SHARE EXCHANGE AGREEMENT
BY AND AMONG
SUNNINGDALE, INC.,
THE STOCKHOLDERS OF ADVANCED ALUMINIUM GROUP, LTD.,
ADVANCED ALUMINIUM GROUP, LTD.,
AND
XXXXXXX REVERSE MERGER FUND, LLC
DATED AS OF SEPTEMBER 22, 2004
SHARE EXCHANGE AGREEMENT
THIS SHARE EXCHANGE AGREEMENT (the "Agreement") is made and entered into
as of September 22, 2004, by and among Sunningdale Inc., a Delaware corporation
(the "Buyer"), Xxxxxxx Reverse Merger Fund, LLC, a Delaware limited liability
company (the "KRM Fund"), Advanced Aluminium Group, Ltd., a corporation formed
and organized under the laws of the United Kingdom ("Company"), and each of the
persons listed under the caption "Stockholders" on the signature page hereof,
such persons being all of the stockholders of Company. The Stockholders shall be
referred to herein collectively as the "Stockholders" and individually as the
"Stockholder".
RECITALS
A. Stockholders own all of the Shares (as defined in Section 1.1) of the
Company. B. The KRM Fund owns the majority of the issued and outstanding shares
of common stock of Buyer. C. Buyer desires to purchase all of the Shares from
the Stockholders, and the Stockholders desire to sell the Shares to Buyer, on
the terms and conditions hereinafter set forth.
D. As a condition and inducement to Buyer's and the KRM Fund's willingness
to enter into this Agreement, the Stockholders will, at Closing (as defined in
Section 1.2) enter into a voting agreement in substantially the form attached
hereto as Exhibit A (the "Voting Agreement").
E. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase. At the Closing and subject to and upon the terms
and conditions of this Agreement, the Stockholders agree to sell, transfer and
assign to Buyer, and Buyer agrees to purchase from the Stockholders, all of the
shares of Company Common Stock (as defined in Section 3.3) owned by the
Stockholders as specifically set forth on Schedule 1.1 hereto ("Shares"). As of
Closing, the Shares shall constitute all of the issued and outstanding shares of
Company Common Stock. The sale and purchase of Shares contemplated hereunder
shall be referred to herein as the "Transaction".
1.2 Closing. Unless this Agreement shall have been terminated pursuant to
Article IX hereof, the closing of the Transaction (the "Closing") shall take
place at the offices of Loeb & Loeb LLP, 000 Xxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx
00000 at a time and date to be specified by the parties, which shall be no later
than the third business day after the satisfaction or waiver of the conditions
set forth in Article VII, or at such other time, date and location as the
parties hereto agree in writing (the "Closing Date").
1.3 Purchase Price. The aggregate purchase price ("Purchase Price") for
the Shares shall be Two Million Two Hundred Ninety Five Thousand (2,295,000)
shares of common stock of Buyer ("Buyer's Shares"), which shall represent ninety
percent (90%) of the issued and outstanding shares of common stock of Buyer,
immediately following the Closing.
1.4 Allocation of Buyer's Shares. At the Closing, the Buyer's Shares to be
issued to the Stockholders shall be issued to the respective Stockholders; (i)
in proportion to their respective ownership of the Shares as described in
Schedule 1.1 hereto, and (ii) in accordance with the provisions of Section 1.9
hereof.
1.5 Delivery of Certificates Representing the Shares. At Closing, the
Stockholders shall deliver the certificate(s) representing the Shares, duly
endorsed to Buyer or accompanied by stock powers duly endorsed to Buyer, with
each Stockholder's signature medallion guaranteed by a national bank and with
(i) all such other documents as may be required to vest in Buyer good and
marketable title to the Shares free and clear of any and all Liens (as defined
in Section 2.3 hereof) and (ii) all necessary stock transfer and any other
required documentary stamps. The Stockholders shall cause the Company to
recognize and record the transfers described in this Section 1.5 on its transfer
books.
1.6 Issuance of Certificates Representing Buyer's Shares. At Closing,
Buyer shall cause the Buyer's Shares to be issued to the Stockholders as
provided in Section 1.4 above. The Buyer's Shares, when issued, shall be
restricted shares and may not be sold, transferred or otherwise disposed of by
the Stockholders without registration under the Securities Act of 1933, as
amended ("Securities Act") or an available exemption from registration under the
Securities Act. The certificates representing the Buyer's Shares will contain
the appropriate restrictive legends. The Buyer shall cause Corporate Stock
Transfer (the "Transfer Agent") to recognize and record the transfers described
in this Section 1.6 on its transfer books, and Buyer shall issue appropriate
stop-transfer instructions to the Transfer Agent with respect to the Buyer's
Shares. 1.7 Tax Consequences. It is intended by the parties hereto that the
Transaction shall constitute a reorganization within the meaning of Section 368
of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations.
1.8 Taking of Necessary Action; Further Action. 1.9 If, at any time after
the Closing, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Buyer with full right, title and
possession to the Shares, the Stockholders will take all such lawful and
necessary action.
2
1.9 Transaction Deposit. Upon execution of this Agreement, the Company
shall pay Buyer a $50,000 deposit ("First Deposit"). In the event the Company
fails to perform and satisfy its obligations to deliver to Buyer the Financial
Data (as defined below), on or before the Compliance Date (as defined below),
the Company shall pay to Buyer an additional $50,000 ("Second Deposit") on or
before the Compliance Date. Upon payment of the Second Deposit by Company in
accordance with this Section 1.9, the original Compliance Date shall be extended
by thirty (30) days. The First Deposit and Second Deposit shall be referred to
herein collectively as the "Deposits"). The Deposits shall be held by Buyer in
accordance with Sections 6.14 and 9.2 of this Agreement.
For purposes of this Agreement, (i) the term "Compliance Date" shall mean
the date which is thirty (30) days after the date of this Agreement, subject to
extension as provided for in this Section 1.9, and (ii) the term "Financial
Data" shall mean the Company U.S. GAAP Financial Statements (as defined in
Section 6.1), the Company Proforma Financial Statements (as defined in Section
6.2), the Questionnaires (as defined in Section 6.3), the Accountant Undertaking
(as defined in Section 6.4), the Former Accountant Consents (as defined in
Section 6.5), and the Transaction Form 8-K (as defined in Section 6.6).
1.10 Escrow. Notwithstanding any provision of this Agreement to the
contrary: (a) In lieu of delivering to the Stockholders certificates for the
full number of Buyer's Shares provided for in Section 1.3, Buyer shall deliver
or cause to be delivered (A) to Loeb & Loeb LLP, as escrow agent (the "Escrow
Agent") for deposit into escrow pursuant to an escrow agreement substantially in
the form attached hereto as Exhibit C (the "Escrow Agreement"), in the
aggregate, certificates registered in the respective names of one or more of the
Stockholders representing 127,500 Buyer's Shares (the "Stockholder Escrow
Shares"). The certificates representing the Stockholder Escrow Shares, each
accompanied by stock powers duly endorsed in blank, with each Stockholder's
signature medallion guaranteed by a national bank shall be held in the escrow
account and disposed of by the Escrow Agent in accordance with the terms and
provisions of the Escrow Agreement. (b) At the Closing, KRM Fund shall deliver
or cause to be delivered to the Escrow Agent, for deposit into escrow pursuant
to the Escrow Agreement, a certificate registered in the name of KRM Fund,
accompanied by stock powers duly endorsed in blank, with KRM Fund's signature
medallion guaranteed by a national bank, for an aggregate of 127,500 Buyer's
Shares (the "KRM Escrow Shares"). The certificate representing the KRM Escrow
Shares (accompanied by appropriate stock powers) shall be held in the escrow
account and disposed of by the Escrow Agent in accordance with the terms and
provisions of the Escrow Agreement.
(c) On the date six (6) months following the Closing Date, to the extent
that the Stockholder Escrow Shares and KRM Escrow Shares have not been and are
not the subject of an indemnification claim under Article VIII of this
Agreement, (1) all Stockholder Escrow Shares shall be released to the
Stockholders in whose name the shares are registered, and (2) all KRM Escrow
Shares shall be returned to KRM Fund.
3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS WITH RESPECT TO STOCKHOLDERS
Each Stockholder for himself only, and not with respect to any other
Stockholder, hereby represents and warrants to, and covenants with, Buyer and
KRM Fund with respect to such Stockholder as follows:
2.1 Ownership of Stock. Each Stockholder is both the record and beneficial
owner of the number of Shares set forth beside such Stockholder's name on
Schedule 1.1 hereto. Each Stockholder is not the record or beneficial owner of
any other Shares. The information set forth on Schedule 1.1 with respect to each
Stockholder is accurate and complete.
2.2 Authority of Stockholders. Each Stockholder has full power and
authority and is competent to (i) execute, deliver and perform this Agreement,
and each ancillary document which each Stockholder has executed or delivered or
is to execute or deliver pursuant to this Agreement, and (ii) carry out each
Stockholder's obligations hereunder and thereunder, without the need for any
Governmental Action/Filing (as defined herein). The execution, delivery and
performance by each Stockholder of this Agreement and each ancillary document
does not and will not conflict with, result in a breach of, or constitute a
default or require a consent or action under, any agreement or other instrument
to or by which such Stockholder is a party or is bound or to which any of the
properties or assets of such Stockholder are subject, or any Legal Requirement
(as defined herein) to which such Stockholder is subject, or result in the
creation of any Lien (as defined in Section 2.3) on the Shares. This Agreement,
and each Stockholder's ancillary document to be executed and delivered by such
Stockholder at the Closing, has been duly executed and delivered by such
Stockholder (and each ancillary document to be executed and delivered by such
Stockholder at or after the Closing will be duly executed and delivered by such
Stockholder), and this Agreement constitutes, and each ancillary document, when
executed and delivered by such Stockholder will constitute, such Stockholder's
legal, valid and binding obligation, enforceable against such Stockholder in
accordance with its terms. For purposes of this Agreement, (x) the term
"Governmental Action/Filing" shall mean any franchise, license, certificate of
compliance, authorization, consent, order, permit, approval, consent or other
action of, or any filing, registration or qualification with, any federal,
state, municipal, foreign or other governmental, administrative or judicial
body, agency or authority, and (y) the term "Legal Requirements" means any
federal, state, local, municipal, foreign or other law, statute, constitution,
principle of common law, resolution, ordinance, code, edict, decree, rule,
regulation, ruling or requirement issued, enacted, adopted, promulgated,
implemented or otherwise put into effect by or under the authority of any
Governmental Entity (as defined in Section 3.5(b)), and all requirements set
forth in applicable Contracts (as defined in Section 3.21(a)).
2.3 Title To Shares. Each Stockholder has and shall transfer to Buyer at
the Closing, good and marketable title to the Shares shown as owned of record by
such Stockholder on Schedule 1.1 to this Agreement, free and clear of all liens,
claims, charges, encumbrances, pledges, mortgages, security interests, options,
rights to acquire, proxies, voting trusts or similar agreements, restrictions on
transfer or adverse claims of any nature whatsoever ("Liens"). Each Stockholder
has not and will not, directly or indirectly, assign or otherwise transfer his
right to receive all or any portion of any amount which may become payable
pursuant to this Agreement or any ancillary document or any interest therein.
4
2.4 Repayment of Affiliate Obligations. At the Closing Date, all amounts
owed to any Company or Subsidiary by each Stockholder (regardless of whether
such amounts are due and payable) shall have been paid in full.
2.5 Acquisition of Buyer's Shares for Investment.
(a) Each Stockholder is acquiring the Buyer's Shares for investment
for Stockholder's own account and not as a nominee or agent, and not with a view
to the resale or distribution of any part thereof, and such Stockholders have no
present intention of selling, granting any participation in, or otherwise
distributing the same. Each Stockholder further represents that he does not have
any contract, undertaking, agreement or arrangement with any person to sell,
transfer or grant participation to such person or to any third person, with
respect to any of Buyer's Shares.
(b) Each Stockholder understands that Buyer's Shares are not
registered under the Securities Act, that the sale and the issuance of Buyer's
Shares is intended to be exempt from registration under the Securities Act
pursuant to Section 4(2) thereof, and that Buyer's reliance on such exemption is
predicated on the Stockholder's representations set forth herein. Each
Stockholder represents and warrants that: (i) he is an "accredited investor" as
that term is defined in Rule 501(a) of Regulation D under the Act, (ii) he can
bear the economic risk of his respective investments, and (iii) he posses such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of the investment in Buyer's Shares.
(c) Stockholders acknowledge that neither the SEC, nor the
securities regulatory body of any state has received, considered or passed upon
the accuracy or adequacy of the information and representations made in this
Agreement.
(d) Stockholders acknowledge that they have carefully reviewed such
information as each of them deemed necessary to evaluate an investment in
Buyer's Shares. To the full satisfaction of each Stockholder, he has been
furnished all materials that he has requested relating to Buyer and the issuance
of Buyer's Shares hereunder, and each Stockholder has been afforded the
opportunity to ask questions of Buyer's representatives to obtain any
information necessary to verify the accuracy of any representations or
information made or given to the Stockholders. Notwithstanding the foregoing,
nothing herein shall derogate from or otherwise modify the representations and
warranties of Buyer set forth in this Agreement, on which each of the
Stockholders has relied in making an exchange of his Shares for Buyer's Shares.
(e) Each Stockholder understands that Buyer's Shares may not be
sold, transferred, or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering Buyer's Shares or any available
exemption from registration under the Securities Act, the Buyer's Shares must be
held indefinitely. Each Stockholder further acknowledges that Buyer's Shares may
not be sold pursuant to Rule 144 promulgated under the Securities Act unless all
of the conditions of Rule 144 are satisfied (including, without limitation,
Buyer's compliance with the reporting requirements under the Exchange Act.
5
ARTICLE III
REPRESENTATIONS AND WARRANTIES WITH RESPECT TO COMPANY
The Stockholders, on behalf of the Company, hereby represent and
warrant to, and covenants with, Buyer and KRM Fund, as follows:
3.1 Organization and Qualification.
(a) Company is a corporation duly incorporated or organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has the requisite corporate power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being or currently planned by Company to be conducted.
Company is in possession of all franchises, grants, authorizations, licenses,
permits, easements, consents, certificates, approvals and orders ("Approvals")
necessary to own, lease and operate the properties it purports to own, operate
or lease and to carry on its business as it is now being or currently planned by
Company to be conducted, except where the failure to have such Approvals could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect (as defined in Section 11.2(b)) on Company. Complete and
correct copies of the articles of incorporation or organization and by-laws (or
other comparable governing instruments with different names) (collectively
referred to herein as "Charter Documents") of Company, as amended and currently
in effect, are attached hereto as Schedule 3.1. Company is not in violation of
any of the provisions of the Company's Charter Documents.
(b) Company is duly qualified or licensed to do business as a
foreign corporation and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that could
not, individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Company.
(c) The minute books of Company contain true, complete and accurate
records of all meetings and consents in lieu of meetings of its Board of
Directors (and any committees thereof), similar governing bodies and
stockholders ("Corporate Records"), since the time of Company's organization.
Copies of such Corporate Records of Company have been heretofore delivered to
Buyer. (d) The stock transfer records of Company contain true, complete and
accurate records of stock transfers involving the capital stock ("Stock
Records") of Company since the time of Company's organization. Copies of such
Stock Records of Company have been heretofore delivered to Buyer.
3.2 Subsidiaries. Set forth in Schedule 3.2 hereto is a true and complete
list of all Subsidiaries stating, with respect to each Subsidiary, its
jurisdiction of incorporation or organization, date of incorporation or
organization, capitalization and equity ownership. Each Subsidiary is a
corporation duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
6
organization, has all requisite corporate power and authority to own, lease and
operate its properties and to carry on its businesses as they are now being
conducted, and no Subsidiary is required to qualify to do business as a foreign
corporation in any other jurisdiction. All of the outstanding shares of capital
stock of each Subsidiary have been duly and validly authorized and issued, are
fully paid and non-assessable, have not been issued in violation of any
preemptive or other right of stockholders (or any other Person) or of any Legal
Requirements, and are owned beneficially and of record by Company as specified
on Schedule 3.2, free and clear of any Lien. Complete and correct copies of the
Charter Documents of each Subsidiary, as amended and currently in effect, are
attached hereto as Schedule 3.2. No Subsidiary is in violation of any of the
provisions of its Charter Documents.
Except as described in Schedule 3.2 hereto, neither Company nor any
Subsidiary owns, directly or indirectly, any ownership, equity, profits or
voting interest in any Person (other than Subsidiaries) or has any agreement or
commitment to purchase any such interest, and Company and its Subsidiaries have
not agreed and are not obligated to make nor are bound by any written, oral or
other agreement, contract, subcontract, lease, binding understanding,
instrument, note, option, warranty, purchase order, license, sublicense,
insurance policy, benefit plan, commitment or undertaking of any nature, as of
the date hereof or any date hereafter, under which any of them may be obligated
to make any future investment in or capital contribution to any other entity.
For purposes of this Agreement, (i) the term "Subsidiary" shall mean any
Person in which the Company or any Subsidiary directly or indirectly, owns
beneficially securities or interests representing 50% or more of (x) the
aggregate equity or profit interests, or (y) the combined voting power of voting
interests ordinarily entitled to vote for management or otherwise, and (ii) the
term "Person" shall mean and include an individual, a corporation, a partnership
(general or limited), a joint venture, an association, a trust or any other
organization or entity, including a government or political subdivision or an
agency or instrumentality thereof.
3.3 Capitalization.
(a) The authorized capital stock of Company consists of 1,000 shares
of ordinary stock, stated value (pound)1 per share ("Company Common Stock"). At
the close of business on the business day prior to the date hereof, (i) 1,000
shares of Company Common Stock were issued and outstanding, all of which are
validly issued, fully paid and nonassessable; (ii) no shares of Company Common
Stock were reserved for issuance upon the exercise of outstanding options to
purchase Company Common Stock granted to certain employees of Company, (iii) no
shares of Company Common Stock were reserved for issuance upon the exercise of
outstanding warrants to purchase Company Common Stock, and (iv) no shares of
Company Common Stock were reserved for issuance upon the exercise of outstanding
options to purchase Company Common Stock granted to certain third parties. All
shares of Company Common Stock subject to issuance as aforesaid, upon issuance
on the terms and conditions specified in the instrument pursuant to which they
are issuable, will be duly authorized, validly issued, fully paid and
nonassessable. Except as described in Schedule 3.3 hereto, there are no
commitments or agreements of any character to which Company is bound obligating
Company to accelerate the vesting of any Company Stock Option as a result of the
Transaction. All outstanding shares of Company Common Stock and Company
Preferred Stock and all outstanding Company Stock Options have been issued and
granted in compliance with (i) all applicable securities laws and (in all
material respects) other applicable Legal Requirements, and (ii) all
requirements set forth in applicable Contracts.
7
(b) Except as set forth in Schedule 3.3 hereto, there are no equity
securities, partnership interests or similar ownership interests of any class of
any equity security of Company or any Subsidiary, or any securities exchangeable
or convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except as set forth in Schedule 3.3 hereof or as set forth in
Section 3.3(a) hereof there are no subscriptions, options, warrants, equity
securities, partnership interests or similar ownership interests, calls, rights
(including preemptive rights), commitments or agreements of any character to
which Company or any Subsidiary is a party or by which it is bound obligating
Company or any Subsidiary to issue, deliver or sell, or cause to be issued,
delivered or sold, or repurchase, redeem or otherwise acquire, or cause the
repurchase, redemption or acquisition of, any shares of capital stock,
partnership interests or similar ownership interests of Company or any
Subsidiary or obligating Company or any Subsidiary to grant, extend, accelerate
the vesting of or enter into any such subscription, option, warrant, equity
security, call, right, commitment or agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 3.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Company or any Subsidiary is a party or by which Company or any
Subsidiary is bound with respect to any equity security of any class of Company
or any Subsidiary.
3.4 Authority Relative to this Agreement. Company has all necessary
corporate power and authority to execute and deliver this Agreement and to
perform its obligations hereunder and, to consummate the transactions
contemplated hereby (including the Transaction). The execution and delivery of
this Agreement and the consummation by Company of the transactions contemplated
hereby (including the Transaction) have been duly and validly authorized by all
necessary corporate action on the part of Company (including the approval by its
Board of Directors and by the Stockholders), and no other corporate proceedings
on the part of Company are necessary to authorize this Agreement or to
consummate the transactions contemplated hereby. This Agreement has been duly
and validly executed and delivered by Company and, assuming the due
authorization, execution and delivery thereof by Buyer and Stockholders,
constitutes the legal and binding obligation of Company, enforceable against
Company in accordance with its terms, except as may be limited by bankruptcy,
insolvency, reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity and public
policy.
3.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by the Company and
the execution and delivery of the Voting Agreement by the Stockholders do not,
and the performance of this Agreement by the Company and the performance of the
Voting Agreements by the Stockholders shall not, (i) conflict with or violate
the Company's Charter Documents, (ii) subject to obtaining the adoption of this
Agreement and the Transaction by the Stockholders of Company, conflict with or
violate any Legal Requirements, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would become a
default) under, or materially impair Company's rights or alter the rights or
obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of Company
pursuant to, any Contracts, except, with respect to clauses (ii) or (iii), for
any such conflicts, violations, breaches, defaults or other occurrences that
would not, individually and in the aggregate, have a Material Adverse Effect on
Company.
8
(b) The execution and delivery of this Agreement by Company and the
Stockholders do not, and the performance of their obligations hereunder will
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any court, administrative agency, commission, governmental
or regulatory authority, self-regulatory organization, domestic or foreign (a
"Governmental Entity"), except (i) for applicable requirements, if any, of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), state securities laws ("Blue Sky Laws"), and the rules and regulations
thereunder, and appropriate documents with the relevant authorities of other
jurisdictions in which Company is qualified to do business, (ii) consents,
approvals, authorizations, permits, filings and notices to be obtained or made
prior to Closing, and (iii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Company or, after the Closing, the Buyer, or prevent
consummation of the Transaction or otherwise prevent the parties hereto from
performing their obligations under this Agreement.
3.6 Compliance. Company has complied with, is not in violation of, any
Legal Requirements with respect to the conduct of its business, or the ownership
or operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on Company or its Subsidiaries. The businesses
and activities of Company and each Subsidiary have not been and are not being
conducted in violation of any Legal Requirements. No Company or Subsidiary is in
default or violation of any term, condition or provision of any applicable
Charter Documents or Contracts. Except as set forth on Schedule 3.6, no notice
of non-compliance with any Legal Requirements has been received by Company, any
Subsidiary, or the Stockholders (and the Stockholders have no knowledge of any
such notice delivered to any other Person). None of the Stockholders is in
violation of any term of any contract or covenant (either with Company or a
Subsidiary or another entity) relating to employment, patents, proprietary
information disclosure, non-competition or non-solicitation.
3.7 Financial Statements; Filings.
(a) Company has made available to Buyer a correct and complete
copy of each report and statement filed by Company and each Subsidiary with any
Governmental Entity for the 36 months prior to the date of this Agreement (the
"Company Reports"), which are all the forms, reports and documents required to
be filed by Company and each Subsidiary with any Governmental Entity for the 36
months prior to the date of this Agreement. As of their respective dates, the
Company Reports (i) were prepared in accordance and complied in all material
respects with the requirements of the applicable Governmental Entity, and the
rules and regulations of such Governmental Entities applicable to such Company
Reports, and (ii) did not at the time they were filed (and if amended or
superseded by a filing prior to the date of this Agreement then on the date of
such filing and as so amended or superceded) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent set forth in
the preceding sentence, Stockholders make no representation or warranty
whatsoever concerning the Company Reports as of any time other than the time
they were filed.
9
(b) Company has provided to Buyer a correct and complete copy of the
audited financial statements (including, in each case, any related notes
thereto) of Company and each Subsidiary for the prior three fiscal years ended,
complied as to form in all material respects with the published rules and
regulations of any applicable Governmental Entity, prepared in accordance with
the generally accepted accounting principles of the United Kingdom to which
Company and Subsidiaries are subject ("U.K. GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents in all material respects the financial
position of Company and Subsidiaries at the respective dates thereof and the
results of its operations and cash flows for the periods indicated. The Company
will provide U.S. GAAP Financial Statements (as defined in Section 6.1) on or
before the Closing prepared in accordance with the generally accepted accounting
principles of the United States ("U.S. GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto), and each fairly presents in all material respects the financial
position of Company and Subsidiaries at the respective dates thereof and the
results of its operations and cash flows for the periods indicated.
(c) Company has provided to Buyer a correct and complete copy of the
unaudited financial statements (including, in each case, any related notes
thereto) of Company and each Subsidiary for the most recent interim period
ended, complied as to form in all material respects with the published rules and
regulations of any applicable Governmental Entity, prepared in accordance with
U.K. GAAP applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto), and each fairly presents in all
material respects the financial position of Company and Subsidiaries at the
respective dates thereof and the results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal adjustments which were not or are not expected to
have a Material Adverse Effect on Company.
(d) Company has previously furnished to Buyer a complete and correct
copy of any amendments or modifications, which have not yet been filed with the
applicable Governmental Entities but which are required to be filed with respect
to Company or any Subsidiary, to agreements, documents or other instruments
which previously had been filed by Company or any Subsidiary with the applicable
Governmental Entities pursuant to applicable rules and regulations. The books of
account and other financial records of Company and each Subsidiary have been
maintained in accordance with good business practice.
3.8 No Undisclosed Liabilities. Except as set forth in Schedule 3.8
hereto, Company and each Subsidiary have no liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the financial statements prepared in accordance with
U.K. GAAP which are, individually or in the aggregate, material to the business,
results of operations or financial condition of Company or Subsidiary, except
(i) liabilities provided for in or otherwise disclosed in the interim balance
sheets of Company and its Subsidiaries for the most recent interim period ended,
or (ii) liabilities incurred since December 31, 2003 in the ordinary course of
business, none of which would have a Material Adverse Effect on Company or any
Subsidiary.
10
3.9 Absence of Certain Changes or Events. Except as set forth in Schedule
3.9 hereto, since December 31, 2003, there has not been: (i) any Material
Adverse Effect on Company or any Subsidiary, (ii) any declaration, setting aside
or payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of Company's or any Subsidiary's capital stock, or
any purchase, redemption or other acquisition of any of Company's or any
Subsidiary's capital stock or any other securities of Company or any Subsidiary
or any options, warrants, calls or rights to acquire any such shares or other
securities, (iii) any split, combination or reclassification of any of Company's
capital stock, (iv) any granting by Company or Subsidiary of any increase in
compensation or fringe benefits, except for normal increases of cash
compensation in the ordinary course of business consistent with past practice,
or any payment by Company or any Subsidiary of any bonus, except for bonuses
made in the ordinary course of business consistent with past practice, or any
granting by Company or any Subsidiary of any increase in severance or
termination pay or any entry by Company or any Subsidiary into any currently
effective employment, severance, termination or indemnification agreement or any
agreement the benefits of which are contingent or the terms of which are
materially altered upon the occurrence of a transaction involving Company or a
Subsidiary of the nature contemplated hereby, (v) entry by Company or any
Subsidiary into any licensing or other agreement with regard to the acquisition
or disposition of any Intellectual Property (as defined in Section 3.20 hereof)
other than licenses in the ordinary course of business consistent with past
practice or any amendment or consent with respect to any licensing agreement
filed or required to be filed by Company or any Subsidiary with respect to any
Governmental Entity, (vi) any material change by Company or any Subsidiary in
its accounting methods, principles or practices, except as required by
concurrent changes in U.K. GAAP, (vii) any change in the auditors of Company or
any Subsidiary, (vii) any issuance of capital stock of Company or any of its
Subsidiaries, or (viii) any revaluation by Company or any Subsidiary of any of
their respective assets, including, without limitation, writing down the value
of capitalized inventory or writing off notes or accounts receivable or any sale
of assets of Company or a Subsidiary other than in the ordinary course of
business.
3.10 Litigation. Except as disclosed in Schedule 3.10 hereto, there are no
claims, suits, actions, proceedings pending or, to the Company's knowledge,
threatened against Company or any Subsidiary, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on Company and its Subsidiaries or have a
Material Adverse Effect on the ability of the parties hereto to consummate the
Transaction.
11
3.11 Employee Benefit Plans.
(a) All employee compensation, incentive, fringe or benefit plans,
programs, policies, commitments or other arrangements (whether or not set forth
in a written document) covering any active or former employee, director or
consultant of Company or any Subsidiary, or any trade or business (whether or
not incorporated) which is under common control with Company or any Subsidiary,
with respect to which Company or any Subsidiary has liability (collectively, the
"Plans") has been maintained and administered in all material respects in
compliance with its terms and with the requirements prescribed by any and all
statutes, orders, rules and regulations which are applicable to such Plans, and
all liabilities with respect to the Plans have been properly reflected in the
financial statements of Company and it Subsidiaries. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought, or to the knowledge of Stockholders is
threatened, against or with respect to any such Plan. There are no audits,
inquiries or proceedings pending or, to the knowledge of Stockholders,
threatened by any governmental agency with respect to any Plans. All
contributions, reserves or premium payments required to be made or accrued as of
the date hereof to the Plans have been timely made or accrued. Company does not
have any plan or commitment to establish any new Plan, to modify any Plan
(except to the extent required by law or to conform any such Plan to the
requirements of any applicable law, in each case as previously disclosed to
Buyer in writing, or as required by this Agreement), or to enter into any new
Plan. Each Plan can be amended, terminated or otherwise discontinued after the
Closing in accordance with its terms, without liability to Buyer, Company or any
Subsidiary (other than ordinary administration expenses and expenses for
benefits accrued but not yet paid).
(b) Except as disclosed on Schedule 3.11 hereto, neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will (i) result in any payment (including
severance, unemployment compensation, golden parachute, bonus or otherwise)
becoming due to any Stockholder, director or employee of Company or any
Subsidiary under any Plan or otherwise, (ii) materially increase any benefits
otherwise payable under any Plan, or (iii) result in the acceleration of the
time of payment or vesting of any such benefits.
3.12 Labor Matters. Except as disclosed in Schedule 3.12 hereto, Company
and its Subsidiary are not a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by Company or a
Subsidiary nor do the Stockholders know of any activities or proceedings of any
labor union to organize any such employees. To the extent Company or its
Subsidiaries are a party to any collective bargaining agreement or other labor
union contract, Company and its Subsidiaries are not in violation or breach of
any such agreements.
3.13 Restrictions on Business Activities. There is no agreement,
commitment, judgment, injunction, order or decree binding upon Company or a
Subsidiary or to which Company or a Subsidiary is a party which has or could
reasonably be expected to have the effect of prohibiting or materially impairing
any business practice of Company or a Subsidiary, any acquisition of property by
Company or a Subsidiary or the conduct of business by Company or a Subsidiary as
currently conducted other than such effects, individually or in the aggregate,
which have not had and could not reasonably be expected to have a Material
12
Adverse Effect on Company or a Subsidiary.
3.14 Title to Property.
(a) All real property owned by Company and Subsidiary (including
improvements and fixtures thereon, easements and rights of way) (the "Real
Property") is shown or reflected on the interim balance sheets of Company and
Subsidiaries. Company and Subsidiary have good, valid and marketable fee simple
title to the Real Property, and except as set forth in the financial statements
of Company and it Subsidiaries or on Schedule 3.14 hereto, all of the Real
Property is held free and clear of (i) all leases, licenses and other rights to
occupy or use the Real Property and (ii) all Liens, rights of way, easements,
restrictions, exceptions, variances, reservations, covenants or other title
defects or limitations of any kind, other than liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as do not
materially detract from the value of or materially interfere with the present
use of the property affected thereby. Schedule 3.14 hereto is a list of all
options or other contracts under which any Company or Subsidiary has a right to
acquire any interest in real property.
(b) All leases of real property held by Company and each Subsidiary
and all personal property and other property and assets of Company and each
Subsidiary (other than Real Property) owned, used or held for use in connection
with the business of Company and Subsidiaries (the "Personal Property") are
shown or reflected on the interim balance sheets of Company and Subsidiaries.
Company and each Subsidiary own and have good and marketable title to the
Personal Property, and all such assets and properties are in each case held free
and clear of all Liens, except for Liens disclosed in the financial statements
of Company and it Subsidiaries or in Schedule 3.14 hereto, none of which Liens
has or will have, individually or in the aggregate, a Material Adverse Effect on
such property or on the present or contemplated use of such property in the
businesses of Company or a Subsidiary.
(c) All leases pursuant to which Company or a Subsidiary leases from
others material real or personal property are valid and effective in accordance
with their respective terms, and there is not, under any of such leases, any
existing material default or event of default of Company or a Subsidiary or, to
Company's knowledge, any other party (or any event which with notice or lapse of
time, or both, would constitute a material default), except where the lack of
such validity and effectiveness or the existence of such default or event of
default could not reasonably be expected to have a Material Adverse Effect on
Company or a Subsidiary.
3.15 Taxes.
(a) Definition of Taxes. For the purposes of this Agreement, "Tax"
or "Taxes" refers to any and all federal, state, local and foreign taxes,
including, without limitation, gross receipts, income, profits, sales, use,
occupation, value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, assessments, governmental
charges and duties together with all interest, penalties and additions imposed
with respect to any such amounts and any obligations under any agreements or
arrangements with any other person with respect to any such amounts and
including any liability of a predecessor entity for any such amounts.
13
(b) Tax Returns and Audits. Except as set forth in Schedule 3.15
hereto:
(i) Company and each Subsidiary has timely filed all federal,
state, local and foreign returns, estimates, information statements and reports
relating to Taxes ("Returns") required to be filed by Company or a Subsidiary
with any Tax authority prior to the date hereof, except such Returns which are
not material to Company or a Subsidiary. All such Returns are true, correct and
complete in all material respects. Company and each Subsidiary have paid all
Taxes shown to be due on such Returns.
(ii) All Taxes that Company or a Subsidiary is required by law
to withhold or collect have been duly withheld or collected, and have been
timely paid over to the proper governmental authorities to the extent due and
payable.
(iii) Company and each Subsidiary have not been delinquent in
the payment of any material Tax nor is there any material Tax deficiency
outstanding, proposed or assessed against Company or any Subsidiary, nor has
Company or any Subsidiary executed any unexpired waiver of any statute of
limitations on or extending the period for the assessment or collection of any
Tax.
(iv) No audit or other examination of any Return of Company or
any Subsidiary by any Tax authority is presently in progress, nor has Company or
any Subsidiary been notified of any request for such an audit or other
examination.
(v) No adjustment relating to any Returns filed by Company or
any Subsidiary has been proposed in writing, formally or informally, by any Tax
authority to the Company or any Subsidiary or any representative thereof.
(vi) Company and its Subsidiaries have no liability for any
material unpaid Taxes which have not been accrued for or reserved on Company's
or Subsidiary's balance sheets included in the audited financial statements for
the most recent fiscal year ended, whether asserted or unasserted, contingent or
otherwise, which is material to Company or a Subsidiary, other than any
liability for unpaid Taxes that may have accrued since the end of the most
recent fiscal year in connection with the operation of the business of Company
or its Subsidiaries in the ordinary course of business, none of which is
material to the business, results of operations or financial condition of
Company or its Subsidiaries.
(vii) Company has not taken any action and does not know of
any fact, agreement, plan or other circumstance that is reasonably likely to
prevent the Transaction from qualifying as a reorganization within the meaning
of Section 368(a) of the Code.
3.16 Environmental Matters.
(a) Except as disclosed in Schedule 3.16 hereto and except for such
matters that, individually or in the aggregate, are not reasonably likely to
have a Material Adverse Effect: (i) Company and each Subsidiary has complied
with all applicable Environmental Laws; (ii) the properties currently owned or
operated by Company and each Subsidiary (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Company and each
Subsidiary were not contaminated with Hazardous Substances during the period of
ownership or operation by Company or a Subsidiary; (iv) Company and its
Subsidiaries are not subject to liability for any Hazardous Substance disposal
or contamination on any third party property; (v) Company and its Subsidiaries
have not been associated with any release or threat of release of any Hazardous
Substance; (vi) Company and its Subsidiaries have not received any notice,
demand, letter, claim or request for information alleging that Company or a
Subsidiary may be in violation of or liable under any Environmental Law; and
(vii) Company and its Subsidiaries are not subject to any orders, decrees,
injunctions or other arrangements with any Governmental Entity or subject to any
indemnity or other agreement with any third party relating to liability under
any Environmental Law or relating to Hazardous Substances.
14
(b) As used in this Agreement, the term "Environmental Law" means
any federal, state, local or foreign law, regulation, order, decree, permit,
authorization, opinion, common law or agency requirement relating to: (A) the
protection, investigation or restoration of the environment, health and safety,
or natural resources; (B) the handling, use, presence, disposal, release or
threatened release of any Hazardous Substance or (C) noise, odor, wetlands,
pollution, contamination or any injury or threat of injury to persons or
property.
(c) As used in this Agreement, the term "Hazardous Substance" means
any substance that is: (i) listed, classified or regulated pursuant to any
Environmental Law; (ii) any petroleum product or by-product, asbestos-containing
material, lead-containing paint or plumbing, polychlorinated biphenyls,
radioactive materials or radon; or (iii) any other substance which is the
subject of regulatory action by any Governmental Entity pursuant to any
Environmental Law.
3.17 Brokers; Third Party Expenses. Company and the Stockholders have not
incurred, nor will it incur, directly or indirectly, any liability for brokerage
or finders' fees or agent's commissions or any similar charges in connection
with this Agreement or any transaction contemplated hereby.
3.18 Intellectual Property. For the purposes of this Agreement, the
following terms have the following definitions:
"Intellectual Property" shall mean any or all of the following and all
worldwide common law and statutory rights in, arising out of, or
associated therewith: (i) patents and applications therefor and all
reissues, divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof ("Patents"); (ii) inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data and customer
lists, and all documentation relating to any of the foregoing; (iii)
copyrights, copyrights registrations and applications therefor, and all
other rights corresponding thereto throughout the world; (iv) domain
names, uniform resource locators ("URLs") and other names and locators
associated with the Internet ("Domain Names"); (v) industrial designs and
any registrations and applications therefor; (vi) trade names, logos,
common law trademarks and service marks, trademark and service xxxx
registrations and applications therefor (collectively, "Trademarks");
(vii) all databases and data collections and all rights therein; (viii)
all moral and economic rights of authors and inventors, however
denominated, and (ix) any similar or equivalent rights to any of the
foregoing (as applicable).
15
"Company Intellectual Property" shall mean any Intellectual Property that
is owned by, or exclusively licensed to, Company or a Subsidiary.
"Registered Intellectual Property" means all Intellectual Property that is
the subject of an application, certificate, filing, registration or other
document issued, filed with, or recorded by any private, state, government
or other legal authority.
"Company Registered Intellectual Property" means all of the Registered
Intellectual Property owned by, or filed in the name of, Company or a
Subsidiary.
"Company Products" means all current versions of products or service
offerings of Company and its Subsidiaries.
(a) No Company Intellectual Property or Company Product is subject
to any material proceeding or outstanding decree, order, judgment, contract,
license, agreement or stipulation restricting in any manner the use, transfer or
licensing thereof by Company or a Subsidiary, or which may affect the validity,
use or enforceability of such Company Intellectual Property or Company Product,
which in any such case could reasonably be expected to have a Material Adverse
Effect on Company or its Subsidiaries. (b) Except as disclosed on Schedule 3.18
hereto, Company or its Subsidiaries own and have good and exclusive title to,
each material item of Company Intellectual Property owned by it free and clear
of any Liens (excluding non-exclusive licenses and related restrictions granted
in the ordinary course); and Company or its Subsidiaries are the exclusive owner
of all material Trademarks used in connection with the operation or conduct of
the business of Company and its Subsidiaries including the sale of any products
or the provision of any services by Company and its Subsidiaries. (c) The
operation of the business of Company and its Subsidiaries as such business
currently is conducted, including (i) the design, development, manufacture,
distribution, reproduction, marketing or sale of the products or services of
Company and its Subsidiaries (including Company Products) and (ii) Company's or
a Subsidiary's use of any product, device or process, to the Company's knowledge
and except as could not reasonably be expected to have a Material Adverse
Effect, has not and does not and will not infringe or misappropriate the
Intellectual Property of any third party or constitute unfair competition or
trade practices under the laws of any jurisdiction.
3.19 Agreements, Contracts and Commitments.
(a) Schedule 3.19 hereto sets forth a complete and accurate list of
all Material Contracts (as hereinafter defined), specifying the parties thereto.
For purposes of this Agreement, (i) the term "Contracts" shall mean all
contracts, agreements, leases, mortgages, indentures, note, bond, liens,
license, permit, franchise, purchase orders, sales orders, arbitration awards,
judgments, decrees, orders, documents, instruments, understandings and
commitments, or other instrument or obligation (including without limitation
outstanding offers or proposals) of any kind, whether written or oral, to which
Company or any Subsidiary is a party or by or to which any of the properties or
assets of Company or any Subsidiary may be bound, subject or affected (including
without limitation notes or other instruments payable to Company or any
Subsidiary) and (ii) the term "Material Contracts" shall mean (x) each Contract
(I) providing for payments (past, present or future) to Company or any
Subsidiary in excess of $50,000 in the aggregate or (II) under which or in
respect of which Company or any Subsidiary presently has any liability or
obligation of any nature whatsoever (absolute, contingent or otherwise) in
excess of $50,000, (y) each Contract which otherwise is or may be material to
the businesses, operations, assets, condition (financial or otherwise) or
prospects of Company or any Subsidiary and (z) without limitation of subclause
(x) or subclause (y), each of the following Contracts:
16
(1) any mortgage, indenture, note, installment obligation or
other instrument, agreement or arrangement for or relating to any borrowing of
money by or from Company, any Subsidiary, or any officer, director or 5% or more
stockholder ("Insider") of Company or any Subsidiary;
(2) any guaranty, direct or indirect, by Company or any
Subsidiary or any Insider of Company or any Subsidiary of any obligation for
borrowings, or otherwise, excluding endorsements made for collection in the
ordinary course of business;
(3) any Contract made other than in the ordinary course of
business or (x) providing for the grant to any preferential rights to purchase
or lease any asset of Company or any Subsidiary or (y) providing for any right
(exclusive or non-exclusive) to sell or distribute, or otherwise relating to the
sale or distribution of, any product or service of Company or any Subsidiary;
(4) any obligation to register any shares of the capital stock
or other securities of Company or any Subsidiary with the U.S. Securities and
Exchange Commission ("SEC") or any state securities commission or agency;
(5) any obligation to make payments, contingent or otherwise,
arising out of the prior acquisition of the business, assets or stock of other
Persons;
(6) any collective bargaining agreement with any labor union;
(7) any lease or similar arrangement for the use by Company or
any Subsidiary of personal property;
(8) any Contract granting or purporting to grant, or otherwise
in any way relating to, any mineral rights or any other interest (including,
without limitation, a leasehold interest) in real property; and
(9) any Contract to which any Insider of Company or any
Subsidiary is a party.
17
(b) Each Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Material Contracts (or written summaries in the case of oral
Material Contracts) and of all outstanding offers or proposals of Company and
each Subsidiary have been heretofore delivered to Buyer.
(c) Neither Company nor any Subsidiary nor any other party thereto
is in breach of or in default under, and no event has occurred which with notice
or lapse of time or both would become a breach of or default under, any
Contract, and no party to any Contract has given any notice of any claim of any
such breach, default or event, which, individually or in the aggregate, are
reasonably likely to have a Material Adverse Effect on Company and its
Subsidiaries. Each agreement, contract or commitment to which the Company and
its Subsidiaries are a party or by which they are bound that has not expired by
its terms is in full force and effect, except where such failure to be in full
force and effect is not reasonably likely to have a Material Adverse Effect on
Company and its Subsidiaries.
3.20 Insurance. Company and its Subsidiaries maintain insurance policies
and fidelity bonds covering the assets, business, equipment, properties,
operations, employees, officers and directors (collectively, the "Insurance
Policies") of Company and its Subsidiaries which Company reasonably believes are
adequate in amount and scope for the Business in which they are engaged.
3.21 Governmental Actions/Filings. Company and each Subsidiary have been
granted and hold, and have made, all Governmental Actions/Filings (including,
without limitation, the Governmental Actions/Filings required for (i) emission
or discharge of effluents and pollutants into the air and the water and (ii) the
manufacture and sale of all products manufactured and sold by it) necessary to
the conduct by Company or each Subsidiary of its businesses (as presently
conducted and as presently proposed to be conducted) or used or held for use by
Company or any Subsidiary, all of which are listed in Schedule 3.21 hereto, and
true, complete and correct copies of which have heretofore been delivered to
Buyer. Each such Governmental Action/Filing is in full force and effect and,
expect as disclosed in Schedule 3.21 hereto, will not expire prior to June 30,
2005, and Company and each Subsidiary is in compliance with all of its
obligations with respect thereto. No event has occurred and is continuing which
requires or permits, or after notice or lapse of time or both would require or
permit, and consummation of the transactions contemplated by this Agreement or
any ancillary documents will not require or permit (with or without notice or
lapse of time, or both), any modification or termination of any such
Governmental Actions/Filings. Except as set forth in Schedule 3.21, no
Governmental Action/Filing is necessary to be obtained, secured or made by
Company or any Subsidiary to enable it to continue to conduct its businesses and
operations and use its properties after the Closing in a manner which is
consistent with current practice.
3.22 Interested Party Transactions. Except as set forth in the Schedule
3.22 hereto, no employee, officer, director or Stockholder of Company or any
Subsidiary or a member of his or her immediate family is indebted to Company or
any Subsidiary, nor is Company or any Subsidiary indebted (or committed to make
loans or extend or guarantee credit) to any of them, other than (i) for payment
of salary for services rendered, (ii) reimbursement for reasonable expenses
incurred on behalf of Company or an Subsidiary, and (iii) for other employee
benefits made generally available to all employees. To the Stockholder's
knowledge, none of such individuals has any direct or indirect ownership
interest in any Person with whom Company or any Subsidiary is affiliated or with
whom Company or any Subsidiary has a contractual relationship, or any Person
that competes with Company or any Subsidiary, except that each employee,
Stockholder, officer or director of Company or any Subsidiary and members of
their respective immediate families may own less than 5% of the outstanding
stock in publicly traded companies that may compete with Company or any
Subsidiary. Except as set forth in Schedule 3.22, to the Stockholder's
knowledge, no officer, director or Stockholder or any member of their immediate
families is, directly or indirectly, interested in any material contract with
Company or any Subsidiary (other than such contracts as relate to any such
individual ownership of capital stock or other securities of Company or any
Subsidiary).
18
3.23 Board Approval. The board of directors of Company or similar
governing body (including any required committee or subgroup of thereof) has, as
of the date of this Agreement, unanimously (i) declared the advisability of the
Transaction and approved, subject to the approval of Stockholders, this
Agreement and the transactions contemplated hereby, (ii) determined that the
Transaction is in the best interests of the Stockholders and is on terms that
are fair to such Stockholders, and (iii) recommended that the Stockholders
approve and adopt this Agreement and approve the Transaction.
3.24 Representations and Warranties Complete. The representations and
warranties of Company included in this Agreement and any list, statement,
document or information set forth in, or attached to, any Schedule provided
pursuant to this Agreement or delivered hereunder, are true and complete in all
material respects and do not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements contained therein not misleading, under the circumstance under
which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
KRM Fund, on behalf of the Buyer, represents and warrants to, and
covenants with, Company and Stockholders, as follows:
4.1 Organization and Qualification.
(a) Buyer is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being or currently planned
by Buyer to be conducted. Buyer is in possession of all Approvals necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being or currently planned by Buyer to be
conducted, except where the failure to have such Approvals could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect on Buyer. Complete and correct copies of the Charter Documents of
Buyer, as amended and currently in effect, are attached hereto as Schedule 4.1.
Buyer is not in violation of any of the provisions of the Buyer's Charter
Documents.
19
(b) Buyer is duly qualified or licensed to do business as a foreign
corporation and is in good standing, in each jurisdiction where the character of
the properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect on
Buyer.
(c) The corporate records of Buyer contain true, complete and
accurate records of all meetings and consents in lieu of meetings of its Board
of Directors (and any committees thereof), similar governing bodies and
stockholders, since KRM Fund's acquisition of a majority interest in Buyer
("Corporate Records") . Copies of such Corporate Records of Buyer have been
heretofore delivered to Company.
(d) The Stock Records of Buyer contain true, complete and accurate
records of the ownership as of Buyer Common Stock at the close of business on
the business day prior to the date hereof ("Stock Records"). Copies of such
Stock Records of Buyer have been heretofore delivered to Company.
4.2 Subsidiaries. Except as set forth in this Section 4.2, Buyer has no
Subsidiaries and does not own, directly or indirectly, any ownership, equity,
profits or voting interest in any Person or has any agreement or commitment to
purchase any such interest, and Buyer has not agreed and is not obligated to
make nor is bound by any written, oral or other agreement, contract,
subcontract, lease, binding understanding, instrument, note, option, warranty,
purchase order, license, sublicense, insurance policy, benefit plan, commitment
or undertaking of any nature, as of the date hereof or as may hereafter be in
effect under which it may become obligated to make, any future investment in or
capital contribution to any other entity. As of the date hereof, Buyer has a
wholly-owned subsidiary, SRE ESCAgenetics Corporation, which is a corporation
organized under the laws of the State of California ("Buyer Subsidiary"). Prior
to Closing, Buyer shall take any and all actions required to dissolve Buyer
Subsidiary.
4.3 Capitalization.
(a) The authorized capital stock of Buyer consists of 100,000,000
shares of common stock, par value $0.0001 per share ("Buyer Common Stock") and
1,000,000 shares of preferred stock, par value $0.01 per share ("Buyer Preferred
Stock"). At the close of business on the business day prior to the date hereof,
(i) 255,000 shares of Company Common Stock were issued and outstanding, all of
which are validly issued, fully paid and nonassessable; and (ii) no shares of
Buyer Preferred Stock were issued and outstanding. All outstanding shares of
Buyer Common Stock have been issued and granted in compliance with (i) all
applicable securities laws and (in all material respects) other applicable Legal
Requirements, and (ii) all requirements set forth in applicable Contracts.
20
(b) There are no equity securities, partnership interests or similar
ownership interests of any class of any equity security of Buyer, or any
securities exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. There are no subscriptions, options,
warrants, equity securities, partnership interests or similar ownership
interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Buyer is a party or by which it is bound
obligating Buyer to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition of, any shares of capital stock, partnership interests
or similar ownership interests of Buyer or obligating Buyer to grant, extend,
accelerate the vesting of or enter into any such subscription, option, warrant,
equity security, call, right, commitment or agreement.
(c) Except as contemplated by this Agreement and except as set forth
in Schedule 4.3 hereto, there are no registration rights, and there is no voting
trust, proxy, rights plan, antitakeover plan or other agreement or understanding
to which Buyer is a party or by which it is bound with respect to any equity
security of any class of Buyer. 4.4 Authority Relative to this Agreement. Buyer
has full corporate power and authority to: (i) execute, deliver and perform this
Agreement, and each ancillary document which Buyer has executed or delivered or
is to execute or deliver pursuant to this Agreement, and (ii) carry out Buyer's
obligations hereunder and thereunder and, to consummate the transactions
contemplated hereby (including the Transaction). The execution and delivery of
this Agreement and the consummation by Buyer of the transactions contemplated
hereby (including the Transaction) have been duly and validly authorized by all
necessary corporate action on the part of Buyer (including the approval by its
Board of Directors), and no other corporate proceedings on the part of Buyer are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by Buyer and, assuming the due authorization, execution and delivery
thereof by Company and Stockholders, constitutes the legal and binding
obligation of Buyer, enforceable against Buyer in accordance with its terms,
except as may be limited by bankruptcy, insolvency, reorganization or other
similar laws affecting the enforcement of creditors' rights generally and by
general principles of equity and public policy.
4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Buyer and the
execution and delivery of the Voting Agreement by Buyer do not, and the
performance of this Agreement by Buyer and the performance of the Voting
Agreement by Buyer shall not: (i) conflict with or violate Buyer's Charter
Documents, (ii) conflict with or violate any Legal Requirements, or (iii) result
in any breach of or constitute a default (or an event that with notice or lapse
of time or both would become a default) under, or materially impair Buyer's
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in the creation of a lien or encumbrance on any of the properties or
assets of Buyer pursuant to, any Contracts, except, with respect to clauses (ii)
or (iii), for any such conflicts, violations, breaches, defaults or other
occurrences that would not, individually and in the aggregate, have a Material
Adverse Effect on Company.
21
(b) The execution and delivery of this Agreement by Buyer does not,
and the performance of its obligations hereunder will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
Governmental Entity, except (i) for applicable requirements, if any, of the
Securities Act, the Exchange Act, Blue Sky Laws, and the rules and regulations
thereunder, and appropriate documents with the relevant authorities of other
jurisdictions in which Buyer is qualified to do business, (ii) consents,
approvals, authorizations, permits, filings and notices to be obtained or made
prior to Closing, and (iii) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications,
would not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect on Buyer, or prevent consummation of the Transaction or
otherwise prevent the parties hereto from performing their obligations under
this Agreement.
4.6 Compliance. Buyer has complied with, is not in violation of, any Legal
Requirements with respect to the conduct of its business, or the ownership or
operation of its business, except for failures to comply or violations which,
individually or in the aggregate, have not had and are not reasonably likely to
have a Material Adverse Effect on Buyer. To Buyer's knowledge, the businesses
and activities of Buyer have not been and are not being conducted in violation
of any Legal Requirements. Buyer is in default or violation of any term,
condition or provision of any applicable Charter Documents or Buyer Contracts,
except with respect to such defaults or violations under Buyer Contracts which
would not reasonably be expected to have a Material Adverse Effect on Buyer..
Except as set forth on Schedule 4.6, to Buyer's knowledge, no notice of
non-compliance with any Legal Requirements has been received by Buyer. None of
the Buyer's stockholders is in violation of any term of any contract or covenant
(either with Buyer or another entity) relating to employment, patents,
proprietary information disclosure, non-competition or non-solicitation.
4.7 SEC Filings; Financial Statements.
(a) Buyer has made available to Stockholders and Company through the
SEC web site a correct and complete copy of each report, registration statement
and definitive proxy statement filed by Buyer with the SEC for the 36 months
prior to the date of this Agreement (the "Buyer SEC Reports"), which, to Buyer's
knowledge, are all the forms, reports and documents required to be filed by
Buyer with the SEC for the 36 months prior to the date of this Agreement. As of
their respective dates, to Buyer's knowledge, the Buyer SEC Reports: (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the SEC thereunder applicable to such Buyer SEC
Reports, and (ii) did not at the time they were filed (and if amended or
superseded by a filing prior to the date of this Agreement then on the date of
such filing and as so amended or superceded) contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Except to the extent set forth in
the preceding sentence, Buyer makes no representation or warranty whatsoever
concerning the Buyer SEC Reports as of any time other than the time they were
filed.
(b) To Buyer's knowledge, each set of financial statements
(including, in each case, any related notes thereto) contained in Buyer SEC
Reports, including each Buyer SEC Report filed after the date hereof until the
Closing, complied as to form in all material respects with the published rules
and regulations of the SEC with respect thereto, was prepared in accordance with
U.S. GAAP applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto or, in the case of unaudited
statements, do not contain footnotes as permitted by Form 10-QSB of the Exchange
Act) and each fairly presents in all material respects the financial position of
22
Buyer at the respective dates thereof and the results of its operations and cash
flows for the periods indicated, except that the unaudited interim financial
statements were or are subject to normal adjustments which were not or are not
expected to have a Material Adverse Effect on Buyer taken as a whole.
(c) Buyer has previously furnished to Stockholders and Company a
complete and correct copy of any amendments or modifications, which have not yet
been filed with the SEC but which are required to be filed, to agreements,
documents or other instruments which previously had been filed by Buyer with the
SEC pursuant to the Securities Act or the Exchange Act.
4.8 No Undisclosed Liabilities. Except as set forth in Schedule 4.8
hereto, to Buyer's knowledge, Buyer has no liabilities (absolute, accrued,
contingent or otherwise) of a nature required to be disclosed on a balance sheet
or in the related notes to the financial statements prepared in accordance with
U.S. GAAP which are, individually or in the aggregate, material to the business,
results of operations or financial condition of Buyer, except (i) liabilities
provided for in or otherwise disclosed in Buyer SEC Reports filed prior to the
date hereof, (ii) liabilities incurred since December 31, 2003 in the ordinary
course of business, none of which would have a Material Adverse Effect on Buyer,
and (iii) those liabilities and obligations specifically set forth in Section
6.13.
4.9 Absence of Certain Changes or Events. Except as set forth in Schedule
4.9 hereto or in Buyer SEC Reports, since December 31, 2003, there has not been:
(i) any Material Adverse Effect on Buyer, (ii) any declaration, setting aside or
payment of any dividend on, or other distribution (whether in cash, stock or
property) in respect of, any of Buyer's capital stock, or any purchase,
redemption or other acquisition of any of Buyer's capital stock or any other
securities of Buyer or any options, warrants, calls or rights to acquire any
such shares or other securities, (iii) any split, combination or
reclassification of any of Buyer's capital stock, (iv) any granting by Buyer of
any increase in compensation or fringe benefits, except for normal increases of
cash compensation in the ordinary course of business consistent with past
practice, or any payment by Buyer of any bonus, except for bonuses made in the
ordinary course of business consistent with past practice, or any granting by
Buyer of any increase in severance or termination pay or any entry by Buyer into
any currently effective employment, severance, termination or indemnification
agreement or any agreement the benefits of which are contingent or the terms of
which are materially altered upon the occurrence of a transaction involving
Buyer of the nature contemplated hereby, (v) entry by Buyer into any licensing
or other agreement with regard to the acquisition or disposition of any
Intellectual Property other than licenses in the ordinary course of business
consistent with past practice or any amendment or consent with respect to any
licensing agreement filed or required to be filed by Buyer with respect to any
Governmental Entity, (vi) any material change by Buyer in its accounting
methods, principles or practices, except as required by concurrent changes in
U.S. GAAP, (vii) any change in the auditors of Buyer, (vii) any issuance of
capital stock of Buyer, or (viii) any revaluation by Buyer of any of their
respective assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable or any sale of
assets of Buyer other than in the ordinary course of business.
23
4.10 Litigation. Except as set forth on Schedule 4.10 hereto or in Buyer
SEC Reports, there are no claims, suits, actions or proceedings pending or, to
the Buyer's knowledge, threatened against Buyer, before any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
that seeks to restrain or enjoin the consummation of the transactions
contemplated by this Agreement or which could reasonably be expected, either
singularly or in the aggregate with all such claims, actions or proceedings, to
have a Material Adverse Effect on Buyer or have a Material Adverse Effect on the
ability of the parties hereto to consummate the Transaction.
4.11 Employee Benefit Plans. Except as set forth in Schedule 4.11 or in
Buyer SEC Reports, Buyer does not maintain, and has no liability under, any
Plan. Except as disclosed on Schedule 4.11 hereto, neither the execution and
delivery of this Agreement nor the consummation of the transactions contemplated
hereby will (i) result in any payment (including severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any
stockholder, director or employee of Buyer, or (ii) result in the acceleration
of the time of payment or vesting of any such benefits.
4.12 Labor Matters. Buyer is not a party to any collective bargaining
agreement or other labor union contract applicable to persons employed by Buyer,
nor does Buyer know of any activities or proceedings of any labor union to
organize any such employees.
4.13 Restrictions on Business Activities. To Buyer's knowledge, there is
no agreement, commitment, judgment, injunction, order or decree binding upon
Buyer or to which Buyer is a party which has or could reasonably be expected to
have the effect of prohibiting or materially impairing any business practice of
Buyer, any acquisition of property by Buyer or the conduct of business by Buyer
as currently conducted other than such effects, individually or in the
aggregate, which have not had and could not reasonably be expected to have, a
Material Adverse Effect on Buyer.
4.14 Title to Property. Buyer does not own or lease any Real Property or
Personal Property. There are no options or other contracts under which Buyer has
a right or obligation to acquire or lease any interest in Real Property or
Personal Property.
4.15 Taxes. Except as set forth in Schedule 4.15 hereto, to Buyer's
knowledge:
(i) Buyer has timely filed all Returns required to be filed by
Buyer with any Tax authority prior to the date hereof, except such Returns which
are not material to Buyer. All such Returns are true, correct and complete in
all material respects. Buyer has paid all Taxes shown to be due on such Returns.
(ii) All Taxes that Buyer is required by law to withhold or
collect have been duly withheld or collected, and have been timely paid over to
the proper governmental authorities to the extent due and payable.
24
(iii) Buyer has not been delinquent in the payment of any
material Tax nor is there any material Tax deficiency outstanding, proposed or
assessed against Buyer, nor has Buyer executed any unexpired waiver of any
statute of limitations on or extending the period for the assessment or
collection of any Tax.
(iv) No audit or other examination of any Return of Buyer by
any Tax authority is presently in progress, nor has Buyer been notified of any
request for such an audit or other examination.
(v) No adjustment relating to any Returns filed by Buyer has
been proposed in writing, formally or informally, by any Tax authority to Buyer
or any representative thereof.
(vi) Buyer has no liability for any material unpaid Taxes
which have not been accrued for or reserved on Buyer's balance sheets included
in the audited financial statements for the most recent fiscal year ended,
whether asserted or unasserted, contingent or otherwise, which is material to
Buyer, other than any liability for unpaid Taxes that may have accrued since the
end of the most recent fiscal year in connection with the operation of the
business of Buyer in the ordinary course of business, none of which is material
to the business, results of operations or financial condition of Buyer.
(vii) Buyer has not taken any action and does not know of any
fact, agreement, plan or other circumstance that is reasonably likely to prevent
the Transaction from qualifying as a reorganization within the meaning of
Section 368(a) of the Code.
4.16 Environmental Matters. Except as disclosed in Schedule 4.16 hereto
and except for such matters that, individually or in the aggregate, are not
reasonably likely to have a Material Adverse Effect, to Buyer's knowledge: (i)
Buyer has complied with all applicable Environmental Laws; (ii) the properties
currently owned or operated by Buyer (including soils, groundwater, surface
water, buildings or other structures) are not contaminated with any Hazardous
Substances; (iii) the properties formerly owned or operated by Buyer were not
contaminated with Hazardous Substances during the period of ownership or
operation by Buyer; (iv) Buyer is not subject to liability for any Hazardous
Substance disposal or contamination on any third party property; (v) Buyer has
not been associated with any release or threat of release of any Hazardous
Substance; (vi) Buyer has not received any notice, demand, letter, claim or
request for information alleging that Buyer may be in violation of or liable
under any Environmental Law; and (vii) Buyer is not subject to any orders,
decrees, injunctions or other arrangements with any Governmental Entity or
subject to any indemnity or other agreement with any third party relating to
liability under any Environmental Law or relating to Hazardous Substances.
4.17 Brokers. Except for Buyer's obligations under the Financial Advisory
Agreement (as defined in Section 6.14), Buyer has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agent's commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
4.18 Intellectual Property. Buyer does not own, license or otherwise have
any right, title or interest in any Intellectual Property or Registered
Intellectual Property.
25
4.19 Agreements, Contracts and Commitments.
(a) Except for the Financial Advisory Agreement and any agreements
with Transfer Agent and except as set forth on Schedule 4.19 or in Buyer SEC
Reports, to Buyer's knowledge, there are no contracts, agreements, leases,
mortgages, indentures, note, bond, liens, license, permit, franchise, purchase
orders, sales orders, arbitration awards, judgments, decrees, orders, documents,
instruments, understandings and commitments, or other instrument or obligation
(including without limitation outstanding offers or proposals) of any kind,
whether written or oral, to which Buyer is a party or by or to which any of the
properties or assets of Buyer may be bound, subject or affected, which imposes,
creates or otherwise results in a material liability or obligation upon Buyer
for the period following the Closing of the transactions contemplated hereby
("Buyer Contracts"). The term "material" for purposes of this Section 4.19 shall
mean $5,000 or more.
(b) Each Buyer Contract was entered into at arms' length and in the
ordinary course, is in full force and effect and is valid and binding upon and
enforceable against each of the parties thereto. True, correct and complete
copies of all Buyer Contracts (or written summaries in the case of oral Buyer
Contracts) and of all outstanding offers or proposals of Buyer have been
heretofore delivered to Company.
(c) Neither Buyer nor any other party thereto is in breach of or in
default under, and no event has occurred which with notice or lapse of time or
both would become a breach of or default under, any Buyer Contract, and no party
to any Buyer Contract has given any notice of any claim of any such breach,
default or event, which, individually or in the aggregate, are reasonably likely
to have a Material Adverse Effect on Buyer. Each agreement, contract or
commitment to which Buyer is a party or by which it is bound that has not
expired by its terms is in full force and effect, except where such failure to
be in full force and effect is not reasonably likely to have a Material Adverse
Effect on Buyer.
4.20 Insurance. Buyer does not maintain any Insurance Policies.
4.21 Governmental Actions/Filings. Buyer has been granted and holds, and
has made, all Governmental Actions/Filings necessary to the conduct by Buyer of
its businesses (as presently conducted) or used or held for use by Buyer, all of
which are listed in Schedule 4.21 hereto, and true, complete and correct copies
of which have heretofore been delivered to Company. Each such Governmental
Action/Filing is in full force and effect and, expect as disclosed in Schedule
4.21 hereto, will not expire prior to June 30, 2005, and Buyer is in compliance
with all of its obligations with respect thereto. No event has occurred and is
continuing which requires or permits, or after notice or lapse of time or both
would require or permit, and consummation of the transactions contemplated by
this Agreement or the ancillary documents will not require or permit (with or
without notice or lapse of time, or both), any modification or termination of
any such Governmental Actions/Filings. Except as set forth in Schedule 4.21, no
Governmental Action/Filing is necessary to be obtained, secured or made by Buyer
to enable it to continue to conduct its businesses and operations and use its
properties after the Closing in a manner which is consistent with current
practice.
26
4.22 Interested Party Transactions. Except as set forth in the Schedule
4.22 hereto or in the Buyer's SEC Reports, no employee, officer, director or
stockholder of Buyer or a member of his or her immediate family is indebted to
Buyer, nor is Buyer indebted (or committed to make loans or extend or guarantee
credit) to any of them, other than (i) for payment of salary for services
rendered, (ii) reimbursement for reasonable expenses incurred on behalf of
Buyer, and (iii) for other employee benefits made generally available to all
employees. To Buyer's knowledge, none of such individuals has any direct or
indirect ownership interest in any Person with whom Buyer is affiliated or with
whom Buyer has a contractual relationship, or any Person that competes with
Buyer, except that each employee, stockholder, officer or director of Buyer and
members of their respective immediate families may own less than 5% of the
outstanding stock in publicly traded companies that may compete with Buyer.
Except as set forth in Schedule 4.22 or in Buyer SEC Reports, to Buyer's
knowledge, no officer, director or stockholder or any member of their immediate
families is, directly or indirectly, interested in any material contract with
Buyer (other than such contracts as relate to any such individual ownership of
capital stock or other securities of Buyer).
4.23 Indebtedness; Buyer Assets. Except as set forth on Schedule 4.23,
Buyer has no indebtedness for borrowed money. Immediately prior to the Closing,
Buyer will have no assets, except for (i) any Deposits made pursuant to Section
1.9, and (ii) cash reserves earmarked for the payment of certain accounts
payable and accrued expenses of Buyer with respect to the period prior to
Closing, which Buyer shall be responsible for payment following the Closing
pursuant to Section 6.13 hereof ("Cash Reserves")
4.24 Over-the-Counter Bulletin Board Quotation. Buyer Common Stock is
quoted on the Over-the-Counter Bulletin Board ("OTC BB"). There is no action or
proceeding pending or, to Buyer's knowledge, threatened against Buyer by NASDAQ
or NASD, Inc. ("NASD") with respect to any intention by such entities to
prohibit or terminate the quotation of Buyer Common Stock on the OTC BB.
4.25 Board Approval. The Board of Directors of Buyer (including any
required committee or subgroup of the Board of Directors of Buyer) has, as of
the date of this Agreement, unanimously declared the advisability of the
Transaction and approved this Agreement and the transactions contemplated
hereby.
4.26 Representations and Warranties Complete. The representations and
warranties of Buyer included in this Agreement and any list, statement, document
or information set forth in, or attached to, any Schedule provided pursuant to
this Agreement or delivered hereunder, are true and complete in all material
respects and do not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements contained therein not misleading, under the circumstance under which
they were made.
27
Article V
CONDUCT PRIOR TO THE EFFECTIVE TIME
5.1 Conduct of Business by Company and Buyer. During the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, each of Company, Company's
Subsidiaries and Buyer shall, except to the extent that the other party shall
otherwise consent in writing, carry on its business in the usual, regular and
ordinary course consistent with past practices, in substantially the same manner
as heretofore conducted and in compliance with all applicable laws and
regulations (except where noncompliance would not have a Material Adverse
Effect), pay its debts and taxes when due subject to good faith disputes over
such debts or taxes, pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and policies
to (i) preserve substantially intact its present business organization, (ii)
keep available the services of its present officers and employees and (iii)
preserve its relationships with customers, suppliers, distributors, licensors,
licensees, and others with which it has significant business dealings. In
addition, except as permitted or required by the terms of this Agreement,
without the prior written consent of the other party, during the period from the
date of this Agreement and continuing until the earlier of the termination of
this Agreement pursuant to its terms or the Closing, each of Company, Company's
Subsidiaries and Buyer shall not do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or (except
as specifically provided for herein) change the period of exercisability of
options or restricted stock, or reprice options granted under any employee,
consultant, director or other stock plans or authorize cash payments in exchange
for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or
employee except pursuant to applicable law, written agreements outstanding, or
policies existing on the date hereof and as previously or concurrently disclosed
in writing or made available to the other party, or adopt any new severance
plan, or amend or modify or alter in any manner any severance plan, agreement or
arrangement existing on the date hereof;
(c) Transfer or license to any person or otherwise extend, amend or
modify any material rights to any Intellectual Property of Company, Company's
Subsidiaries or Buyer, as applicable, or enter into grants to transfer or
license to any person future patent rights, other than in the ordinary course of
business consistent with past practices provided that in no event shall Company,
Company's Subsidiaries or Buyer license on an exclusive basis or sell any
Intellectual Property of Company, Company's Subsidiaries or Buyer, as
applicable;
(d) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock, equity securities or property) in respect
of any capital stock or split, combine or reclassify any capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for any capital stock;
(e) Except as set forth in Schedule 5.1(e) hereof, purchase, redeem
or otherwise acquire, directly or indirectly, any shares of capital stock of
Company, Company's Subsidiaries and Buyer, as applicable, except repurchases of
unvested shares at cost in connection with the termination of the employment
relationship with any employee pursuant to stock option or purchase agreements
in effect on the date hereof;
28
(f) Issue, deliver, sell, authorize, pledge or otherwise encumber,
or agree to any of the foregoing with respect to, any shares of capital stock or
any securities convertible into or exchangeable for shares of capital stock, or
subscriptions, rights, warrants or options to acquire any shares of capital
stock or any securities convertible into or exchangeable for shares of capital
stock, or enter into other agreements or commitments of any character obligating
it to issue any such shares or convertible or exchangeable securities;
(g) Amend its Charter Documents;
(h) Except as disclosed in Schedule 5.1(h) hereto, acquire or agree
to acquire by merging or consolidating with, or by purchasing any equity
interest in or a portion of the assets of, or by any other manner, any business
or any corporation, partnership, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which are
material, individually or in the aggregate, to the business of Buyer, Company or
Company's Subsidiaries, as applicable, or enter into any joint ventures,
strategic partnerships or alliances or other arrangements that provide for
exclusivity of territory or otherwise restrict such party's ability to compete
or to offer or sell any products or services;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets, except sales of inventory in the ordinary course of
business consistent with past practice and, except for the sale, lease or
disposition (other than through licensing) of property or assets which are not
material, individually or in the aggregate, to the business of such party;
(j) Except as disclosed in Schedule 5.1(j) hereto, incur any
indebtedness for borrowed money in excess of $100,000 in the aggregate or
guarantee any such indebtedness of another person, issue or sell any debt
securities or options, warrants, calls or other rights to acquire any debt
securities of Buyer, Company, or Company's Subsidiaries, as applicable, enter
into any "keep well" or other agreement to maintain any financial statement
condition or enter into any arrangement having the economic effect of any of the
foregoing;
(k) Except as disclosed in Schedule 5.1(k) hereto, adopt or amend
any employee benefit plan, policy or arrangement, any employee stock purchase or
employee stock option plan, or enter into any employment contract or collective
bargaining agreement (other than offer letters and letter agreements entered
into in the ordinary course of business consistent with past practice with
employees who are terminable "at will"), pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage rates
or fringe benefits (including rights to severance or indemnification) of its
directors, officers, employees or consultants, except in the ordinary course of
business consistent with past practices;
(l) Except as disclosed in Schedule 5.1(1) hereto, (i) pay,
discharge, settle or satisfy any claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), or litigation
(whether or not commenced prior to the date of this Agreement) other than the
payment, discharge, settlement or satisfaction, in the ordinary course of
business consistent with past practices or in accordance with their terms, or
liabilities recognized or disclosed in the most recent financial statements (or
the notes thereto) of Company and its Subsidiaries or of Buyer included in Buyer
SEC Reports, as applicable, or incurred since the date of such financial
statements, or (ii) waive the benefits of, agree to modify in any manner,
terminate, release any person from or knowingly fail to enforce any
confidentiality or similar agreement to which Company or its Subsidiaries is a
party or of which Company or its Subsidiaries is a beneficiary or to which Buyer
is a party or of which Buyer is a beneficiary, as applicable;
29
(m) Except in the ordinary course of business consistent with past
practices, modify, amend or terminate any Contract of Company, Company's
Subsidiaries or Buyer, as applicable, or other material contract or material
agreement to which Company, Company's Subsidiaries or Buyer is a party or waive,
delay the exercise of, release or assign any material rights or claims
thereunder;
(n) Except as required by U.K GAAP or U.S. GAAP, revalue any of its
assets or make any change in accounting methods, principles or practices;
(o) Except as set forth in Schedule 5.1(o) hereto, incur or enter
into any agreement, contract or commitment requiring such party to pay in excess
of $100,000 in any 12 month period;
(p) Engage in any action that could reasonably be expected to cause
the Transaction to fail to qualify as a "reorganization" under Section 368(a) of
the Code;
(q) Except as contemplated by Article V herein or as set forth in
Schedule 5.1(q) hereto, settle any litigation;
(r) Make or rescind any Tax elections that, individually or in the
aggregate, could be reasonably likely to adversely affect in any material
respect the Tax liability or Tax attributes of such party, settle or compromise
any material income tax liability or, except as required by applicable law,
materially change any method of accounting for Tax purposes or prepare or file
any Return in a manner inconsistent with past practice;
(s) Form, establish or acquire any Subsidiary;
(t) Permit the any Person to exercise any of its discretionary
rights under any Plan to provide for the automatic acceleration of any
outstanding options, the termination of any outstanding repurchase rights or the
termination of any cancellation rights issued pursuant to such plans; or
(u) Agree in writing or otherwise agree, commit or resolve to take
any of the actions described in Section 5.1 (a) through (t) above.
30
Article VI
ADDITIONAL AGREEMENTS
6.1 Company U.S. GAAP Financial Statements. At least ten (10) days prior
to the Closing, Company shall deliver to Buyer audited financial statements for
Company and each of its Subsidiaries, on a consolidated basis, for the last two
fiscal years ended and unaudited financials statements for Company and each of
its Subsidiaries, on a consolidated basis, for the most recent interim period
ended, which financials statements shall comply in all material respects with
the published rules and regulations of the SEC, shall be prepared in accordance
with U.S. GAAP applied on a consistent basis throughout the periods involved,
and shall fairly present in all material respects the financial position of
Company and each of its Subsidiaries at the respective dates thereof and the
results of its operations and cash flows for the periods indicated ("Company
U.S. GAAP Financial Statements"). The Company U.S. GAAP Financial Statements for
the last two fiscal years shall have been audited by, and the interim financial
statements reviewed by, Xxxxx Xxxxxxxx, P.C. ("Accountant").
6.2 Company Proforma Financial Statements. At least ten (10) days prior to
the Closing, Company shall deliver to Buyer audited financial statements for the
Company, the Company's Subsidiaries and the Buyer, on a consolidated basis,
giving effect to the Transaction, for the last three fiscal years, and unaudited
financial statements for the Company, the Company's Subsidiaries and the Buyer,
on a consolidated basis, giving effect to the Transaction, for the most recent
interim period ended, together with any proforma financial information or other
financial information required to be included in a Form 8-K or any other report
or form required to be filed with the SEC at or after Closing with respect to
the Transaction, all prepared in all material respects with the published rules
and regulations of the SEC and in accordance with U.S. GAAP applied on a
consistent basis throughout the periods involved ("Company Proforma Financial
Statements"). The Company Proforma Financial Statements for the last three
fiscal years shall have been audited by, and the interim financial statements
shall have been reviewed by, the Accountant and shall be in a format acceptable
for inclusion on the Transaction 8-K (as defined herein) and for XXXXX filing.
6.3 Board of Directors of Buyer. At Closing, the current board of
directors of Buyer shall deliver duly adopted resolutions to: (a) set the size
of Buyer's board of directors to five (5) members effective as of the Closing;
and (b) elect the following persons to the Buyer's board of directors effective
as of the Closing: (i) Xxxxxxxx X. Xxxxxxx and Xxxxxxx X. Xxxx, each of whom
shall be management members of Buyer's board of directors ("Management
Members"); (ii) one member designated by KRM Fund, which person shall be an
independent director and a financial expert, qualified and available to serve on
Buyer's audit and compensation committee, and otherwise acceptable to the
Stockholders ("Buyer Designated Member"); and (iii) two persons, each of whom
shall have been selected by the Stockholders and shall be independent directors
("Independent Members"); and (c) accepting the resignations of the current
officers and directors of the Buyer effective as of the Closing ("Resolutions").
At Closing, the current officers and director of Buyer shall deliver their
resignations, as appropriate, as officers and directors of Buyer to be effective
upon the Closing (the "Resignations"). At least twenty (20) days prior to
Closing, the Company and Stockholders shall deliver or cause to be delivered to
Buyer completed and signed director and officer questionnaires
("Questionnaires") in the English language for each of the Management Members
and Independent Members. The foregoing designations of the Management Members
and Independent Members (and the officers to be appointed by Buyer following
Closing) shall be subject to Buyer's receipt of the completed and signed
Questionnaires and third party investigation reports and background checks,
which shall be acceptable to Buyer in its sole reasonable discretion ("D&O
Information"), and such designated persons qualifications to serve in such
officer and director capacities under applicable Legal Requirements. Buyer's
board of directors shall at all times satisfy the applicable requirements for
board composition and corporate governance under the Xxxxxxxx-Xxxxx Act of 2002
(the "SOX Act"), the rules and regulations promulgated by the SEC and other
governmental agencies, and the rules of the exchange on which Buyer's securities
are, or are expected to be, listed or quoted. The Stockholders shall execute and
deliver at Closing the Voting Agreement which shall provide, among other things,
that the Stockholders will vote their Buyer's Shares to elect Buyer Designated
Member to Buyer's board of directors for a period of one year following the
Closing
31
6.4 Undertaking by Company Accountant. On or before the Closing, the
Company shall obtain, and deliver to Buyer, an undertaking from the Accountant,
in a form and substance satisfactory to Buyer, providing that: (i) the
Accountant has agreed to an engagement with Buyer to serve as its certified
public accountants following the Closing for purposes of auditing and reviewing
the financial statements of the Buyer, the Company and the Company's
Subsidiaries to comply with the Buyer's ongoing reporting requirements under the
Exchange Act including, without limitation, the filing of Forms 10-Q and 10-K,
(ii) the transaction contemplated hereunder will not disqualify or otherwise
prohibit the Accountant from rendering the foregoing engagement services or from
undertaking such services in a timely manner, (iii) the Accountant is duly
registered with the U.S. Public Company Accounting Oversight Board ("PCAOB"),
(iv) the Accountant shall provide its consent to the use of their audited
financial statements and accompanying reports for the Buyer, the Company and the
Company's Subsidiaries, as applicable, in any regulatory filing by the Buyer
prior to or following the Closing, and (v) consenting to the use of its name and
the disclosure of its engagement by Buyer in the Change of Accountant Form 8-K
(as defined in Section 6.5) ("Accountant Undertaking"). A signed copy of the
engagement letter between Buyer and Accountant shall be attached to the
Accountant Undertaking.
6.5 Consent by Former Accountants; Change of Accountants. On or prior to
the Closing, the Company shall obtain, and deliver to Buyer, the written consent
from the former accountants of the Company and the Company's Subsidiaries, in a
form and substance satisfactory to Buyer, to the use of their audited financial
statements and accompanying reports for the Company and the Company's
Subsidiaries to the extent that such financial statements and reports are
required to be included in any regulatory filing by the Buyer prior to or
following the Closing ("Former Accountant Consents"). Prior to the Closing, the
Company shall prepare the Form 8-K announcing the change in the Buyer's
certifying accountants from Xxxx & Associates, LLP ("Buyer's Accountant") to the
Accountant effective as of the Closing ("Change of Accountant Form 8-K"), in a
form acceptable to Buyer and in a format acceptable for XXXXX filing. The Change
of Accountant Form 8-K shall be filed with the SEC at Closing, and prior to the
filing thereof, the Buyer's Accountant shall have issued its resignation letter
to Buyer resigning from the engagement and consenting to the use of its name and
the disclosure of its resignation in the Change of Accountant Form 8-K
("Resignation Letter").
32
6.6 Other Actions. At least ten (10) days prior to Closing, the Company
shall prepare the Form 8-K announcing the Closing, together with the Company
Proforma Financial Statements, and such other information that may be required
to be disclosed with respect to the Transaction in any report or form to be
filed with the SEC, including, without limitation, all enhanced disclosure for
reverse merger transactions with a public shell that may be required by SEC
rulemaking from time to time ("Transaction Form 8-K"), which shall be in a form
acceptable to Buyer and in a format acceptable for XXXXX filing. Prior to
Closing, the Company shall prepare the press release announcing the consummation
of the Transaction hereunder ("Press Release"). At the Closing, Buyer shall file
the Transaction Form 8-K with the SEC and distribute the Press Release. At least
ten (10) days prior to the Closing, the Company shall prepare the information
statement required by Rule 14f-1 promulgated under the Exchange Act
("Information Statement"), which shall be in a form acceptable to Buyer, and the
Buyer shall file the Information Statement with the SEC and mail the same to
each of Buyer's stockholders.
Company and Buyer shall cooperate with each other and use (and shall cause
their respective Subsidiaries to use) their respective reasonable best efforts
to take or cause to be taken all actions, and do or cause to be done all things,
necessary, proper or advisable on its part under this Agreement and applicable
laws to consummate the Transaction and the other transactions contemplated
hereby as soon as practicable, including preparing and filing as soon as
practicable all documentation to effect all necessary notices, reports and other
filings and to obtain as soon as practicable all consents, registrations,
approvals, permits and authorizations necessary or advisable to be obtained from
any third party and/or any Governmental Entity in order to consummate the
Transaction or any of the other transactions contemplated hereby. Subject to
applicable laws relating to the exchange of information and the preservation of
any applicable attorney-client privilege, work-product doctrine, self-audit
privilege or other similar privilege, each of Company and Buyer shall have the
right to review and comment on in advance, and to the extent practicable each
will consult the other on, all the information relating to such party, and any
of Company's Subsidiaries, that appear in any filing made with, or written
materials submitted to, any third party and/or any Governmental Entity in
connection with the Transaction and the other transactions contemplated hereby.
In exercising the foregoing right, each of Company and Buyer shall act
reasonably and as promptly as practicable.
33
6.7 Required Information. In connection with the preparation of the
Transaction Form 8-K, Information Statement and Press Release, and for such
other reasonable purposes, Company and Buyer each shall, upon request by the
other, furnish the other with all information concerning themselves, their
respective Subsidiaries, directors, officers and stockholders (including the
directors of Buyer to be elected effective as of the Closing pursuant to Section
6.3 hereof) and such other matters as may be reasonably necessary or advisable
in connection with the Transaction, or any other statement, filing, notice or
application made by or on behalf of Company and Buyer or any of their respective
Subsidiaries to any third party and/or any Governmental Entity in connection
with the Transaction and the other transactions contemplated hereby. Each party
warrants and represents to the other party that all such information shall be
true and correct in all material respects and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements contained therein, in light
of the circumstances under which they were made, not misleading.
6.8 Confidentiality; Access to Information.
(a) Any confidentiality agreement previously executed by the parties
shall be superseded in its entirety by the provisions of this Agreement. Each
party agrees to maintain in confidence any non-public information received from
the other party, and to use such non-public information only for purposes of
consummating the transactions contemplated by this Agreement. Such
confidentiality obligations will not apply to (i) information which was known to
the one party or their respective agents prior to receipt from the other party;
(ii) information which is or becomes generally known; (iii) information acquired
by a party or their respective agents from a third party who was not bound to an
obligation of confidentiality; and (iv) disclosure required by law. In the event
this Agreement is terminated as provided in Article IX hereof, each party will
return or cause to be returned to the other all documents and other material
obtained from the other in connection with the Transaction contemplated hereby.
(b) Access to Information.
(i) Company will afford Buyer and its financial advisors,
accountants, counsel and other representatives reasonable access during normal
business hours, upon reasonable notice, to the properties, books, records and
personnel of Company and its Subsidiaries during the period prior to the Closing
to obtain all information concerning the business, including the status of
product development efforts, properties, results of operations and personnel of
Company and its Subsidiaries, as Buyer may reasonably request. No information or
knowledge obtained by Buyer in any investigation pursuant to this Section 6.8
will affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Transaction.
(ii) Buyer will afford Company and its financial advisors,
underwriters, accountants, counsel and other representatives reasonable access
during normal business hours, upon reasonable notice, to the properties, books,
records and personnel of Buyer during the period prior to the Closing to obtain
all information concerning the business, including the status of product
development efforts, properties, results of operations and personnel of Buyer,
as Company may reasonably request. No information or knowledge obtained by
Company in any investigation pursuant to this Section 6.8 will affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Transaction.
34
6.9 No Solicitation. Other than with respect to the Transaction, each of
Company and Buyer agrees that neither it nor (in the case of Company) any of its
Subsidiaries nor any of its or its Subsidiaries' officers and directors shall,
and that it shall direct and use its reasonable best efforts to cause its and
its Subsidiaries' agents and other representatives (including any investment
banker, attorney or accountant retained by it or any of its Subsidiaries) not
to, directly or indirectly, initiate, solicit, encourage or otherwise facilitate
any inquiries or the making of any proposal or offer with respect to (i) a
merger, reorganization, share exchange, consolidation or similar transaction
involving it or its Subsidiaries, (ii) any sale, lease, exchange, mortgage,
pledge, transfer or purchase of all or substantially all of the assets or equity
securities of, it and its Subsidiaries, taken as a whole, in a single
transaction or series of related transactions or (iii) any tender offer or
exchange offer for 20% or more of the outstanding shares of the Buyer Common
Stock or Company Common Stock (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal"). Each of Company and Buyer further
agrees that neither it nor any of its Subsidiaries nor (in the case of Company)
any of its or its Subsidiaries' officers and directors shall, and that it shall
direct and use its reasonable best efforts to cause its and its Subsidiaries'
agents and representatives not to, directly or indirectly, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. Each of the Company and Buyer agrees that it will immediately cease
and cause to be terminated any existing discussions or negotiations with any
parties conducted heretofore with respect to any Acquisition Proposal. Each of
the Company and Buyer agrees that it will take the necessary steps to promptly
inform the individuals or entities referred to in the first sentence hereof of
the obligations undertaken in this Section 6.9.
Notwithstanding anything contained in this Agreement to the contrary,
nothing contained in this Agreement shall prevent the board of directors of
Buyer, or their respective representatives from, prior to the time Buyer's
stockholders have approved this Transaction (A) complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal, if
applicable, or otherwise complying with the Exchange Act; (B) providing
information in response to a request therefore by a person who has made a bona
fide unsolicited Acquisition Proposal; (C) engaging in any negotiations or
discussions with any person who has made a bona fide unsolicited Acquisition
Proposal or otherwise facilitating any effort or attempt to implement an
Acquisition Proposal; or (D) withdrawing or modifying the approval or
recommendation by Buyer's board of directors of this Agreement, approving or
recommending any Acquisition Proposal or causing the applicable party to enter
into any letter of intent, agreement in principle, acquisition agreement or
other similar agreement relating to any Acquisition Proposal, if, and only to
the extent that in each such case referred to in clause (B), (C) or (D) above,
the Buyer's board of directors determines in good faith, after consultation with
outside legal counsel that such action is necessary to act in a manner
consistent with the directors' fiduciary duties under applicable law and
determines in good faith after consultation with its financial advisors that the
person or group making such Acquisition Proposal has adequate sources of
financing to consummate such Acquisition Proposal and that such Acquisition
Proposal, if consummated as proposed, is materially more favorable to the
stockholders of Buyer from a financial point of view (any such more favorable
Acquisition Proposal being referred to as a "Superior Proposal") and determines
in good faith that such Superior Proposal is reasonably capable of being
consummated, taking into account legal, financial, regulatory and other aspects
of the proposal and the person making the proposal
35
6.10 Public Disclosure. Except to the extent previously disclosed or to
the extent the parties believe that they are required by applicable law or
regulation to make disclosure, prior to Closing, no party shall issue any
statement or communication to the public regarding the Transaction without the
consent of the other party, which consent shall not be unreasonably withheld. To
the extent a party hereto believes it is required by law or regulation to make
disclosure regarding the Transaction, it shall, if possible, immediately notify
the other party prior to such disclosure. Notwithstanding the foregoing, the
parties hereto agree that Buyer will prepare and file a Current Report on Form
8-K pursuant to the Exchange Act to report the execution of this Agreement and
that any party hereto may file any reports as required by the Exchange Act
including, without limitation, any reports on Schedule 13D.
6.11 Reasonable Efforts; Notification.
(a) Upon the terms and subject to the conditions set forth in this
Agreement, each of the parties agrees to use its commercially reasonable efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Transaction and the other transactions contemplated by
this Agreement, including using commercially reasonable efforts to accomplish
the following: (i) the taking of all reasonable acts necessary to cause the
conditions precedent set forth in Article VII to be satisfied, (ii) the
obtaining of all necessary actions or nonactions, waivers, consents, approvals,
orders and authorizations from Governmental Entities and the making of all
necessary registrations, declarations and filings (including registrations,
declarations and filings with Governmental Entities, if any) and the taking of
all reasonable steps as may be necessary to avoid any suit, claim, action,
investigation or proceeding by any Governmental Entity, (iii) the obtaining of
all consents, approvals or waivers from third parties required as a result of
the transactions contemplated in this Agreement, (iv) the defending of any
suits, claims, actions, investigations or proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (v) the execution or delivery of any additional
instruments reasonably necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, this Agreement. In connection with and
without limiting the foregoing, Buyer and its board of directors and Company and
its board of directors shall, if any state takeover statute or similar statute
or regulation is or becomes applicable to the Transaction, this Agreement or any
of the transactions contemplated by this Agreement, use its commercially
reasonable efforts to enable the Transaction and the other transactions
contemplated by this Agreement to be consummated as promptly as practicable on
the terms contemplated by this Agreement. Notwithstanding anything herein to the
contrary, nothing in this Agreement shall be deemed to require Buyer or Company
or any Subsidiary of company to agree to any divestiture by itself or any of its
affiliates of shares of capital stock or of any business, assets or property, or
the imposition of any material limitation on the ability of any of them to
conduct their business or to own or exercise control of such assets, properties
and stock.
36
(b) Company and Stockholders shall give prompt notice to Buyer upon
becoming aware that any representation or warranty made by them contained in
this Agreement has become untrue or inaccurate, or of any failure of Company or
Stockholders to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement, in each case, such that the conditions set forth in Article VII would
not be satisfied; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
(c) Buyer shall give prompt notice to Company and Stockholders upon
becoming aware that any representation or warranty made by it contained in this
Agreement has become untrue or inaccurate, or of any failure of Buyer to comply
with or satisfy in any material respect any covenant, condition or agreement to
be complied with or satisfied by it under this Agreement, in each case, such
that the conditions set forth in Article VII would not be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
6.12 Treatment as a Reorganization. Neither Buyer nor Company nor
Stockholders shall take any action prior to or following the Transaction that
could reasonably be expected to cause the Merger to fail to qualify as a
"reorganization" within the meaning of Section 368(a) of the Code.
6.13 Absence of Material Liabilities. Immediately prior to Closing, Buyer
shall have no material liabilities or obligations requiring the payment of
monies, other than obligations under or with respect to: (i) a certain Financial
Advisory Agreement, in the form attached hereto as Exhibit B ("Financial
Advisory Agreement"), (ii) any agreements with the Transfer Agent, (iii) the
Investigation Costs (as defined in Section 9.4 hereof), (iv) the Buyer Contracts
disclosed under Section 4.19 hereto, and (v) certain accounts payable and
accrued expenses of Buyer with respect to the period prior to Closing for which
Buyer has established a Cash Reserve ("Buyer Obligations"). Upon the Closing,
the Stockholders and Company agree to pay and satisfy, or cause the Buyer to pay
or satisfy, all of the Buyer Obligations and to otherwise abide by the terms and
conditions of the Buyer Obligations following the Closing.
6.14 Cash Payments at Closing. At Closing, Company and/or the Stockholders
shall pay the amount of the Investigation Costs not to exceed $15,000 either
directly to the provider of such investigation services or, upon presentation of
documentation evidencing payment thereof by KRM Fund, KRM Fund as reimbursement
for the payment of the Investigation Costs (such sum being referred to herein,
as the "Company Closing Payment"). At Closing, the Deposits made under Section
1.9 shall be paid or credited to Xxxxxxx Securities, LLC ("Xxxxxxx") in partial
payment of the reverse merger fees under the Financial Advisory Agreement
("Buyer Closing Payment").
37
6.15 Business Records. At Closing, Buyer shall cause to be delivered to
Company all records and documents relating to Buyer, which Buyer possesses,
including, without limitation, books, records, government filings, Returns,
Charter Documents, Corporate Records, Stock Records, consent decrees, orders,
and correspondence, director and stockholder minutes and resolutions, stock
ownership records, financial information and records, electronic files
containing any financial information and records, and other documents used in or
associated with Buyer ("Business Records").
6.16 Registration Statements. During the one (1) year period following the
Closing, each Stockholder agrees not include any of the Buyer's Shares received
by each of them under this Agreement in any registration statement filed by the
Buyer. The provisions of this Section 6.16 shall be binding on all transferees
of each Stockholder.
6.17 Anti-Dilution Protection. The common stockholders of Buyer
immediately prior to the Closing ("Existing Holders") shall have anti-dilution
protection in the event Buyer: (i) issues any securities in any offering during
the twelve (12) month period following the Closing, or (ii) issues any
securities in connection with the license and/or acquisition by Buyer of
technology related to electricity-generating roadway ramps following Closing
(collectively, the "Events"). In such cases, Buyer shall issue to the Existing
Holders, in proportion to their respective ownership interests prior to Closing,
such additional number of shares of common stock of Buyer so that the Existing
Holders shall own, in the aggregate, ten percent (10%) of the issued and
outstanding shares of common stock of Buyer, on a fully diluted basis, after
giving effect to the Transaction and the Events.
Article VII
CONDITIONS TO THE TRANSACTION
7.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of the
following conditions:
(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive order,
decree, injunction or other order (whether temporary, preliminary or permanent)
which is in effect and which has the effect of making the Transaction illegal or
otherwise prohibiting consummation of the Transaction, substantially on the
terms contemplated by this Agreement. All waiting periods, if any, under any
foreign law in any jurisdiction in which the Company or Buyer or any of
Company's Subsidiaries has material operations relating to the transactions
contemplated hereby will have expired or terminated early and all material
foreign antitrust approvals required to be obtained prior to the Transaction in
connection with the transactions contemplated hereby shall have been obtained.
The parties expressly acknowledge and agree that any SEC rulemaking requiring
enhanced disclosure of reverse merger transactions with a public shell will not
be a reason for either party to terminate this Agreement or deemed a failure of
any condition set forth herein; provided, however, that Company's failure to
provide any enhanced disclosure required by SEC rulemaking in the Transaction
Form 8-K on or before the Compliance Date in accordance with Section 6.6 shall
be a failure of the condition set forth in Section 7.3(j) and shall give Buyer
reason to terminate this Agreement in accordance with Section 9.1(b).
38
(b) Tax Opinions. Prior to the Closing, Company shall have received
a written opinion from its tax counsel, in form and substance reasonably
satisfactory to Company, to the effect that the Transaction will constitute a
reorganization within the meaning of Section 368(a) of the Code and such
opinions shall not have been withdrawn. The parties to this Agreement agree to
make such reasonable representations as requested by such counsel for the
purpose of rendering such opinions.
(c) Debt Holder Consents. The lenders under Company's and each
Subsidiaries' credit facilities, secured loans, mortgages and other indebtedness
for borrowed money shall have consented in writing to the Transaction and have
agreed to continue the existing financing agreements on the same or more
favorable terms and conditions as in existence on the date hereof.
(d) Information Statement. At least ten (10) days prior to Closing,
the Buyer shall have filed the Information Statement with the SEC and shall have
mailed the same to each of the stockholders of Buyer, and the Buyer shall have
otherwise compiled with all of the provisions under Rule 14f-1 under the
Exchange Act.
(e) Dissolution of Buyer Subsidiary. Buyer has completed the
dissolution of Buyer Subsidiary.
7.2 Additional Conditions to Obligations of Stockholders and Company. The
obligations of Company and Stockholders to consummate and effect the Transaction
shall be subject to the satisfaction at or prior to the Closing Date of each of
the following conditions, any of which may be waived, in writing, exclusively by
all of the Stockholders:
(a) Representations and Warranties. Each representation and warranty
of Buyer contained in this Agreement (i) shall have been true and correct as of
the date of this Agreement and (ii) shall be true and correct on and as of the
Closing Date with the same force and effect as if made on the Closing Date.
Company and Stockholders shall have received a certificate with respect to the
foregoing signed on behalf of Buyer by an authorized officer of Buyer ("Buyer
Closing Certificate").
(b) Agreements and Covenants. Buyer shall have performed or complied
in all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
Date, except to the extent that any failure to perform or comply (other than a
willful failure to perform or comply or failure to perform or comply with an
agreement or covenant reasonably within the control of Buyer) does not, or will
not, constitute a Material Adverse Effect with respect to Buyer taken as a
whole, and the Company and Stockholders have received Buyer Closing Certificate
to such effect.
(c) Director and Officer Resignations and Appointments. Buyer shall
have delivered to Company and Stockholders the Resignations and Resolutions in a
form satisfactory to Company, effective as of the Closing. Buyer shall also have
delivered to Company and Stockholders evidence satisfactory to Company and
Stockholders of the appointment of new directors of Buyer in accordance with
Section 6.3 hereof.
39
(d) Consents. Buyer shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Buyer taken as a whole.
(e) Material Adverse Effect. No Material Adverse Effect with respect
to Buyer shall have occurred since the date of this Agreement.
(f) No Financial Obligations. Immediately prior to the Closing,
Buyer shall have no material liabilities or obligations, other than as set forth
in Section 6.13 hereof.
(g) SEC Compliance; OTC BB Quotation. Immediately prior to Closing,
Buyer shall be in compliance with the reporting requirements under the Exchange
Act and shall be quoted on the OTC BB.
(h) Business Records; Resignation Letter. Buyer shall have delivered
to Company the Business Records and the Resignation Letter from the Buyer's
Accountants.
(i) Other Deliveries. At Closing, Buyer shall have delivered to
Company and/or Stockholders: (i) certificates representing Buyer's Shares to
Stockholders in accordance with Section 1.6, (ii) copies of resolutions and
actions taken by Buyer's board of directors in connection with the approval of
this Agreement and the transactions contemplated hereunder, and (iii) such other
documents or certificates as shall reasonably be required by Company and
Stockholder and their counsel in order to consummate the transactions
contemplated hereunder.
7.3 Additional Conditions to the Obligations of Buyer. The obligations of
Buyer to consummate and effect the Transaction shall be subject to the
satisfaction at or prior to the Closing Date of each of the following
conditions, any of which may be waived, in writing, exclusively by Buyer:
(a) Representations and Warranties. Each representation and warranty
of Company and Stockholders contained in this Agreement (i) shall have been true
and correct as of the date of this Agreement and (ii) shall be true and correct
on and as of the Closing Date with the same force and effect as if made on and
as of the Closing. Buyer shall have received a certificate with respect to the
foregoing signed on behalf of Company by an authorized officer of Company and by
each Stockholder with respect to the warranties and representations contained in
Article II ("Closing Certificate")
(b) Agreements and Covenants. Company and Stockholders shall have
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them at or prior
to the Closing Date except to the extent that any failure to perform or comply
(other than a willful failure to perform or comply or failure to perform or
comply with an agreement or covenant reasonably within the control of Company or
Stockholders) does not, or will not, constitute a Material Adverse Effect on
Company and its Subsidiaries, and Buyer shall have received the Closing
Certificate to such effect.
40
(c) Consents. Buyer shall have obtained all consents, waivers and
approvals required in connection with the consummation of the transactions
contemplated hereby, other than consents, waivers and approvals the absence of
which, either alone or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect on Buyer. Company and each of Company's
Subsidiaries have received all approvals and permits required by any applicable
national, foreign, provincial and local governing bodies and regulatory
authorities to permit the listing of Buyer as a public company on a U.S.
exchange or quotation system following the Closing.
(d) Material Adverse Effect. No Material Adverse Effect with respect
to Company and its Subsidiaries shall have occurred since the date of this
Agreement.
(e) Company Financial Statements. Company shall have delivered to
Buyer in a timely manner the Company U.S. GAAP Financial Statement and the
Company Proforma Financial Statements, all of which shall be acceptable to Buyer
in its sole discretion.
(f) Accountant Undertaking; Prior Accountant Consents. Company shall
have delivered to Buyer in a timely manner the Accountant Undertaking and the
Prior Accountant Consents, in a form satisfactory to Buyer.
(g) Employment Agreements. Each Management Member shall have
executed and delivered employment agreements with the Company, which agreements
shall be in full force and effect as of the Closing and shall be acceptable to
Buyer.
(h) Closing Payments. Company and/or the Stockholders shall have
made the Company Closing Payment required by Section 6.14, and the Buyer shall
have made the Buyer Closing Payment required by Section 6.14 hereof.
(i) D&O Information. Buyer shall have delivered the Questionnaires
in a timely manner, and the D&O Information shall be acceptable to Buyer.
(j) Transaction Form 8-K; Change of Accountant Form 8-K; Press
Release. The Company shall have delivered to Buyer the Transaction Form 8-K in a
timely manner, in a form acceptable to Buyer, which shall be filed with the SEC
at Closing, and the Company shall have delivered the Change of Accountant Form
8-K and Press Release to Buyer, each in a form acceptable to Buyer.
(k) Voting Agreement. The Stockholders have executed and delivered
the Voting Agreement by and between the Stockholders, Buyer and the KRM Fund, in
the form attached hereto as Exhibit A. The Voting Agreement has been duly
authorized and approved by the Buyer's board of directors.
41
(l) Financial Advisory Agreement. The Financial Advisory Agreement
between Buyer and Xxxxxxx Securities, LLC, in the form of Exhibit B hereto, has
been duly authorized and approved by Buyer's board of directors.
(m) Other Deliveries. At Closing, Company and/or Stockholders shall
have delivered to Buyer: (i) certificates representing the Shares owned by
Stockholders, together with stock powers, in accordance with Section 1.5, (ii)
copies of resolutions and actions taken Company's board of directors and
Stockholders in connection with the approval of this Agreement and the
transactions contemplated hereunder, and (iii) such other documents or
certificates as shall reasonably be required by Buyer and its counsel in order
to consummate the transactions contemplated hereunder.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival. All representations, warranties, agreements and covenants
contained in or made pursuant to this Agreement (including, without limitation
the covenants set forth in Section 10.1 hereof), or any Exhibit or Schedule
hereto or thereto or any certificate delivered at the Closing, shall survive
(and not be affected by) the Closing, but all claims made by virtue of such
representations, warranties, agreements and covenants shall be made under, and
subject to the limitations set forth in this Article VIII.
8.2 Stockholder Indemnification Obligation with Respect to Stockholder
Representations. Each Stockholder, for himself only, and not with respect to any
other Stockholder, hereby indemnifies and holds harmless, and agrees to
indemnify and hold harmless, Buyer and KRM Fund (from and after the Closing),
and their respective directors, officers, shareholders, members, managers,
employees and agents (collectively, the "Buyer Indemnified Parties") against (i)
any and all liabilities, obligations, losses, damages, claims, actions, Liens
and deficiencies which exist, or which may be imposed on, incurred by or
asserted against any one or more of the Buyer Indemnified Parties, (1) based
upon, resulting from or arising out of, or as to which there was, any breach or
inaccuracy of any representation or warranty contained in Article II of this
Agreement, or any statement, agreement or covenant made by such Stockholder in
or pursuant to this Agreement, any Exhibit or Schedule hereto or thereto, or any
certificate or document delivered by such Stockholder, as Stockholder, at the
Closing (including, without limitation, any breach by Stockholders or by Buyer
of the covenants under Section 10.1 hereof), or (2) based upon, resulting from
or arising out of any present or future claim, action, suit or proceeding
brought or asserted against any Buyer Indemnified Party by or on behalf of any
Person who, at any time prior to the Closing, is or was (or purports to have
been) a stockholder or holder of any securities of Company or any of its
Subsidiaries or had any interest in the Shares or any other securities of
Company or any of its Subsidiaries, and (ii) any cost or expense (including
reasonable attorneys' fees and court costs) incurred by the Buyer Indemnified
Parties or any of them in connection with the foregoing (including, without
limitation, any cost or expense incurred by the Buyer Indemnified Parties in
enforcing their rights pursuant to this Section 8.2) (collectively, the
"Damages" for purposes of this Section 8.2).
42
A Buyer Indemnified Party may apply all demands or claims for
indemnification under this Article against any payment to be made by or on
behalf of such Buyer Indemnified Party or any of its Affiliates to or for the
account of such Stockholder by means of set-off, reduction or otherwise. No
Buyer Indemnified Party shall be required to make any claim or demand against
Company or any of its Subsidiaries or any other Person prior to the making of
any claim or demand for indemnification or at any other time. The rights of the
Buyer Indemnified Parties under this Section 8.2 are in addition to such other
rights and remedies which they may have under this Agreement or otherwise. The
amount of any and all Damages suffered by Buyer Indemnified Parties under this
Section 8.2 shall be recovered, and all claims of Buyer Indemnified Parties
pursuant to this Section 8.2 shall be brought, by KRM Fund on behalf of such
Buyer Indemnified Parties.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim (as defined in this Section 8.2) with respect to which
such Stockholder has Knowledge (as defined in this Section 8.2), no demand or
claim for indemnification under this Section 8.2 may be made after 11:59 p.m.
U.S. Eastern Time on the date six (6) months following the Closing Date. No
demand or claim for indemnification under this Section 8.2 for any
Misrepresentation Claim may be made after 11:59 p.m. U.S. Eastern Time on the
first anniversary of the Closing Date if such Stockholder had Knowledge (as
hereinafter defined) with respect to such Misrepresentation Claim.
For purposes of this Agreement, (1) the term "Misrepresentation Claim"
means a claim or demand for indemnification based upon, resulting from or
arising out of any material breach or inaccuracy of a warranty or representation
and such material breach or inaccuracy was the direct and primary cause of the
Damages for which indemnification is sought; and (2) the term "Knowledge" means
in respect of any Misrepresentation Claim, as of the Closing Date or at any time
prior thereto, (a) actual knowledge of the material breach or inaccuracy upon
which such Misrepresentation Claim is based or (b) actual knowledge of facts
which would cause a reasonable person, having knowledge and a full understanding
of the terms of this Agreement, to be aware of or recognize the material breach
or inaccuracy upon which the Misrepresentation Claim is based.
8.3 Indemnification Obligation with Respect to Company Representations.
Buyer, Company, and each of Company's Subsidiaries, jointly and severally,
hereby indemnify and hold harmless, and agree to indemnify and hold harmless,
Buyer Indemnified Parties (from and after the Closing), against (i) any and all
liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against any one or more of the Buyer Indemnified Parties, based upon, resulting
from or arising out of, or as to which there was, any breach or inaccuracy of
any representation or warranty by the Company contained in this Agreement, or
any agreement or covenant made by the Company in or pursuant to this Agreement,
or in any Exhibit or Schedule hereto or thereto, or any certificate or document
delivered by the Company at the Closing (including, without limitation, any
breach of the covenants under Section 10.1 hereof, whether caused by the actions
or inactions of Company or Buyer following Closing), and (ii) any cost or
expense (including reasonable attorneys' fees and court costs) incurred by the
Buyer Indemnified Parties or any of them in connection with the foregoing
(including, without limitation, any cost or expense incurred by the Buyer
Indemnified Parties in enforcing their rights pursuant to this Section 8.3)
(collectively, the "Damages").
43
No Buyer Indemnified Party shall be required to make any claim or demand
against Buyer, Company or any of Company's Subsidiaries or any other Person
prior to the making of any claim or demand for indemnification or at any other
time. The rights of the Buyer Indemnified Parties under this Section 8.3 are in
addition to such other rights and remedies which they may have under this
Agreement or otherwise.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim with respect to which the Company had Knowledge, no
demand or claim for indemnification under this Section 8.3 may be made after
11:59 p.m. New York time on the date which is six (6) months following the
Closing Date. No demand or claim for indemnification under this Section 8.3 for
any Misrepresentation Claim may be made after 11:59 p.m. New York time on the
first anniversary of the Closing Date if the Company had Knowledge with respect
to such Misrepresentation Claim.
8.4 Recovery of Damages by Buyer Indemnified Parties
(a) Except as specifically provided in this Section 8.4(d) below,
(i) the amount of any and all Damages suffered by Buyer Indemnified Parties
under Sections 8.2 and 8.3 hereof shall be recovered by the delivery of a
specified number of Stockholder Escrow Shares by Escrow Agent to KRM Fund on
behalf of Buyer Indemnified Parties, the amount of which shall be determined in
accordance with Section 8.4(b) below, and (ii) all claims of Buyer Indemnified
Parties pursuant Sections 8.2 and 8.3 shall be brought by KRM Fund on behalf of
such Buyer Indemnified Parties.
(b) The number of Stockholder Escrow Shares to be delivered by
Escrow Agent to KRM Fund pursuant to Section 8.4(a) above shall be equal to the
aggregate amount of the Damages suffered by the Buyer Indemnified Parties,
divided by the market value of the Buyer's Shares to be calculated using the
average of the closing bid price as quoted on the Over the Counter Bulletin
Board (or such other public trading market on which the Buyer's Shares may be
trading at such time) for the thirty (30) trading days immediately prior to the
date that such amount of Damages is determined by arbitration under Section
11.10 or pursuant to a binding settlement agreement among the Buyer Indemnified
Parties and the Stockholders Indemnified Parties (the "Market Value"). Any
Stockholder Escrow Shares that are not subject to a demand or claim of
indemnification on the date which is six months after the Closing Date shall be
delivered by the Escrow Agent to the Stockholders in accordance with Section
1.10 hereof.
(c) The Buyer Indemnified Parties shall not be entitled to
indemnification pursuant to Section 8.3, unless and until the aggregate amount
of Damages to the Buyer Indemnified Parties with respect to such matters under
Section 8.3 exceeds $150,000, at which time, subject to the following cap on the
maximum number of Stockholder Escrow Shares that may be delivered by Escrow
Agent to the Buyer Indemnified Parties, the Buyer Indemnified Parties shall be
entitled to indemnification for the total amount of such Damages in excess of
$150,000. The aggregate number of Stockholder Escrow Shares to be delivered to
the Buyer Indemnified Parties shall not exceed 127,500, adjusted for any stock
split, reverse stock split, stock dividend, reclassification, recapitalization,
merger or consolidation or like capital adjustment affecting Buyer's Shares.
44
(d) Notwithstanding anything contained in this Agreement to the
contrary, nothing in this Section 8.4 shall limit the right of Buyer Indemnified
Parties to pursue any and all appropriate legal or equitable remedies against
any Stockholder with respect to any Damages incurred by Buyer Indemnified
Parties under Section 8.2 hereto (excluding any Damages under Section 8.2 that
are recovered by Buyer Indemnified Parties under Section 8.4(a) above). All
claims of the Buyer pursuant to this Section 8.4(d) shall be brought by KRM Fund
on behalf of such Buyer Indemnified Parties.
8.5 KRM Fund Indemnification Obligation with Respect to Buyer
Representations. KRM Fund hereby indemnifies and holds harmless, and agrees to
indemnify and hold harmless, the Company and Stockholders (from and after the
Closing) and their respective directors, officers, shareholders, managers,
members, employees and agents ("Company Indemnified Parties"), against (i) any
and all liabilities, obligations, losses, damages, claims, actions, Liens and
deficiencies which exist, or which may be imposed on, incurred by or asserted
against any one or more of the Company Indemnified Parties, based upon,
resulting from or arising out of, or as to which there was, any breach or
inaccuracy of any representation or warranty by the Buyer contained in this
Agreement, or any agreement or covenant made by the Buyer in or pursuant to this
Agreement, or in any Exhibit or Schedule hereto or thereto, or any certificate
or document delivered by the Buyer at the Closing (excluding any breach of the
covenants under Section 10.1 hereof, whether caused by the actions or inactions
of Company or Buyer following Closing), and (ii) any cost or expense (including
reasonable attorneys' fees and court costs) incurred by the Company Indemnified
Parties or any of them in connection with the foregoing (including, without
limitation, any cost or expense incurred by the Company Indemnified Parties in
enforcing their rights pursuant to this Section 8.5) (collectively, the
"Damages").
No Company Indemnified Party shall be required to make any claim or demand
against Buyer or any other Person prior to the making of any claim or demand for
indemnification or at any other time. The rights of the Company Indemnified
Parties under this Section 8.5 are in addition to such other rights and remedies
which they may have under this Agreement or otherwise.
Notwithstanding any other provision of this Agreement, except for any
Misrepresentation Claim with respect to which the Buyer had Knowledge, no demand
or claim for indemnification under this Section 8.5 may be made after 11:59 p.m.
New York time on the date which is six (6) months following the Closing Date. No
demand or claim for indemnification under this Section 8.5 for any
Misrepresentation Claim may be made after 11:59 p.m. New York time on the first
anniversary of the Closing Date if the Buyer had Knowledge with respect to such
Misrepresentation Claim.
8.6 Recovery of Damages by Company Indemnified Parties.
45
(a) The amount of any and all Damages suffered by the Company
Indemnified Parties under Section 8.5 hereof shall be recovered by the delivery
of a specified number of KRM Escrow Shares by Escrow Agent to the Stockholders
on behalf of the Company Indemnified Parties, the amount of which shall be
determined in accordance with Section 8.6(b) below. All claims of Company
pursuant Sections 8.5 shall be brought by the Stockholders on behalf of the
Company Indemnified Parties.
(b) The number of KRM Escrow Shares to be delivered by Escrow Agent
to the Stockholders pursuant to Section 8.6(a) above shall be equal to the
aggregate amount of the Damages suffered by the Company Indemnified Parties,
divided by the Market Value. The KRM Escrow Shares deliverable under the
preceding sentence shall be delivered to each Stockholder on a pro rata basis,
as determined by such Stockholder's pro rata share of the total number of
Buyer's Shares issuable at Closing as set forth in Schedule 1.1. Any KRM Escrow
Shares that are not subject to a demand or claim of indemnification on the date
which is six months after the Closing Date shall be delivered by the Escrow
Agent to KRM Fund in accordance with Section 1.10 hereof.
(c) The Company Indemnified Parties shall not be entitled to
indemnification pursuant to Section 8.5, unless and until the aggregate amount
of Damages to the Company Indemnified Parties with respect to such matters under
Section 8.5 exceeds $150,000, at which time, subject to the following cap on the
maximum number of KRM Escrow Shares that may be delivered by Escrow Agent to the
Company Indemnified Parties, the Company Indemnified Parties shall be entitled
to indemnification for the total amount of such Damages in excess of $150,000.
The aggregate number of KRM Escrow Shares to be delivered to the Company
Indemnified Parties shall not exceed 127,500, adjusted for any stock split,
reverse stock split, stock dividend, reclassification, recapitalization, merger
or consolidation or like capital adjustment affecting Buyer's Shares.
8.7 Determining Damages. Materiality qualifications to the representations
and warranties of Stockholders and KRM Fund shall not be taken into account in
determining the amount of Damages occasioned by a breach of any such
representation and warranty for purposes of determining whether the baskets set
forth in Sections 8.4(c) and 8.6(c) have been met.
8.8 Procedure for Indemnification Claims.
(a) Buyer Indemnified Parties and Company Indemnified Parties are
referred to collectively herein as "Indemnified Parties", and the Persons from
whom indemnification is sought pursuant to this Article VIII are referred to
herein as "Indemnifying Parties".
(b) If at any time an Indemnified Party determines to assert a right
to indemnification hereunder, the Indemnified Party shall give to the
Indemnifying Party written notice describing the matter for which
indemnification is sought in reasonable detail. In the event that a demand or
claim for indemnification is made hereunder with respect to a matter the amount
or extent of which is not yet known or certain, the notice of demand for
indemnification shall so state, and, where practicable, shall include an
estimate of the amount of the matter. The failure of an Indemnified Party to
give notice of any matter to the Indemnifying Party shall not relieve the
Indemnifying Party of any liability which the Indemnifying Party may have to any
Indemnified Party.
46
(c) Within 15 days after receipt of the notice referred to in clause
(b) above, the Indemnifying Party from whom indemnification is sought shall (i)
if true, acknowledge in writing his responsibility for all or part of such
matter, and shall pay or otherwise satisfy the portion of such matter as to
which responsibility is acknowledged or take such other action as is reasonably
satisfactory to the Indemnified Party to resolve any such matter that involves
anyone not a party hereto or (ii) give written notice to the Indemnified Party
of his intention to dispute or contest all or part of such responsibility. Upon
delivery of such notice of intention to contest, the parties shall negotiate in
good faith to resolve as promptly as possible any dispute as to responsibility
for, or the amount of, any such matter. Failure to respond to a notice claiming
indemnification shall be deemed a denial of responsibility therefore.
(d) In the event that the Indemnified Party is required to expend
any amount in enforcing its rights of indemnification hereunder, the
Indemnifying Parties will, jointly and severally, promptly upon request, pay
such amounts to the Indemnified Party if indemnification is required to be made
hereunder.
(e) Each Indemnifying Party shall have the right to employ separate
counsel in any action or claim which is brought against any Indemnified Party in
respect of which indemnity may be sought from it, and to participate in the
defense of such action or claim, if such Indemnifying Party confirms in writing
its responsibility for such action or claim; provided, however, that (i) the
Indemnified Party or Parties shall retain control of such action or claim and
(ii) the fees and expenses of such separate counsel shall be at the expense of
the Indemnifying Party.
Article IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated at any time prior to the
Closing:
(a) by mutual written agreement of Buyer and the Stockholders;
(b) by either Buyer or the Stockholders if the Transaction shall not
have been consummated by October 30, 2004 for any reason; provided, however,
that the right to terminate this Agreement under this Section 9.1(b) shall not
be available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Transaction to occur on or before
such date and such action or failure to act constitutes a breach of this
Agreement;
47
(c) by either Buyer or the Stockholders if a Governmental Entity
shall have issued an order, decree or ruling or taken any other action, in any
case having the effect of permanently restraining, enjoining or otherwise
prohibiting the Transaction, which order, decree, ruling or other action is
final and nonappealable;
(d) by Stockholders, upon a material breach of any representation,
warranty, covenant or agreement on the part of Buyer set forth in this
Agreement, or if any representation or warranty of Buyer shall have become
materially untrue, in either case such that the conditions set forth in Section
7.2(a) or Section 7.2(b) would not be satisfied as of the time of such breach or
as of the time such representation or warranty shall have become untrue,
provided, that if such inaccuracy in Buyer's representations and warranties or
breach by Buyer is curable by Buyer prior to the Closing Date, then the
Stockholders may not terminate this Agreement under this Section 9.1(d) for
thirty (30) days after delivery of written notice from Stockholders to Buyer of
such breach, provided Buyer continues to exercise commercially reasonable
efforts to cure such breach (it being understood that Stockholders may not
terminate this Agreement pursuant to this Section 9.1(d) if it or Company shall
have materially breached this Agreement or if such breach by Buyer is cured
during such thirty (30)-day period);
(e) by Buyer, upon a material breach of any representation,
warranty, covenant or agreement on the part of Company or Stockholders set forth
in this Agreement, or if any representation or warranty of Company or
Stockholders shall have become materially untrue, in either case such that the
conditions set forth in Section 7.3(a) or Section 7.3(b) would not be satisfied
as of the time of such breach or as of the time such representation or warranty
shall have become untrue, provided, that if such inaccuracy in Company's or
Stockholders' representations and warranties or breach by Company or
Stockholders is curable by Company or Stockholders prior to the Closing Date,
then Buyer may not terminate this Agreement under this Section 9.1(e) for thirty
(30) days after delivery of written notice from Buyer to Company and
Stockholders of such breach, provided Company and Stockholders continues to
exercise commercially reasonable efforts to cure such breach (it being
understood that Buyer may not terminate this Agreement pursuant to this Section
9.1(e) if it shall have materially breached this Agreement or if such breach by
Company or Stockholders is cured during such thirty (30)-day period); or
(f) by Buyer in the event the Company fails to deliver the Financial
Data by the Compliance Date (including any extension thereof).
9.2 Notice of Termination; Effect of Termination. Any termination of this
Agreement under Section 9.1 above will be effective immediately upon (or, if the
termination is pursuant to Section 9.1(d) or Section 9.1(e) and the proviso
therein is applicable, thirty (30) days after) the delivery of written notice of
the terminating party to the other parties hereto. In the event of the
termination of this Agreement as provided in Section 9.1, this Agreement shall
be of no further force or effect and the Transaction shall be abandoned, except
(i) as set forth in this Section 9.2, Section 9.3 and Article XI (General
Provisions), each of which shall survive the termination of this Agreement, (ii)
nothing herein shall relieve any party from liability for any intentional or
willful breach of this Agreement, and (iii) if this Agreement is terminated by
Buyer under Sections 9.1(e) or 9.1(f), the Deposits made pursuant to Section 1.9
shall be retained by Buyer as liquidated damages.
48
9.3 Fees and Expenses. All fees and expenses incurred in connection with
this Agreement and the transactions contemplated hereby shall be paid by the
party incurring such expenses whether or not the Transaction is consummated;
provided, however, that the Company shall reimburse Buyer for its out-of-pocket
expenses incurred to complete investigations and background checks pursuant to
Section 6.3 hereof ("Investigation Costs") in an amount not to exceed $15,000,
whether or not the Transaction is consummated. The parties further agree that,
whether or not the Transaction is consummated, the Company shall be responsible
for any and costs and expenses incurred in connection with the preparation and
filing of the Form 8-K (including the U.S. GAAP Financial Statements and Company
Proforma Financial Statements contained therein), the Press Release, and the
Information Statement (including all costs related to the mailing thereof to
stockholders).
9.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of Buyer,
Company and Stockholders.
9.5 Extension; Waiver. At any time prior to the Closing, any party hereto
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto and (iii) waive compliance
with any of the agreements or conditions for the benefit of such party contained
herein. Any agreement on the part of a party hereto to any such extension or
waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. Delay in exercising any right under this Agreement shall
not constitute a waiver of such right.
ARTICLE X
POST-CLOSING COVENANTS
10.1 Each of Stockholders, Company and Buyer acknowledge that the
agreements contained in this Section 10.1 are an integral part of the
transactions contemplated by this Agreement and that, without these agreements,
Buyer and KRM Fund would not enter into this Agreement. The parties hereto
acknowledge and agree that the failure by Buyer, the Company and/or Stockholders
to satisfy, perform and comply with the covenants set forth in this Section 10.1
("Post-Closing Covenants") following the Closing will have a material adverse
effect on the Buyer and the investment of KRM Fund in Buyer. During the period
beginning upon the Closing and ending on the first anniversary of the Closing,
Buyer agrees to satisfy, perform and comply with, and Company and Stockholders
agree to cause the Buyer to satisfy, perform, and comply with, the following
agreements and covenants:
(a) Respond in a timely manner, and to the satisfaction of the SEC,
to any review or inquiry by the SEC to the Transaction Form 8-K and the Company
Proforma Financial Statements contained therein.
(b) Comply with the terms and conditions of the Voting Agreement and
Financial Advisory Agreement.
49
(c) Hold meetings of Buyer's board of directors at least once each
fiscal quarter; and schedule regular meetings for the audit and compensation
committee, with advance notice to all directors, and insure that such committee
meetings are properly held as scheduled.
(d) File within the statutory time limits any required filings or
notifications with the SEC, NASDAQ, NASD and any other federal, state, foreign
government or regulatory agency including any agency or organization with
jurisdiction over any exchange on which the Buyer's securities are listed or
quoted.
(e) Pay, when due, all transfer agent fees, listing fees and any
other fees the non-payment of which may adversely effect compliance with
applicable laws and regulations (including securities laws and regulations) or
the listing or quotation of Buyer's securities.
(f) Without the consent of KRM Fund, Buyer shall not issue any of
its securities to any officers, directors, 10% or more shareholders,
consultants, service providers or other parties, except for (i) any issuance
pursuant to any of Buyer's options, warrants and convertible securities issued
and outstanding as of Closing, (ii) any grant of options or stock awards to
employees pursuant to a stock plan duly adopted by the Buyer's board of
directors and shareholders, (iii) any issuance under the Financial Advisory
Agreement, (iv) any public offerings or private placements of Buyer's securities
approved by Buyer's board of directors, and (v) any issuance of securities for
any arm's-length, third party business transactions involving business
combinations, fixed asset purchases, joint ventures or strategic alliances which
have been approved by Buyer's board of directors.
(g) Engage within thirty (30) days following the Closing an
independent research firm and an investor relations firm, each of which shall be
approved by KRM Fund in advance.
(h) Failure to perform any agreement or covenant contained in this
Agreement to be performed by Buyer, the Company and the Stockholders following
the Closing.
10.2 Other Provisions. Notwithstanding anything contained herein to the
contrary, the provisions of this Article X shall survive (and not be affected in
any respect by) the Closing.
ARTICLE XI
GENERAL PROVISIONS
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to Buyer, to:
Sunningdale, Inc.
Attn: Xxxxx X. Xxxxxxx, President
000 Xxxxxxxxx Xxxxxxxxx, Xxxxx 00
Xxxx Xxxxx, XX XXX 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
50
(b) if to Company or Stockholders, to:
Xx. Xxxxxxxx X. Xxxxxxx, Chairman
Advanced Aluminium Group, Ltd.
XX Xxx 000
Xxxxxxxxx
Xxxxxx XX0 0XX
XXXXXXX
x00 0000 000000 telephone
x00 0000 000000 telecopy
with a copy to:
Xxxxxxxx Xxxxxxxx, Esq.
Loeb & Loeb LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx XXX 00000
(000) 000-0000 telephone
(000) 000-0000 telecopy
(c) if to the KRM Fund, to:
Xx. Xxxxxxx X. Xxxxxxx, Manager
Xxxxxxx Reverse Merger Fund, LLC
0000 XXX Xxxxxxx, Xxxxx 0000
Xxxxxxxxx Xxxxxxx, Xxxxxxxx XXX 00000-0000
(000) 000-0000 telephone
(000) 000-0000 telecopy
11.2 Interpretation.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
When a reference is made in this Agreement to Sections, such reference shall be
to a Section of this Agreement. Unless otherwise indicated the words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation." The table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement. When reference is
made herein to "the business of" an entity, such reference shall be deemed to
include the business of all direct and indirect Subsidiaries of such entity.
Reference to the Subsidiaries of an entity shall be deemed to include all direct
and indirect Subsidiaries of such entity.
51
(b) For purposes of this Agreement, the term "Material Adverse
Effect" when used in connection with an entity means any change, event,
violation, inaccuracy, circumstance or effect, individually or when aggregated
with other changes, events, violations, inaccuracies, circumstances or effects,
that is materially adverse to the business, assets (including intangible
assets), revenues, financial condition or results of operations of such entity
and its Subsidiaries, if any, taken as a whole (it being understood that neither
of the following alone or in combination shall be deemed, in and of itself, to
constitute a Material Adverse Effect: (a) changes attributable to the public
announcement or pendency of the transactions contemplated hereby, (b) changes in
general national or regional economic conditions, (c) changes affecting the
industry generally in which Company or Buyer operates, or (d) any SEC rulemaking
requiring enhanced disclosure of reverse merger transactions with a public
shell).
(c) For purposes of this Agreement, the term "Person" shall mean any
individual, corporation (including any non-profit corporation), general
partnership, limited partnership, limited liability partnership, joint venture,
estate, trust, company (including any limited liability company or joint stock
company), firm or other enterprise, association, organization, entity or
Governmental Entity.
(b) For purposes of this Agreement, all monetary amounts set forth
herein are referenced in United States dollars, unless otherwise noted.
11.3 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
11.4 Entire Agreement; Third Party Beneficiaries. This Agreement and the
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including the Schedules hereto (a)
constitute the entire agreement among the parties with respect to the subject
matter hereof and supersede all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof,
it being understood that Sections 10.b. and 10.c. of the Letter of Intent shall
continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon any other
person any rights or remedies hereunder (except as specifically provided in this
Agreement).
11.5 Severability. In the event that any provision of this Agreement, or
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to replace
such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
52
11.6 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to seek an injunction or injunctions to prevent
breaches of this Agreement and to enforce specifically the terms and provisions
hereof in any court of the United States or any state having jurisdiction, this
being in addition to any other remedy to which they are entitled at law or in
equity.
11.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, USA, regardless of the laws
that might otherwise govern under applicable principles of conflicts of law
thereof.
11.8 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.9 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the other parties. Subject to the first sentence of this Section 11.9, this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and permitted assigns.
11.10 Arbitration. Any disputes or claims arising under or in connection
with this Agreement or the transactions contemplated hereunder shall be resolved
by binding arbitration. Notice of a demand to arbitrate a dispute by either
party shall be given in writing to the other at their last known address.
Arbitration shall be commenced by the filing by a party of an arbitration demand
with the American Arbitration Association ("AAA") in its office in Denver,
Colorado USA. The arbitration and resolution of the dispute shall be resolved by
a single arbitrator appointed by the AAA pursuant to AAA rules. The arbitration
shall in all respects be governed and conducted by applicable AAA rules, and any
award and/or decision shall be conclusive and binding on the parties. The
arbitration shall be conducted in Denver, Colorado. The arbitrator shall supply
a written opinion supporting any award, and judgment may be entered on the award
in any court of competent jurisdiction. Each party shall pay its own fees and
expenses for the arbitration, except that any costs and charges imposed by the
AAA and any fees of the arbitrator for his services shall be assessed against
the losing party by the arbitrator. In the event that preliminary or permanent
injunctive relief is necessary or desirable in order to prevent a party from
acting contrary to this Agreement or to prevent irreparable harm prior to a
confirmation of an arbitration award, then either party is authorized and
entitled to commence a lawsuit solely to obtain equitable relief against the
other pending the completion of the arbitration in a court having jurisdiction
over the parties. All rights and remedies of the parties shall be cumulative and
in addition to any other rights and remedies obtainable from arbitration.
53
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above.
SUNNINGDALE, INC.
By: /s/ Xxxxx X. Xxxxxxx
----------------------------------------
Xxxxx X. Xxxxxxx, President
XXXXXXX REVERSE MERGER FUND, LLC
By: /s/ Xxxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxx X. Xxxxxxx, Manager
ADVANCED ALUMINIUM GROUP, LTD.
By: /s/ Xxxxxxxx X. Xxxxxxx
----------------------------------------
Xxxxxxxx X. Xxxxxxx, Chairman and CEO
STOCKHOLDERS:
/s/ Xxxxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxxxx X. Xxxxxxx
/s/ Xxxxxxx X. Xxxx
---------------------------------------
Xxxxxxx X. Xxxx
/s/ Xxxxx Xxxxxxxx Xxxxx
---------------------------------------
Xxxxx Xxxxxxxx Xxxxx
/s/ Simon Xxxxxxxx Xxxxxxx
---------------------------------------
Simon Xxxxxxxx Xxxxxxx
/s/ Xxxxxxxxx X. Xxxxxxx
---------------------------------------
Xxxxxxxxx X. Xxxxxxx
The X.X. Xxxx Discretionary Settlement 2004
By: /s/ Xxxxxxx X. Xxxx
-----------------------------------
By: /s/ Xxxxxx X. Xxxx
-----------------------------------
Trustees
The Xxxxxxx Family Settlement 2004
By: /s/ Xxxxxxxx X. Xxxxxxx
------------------------------------
By: /s/ Dieena Xxxxxxxx
------------------------------------
Trustees
54
Index of Exhibits and Schedules
Exhibits
Exhibit A - Voting Agreement
Exhibit B - Financial Advisory Agreement
Exhibit C - Escrow Agreement
Schedules
Schedule 1.1 - AAG Stockholders and Stock Ownership
Company Disclosure Schedules
Buyer Disclosure Schedules
55
