Exhibit 10.1
AGREEMENT AND PLAN OF
MERGER
This AGREEMENT AND PLAN OF MERGER
(this “ Agreement ”) is made and entered
into as of April 4, 2007, by and among Shea Development Corp., a
Nevada corporation (“ Parent ”), Shea
Development Acquisition No. 2 Corp., a Nevada corporation and a
wholly-owned subsidiary of Parent (“ Merger Sub
”), Riptide Software, Inc., a Florida corporation (the
“ Company ”), and certain holders of the
majority of the outstanding capital stock of the Company, as listed
on Schedule 1 hereto (“ Certain Company
Shareholders ”). Holders of capital stock of
the Company are collectively referred to herein as the “
Company Shareholders ,” and individually as a
“ Company Shareholder ”.
Capitalized terms used and not otherwise defined herein have the
meanings set forth in Article 10.
RECITALS
A.
The respective Boards of Directors of Parent, Merger Sub and the
Company each have approved and declared advisable this Agreement
and the merger of Merger Sub with and into the Company (the “
Merger ”), upon the terms and subject to the
conditions set forth in this Agreement, whereby each issued and
outstanding share of common stock, par value $.001 per share, of
the Company (“ Company Common Stock ”),
including shares of Company Common Stock issued or issuable
pursuant to the Eligible Options (as that capitalized term is
herein defined) pursuant to the terms of this Agreement (other than
shares of Company Common Stock owned by Parent, Merger Sub or the
Company), will be converted into the right to receive common stock,
par value $.001 per share, of Parent (“ Parent Common
Stock ”) and cash as provided herein.
B.
The respective shareholders of Parent, Merger Sub and the Company
have, or will have, prior to the Closing Date, by the legally
required vote, approved and adopted the Merger.
C.
In connection with the Merger, the parties desire to make certain
representations, warranties, covenants and agreements and also to
prescribe various conditions to the Merger, upon the terms and
subject to the conditions contained herein.
NOW, THEREFORE, in consideration of
the covenants, promises, representations and warranties set forth
herein, and for other good and valuable consideration, intending to
be legally bound hereby the parties agree as follows:
ARTICLE 1
THE MERGER
1.1
Merger. At the Effective Time as defined below, in
accordance with this Agreement and applicable law, Merger Sub will
be merged with and into the Company, the separate corporate
existence of Merger Sub will cease and the Company will continue as
the surviving corporation in the Merger and shall become a
wholly-owned Subsidiary of Parent. The
Company, as the surviving
corporation after the Merger, is sometimes referred to herein as
the “ Surviving Corporation .”
1.2
Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the “
Closing ”) will take place at the offices of
Dunnington, Bartholow & Miller, LLP located at 477 Madison
Avenue, New York, NY 10022 or at such other place as Parent and the
Company mutually agree, at 10:00 a.m. local time on the later to
occur of May 30, 2007 or the second Business Day after the day on
which the last of the closing conditions set forth in Article 6
below has been satisfied or waived, or such other date as Parent
and the Company mutually agree upon in writing (the “
Closing Date ”). On the Closing Date: (a)
the parties hereto will cause the Merger to be consummated by
filing with the Secretaries of State of the State of Florida and
the State of Nevada a certificate of merger and any required
related documents, in such form or forms as are required by, and
executed in accordance with, applicable law (the date and time of
such filing being the “ Effective Time ”
and the date upon which the Effective Time occurs, being the
“ Effective Date ”); (b) Parent will
deliver the merger consideration to the Company Shareholders in
accordance with Section 1.6; and (c) Merger Sub, Company and Parent
will cross-deliver the certificates and other documents and
instruments to be cross-delivered pursuant to Article 6
below.
1.3
Effect of the Merger. At the Effective Time, the
effect of the Merger will be as provided in this Agreement and
under applicable law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of Merger Sub
and the Company will vest in the Surviving Corporation, and all
debts, liabilities and duties of Merger Sub and the Company will
become the debts, liabilities and duties of the Surviving
Corporation. As of the Effective Time, the Surviving
Corporation will be a wholly-owned subsidiary of Parent.
1.4
Effect of Merger on Capital Stock of the Parent
. Each share of capital stock of Parent issued and
outstanding immediately prior to the Effective Time shall remain
issued and outstanding from and after the Effective
Time.
1.5
Effect of Merger on Capital Stock of Merger Sub. At
the Effective Time, each share of common stock, par value $.001 per
share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall, by virtue of the Merger and without any
action on the part of the holders thereof, be converted into and
become one validly issued, fully paid and non-assessable share of
common stock, par value $.001 per share, of the Surviving
Corporation.
1.6
Effect of Merger on Capital Stock of Company.
(a)
Company Common Stock . At the Effective Time, each
Participating Company Share shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted
into the right to receive the following (the “
Merger Consideration
”):
(i)
a pro rata share
of 5,000,000 shares of Parent Common Stock (referred to
collectively herein as the “ Parent’s Shares ”) as set forth on
Schedule 1.6(a)(i) , which shares shall not have been
registered under the Securities Act and shall be
“restricted
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securities”
as that term is defined in Rule 144 under the Securities
Act.
(ii)
a pro rata share
of $4,000,000 payable in cash as set forth on Schedule
1.6(a)(ii) by wire transfer of same day funds to the account
designated by each holder of Participating Company
Shares.
(iii)
a pro rata share
of $5,000,000 as set forth on Schedule 1.6(a)(iii) evidenced
by delivery to each holder of Participating Company Shares of a
Convertible Subordinate Note (each, a “
Note ” and, collectively,
the “ Notes ”) in the form set
forth at Exhibit A . For the avoidance of doubt,
Parent shall remit such funds to the Company as are necessary to
satisfy the payment requirements under each Note.
(b)
Company Options . At the Effective Time, each
outstanding option to purchase Company Common Stock granted under
the Company’s stock option plans, if any (“
Option Plans
”), which
has not previously expired or been exercised in full (each such
option, an “ Eligible Option ”), whether or not
vested or exercisable on the Closing Date, shall be deemed to have
been exercised immediately prior to the Effective Time for the
number of shares of Company Common Stock issuable upon exercise of
such Eligible Option and shall be exchanged for the right to
receive the Merger Consideration for each resulting Participating
Company Share pursuant to Section 1.6(a), subject to the deduction
of applicable withholding Taxes and provided that the cash portion
of the Merger Consideration payable with respect to each such
Participating Company Share pursuant to Section 1.6(a)(ii) shall be
reduced by an amount equal to (x) the exercise price of such
Eligible Option multiplied by (y) the number of shares of Company
Common Stock issuable under such Eligible Option. No payment
of Merger Consideration with respect to an Eligible Option shall be
made to the holder of such Eligible Option until receipt by the
Parent of an Option Cancellation Agreement, substantially in the
form set forth at Exhibit B (“ Option Cancellation Agreement
”), with
respect to all Eligible Options signed by the holder of such
Eligible Option. The Parent shall deliver to the Surviving
Corporation all such executed Option Cancellation Agreements
promptly after receipt.
(c)
As a result of the Merger and without any action on the part of the
holders of Company Common Stock, at the Effective Time, all shares
of Company Common Stock shall cease to be outstanding and shall be
cancelled and retired and shall cease to exist, and each holder of
a share of Company Common Stock (other than the Company, the
Parent, and the Merger Sub) shall thereafter cease to have any
rights with respect to such shares of Company Common Stock, except
that holders of Participating Company Shares shall have the right
to receive, without interest (except as provided under the Notes),
the Merger Consideration in accordance with Section 1.6(a) upon the
surrender of the certificate or certificates representing such
shares of Company Common Stock (if any such certificates had been
issued by the Company with respect to such shares of Company Common
Stock).
(d)
At the Effective Time, each share of Company Common Stock held by
the Parent or the Merger Sub or held in the Company’s
treasury at the Effective Time, if any, shall,
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by virtue of the
Merger and without any action on the part of the holder thereof,
cease to be outstanding and shall be cancelled and retired without
payment of any Merger Consideration or any other consideration
therefor.
(e)
At the Effective Time, all Option Plans shall be terminated and all
Company Options and agreements or certificates representing Company
Options, if any, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and
each holder of a Company Option (and of a certificate representing
a Company Option, if any) shall cease to have any rights with
respect thereto, other than and subject to the rights of holders of
Eligible Options to receive the Merger Consideration pursuant to
Section 1.6(b). The Company’s board of directors, or
any committee or administrator appointed by the Company’s
board of directors to administer the Option Plans, shall take any
and all actions reasonably required to vest and make fully
exercisable all of the Eligible Options granted under the Option
Plans and to provide all of the holders of such Eligible Options
with the right to exercise all of such Eligible Options regardless
of whether such Eligible Options were exercisable on the date of
this Agreement or would be exercisable at Closing.
1.7
Delivery of Certificates and Option Cancellation Agreements.
At and after the Effective Time, Parent will make available,
and each holder of Participating Company Shares will be entitled to
receive, (i) upon surrender to Parent or its representatives of any
certificates evidencing Company Common Stock (the “
Certificates ”) for cancellation and a letter
of transmittal or assignment separate from certificate in customary
form (which will be in such form and have such other provisions as
Parent will reasonably specify) (the “ Transmittal
Letter ”); or (ii) delivery to Parent or its
representatives of Option Cancellation Agreements, the pro-rata
Merger Consideration into which such Participating Company Shares
have been converted into pursuant to the Merger, and upon such
surrender of each Certificate and/or Option Cancellation Agreements
and delivery by Parent of the aggregate Merger Consideration in
exchange therefor, such Participating Company Shares will forthwith
be cancelled. Until surrendered or delivered as contemplated
by this Section 1.7, each Certificate or Option Cancellation
Agreement, as applicable, will be deemed at any time after the
Effective Time for all purposes to evidence only the right to
receive upon such surrender the corresponding pro rata portion of
the Merger Consideration.
1.8
Stock Transfer Books. From and after the Effective
Time, the stock transfer books of the Company will be closed, and
there will be no further registration or transfers of capital stock
thereafter on the records of the Company.
1.9
No Further Ownership Rights. The Merger Consideration
delivered upon the surrender for exchange of Certificates or the
delivery of Option Cancellation Agreements in accordance with the
terms hereof will be deemed to have been issued in full
satisfaction of all rights pertaining to such Participating Company
Shares, and there will be no further registration of transfers of
such shares which were outstanding immediately prior to the
Effective Time on the records of the Surviving Corporation.
If, after the Effective Time, Certificates or Option Cancellation
Agreements are presented to the Surviving Corporation, they will be
cancelled and exchanged as provided in this Article 1.
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1.10
Lost, Stolen or Destroyed Certificates. In the event
any Certificates are lost, stolen or destroyed, Parent will issue
in exchange for such lost, stolen or destroyed Certificates, upon
the making of an affidavit of that fact by the holder thereof and
the other deliveries required above, the applicable Merger
Consideration; provided, however, that the Surviving Corporation
may, in its sole discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver an indemnity or bond in such sum
as it may reasonably direct as indemnity against any claim that may
be made against it with respect to the Certificates alleged to have
been lost, stolen or destroyed.
1.11
Charter Documents; Directors and Officers. Unless
otherwise agreed by the Company and Parent prior to the Closing, at
and as of the Effective Time, without any further action on the
part of Parent, Merger Sub or the Company: (i) the Articles of
Incorporation and the Bylaws of the Company as in effect
immediately prior to the Effective Time will be the Articles of
Incorporation and Bylaws of the Surviving Corporation at and after
the Effective Time until thereafter amended as provided by
applicable law and such Articles of Incorporation and Bylaws, as
applicable; (ii) the directors of the Company immediately prior to
the Effective Time will be the initial directors of the Surviving
Corporation from and after the Effective Time, until their
successors are elected and qualified or until their resignation or
removal; (iii) the officers of the Company immediately prior to the
Effective Time shall serve in their respective offices of the
Surviving Corporation from and after the Effective Time, until
their successors are elected or appointed and qualified or until
their resignation or removal. The Board of Directors of the
Company will adopt a resolution to be effective as of the Effective
Time electing Francis E. Wilde to the Surviving Corporation’s
Board of Directors and appointing E. Joseph Vitetta, Jr. as
Corporate Secretary of the Surviving Corporation.
1.12
Earn-Out Payments.
(a)
Year 1 Earn-Out Payments . Subject to the Surviving
Corporation’s gross revenue(s) exceeding eighty percent (80%)
of $10,000,000 and the Surviving Corporation’s EBITDA
exceeding eighty percent (80%) of $1,300,000 for the first twelve
(12) month period following the Effective Date (the “
Year 1 Earn-Out Period
”), Parent
shall pay a pro rata share of twenty percent (20%) of the Surviving
Corporation’s EBITDA (the “ Year 1 Earn-Out Payment ”), as measured during
the Year 1 Earn-Out Period, to the individuals and in the
proportion set forth on Schedule 1.12 . Any person
named on Schedule 1.12 may, at such person’s option,
designate one or more Surviving Corporation employees to whom such
person’s pro rata share of the Year 1 Earn-Out Payment shall
be paid in the form of an individual cash bonus in such proportions
as such person may designate.
(b)
Year 2 Earn-Out Payments . Subject to the Surviving
Corporation’s gross revenue(s) exceeding eighty percent (80%)
of $13,000,000 and the Surviving Corporation’s EBITDA
exceeding eighty percent (80%) of $1,600,000 for the twelve (12)
month period following the first anniversary of the Effective Date
(the “ Year 2
Earn-Out Period ”), Parent shall pay a
pro rata share of twenty percent (20%) of the Surviving
Corporation’s EBITDA (the “ Year 2 Earn-Out Payment ” and, together with
the Year 1 Earn-Out Payment, the “ Earn-Out Payments ”), as measured during
the Year 2 Earn-Out Period, to the individuals and in the
proportion set forth on Schedule 1.12 . Any person
named on Schedule 1.12 may, at such person’s option,
designate one or more Surviving Corporation employees to whom such
person’s
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pro rata share of
the Year 2 Earn-Out Payment shall be paid in the form of an
individual cash bonus in such proportions as such person may
designate.
(c)
EBITDA Calculations . The parties agree that, for the
purpose of computing the Earn-Out Payments, the Surviving
Corporation shall be credited with the entire revenue(s) of the
Surviving Corporation and its Affiliates, including any joint
ventures, license agreements or products co-developed with Parent
or its Subsidiaries, and EBITDA recognized by the Parent (and/or
its Subsidiaries or any other Affiliates) associated with each such
joint venture, license agreement, product, service and/or solution
developed or co-developed by the Surviving Corporation, Parent
and/or its Subsidiaries.
1.13
Employment Agreements. At the Effective Time, the
Surviving Corporation will offer employment to and will employ the
senior management team listed in Schedule 1.13 Part I (the
“ Senior Management Team ”) for a period
of three (3) years under the terms and conditions of Senior
Management Employment Agreements, in the form set forth at
Schedule 1.13 Part II , such employment agreements to be
executed concurrently with the Closing.
1.14
Stock Options. Parent will establish an incentive
stock option program in which employees of the Surviving
Corporation are eligible to participate (the “ ISO
Plans ”) and will use its best efforts to establish
the effectiveness of such ISO Plans within sixty (60) days of the
Closing Date. The attached Schedule 1.14 outlines the
Certain Company Shareholders’ initial recommended allocation
of the incentive stock option pool to Company employees. It
is understood by the parties that such recommendation shall require
approval of the Parent’s Board of Directors and that the
Parent’s Board of Directors shall, in its sole discretion,
finally determine those Surviving Corporation employees to whom
incentive stock options will be granted.
1.15
Board of Directors. For a period of three (3) years
from the Closing, the Parent will nominate for election at all
meetings of shareholders of the Parent held for the purpose of
electing directors, and recommend to its shareholders, that Philip
Loeffel (or in the event he is unable or unwilling to serve, such
other person as the Certain Company Shareholders shall designate)
be elected to serve on the board of directors of the Parent.
Parent shall obtain, at its expense, directors’ and
officers’ liability insurance within thirty (30) days of the
Closing in customary amounts from established and reputable
insurers with respect to which the Company Director shall be named
as an insured. In addition, Philip Loeffel will benefit from
indemnification provisions set forth in the Bylaws of the Parent
and the Bylaws of the Surviving Corporation,
respectively.
1.16
Company Tax Liability. Notwithstanding the terms
contained herein, the Surviving Corporation shall pay up to
$830,000 in Taxes (as stated on the Company’s audited balance
sheet) associated with its Internal Revenue Service mandated
migration from cash to accrual accounting methods (the “
Tax Liability ”) for fiscal years 2004, 2005
and 2006, incurred by the Company at or prior to Closing. The
parties agree that such Tax Liability shall be reimbursed to the
Surviving Corporation by the Company Shareholders according to the
percentages set forth on Schedule 1.16 in three annual installment
payments, each payment to be made within ten (10) days following
each principal payment to such Company Shareholders under the Notes
(as provided in Section 2 of the Notes), provided the Company is
not then in
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default under the terms of the
Note. The Company Shareholders shall also be responsible for
paying any additional Tax Liability incurred in fiscal year 2007
through the day prior to the Closing, to the extent that such Tax
Liability exceeds any reserve for 2007 Taxes set forth on the
Company’s Closing Date Balance Sheet (as defined in Section
5.8).
1.17
Employee Retention Bonus. The Company will offer to
each of its employees set forth on Schedule 1.17 attached
hereto, a one (1) year retention bonus (“ Retention
Bonus ”) in the amount set forth on Schedule
1.17 ; provided such employees to whom a Retention Bonus is
offered agree in writing at or prior to the Closing to remain in
the employ of the Surviving Corporation until at least the one-year
anniversary of the Closing. The parties agree that the
aggregate Retention Bonus amount shall be reimbursed to the
Surviving Corporation by the Company Shareholders according to the
percentages set forth on Schedule 1.17(i) within ten (10)
days following the first principal payment to the Company
Shareholders under the Notes (as provided in Section 2 of the
Notes), provided the Company is not then in default under the
Notes. Furthermore, the Company shall (i) incur the cost of
the employer portion of the employment tax and (ii) gross up the
amount paid in bonus so that each employee receives, on an after
tax basis, an amount approximately equal to the Retention Bonus
designated to be received by such employee as set forth on
Schedule 1.17 .
1.18
Company Shareholders Broker Fees. Notwithstanding the
terms contained herein, the parties agree that the Company
Shareholders’ broker fees (as set forth in Schedule
2.24 ) shall be paid at Closing to the broker by the
Parent. The parties further agree that seventy percent (70%)
of the broker fees paid by Parent pursuant to the foregoing
sentence shall be deducted from the first principal payment to the
Company Shareholders under the Notes (as provided in Section 2 of
the Notes), provided the Company is not then in default under the
Notes, according to the percentages set forth on Schedule
1.18 .
1.19
Taking of Necessary Action; Further Action. Each of
Parent, Merger Sub and the Company will take all such reasonable
lawful action as may be necessary or appropriate in order to effect
the Merger in accordance with this Agreement as promptly as
practicable. If, at any time after the Effective Time, any
such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation
with full right, title and possession to all the property, rights,
privileges, power and franchises of the Company and Merger Sub, the
officers and directors of the Company and Merger Sub immediately
prior to the Effective Time are fully authorized in the name of
their respective corporations or otherwise to take, and will take,
all such lawful and necessary action.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND CERTAIN COMPANY SHAREHOLDERS
The Company and each of the Certain
Company Shareholders hereby represent and warrant, jointly and
severally, to Parent subject to such exceptions as are disclosed in
the corresponding Schedules with respect to specific sections of
this Article 2 and subject to the right of the Company and the
Certain Company Shareholders to update, revise, supplement and/or
correct such Schedules through the Closing Date, as
follows:
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2.1
Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Florida, and has full corporate
power and authority to conduct its business as now conducted and to
own, use, license and lease its Assets and Properties. The
Company maintains an ownership interest in the Subsidiaries listed
in Schedule 2.1(a) . The Company is duly qualified,
licensed or admitted to do business and is in good standing in each
jurisdiction in which the ownership, use, licensing or leasing of
its Assets and Properties, or the conduct or nature of its
business, makes such qualification, licensing or admission
necessary, except for such jurisdictions in which the failure to be
so qualified would not have a Material Adverse Effect on the
Company. Schedule 2.1(b) sets forth each jurisdiction
where the Company is so qualified, licensed or admitted to do
business.
2.2
Authority Relative to this Agreement. The Company has
full corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and
delivery by the Company of this Agreement and the consummation by
the Company of the transactions contemplated hereby, and the
performance by the Company of its obligations hereunder, have been
duly and validly authorized by all necessary action by the Board of
Directors of the Company, and no other action on the part of the
Board of Directors of the Company is required to authorize the
execution, delivery and performance of this Agreement and the
consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization,
execution and delivery hereof by Parent and Merger Sub, constitutes
a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar
Laws relating to the enforcement of creditors’ rights
generally and by general principles of equity.
2.3
Capital Stock. As of the date hereof, the authorized
capital stock of the Company consists of 10,000,000 shares of
Company Common Stock, of which 760,000 shares are issued and
outstanding. There are options exercisable or convertible
into 11,535 shares of Company Common Stock (“ Company
Options ”), the holders of which are set forth on
Schedule 2.3 (the “ Company Option
Holders ”). All of the issued and outstanding
shares of Company Common Stock are validly issued, fully paid and
nonassessable, and have been issued in compliance with all
applicable federal, state and foreign securities Laws. No
shares of Company Common Stock are held as treasury stock.
Schedule 1 lists the name and state of residence of each
holder of Company Common Stock provided to the Company by such
holder and the number of shares of Company Common Stock held by
each such holder. There are 11,535 shares of Company Common
Stock reserved for issuance upon exercise of the Company Options
and, except as disclosed in Schedule 2.3 , there are no
other Equity Equivalents, commitments or agreements of any
character (whether created by statute, the Articles of
Incorporation or Bylaws of the Company, or any agreement or
otherwise) to which the Company is a party or by which it is bound,
obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of capital stock of the Company or obligating
the Company to grant, extend, accelerate the vesting of, change the
price or otherwise amend or enter into any such option, warrant,
call, right, commitment or agreement. Except as set forth in
Schedule 2.3(a) , the Company is not a party or subject to
any agreement or
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understanding, and, to the
Company’s knowledge, there is no agreement, arrangement or
understanding between or among any Persons, which affects,
restricts or relates to voting, giving of written consents,
dividend rights or transferability of shares with respect to the
shares of Company Common Stock, including without limitation any
voting trust agreement or proxy.
2.4
No Conflicts. Except as set forth in Schedule
2.4 , the execution and delivery by the Company of this
Agreement and the consummation by the Company of the transactions
contemplated hereby do not and will not:
(a)
conflict with or result in a violation or breach of any terms,
conditions or provisions of the Articles of Incorporation or
Bylaws, as amended, or equivalent documents of the Company
except for any of the foregoing which would not reasonably
be expected to give rise to a Material Adverse Effect;
(b)
conflict with or result in a violation or breach of any Law or
Order applicable to the Company or by which any of its Assets and
Properties is bound or affected, except for any of the
foregoing which would not reasonably be expected to give rise to a
Material Adverse Effect; or
(c)
(i) conflict with or result in a violation or breach of, (ii)
constitute a default (or an event that, with or without notice or
lapse of time or both, would constitute a default) under, (iii)
require the Company to obtain any consent, approval or action of,
make any filing with or give any notice to any Person as a result
or under the terms of, (iv) result in or give to any Person any
right of termination, cancellation, acceleration or modification in
or with respect to, (v) result in or give to any Person any
additional rights or entitlement to increased, additional,
accelerated or guaranteed payments or performance under, (vi)
result in the creation or imposition of (or the obligation to
create or impose) any Lien upon the Company or any of its Assets
and Properties under or (vii) result in the loss of a material
benefit under, any of the terms, conditions or provisions of any
Contract or License to which the Company is a party or by which the
Company or its Assets and Properties is bound or affected,
except (x) where the Company or any of its Subsidiaries has
obtained or will obtain prior to the Closing the necessary written
agreements, waivers or consents of the other parties to any Company
Contracts or Licenses to avoid, release or waive any such default,
conflict, breach, violation, termination, right to terminate or
accelerate, or triggering of payment with respect to such Company
Contracts or Licenses, or (y) where any such default, conflict,
breach, violation, termination, right to terminate or accelerate,
or triggering of payment with respect to such Company Contracts or
Licenses would not constitute a Material Adverse
Effect.
2.5
Books and Records; Organizational Documents. The
minute books, including the share registers, and other similar
records of the Company that have been provided or made available to
Parent, its representatives or its counsel prior to the execution
of this Agreement, are complete and correct in all material
respects and have been maintained in accordance with sound business
practices. Such minute books contain a true and complete
record of all material actions taken at all meetings and by all
written consents in lieu of meetings of the directors, shareholders
and committees of the Board of Directors of the Company through the
date hereof. The Company has delivered a true, correct and
complete copy of its Articles of Incorporation, as set forth in
Schedule 2.5(a) , and its Bylaws, as set forth in
Schedule 2.5(b) , or other charter
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documents, as applicable, of the
Company as amended to date, to Parent. To Company’s
knowledge, the Company is not in violation of any provisions of its
Articles of Incorporation or equivalent documents.
2.6
Company Financial Statements.
(a)
The Company Financials, as set forth in Schedule 2.6(a) ,
have been delivered to the Parent. The Company Financials
delivered to Parent have been audited and, to Company’s
knowledge, were correct and complete in all material respects as at
the dates thereof. The Company Financials present fairly and
accurately the financial condition and operating results of the
Company as of the dates and during the periods indicated therein,
subject, in the case of any interim financial statements, to normal
year-end adjustments, which adjustments will not be material in
amount or significance and except that any interim financial
statements may not contain footnotes. Except as set forth in
Schedule 2.6(b) , since the Financial Statement Date, there
has been no change in any accounting policies, principles, methods
or practices, including any change with respect to reserves
(whether for bad debts, contingent liabilities or otherwise), of
the Company that would be likely to have a Material Adverse
Effect.
(b)
Neither the Company nor, to the knowledge of Company, the
Company’s independent auditors has identified or been made
aware of (i) any fraud, whether or not material, that involves the
management of the Company or other employees of the Company who
have a role in the preparation of financial statements or the
internal accounting controls utilized by the Company or (ii) any
claim or allegation regarding any of the foregoing.
(c)
The Company has maintained and utilized an information system and
set of financial and accounting tools that have substantiated the
information gathered in connection with the preparation of the
Company Financials in accordance with GAAP, including policies and
procedures that the Company deems appropriate for a company of its
size that: a) require the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions
and disposition of the assets of the company, b) provide reasonable
assurances that the transactions are recorded as necessary to
permit the preparation of financial statements in accordance with
GAAP, and that receipts and expenditures of the Company are being
made with appropriate authorizations of management and the Board of
Directors of the Company and c) provide reasonable assurance
regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the assets of the Company,
except where the failure to maintain or utilize any of the
foregoing would not reasonably be expected to give rise to a
Material Adverse Effect.
2.7
Absence of Changes. Since the Financial Statement
Date, there has not been any Material Adverse Change in the
Business or Condition of the Company or any occurrence or event,
which, individually or in the aggregate could be reasonably
expected to have any Material Adverse Change in the Business or
Condition of the Company. In addition, without limiting the
foregoing, except as expressly contemplated hereby, there has not
occurred, on the part of the Company, during the period commencing
on the Financial Statement Date and terminating on the date
hereof:
10
(a)
except with respect to the new five-year lease for a 10,000 square
foot facility disclosed on Schedule 2.29 , the entering into
of any Contract, commitment or transaction or the incurrence of any
Liabilities outside of the ordinary course of business consistent
with the Company’s past practice;
(b)
the entering into of any Contract in connection with any
transaction involving a Business Combination other than this
Agreement and the transactions related to the Merger;
(c)
the alteration, or entering into of any Contract or other
commitment to alter, its interest in any Person in which the
Company directly or indirectly holds a greater than 1% interest on
the date hereof;
(d)
the entering into of any strategic alliance, joint development or
joint marketing Contract other than joint marketing or development
efforts in the ordinary course of business consistent with the
Company’s past practice;
(e)
any material amendment or other modification (or agreement to do
so), except in the ordinary course of business consistent with the
Company’s past practice, or violation of a material term of,
any of the Contracts set forth or described herein;
(f)
the entering into of any material transaction with any officer,
director, shareholder, Affiliate or Associate of the Company, other
than pursuant to any Contract in effect on the Financial Statement
Date and disclosed to Parent pursuant to the Schedules or otherwise
contemplated by this Agreement or any agreement or instrument
related to this Agreement;
(g)
the entering into or amendment of any Contract pursuant to which
any other Person is granted manufacturing, marketing, distribution,
licensing or similar rights of any type or scope with respect to
any products of the Company or Company Intellectual Property other
than as contemplated by the Contracts or Licenses of the Company
disclosed herein or otherwise in the ordinary course of business
consistent with the Company’s past practice or which would
not have a Material Adverse Effect;
(h)
to the Company’s knowledge, the commencement of any Action or
Proceeding;
(i)
except as set forth in Schedule 2.7(i) , the declaration,
setting aside or payment of any dividends on or making of any other
distributions (whether in cash, stock or property) in respect of
any Company Common Stock, or any split, combination or
reclassification of any shares of Company Common Stock or issuance
or authorization of the issuance of any other securities in respect
of, in lieu of or in substitution for shares of Company Common
Stock, or the repurchase, redemption or other acquisition, directly
or indirectly, of any shares of Company Common Stock by the Company
except for repurchases of shares of Company Common Stock upon
termination of employment;
(j)
except as set forth in Schedule 2.7(j) , the issuance,
grant, delivery, sale or authorization of or proposal to issue,
grant, deliver or sell, or purchase or proposal to purchase, any
shares of Company Common Stock or modification or amendment of the
rights of any
11
holder of any
outstanding shares of Company Common Stock, nor have there been any
agreements, arrangements, plans or understandings with respect to
any such modification or amendment except as contemplated by this
Agreement;
(k)
except as set forth in Schedule 2.7(k) , any amendments to
the Company’s Articles of Incorporation or
Bylaws;
(l)
any transfer (by way of a License or otherwise) to any Person of
rights to any Company Intellectual Property other than
non-exclusive transfers to the Company’s customers,
distributors or other licensees in the ordinary course of business
consistent with the Company’s past practice;
(m)
to the Company’s knowledge, any disposition or sale of,
waiver of rights to, license or lease of, or incurrence of any Lien
on, any Assets and Properties (other than Company Intellectual
Property) of the Company, other than dispositions of inventory, or
licenses of products to Persons in the ordinary course of business
of the Company consistent with the Company’s past
practice;
(n)
any purchase or lease of any Assets and Properties of any Person or
the making of any capital expenditures, lease commitments or other
capital commitments by the Company other than acquisitions of
inventory, leasing of office space, or licenses of products, in the
ordinary course of business of the Company, consistent with
Company’s past practice and in an amount not in excess of one
hundred thousand dollars ($100,000) unless otherwise approved by
Parent;
(o)
the making of any capital expenditures or commitments by the
Company for additions to property, plant or equipment of the
Company constituting capital assets individually or in the
aggregate in an amount exceeding twenty-five thousand dollars
($25,000) except in the ordinary course of business consistent with
the Company’s past practice;
(p)
except as set forth in Schedule 2.7(p) , the write-off or
write-down or making of any determination to write off or
write-down, or revalue, any of the Assets and Properties of the
Company, or change in any reserves or liabilities associated
therewith;
(q)
except as set forth in Schedule 2.7(q) , the payment,
discharge or satisfaction of any material claim or Liability, other
than the payment, discharge or satisfaction in the ordinary course
of business of Liabilities reflected or reserved against in the
Company Financials or incurred in the ordinary course of the
Company’s business since the Financial Statement
Date;
(r)
except as set forth in Schedule 2.7(r) , the failure to pay
or otherwise satisfy material Liabilities of the Company or its
Subsidiaries when due;
(s)
the incurrence of any Indebtedness or guarantee of any such
Indebtedness or issuance or sale of any debt securities of the
Company or guarantee of any debt securities of others, except as
otherwise incurred in the ordinary course of the Company’s
business;
12
(t)
the grant of any severance or termination pay to any director,
officer employee or consultant, except payments made as required by
Law or pursuant to written Contracts outstanding on the date
hereof,
(u)
except as set forth in Schedule 2.7(u) , a change to salary,
rate of commissions, rate of consulting fees or any other
compensation of any current officer, director, shareholder,
employee, independent contractor or consultant of the Company
except in the ordinary course of business consistent with the
Company’s past practice;
(v)
except as set forth in Schedule 2.7(v) , the payment of any
consideration of any nature whatsoever (other than, in the ordinary
course of business, salary, bonus, commissions or consulting fees
and customary benefits and out of pocket expenses paid to any
current or former officer, director, shareholder, employee or
consultant of the Company) to any current or former officer,
director, shareholder, employee, independent contractor or
consultant of the Company;
(w)
the establishment or modification of (i) targets, goals, pools or
similar provisions under any employment Contract or other employee
compensation arrangement or independent contractor Contract or
other compensation arrangement or (ii) salary ranges, increased
guidelines or similar provisions in respect of any employment
Contract or other employee compensation arrangement or independent
contractor Contract or other compensation arrangement, except for
those made in the ordinary course of the Company’s
business;
(x)
the adoption, entering into, amendment, modification or termination
(partial or complete) of any Benefit Plan;
(y)
the payment of any discretionary or stay bonus except in the
ordinary course of business consistent with the Company’s
past practice;
(z)
to Company’s knowledge, any action which would be reasonably
likely to interfere in a material way with Parent’s ability
to account for or complete the transactions contemplated
hereby;
(aa)
the making or changing of any election in respect of Taxes,
adoption or change in any accounting method in respect of Taxes,
the entering into of any tax allocation agreement, tax sharing
agreement, tax indemnity agreement or closing agreement, settlement
or compromise of any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period
applicable to any claim or assessment in respect of Taxes with any
Taxing Authority or otherwise, except for any of the
foregoing which would not reasonably be expected to give rise to a
Material Adverse Effect;
(bb)
Except as set forth in Schedule 2.7(bb) , the making of any
change in the accounting policies, principles, methods, practices
or procedures of the Company (including without limitation for bad
debts, contingent liabilities or otherwise, respecting
capitalization or expense of research and development expenditures,
depreciation or amortization rates or timing of recognition of
income and expense), except for any of the foregoing which
would not reasonably be expected to give rise to a Material Adverse
Effect;
13
(cc)
other than in the ordinary course of the Company’s business,
the making of any representation or proposal to, or engagement in
substantive discussions with, any of the holders (or their
representatives) of any Indebtedness, or to or with any party which
has issued a letter of credit which benefits the
Company;
(dd)
the commencement or termination of, or change in, any line of
business of the Company other than in the ordinary course of
business;
(ee)
the cancellation, amendment or failure to renew any insurance
policy other than in the ordinary course of business consistent
with past practice, or failure to use commercially reasonable
efforts to give all notices and present all claims under all such
policies in a timely fashion, except for any of the
foregoing which do not give rise to a Material Adverse
Effect;
(ff)
any amendment, failure to renew, or failure to use commercially
reasonable efforts to maintain, its existing Approvals or failure
to observe any Law or Order applicable to the conduct of the
business of the Company or the Assets and Properties of the
Company, except for any of the foregoing which would not
reasonably be expected to give rise to a Material Adverse
Effect;
(gg)
to Company’s knowledge, any failure to pay or otherwise
satisfy any obligations to procure, maintain, renew, extend or
enforce any Company Intellectual Property, including, but not
limited to, submission of required documents or fees during the
prosecution of patent, trademark or other applications for
Registered Intellectual Property rights other than in the ordinary
course of business or which would not reasonably be expected to
give rise to a Material Adverse Effect;
(hh)
any physical damage, destruction or other casualty loss (whether or
not covered by insurance) affecting any of the real or personal
property or equipment of the Company individually or in the
aggregate in an amount exceeding fifteen thousand dollars
($15,000);
(ii)
the repurchase, cancellation or modification of the terms of any
Company Common Stock, or other financial instrument that derives
the majority of its value from its convertibility into Company
Common Stock, other than transactions entered into in the ordinary
course of business and pursuant to contractual provisions in effect
at the date of this Agreement; or
(jj)
any entering into any agreement to do any of the
foregoing.
2.8
No Undisclosed Liabilities. Except as set forth in
Schedule 2.8 , the Company has no obligations or liabilities
of any nature (matured or unmatured, fixed or contingent) other
than (i) those set forth or reserved against in the Company
Financials, (ii) those incurred in connection with this Agreement
or the transactions contemplated hereby, (iii) those incurred in
the ordinary course of business consistent with the Company’s
past practice, and (iv) those set forth in this Agreement or the
Schedules hereto.
14
2.9
Restrictions on Business Activities. Except as set
forth in Schedule 2.9 , there is no agreement or Order
binding upon the Company, or any of its assets or properties which
has had or could reasonably be expected to have the effect of
prohibiting or impairing any current or future business practice of
the Company, any acquisition of property by the Company or the
conduct of business by the Company as currently conducted or as
proposed to be conducted by the Company other than in the ordinary
course of business or which would not reasonably be expected to
give rise to a Material Adverse Effect.
2.10 Taxes.
Subject to Section 1.16 as it relates to the Tax
Liability:
(a)
The Company has timely filed and paid any taxes due through the Tax
year ended December 31, 2005. The Company, having obtained an
extension to file its Tax Returns for the Tax year ended December
31, 2006, has filed such Tax Returns for the Tax year ended
December 31, 2006 and has paid any Taxes due with respect to such
Tax year. The Company has prepared and maintained adequate
records so as to facilitate the prompt filing of Tax Returns when
they become due.
(b)
The Company has not incurred any material liability for Taxes other
than as reflected on the Company Financials. The unpaid Taxes
of the Company (i) did not, as of the most recent fiscal month end,
exceed by any material amount the reserve for liability for Income
Tax (other than the reserve for deferred Taxes established to
reflect timing differences between book and Tax income) set forth
on the face of the Company’s most recent balance sheet and
(ii) will not, to Company’s knowledge, exceed by any material
amount that reserve as adjusted for operations and transactions
through the Closing Date.
(c)
The Company is not presently a party to any agreement extending the
time within which to file any Tax Return. To Company’s
knowledge, no claim has ever been made by a Taxing Authority of any
jurisdiction in which the Company does not file Tax Returns that it
is or may be subject to taxation by that jurisdiction.
(d)
To Company’s knowledge, the Company or its agents, if
applicable, have collected or withheld all amounts required to be
collected or withheld by it on account of Taxes or otherwise, and
have remitted the same to the appropriate governmental authority in
the manner and within the time required under any applicable
legislation or, if it is not yet due, have set it aside in
appropriate accounts for payment when due.
(e)
The Company does not have knowledge of any actions by any Taxing
Authority in connection with assessing a material amount of
additional Taxes against and in respect of the Company for any past
period. There is no dispute or claim concerning any Tax
liability of the Company (i) threatened, claimed or raised by any
Taxing Authority and (ii) of which the Company is aware.
There are no Liens for Taxes upon the Assets and Properties of the
Company other than liens for Taxes not yet due or which are being
contested by the Company in good faith.
(f)
There are no outstanding agreements or waivers extending the
statutory period of limitation applicable to any Tax Returns
required to be filed by, or which include or are
15
treated as
including, the Company with respect to any Tax assessment or
deficiency affecting the Company.
(g)
The Company has not received any written ruling related to Taxes or
entered into any agreement with a Taxing Authority relating to
Taxes.
(h)
The Company has no material liability for the Taxes of any Person
other than the Company or (i) as a transferee or successor, or (ii)
by Contract or (iii) otherwise.
(i)
The Company has not agreed to make and is not required to make any
adjustment under Section 481 or 263A of the Code or any comparable
provision under state laws by reason of a change in accounting
method or as a result of transactions or events prior to the date
hereof.
(j)
The Company is not a party to or bound by any obligations under any
Tax sharing, Tax allocation, Tax indemnity or similar agreement or
arrangement.
(k)
The Company is not involved in, subject to, or a party to any joint
venture, partnership, Contract or other arrangement that is treated
as a partnership for federal, state, local or foreign Income Tax
purposes.
(l)
The Company was not included and is not includible in the Tax
Return of any parent corporation other than such a return of which
the Company is the common parent corporation.
(m)
Except as set forth in Schedule 2.10(m) , the Company has
not:
(i)
acquired or had
the use of any property from a Person with whom it was not dealing
at arm’s length other than at fair market value;
or
(ii)
disposed of any
material asset to a Person with whom it was not dealing at
arm’s length for proceeds less than the fair market value
thereof.
(n)
The Company is not nor has it ever been a United States real
property holding corporation within the meaning of Section
897(c)(1)(A)(ii) of the Code.
(o)
The Company is not a personal holding company.
(p)
To Company’s knowledge, the Company is in full compliance
with all terms and conditions of any Tax exemptions or other
Tax-sharing agreement or Order of a foreign government and the
consummation of the transactions contemplated hereby will not have
any Material Adverse Effect on the continued validity and
effectiveness of any such Tax exemptions or other Tax-sharing
agreement or Order.
16
2.11 Legal
Proceedings.
(a)
Except as set forth in Schedule 2.11 :
(i)
there are no
Actions or Proceedings brought or, to the knowledge of the Company,
pending or threatened against the Company or its Assets and
Properties;
(ii)
there are no
facts or circumstances known to the Company that could reasonably
be expected to give rise to any material Action or Proceeding
against the Company; and
(iii)
the Company has
not received notice of, and does not otherwise have knowledge of,
any Orders outstanding against the Company.
(b)
Prior to the execution of this Agreement, the Company has delivered
to Parent upon Parent’s written request, all responses of
counsel for the Company to auditor’s requests for information
(together with any updates provided by such counsel) for the last
three (3) years regarding Actions or Proceedings pending or, to the
knowledge of the Company, threatened against, relating to or
affecting the Company. Schedule 2.11 sets forth all
Actions or Proceedings against or by the Company during the last
three (3) years.
2.12 Compliance
With Laws and Orders. To Company’s knowledge, the
Company has not violated, and is not currently in violation or
default under, any material Law or Order applicable to the Company
or any of its Assets and Properties.
2.13 Benefit
Plans. The Company has provided summary information
regarding its Benefit Plans to the Parent as set forth in
Schedule 2.13 .
2.14 Title to
Property. The Company has good and marketable title to
all of its properties, interests in properties and assets, real and
personal, reflected in the Company Financials or acquired after the
Financial Statement Date (except properties, interests in
properties and assets sold or otherwise disposed of since the
Financial Statement Date in the ordinary course of business), or
with respect to leased properties and assets, valid leasehold
interests in, free and clear of all mortgages, liens, pledges,
charges or encumbrances of any kind or character, except (i) the
lien of current Taxes not yet due and payable or which are being
contested by the Company in good faith, (ii) such imperfections of
title, liens and easements as do not and will not materially
detract from or interfere with the use of the properties subject
thereto or affected thereby, or otherwise materially impair
business operations involving such properties, (iii) liens securing
debt which is reflected on the Company Financials and (iv) Liens
listed on Schedule 2.14 . The property and equipment
of the Company that are used in the operations of its business are
in good operating condition subject to normal wear and tear.
All material properties used in the operations of the Company are
reflected in the Company Financials. The Company owns no real
property.
2.15
Intellectual Property.
(a)
Except as set forth on Schedule 2.15(a) , the Company owns,
or is licensed or otherwise possesses legally enforceable rights to
use, all Intellectual Property that is used or
17
currently
proposed to be used in the business of the Company as currently
conducted or as presently proposed by the Company to be conducted
in the immediate future.
(b)
Except as set forth in Schedule 2.15(b) , the Company has
not (i) licensed any Company Intellectual Property in source code
form to any third party or (ii) entered into any exclusive
agreements relating to any Company Intellectual Property with any
third party.
(c)
Schedule 2.15(c) lists (i) all patents and patent
applications and all registered trademarks, trade names and service
marks, registered copyrights, domain names, and maskworks, included
in the Company Intellectual Property, including the jurisdictions
in which each such Intellectual Property right has been issued or
registered or in which any application for such issuance and
registration has been filed, (ii) all licenses, sublicenses and
other agreements as to which the Company is a party and pursuant to
which any other Person is authorized to use any Intellectual
Property, and (iii) all licenses, sublicenses and other agreements
as to which the Company is a party and pursuant to which the
Company is authorized to use any third-party Intellectual Property
(“ Third Party
Intellectual Property Rights ”) which are
incorporated in, are, or form a part of any Company product or
which are otherwise used (or currently proposed to be used) by the
Company in the business of the Company as currently conducted or as
proposed to be conducted by the Company, other than off-the-shelf
software programs licensed under standard Shrink Wrap License
Agreements.
(d)
To Company’s knowledge, no Person (including employees and
former employees of the Company) is infringing, misappropriating or
otherwise making any unauthorized use or disclosure of any
Intellectual Property rights of the Company or any Third Party
Intellectual Property Rights to the extent licensed by or through
the Company. The Company has not entered into any agreement
to indemnify any other Person against any charge of infringement of
any Company Intellectual Property, except as set forth in
Schedule 2.15(d) .
(e)
To Company’s knowledge, the Company is not, nor will it be as
a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach of
any license, sublicense or other agreement relating to the Company
Intellectual Property or Third Party Intellectual Property
Rights.
(f)
To Company’s knowledge, all patents, registered trademarks,
domain names, service marks and copyrights held by the Company are
valid and subsisting, and the manufacturing, marketing, licensing
or sale of its products, to the knowledge of the Company, does not
infringe any patent, trademark, service mark, copyright, trade
secret or other proprietary right of any third party. Except
as set forth on Schedule 2.15(f) , during the last three (3)
years, the Company (i) has not been sued in any suit, action or
proceeding which involves a claim of infringement of any patents,
trademarks, service marks, copyrights or violation of any trade
secret or other proprietary right of any third party; and (ii) has
not brought any action, suit or proceeding for infringement of
Intellectual Property or breach of any license or agreement
involving Intellectual Property against any third
party.
(g)
The Company has secured valid written assignments and waiver of any
moral rights from consultants and employees who contributed to the
creation or development of
18
Company
Intellectual Property of the rights to such contributions that the
Company does not already own by operation of law.
(h)
The Company has taken reasonably necessary and appropriate steps to
protect and preserve the confidentiality of all Company
Intellectual Property not otherwise protected by patents, patent
applications or copyright (“ Confidential Information ”). All use,
disclosure or appropriation of Confidential Information by the
Company by or to a third party has been pursuant to the terms of a
written agreement between the Company and such third party,
except where the failure to do so would not constitute a
Material Adverse Effect.
2.16
Contracts.
(a)
Schedule 2.16(a) contains a true and complete list of each
of the material Contracts (true and complete copies or, if none,
reasonably complete and accurate written descriptions of which,
together with all amendments and supplements thereto and all
continuing waivers of any material terms thereof, have been made
available to Parent prior to the execution of this Agreement) of
the Company. Schedule 2.16(a) contains a true and
complete list of each Contract (denoted with an asterisk) of the
Company not terminable by the Company upon 30 days (or less) notice
by the Company without penalty or obligation to make payments based
on such termination.
(b)
Each Contract disclosed in Schedule 2.16(a) , unless
otherwise stated therein, is in full force and effect and
constitutes, to Company’s knowledge, a legal, valid and
binding agreement, enforceable in accordance with its terms, and,
to the knowledge of the Company, no party to such Contract is, nor
has received notice that it is, in violation or breach of or
default under any such Contract (or with notice or lapse of time or
both, would be in violation or breach of or default under any such
Contract).
(c)
Except as set forth on Schedule 2.16(c) , the Company is not
a party to or bound by any Contract that (i) automatically
terminates or allows termination by the other party thereto upon
consummation of the transactions contemplated by this Agreement or
(ii) contains any covenant or other provision which limits the
ability of the Company to compete with any Person in any line of
business or in any area or territory.
2.17
Insurance. The Company’s current insurance
policies, if any, are listed on Schedule 2.17 .
2.18 Affiliate
Transactions.
(a)
Except as disclosed in Schedule 2.18(a) or as otherwise
disclosed or discussed herein or contemplated hereby, (i) there are
no Contracts or Liabilities between the Company, on the one hand,
and (1) any current or former officer, director, shareholder, or to
the knowledge of the Company, any Affiliate or Associate of the
Company or (2) any Person who, to the knowledge of the Company, is
an Associate of any such officer, director, shareholder or
Affiliate, on the other hand, (ii) the Company does not provide or
cause to be provided any assets, services or facilities to any
current or former officer, director, shareholder, Affiliate or
Associate of the Company, (iii) no current or former officer,
director, shareholder, Affiliate or Associate of the Company
provides or causes to be provided any assets, services or
facilities to
19
the Company and
(iv) the Company does not beneficially own, directly or indirectly,
any Investment Assets of any current or former officer, director,
shareholder, Affiliate or Associate of the Company.
(b)
Each of the Contracts and Liabilities listed in Schedule
2.18(a) , if any, was entered into or incurred, as the case may
be, on terms no less favorable to the Company (in the reasonable
judgment of the Company) than if such Contract or Liability was
entered into or negotiated on an arm’s length basis on
competitive terms. Any Contract to which the Company is a
party and in which any director of the Company has a financial
interest in such Contract was approved in accordance with
applicable law.
2.19 Employees;
Labor Relations.
(a)
To Company’s knowledge, the Company is in compliance in all
material respects with all currently applicable laws and
regulations respecting employment, discrimination in employment,
terms and conditions of employment, wages, hours and occupational
safety and health and employment practices, and is not engaged in
any material respect in any unfair labor practice except where
non-compliance with any of the foregoing by the Company will not
constitute a Material Adverse Effect. To Company’s
knowledge, the Company is not liable for any payment to any trust
or other fund or to any governmental or administrative authority,
with respect to employment insurance, social security, workers
compensation, health or other benefits or obligations for employees
(other than routine payments to be made in the normal course of
business and consistent with past practice). There are no
pending claims against the Company under any workers compensation
plan or policy or for long term disability which constitutes a
Material Adverse Effect. There are no controversies pending
or, to the knowledge of the Company, threatened, between the
Company and any of its employees, which controversies have or could
reasonably be expected to result in an action, suit, proceeding,
claim, arbitration or investigation before any agency, court or
tribunal, foreign or domestic, which, in any of the foregoing
cases, constitutes a Material Adverse Effect. The Company is
not a party to any collective bargaining agreement or other labor
union Contract nor does the Company know of any activities or
proceedings of any labor union to organize any such
employees. To the best of the Company’s knowledge, no
employees of the Company are in violation of any term of any
employment Contract, patent disclosure agreement, non-competition
agreement, or any restrictive covenant to a former employer
relating to the right of any such employee to be employed by the
Company because of the nature of the business conducted or proposed
to be conducted by the Company or to the use of trade secrets or
proprietary information of others. No employees of the
Company have given notice to the Company, nor is the Company
otherwise aware, that any such employee intends to terminate his or
her employment with the Company.
(b)
Except as set forth in Schedule 2.19(b) , all employees of
the Company are terminable by the Company upon reasonable notice in
accordance with applicable Law. Schedule 2.19(b) sets
forth, individually and by category, the name of each officer,
employee and consultant, together with such person’s position
or function, annual base salary or wage and any incentive,
severance or bonus arrangements with respect to such person.
The completion of the transactions contemplated by this Agreement
will not result in any payment or increased payment becoming due
from the Company to any officer, director, or employee of, or
consultant
20
to, the Company
other than as set forth in Article 1 hereof. To
Company’s knowledge, the Company is not a party to any
agreement for the provision of labor from any outside agency that
would result in treatment of such providers of labor as an employee
of the Company. To Company’s knowledge, there have been
no claims by employees of such outside agencies, if any, with
regard to employees assigned to work for the Company, and no claims
by any governmental agency with regard to such
employees.
(c)
Except as disclosed on Schedule 2.19(c) , during the last
three (3) years, there have been no federal or state claims based
on employment equity, sex, sexual or other harassment, age,
disability, race or other discrimination or common law claims,
including claims of wrongful dismissal, severance pay, payment in
lieu of notice or bad faith termination, by any employees of the
Company or by any of the employees performing work for the Company
but provided by an outside employment agency, and there are no
facts or circumstances known to the Company that could reasonably
be expected to give rise to such complaint or claim.
(d)
The Company has written employment policies and/or employee
handbooks or manuals to the extent required by Law. To the
knowledge of the Company, no officer, employee or consultant of the
Company is obligated under any Contract or other agreement or
subject to any Order or Law that would interfere with the
Company’s business as currently conducted.
2.20
Environmental Matters. The Company does not now own,
and has never owned, any fee simple interest in real
property.
2.21 Substantial
Customers and Suppliers. Schedule 2.21 lists the
15 largest customers of the Company, collectively, on the basis of
revenues collected or accrued for the most recent completed fiscal
year. Schedule 2.21 also lists the 15 largest
suppliers of the Company on the basis of cost of goods or services
purchased for the most recent fiscal year ended. To the
knowledge of the Company, no such customer or supplier is
threatened with bankruptcy or insolvency.
2.22 Accounts
Receivable. To Company’s knowledge, except as set
forth in Schedule 2.22 the accounts and notes receivable of
the Company reflected on the Company Financials, and all accounts
and notes receivable arising subsequent to the Financial Statement
Date, (a) arose from bona fide sales transactions in the ordinary
course of business, consistent with past practice, and are payable
on ordinary trade terms, (b) are legal, valid and binding
obligations of the respective debtors enforceable in accordance
with their respective terms, (c) are not subject to any valid
set-off or counterclaim and (d) do not represent obligations for
goods sold on consignment, on approval or on a sale-or-return basis
or subject to any other repurchase or return
arrangement.
2.23
Inventory. The Company maintains inventory, as listed
in Schedule 2.23 , to ensure the timely delivery of products
sold to end customers. This inventory is maintained in
storage facilities in and around Orlando, Florida. The
Company also maintains small quantities of immaterial office
supplies inventory in its offices in Orlando, Florida.
21
2.24 Other
Negotiations; Brokers; Third Party Expenses. Except as
set forth in Schedule 2.24 , neither the Company nor, to the
knowledge of the Company, any of its Affiliates (nor any investment
banker, financial advisor, attorney, accountant or other Person
retained by, and in connection with its actions, for or on behalf
of the Company or any such Affiliate) (i) has entered into any
Contract that conflicts with any of the transactions contemplated
by this Agreement or (ii) has entered into any Contract or had any
discussions with any Person regarding any transaction involving the
Company which could result in the Company’s being subject to
any claim for liability to said Person as a result of entering into
this Agreement or consummating the transactions contemplated
hereby. Without limiting the foregoing, except as set forth
in Schedule 2.24 , no finder, broker, agent, financial
advisor, or other intermediary has acted on behalf of the Company
in connection with the Merger or the negotiation or consummation of
this Agreement or any of the transactions contemplated
hereby. Schedule 2.24 sets forth a reasonable estimate
of all Third Party Expenses expected to be incurred by the Company
through the Closing Date in connection with the negotiation of the
terms and conditions of this Agreement and the Closing of the
transactions contemplated hereby.
2.25 Warranty
Obligations; Maintenance Contracts.
(a)
Schedule 2.25 sets forth (a) a list of all forms of written
warranties, guarantees and written warranty policies of the Company
in respect of any of the Company’s products and services,
which are currently in effect (the “ Warranty Obligations ”), and the duration of
each such Warranty Obligation, (b) each of the Warranty Obligations
which is subject to any dispute or, to the knowledge of the
Company, threatened dispute and (c) a brief description of any
claims during the last three (3) years made under or with respect
to warranties, guarantees and warranty policies of or relating to
the Company’s products and services. True and correct
copies of the Warranty Obligations have been delivered to Parent
prior to the execution of this Agreement. To Company’s
knowledge, there have not been any material deviations from the
Warranty Obligations, and salespersons, employees and agents of the
Company are not authorized to undertake obligations to any customer
or other Person in excess of such Warranty Obligations. All
products manufactured, designed, licensed, leased, rented or sold
by the Company (i) wer
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