Exhibit 2.1
AGREEMENT AND PLAN OF
MERGER
by and among
The TriZetto Group,
Inc.
PDM Acquisition
Corp.,
Plan Data Management, Inc. and
the Representative
dated as of October 26,
2006
Confidential material has been
omitted and filed separately with the Securities and Exchange
Commission.
AGREEMENT AND PLAN OF
MERGER
THIS AGREEMENT AND PLAN OF MERGER
(the “ Agreement ”), is made and entered into as
of October 26, 2006, by and among The TriZetto Group, Inc., a
Delaware corporation (“ Parent ”), PDM
Acquisition Corp., a New York corporation and wholly-owned
Subsidiary of Parent (“ Merger Sub ”), Plan Data
Management, Inc., a New York corporation (the “
Company ”), and Stephen B.C. Jackson, in his capacity
as representative (the “ Representative ”).
Certain other capitalized terms used in this Agreement are defined
in Exhibit A attached hereto.
RECITALS
WHEREAS, Parent, Merger Sub and the
Company intend to effect a merger (the “ Merger
”) of Merger Sub with and into the Company in accordance with
this Agreement and the applicable provisions of the General
Corporation Law of the State of Delaware (the “ DGCL
”) and the Business Corporation Law of the State of New York
(the “NYBCL”), with the Company to be the surviving
corporation of the Merger. Following the Merger, Parent will effect
the Sideways Merger;
WHEREAS, the respective Boards of
Directors of Parent, Merger Sub and the Company have approved this
Agreement and the Merger, upon the terms and subject to the
conditions set forth in this Agreement in accordance with the DGCL
and the NYBCL, as applicable, and their respective charter
documents;
WHEREAS, the stockholders of the
Company have approved this Agreement and the Merger, upon the terms
and subject to the conditions set forth in this Agreement in
accordance with the NYBCL and the Company’s charter
documents;
WHEREAS, the Merger and the Sideways
Merger are intended to be part of an integrated plan and together
are intended to qualify as a reorganization within the meaning of
Section 368(a) of the Code, and this Agreement is intended to
constitute a “plan of reorganization” within the
meaning of the regulations promulgated under Section 368 of
the Code; and
WHEREAS, each of Parent, Merger Sub
and the Company desire to make certain representations, warranties,
covenants and agreements in connection with the Merger and also to
prescribe various conditions to the consummation
thereof.
AGREEMENT
NOW, THEREFORE, in consideration of
the foregoing and the mutual promises, representations, warranties,
covenants and agreements herein contained, the parties hereto,
intending to be legally bound, hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. The Merger . Upon the terms and subject
to the conditions set forth in this Agreement, and in accordance
with the DGCL and the NYBCL, the Merger Sub shall be merged with
and into the Company at the Effective Time of the Merger (as
defined in Section 1.3). Following the Merger, the separate
corporate existence of Merger Sub shall cease, and the
Company
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shall continue as the surviving corporation (the
“ Surviving Corporation ”) and shall succeed to
and assume all the rights, properties, liabilities and obligations
of the Company in accordance with the DGCL and the
NYBCL.
1.2. Closing
. The closing of the Merger (the
“ Closing ”) shall take place at the offices of
Stradling Yocca Carlson & Rauth at 660 Newport Center
Drive, Suite 1600, Newport Beach, California 92660 at the date
and time selected by Parent; provided that all of the conditions to
Closing set forth in Article 9 of this Agreement shall have
been satisfied or waived by the appropriate party; and provided
further, that in no event shall the Closing occur later than ten
(10) days following satisfaction or waiver of the conditions
to Closing, unless the parties hereto agree otherwise. The date on
which the Closing actually occurs and the transactions contemplated
hereby become effective is hereinafter referred to as the “
Closing Date .” At the time of the Closing, Parent,
Merger Sub and the Company shall deliver the certificates and other
documents and instruments required to be delivered
hereunder.
1.3. Effective Time of the
Merger . At the Closing,
the parties hereto shall (a) cause a certificate of merger in
substantially the form of Exhibit B attached hereto
(the “ Certificate of Merger ”) to be executed
and filed with the Secretary of State of the State of New York, in
accordance with Section 904 of the NYBCL and (b) take all
such other and further actions as may be required by the NYBCL or
other applicable Law to make the Merger effective. The Merger shall
become effective as of the date and time of the filing of the
Certificate of Merger. The date and time of such effectiveness are
referred to herein as the “ Effective Time
.”
1.4. Effects of the
Merger . Subject to the
foregoing, the effects of the Merger shall be as provided in the
applicable provisions of the NYBCL.
1.5. Certificate of Incorporation and Bylaws of
the Surviving Corporation . The Certificate of Incorporation of
the Surviving Corporation shall be the Certificate of Incorporation
of the Surviving Corporation, as amended, pursuant to the
Certificate of Merger, until thereafter changed or amended as
provided therein or in accordance with applicable Law. The Bylaws
of Merger Sub as in effect immediately prior to the Effective Time
shall be the Bylaws of the Surviving Corporation until thereafter
changed or amended as provided therein or in accordance with
applicable Law.
1.6. Directors and Officers . The directors
and officers of Merger Sub immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation
until their successors shall have been duly elected or appointed
and qualified in accordance with applicable Law or until their
earlier death, resignation or removal in accordance with the
Surviving Corporation’s Certificate of Incorporation and
Bylaws.
1.7. Tax Treatment. The parties intend that
the Merger, together with the Sideways Merger contemplated in
Section 7.6, be treated as a reorganization described in the
Code. However, neither Parent nor Company makes any representations
or warranties to the other or to any security holder of either
entity regarding the tax treatment of the Merger, whether the
Merger will qualify as a tax-free “reorganization”
under the Code, or any of the tax consequences of this Agreement,
the Merger or any of the other transactions or agreements
contemplated hereby to Parent or Company or any security holder of
either entity. Each party acknowledges that it is relying solely on
its own tax advisors in connection with this Agreement, the Merger
and the other transactions and agreements contemplated
hereby.
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1.8. Tax Withholding. Parent or any agent of
the Parent shall be entitled to deduct and withhold from the
purchase price or other payment otherwise payable by it pursuant to
this Agreement, the amounts required to be deducted and withheld
under the Code, or any provision of state, local or foreign tax
law, with respect to the making of such payment. To the extent that
amounts are so withheld and paid, such withheld and paid amounts
shall be treated for all purposes of this Agreement as having been
paid by the Parent.
ARTICLE 2
EFFECT OF THE MERGER ON THE
CAPITAL STOCK OF COMPANY AND MERGER SUB
2.1. Exchange of Shares. At the Effective
Time, by virtue of the Merger and without any action on the part of
holders of the capital stock of Merger Sub or the
Company:
(a) Cancellation of Treasury Stock and Stock
Owned by Parent; Capital Stock of Merger Sub. All shares of
capital stock owned by the Company as treasury stock and all shares
of capital stock of the Company owned by Parent or Merger Sub shall
be cancelled and retired and shall cease to exist and no stock of
Parent or other consideration shall be delivered in exchange
therefore. Each issued and outstanding share of capital stock of
Merger Sub shall by virtue of the Merger and without any action on
the part of any holder thereof, be converted into one share of
common stock of the Company. Such newly issued shares shall
thereafter constitute all of the issued and outstanding capital
stock of the Surviving Corporation.
(b) Determination of Merger Consideration.
Each issued and outstanding share of the Company Common Stock,
issued and outstanding immediately prior to the Effective Time,
except as otherwise provided in Section 2.1(a), shall be
converted into the right to receive the Merger Consideration as
follows:
(i) Non-Contingent Payments. On each date
specified below, the Company Payees shall be entitled to receive
the amount specified below for such date, subject in each case to
adjustment pursuant to Sections 2.1(b)(i)(F) and 2.7 below, for a
total aggregate payment of up to Thirty Four Million Dollars
($34,000,000) (collectively, such payments constitute the “
Non-Contingent Payments ”). The Non-Contingent
Payments shall be payable by Parent, as follows:
(A) Closing Payment . At Closing Parent shall
pay an aggregate of up to Sixteen Million Dollars ($16,000,000) to
the Company Payees, each Company Payee to receive its Pro Rata
Portion of such amount (the “ Closing Payment
”); provided that, to the extent the Revenue of the Company
for the period from May 1, 2006 through the last day of the
last full month prior to the Closing Date (the “ Initial
Measurement Period ”), divided by the number of full
months in such Initial Measurement Period and multiplied by twelve
(12), is less than ***, the Closing Payment shall be reduced to the
product equal to (X) the Closing Payment, multiplied by
(Y) a fraction, (1) the numerator of which is the amount
of annualized Revenue during the Initial Measurement Period as
calculated above, and (2) the denominator of which is
***.
(B) Second Payment . On or before
June 30, 2007, Parent shall pay an aggregate of up to Five
Million Dollars ($5,000,000) to the Company Payees, each
Company
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material has been omitted and filed separately with the Securities
and Exchange Commission.
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Payee to receive its Pro Rata Portion of such
amount (the “ Second Payment ”); provided that,
to the extent the Revenue of the Company for the fiscal year ended
April 30, 2007 (the “ Second Measurement Period
”) is less than ***, the Second Payment shall be reduced to
the product equal to (X) the Second Payment, multiplied by
(Y) a fraction, (1) the numerator of which is the amount
of Revenue during the Second Measurement Period, and (2) the
denominator of which is ***.
(C) Third Payment . Within sixty
(60) days of determining that the Third Revenue Target (as
defined below) has been achieved, but in no event earlier than
June 30, 2008, Parent shall pay an aggregate of Five Million
Dollars ($5,000,000) to the Company Payees, each Company Payee to
receive its Pro Rata Portion of such amount (the “ Third
Payment ”). If by October 31, 2008 the Third Revenue
Target is not achieved by the Company, then on December 31,
2008 the Parent shall pay to the Company Payees, each in its Pro
Rata Portion, a reduced portion of the Third Payment, equal to the
product of (X) the Third Payment, multiplied by (Y) a
fraction, (1) the numerator of which is the amount of Revenue
during the Third Measurement Period (as defined below), and
(2) the denominator of which is the Third Revenue Target (as
defined below). The “ Third Revenue Target ”
means ***. The “ Third Measurement Period ”
means the period from May 1, 2007 through October 31,
2008.
(D) Fourth Payment . Within sixty
(60) days of determining that the Fourth Revenue Target (as
defined below) has been achieved, but in no event earlier than
June 30, 2009, Parent shall pay an aggregate of Eight Million
Dollars ($8,000,000) to the Company Payees, each Company Payee to
receive its Pro Rata Portion of such amount (the “ Fourth
Payment ”). If by October 31, 2009, the Fourth
Revenue Target is not achieved by the Company, then on
December 31, 2009 the Parent shall pay to the Company Payees,
each in its Pro Rata Portion, a reduced portion of the Fourth
Payment, equal to the product of (X) the Fourth Payment,
multiplied by (Y) a fraction, (1) the numerator of which
is the amount of Revenue during the Fourth Measurement Period (as
defined below), and (2) the denominator of which is the Fourth
Revenue Target (as defined below). Notwithstanding the foregoing,
in no event shall the aggregate Non-Contingent Payments, when added
to the Contingent Payment paid to the Company Payees pursuant to
Section 2.1(b)(ii), exceed Forty Two Million ($42,000,000).
The “ Fourth Revenue Target ” means ***. The
“ Fourth Measurement Period ” means the period
from May 1, 2007 through October 31, 2009.
(E) Form of the Non-Contingent Payments.
Unless otherwise mutually agreed to by Parent and the
Representative, fifty percent (50%) of each Non-Contingent
Payment shall be payable in cash and fifty percent (50%) shall
be payable in shares of Parent Common Stock. For purposes of
determining the number of shares of Parent Common Stock to be
issued to the Company Payees in connection with the Closing
Payment, Parent Common Stock shall be valued at the average of the
closing prices of Parent Common Stock as reported on NASDAQ for the
twenty (20) trading days ending on October 27, 2006 (the
“ Deemed Parent Closing Stock Price ”),
provided , however , that if the average of the
closing prices of Parent Common Stock as reported on NASDAQ for the
twenty (20) trading days ending on the Closing Date (the
“ Parent Closing Stock Price ”) is higher than
the Deemed Parent Closing Stock Price, then the cash portion of the
next Non-Contingent Payment shall be reduced by fifty percent
(50%) of the product of (i) the difference between the
Deemed Parent Closing Stock Price and the Parent Closing Stock
Price, times (ii) the aggregate number of shares of Parent
Common Stock issued by Parent to the Company Payees at the Closing.
For purposes of determining the number of shares of Parent Common
Stock to be issued to
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material has been omitted and filed separately with the Securities
and Exchange Commission.
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the Company Payees in connection with the Second
Payment, Third Payment and Fourth Payment, Parent Common Stock
shall be valued at the average of the closing prices of Parent
Common Stock as reported on NASDAQ for the twenty (20) trading
days ending on the date five (5) days prior to the applicable
payment date specified in Section 2.1(b)(i), provided ,
however , that if the Third Revenue Target is achieved prior
to April 30, 2008, or the Fourth Revenue Target is achieved
prior to April 30, 2009, then the value of the Parent Common
Stock for purposes of the Third Payment or Fourth Payment, as
applicable, shall be calculated using the average of the closing
prices of Parent Common Stock as reported on NASDAQ for the twenty
(20) trading days ending on the last trading day of the
calendar quarter in which the Third Revenue Target or the Fourth
Revenue Target, as applicable, is determined to have been achieved.
In the event the limit on the payment of cash consideration
provided in Section 2.1(c) would limit the amount of cash
payable, then the amount of the Non-Contingent Payment that would
be limited by the fifty percent (50%) limitation contained in
Section 2.1(c) shall be paid in Parent Common
Stock.
(F) Adjustment of Per Share Non-Contingent
Payment. The per share Non-Contingent Payments assume the full
exercise of all outstanding Company Options, should the actual
number of shares of Company Common Stock outstanding as of the
Effective Time differ, the amount of Non-Contingent Payments
payable per share shall be adjusted accordingly; provided ,
however , that in no event shall the aggregate amount of the
Non-Contingent Payment exceed Thirty Four Million Dollars
($34,000,000).
(ii) Contingent Payment.
(A) Contingent Payment . In addition to the Non-Contingent Payments, if
during the period from May 1, 2008 through April 30,
2009, the Company recognizes Revenue in excess of ***, Parent shall
pay the Company Payees an aggregate amount equal to two times the
recognized Revenue during such period in excess of ***, provided,
however, that such amount, when added to the Non-Contingent
Payments actually paid to the Company Payees pursuant to
Section 2.1(b)(i), shall in no event exceed Forty-Two Million
Dollars ($42,000,000) (the “ Contingent Payment
”). If earned, the Parent shall pay to each Company Payee its
Pro Rata Portion of the Contingent Payment by no later than
June 30, 2009, or, if later, within ten (10) days
following the date that the amount of the Contingent Payment has
been finally determined.
(B) Form of the Contingent Payment. The
Contingent Payment shall be payable upon mutual agreement of Parent
and the Representative in either cash or Parent Common Stock,
valued at the average of the closing prices of Parent Common Stock
as reported on NASDAQ for the twenty (20) trading days ending
on the date five (5) days prior to the payment date,
provided , however , in the event the limit on the
payment of cash consideration provided in Section 2.1(c) would
limit the amount of cash payable, then the amount of the Contingent
Payment that would be limited by the fifty percent
(50%) limitation contained in Section 2.1(c) shall be
paid in Parent Common Stock.
(iii) Consideration Statements . On or before
(i) May 31, 2007, with respect to the Second Payment,
(ii) November 30, 2008, or within thirty (30) days
following a request by the Representative, which the Representative
may not request more than twice, with respect to the Third Payment,
(iii) November 30, 2009, or within thirty (30) days
following a request by the Representative, which the Representative
may not request more than twice, with respect to the Fourth
Payment, and (iv) May 31, 2009, with respect to the
Contingent Payment, Parent shall deliver
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material has been omitted and filed separately with the Securities
and Exchange Commission.
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a statement (the “ Consideration
Statement ”) to the Representative setting forth the
amount of the Non-Contingent Payment or Contingent Payment, as
applicable, and such reasonable detail required to support the
calculation of each payment. The Consideration Statement shall be
accompanied by a certificate from the Chief Financial Officer of
Parent certifying that the Non-Contingent Payment or the Contingent
Payment, as applicable, was calculated by Parent in good faith and
in accordance with GAAP, unless agreed otherwise under this
Agreement. Within ten (10) days following delivery by Parent
of each Consideration Statement, the Representative may deliver to
Parent a written notice of any objection thereto (a “
Dispute Notice ”), which Dispute Notice shall contain
a reasonably detailed statement of the basis of such objection. If
a Dispute Notice is not delivered within such time period, the
Consideration Statement delivered by Parent shall be deemed final
and binding on all parties. If a Dispute Notice is timely
delivered, then the Representative and the Chief Financial Officer
of Parent shall negotiate in good faith to resolve any
disagreements. If the Representative and the Chief Financial
Officer of Parent are unable to resolve all such disagreements
within ten (10) days following delivery of the Dispute Notice,
then the Arbitrating Accountants shall determine the amount of the
Non-Contingent Payment or Contingent Payment, as applicable. The
expense of the Arbitrating Accountants shall be paid by Parent and
the Company Payees equally, with the half allocable to the Company
Payees reducing the Non-Contingent Payment or Contingent Payment,
as applicable, payable to such Company Payees. The results of any
such determination shall be final and binding on all parties.
Following the delivery of each Consideration Statement and
continuing during any period of dispute, the Representative and his
agents and advisors shall have reasonable access to the working
papers and books and records of Parent, the Company, and their
respective representatives relating to the subject of the
Consideration Statement.
(c) Limits on Payment of Cash Consideration.
Except as set forth in Section 2.1(d), in no event shall the
total amount of cash to be paid by Parent as a component of the
Merger Consideration, including cash paid pursuant to Sections 2.2
and 2.3, exceed fifty percent (50%) of the total of all Merger
Consideration, valuing each share of Parent Common Stock for this
purpose at its fair market value on the date each share is payable
hereunder, which fair market value shall be the closing price of
Parent Common Stock as reported on NASDAQ on the trading day
immediately preceding the payment date (the “ Parent Share
Value ”). The forgoing adjustments for purposes of this
Section 2.1(c) shall be applied in a manner such that the sum
of (x) the total cash payable in exchange for each share of
Company Common Stock and (y) the product of the number of
shares of Parent Common Stock to be issued in exchange for each
share of Company Common Stock, multiplied by the applicable Parent
Share Value with respect to such shares shall be equal to the
amount of such sum in the absence of any adjustments under this
Section 2.1(c). In the event of the perfection of the rights
set forth in Section 2.2, Parent shall: (i) estimate the
fair market value of all such Dissenting Shares (as that term is
defined in Section 2.2) and withhold from the cash component
of the Non-Contingent Payments an amount equal to such estimate of
fair market value; and (ii) reallocate to the Parent Common
Stock component of the Non-Contingent Payments, the number of
shares of Parent Common Stock that such Dissenting Shares would
have had the right to convert into pursuant to the payment of the
Merger Consideration had such dissenting rights not been
perfected.
(d) Limit on Number of Shares of Parent Common
Stock. Notwithstanding the foregoing provisions, in no event
will Parent issue shares of Parent Common Stock to the extent that
such issuance would require stockholder approval under applicable
NASDAQ Marketplace Rules, as determined in the sole discretion of
Parent or as directed by NASDAQ. To the extent the number of shares
issuable to the Company Payees is limited, Parent at its sole
discretion shall either (i) seek stockholder approval, or
(ii) pay the remaining portion of the Non-Contingent Payments
and the Contingent Payment in cash, without regard to the
limitation set forth in Section 2.1(c), provided
that
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in the event of a Change of Control, the Company
shall be paid the remaining portions of the Non-Contingent Payments
and Contingent Payments payable after the Change of Control in
cash.
(e) Consideration Allocations. As an
inducement to cause Stephen B.C. Jackson to approve the Merger and
the transactions contemplated by this Agreement, the parties hereby
agree that the Merger Consideration payable to Mr. Jackson
shall be attributed as follows: (a) the cash portion of the
Merger Consideration, to the extent available, shall be attributed
to the 1,200,000 shares of common stock held by Mr. Jackson
and evidenced by certificate number 100, and (b) the equity
portion of the Merger Consideration, to the extent available, shall
be attributed to the 1,200,000 shares of common stock held by
Mr. Jackson and evidenced by certificates numbers 101 and
102.
2.2. Dissenting
Shares
(a) Notwithstanding anything to the contrary in this
Agreement, each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time that is held by
any Company Stockholder who has not voted in favor of the Merger,
has perfected such holder’s right to an appraisal of such
holder’s shares in accordance with the applicable provisions
of the NYBCL, as applicable, and has not effectively withdrawn or
lost such right to appraisal (a “ Dissenting Share
”), shall not be converted into the right to receive the
Merger Consideration pursuant to Section 2.1(b), but shall be
entitled only to such rights as are granted by the applicable
provisions of the NYBCL. In the event of the perfection of the
rights set forth in this Section 2.2, Parent shall withhold
from the cash component of the Merger Consideration an amount equal
to the amount set forth in Section 2.1(b)(i) for such Company
Stockholder Shares. Any Dissenting Share held by a person at the
Effective Time who shall, after the Effective Time, withdraw the
demand for appraisal or lose the right of appraisal, in either case
pursuant to the NYBCL, shall be deemed to be converted into, as of
the Effective Time, the right to receive the Merger Consideration
pursuant to Section 2.1(b).
(b) The Company shall give Parent (i) prompt
notice of any written demands for appraisal, withdrawals of demands
for appraisal and any other instruments served pursuant to the
applicable provisions of the NYBCL, relating to the appraisal
process received by the Company, and (ii) the opportunity to
direct all negotiations and proceedings with respect to demands for
appraisal under the NYBCL, with the participation of the Company.
The Company will not voluntarily make any payment with respect to
any demands for appraisal and will not, except with the prior
written consent of Parent, settle or offer to settle any such
demands.
2.3. Fractional Shares. No fractional shares
of Parent Common Stock shall be issued, but in lieu thereof each
Company Payee, who otherwise would be entitled to receive a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock to be received by such
holder), shall receive from Parent an amount of cash (rounded up to
the nearest whole cent) equal to the product of the fraction of a
share of Parent Common Stock to which such holder would otherwise
be entitled, times the closing price for Parent Common Stock on the
trading day prior to Closing.
2.4. Treatment of Company Options. The Company
shall take all action necessary or required under the Company
Option Plan and the option agreements representing the Company
Options (the “Option Agreements”) to (i) fully
accelerate the vesting of all Company Options effective as of
immediately prior to the Effective Time; (ii) cause such
Company Options to be
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exercised, and if not exercised terminated,
effective as of immediately prior to the Effective Time; and
(iii) terminate the Company Option Plan effective as of
immediately prior to the Effective Time.
2.5. Merger Consideration Certificate . The
capitalization of the Company, including outstanding Company
Options and the terms thereof, immediately prior to the Effective
Time shall be set forth on a certificate to be delivered by the
Company to the Parent at Closing (the “ Merger
Consideration Certificate ”). Parent and the Surviving
Corporation shall be entitled to rely on the Merger Consideration
Certificate in connection with payment of the Merger Consideration.
Should the actual number of shares of Company Common Stock or
Company Options outstanding as of the Effective Time differ from
that set forth on the Merger Consideration Certificate, the amount
of Merger Consideration payable per share shall be adjusted
accordingly.
2.6. Exchange of
Certificates.
(a) Intentionally Omitted.
(b) Company Stock Exchange Procedures . As
soon as reasonably practicable after the Effective Time, Parent
shall mail to each holder of record of a certificate or
certificates which, immediately prior to the Effective Time,
represented outstanding shares of Company Common Stock
(individually, a “ Certificate ” and
collectively, the “ Certificates ”), and whose
shares are to be exchanged pursuant to Section 2.1 into the
right to receive the Merger Consideration: (i) a letter of
transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass only upon
delivery of the Certificates to Parent and shall be in such form
and have such other provisions as Parent may reasonably specify)
and (ii) instructions for use in effecting the surrender of
Certificates in exchange for certificates representing shares of
Parent Common Stock constituting the Merger Consideration and cash
(both in lieu of fractional shares and as a component of the Merger
Consideration). Upon surrender of a Certificate for cancellation to
Parent, together with such letter of transmittal duly executed and
completed in accordance with its terms, the holder of such
Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent
Common Stock constituting the Merger Consideration, the cash
component of the Merger Consideration and the cash amount payable
in lieu of fractional shares in accordance with Section 2.3,
and the Certificate so surrendered shall forthwith be canceled. In
no event shall the holder of any Certificate be entitled to receive
interest on any funds to be received in the Merger. In the event of
a transfer of ownership of Company Common Stock which is not
registered in the transfer records of the Company, a certificate
representing that number of whole shares of Parent Common Stock
constituting the Merger Consideration, any cash component of the
Merger Consideration and the cash amount payable in lieu of
fractional shares in accordance with Section 2.3, may be paid
and issued to a transferee if the Certificate representing such
Company Common Stock is presented to Parent accompanied by all
documents required to evidence and effect such transfer and by
evidence that any applicable stock transfer taxes have been paid.
Until surrendered as contemplated by this Section 2.6(b), each
Certificate shall be deemed at any time after the Effective Time
for all corporate purposes of Parent, except as limited by
paragraph (c) below, to represent ownership of the number of
shares of Parent Common Stock into which the number of shares of
Company Common Stock shown thereon have been converted as
contemplated by this Article 2.
(c) Distributions with Respect to Unexchanged
Shares. No dividends or other distributions declared or made
after the Effective Time with respect to Parent Common Stock with a
record date on or after the Effective Time shall be paid to the
holder of any unsurrendered Certificate
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with respect to the shares of Parent Common
Stock represented thereby and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to
Section 2.3 until the holder of record of such Certificate
shall surrender such Certificate in accordance with this
Section 2.6. Subject to the effect of applicable laws,
following surrender of any such Certificate, there shall be paid to
the record holder of the certificates representing whole shares of
Parent Common Stock issued in exchange therefor, without interest,
(i) at the time of such surrender, the amount of dividends or
other distributions, if any, with a record date on or after the
Effective Time which theretofore became payable, but which were not
paid by reason of the immediately preceding sentence, with respect
to such whole shares of Parent Common Stock, and (ii) at the
appropriate payment date, the amount of dividends or other
distributions with a record date on or after the Effective Time but
prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of Parent Common
Stock.
(d) No Further Ownership Rights in Company
Stock . As of the Effective Time the Company Common Stock shall
no longer be outstanding and shall automatically be canceled and
retired and shall cease to exist, and each holder of Certificates
previously representing any such Company Common Stock shall cease
to have any rights with respect thereto, except the right to
receive the Merger Consideration upon surrender of the certificates
representing such Company Common Stock, as contemplated hereby, or
pursuant to Section 2.2. From and after the Effective Time,
the stock transfer books of the Company shall be closed and there
shall be no further registration of transfers on the stock transfer
books of the Surviving Corporation of the shares of Company Common
Stock which were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are presented to
the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Section 2.6.
2.7. Working Capital and Cash
Adjustments.
(a) Final Working Capital Amount; Final Cash
Amount; Adjustments . Within thirty (30) days following
the Closing, Parent will provide the Representative with its
calculation of the Working Capital of the Company as of the
Effective Time (the “ Final Working Capital Amount
”) and the Cash Balance of the Company as of the Effective
Time (the “ Final Cash Balance ”). (i) To
the extent that the Final Working Capital Amount as finally
determined pursuant to Section 2.7(b) exceeds the Target
Working Capital Amount, the Merger Consideration shall not be
increased, (ii) to the extent that the Final Cash Balance as
finally determined pursuant to Section 2.7(b) exceeds
$1,000,000, the Merger Consideration shall be increased dollar for
dollar, plus interest on the amount of such increase at the then
Applicable Federal Rate, and (iii) if (A) the Final
Working Capital Amount as finally determined pursuant to
Section 2.7(b) is less than the Target Working Capital Amount
or (B) the Final Cash Balance as finally determined pursuant
to Section 2.7(b) is less than $1,000,000 the Merger
Consideration shall be decreased dollar for dollar to the extent of
such deficiencies, if any, in the aggregate, plus interest on the
amount of such decrease at the then Applicable Federal Rate accrued
from the Closing Date. The amount of any increase in the Merger
Consideration shall be payable to the Company Payees on
June 30, 2007. The amount of any decrease in the Merger
Consideration shall be set off against the Non-Contingent Payment
payable on June 30, 2007 and to the extent the deficiency is
greater than the Non-Contingent Payment payable on June 30,
2007, shall be set-off against subsequent Non-Contingent Payments
or the Contingent Payment (any such set-off being the “
Adjustment ”).
(b) Review of Adjustment . The Representative
shall have thirty (30) days to review the Parent’s
calculation of the Final Working Capital Amount and the Final Cash
Balance.
9
Parent’s calculation of the Final Working
Capital Amount the Final Cash Balance and the Adjustment shall be
final and binding upon Parent and the Representative unless the
Representative shall dispute the same in writing within such thirty
(30) day period. The Representative may dispute the
Parent’s calculation of the Final Working Capital Amount, the
Final Cash Balance and the Adjustment by specifying in reasonable
detail the nature of the disagreement, the basis for such
disagreement and its calculation of the Final Working Capital
Amount, Final Cash Balance and the Adjustment. In the event the
Representative so notifies Parent in writing within such thirty
(30) period of any such dispute, Parent and the Representative
shall attempt to resolve all such disputes, and the Adjustment
shall be adjusted to reflect any such resolution. If Parent and the
Representative are unable to resolve all such disputes within
fifteen (15) days after such notification, then the matters
still in dispute shall be submitted an accounting firm mutually
acceptable to Parent and the Representative and if Parent and the
Representative are unable to agree on the choice of an accounting
firm, then the accounting firm will be a “big-four”
accounting firm (or a successor) selected by lot (the “
Arbitrating Accountants ”); provided however, that any
accounting firm that provides services to Parent or an Affiliate
shall not qualify for such selection. The Arbitrating Accountants
shall resolve all remaining points of disagreement with respect to
the Adjustment, which resolution shall be final and binding upon
Parent and the Representative, with no right of appeal, and the
Adjustment shall be adjusted to reflect any such resolution;
provided, however, that the Arbitrating Accountants may only
consider those matters identified by Parent and the Representative
to be in dispute and may only determine the Adjustment to be an
amount equal to the amount proposed by Parent, the amount proposed
by the Representative or some amount within the range of the
amounts proposed by Parent and the Representative. All fees of the
Arbitrating Accountants shall be paid by the party that proposed
the Adjustment furthest from the Adjustment determined by the
Arbitrating Accountants.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company represents and warrants
to Parent, Merger Sub and Newsub that, except as set forth in the
disclosure schedules delivered by the Company to Parent (the
“ Company Disclosure Schedule ”) which have been
provided to Parent prior to the date hereof:
3.1. Organization and Good
Standing.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of New York, with full corporate power and authority to conduct its
business as it is now being conducted. The Company is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each state or other jurisdiction in
which either the ownership or use of the properties owned or used
by it, or the nature of the activities conducted by it, requires
such qualification, except where the failure to be so qualified or
to be in good standing would have, individually or in the
aggregate, a Material Adverse Effect.
(b) The Company has made available to Parent true
and correct copies of the Certificate of Incorporation and Bylaws
of the Company. Copies of the minute books containing the records
of meetings of the stockholders and the board of directors of the
Company have been made available to Parent. The Company is not in
default under or in violation of any provision of its governing
documents. All corporate decisions of the board of directors and
the Company
10
Stockholders in general meetings of the Company
have been made in accordance with the Company’s governing
documents and applicable law in force at the time such decisions
were made.
3.2. Authority; No
Conflict.
(a) This Agreement constitutes the legal, valid and
binding obligation of the Company, enforceable against the Company
in accordance with its terms, except as such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors’ rights or by principles of equity.
Upon the execution and delivery by the Company, each of the
Transaction Documents will constitute the valid and binding
obligation of the Company, enforceable against the Company in
accordance with their respective terms, except as such enforcement
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application
affecting enforcement of creditors’ rights or by principles
of equity. The Company has all requisite corporate power and
authority to execute and deliver this Agreement and the Transaction
Documents and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement by the
Company and the consummation by the Company of the transactions
contemplated hereby have been duly authorized by the
Company’s Board of Directors and the Company Stockholders,
and no other corporate action on the part of the Company is
necessary to authorize the execution and delivery by the Company of
this Agreement or the consummation of the transactions contemplated
hereby.
(b) Except as set forth in Schedule 3.2(b), neither
the execution and delivery of this Agreement nor the consummation
of the transactions contemplated hereby will (i) conflict with
or violate the Certificate of Incorporation or Bylaws of the
Company, (ii) conflict with or violate any Law applicable to
the Company, or Order of any Governmental Authority or arbitrator
to which the Company or any of its assets are subject,
(iii) breach any provision of, or give any Person the right to
declare a default or exercise any remedy under, or to accelerate
the maturity or performance of, or payment under, or to cancel,
terminate, or modify, any Material Contract or otherwise cause any
Person to terminate a material relationship with the Company that
would have a Material Adverse Effect; or (iv) result in the
imposition or creation of any Lien upon or with respect to any of
the assets of the Company that would have a Material Adverse
Effect.
(c) Except as set forth in Schedule 3.2(c), the
Company is not or will not be required to give any notice to or
obtain any consent from any Governmental Authority or from any
other Person in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated
hereby.
3.3. Subsidiaries . The Company does not own,
directly or indirectly, any equity or other ownership interest in
any corporation, partnership, joint venture or other entity or
enterprise
3.4. Capitalization .
(a) The authorized capital stock of the Company
consists of 25,000,000 shares, of which 1,000,000 are designated as
shares of Preferred Stock, and 24,000,000 are designated as shares
of Common Stock. As of the date of this Agreement, there are
outstanding (i) 3,600,000 shares of Common Stock, (ii) no
shares of Preferred Stock, and (ii) Company Options to
purchase an aggregate of 436,500 shares of the Company’s
Common Stock, of which 380,500 have been issued pursuant to the
Company’s Option Plan and 56,000 have been issued outside the
Option Plan.
11
400,000 shares of the Company’s Common
Stock, inclusive of the 380,500 issued, have been reserved for
issuance pursuant to the Company’s Option Plan.
(b) All outstanding shares of Company Stock have
been duly authorized and validly issued and are fully paid and
nonassessable. Except as set forth in this Section 3.4, there
are no outstanding (i) shares of capital stock or other voting
securities of the Company, (ii) securities of the Company
convertible into or exchangeable for shares of capital stock or
voting securities of the Company, or (iii) options, restricted
stock, stock appreciation rights, other stock based compensation
awards or other rights to acquire from the Company, or other
obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for
capital stock or voting securities of the Company. There are no
outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any securities referred to in clauses (i),
(ii) or (iii) above.
(c) As of the date hereof, there are no outstanding
bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into or exercisable for
Company Stock having the right to vote) on any matters on which
stockholders of the Company may vote.
(d) All of the Company Stock was issued or granted
in compliance with all applicable federal and state securities
laws.
(e) There are no voting agreements or voting trusts
between or among any Person or Persons relating to the Company or
the Company Stock. The Company is not obligated to issue or
repurchase any shares of Company Stock for any purpose and no
Person has entered into any Contract (whether preemptive or
contractual) for the purchase, subscription or issuance of any
unissued shares or other securities of the Company, whether now or
in the future.
3.5. Financial
Statements.
(a) Attached as Schedule 3.5(a) are true and
complete copies of (i) reviewed consolidated balance sheets of
the Company as of April 30, 2005 and 2006 and the related
reviewed consolidated statements of income, changes in
shareholders’ equity and cash flows for the fiscal years then
ended, including in each case the notes thereto, together with the
report of BDO Seidman LLP, independent certified public
accountants, and (ii) an unaudited consolidated balance sheet
of the Company (the “ Interim Balance Sheet ”)
as of September 30, 2006 (the “ Interim Balance Sheet
Date ”) and the related unaudited consolidated statements
of income, changes in shareholder’ equity and cash flows for
the five (5) months then ended (collectively, the financial
statements referred to in clauses (i) and (ii) are the
“ Company Financial Statements ”). The Company
Financial Statements fairly present in all material respects the
consolidated financial condition and the consolidated results of
operations, changes in shareholders’ equity, and cash flows
of the Company as at the respective dates of and for the periods
referred to in the Company Financial Statements. The Company
Financial Statements have been prepared in accordance with
generally accepted accounting principles for financial reporting in
the United States (“ GAAP ”) applied on a
consistent basis, except as noted therein, and, in the case of
unaudited financial statements, for the absence of footnotes and
other presentation items and for normal year-end adjustments. The
Company Financial Statements have been prepared from the books and
records of the Company.
(b) Except as set forth in Schedule 3.5(b), the
Company does not have any obligations or liabilities (whether
accrued, absolute, contingent or otherwise) required to be
reflected
12
as liabilities on a balance sheet prepared in
accordance with GAAP other than (i) liabilities and
obligations disclosed on the Interim Balance Sheet; and
(ii) liabilities and obligations incurred in the ordinary
course of business since the Interim Balance Sheet that would not,
individually or in the aggregate, have a Material Adverse
Effect.
(c) Since May 1, 2005, neither the Company nor,
to the Company’s Knowledge, any director, officer, employee,
auditor, accountant or representative of the Company has received
or otherwise had or obtained knowledge of any complaint,
allegation, assertion or claim, whether written or oral, regarding
the accounting practices, procedures, methodologies or methods of
the Company or any of its internal controls over financial
reporting, including any complaint, allegation, assertion or claim
that the Company has engaged in questionable accounting practices.
Since May 1, 2005, (i) there have been no changes in the
Company’s internal control over financial reporting that have
materially affected, or are reasonably likely to materially affect,
the Company’s internal control over financial reporting; and
(ii) all significant deficiencies and material weaknesses in
the design or operation of internal control over financial
reporting have been reported to the Company’s Board of
Directors and the Company’s external auditors, and any such
reports are identified in Schedule 3.5(c). To the Company’s
Knowledge, there have been no instances of fraud, whether or not
material, that occurred during any period covered by the Company
Financial Statements involving the management of the Company or
other employees of the Company who have a significant role in the
Company’s internal control over financial
reporting.
(d) To the Company’s Knowledge, no employee of
the Company has provided or is providing information to any law
enforcement agency regarding the commission or possible commission
of any crime or the violation or possible violation of any
applicable statute, law, ordinance, rule or regulation of any
Governmental Authority having jurisdiction over the Company or any
part of its operations. To the Company’s Knowledge, neither
the Company, nor any officer, employee, contractor, subcontractor
or agent of the Company has discharged, demoted, suspended,
threatened, harassed or in any other manner discriminated against
an employee of the Company in the terms and conditions of
employment because of any act of such employee described in 18
U.S.C. Section 1514A(a).
(e) During the periods covered by the
Company’s Financial Statements, the Company’s external
auditor was independent of the Company and its management. For
purposes of this Section 3.5(e), “independent of the
Company and its management” shall mean that the Company and
its external auditor complied at all times with the auditor
independence requirements of Title II of the Sarbanes-Oxley Act of
2002, the SEC and any regulatory body claiming jurisdiction over
the accounting profession as if the Company were an issuer with a
class of securities registered pursuant to the Exchange Act during
the periods covered by the Company Financial Statements.
(f) Schedule 3.5(f) sets forth any and all reports
by the Company’s external auditors to the Company’s
Board of Directors, or any committee hereof, or the Company’s
management concerning any of the following and pertaining to any
period covered by the Company Financial Statements: critical
accounting policies, internal control over financial reporting,
significant accounting estimates or judgments, alternative
accounting treatments and any required communications with the
Company’s Board of Directors, or any committee thereof, or
management of the Company.
(g) The Company has delivered to Parent the Company
Projections. The Company Projections were prepared in good faith
based upon assumptions that were reasonable as of
13
the date of such financial projections and the
Company does not have Knowledge of any facts or circumstances that
would be reasonably likely to cause such assumptions to be
incorrect, except as set forth on Schedule 3.5(g). The
assumptions applied in preparing the Company Projections were
reasonable to management as of the date thereof; however, there is
no assurance that these assumptions will prove to be valid or that
the objectives set forth in the Company Projections will be
achieved.
3.6. Absence of Certain Changes . Except as
set forth in Schedule 3.6, since May 1, 2006, the business of
the Company has been conducted in the ordinary course consistent
with past practice and there has not been any:
(a) event, occurrence or development of a state of
circumstances or facts which would, individually or in the
aggregate, have a Material Adverse Effect on the Company (other
than adverse effects arising from the execution and performance of
this Agreement or changes in general economic conditions) or any
event, occurrence or development which would have a Material
Adverse Effect on the ability of the Company to consummate the
Merger;
(b) declaration, setting aside or payment of any
dividend or other distribution with respect to any shares of
capital stock of the Company, or any repurchase, redemption or
other acquisition by the Company of any outstanding shares of
capital stock or other securities of, or other ownership interests
in the Company;
(c) split, combination, re-classification of any
Company Stock or any amendment of any term of any outstanding
security of the Company;
(d) incurrence, assumption or guarantee by the
Company of any indebtedness for borrowed money other than in the
ordinary course and in amounts and on terms consistent with past
practices;
(e) creation or other incurrence by the Company of
any Lien on any Asset or any Tax liability other than in the
ordinary course consistent with past practices;
(f) transaction or commitment made, or any contract
or agreement entered into, by the Company relating to its Assets or
business (including the acquisition or disposition of any Assets)
or any relinquishment by the Company of any Contract or other
right, in either case, Material to the Company, other than
transactions and commitments in the ordinary course consistent with
past practices and those contemplated by this Agreement;
(g) change in any method of accounting, method of
tax accounting or accounting practice by the Company, except for
any such change that is consistent with GAAP or required by reason
of a concurrent change in GAAP;
(h) (i) grant of any severance or termination pay to
any current or former director, officer or employee of the Company
in excess of $5,000, (ii) entering into of any employment,
deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any current or former
director, officer or employee of the Company, (iii) increase
in benefits payable under any existing severance or termination pay
policies or employment agreements, (iv) increase in
compensation, bonus or other benefits payable or otherwise made
available to current or former directors, officers or employees of
the Company (other than salary
14
increases, or payment of bonuses in the ordinary
course of business for employees other than officers and
directors), (v) the declaration or payment of any bonuses or
year-end payments to any current or former directors, officers or
employees of the Company except in the ordinary course of business,
or (vi) establishment, adoption, or amendment (except as
required by applicable Law), of any collective bargaining, bonus,
profit sharing, thrift, pension, retirement, deferred compensation,
compensation, stock option, restricted stock or other benefit plan
or arrangement covering any current or former director, officer or
employee of the Company except in the ordinary course of
business;
(i) labor dispute, other than routine individual
grievances, or, to the Knowledge of the Company, any activity or
proceeding by a labor union or representative thereof to organize
any employees of the Company or any lockouts, strikes, slowdowns,
work stoppages or threats thereof by or with respect to such
employees;
(j) tax election, tax protest, jeopardy assessment
or any settlement of tax liability;
(k) asset acquisition or expenditure in excess of
$25,000 individually or $50,000 in the aggregate, other than in the
ordinary course of business;
(l) payment, prepayment or discharge of liability
other than in the ordinary course of business or any failure to pay
any liability when due;
(m) write-offs in excess of $10,000 or write-downs
in excess of $10,000 of any Assets of the Company;
(n) creation, termination or amendment of, or waiver
of any right by the Company under, any Material Contract of the
Company;
(o) damage, destruction or loss having, or
reasonably expected to have, a Material Adverse Effect on the
Company;
(p) loan to or other extension of credit to any
Company Employee or increase the aggregate amount of any loan
outstanding to any Company Employee; or
(q) an agreement or commitment to do any of the
foregoing.
3.7. Real
Property.
(a) The Company does not own any real
property.
(b) Schedule 3.7(b) lists (i) all real property
with respect to which the Company holds a leasehold interest or
subleasehold interest, or otherwise has a license to use (the
“ Company Leased Real Property ”), and
(ii) each agreement under which the Company leases or
otherwise has the right to use any Company Leased Real Property,
listing, with respect to each such agreement, the date of the
agreement and any amendments thereto, the names of the parties to
the agreement, the addresses of the Company Leased Real Property,
the annual and per month rental obligations of the Company and any
other expenses or payments required to be paid or actually paid in
connection with the Company Leased Real Property during fiscal year
2005 or the eight month period ended August 31, 2006. Except
as set forth in Schedule 3.7(b), the Company has not entered
into any subleases,
15
arrangements, licenses or other agreements
relating to the use or occupancy of all or any portion of the
Company Leased Real Property by any Person other than the
Company.
(c) Except as would not, individually or in the
aggregate, have a Material Adverse Effect, (i) the Company
Leased Real Property conforms to all applicable fire, safety,
zoning and building laws and ordinances, and other applicable Laws,
and (ii) there are no pending or, to the Knowledge of the
Company, threatened eminent domain, condemnation or other
Proceedings affecting the Company Leased Real Property that would
result in the taking of all or any part of the Company Leased Real
Property or that would prevent or hinder the continued use of the
Company Leased Real Property as currently used in the conduct of
the Company’s business.
3.8. Tangible Personal
Property.
(a) The Company has good and marketable title to,
free and clear of all Liens other than Permitted Liens, or a valid
right to use, all material machinery, equipment and tangible
personal property used or held for use in connection with the
Company’s business (including all tangible personal property
reflected in the Interim Balance Sheet or acquired since the
Interim Balance Sheet Date).
(b) All furniture, fixtures, vehicles, computer
systems, equipment, and other tangible personal property owned or
leased by the Company and used in its operations (collectively, the
“Equipment”) are in good operating condition (ordinary
wear and tear excepted) and repair. Such personal property is not
held other than in the possession of the Company. Schedule 3.8(b)
is a true and correct copy of the Company’s depreciation
schedule which it maintains in the ordinary course of business
relating to its Equipment and which identifies items of Equipment
which have a value in excess of $10,000.
3.9. Taxes.
(a) Except as set forth in (or resulting from
matters set forth in) Schedule 3.9 of the Company Disclosure
Schedule:
(i) the Company has prepared and timely filed with
the appropriate governmental agencies all franchise, income and all
other Tax returns and reports required to be filed on or before the
Effective Time (collectively the “ Returns ”),
taking into account any extension of time to file granted to or
obtained on behalf of the Company;
(ii) all Taxes required to be paid by the Company
have been timely paid in full to the proper authorities, other than
such Taxes against which adequate reserves have been made in the
Company’s books and records;
(iii) all deficiencies resulting from jeopardy
assessments and/or Tax examinations of income, sales and franchise
and all other Returns filed by the Company in any jurisdiction in
which such Returns are required to be so filed and which are due or
payable on or before the date hereof have been paid and the Company
has not received notice of any claim by any authority in a
jurisdiction where the Company does not file Returns that the
Company is or may be subject to taxation by that
jurisdiction;
16
(iv) no deficiency has been asserted or assessed
against the Company which has not been satisfied or otherwise
resolved, no examination of the Company is pending or, to the
Knowledge of the Company, threatened for any Tax by any taxing
authority and there is no dispute or claim concerning any Tax
liability of the Company either claimed by any taxing authority in
writing, or to the Knowledge of the Company, reasonably expected to
be claimed;
(v) no extension of the period for assessment or
collection of any Tax is currently in effect and no extension of
time within which to file any Return has been requested;
(vi) all Returns filed by the Company are correct and
complete in all respects or adequate reserves have been established
with respect to any additional Taxes that may be due (or may become
due) as a result of such Returns not being correct or
complete;
(vii) no Company Asset is subject to a lien for
Taxes;
(viii) the Company has never been a member of a
consolidated, combined, unitary or aggregate group for Tax
purposes. The Company has no liability for the Taxes of any person
under Section 1.1502-6 of the Treasury Regulations (or any
similar provision of state, local or foreign law) as a transferee
or successor, by contract or otherwise
(ix) the Company has not: (A) executed, become
subject to, or entered into any closing agreement pursuant to
Section 7121 of the Code or any similar or predecessor
provision thereof under the Code or other Tax Law, or
(B) received approval to make or agreed to a change in
accounting method;
(x) no Company Asset is property that is required to
be treated as being owned by any other Person pursuant to the
so-called “safe harbor lease” provisions of former
Section 168(f)(8) of the Code; the Company has not agreed to
make, nor are they required to make, any adjustment under
Section 481(a) of the Code by reason of a change in accounting
method or otherwise; and the Company is not a party to any joint
venture, partnership, or other similar arrangement;
(xi) the Company has not entered, nor does it plan to
enter into, any related party transactions;
(xii) the Company has made timely payments of the
Taxes required to be deducted and withheld in connection with
amounts paid or owing to any employee, independent contractor,
creditor, stockholder, or other third party;
(xiii) the Company is not a party to or bound by any
Tax sharing, Tax indemnity, or Tax allocation agreement nor does
the Company have any liability or potential liability to another
party under any such agreement;
(xiv) the Company has not been a United States real
property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code;
(xv) the Company has not filed any disclosures under
Section 6662 or comparable provisions of state, local or
foreign law to prevent the imposition of penalties with respect to
any Tax reporting position taken on any Tax Return. The Company has
not consummated,
17
has participated in, or is currently
participating in any transaction which was or is a “Tax
shelter” transaction as defined in Sections 6662, 6011, 6012
or 6111 of the Code or the Treasury Regulations promulgated
thereunder;
(xvi) the Company has not constituted either a
“distributing corporation” or a “controlled
corporation” in a distribution of stock intending to qualify
for tax-free treatment under Section 355 of the Code;
and
(xvii) the Company has not incurred a dual consolidated
loss within the meaning of Section 1503 of the
Code.
(b) The Company is not a party to any agreement,
contract, or arrangement that would, as a result of the
transactions contemplated hereby, result, separately or in the
aggregate, in (i) the payment of any “excess parachute
payments” within the meaning of Section 280G of the Code
by reason of the Merger, or (ii) the payment of any form of
compensation or reimbursement for any Tax incurred by any Person
arising under Section 280G of the Code, or (iii) the
payment of any amounts not deductible by the Company, in whole or
in part, by reason of Section 162(m) of the Code.
3.10. Employees.
(a) There is no collective bargaining agreement in
effect between the Company and any labor unions or organizations
representing any of the employees of the Company. Since
January 1, 2006, the Company has not experienced any organized
slowdown, work interruption strike or work stoppage by their
employees, and, to the Knowledge of the Company, there is no
strike, labor dispute or union organization activities pending or
threatened affecting the Company.
(b) The Company is in compliance with all applicable
Laws regarding employment and employment practices, terms and
conditions of employment, wages and hours, anti-discrimination and
occupational health and safety, including laws concerning unfair
labor practices within the meaning of Section 8 of the
National Labor Relations Act, as amended, and the employment of
non-residents under the Immigration Reform and Control Act of 1986,
as amended, except for any such non-compliance that would not have
a Material Adverse Effect.
(c) Except as set forth in Schedule 3.10(c), the
Company is not a party to any employment, non-competition or
severance contract or agreement with any employee of the
Company.
(d) Except as set forth on Schedule 3.10(d), to the
Knowledge of the Company, no key executive employee and no group of
employees or independent contractors of the Company has any plans
to terminate his, her, or their employment or relationship with the
Company, other than in connection with the transactions
contemplated by this Agreement.
(e) Schedule 3.10(e) sets forth a complete and
accurate list of the name of each officer and employee of the
Company, together with such person’s position or function,
annual base salary or wages and any incentives or bonus arrangement
with respect to such person. The Company has not received notice,
nor does it have Knowledge, that any such person will or may cease
to be engaged by the Company for any reason, including because of
the consummation of the transactions contemplated by this
Agreement.
18
3.11. Employee
Benefits.
(a) Schedule 3.11(a) lists all employment,
consulting, executive compensation, bonus, deferred compensation,
incentive compensation, stock purchase, stock option or other
equity-based, retention, change in control, severance or
termination pay, hospitalization or other medical, life or other
insurance, supplemental unemployment benefits, profit-sharing,
pension or retirement plans, programs, agreements or arrangements,
and each other fringe or other employee benefit plan, program,
agreement or arrangement (including any “employee benefit
plan”, within the meaning of Section 3(3) of ERISA),
sponsored, maintained or contributed to or required to be
contributed to by the Company or by any ERISA Affiliate for the
benefit of any employee or former employee of the Company, or with
respect to which the Company otherwise has any liabilities or
obligations (the “ Benefit Plans ”).
(b) With respect to each of the Benefit Plans, the
Company has made available to Parent complete copies of each of the
following documents; (i) a copy of all documents evidencing
each Benefit Plan (including any amendments thereto); (ii) a
copy of the Form 5500 and annual report, if any, required under
ERISA or the Code for each of the three most recent plan years;
(iii) a copy of the most recent summary plan description, if
any, required under ERISA; (iv) if the Benefit Plan is
intended to be qualified under Section 401(a) of the Code, the
most recent determination, opinion, notification and advisory
letters received from the Internal Revenue Service with respect to
each such plan; (v) if the Benefit Plan is subject to the
minimum funding standards of Section 302 of ERISA, the most
recent annual and periodic accounting of plan assets and
liabilities for such plan; (vi) the three most recent plan
years discrimination tests (if any) for each Benefit Plan; and
(vii) a written description of each Benefit Plan that is not
in writing and written descriptions of all non-written agreements
relating to the Benefit Plans.
(c) No Benefit Plan is a “multiemployer
plan,” as such term is defined in Section 3(37) of
ERISA, or a plan that is subject to Title IV of ERISA or similar
rights under state law.
(d) None of the Benefit Plans that are
“welfare benefit plans,” within the meaning of
Section 3(1) of ERISA, provide for continuing benefits or
coverage after termination or retirement from employment, except
for COBRA rights under a “group health plan” as defined
in Section 4980B(g) of the Code and Section 607 of
ERISA.
(e) Each Benefit Plan is and has been maintained and
administered in compliance with its terms and with the applicable
requirements of ERISA, the Code and any other applicable Laws,
other than any such non-compliance that would not have a Material
Adverse Effect. Neither the Company, nor to the Company’s
Knowledge, any other Person, has engaged in any transaction with
respect to any Benefit Plan that would be reasonably likely to
subject the Company to any Tax or penalty (civil or otherwise)
imposed by ERISA, the Code or other applicable Laws that would have
a Material Adverse Effect. Each Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has received a
determination from the Internal Revenue Service that it is so
qualified and, to the Knowledge of the Company, there are no facts
or circumstances that would be reasonably likely to adversely
affect the qualified status of any such Benefit Plan.
(f) Except as set forth in Schedule 3.11(f), the
consummation of the transactions contemplated hereby will not
result in an increase in or accelerate the vesting of any of the
benefits available under any Benefit Plan.
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(g) There are no pending or, to the Knowledge of the
Company, threatened, Proceedings that have been asserted relating
to any Benefit Plan by any employee or beneficiary covered under
any Benefit Plan or otherwise involving any Benefit Plan (other
than routine claims for benefits). To the Knowledge of the Company,
no examination or audit of any Benefit Plan by any Governmental
Authority is currently in progress or threatened. The Company is
not a party to any agreement or understanding with the Pension
Benefit Guaranty Corporation, the Internal Revenue Service or the
Department of Labor.
3.12. Compliance with
Laws. Except as set forth
in Schedule 3.12, (i) the Company is, and has been, in
compliance in all material respects with all applicable Laws, and
(ii) the Company has not received any written notice or other
written communication from any Governmental Authority regarding any
actual or alleged violation of any applicable Law (excluding, for
purposes of clause (i) and clause (ii) of this
Section 3.12, the Company’s (a) compliance with the
Code and other Laws regarding Tax matters, which is covered under
Section 3.9, (b) compliance with ERISA and other Laws
regarding employee benefit matters, which is covered under
Section 3.11, and (c) compliance with Environmental Laws,
which is covered under Section 3.15).
3.13. Governmental
Authorizations. Schedule
3.13 contains a true and complete list and summary description of
each authorization, license, or permit issued or granted by or
under the authority of any Governmental Authority or pursuant to
any Law (but specifically excluding any general business licenses)
(the “ Governmental Authorizations ”) that is
held by the Company. Each such Governmental Authorization is valid
and in full force and effect. The Company has made available to
Parent copies of all such Governmental Authorizations. Except as
set forth in Schedule 3.13, the Company is, and has been, in
compliance in all material respects with all such Governmental
Authorizations. Except as set forth in Schedule 3.13, the Company
has not received any written notice or other written communication
from any Governmental Authority regarding (i) any actual or
alleged violation of or failure to comply with any term or
requirement of any such Governmental Authorization, or
(ii) any actual, proposed, or potential revocation,
suspension, cancellation or termination of, or modification to any
such Governmental Authorization, other than, in either such case,
any non-compliance, violations, revocations, suspensions,
cancellations or terminations that, individually or in the
aggregate, would not have a Material Adverse Effect. The
Governmental Authorizations listed in Schedule 3.13 collectively
constitute all of the Governmental Authorizations necessary to
permit the Company to lawfully conduct and operate its business in
the manner it is currently conducted, except where the absence of
any Governmental Authorizations, individually or in the aggregate,
would not have a Material Adverse Effect. No loss or expiration of
any Governmental Authorization is pending or, to the Knowledge of
the Company, threatened or reasonably foreseeable, other than
expiration in accordance with the terms thereof.
3.14. Legal Proceedings;
Orders.
(a) Except as set forth in Schedule 3.14(a), there
are no claims, actions, suits proceedings or, to the Knowledge of
the Company, investigations, commenced, brought, conducted, or
heard by or before, or otherwise involving, any Governmental
Authority (a “ Proceeding ”) pending or, to the
Knowledge of the Company, threatened by or against the Company (or
against any of its officers, directors, agents or employees (in
each case, in their capacity as such)) or that otherwise relate to
the Company’s business or that would be reasonably likely to
adversely affect or restrict the Company’s ability to
consummate the transactions contemplated by the Agreement. Except
as set forth in Schedule 3.14(a), to the Knowledge of the Company,
there is no reasonable basis for any of the foregoing.
20
(b) Except as set forth in Schedule 3.14(b), there
are no Orders outstanding or, to the Knowledge of the Company,
threatened, against it.
3.15. Environmental
Matters.
(a) The Company is and has been in compliance with
all Environmental Laws, except where any such non-compliance,
individually or in the aggregate, would not have a Material Adverse
Effect. To the Knowledge of the Company, there has not been any
emission, disposal, discharge or other release of any Hazardous
Materials from any Leased Property or, during the period of the
Company’s ownership or lease thereof, from any property
formerly owned or leased by the Company.
(b) The Company has not received any citation,
notice or other communication in writing from regarding any alleged
or actual violation of any Environmental Law or any alleged or
actual obligation to undertake or bear the cost any liabilities
under any Environmental Law. There are no Orders or Proceedings
pending or, to the Knowledge of the Company, threatened, against
the Company relating to any alleged or actual violation of any
Environmental Law or any alleged or actual obligation to undertake
or bear the cost any liabilities under any Environmental
Law.
(c) The Company, neither this Agreement nor the
consummation of the transactions contemplated hereby shall impose
any obligations on the Company or otherwise for site investigation
or cleanup, or notification to or consent of any government
agencies or third parties under any Environmental Laws (including,
without limitation, any so called
“transaction-triggered” or “responsible property
transfer” laws and regulations).
(d) None of the following exists at any property or
facility owned, occupied, or operated by the Company:
(i) underground storage tanks or surface impoundments;
(ii) asbestos-containing material in any form or condition;
(iii) materials or equipment containing polychlorinated
biphenyls; or (iv) landfills.
(e) The Company has never treated, stored, disposed
of, arranged for or permitted the disposal of, transported,
handled, or “Released” (as defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended “ CERCLA ”) pursuant to the conduct of
its business any substance (including, without limitation, any
Hazardous Materials) or owned, occupied, or operated any facility
or property used in the conduct of its business, so as to give rise
to liabilities of the Company for response costs, natural resource
damages, or attorneys’ fees pursuant to CERCLA or any other
Environmental Laws, except to the extent in compliance with
Environmental Laws.
(f) Without limiting the generality of the
foregoing, no facts, events, or conditions relating to the past or
present properties or facilities used in the conduct of the
Company’s business, or operations of the Company in the
conduct of its business shall give rise to any material corrective,
investigatory, or remedial obligations pursuant to Environmental
Laws, or give rise to any other liabilities (whether accrued,
absolute, contingent, unliquidated, or otherwise) pursuant to
Environmental Laws, including, without limitation, those
liabilities relating to onsite or offsite Releases or threatened
Releases of Hazardous Materials, substances or wastes, personal
injury, property damage, or natural resources damage.
21
(g) The Company has not, either expressly or by
operation of law, assumed or undertaken any liability or corrective
investigatory or remedial obligation of any other Person in
connection with the conduct of its business relating to any
Environmental Laws.
3.16. Illegal
Payments. In the conduct
of its business, neither the Company nor, to the Knowledge of the
Company, any other Person has, directly or indirectly, on behalf of
or with respect to the Company, engaged in any transaction or made
or received any payment which was not properly recorded in the
books and records of such entity, including any unrecorded or
misrecorded payment to any insurance agent, adjuster or such other
third party which reasonably could be construed to be an unlawful
kickback, referral fee or similar payment.
3.17. Insurance.
Schedule 3.17 contains a true and
complete list of (a) all policies of property, fire and
casualty, products liability, workers’ compensation, and
other forms of insurance under which the Company is an insured or
beneficiary as of the date hereof and (b) all claims under
such policies exceeding, on an individual basis, $100,000, since
January 1, 2005. All such policies are in full force and
effect, no notice of default termination has been received in
respect thereof, and all premiums due thereupon have been paid.
Such policies, taken together, comply with applicable Laws. The
consummation of the transactions contemplated by this Agreement
will not affect the costs, premiums or insurance-related ratings
under the foregoing insurance policies. True and complete copies of
such insurance policies have been made available to
Parent.
3.18. Material Contracts; No
Defaults.
(a) Schedule 3.18(a) lists each of the following
contracts and agreements to which the Company is party or is bound
as of the date hereof, excluding the agreements disclosed in
Schedule 3.7(b), Schedule 3.10(c) and Schedule 3.19(b) (such
contracts and agreements, together with the agreements disclosed in
Schedule 3.7(b), Schedule 3.10(c)
