Exhibit 2.1
EXECUTION VERSION
AGREEMENT AND PLAN OF
MERGER
BY AND AMONG
EBIX, INC.
EBIX MERGER SUB,
INC.
FINETRE
CORPORATION
AND
STEVEN F. PIAKER, AS
SHAREHOLDERS’ REPRESENTATIVE
DATED SEPTEMBER 22,
2006
AGREEMENT AND PLAN OF
MERGER
This AGREEMENT AND PLAN OF
MERGER (this “ Agreement ”) is made as of
September 22, 2006, by and among EBIX, INC. , a Delaware
corporation (“ Parent ”); EBIX MERGER SUB,
INC. , an Indiana corporation (“ Merger Sub
”); FINETRE CORPORATION , an Indiana corporation (the
“ Company ”); and Steven F. Piaker as the
representative of the shareholders of the Company hereunder (the
“ Shareholders’ Representative ”).
Parent, Merger Sub, the Company and the Shareholders’
Representative are sometimes collectively referred to herein as the
“ Parties ” and each individually as a “
Party .” Unless otherwise defined herein,
certain terms used in this Agreement with initial capital letters
are defined in Appendix A.
WITNESSETH:
WHEREAS , The Company is engaged in the business of
developing, marketing, licensing, selling and maintaining annuity
and life insurance sales software applications (the “
Business ”).
WHEREAS , the respective Boards of Directors of each of
the Company, Parent and Merger Sub have approved this Agreement and
deem it advisable and in the best interests of their respective
shareholders that the Company be acquired by Parent through the
merger (the “ Merger ”) of Merger Sub with and
into the Company on the terms and conditions set forth in this
Agreement;
NOW THEREFORE
, in consideration of the mutual
covenants of the Parties as hereinafter set forth and other good
and valuable consideration, the receipt and sufficiency of which
hereby are acknowledged, the Parties hereto hereby agree as
follows:
ARTICLE I
THE MERGER
SECTION
1.1 MERGER.
In consideration of the
payment of the Merger Consideration (as defined in Section
1.2 ) by Parent, and subject to the terms and conditions
hereinafter set forth, (a) Merger Sub will be merged with and into
the Company, with the Company being the surviving corporation (the
“ Surviving Corporation ”), in accordance with
the laws of the State of Indiana, and (b) from and after the
Effective Time, the Merger shall have all the effects of a merger
under the laws of the State of Indiana and other applicable
Law.
SECTION
1.2 MERGER CONSIDERATION
. The
aggregate consideration to be paid by Parent under this Agreement
shall equal $13,000,000, less any adjustments pursuant to Section
1.2(d) hereof as set forth on the Merger Consideration Certificate
(the “ Cash Merger Consideration ”) plus the
Contingent Merger Consideration (as defined in Section
1.2(c) ) (collectively, the “ Merger Consideration
”), and is payable to the holders of capital stock of the
Company (collectively, the “ Shareholders ”) in
accordance with the provisions of this Agreement and in the manner
and in the proportions set forth in the Merger Consideration
Certificate (as defined in Section 2.1 ) as
follows:
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(a)
Cash Consideration at Closing . The Cash Merger
Consideration will be payable in cash at Closing by wire transfer
of immediately available funds to the Shareholders, other than
Dissenting Shareholders, and as directed in the Merger
Consideration Certificate;
(b)
Contingent Consideration Based on Pre-Tax Income . In
the event that either of the Pre-Tax Targets (as defined below) is
met, the amount set forth below with respect to such achieved Pre
Tax-Target will be payable by Parent to the Shareholders (the
“ Contingent Pre-Tax Income Consideration ”) in
addition to any other amounts payable hereunder:
·
$2,000,000 will be payable to the
Shareholders in accordance with the Merger Consideration
Certificate promptly after 2007 financial results are initially
determined by Parent’s independent auditors (but in no event
later than 90 days after the end of fiscal year 2007), provided
the Surviving Corporation generates Direct Cumulative Income
Before Taxes of at least $1,500,000 in fiscal year 2007 (the
“ 2007 Pre-Tax Target ”);
OR
·
In the event that the Surviving
Corporation does not meet the 2007 Target, then $2,000,000 will be
payable to the Shareholders in accordance with the Merger
Consideration Certificate promptly after 2008 financial results are
initially determined by Parent’s independent auditors (but in
no event later than 90 days after the end of fiscal year 2008),
provided the Surviving Corporation generates Direct Cumulative
Income Before Taxes of at least $3,500,000 cumulatively in fiscal
years 2007 and 2008 (the “ 2008 Pre-Tax Target ”
and together with the 2007 Pre-Tax Target, the “ Pre-Tax
Targets ”).
For the avoidance of doubt, the
aggregate amount of Contingent Pre-Tax Income Consideration payable
to the Shareholders under this Section 1.2(b) is
$2,000,000.
(c)
Contingent Consideration based on Gross Revenues . In
the event that either of the Gross Revenue Targets (as defined
below) is met, the amount indicated below with respect to such
achieved Gross Revenue Target will be payable by Parent to the
Shareholders (the “ Contingent Gross Revenue
Consideration ,” and together with the “Contingent
Pre-Tax Income Consideration,” the “ Contingent
Merger Consideration ”) in addition to any other amounts
payable hereunder:
·
$1,000,000 will be payable to the
Shareholders in accordance with the Merger Consideration
Certificate promptly after 2007 financial results are initially
determined by Parent’s independent auditors (but in no event
later than 90 days after the end of fiscal year 2007), provided the
Surviving Corporation generates Gross Revenues of at least
$10,000,000 in fiscal year 2007 (the “ 2007 Gross Revenue
Target ”).
OR
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·
$1,000,000 will be paid to the
Shareholders in accordance with the Merger Consideration
Certificate promptly after 2008 financial results are initially
determined by Parent’s independent auditors (but in no event
later than 90 days after the end of fiscal year 2008), provided the
Surviving Corporation generates cumulative Gross Revenue of at
least $22,000,000 in 2007 and 2008 (the “ 2008 Gross
Revenue Target ” and together with the 2007 Gross Revenue
Target, the “ Gross Revenue Targets
”).
For avoidance of doubt, the
aggregate amount of Contingent Gross Revenue Consideration payable
to the Shareholders under this Section 1.2(c) is
$1,000,000.
(d)
Adjustment To Cash Merger Consideration .
The Cash Merger Consideration will be decreased to
the extent that (i) the cash and cash equivalents, representing
deposits for services to be performed following the Closing Date,
of the Company (on a consolidated basis) as of the Closing Date
(and after satisfying all obligations pursuant to this Agreement
permitted or required to be satisfied by the Company on or prior to
the Closing Date) are less than $1,000,000 (the “ Cash
Requirement ”), (ii) any fees or expenses due and payable
to counsel or other advisers for the Company with respect to this
Agreement, the Transaction Documents, or the Merger remain unpaid
as of the Closing Date, unless an equivalent amount of cash or cash
equivalents equal to such unpaid transaction expenses and in
addition to the Cash Requirement remains on the Books and Records
of the Company (on a consolidated basis), or (iii) any amounts
that remain owing with respect to employee salaries and the
Company’s matching contributions to the 401(k) Plan (defined
in Section 4.5 ) (expressly excluding all compensation and
severance payments with respect to terminated employees pursuant to
Section 3.5(c) , the payment of which is a
condition to closing), unless an equivalent amount of cash or cash
equivalents equal to such unpaid expenses and in addition to the
Cash Requirement remains on the Books and Records of the Company
(on a consolidated basis) (the items set forth in subsections
(ii) and (iii) hereof, the “ Additional Cash
Requirements ”). The Chief Financial Officer of the
Company and the Shareholders’ Representative shall execute a
certificate (the “ Cash Requirement Certificate
”) as of the Closing Date certifying the aggregate amounts of
cash and cash equivalents as of the Closing Date on the Books and
Records of the Company (on a consolidated basis) and providing the
back-up for calculating same, as well as the evidence relating to
either the satisfaction of the obligations set forth in subsections
(ii) and (iii) herein or the Additional Cash Requirements, if
any. The Cash Merger Consideration will be reduced by the
amount, if any, representing the difference between the aggregate
of the Cash Requirement and the Additional Cash Requirements and
the actual amount of cash and cash equivalents certified on the
Cash Requirement Certificate as being on the Books and Records of
the Company (on a consolidated basis) as of the Closing Date.
The Parties agree that the Cash Requirement is a pre-paid deposit
by the Company for services to be performed by the Surviving
Corporation after the Closing.
(e)
Determination of Contingent Consideration . The date
upon which payment of all or any portion of the Contingent
Consideration shall be due to the Shareholders shall be the “
Contingent Consideration Payment Due Date .” On
the Contingent Consideration Payment Due Date, an officer of Parent
shall deliver to the Shareholders’ Representative the
determination of Parent’s independent auditors of the
Contingent Consideration then due, if any, including an
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identification of the amount of each
entry comprising part of the Contingent Consideration computation
(the “ Estimated Contingent Consideration Computation
”). If the Estimated Contingent Consideration
Computation results in no payment of either or both of the
Contingent Pre-Tax Income Consideration or the Contingent Gross
Revenue Consideration and the Shareholders’ Representative
disputes in good faith the accuracy of the Estimated Contingent
Consideration Computation, the Shareholders’ Representative
shall, within thirty (30) days after the Contingent Consideration
Payment Due Date (the “ Objection Notice Period
”), prepare and deliver to Parent a written notice of
objection to the Estimated Contingent Consideration Computation (an
“ Objection Notice ”). During the
Objection Notice Period, Parent (including the Surviving
Corporation) and its independent auditors shall make available to
the Shareholders’ Representative such books and records as
are reasonably necessary to evaluate the accuracy of the Estimated
Contingent Consideration Computation. If Objection Notice is
not received by Parent prior to the expiration of the Objection
Notice Period, then the Estimated Contingent Consideration
Computation shall be deemed to be final and conclusive and shall be
binding on the Shareholders; provided, however, that in the event
that Parent shall have failed to deliver an Estimated Contingent
Consideration Computation to the Shareholders’ Representative
within ten (10) Business Days of any Contingent Consideration
Payment Due Date, then the Shareholders’ Representative will
be deemed to have delivered to Parent an Objection Notice with
respect to the applicable Estimated Contingent Consideration
Computation. In the event of a dispute between Parent and the
Shareholders’ Representative related to Contingent
Consideration, the Parties will use reasonable efforts to resolve
such dispute. If they do not reach a final resolution within
thirty (30) days after Parent has received the Objection Notice,
Parent and the Shareholders’ Representative will jointly
retain a mutually agreeable independent registered public
accounting firm (the “ Accounting Firm ”) to
resolve any remaining disagreements. If Parent and the
Shareholders’ Representative are unable to agree on the
choice of the Accounting Firm, each of Parent and the
Shareholders’ Representative shall select a
“big-four” accounting firm, which two firms shall then
jointly select an independent regional accounting firm to serve as
the Accounting Firm. Parent and the Shareholders’
Representative will direct the Accounting Firm to review the
Estimated Contingent Consideration Computation and render a
determination of the correct amount of Contingent Consideration, if
any, due and owing to the Shareholders within fifteen (15) Business
Days of its retention, and Parent, the Shareholders’
Representative, the Surviving Corporation, and their respective
employees and Affiliates will cooperate with the Accounting Firm
during its engagement. Each of Parent and the
Shareholders’ Representative shall be entitled to make a
written presentation to the Accounting Firm regarding the items and
amounts that Parent and the Shareholders’ Representative are
disputing with respect to the Estimated Contingent Consideration
Computation. In making its determination, the Accounting Firm
shall be bound by the terms and conditions of this Agreement,
including without limitation, the definitions of Contingent
Consideration and Direct Cumulative Income Before Taxes and
shall not assign any value with respect to a disputed amount that
is greater than the highest value for such amount claimed by either
Parent or the Shareholders’ Representative or that is less
than the lowest value for such amount claimed by either Parent or
the Shareholders’ Representative. The determination of
the Accounting Firm will be conclusive and binding upon the
Parties. The amount of Contingent Consideration, as finally
determined pursuant to this Section 1.2(e) , is referred to
herein as “ Final Contingent Consideration
.” The fees and expenses of the Accounting Firm shall
be paid by the Shareholders in proportion to their respective
portions of the Cash Merger Consideration as set forth in the
Merger Consideration Certificate, unless the
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determination of the Accounting Firm
results in a payment of Contingent Consideration, in which case
such fees and expenses shall be paid by Parent.
(f)
Certain Restrictions . For the period of time
following the Closing and prior to the earlier of (i) December 31,
2008, or (ii) a final determination of the Final Contingent
Consideration pursuant to this Section 1.2 (the “
Determination Date ”), the Surviving Corporation shall
(and Parent shall cause the Surviving Corporation to) conduct the
Business in the ordinary and prudent course of business, consistent
with past practices, provided that, Parent may make any changes in
the operations of the Surviving Corporation which are different
from past practices provided such changes in operation are intended
to reduce operating costs, increase revenues or improve operating
performance of the Surviving Corporation; provided ,
further , that in no event shall Parent cause or permit the
Surviving Corporation to become obligated for any borrowed money
indebtedness or otherwise incur any interest expense for borrowed
money . If Parent takes or causes the
Surviving Corporation to take any action counter to such standard,
the aggregate dollar value of such action as determined by the
Accounting Firm shall be deducted from the applicable Pre-Tax
Targets and Gross Revenue Targets. If Parent or any
subsidiary thereof enters into any agreement relating to a
Surviving Corporation Change of Control or the Surviving
Corporation is otherwise effected prior the Determination Date by a
Surviving Corporation Change of Control, then at such time the
Surviving Corporation shall be deemed to have achieved the maximum
Pre-Tax Targets and Gross Revenue Targets, and payment of the
maximum Contingent Merger Consideration shall be made by Parent to
the Shareholders promptly and in no event more than five (5)
Business Days after such time. Notwithstanding the foregoing,
Parent may merge Surviving Corporation with and into any of its
other wholly owned subsidiaries provided that prior to the
Determination Date Parent maintains the separate accounting for the
business of Surviving Corporation and otherwise adheres to the
provisions of this Section 1.2(f). In the event that the
accounting for the business of the Surviving Corporation and the
entity that it is merged into can not be kept separate, then at
such time the Surviving Corporation shall be deemed to have
achieved the maximum Pre-Tax Targets and Gross Revenue Targets, and
payment of the maximum Contingent Merger Consideration shall be
made by Parent to the Shareholders promptly and in no event more
than five (5) Business Days after such time. In
the event of any issues related to the separate accounting of the
Surviving Corporation following such a merger, Parent
(including the Surviving Corporation) and its independent auditors
shall make available to the Shareholders’ Representative,
in accordance with Section 1.2(e) and during any
Objection Notice Period, such books and records as are reasonably
necessary to evaluate the accuracy of the Estimated Contingent
Consideration Computation.
(g)
Pre-Closing Dividend by the Company . Immediately
prior to the Closing Date, the Company shall be entitled to pay a
dividend to its Shareholders equal to the amount by which cash and
cash equivalents held by the Company as of such date exceeds the
Cash Requirement (the “ Permitted Dividend
”).
SECTION
1.3 PAYMENT
. Upon filing of the Articles
of Merger , Parent will pay the Cash Merger Consideration
(minus the Escrow Amount) by wire transfers of immediately
available funds to such accounts for each Shareholder as are set
forth in the Merger Consideration Certificate. Parent will
pay the Contingent Merger Consideration, if any, by wire transfers
of immediately available funds, promptly following the
determination of the Final
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Contingent Consideration, to such
accounts for each Shareholder as are set forth in the Merger
Consideration Certificate.
SECTION
1.4 NAME.
The name of the Surviving
Corporation, when reference is made to it after the Effective Time,
shall be “Finetre Corporation.”
SECTION
1.5 ARTICLES OF INCORPORATION;
BYLAWS. As a
result, and upon the effectiveness, of the Merger, (i) the
Articles of Incorporation of the Surviving Corporation as in effect
immediately prior to the Effective Time shall be amended as of the
Effective Time so as to contain the provisions, and only the
provisions, contained immediately prior thereto in the Articles of
Incorporation of Merger Sub, attached hereto as Exhibit A ,
except for Article 1 thereof, which shall continue to read
“The name of this Corporation (hereinafter called the
“Corporation”) is Finetre Corporation”, and
(ii) the Bylaws of Merger Sub, attached hereto as Exhibit
B , in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation; in each case, until
amended in accordance with Indiana law.
SECTION
1.6 BOARD OF DIRECTORS;
OFFICERS.
(a)
The members of the Board of Directors of Merger Sub at the
Effective Time shall serve as the directors of the Surviving
Corporation from and after the Effective Time and until their
successors are duly elected and qualified.
(b)
The officers of Merger Sub at the Effective Time shall serve as the
officers of the Surviving Corporation from and after the Effective
Time and until they are removed or their successors are duly
appointed by the Board of the Surviving Corporation.
SECTION
1.7 EFFECT OF THE
MERGER. At the
Effective Time, the separate corporate existence of Merger Sub
shall cease and the Company, as the Surviving Corporation, shall
succeed to and possess all of the properties, rights, powers,
privileges, franchises, patents, trademarks, licenses,
registrations, and other assets of every kind and description of
Merger Sub, and shall be subject to, and be responsible for, all
debts, liabilities, and obligations of Merger Sub, all without
further act or deed, and in accordance with the applicable
provisions of the laws of the State of Indiana.
SECTION
1.8 CLOSING; EFFECTIVE
TIME.
(a)
Generally . Subject to the terms and conditions of
this Agreement, the closing of the Merger (the “
Closing ”) shall take place at 10:00 a.m., local time,
on October 2, 2006 (the “ Closing Date ”) at the
Reston, Virginia office of DLA Piper US, LLP, or at such other
time, date or place as the Parties may mutually agree upon in
writing.
(b)
As soon as practicable after satisfaction or, to the extent
permitted hereunder, waiver, of all conditions to the Merger, the
Company and Merger Sub shall (i) execute articles of merger in
compliance with the requirements of the laws of the State of
Indiana (the “ Articles of Merger ”), and shall
file the Articles of Merger with the Secretary of State of the
State of Indiana in accordance with its laws, and (ii) make all
other filings or recordings and take all such other and further
actions as may be required by law to make the Merger effective;
provided, however,
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that the Parties shall seek
“pre-clearance” of the Articles of Merger with the
Secretary of State of the State of Indiana prior to the
Closing. The Merger shall become effective (the “
Effective Time ”) at such time as the Articles of
Merger are duly filed with the Secretary of State of the State of
Indiana.
(c)
The Company’s Obligations at Closing . The
Company and Shareholders shall also deliver to Parent and Merger
Sub the opinions, certificates, and other agreements, documents and
instruments as indicated in Section 7.1 .
(d)
Parent’s Obligations at Closing . At the
Closing:
(i)
Upon the filing of the Articles of Merger, Parent will pay the Cash
Merger Consideration, as follows:
(A)
The Escrow Amount (as defined in Section 1.9(a) below) shall
be deposited with the Escrow Agent in accordance with Section
1.9 .
(B)
The balance of the Cash Merger Consideration will be paid to the
Shareholders, in accordance with the terms of this
Agreement.
(ii)
Parent and Merger Sub will also deliver to Shareholders the
opinions, certificates, and other agreements, documents and
instruments as indicated in Section 8.3 .
SECTION
1.9 ESCROW.
At the Closing, Parent shall deposit
$1,000,000 of the Cash Merger Consideration (the “ Escrow
Amount ”) with LaSalle Bank National Association as
escrow agent (the “ Escrow Agent ”) pursuant to
an Escrow Agreement by and among Parent, Shareholder’s
Representative and the Escrow Agent, substantially in the form
attached hereto as Exhibit C (the “ Escrow
Agreement ”), such Escrow Amount to be deducted, pro rata
based on the aggregate amount of the Cash Merger Consideration to
be received by each Shareholder from the aggregate amount otherwise
payable to such Shareholder. The Escrow Account shall be
administered and the Escrow Amount shall be disbursed in accordance
with the Escrow Agreement.
ARTICLE II
CONVERSION OF SHARES; APPOINTMENT OF THE SHAREHOLDERS’
REPRESENTATIVE
SECTION
2.1 CONVERSION OF SHARES OF
COMPANY CAPITAL STOCK; CONVERSION OF SHARES OF MERGER SUB CAPITAL
STOCK.
(a)
At the Effective Time, each holder of issued and outstanding shares
of Company Capital Stock, other than any Dissenting Capital Stock,
shall, subject to the terms and conditions of this Agreement,
become entitled to receive, and each issued and outstanding share
of Company Capital Stock shall be converted into the right to
receive, an allocation of Merger Consideration determined in
accordance with the liquidation rights and preferences of the
Company Capital Stock as set forth in the Company’s Articles
of Incorporation as in effect immediately prior to the Effective
Time. Such allocation shall be set forth in a certificate (the
“ Merger Consideration Certificate ”) to be
prepared as of the Closing Date and signed by the
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Chief Financial Officer of the
Company and the Shareholders’ Representative, and which will
be binding upon all Shareholders (other than Dissenting
Shareholders). The Merger Consideration Certificate will set
forth the allocation among the Shareholders, in each case in
accordance with such liquidation rights and preferences, of: (i)
the Cash Merger Consideration, which shall be paid to the
Shareholders (other than Dissenting Shareholders) in immediately
available funds at the Closing; (ii) the Escrow Amount to be
deposited in accordance with Section 1.7 and deducted from
the Cash Merger Consideration to be disbursed at Closing in
accordance with Section 1.8(d)(i) ; and (iii) the Contingent
Merger Consideration.
(b)
At the Effective Time, each issued and outstanding share of capital
stock of the Merger Sub shall be converted into and become one
fully paid and nonassessable share of the common stock of the
Surviving Corporation.
SECTION
2.2 DISCLOSURE INFORMATION
REGARDING COMPANY CAPITAL STOCK; OPTIONS AND
WARRANTS. Each
holder of Company Capital Stock will receive (i) pre-Closing
disclosure information related to Shareholder approval of the
Merger which will highlight the Merger’s impact on Company
Capital Stock and include all legally required information
regarding dissenting shareholder rights, and (ii) a letter dated as
of the Closing Date, signed by the Shareholders’
Representative, acknowledging the Closing of the Merger and
confirming the effect on Company Capital Stock. Parent shall
have the right to review and comment on both the pre-Merger
disclosures and post-Closing letter to the holders of the
Company’s Capital Common Stock, but the responsibility
regarding the content of such communications shall be the sole
responsibility of the Company and the Shareholders’
Representative. In addition, the Shareholders’
Representative will take all legally required action to notify all
holders of options to purchase shares of Company Capital Stock (the
“ Options ”) and all holders of warrants to
purchase shares of Company Capital Stock (the “
Warrants ”) that such Options and Warrants, if not
exercised prior to the Closing Date, will be cancelled and of no
further force or effect. The Board of Directors of the
Company will take all legally required actions pursuant to any
option plan of the Company to terminate such plan and all
unexercised options issued and outstanding thereunder as of the
Closing Date.
SECTION
2.3
PROCEDURES FOR SHARES NOT SUBMITTED AT CLOSING.
(a)
Parent shall mail a letter of transmittal (with instructions for
its use), substantially in the form attached hereto as Exhibit
D (the “ Letter of Transmittal ”), to each
record holder of Company Capital Stock as of the Effective Time
(with a copy to the Shareholders’ Representative) for such
holder to use in surrendering the certificates or other
instruments, if any, which represented such Shareholder’s
shares of Company Capital Stock or, against payment of the
allocable amount of Merger Consideration. No interest will accrue
or be paid to the holder of any outstanding share of Company
Capital Stock, Warrants or Options.
(b)
As promptly as possible after receipt of such Letter of Transmittal
the Shareholders’ Representative shall use commercially
reasonable efforts to cause each former holder of shares of Company
Capital Stock (other than holders of Class A Common Stock and
Dissenting Capital Stock), to surrender such Shareholder’s
certificates or other instruments representing such shares to the
Company, provided , however , that if any such
Shareholder shall
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be unable to surrender such
certificates due to loss, theft, or mutilation thereof, such
Shareholder may make a constructive surrender by submitting an
affidavit of lost, stolen, or destroyed certificate in the form
attached the Letter of Transmittal.
SECTION
2.4 OPTIONS;
WARRANTS.
(a)
Before the Closing Date, the Board of Directors of the Company
shall adopt such resolutions or take (or cause the Company to take)
such other actions as are required to provide for the treatment of
all Options that remain outstanding immediately prior to Closing
Date as follows: (i) at the Effective Time, each outstanding
“in the money” (as defined below) vested Option shall
be cancelled and converted into the right to receive a cash payment
from the Company equal to (1) the excess, if any, of (x) the pro
rata portion of the Merger Consideration allocated to the shares of
Company Capital Stock subject to such option pursuant to the Merger
Consideration Certificate over (y) the aggregate exercise price for
such shares of Company Capital Stock pursuant to the terms of such
Option, and (ii) each Option which is not “in the
money” and each outstanding unvested Option shall be
automatically cancelled and cease to exist at the Effective Time
without further action on the part of the Company, the holder of
such Option, or any other person or party. All amounts
payable pursuant to this Section 2.4 shall be subject to any
required withholding of Taxes and shall be paid without
interest. The holders of Options to acquire Series B-2
Preferred Stock who have not exercised their Options before the
Effective Time shall have consented to the foregoing treatment in
writing prior thereto. An Option is considered “in the
money” if the portion of the Merger Consideration payable
with respect to the shares of Company Capital Stock subject to such
Option exceeds the aggregate exercise price for such shares
pursuant to the terms of the Option.
(b)
Each outstanding Warrant that is not exercised as of immediately
before the Closing Date, shall automatically and without further
action, be terminated and of no further force or effect, effective
as of the Closing Date. Holders of Warrants who have not
exercised before the Closing Date shall have consented to such
treatment in writing prior thereto.
SECTION
2.5 THE SHAREHOLDERS’
REPRESENTATIVE.
(a)
By the approval of the Merger at a special meeting of Shareholders
or by written consent of the Shareholders, each Shareholder, other
than Dissenting Shareholders, will irrevocably authorize and
appoint Steven F. Piaker as the Shareholders’ Representative,
to serve as his, her or its representative and true and lawful
attorney-in-fact and agent to act in his, her or its name, place
and stead with respect to all matters under this Agreement.
Without limiting the generality of the foregoing, the
Shareholders’ Representative shall be fully and irrevocably
authorized and empowered to act, in accordance with the Escrow
Agreement, and this Agreement, for and on behalf of the
Shareholders (other than Dissenting Shareholders) as of the
Effective Time as agent and representative for all such
Shareholders (other than Dissenting Shareholders) to take such
action on its behalf under the provisions of this Agreement and to
exercise such powers and perform such duties as are expressly
delegated to the Shareholders’ Representative by the terms of
this Agreement, together with such other powers as are reasonably
incidental thereto. The Shareholders’ Representative shall
not have any duties or responsibilities, except those expressly set
forth herein. The Shareholders shall be bound by
all
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actions taken and documents executed
by the Shareholders’ Representative in accordance with this
Section 2.5 . In performing the functions specified in
this Agreement, the Shareholders’ Representative shall not be
liable to the Shareholders in the absence of gross negligence or
willful misconduct on the part of the Shareholders’
Representative. The Shareholders’ Representative shall
be indemnified and held harmless by the Shareholders from and
against any loss, liability, or expense incurred without gross
negligence, fraud or willful misconduct on the part of the
Shareholders’ Representative and arising out of or in
connection with the acceptance or administration of his or her
duties hereunder. Such indemnity shall be made, first, to the
extent possible out of funds that otherwise are to be distributed
from the Escrow Account to the Shareholders, if any, and, second,
directly from the Shareholders in accordance with each
Shareholders’ pro-rata ownership interest in the Company as
set forth in the Merger Consideration Certificate. Any
out-of-pocket costs and expenses incurred by the
Shareholders’ Representative in connection with actions taken
by the Shareholders’ Representative pursuant to the terms of
this Agreement (including the hiring of legal counsel and the
incurring of reasonable legal fees and costs (“
Representative Expenses ”) shall be the responsibility
of Shareholders. Upon final distribution of the Escrow
Account, the Escrow Agent shall pay to the Shareholders’
Representative, out of the aggregate portion of funds in the Escrow
Account that otherwise are to be distributed to the Shareholders,
if any, pursuant to this Agreement and the Escrow Agreement, any
unpaid Representative Expenses.
(b)
The Shareholders’ Representative may execute any of his
duties under this Agreement by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties.
Notwithstanding anything in this Agreement to the contrary, in no
event shall the Shareholders’ Representative be authorized or
permitted to enter into or agree to any settlement to the extent
such settlement provides for the admission of any wrongdoing by, or
is otherwise harmful to, a Shareholder or any affiliate thereof,
without the prior written consent of such Shareholder.
(c)
The Shareholders’ Representative is deemed to be appointed as
each Shareholder’s attorney-in-fact, with full authority in
the place and stead of such Shareholder and in the name of such
Shareholder, from time to time in the Shareholders’
Representative’s discretion to take any action and to execute
any document or instrument that the Shareholders’
Representative may deem necessary or advisable to accomplish the
purposes of this Agreement, including without
limitation:
(i)
to execute, give and receive any notices, agreements, certificates,
closing certificates or documents in connection with transactions
contemplated by this Agreement;
(ii)
to negotiate, defend, settle or pay any claims for indemnification
under this Agreement; provided, however, that in no event shall the
Shareholders’ Representative settle or pay any claims for
Losses (as defined in Section 9.1 ) in excess of the
limitations set forth in Section 9.5 ; provided, further,
that in no event shall the Shareholders’ Representative
settle or pay any claims for Losses as a result of a
Shareholder’s breach of any representation or warranty
contained in the Letter of Transmittal without the prior
written consent of such Shareholder; and
(iii)
to take any other actions deemed necessary or advisable by the
Shareholders’ Representative in order to carry out the
purposes of this Agreement.
11
(d)
In the event of the death, incapacity or resignation of the
Shareholders’ Representative, the Shareholders (by a written
approval of Shareholders that held a majority of the issued and
outstanding Company Capital Stock (on a fully diluted, as converted
basis) as of the Closing Date) shall promptly appoint a successor
Shareholders’ Representative to act in accordance with this
Section 2.5 and shall provide written notice of such
appointment to Parent.
(e)
The Shareholders’ Representative is an intended third-party
beneficiary of this Agreement.
(f)
Parent shall pay to the Shareholders’ Representative $20,000
(the “ Indemnification Expense Cash ”) from the
Cash Merger Consideration otherwise payable to the holders of
Company Capital Stock. The Indemnification Expense Cash shall
be held by the Shareholders’ Representative in escrow as a
source of funds for the payment of expenses, including legal and
out-of-pocket expenses, incurred in connection with the
prosecution, defense, settlement or negotiation of any claim for
indemnification hereunder, or any disputes relating thereto,
brought by or against the Shareholders’ Representative in
accordance with Article IX . In the event any
funds remain from the Indemnification Expense Cash at the end of
the period ending on the eighteen (18) month anniversary of the
Closing Date, the Shareholders’ Representative shall disburse
such amounts from escrow to the Shareholders pro rata based on the
aggregate amount of the Cash Merger Consideration received by each
Shareholder, unless there are unresolved claims for indemnification
outstanding on such date, in which case appropriate funds shall be
held until such claims are resolved or finally determined; and,
further, to the extent any funds remain from the Indemnification
Expense Cash they shall be paid to the Shareholders pro rata based
on the aggregate amount of the Cash Merger Consideration received
by each Shareholder.
SECTION
2.6 FURTHER
ASSURANCES . Each Party, at the reasonable request of
another Party, shall execute and deliver such other instruments and
do and perform such other acts and things as may be reasonably
necessary for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
ARTICLE III
OTHER AGREEMENTS AND COVENANTS OF THE COMPANY
The Company covenants and agrees
with Parent and Merger Sub that, at all times from and after the
date hereof until the Closing, the Company will comply with (or
will arrange for compliance with) all covenants and provisions of
this Article III , except to the extent Parent and Merger
Sub may otherwise consent in writing.
SECTION
3.1 NON-NEGOTIATION
. From and
after the date of this Agreement until the earlier of (a) the
termination of this Agreement, (b) the Closing, or (c) October 1,
2006 , the Company agrees that it
will not, and will not permit its Affiliates, directors, officers,
employees, representatives and other agents, including, without
limitation, Houlihan Capital Partners, to, directly or indirectly,
(1) solicit, initiate, or encourage any Acquisition Proposal, (2)
engage in negotiations or discussions concerning, or provide any
non-public information to any person or entity in connection with,
any Acquisition Proposal or (3) agree to, approve or recommend any
Acquisition Proposal. The Company will immediately cease any
and all existing activities,
12
discussions or
negotiations with any parties conducted heretofore with respect to
any of the foregoing. The Company will promptly advise Parent
of the terms of any communications it may receive or become aware
of relating to any Acquisition Proposal.
SECTION
3.2 CONDUCT OF
BUSINESS . The
Company will conduct business only in the ordinary course
consistent with past practice. Without limiting the
generality of the foregoing, the Company will:
(a)
consistent with past practice, use commercially reasonable efforts
to (i) preserve intact the present business organization and
reputation of the Company, (ii) keep available (subject to
dismissals and retirements in the ordinary course of business
consistent with past practice) the services of the present
officers, employees and consultants of the Company, other than as
otherwise set forth in his Agreement, (iii) maintain the assets and
properties of the Company in good working order and condition
(reasonable wear and tear excepted), (iv) maintain the good will of
customers, suppliers, lenders and other Persons to whom the Company
sell goods or provide services or with whom the Company otherwise
has significant business relationships and (v) continue all current
sales, marketing and promotional activities relating to the
business and operations the Company;
(b)
except to the extent required by applicable Law, (i) cause the
Books and Records to be maintained in the usual, regular and
ordinary manner and (ii) not permit any material change in (A) any
pricing, investment, accounting, financial reporting, inventory,
credit, allowance or Tax election or Tax accounting method of the
Company, (B) any method of calculating any bad debt, contingency or
other reserve of the Company for accounting, financial reporting or
Tax purposes or (C) the fiscal year of the Company; and
(c)
comply, in all material respects, with all Laws applicable to the
business and operations of the Company, and as soon as practicable
following receipt thereof to give Parent copies of any written
notice or summaries of any oral notice directed to the Company by
any Governmental Authority alleging with specificity any violation
by the Company of any such Law.
SECTION
3.3 CERTAIN
RESTRICTIONS .
Without the express written consent of Parent, the Company will
refrain from:
(a)
amending their certificates or articles of incorporation or by-laws
(or other comparable corporate charter documents) or taking any
action with respect to any such amendment or any reorganization,
liquidation or dissolution of any such corporation;
(b)
authorizing, issuing, selling or otherwise disposing of any shares
of, or any option, right or warrant to purchase with respect to,
capital stock of the Company, or modifying or amending any right of
any holder of outstanding shares of, or any option, right or
warrant to purchase with respect to, capital stock of the Company,
except for issuances of shares of capital stock upon the exercise
of Options outstanding on the date hereof;
(c)
other than the Permitted Dividend, declaring, setting aside or
paying any dividend or other distribution in respect of the capital
stock of the Company, or directly or indirectly redeeming,
purchasing or otherwise acquiring any shares of, or any option,
right or warrant to
13
purchase with respect to, capital
stock of the Company not wholly owned by the Company;
(d)
except for any payments or transactions permitted or required by
the terms of this Agreement or the Transaction Documents, paying or
otherwise distributing any funds to Shareholders;
(e)
acquiring or disposing of, or incurring any Lien (other than a
Permitted Lien) on any assets and properties, other than in the
ordinary course of business consistent with past practice, or on
any Capital Stock;
(f)
(i) entering into, amending, modifying, terminating (partially or
completely), granting any waiver under or giving any consent with
respect to any Permit or Contract of the Company, except as may be
consistent with past practice, or (ii) granting any irrevocable
powers of attorney;
(g)
violating, breaching or defaulting in any material respect, or
taking or failing to take any action that (with or without notice
or lapse of time or both) would constitute a material violation or
breach of, or default under, any term or provision of any Permit or
Contract of the Company;
(h)
(i) incurring any Indebtedness, or (ii) voluntarily purchasing,
canceling or otherwise providing for a complete or partial
discharge in advance of a scheduled payment date with respect to,
or waiving any right of the Company under, any Indebtedness owing
to the Company (other than in the ordinary course of business and
other than Indebtedness of the Company owing to the
Company);
(i)
engaging with any Person in any merger, consolidation or similar
transaction, sale, disposition or other transfer of ten percent
(10%) or more, in the aggregate, of the assets of the Company, or
any transaction which is similar in form, substance, purpose or
effect to any of the foregoing;
(j)
making capital expenditures or commitments for additions to
property, plant or equipment constituting capital
assets;
(k)
making any change in the lines of business in which the Company
participates or is engaged;
(l)
writing off or writing down any of their assets and properties
outside the ordinary course of business consistent with past
practice;
(m)
entering into, amending, modifying or terminating (partially or
completely), any Contract that is, or had it been in existence on
the date of this Agreement would have been required to be,
disclosed in Schedule 5.8(a) ; or
(n)
entering into any agreement to do or engage in any of the
foregoing.
SECTION
3.4 MONTHLY FINANCIAL
STATEMENTS; REPORTS .
(a)
As promptly as practicable and in any event no later than ten (10)
Business Days
14
after the end of each calendar month
ending after the date hereof and before the Closing Date, the
Company will deliver to Parent true and complete copies of the
unaudited balance sheet, and the related unaudited statement of
operations, stockholders’ equity and cash flow of the
Company, as of the end of and for each such calendar month, which
financial statements shall be prepared in accordance with GAAP,
consistently applied.
(b)
As promptly as commercially reasonable, the Company will deliver to
Parent true and complete copies of such other financial statements,
reports and analyses as may be prepared or received by the Company
relating to the business or operations of the Company or as Parent
may otherwise reasonably request; provided, that, the Company shall
not be required to provide to Parent any financial statements,
reports or analyses that Parent may otherwise request that the
Company does not prepare in the ordinary course consistent with
past practice.
SECTION
3.5 EMPLOYEE MATTERS
.
(a)
Except as may be required by Law, the Company will refrain from
directly or indirectly:
(i)
making any representation or promise, oral or written, to any
officer, employee or consultant of the Company concerning any
Employee Benefit Plan, except for statements as to the rights or
accrued benefits of any officer, employee or consultant under the
terms of any Employee Benefit Plan;
(ii)
making any increase in the salary, wages or other compensation of
any officer, employee or consultant of the Company except in the
ordinary course of business consistent with past practice;
or
(iii)
adopting, entering into, amending, modifying or terminating
(partially or completely) any Employee Benefit Plan except to the
extent required by applicable Law and provided Parent consents in
writing, or as provided in this Agreement; or
(b)
The Company will administer each Employee Benefit Plan, or cause
the same to be so administered, in all material respects in
accordance with the applicable provisions of the Code, ERISA and
all other applicable Laws. The Company will promptly notify
Parent in writing of each receipt by the Company (and furnish
Parent with copies) of any notice of investigation or
administrative proceeding by the IRS, Department of Labor, PBGC or
other Person involving any Employee Benefit Plan.
(c)
Parent will identify prior to Closing and communicate to the
Company those Company service areas in which there may be
post-Closing redundancy, and the Company shall terminate the
employment of such employees as it chooses, in those service areas,
effective before the Closing Date and will use commercially
reasonable efforts to secure general releases from such terminated
employees. In accordance with the Company’s severance
policy as set forth in Schedule 5.17(a) and any employment
agreements listed therein, the Company will satisfy in full, prior
to Closing, at the Company’s sole cost and expense, all
vacation payout (including paid time off and other applicable
leave), severance pay, and all other benefits and costs due to such
terminated employees as of the date of termination.
15
SECTION
3.6 AFFILIATE
TRANSACTIONS . Immediately prior to
the Closing, all Indebtedness and other amounts owing under
Contracts between any Shareholder, any officer, director or
Affiliate or Employee of any Shareholder or any Affiliate of any of
the foregoing (other than the Company), on the one hand, and the
Company, on the other hand, will be paid in full. Prior to
the Closing, the Company will not enter into any Contract or amend
or modify any existing Contract, and will not engage in any
transaction which is outside the ordinary course of business
consistent with past practice, or which is not on an
arm’s-length basis, with any Shareholder or any such officer,
director or Affiliate other than payment of the Permitted
Dividend.
SECTION
3.7 REGULATORY AND OTHER
APPROVALS . The Company will (a)
take all commercially reasonably steps necessary and proceed in
good faith to (i) obtain all consents, approvals or actions of, to
make all filings with and to give all notices to Governmental
Authorities or any other Person required of the Company to
consummate the transactions contemplated hereby and by the
Transaction Documents, and (ii) maintain all material Contracts and
Permits in full force and effect (subject to the terms of this
Agreement) upon the consummation of the transactions contemplated
hereby and by the Transaction Documents, (b) provide such other
reasonable information and communications to such Governmental
Authorities or other Persons as Parent or such Governmental
Authorities or other Persons may reasonably request, and (c) at
Parent’s expense, cooperate with Parent as promptly as
practicable in obtaining all consents, approvals or actions of,
making all filings with and giving all notices to Governmental
Authorities or other Persons required of Parent to consummate the
transactions contemplated hereby and by the Transaction
Documents. The Company will provide prompt notification to
Parent when any such consent, approval, action, filing or notice
referred to in clause (a) above is obtained, taken, made or given,
as applicable, and will notify Parent of any communications (and,
unless precluded by Law or by third-party agreement, provide copies
of any such communications that are in writing) with any
Governmental Authority or other Person regarding any of the
transactions contemplated by this Agreement or any of the
Transaction Documents.
SECTION
3.8 CONFIDENTIAL
INFORMATION . From the date of this
Agreement until the earlier of the termination of this Agreement or
the Closing, except as required by applicable law or by legal or
regulatory process, the Company shall continue its past practices
with respect to maintaining the secrecy of and exclusive company
benefit from all confidential matters relating to the Company or
the Business; provided, however, that the foregoing shall not
preclude the Company from engaging in any communications with its
legal or financial advisors, on any matters relating to or arising
from the transactions contemplated by this Agreement and the
Transaction Documents.
SECTION
3.9 TRANSFER TAXES
Any
transfer, documentary, sales, or use taxes assessed upon or with
respect to Merger and any recording or filing fees with respect
thereto shall be borne by Parent.
SECTION
3.10 NOTICE AND CURE
. The Company will notify
Parent promptly in writing of, and contemporaneously will provide
Parent with true and complete copies of any and all information or
documents relating to, and will use all commercially reasonable
efforts to cure before the Closing, any event, transaction or
circumstance occurring after the date of this
16
Agreement that causes or will cause
any covenant or agreement of the Company under this Agreement to be
breached or that renders or will render untrue any representation
or warranty of the Company contained in this Agreement. The
Company also will notify Parent promptly in writing of, and will
use all commercially reasonable efforts to cure, before the
Closing, any violation or breach of any representation, warranty,
covenant or agreement made by the Company in this Agreement,
whether occurring or arising before, on or after the date of this
Agreement. No notice given pursuant to this section shall
have any effect on the representations, warranties, covenants or
agreements contained in this Agreement for purposes of determining
satisfaction of any condition contained herein or shall in any way
limit Parent’s right to seek indemnity under Article
IX .
ARTICLE IV
OTHER AGREEMENTS AND COVENANTS OF PARENT AND MERGER
SUB
Parent and Merger Sub covenant and
agree with the Company that, at all times from and after the date
hereof until the Closing (or for such additional period of time
from and after the Closing if, but only if, the express terms of
such covenant or provision so require), Parent will comply with all
covenants and provisions of this Article IV , except to the
extent the Company may otherwise consent in writing.
SECTION
4.1 REGULATORY AND OTHER
APPROVALS . Parent
will (a) take all commercially reasonable steps necessary or
desirable, and proceed diligently and in good faith and use all
commercially reasonable efforts, as promptly as practicable to
obtain all consents, approvals or actions of, to make all filings
with and to give all notices to Governmental Authorities or any
other Person required of Parent or Merger Sub to consummate the
transactions contemplated hereby and by the Transaction Documents,
(b) provide such other information and communications to such
Governmental Authorities or other Persons as the Company or such
Governmental Authorities or other Persons may reasonably request
and (c) cooperate with the Company as promptly as practicable in
obtaining all consents, approvals or actions of, making all filings
with and giving all notices to Governmental Authorities or other
Persons required of the Company to consummate the transactions
contemplated hereby and by the Transaction Documents. Parent
and Merger Sub will provide prompt notification to the Company when
any such consent, approval, action, filing or notice referred to in
clause (a) above is obtained, taken, made or given, as applicable,
and will notify the Company of any communications (and, unless
precluded by Law or by third-party agreement, provide copies of any
such communications that are in writing) with any Governmental
Authority or other Person regarding any of the transactions
contemplated by this Agreement or any of the Transaction
Documents.
SECTION
4.2 NOTICE AND CURE
. Parent and Merger Sub will
notify the Company promptly in writing of, and
contemporaneously will provide the Company with true and complete
copies of any and all information or documents relating to, and
will use all commercially reasonable efforts to cure before the
Closing, any event, transaction or circumstance occurring after the
date of this Agreement that causes or will cause any covenant or
agreement of Parent and Merger Sub under this Agreement to be
breached or that renders or will render untrue any representation
or warranty of Parent contained in this Agreement. Parent and
Merger Sub also will notify the Company promptly in writing of, and
will use all commercially
17
reasonable efforts to cure, before
the Closing, any violation or breach of any representation,
warranty, covenant or agreement made by Parent and Merger Sub in
this Agreement, whether occurring or arising before, on or after
the date of this Agreement. No notice given pursuant to this
Section 4.2 shall have any effect on the representations,
warranties, covenants or agreements contained in this Agreement for
purposes of determining satisfaction of any condition contained
herein or shall in any way limit the Shareholders’ right to
seek indemnity under Article IX .
SECTION
4.3 CONFIDENTIAL
INFORMATION . From
the date of this Agreement until the Closing, and, in the event of
the termination of this Agreement for two (2) years thereafter,
except as required by applicable law or by legal or regulatory
process, Parent and Merger Sub shall keep secret and retain in
strictest confidence, and shall not use for the benefit of Parent
and Merger Sub or others, or disclose to others (except for Parties
to this Agreement or to the Transaction Documents), all
confidential matters relating to the Company or the Business;
provided , however , that the foregoing shall not
preclude Parent and Merger Sub from engaging in any communications
with its legal or financial advisors on any matters relating to or
arising from the transactions contemplated by this Agreement and
the Transaction Documents.
SECTION
4.4 ACCESS TO
INFORMATION . After
the Closing Date and upon reasonable advance notice, Parent and
Merger Sub will give, or cause to be given, to the Shareholders and
their representatives, during normal business hours, such
reasonable access to the personnel, properties, titles, contracts,
books, records, files and documents relating to the Company in the
possession or control of Parent, including the books and records of
the Company, and at the expense of a requesting Shareholder, copies
of the foregoing, as is necessary to allow the Shareholders to
obtain information in connection with the preparation and any audit
of any tax returns, any claims, demands, other audits, suits,
actions or proceedings by or against the Shareholders, or for any
other reasonable purpose, other than, in each case, in connection
with any matter with respect to which Parent and Merger Sub are
adverse to or have a conflict of interest with, any Shareholder;
provided, that, in the event that any litigation is pending between
the Parties, Parent and Merger Sub shall not be required to perform
its obligations under this Section 4.4 except with respect
to any matter that is not germane to the subject matter of the
litigation.
SECTION
4.5 EMPLOYEE TRANSITION
MATTERS.
(a)
From and after the Closing Date, Parent shall, or shall cause the
Surviving Corporation, to use commercially reasonable efforts to
provide coverage under employee benefit plans maintained by Parent
or Surviving Corporation to the Company’s employees who
remain employed on the Closing Date. To the extent
commercially reasonable and permitted under applicable Law, Parent
will endeavor to have (i) deductibles paid by such continuing
employees while employed by the Company recognized by
Parent’s provider, and (ii) the provider waive any waiting
periods, pre-existing conditions and comparable
requirements.
(b)
Parent shall permit the Company’s employees who remain
employed on the Closing Date to roll over in-kind plan loans to the
extent that they are part of an eligible rollover distribution from
the Annuitynet, Inc. 401K Retirement Plan (the “ 401(k)
Plan ”) to a 401(k) plan maintained by Parent or the
Surviving Corporation to the extent permitted by the terms of the
plans and applicable law; however, neither Parent nor the Surviving
Corporation shall in any
18
case be required to amend its 401(k)
plan to permit such rollovers.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the
Disclosure Schedule delivered by the Company to Parent and Merger
Sub at or prior to the execution of this Agreement and except as
set forth in any amendment, revision or restatement of such
Disclosure Schedule which is delivered to Parent and Merger Sub at
or prior to the Closing, the Company represents and warrants to
Parent and Merger Sub as follows:
SECTION
5.1 ORGANIZATION, STANDING AND
AUTHORITY.
(a)
The Company is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization.
True, complete and correct copies of the Company’s Articles
of Incorporation and Bylaws have been delivered to Parent and such
Articles of Incorporation and Bylaws are in full force and
effect. The Company has full power and authority to carry on
the Business as conducted by it and to own or hold under lease the
properties and assets it now owns or holds under lease. The
Company is duly qualified to do business and is in good standing as
a foreign corporation or company (as applicable) in all
jurisdictions where the nature of the property owned or leased by
it, or the nature of its business, makes such qualification
necessary and where the absence of such qualification would have a
Material Adverse Effect on the business, financial condition or
operations of such company, which jurisdictions are listed opposite
such company’s name on Schedule 5.1(a) of the
Disclosure Schedule.
(b)
The Company does not have any Subsidiary. The Company
dissolved its only Subsidiary, AnnuityNet Insurance Agency, Inc.
(the “ Dissolved Subsidiary ”), on September 19,
2006 and does not have, and will not have after the Closing Date,
any Liabilities with respect to the Dissolved
Subsidiary.
(c)
The name of each director and officer of the Company is set forth
opposite the position held by same, on Schedule 5.1(c) of
the Disclosure Schedule.
SECTION
5.2
AUTHORIZATION.
(a)
The Company has full right, power, capacity and authority to
execute and deliver this Agreement and each of the Transaction
Documents to be executed and delivered by or on behalf of the
Company, to consummate the transactions contemplated hereby and
thereby and to comply with the terms, conditions and provisions
hereof and thereof.
(b)
This Agreement has been, and each of the Transaction Documents to
be executed and delivered by or on behalf of the Company will be,
duly executed and delivered by the Company and constitutes or, in
the case of the Transaction Documents, will constitute when so
executed and delivered, the legal, valid and binding obligations of
the Company, enforceable against the Company in accordance with its
terms, subject to bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance and other laws or equitable
principles of general application to or affecting the enforcement
of contractual rights generally, and statutes,
19
rules or procedures and applicable
case law limiting the availability or prescribing the procedural
requirements for the exercise of remedies.
SECTION
5.3 CAPITALIZATION AND
OWNERSHIP.
(a)
Schedule 5.3(a) of the Disclosure Schedule sets forth the
authorized and issued and outstanding capital stock of the Company,
the outstanding Options and Warrants (both vested and unvested) for
Company Capital Stock, and the ownership interest of each
Shareholder in the Company. All shares of issued and
outstanding capital stock of the Company have been duly and validly
issued, were issued in compliance with all applicable federal and
state securities laws, and are fully paid and non-assessable.
Except as set forth on Schedule 5.3(a) of the Disclosure
Schedule, all shares of capital stock of the Company have been
issued without any options, warrants, rights, calls or other
preemptive rights with respect to additional shares of capital
stock. Except as set forth on Schedule 5.3(a) of the
Disclosure Schedule, no Options, Warrants, preemptive or other
rights to acquire any shares of Company Capital Stock or any debt
or equity interest in the Company have been issued or are
outstanding. All Options have been granted or issued at fair
market value, as determined by the Company’s Board of
Directors at the date of grant or issuance using the reasonable
application of a reasonable valuation method. All Options and
Warrants of the Company, if not exercised prior to the Closing
Date, will be terminated as of the Closing Date without any further
liabilities to Parent, Merger Sub, or the Company.
(b)
Except as set forth on Schedule 5.3(b) of the Disclosure
Schedule, the Company is not a party or subject to any agreement or
understanding and (other than voting agreements entered into in
connection with this Agreement) there is no agreement or
understanding between any Persons that affects or relates to the
voting or giving of written consents with respect to any securities
of the Company or the voting of any securities of the Company by
any Shareholder, director or officer of the Company. The
Company has no contractual or other obligation to register under
the securities laws of any jurisdiction any of its presently
outstanding securities or any of its securities that may hereafter
be issued.
(c)
Except as set forth on Schedule 5.3(c) of the Disclosure
Schedule, the Company is not a party or subject to any agreement
that grants any rights of refusal, rights of first offer, co-sale
or tag-along rights, drag-along rights, registration rights or
similar rights with respect to Company Capital Stock.
(d)
Each Shareholder is, or on the Closing Date will be, the record
owner of the equity interests indicated in Schedule 5.3(a)
of the Disclosure Schedule as owned by such Shareholder (or to be
owned as of the Closing Date). Except as set forth in
Schedule 5.3(a) of the Disclosure Schedule, to the knowledge
of the Company there are no agreements, arrangements, options,
warrants, calls, rights or commitments of any character relating to
the sale, purchase, redemption or other transfer of the Capital
Stock held by any Shareholder.
SECTION
5.4 NO CONFLICTS
. Except as set forth on
Schedule 5.4 of the Disclosure Schedule, neither the
execution and delivery of this Agreement and the Transaction
Documents by the Company nor the performance by the Company of the
transactions contemplated hereby or thereby will:
20
(a)
violate or conflict with or result in a breach of any of the terms,
conditions or provisions of the articles of incorporation or bylaws
of the Company;
(b)
violate any Law;
(c)
constitute (with or without notice or lapse of time or both) a
default under or otherwise violate any material Permit, Contract,
mortgage, note, bond, license or other instrument to which the
Company is a party or by which the properties or assets of any of
the foregoing are bound;
(d)
constitute an event which would permit any party to terminate, or
accelerate the maturity of any Indebtedness or other obligation
under, any Contract, mortgage, note, bond, license or other
instrument to which the Company is a party or by which the
properties or assets of any such company are bound;
(e)
result in the creation or imposition of any Lien upon the Capital
Stock, the assets of the Company; or
(f)
require any Permit, authorization, consent, approval, exemption or
other action by or notice to any Person, court or administrative or
governmental body pursuant to any Laws.
SECTION
5.5 FINANCIAL
STATEMENTS . Schedule
5.5 of the Disclosure Schedule contains the following financial
statements of the Company (collectively, the “ Financial
Statements ”):
(a)
The audited consolidated balance sheet of the Company as of
December 31, 2005, and the related audited consolidated statements
of income, shareholders’ equity and cash flows for the year
then ended, together with a true and correct copy of the report on
such audited information by the Reznick Group (collectively, the
“ 2005 Audited Financial Statements ”), and all
management letters from such accountants with respect to the
results of such audits; and
(b)
The audited consolidated balance sheet of the Company as of
December 31, 2004 and as of December 31, 2003, and the related
audited consolidated statements of income, shareholders’
equity and cash flows for the year then ended, together with a true
and correct copy of the report on such audited information by Ernst
& Young LLP, and all management letters from such accountants
with respect to the results of such audits.
(c)
An unaudited consolidated balance sheet of the Company as of July
31, 2006 (the “ Latest Balance Sheet Date ”) and
the related unaudited consolidated statements of income, changes in
stockholders’ equity, and cash flow for the seven (7) months
then ended (the “ Interim Financial Statements
”), including in each case, the notes thereto, if
any.
The Financial Statements are
complete and correct in all respects, are consistent with the Books
and Records, and, other than as set forth on Schedule 5.5 of
the Disclosure Schedule, fairly present, in all material respects,
the financial condition, assets and liabilities of the Company,
taken as a whole, as of their respective dates and the results of
operations and cash flows for the periods related thereto in
accordance with GAAP (except as may be indicated in the notes
thereto and in the case of the Interim Financial Statements,
subject to normal year-end adjustments and
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the absence of footnote disclosure).
Since the Latest Balance Sheet Date there has been no change in the
Company’s reserve on accrual amounts or policies.
SECTION
5.6 ABSENCE OF UNDISCLOSED
LIABILITIES.
(a)
The Company does not have any material Liabilities, whether due or
to become due, arising out of transactions entered into on or prior
to the date hereof, or any transaction, series of transactions,
action or inaction occurring on or prior to the date hereof, or any
state of facts or conditions existing on or prior to the date
hereof (regardless of when such liability or obligation is
asserted), including, without limitation, Liabilities on account of
Taxes or Employee Benefit Plans, or in respect thereof, except as
and to the extent clearly and accurately reflected and accrued for
or reserved against in, the 2005 Audited Financial Statements and
on the Latest Balance Sheet or incurred in the ordinary course of
business consistent with past practice since the Latest Balance
Sheet Date (none of which is a Liability for breach of contract,
breach of warranty, product liability, tort or infringement, or a
claim or lawsuit, or an environmental liability), except to the
extent set forth on Schedule 5.6(a) of the Disclosure
Schedule.
(b)
Except as set forth on Schedule 5.6(b) of the Disclosure
Schedule, the Company does not have any Liabilities to any
Affiliate.
SECTION
5.7 TANGIBLE PERSONAL
PROPERTY . Except as set
forth in Schedule 5.7 of the Disclosure Schedule:
(a)
Title . The Company is in possession of and has good title
to, or valid leasehold interests in or valid rights under Contract
to use, all tangible personal property (including, without
limitation, all fixtures, leasehold improvements, equipment
(including computer hardware and communications equipment), whether
or not such equipment constitutes a fixture under applicable Law,
office, operating and other supplies, parts, furniture, and other
tangible personal property of the Company) used in the conduct of
the Business by the Company as presently conducted, including all
tangible personal property reflected on the balance sheet included
in the 2005 Audited Financial Statements and as of the Latest
Balance Sheet Date, and tangible person property acquired since the
Latest Balance Sheet Date, other than property disposed of since
such date in the ordinary course of business consistent with past
practice. All such tangible personal property is free and clear of
all Liens, other than Permitted Liens. No Person other than the
Company owns or has any right to the use or possession of such
tangible personal property other than lessors and licensors of such
tangible personal property constituting leasehold interests or
licenses.
(b)
Condition . All of the assets of the Company are in good
condition and repair consistent with industry standards (ordinary
wear and tear excepted), and are useable in the ordinary course of
business. Except for tangible personal property having a fair
market value of less than $20,000, Schedule 5.7(b) of the
Disclosure Schedule includes all of the fixed assets of each of the
Company, and each item of tangible personal property owned by the
Company and the location thereof. Schedule 5.7(b) of the
Disclosure Schedule lists all leases of tangible personal property
to which the Company is a party or is bound providing for annual
lease payments in excess of $5,000, and the lessee and location of
such leased tangible personal property.
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SECTION
5.8 CONTRACTS
. Schedule 5.8(a) of the
Disclosure Schedule is a correct and complete list of each material
Contract of the Company , including but not limited to, all
Contracts that require the Company to pay, or entitle the Company
to receive, in the aggregate, $50,000 or more during any twelve
(12) month period, all Contracts that restrict the Company’s
business activities anywhere in the world, and all Contracts that
are not terminable by the Company upon not more than thirty (30)
days’ prior notice without penalty or payment (each a “
Material Contract ”). Correct and complete copies of
the Material Contracts listed on Schedule 5.8(a) of the
Disclosure Schedule have previously been furnished or made
available to Parent, excluding purchase orders or sales of products
in the ordinary course of business on customary terms valued at
less than $50,000 in the aggregate and terminable without penalty
upon notice of thirty (30) days or less, all material terms and
provisions of each oral Contract of the Company are described on
Schedule 5.8(a) of the Disclosure Schedule. Except as set
forth on Schedule 5.8(b) of the Disclosure Schedule, the
Company is not in default and no event has occurred which with the
giving of notice or the passage of time or both would constitute a
default by the Company under any Material Contract and, to the
knowledge of the Company, no event has occurred which with the
giving of notice or the passage of time or both would constitute a
default by any other party to any such Material Contract. Each of
the Material Contracts of the Company is in full force and effect,
is valid and enforceable in accordance with its terms, and, to the
knowledge of the Company, is not subject to any claims, charges,
set-offs or defenses. Except as set forth on Schedule 5.8(c)
, all of the Material Contracts of the Company will continue in
full force and effect without any change or modification resulting
from the consummation of the transactions contemplated by this
Agreement, without the necessity of obtaining any consent,
approval, novation or waiver of any third party. Except as set
forth on Schedule 5.8(d) of the Disclosure Schedule, the
Company is not a party to, or bound by the provisions of, any
Material Contract (including purchase orders, blanket purchase
orders and agreements and delivery orders) that remains executory
in whole or in part with any Federal, state, local or foreign
Governmental Authority or governmental body. Except as set forth on
Schedule 5.8(e) of the Disclosure Schedule, no Material
Contract of the Company is required to be treated as a capital
lease by GAAP.
SECTION
5.9 REAL PROPERTY
. No real property is owned by the
Company. Schedule 5.9 of the Disclosure Schedule lists all
real property used or held for use by the Company which is leased
by the Company from third parties (the “ Leased Real
Property ”), and indicates the addresses and the owners
of the Leased Real Property. The Company is the sole legal and
equitable holder of the leasehold interest it holds in the Leased
Real Property and possesses a valid leasehold interest thereto,
free and clear of all Liens (other than Permitted Liens) that could
impair the ability of the Company to realize the benefits of the
rights provided to it under any lease, and the right to quiet
enjoyment of such Leased Real Property. Accurate and complete
copies of all existing lease agreements with respect to the Leased
Real Property as of the Closing Date have heretofore been delivered
to Parent. The Company has not exercised any option to purchase any
parcel of Leased Real Property. The Leased Real Property
constitutes the only real property used or occupied by the Company
in the conduct of the Business. There are no leases, subleases,
licenses, concessions or other agreements, written or oral,
granting to any party or parties the right of use or occupancy of
any portion of any parcel of the Leased Real Property, or any
options or rights of first refusal with respect thereto. Other
than
23
as set forth on Schedule 5.9
of the Disclosure Schedule, there are no parties (other than the
Company) in possession of the Leased Real Property and the Company
enjoys peaceful and undisturbed possession of the Leased Real
Property, subject to the terms and conditions of the leases set
forth on Schedule 5.9 of the Disclosure Schedule. To the
knowledge of the Company, within the last twelve (12) months, no
notice from any Governmental Authority has been received by the
Company or has been served upon the Leased Real Property requiring
or calling attention to the need for any work, repair,
construction, alteration or installation on or in connection with
the Leased Real Property. To the knowledge of the Company, no
notice has been received by the Company or has been served upon the
Real Property stating that, and the Company has no knowledge that,
the buildings and improvements on the Leased Real Property, or the
Business as presently conducted thereon by the Company, are not in
compliance with any applicable Law.
SECTION 5.10
LITIGATION . Except as set forth in
Schedule 5.10 of the Disclosure Schedule, there is no suit,
action, proceeding, investigation, arbitration, mediation, claim or
order pending or, to the knowledge of the Company, threatened
against the Company (or pending or, to the knowledge of the
Company, threatened against any of the current or former officers,
directors or employees of the Company with respect to their service
as an officer, director or employee of the Company) before any
court, or before any governmental department, commission, board,
agency, or instrumentality; nor, to the knowledge of the Company,
is there any reasonable basis for any such action, proceeding or
investigation. Except as set forth in Schedule 5.10 of the
Disclosure Schedule, the Company (a) is not subject to any
judgment, order or decree of any court or governmental agency; (b)
is not engaged in any legal action in which a claim has been filed
to recover monies due it or for damages sustained by it, or (c) has
not received any opinion or memorandum or legal advice from counsel
to the effect that any of them is exposed, from a legal standpoint,
to any Liability which may be material to its business. Schedule
5.10 of the Disclosure Schedule, also sets forth a complete and
correct list and description of all material claims, suits,
actions, proceedings and investigations made, filed or otherwise
initiated in connection with the Company which have been resolved
in the past two (2) years and the resolution thereof. Prior to the
execution of this Agreement, the Company has delivered to Parent
all written responses of counsel for the Company to auditors’
requests for information delivered in connection with the Audited
Financial Statements (together with any updates provided by such
counsel) regarding any suit, action, proceeding, investigation,
arbitration, mediation, claim or order pending or threatened
against, relating to or affecting the Company.
SECTION
5.11 COMPLIANCE WITH APPLICABLE
LAWS . The Company (a) is
not, or has not been in the past five (5) years, in violation of
any Law the violation of which would have a Material Adverse Effect
the conduct, ownership, use, occupancy or operation of the Business
or assets, including, without limitation, regarding any alleged
failure to possess any material, license, Permit, authorization or
other approval, (b) the Company has not received notice of any such
material violation, and (c) no facts or circumstances exist which
would reasonably be expected to cause the Company to be in any such
material violation in the future, except as set forth on
Schedule 5.11 of the Disclosure Schedule.
SECTION 5.12
INTELLECTUAL PROPERTY . Schedule 5.12 of the
Disclosure Schedule contains a complete and correct list of all
patents, patent applications, patent disclosures, registered and
unregistered trademarks, registered service marks, registered
and
24
unregistered trade names and
corporate names, domain names and websites, registered copyrights,
and registrations, applications and renewals for any of the
foregoing, and software (other than “off-the-shelf”
commercial software), which are owned or licensed by the Company,
including all registration numbers and dates and jurisdictions of
registrations, if applicable, all licenses and other rights granted
from or to any third party with respect to any Intellectual
Property. Except as set forth on Schedule 5.12 of the
Disclosure Schedule, (a) the Company owns and possesses all right,
title and interest in and to, or has a valid license to use, all of
the intellectual property and proprietary rights and information
necessary for the operation of the Business as presently conducted
by the Company; (b) each item of Intellectual Property owned or
used by the Company prior to the Closing will be owned or available
for use by the Company on identical terms and conditions
immediately subsequent to the Closing, (c) no claim by any third
party contesting the validity, enforceability, use or ownership of
any Intellectual Property has asserted against the Company, to the
knowledge of the Company, is threatened, and, to the knowledge of
the Company, there is no reasonable basis for any such claim; (d)
the Company has not received any notices of, nor does the Company
have knowledge of any reasonable basis for, an allegation of any
infringement or misappropriation by, any third party with respect
to any Intellectual Property, nor has any such Person received any
claims of infringement or misappropriation of any intellectual
property of any third party; (e) the Company has not infringed,
misappropriated or otherwise violated any intellectual property of
any third parties; (f) to the knowledge of the Company, no other
Person is infringing, misappropriating or otherwise violating, or
has infringed, misappropriated or otherwise violated, the
Intellectual Property; (g) except as set forth on Section
5.12 the Company is not required to pay any fee, royalty or
other compensation for the use of any third party intellectual
property; and (h) the Company has not granted any exclusive right
with respect to any Intellectual Property. All Intellectual
Property owned by the Company was created by employees of the
Company within the scope of their employment, or by independent
contractors who have assigned all of their rights in such
Intellectual Property to the Company pursuant to written
agreements.
SECTION
5.13 CONDUCT OF BUSINESS
. Except as set forth on Schedule
5.13 of the Disclosure Schedule, since December 31, 2005, the
Business of the Company has been conducted only in the ordinary
course of business consistent with past custom and practice, and
the Company has not incurred any liabilities other than in the
ordinary course of business consistent with past custom and
practice and there has been no Material Adverse Effect on the
Business (other than those effecting the economy generally or
the
