Exhibit 2
AGREEMENT AND PLAN OF MERGER
among
CONVERSION SERVICES INTERNATIONAL, INC.,
ISI MERGER CORP.,
INTEGRATED STRATEGIES, INC.
and
ISI CONSULTING, LLC
Dated as of July 29, 2005
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 29, 2005 (this
"Merger Agreement"), among Conversion
Services International, Inc., a Delaware
corporation ("CSI"), ISI Merger Corp., a
Delaware corporation and a wholly owned
subsidiary of CSI ("Merger Sub"),
Integrated Strategies, Inc. ("ISI"), a
Delaware corporation, ISI Consulting, LLC,
a Delaware limited liability company
("LLC") and Adam Hock and Larry Hock (the
"Majority Stockholders").
WHEREAS, the Boards of Directors or other governing bodies of
CSI,
Merger Sub, ISI and LLC have each approved
the merger of ISI and LLC with and
into Merger Sub (the "Merger") upon the
terms and subject to the conditions of
this Merger Agreement, thus enabling Merger
Sub to acquire all of the common
stock of ISI and all of the membership
interests of LLC in exchange for cash and
CSI's common stock, par value $0.001 ("CSI
Common Stock");
WHEREAS, the Majority Stockholders (or members, as applicable)
of
ISI and LLC have approved the Merger and
the terms of this Merger Agreement; and
WHEREAS, CSI, Merger Sub, ISI, LLC and the Majority
Stockholders
desire to make certain representations,
warranties, covenants and agreements in
connection with the Merger and also to
prescribe various conditions to the
Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and
agreements herein contained, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger; Effective Time of
the Merger.
Upon the
terms and conditions of this Merger Agreement and in accordance
with the Delaware General Corporation Law
(the "DGCL") and the Delaware Limited
Liability Company Act ("DLLCA"), ISI and
LLC shall be merged with and into
Merger Sub at the Effective Time (as
hereinafter defined). The Merger shall
become effective immediately when a
certificate of merger (the "Certificate of
Merger"), prepared and executed in
accordance with the relevant provisions of
the DGCL and DLLCA, is duly filed with the
Secretary of State of the State of
Delaware or, if agreed to by the parties,
at such time thereafter as is provided
in the Certificate of Merger (the
"Effective Time"). The filing of the
Certificate of Merger shall be made as soon
as practicable after the closing of
the Merger (the "Closing").
<PAGE>
Section 1.02 Closing.
The
Closing shall take place at on a date and at a time to be specified
by
the parties (the "Closing Date"), at the
offices of CSI, unless another date,
time or place is agreed to by the
parties.
Section 1.03 Merger Consideration.
(a)
Subject to adjustments set forth in Sections 1.03(b) and
1.03(c)
below, the aggregate consideration to be
paid at the Closing to the Majority
Stockholders shall consist of cash and
notes with an aggregate value of
approximately $2,215,000 (collectively, the
"Base Consideration"), consisting of
(i) cash of $2,050,000, minus any amounts
owed by ISI under its line of credit
with Commerce Bank (the "Line of Credit");
(ii) a note in the Form on Exhibit A
which note shall be in principal amount
equal to the Line of Credit minus
$50,000 (the "Line of Credit Note"), and
payments on such Line of Credit Note
shall be due and payable in cash within
seven (7) business days upon receipt of
outstanding accounts receivable acquired by
Merger Sub in the Merger; and (iii)
a subordinated note of $165,000 with
interest accruing at a rate of 5% per annum
(the "Subordinated Note" in form
substantially similar to Exhibit B attached
hereto), which Subordinated Note and
accrued interest shall be due and payable
in cash on the 15-month anniversary of the
Closing Date. ISI represents that as
of the Closing Date, the working capital
(current assets less current
liabilities) of ISI shall equal $450,000 as
shown on a ISI Financial Statements
as prepared in accordance with generally
accepted accounting principles
("GAAP"). If the working capital is less
than $450,000, then the difference
shall be subtracted from the Line of Credit
Note.
(b) In the
event ISI meets the following Total Revenue and Gross Profits
thresholds (each as defined below) for the
two six-month periods subsequent to
the Closing Date, then the Majority
Stockholders will receive, in addition to
the Base Consideration, additional cash and
shares of CSI Common Stock
("Additional Stock Consideration"), as
follows:
(i) Sixty (60) days after the six-month anniversary of the date
hereof, the Majority Stockholders shall
receive a payment equal to the result
obtained by multiplying $500,000 by the
quotient obtained by dividing (A) the
Gross Profit (as defined below) achieved in
that six-month period, by (B)
$900,000, but only upon obtaining at least
80% of each of the pre-determined
projections as listed below in Section
1.03(c) (the "Projections") on that
six-month anniversary of the Closing. This
payment shall be made in two equal
payments of cash and CSI Common Stock. The
number of shares of CSI Common Stock
issued hereunder shall be based on the
volume-weighted average closing price of
the CSI Common Stock on the national
securities exchange or automated quotation
system upon which such shares are then
listed for the ten (10) trading days
prior to the six-month anniversary of the
Closing. Solely by way of
illustration, if, in that six-month period,
ISI achieves a Gross Profit of
$945,000, or 105% of the first six-month
period projection, the Majority
Stockholders shall be entitled to receive
$262,500 cash and $262,500 CSI Common
Stock, for a total of $525,000; and
<PAGE>
(ii) Sixty (60) days after the one-year anniversary of the date
hereof, the Majority Stockholders shall
receive a payment equal to the result
obtained by multiplying $500,000 by the
quotient obtained by dividing (A) the
Gross Profit (as defined below) achieved in
the six-month period immediately
following the period set forth in Section
1.03(b)(i) above, by (B) $900,000, but
only upon obtaining at least 80% of each of
the Projections on that one-year
anniversary of the Closing. This payment
shall be made in two equal payments of
cash and CSI Common Stock. The number of
shares of CSI Common Stock issued
hereunder shall be based on the
volume-weighted average closing price of the CSI
Common Stock on the national securities
exchange or automated quotation system
upon which such shares are then listed for
the ten (10) trading days prior to
the one-year anniversary of the
Closing.
(c) The
"Projections" are defined herein as follows:
--------------------------------------------------------------------
ISI Total Revenue for ISI Gross Profit
applicable six-month for applicable
period
six-month period
--------------------------------------------------------------------
(i) First six-month
$3,000,000
$900,000
period, ending on the
six-month anniversary of
the Closing Date
--------------------------------------------------------------------
(ii) Second six-month
$3,000,000
$900,000
period, ending on the
one-year anniversary of
the Closing Date, not to
include the six months
in (i) above
--------------------------------------------------------------------
The determination of Total Revenue and Gross Profits shall be
calculated no later than 60 days following
the end of the applicable six-month
period. As used herein, "Total Revenue"
shall (i) include only Net Revenue (as
defined below) from ISI's operations during
the applicable six-month period,
(ii) be determined in accordance with GAAP,
applied on a basis consistent with
the historical audited consolidated
financial statements of ISI (included in the
ISI Financial Statements (as defined below)
and the financial statements
prepared for the financial reporting period
ending prior to the applicable
six-month period) and (iii) exclude the
impact of any adjustments or
modifications to the historical carrying
values of ISI's assets and liabilities
resulting from the recording by CSI of the
transaction contemplated by this
Merger Agreement. Notwithstanding the
immediately preceding sentence, if the
accounting policies and procedures applied
by ISI in the preparation of its
historical audited consolidated financial
statements are not in accordance with
GAAP, then Total Revenue shall be equal to
the lesser of (a) ISI's total Net
Revenue derived from its operations during
the applicable period determined on a
basis consistent with the accounting
policies and procedures applied by ISI in
the preparation of its historical audited
consolidated financial statements, or
(b) ISI's Net Revenues derived from its
operations during the applicable period
determined in accordance with GAAP. As used
herein, "Gross Profits" equals Net
Revenues minus the cost of services (as
defined by GAAP). Cost of services
includes, but is not limited to, cost of
employee consultants, cost of outside
consultants, related payroll taxes and
benefits, related training, travel and
entertainment. Gross Profit shall not
include charges incurred by ISI from CSI
outside of the ordinary course of business.
"Net Revenue" equals total client
billings actually received net of client
reimbursements for billable expenses,
including, but not limited to, travel,
lodging and meals. For the purpose of
determining Total Revenue and Gross
Profits, future revenues earned by any
company associated with CSI that derive
from existing client relationships of
ISI and LLC or their current employees,
divisions or affiliates (not previously
established by CSI, its subsidiaries or
affiliates) shall be included in the
calculation of Net Revenue. To receive
credit for the Additional Stock
Consideration, the Majority Stockholders
and CSI agree that the Majority
Stockholders will identify a client or
customer prior to the beginning of a
client engagement so both parties may
determine in good faith if such client or
customer has an existing relationship with
CSI.
<PAGE>
(d) CSI
will (a) deposit in escrow (i) a portion of the Base
Consideration
with a fair market value equal to $200,000
(the "Escrowed Amount"), consisting
of the Subordinated Note (equaling
$165,000), and (ii) a $35,000 of the Line of
Credit Note, and (b) sixty (60) days after
the six-month anniversary of the
Closing Date, an amount in CSI Common Stock
equal to 10% of the amount issuable
to Majority Stockholders under the terms of
Section 1.03(b)(i), to cover any
potential liabilities (i) incurred from the
lawsuits (the "Lawsuits") currently
pending against ISI or LLC and related
parties as disclosed in Section 3.01(i)
to the ISI Disclosure Letter (as
hereinafter defined) and (ii) covered by the
indemnification provisions of Section 4.07
below, to be held in escrow pursuant
to the terms of the Escrow Agreement
attached hereto as Exhibit C. All expenses
related to such Escrowed Amount shall be
the responsibility of CSI.
Section 1.04 Effects of the Merger.
(a) At the
Effective Time: (i) ISI and LLC shall be merged with and into
Merger Sub, the separate existences of ISI
and LLC shall cease, and Merger Sub
shall continue as the surviving corporation
(Merger Sub, ISI and LLC are
sometimes referred to herein as the
"Constituent Corporations" and Merger Sub is
sometimes referred to herein as the
"Surviving Corporation") and the merger
shall have such effects as are set forth in
the DGCL and the DLLCA; (ii) the
Certificate of Incorporation of Merger Sub
as in effect immediately prior to the
Effective Time shall be the Certificate of
Incorporation of the Surviving
Corporation; and (iii) the Bylaws of Merger
Sub as in effect immediately prior
to the Effective Time shall be the Bylaws
of the Surviving Corporation.
(b) The directors and
officers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the
directors and officers of the
Surviving Corporation and shall serve until
their successors have been duly
elected or appointed and qualified or until
their earlier death, resignation or
removal in accordance with the Surviving
Corporation's Certificate of
Incorporation and Bylaws.
<PAGE>
(c) At the
Effective Time, all of the shares of ISI Common Stock (as
defined below) issued and outstanding
immediately prior to the Effective Time
shall, by virtue of the Merger and without
any action on the part of ISI, Merger
Sub or CSI, be converted into and be
exchangeable for the Base Consideration
payable to the Majority Stockholders, in
their capacity as stockholders of ISI
pursuant to the terms of this Agreement,
shall be distributed.
(d) At the
Effective Time, all LLC Membership Interests (as defined below)
issued and outstanding immediately prior to
the Effective Time shall, by virtue
of the Merger and without any action on the
part of LLC, Merger Sub or CSI, be
converted into and be exchangeable for the
Base Consideration payable to the
Majority Stockholders, in their capacity as
membership holders of LLC pursuant
to the terms of this Agreement, shall be
distributed.
(e) At the
Effective Time, all options, warrants, convertible notes and
other rights, entitling the holders thereof
to purchase or otherwise acquire any
shares of ISI capital stock or membership
interests of LLC shall be canceled,
retired and cease to exist at and as of the
Effective Time.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF MERGER CONSIDERATION
Section 2.01 Effect on Capital Stock.
At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any
shares of common stock, no par value, of
ISI ("ISI Common Stock") or membership
interests of LLC ("LLC Membership
Interests"), the Base Consideration and the
Additional Stock Consideration paid
or issued in accordance with the terms of
this Merger Agreement shall be deemed
to have been issued, or shall have been
reserved for issuance, as applicable, in
full satisfaction of all rights pertaining
to ISI Common Stock and LLC
Membership Interests. At the Effective
Time, each share of ISI Common Stock and
all LLC Membership Interests owned prior to
the Effective Time shall no longer
be outstanding and shall automatically be
canceled and retired and shall cease
to exist, and each holder of a certificate
representing any such shares or
membership interests shall cease to have
any rights with respect thereto, except
the right to receive its portion of the
Base Consideration and the Additional
Stock Consideration.
If, subsequent to the date of this Merger Agreement but prior to
the
Effective Time, or prior to the date
payment of Additional Stock Consideration
is made, as the case may be, the number of
shares of CSI Common Stock issued and
outstanding is changed as a result of a
stock split, reverse stock split,
recapitalization, reclassification or other
similar transaction, the CSI Common
Stock and other items dependent thereon
shall be appropriately and equitably
adjusted herein.
<PAGE>
Section 2.02 Exchange of Certificates for
Merger Consideration.
(a)
Exchange Procedures. Upon surrender of a certificate or
certificates
which, immediately prior to the Effective
Time, represented all the outstanding
shares of ISI Common Stock and LLC
Membership Interests (the "Certificates") for
cancellation to CSI or to such other agent
or agents as may be appointed by CSI,
and any other required documents, the
holder of record of such Certificate shall
be entitled to receive in exchange therefor
the portion of the Base
Consideration which such holder has the
right to receive, and the Certificate so
surrendered shall forthwith be canceled. In
the event of a transfer of ownership
of ISI Common Stock and LLC Membership
Interests that is not registered in the
transfer records of ISI or LLC,
respectively, the appropriate Base Consideration
may be issued to a transferee if the
Certificate representing such ISI Common
Stock and LLC Membership Interests is
presented to CSI 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 2.02, each
Certificate shall be deemed at any time
after the Effective Time to represent only
the right to receive upon such
surrender the appropriate Base
Consideration as contemplated by Section 2.02(b).
(b) No
Further Ownership Rights in ISI Common Stock or LLC Membership
Interests. All shares of CSI Common Stock
issued in exchange for and upon the
conversion of ISI Common Stock and LLC
Membership Interests in accordance with
the terms hereof (including any cash paid
pursuant to Section 2.02(a) or
2.02(c)) shall be deemed to have been
issued in full satisfaction of all rights
pertaining to such shares of ISI Common
Stock and LLC Membership Interests,
subject, however, to the rights pertaining
to such shares of ISI Common Stock
and LLC Membership Interests with respect
to Additional Stock Consideration, and
after the Effective Time there shall be no
further registration of transfers on
the stock transfer books of the Surviving
Corporation of the shares of ISI
Common Stock and LLC Membership Interests
that 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 Article
II.
(c) No
Liability. None of the parties shall be liable to any holder of
shares of ISI Common Stock, LLC Membership
Interests or CSI Common Stock, as the
case may be, for such shares (or dividends
or distributions with respect
thereto) or cash delivered to a public
official pursuant to any applicable
abandoned property, escheat or similar
law.
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties
of the Majority Stockholders.
Subject to the exceptions
set forth in the disclosure letter to be
delivered by the Majority Stockholders to
CSI and Merger Sub in connection
herewith (the "ISI Disclosure Letter"), the
Majority Stockholders jointly and
severally represent and warrant to CSI and
Merger Sub as follows:
(a)
Organization, Standing and Power.
(i) Each of ISI and LLC is an entity, duly organized, validly
existing and in good standing under the
laws of its jurisdiction of
organization, has all requisite power and
authority to own, lease and operate
its properties and to carry on its business
as now being conducted, and is duly
qualified and in good standing to do
business in each jurisdiction in which the
business it is conducting, or the
operation, ownership or leasing of its
properties, makes such qualification
necessary, other than where the failure to
be so organized or so to qualify
(individually or in the aggregate) would not
have a Material Adverse Effect (as
hereinafter defined) on ISI and LLC. ISI has
delivered to CSI complete and correct
copies of its Certificate of Incorporation
and Bylaws, and LLC has delivered to CSI
complete and correct copies of its
Certificate of Formation and limited
liability company operating agreement.
Section 3.01(a) of the ISI Disclosure
Letter sets forth each direct or indirect
Subsidiary of ISI or LLC and its
jurisdiction of organization and the
jurisdictions where it is qualified to do
business.
(ii) As used in this Merger Agreement, the word "Subsidiary"
means,
with respect to any party, any corporation
or other organization, whether
incorporated or unincorporated, of which:
(i) such party or any other Subsidiary
of such party is a general partner
(excluding partnerships, the general
partnership interests of which are held by
such party or any Subsidiary of such
party that do not have a majority of the
voting interest in such partnership);
or (ii) at least a majority of the
securities or other interests having by their
terms ordinary voting power to elect a
majority of the board of directors or
others performing similar functions with
respect to such corporation or other
organization is, directly or indirectly,
owned or controlled by such party or by
any one or more of its Subsidiaries, or by
such party and any one or more of its
Subsidiaries.
(iii) As used in this Merger Agreement, a "Material Adverse
Effect"
shall mean any effect or change that is or
would be materially adverse to the
business, operations, assets, condition
(financial or otherwise) or results of
operations of (i) in respect of ISI and
LLC, ISI and LLC and their direct and
indirect Subsidiaries, taken as a whole,
and (ii) in respect of CSI, CSI and all
of its direct and indirect Subsidiaries,
taken as a whole.
(b)
Capital Structure.
<PAGE>
(i) Section 3.01(b)(i) of the ISI Disclosure Letter sets forth
the
authorized, issued and outstanding capital
stock or other equity interests of
ISI, LLC and each of their respective
Subsidiaries as well as any other
securities (including debt securities) of
ISI, LLC or their respective
Subsidiaries. All outstanding shares of
capital stock of ISI and its
Subsidiaries have been duly authorized and
validly issued and are fully paid and
non-assessable and were not issued in
violation of any preemptive rights or
other preferential rights of subscription
or purchase other than those that have
been waived or otherwise cured or satisfied
and all such shares owned by ISI, or
a direct or indirect wholly owned
Subsidiary of ISI, are free and clear of all
liens, charges, encumbrances, claims and
options of any nature. All membership
interests of LLC and its Subsidiaries have
been duly authorized and validly
issued and are fully paid and
non-assessable and were not issued in violation of
any preemptive rights or other preferential
rights of subscription or purchase
other than those that have been waived or
otherwise cured or satisfied and all
such membership interests owned by LLC, or
a direct or indirect wholly owned
Subsidiary of LLC, are free and clear of
all liens, charges, encumbrances,
claims and options of any nature.
(ii) Section 3.01(b)(ii) of the ISI Disclosure Letter sets forth
a
list of all options, warrants, convertible
securities, rights, commitments
(including pre-emptive rights) or
agreements to which ISI or any Subsidiary of
ISI is bound to issue, deliver, sell,
purchase, redeem or acquire or cause to be
issued, delivered, sold, purchased,
redeemed or acquired, shares of ISI Common
Stock, capital stock of an ISI Subsidiary
or any other securities of ISI or its
Subsidiaries. Section 3.01(b)(ii) of the
ISI Disclosure Letter further sets
forth a list of all options, warrants,
convertible securities, rights,
commitments (including pre-emptive rights)
or agreements to which LLC or any
Subsidiary of LLC is bound to issue,
deliver, sell, purchase, redeem or acquire
or cause to be issued, delivered, sold,
purchased, redeemed or acquired, LLC
Membership Interests, capital stock of a
LLC Subsidiary or any other securities
of LLC or its Subsidiaries.
(iii) Except as disclosed in Section 3.01(b)(iii) of the ISI
Disclosure Letter, there are not as of the
date hereof, and there will not be at
the Effective Time, any stockholder
agreements, voting trusts or other
agreements or understandings to which ISI
or LLC or Majority Stockholders are a
party or by which it is bound relating to
the voting of any shares of the
capital stock of ISI or membership
interests of LLC or any of their
Subsidiaries. There are no restrictions on
ISI or LLC to vote the capital stock
of any of their Subsidiaries.
(c)
Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of ISI has approved the Merger and
this
Merger Agreement, by vote of the directors
with no negative vote, and has
resolved to deem this Merger Agreement and
the transactions contemplated hereby,
including the Merger, advisable and fair
to, and in the best interests of, ISI
and its stockholders. ISI has all requisite
corporate power and authority to
enter into this Merger Agreement and to
consummate the transactions contemplated
hereby. The execution and delivery of this
Merger Agreement and each of the
agreements required to be executed in
connection therewith and the consummation
of the transactions contemplated hereby and
thereby have been duly authorized by
all necessary corporate action on the part
of ISI. This Merger Agreement and
each of the agreements required to be
executed in connection therewith have been
duly executed and delivered by ISI and
constitutes a valid and binding
obligation of ISI enforceable in accordance
with its terms, subject, as to
enforceability, to bankruptcy, insolvency,
reorganization and other laws of
general applicability relating to or
effecting creditors' rights and to general
principles of equity and limitations
imposed on indemnity obligations by
applicable federal and state securities
laws.
<PAGE>
The Board of Managers of LLC has approved the Merger and this
Merger Agreement, by vote of the members
with no negative vote, and has resolved
to deem this Merger Agreement and the
transactions contemplated hereby,
including the Merger, advisable and fair
to, and in the best interests of, LLC
and its members. LLC has all requisite
corporate power and authority to enter
into this Merger Agreement and to
consummate the transactions contemplated
hereby. The execution and delivery of this
Merger Agreement and each of the
agreements required to be executed in
connection therewith and the consummation
of the transactions contemplated hereby and
thereby have been duly authorized by
all necessary corporate action on the part
of LLC. This Merger Agreement and
each of the agreements required to be
executed in connection therewith have been
duly executed and delivered by LLC and
constitutes a valid and binding
obligation of LLC enforceable in accordance
with its terms, subject, as to
enforceability, to bankruptcy, insolvency,
reorganization and other laws of
general applicability relating to or
effecting creditors' rights and to general
principles of equity and limitations
imposed on indemnity obligations by
applicable federal and state securities
laws.
This Merger Agreement and each of the agreements required to
be executed in connection therewith have
been duly executed and delivered by the
Majority Stockholders and constitutes a
valid and binding obligation of the
Majority Stockholders enforceable in
accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency,
reorganization and other laws of
general applicability relating to or
effecting creditors' rights and to general
principles of equity and limitations
imposed on indemnity obligations by
applicable federal and state securities
laws.
(ii) The execution and delivery of this Merger Agreement by ISI
and
LLC does not, and the consummation by ISI
and LLC of the transactions
contemplated hereby and compliance with the
provisions hereof will not, conflict
with, or result in any violation of, or
default (with or without notice or lapse
of time, or both) under, or give rise to a
right of termination, cancellation or
acceleration of any obligation or to the
loss of a material benefit under, or
result in the creation of any lien,
security interest, charge or encumbrance
upon any of the properties or assets of ISI
and LLC or any of their respective
Subsidiaries under any provision of (A) the
Certificate of Incorporation or
Bylaws of ISI, the Certificate of Formation
or limited liability company
operating agreement of LLC, or any
provision of the comparable charter or
organizational documents of any of their
respective Subsidiaries, (B) any loan
or credit agreement, note, bond, mortgage,
indenture, lease or other agreement,
instrument, permit, concession, franchise
or license applicable to ISI and LLC
or any of their respective Subsidiaries or
(C) any judgment, order, decree,
statute, law, ordinance, rule or regulation
applicable to ISI and LLC or any of
their respective Subsidiaries or any of
their respective properties or assets,
other than, in the case of clause (B) or
(C), any such conflicts, violations,
defaults, rights, liens, security
interests, charges or encumbrances that are
set forth on Section 3.01(a)(ii) of the ISI
Disclosure Letter.
<PAGE>
(iii) No
consent, approval, order or authorization of, or
registration, declaration or filing with,
or permit from, any U.S. or non-U.S.
court, administrative agency or commission
or other governmental authority or
instrumentality (a "Governmental Entity"),
is required by, or with respect to,
ISI and LLC or any of their respective
Subsidiaries in connection with the
execution and delivery of this Merger
Agreement by ISI and LLC or the
consummation by ISI and LLC of the
transactions contemplated hereby, as to which
the failure to obtain or make would have a
Material Adverse Effect on ISI and
LLC, except for: (A) the filing of the
Certificate of Merger with the Secretary
of State of the State of Delaware; or (B)
such filings and approvals as may be
required by any applicable state
securities, "blue sky" or takeover laws, or
Environmental Law.
(d)
Financial Statements. Attached hereto as Section 3.01(d)(i) to the
ISI
Disclosure Letter is a copy of ISI's and
LLC's audited consolidated financial
statements as of and for the year ended
December 31, 2004, certified by Tanton &
Co., and unaudited consolidated financial
statements as of and for the six-month
period ended June 30, 2005 (collectively,
the "ISI Financial Statements").
Except as disclosed on Section 3.01(d)(ii)
to the ISI Disclosure Letter, the ISI
Financial Statements were prepared in
accordance with GAAP, applied on a
consistent basis during the periods
involved and fairly present in accordance
with applicable requirements of GAAP
(subject, in the case of the unaudited
statements, to normal year-end adjustments
and the absence of footnotes) the
consolidated financial position of ISI and
its consolidated Subsidiaries as of
their respective dates and the consolidated
results of operations and the
consolidated cash flows of ISI and its
Subsidiaries for the periods presented
therein.
(e)
Absence of Certain Changes or Events. Except as disclosed in or
as
reflected on the ISI Financial Statements,
or except as contemplated by this
Merger Agreement, since June 30, 2005,
there has not been: (i) any declaration,
setting aside or payment of any dividend or
other distribution (whether in cash,
stock or property) with respect to any of
ISI's capital stock; (ii) any
amendment of any term of any outstanding
equity security of ISI, LLC or any
Subsidiary; (iii) any repurchase,
redemption or other acquisition by ISI, LLC or
any Subsidiary of any outstanding shares of
capital stock or other equity
securities of, or other ownership interests
in, ISI, LLC or any Subsidiary; (iv)
any change in any method of accounting or
accounting practice by ISI, LLC or any
Subsidiary; or (v) a Material Adverse
Effect with respect to ISI or LLC.
<PAGE>
(f) No
Undisclosed Liabilities. Except as disclosed on Section 3.01(f)
to
the ISI Disclosure Letter, there are no
liabilities of ISI, LLC or any
Subsidiary of any kind whatsoever, whether
accrued, contingent, absolute,
determined, determinable or otherwise,
other than: (i) liabilities adequately
provided for on the Current Balance Sheet
included in the ISI Financial
Statements; (ii) liabilities under this
Merger Agreement; and (iii) as disclosed
on Section 3.01(f)(i) to the ISI Disclosure
Letter.
(g) No
Default. Except as included in Section 3.01(g) of the ISI
Disclosure Letter, neither ISI, LLC or any
Subsidiary is in default or violation
(and no event has occurred which, with
notice or the lapse of time or both,
would constitute a default or violation) of
any term, condition or provision of
(i) in the case of ISI, LLC or any
Subsidiary, their respective charters,
agreements and bylaws, (ii) any note, bond,
mortgage, indenture, license,
agreement or other instrument or obligation
to which ISI, LLC or any Subsidiary
is now a party or by which ISI, LLC or any
Subsidiary or any of their respective
properties or assets may be bound or (iii)
any order, writ, injunction, decree,
statute, rule or regulation applicable to
ISI, LLC or any Subsidiary.
(h)
Compliance with Applicable Laws. ISI, LLC and any of their
respective
Subsidiaries hold all permits, licenses,
variances, exemptions, orders,
franchises and approvals of all
Governmental Entities necessary for the lawful
conduct of their respective businesses (the
"ISI Permits") and are in compliance
with the terms of the ISI Permits. The
businesses of ISI, LLC and their
respective Subsidiaries are not being
conducted in violation of any law,
ordinance or regulation of any Governmental
Entity. No investigation or review
by any Governmental Entity with respect to
ISI, LLC and their respective
Subsidiaries is pending or threatened.
(i)
Litigation. Except as disclosed in the litigation report included
in
Section 3.01(i) of the ISI Disclosure
Letter, there is no (i) suit, action or
proceeding pending or threatened against or
affecting ISI, LLC and their
respective Subsidiaries, or (ii) judgment,
decree, injunction, rule or order of
any Governmental Entity or arbitrator
outstanding against ISI, LLC and their
respective Subsidiaries.
(j)
Taxes.
(i) Each of ISI, LLC and their respective Subsidiaries and any
affiliated, combined or unitary group of
which any such entity is or was a
member has (A) timely (taking into account
any extensions) filed in correct form
all federal and all state, local and
non-U.S. returns, declarations, reports,
estimates, information returns and
statements ("Returns") required to be filed
by or with respect to it in respect of any
Taxes (as hereinafter defined), (B)
timely paid all Taxes that are due and
payable (except for audit adjustments
that would not have a Material Adverse
Effect on ISI, LLC and their respective
Subsidiaries in the aggregate or to the
extent that liability therefor is
reserved for in ISI's and LLC's most
recent, regularly-prepared balance sheet
prepared as of June 30, 2005 (the "Current
Balance Sheet")) for which ISI, LLC
and their respective Subsidiaries may be
liable, (C) established reserves that
are included in the Current Balance Sheet
that are adequate for the payment of
all Taxes not yet due and payable with
respect to the results of operations of
ISI, LLC and their respective Subsidiaries
through the date of the Current
Balance Sheet, and (D) complied in all
respects with all applicable laws, rules
and regulations relating to the payment and
withholding of Taxes and has in all
respects timely withheld from employee
wages and paid over to the proper
governmental authorities all amounts
required to be so withheld and paid over.
<PAGE>
(ii) Section 3.01(j)(ii) to the ISI Disclosure Letter sets forth
the
last taxable period through which the
federal income Tax Returns of ISI, LLC and
their respective Subsidiaries have been
examined by the Internal Revenue Service
("IRS") or otherwise closed. Except to the
extent being contested in good faith,
all deficiencies asserted as a result of
such examinations and any examination
by any applicable state, local or non-U.S.
taxing authority have been paid,
fully settled or adequately provided for in
the Current Balance Sheet. No
federal, state, local or non-U.S. Tax
audits or other administrative proceedings
or court proceedings are presently pending
with regard to any Taxes for which
ISI, LLC or any of their respective
Subsidiaries would be liable, and no
deficiency for any such Taxes has been
proposed, asserted or assessed pursuant
to any such examination against ISI, LLC
and their respective Subsidiaries by
any federal, state, local or non-U.S.
taxing authority with respect to any
period.
(iii) Neither ISI, LLC nor any of their respective Subsidiaries
(A)
has executed or entered into (or prior to
the close of business on the Closing
Date will execute or enter into) with the
IRS or any other taxing authority (x)
any agreement or other document extending
or having the effect of extending the
period for assessments or collection of any
Taxes for which ISI, LLC and their
respective Subsidiaries would be liable or
(y) a closing agreement pursuant to
Section 7121 of the Internal Revenue Code
(the "Code"), or any predecessor
provision thereof or any similar provision
of state, local or non-U.S. Tax law
that relates to the assets or operations of
ISI, LLC or their respective
Subsidiaries, (B) has made a change in
method of accounting for a taxable period
ending on or prior to the Closing Date, or
(C) has sold assets on the
installment method.
(iv) There are no liens or security interests on any of the
assets
of ISI, LLC and their respective
Subsidiaries that arose in connection with any
failure or alleged failure to pay any Tax
other than for Taxes which are not yet
delinquent.
(v) Neither ISI, LLC nor any of their respective Subsidiaries is
a
party to an agreement that provides for the
payment of any amount that would
constitute a "parachute payment" within the
meaning of Section 280G of the Code.
(vi) Neither ISI, LLC nor any of their respective Subsidiaries
has
made an election under Section 341(f) of
the Code or agreed to have Section
341(f)(2) of the Code apply to any
disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4)
of the Code) owned by ISI, LLC and
their respective Subsidiaries.
(vii) Neither ISI, LLC nor any of their respective Subsidiaries is
a
party to, is bound by or has any obligation
under any tax sharing agreement, tax
indemnity agreement or similar agreement or
arrangement.
<PAGE>
(viii) Neither ISI, LLC nor any of their respective Subsidiaries
has
any liability for Taxes under Treas. Reg.
ss. 1.1502-6, or any similar provision
of state, local or non-U.S. law, except for
Taxes of the affiliated group of
which ISI and/or LLC is the common parent
corporation, within the meaning of
Section 1504(a)(1) of the Code or any
similar provision of state, local or
non-U.S. law.
(ix) Neither ISI, LLC nor any of their respective Subsidiaries
has
participated in any international boycott
within the meaning of Section 999 of
the Code.
(x) Except as disclosed on Section 3.01(j)(x) to the ISI
Disclosure
Letter, neither ISI, LLC nor any of their
respective Subsidiaries has had a
permanent establishment in any foreign
country, as defined in any applicable
treaty or convention between the United
States and such foreign country.
(xi) Neither ISI, LLC nor any of their respective Subsidiaries
has
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.
For purposes of this Merger Agreement, "Taxes" shall mean all
federal, state, local, non-U.S. and other
taxes, charges, fees, levies, imposts,
duties, licenses or other assessments,
together with any interest, penalties,
additions to tax or additional amounts
imposed by any taxing authority.
(k) Employee Matters;
ERISA.
(i) Benefit Plans. Section 3.01(k)(i) to the ISI Disclosure
Letter
contains a true and complete list and
description of each of the following
items: each employee benefit plan, program
or arrangement covering any current
or former officer, director, employee or
independent contractor of ISI, LLC or
any of their respective Subsidiaries or any
of their dependents or beneficiaries
(each, an "ISI Beneficiary") including, but
not limited to, any "employee
benefit plan" within the meaning of Section
3(3) of the Employee Retirement
Income Security Act of 1974, as amended
("ERISA"), whether or not terminated or
covered by ERISA, if ISI, LLC or any of
their respective Subsidiaries could have
statutory or contractual liability with
respect thereto on or after the date
hereof. The items described above, together
with each management, employment,
deferred compensation, severance, change in
control, bonus or other contract for
personal services with or covering any ISI
Beneficiary, whether or not
terminated, if ISI, LLC or any of their
respective Subsidiaries could have
statutory or contractual liability with
respect thereto on or after the date
hereof, are referred to collectively herein
as the "ISI Benefit Plans."
(ii) Contributions and
Payments. All contributions and other
payments required to have been made by ISI,
LLC or any entity required to be
aggregated therewith pursuant to Code
Section 414 (an "ISI ERISA Affiliate")
with respect to any ISI Benefit Plan (or to
any person pursuant to the terms
thereof) have been or will be timely made
and all such amounts properly accrued
through the date of this Merger Agreement
have been reflected in the ISI
Financial Statements.
<PAGE>
(iii) Qualification; Compliance. Each ISI Benefit Plan that is
intended to be "qualified" within the
meaning of Code Section 401(a) has been
determined by the IRS to be so qualified or
the applicable remedial period
applicable to the Plan will not have ended
prior to the Effective Time, and no
event or condition exists or has occurred
that would reasonably be expected to
result in the revocation or denial of any
such determination which would have a
Material Adverse Effect on ISI or LLC. With
respect to each ISI Benefit Plan,
ISI, LLC and each ISI ERISA Affiliate are
in compliance with, and each ISI
Benefit Plan and related source of benefit
payment is and has been operated in
compliance with, all applicable laws, rules
and regulations governing such plan
or source, including, without limitation,
ERISA, the Code and applicable local
law (including non-U.S. law), except for
violations that would not have a
Material Adverse Effect on ISI or LLC. No
ISI Benefit Plan is subject to any
ongoing audit, investigation or other
administrative proceeding of the IRS, the
Department of Labor, or any other federal,
state or local governmental entity or
is scheduled to be subject to such an
audit, investigation or proceeding.
(iv) Liabilities. With respect to the ISI Benefit Plans,
individually and in the aggregate, there
exists no condition or set of
circumstances that could subject ISI, LLC
or any ISI ERISA Affiliate to any
liability arising under the Code, ERISA or
any other applicable law (including,
without limitation, any liability to or
under any such plan or to the Pension
Benefit Guaranty Corporation ("PBGC"), or
under any indemnity agreement to which
ISI, LLC or any ISI ERISA Affiliate is a
party), which liability, excluding
liability for benefit claims, funding
obligations and PBGC insurance premiums,
each payable in the ordinary course, would
have a Material Adverse Effect on ISI
or LLC. No claim, action or litigation has
been made, commenced or threatened,
by or against ISI, LLC or any of their
respective Subsidiaries with respect to
any ISI Benefit Plan (other than for
benefits or PBGC premiums payable in the
ordinary course).
(v) Retiree Welfare Plans. No ISI Benefit Plan that is a
"welfare
plan" (within the meaning of ERISA Section
3(1)) provides benefits for any
retired or former employees (other than as
required pursuant to ERISA Section
601).
(vi) Payments Resulting from Merger. The consummation or
announcement of any transaction
contemplated by this Merger Agreement will not
(either alone or upon the occurrence of any
additional or further acts or
events) result in (A) any payment (whether
of severance pay or otherwise)
becoming due from ISI, LLC or any of their
respective Subsidiaries to any ISI
Beneficiary or to the trustee under any
"rabbi trust" or si
