hereby, (b) could reasonably be expected to have a
material adverse effect on Parent’s ability to exercise control over or manage
PDI after the Closing or could reasonably be expected to have a material adverse
effect on the Business or PDI.
(d) On
the Closing Date, there shall be no effective injunction, writ, preliminary
restraining order or other order issued by a court of competent jurisdiction
restraining or prohibiting the consummation of the transactions contemplated
hereby.
(e) PDI
shall have delivered to Parent a certificate, dated the Closing Date, executed
by the Secretary of PDI, certifying as to (a) PDI’s certificate of
incorporation, (b) PDI’s by-laws, (c) resolutions with respect to the
transactions contemplated by this Agreement adopted by PDI’s board of directors
and shareholders and attached to such certificate, and (d) incumbency and
signatures of the persons who have executed this Agreement, the Related
Agreements and any other documents, certificates and agreements to be executed
and delivered at the Closing pursuant to this Agreement or any of the Related
Agreements on behalf of PDI.
(f) Parent
shall have received an opinion of Xxxxxx Xxxxx LLP, counsel to PDI, dated the
Closing Date, in form and substance reasonably satisfactory to
Parent.
(g) Each
of Xxxxxxx X. Xxxxxxxx and Xxxxx X. Xxxxxxxxx shall have entered into an
employment agreement with the Surviving Corporation (collectively, the
“Employment Agreements”), substantially in the form of Exhibit B-1. Xxxxxxx X.
Xxxxxx shall have entered into an agreement not to compete (the “Non-Competition
Agreement”), substantially in the form of Exhibit B-2.
(h) Each
PDI Shareholder shall have entered into a lock-up agreement with Parent
(collectively, the “Lock-up Agreements”), substantially in the form of Exhibit
C.
(i) PDI
shall have furnished Parent with copies of the Ownership and Nondisclosure
Agreements signed by each employee, officer, consultant or contractor of PDI
identified on Schedule 4.15(g).
(j) Parent
shall have received stock certificates representing the Shares.
(k) No
material adverse change affecting PDI shall have occurred.
9.3 Conditions
to the Obligations of PDI and the PDI Shareholders. The obligations
of PDI and the PDI Shareholders under this Agreement are subject to the
satisfaction, at or before the Closing, of each of the following
conditions:
(a) The
representations and warranties of Parent and Merger Sub contained herein that
are qualified as to materiality shall be true in all respects on and as of the
Closing Date (except for the representations and warranties made as of a
specific date which shall be true in all material respects as of such date) with
the same force and effect as though made on and as of such date, and each of the
representations and warranties of Parent and Merger Sub that are not so
qualified shall be true in all material respects.
(b) Parent
and Merger Sub shall have performed and complied in all material respects with
all covenants, agreements, obligations and conditions required by this Agreement
to be so performed or complied with by Parent and Merger Sub at or prior to the
Closing.
(c) There
shall not be threatened, instituted or pending any suit, action, investigation,
inquiry or other proceeding by or before any court or governmental or other
regulatory or administrative agency or commission requesting or looking toward
an order, judgment or decree that (a) restrains or prohibits the consummation of
the transactions contemplated hereby or (b) could reasonably be expected to have
a material adverse effect on the business of Parent or the Surviving
Corporation.
35
(d) On
the Closing Date, there shall be no effective injunction, writ, preliminary
restraining order or other order issued by a court of competent jurisdiction
restraining or prohibiting the consummation of the transactions contemplated
hereby.
ARTICLE
X. MISCELLANEOUS.
10.1 Notices. Any
communications required or desired to be given hereunder shall be deemed to have
been properly given if sent by hand delivery or by facsimile and overnight
courier or overnight courier to the parties hereto at the following addresses,
or at such other address as either party may advise the other in writing from
time to time:
If to Parent or Merger
Sub:
Zanett,
Inc.
000 Xxxx
00xx Xxxxxx
00xx
Xxxxx
Xxx Xxxx,
XX 00000
Attention: Pierre-Xxxxxxx
Xxx, Chief Legal Officer
with a copy
to:
Drinker,
Xxxxxx & Xxxxx, LLP
One Xxxxx
Square
00xx xxx
Xxxxxx Xxxxxxx
Xxxxxxxxxxxx,
XX 00000
Attention: Xxxxxxx
Xxxxxxx
If to PDI or the PDI
Shareholders:
Paragon
Dynamics, Inc.
0
Xxxxxxxxx Xxxxx Xxxx
Xxxxx
000
Xxxxxxxxx,
XX 00000
with a copy
to:
Xxxxxx
Xxxxx LLP
0000
Xxxxxxx Xxxxxx
Xxxxx
0000
Xxxxxx,
XX 00000
Attention: Xxxxxx
X. Xxxxxxx
All such
communications shall be deemed to have been delivered on the date of hand
delivery or facsimile or on the next Business Day following the deposit of such
communications with the overnight courier.
10.2 Further
Assurances. Each party hereby agrees to perform any further acts and
to execute and deliver any documents which may be reasonably necessary to carry
out the provisions of this Agreement.
10.3 Governing
Law. This Agreement shall be interpreted, construed and enforced in
accordance with the laws of the State of New York, applied without giving effect
to any conflicts of law principles.
36
10.4 Right
of Setoff. Notwithstanding any provision hereof to the contrary,
Parent shall be entitled to set-off (i) any amounts due to Parent from the PDI
Shareholders (or any one or more of them) hereunder, whether by reason of
overpayment of the Merger Consideration or, indemnification under Article VII,
or otherwise, against (ii) amounts due from Parent to the PDI Shareholders (or
any one or more of them) hereunder. Any set-off shall be applied
against amounts payable to the PDI Shareholders in the chronological order all
amounts of every kind payable to the PDI Shareholders are due until the set-off
is complete. Notwithstanding any provision hereof to the contrary, upon the
occurrence of any event or existence of any condition which Parent reasonably
believes will result in a claim for indemnification under Article VII, Parent
may withhold from amounts otherwise due hereunder an amount equal to Parent’s
reasonable estimate of the amount of such claim until such time as the actual
amount of Parent’s indemnification claim, and right of set-off hereunder, is
determined. Claims for indemnification for which Parent exercises its right of
set-off hereunder shall be submitted to binding arbitration in Colorado in
accordance with the rules and regulations of the American Arbitration
Association. The arbitrators will be selected by the American Arbitration
Association. The determination of the arbitrator(s) will be conclusive and
binding upon the parties, and any determination by the arbitrator(s) of any
award may be filed with the clerk of a court of competent jurisdiction as a
final adjudication of the claim involved, or application may be made to such
court for judicial acceptance of the award and an order of enforcement. Each
party will bear its own expenses with respect to such arbitration. Any amount
withheld by Parent pursuant to the set-off right under this Section 10.4 that
the arbitrator(s) determine was in excess of the amount that the PDI
Shareholders were liable under the indemnification claim brought to such
arbitration shall be returned forthwith to the PDI Shareholders. The
arbitrator may award reasonable attorneys’ fees and costs to the
prevailing party.
10.5 Consent
to Jurisdiction. Each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any Federal court located in the State of Colorado 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 by this Agreement in any court
other than a Federal court sitting in the State of Colorado.
10.6 Integration
of Exhibits and Schedules. All Exhibits and Schedules to this
Agreement are integral parts of this Agreement as if fully set forth
herein.
10.7 Entire
Agreement. This Agreement, the Related Agreements, including all
Exhibits and Schedules attached hereto and thereto contain the entire agreement
of the parties and supersede any and all prior or contemporaneous agreements
between the parties, written or oral, with respect to the transactions
contemplated hereby. Such agreement may not be changed or terminated
orally, but may only be changed by an agreement in writing signed by the party
or parties against whom enforcement of any waiver, change, modification,
extension, discharge or termination is sought.
10.8 Expenses. Except
as expressly provided otherwise, each party hereto will bear its own costs and
expenses (including fees and expenses of auditors, attorneys, financial
advisors, bankers, brokers and other consultants and advisors) incurred in
connection with this Agreement, the Related Agreements and the transactions
contemplated hereby and thereby.
10.9 Counterparts. This
Agreement may be executed in several counterparts, each of which, when so
executed, shall be deemed to be an original, and such counterparts shall
together constitute and be one and the same instrument.
10.10 Binding
Effect. This Agreement shall be binding on, and shall inure to the
benefit of, the parties hereto, and their respective successors and assigns, and
no other person shall acquire or have any right under or by virtue of this
Agreement. No party may assign any right or obligation hereunder
without the prior written consent of the other parties.
37
IN
WITNESS WHEREOF, Parent, Merger Sub, PDI and the PDI Shareholders have caused
this Agreement and Plan of Merger to be executed by their respective duly
authorized officers, all as of the day and year first above
written.
ZANETT, INC. | ZANETT INC. MERGER SUB PDI, INC. | |||
By:
|
By:
|
|||
Name:
|
Name:
|
|||
Title:
|
Title:
|
|||
PARAGON DYNAMICS, INC. | PARAGON DYNAMICS, INC. | |||
SHAREHOLDERS: | ||||
By: | ||||
XXXXXXX X. XXXXXXX | ||||
Name: | ||||
XXXXX X. XXXXXXXXX | ||||
Title: | ||||
XXXXXXX X. XXXXXX | ||||
XXXXXXXX X. BATCH |
38
EXHIBIT
A
Ownership and Nondisclosure
Agreements
39
EXHIBIT
B-1
Employment
Agreement
40
EXHIBIT
B-2
Non-Competition
Agreement
41
EXHIBIT
C
Lock-Up
Agreement
42
Schedules
43
Schedule
2.4
Directors
of Paragon Dynamics, Inc. (Surviving Corporation)
Xxxxxxx
X. Xxxxxxxx
Xxxxx X.
XxXxxxxx
Xxxx X.
Xxxxxxx
Pierre-Xxxxxxx
Xxx
Xxxxx X.
Xxxxxxxxx
Officers
of Paragon Dynamics, Inc. (Surviving Corporation)
Xxxxxxx
X. Xxxxxxxx, CEO & President
Xxxxx X.
Xxxxxxxxx, Executive Vice-President, Chief Operating Officer and
Treasurer
Xxxxxxxx
X. Batch, Vice-President and Assistant Secretary
Xxxx X.
Xxxxxxx, Vice-President and Assistant Treasurer
Pierre-Xxxxxxx
Xxx, Vice-President and Secretary
44
Schedule
3.2
Cash Election Shares
|
Stock Election Shares
|
|||||||
Xxxxxxx
X. Xxxxxxxx
|
550,000 | 550,000 | ||||||
Xxxxx
X. Xxxxxxxxx
|
550,000 | 550,000 | ||||||
Xxxxxxx
X. Xxxxxx
|
550,000 | 550,000 | ||||||
Xxxxxxxx
X. Batch
|
0 | 100,000 | ||||||
Total
|
1,650,000 | 1,750,000 |
45
Schedule
6.3(b)
None
46