Exhibit 2.1
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION (the “ Agreement ”) is made and
entered into as of September 14, 2007, by and among Sontra
Medical Corporation, a Minnesota corporation (“ Parent
”), Durham Pharmaceuticals Acquisition Co., a Delaware
corporation and wholly owned subsidiary of Parent (“
Merger Sub ”), and Durham Pharmaceuticals Ltd. (d/b/a
Echo Therapeutics, Inc.), a North Carolina corporation (“
Company ”).
R E C I T A L S
A. The Boards of Directors of
Company, Parent and Merger Sub believe it is in the best interests
of their respective companies and the stockholders of their
respective companies that Company and Merger Sub combine into a
single company through the statutory merger of Merger Sub with and
into Company (the “ Merger ”) and, in
furtherance thereof, have approved the Merger.
B. The stockholders of Company
and of Merger Sub have duly authorized and approved the
consummation of the Merger.
C. Pursuant to the Merger, among
other things, the outstanding shares of Company common stock, no
par value (“ Company Common Stock ”) shall be
converted into shares of Parent Common Stock, $.01 par value
(“ Parent Common Stock ”) at the rate set forth
herein.
D. Company, Parent and Merger
Sub desire to make certain representations and warranties and other
agreements in connection with the Merger.
E. The parties intend, by
executing this Agreement, to adopt a plan of reorganization within
the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the “ Code ”), and to cause
the Merger to qualify as a reorganization under the provisions of
Section 368 of the Code.
NOW, THEREFORE, in consideration of
the covenants and representations set forth herein, and for other
good and valuable consideration the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
THE
MERGER
1.1 The Merger
. At the Effective Time (as defined in Section 1.2 )
and subject to and upon the terms and conditions of this Agreement
and the Certificate of Merger attached hereto as
Exhibit A and in accordance with the applicable
provisions of the Delaware General Corporation Law (“
Delaware Law ”) and the North Carolina Business
Corporation Act (“ North Carolina Law ”),
Company shall be merged with and into Merger Sub, the separate
corporate existence of Company shall cease and Merger Sub
shall
continue as the surviving corporation. MergerSub as the surviving
corporation after the Merger is hereinafter sometimes referred to
as the “ Surviving Corporation .”
1.2 Closing; Effective
Time. Subject to the conditions contained herein, the
closing of the transactions contemplated hereby (the “
Closing ”) commenced at 9:00 A.M., local time, on the
date hereof, at the offices of Kramer Levin Naftalis & Frankel
LLP, 1177 Avenue of the Americas, New York, New York 10036. The
date of the Closing is sometimes herein referred to as the
“Closing Date” and the Closing shall be effective as of
the Effective Time (defined below). In connection with the Closing,
the parties hereto shall cause the Merger to be consummated by
filing the Certificate of Merger with the Secretary of State of the
State of Delaware, in accordance with the relevant provisions of
Delaware Law, and the Secretary of State of the State of North
Carolina, in accordance with the relevant provisions of North
Carolina Law (the time of the last to occur of such filings being
the “ Effective Time ”).
1.3 Actions at Closing.
At the Closing, in addition to the other actions contemplated
elsewhere herein:
(a) Company delivered to Parent and
Merger Sub the following, each in a form and substance satisfactory
to Parent:
(i) evidence
of termination of those agreements and arrangements with Company
and any affiliate of Company on satisfactory terms;
(ii) evidence
that all liabilities of Company to any affiliate of the Company,
and all liabilities of the Company to any non-affiliates of the
Company in excess of $50,000 in the aggregate, excluding federal
and state withholding taxes and other taxes associated with the
Company’s forgiveness of its eight (8) officer
promissory notes at the Closing, have been fully paid and any liens
on assets of Company have been released;
(iii) stock
certificates representing each of the outstanding shares of Company
Common Stock;
(iv) audited
and interim reviewed financial statements of the Company as are
required for inclusion in the Parent’s Form 8-K as a result
of the Merger, with the required audit report signed by the
Company’s auditors and such auditor’s consent for
inclusion in the Company’s Form 8-K and its inclusion and
incorporation by reference in other Parent filings under the
Securities Act of 1933, as amended (the “Securities
Act”), and the Securities Exchange Act of 1934, as amended
(the “ Exchange Act ”);
(v) the
Strategic Master Services Agreement, dated as of the Closing Date,
between Parent and Cato Research Ltd., a North Carolina
corporation;
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(vi) the
Asset Purchase Agreement, dated as of the Closing Date, between
Parent and DP Pharmaceuticals LLC, a North Carolina limited
liability corporation;
(vii) copies
of resignations of each member of the board of directors of the
Company; and
(viii) such
other documents or instruments as Parent and Merger Sub may
reasonably request to effect the transactions contemplated
hereby.
(b) Parent and Merger Sub delivered
to Company the following, each in a form and substance satisfactory
to Company:
(i) evidence
satisfactory to Company of the consent or approval of those persons
whose consent or approval shall be required in connection with the
Merger under the contracts of Parent set forth on
Schedule 1.3 of the Parent Disclosure Schedule ;
(ii) copies
of resignations of Harry Mitchell as the Parent’s Interim
Chief Executive Officer (but not as the Parent’s Chief
Financial Officer, Treasurer or Secretary) and Joseph Amaral, M.D.
from his position as a member of the board of directors of Parent,
evidence of Parent having taken all necessary action for the
appointment of Patrick Mooney and Shawn Singh as directors of
Parent, effective as of the Closing, and evidence that, immediately
upon Closing, the board of directors of Parent shall consist of
Patrick Mooney, Shawn Singh, Michael Wigley, Robert Langer, and
Walter Witoshkin, which parties shall be covered under
Parent’s director and officer liability insurance;
(iii) certificates
representing the number of whole shares of Parent Common Stock, and
the amount of cash in lieu of any fractional shares of Parent
Common Stock, that each holder of Company Common Stock has a right
to receive pursuant to Section 1.5 ; and
(iv) such
other documents or instruments as Company may reasonably request to
effect the transactions contemplated hereby.
(c) Parent shall have appointed and
entered into an employment agreement, each effective as of the
Closing, with (i) Patrick Mooney as its Chief Executive
Officer, (ii) Shawn Singh as its interim, part-time President, and
(iii) Harry G. Mitchell as its Chief Operating Officer and
Chief Financial Officer.
(d) the Parent Common Stock shall be
quoted on the Over-the-Counter Bulletin Board (“ OTCBB
”) and there shall be no action or proceeding pending or
threatened against Parent by the NASD, Inc. (“ NASD
”) to prohibit or terminate the quotation of Parent Common
Stock on the OTCBB.
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(e) Parent shall be in compliance
with the reporting requirements under the Exchange Act , and
shall have timely filed all Exchange Act reports for the twelve
(12) month period preceding the Closing Date.
1.4 Effect of the
Merger . At the Effective Time, the effect of the Merger
shall be as provided in this Agreement, the Certificate of Merger
and the applicable provisions of Delaware Law and North Carolina
Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights,
privileges, powers and franchises of Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and
duties of Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Effect on Capital
Stock . By virtue of the Merger and without any action on
the part of Merger Sub, Company or the holders of any of the
following securities:
(a) Conversion of Company
Common Stock . At the Effective Time, each share of Company
Common Stock issued and outstanding immediately prior to the
Effective Time (other than any shares of Company Common Stock to be
canceled pursuant to Section 1.5(b) and any Dissenting
Shares (as defined below)) will be canceled and extinguished and be
converted automatically into the right to receive 0.4356 shares of
Parent Common Stock (the “ Exchange Ratio ”). An
aggregate of 6,250,000 shares of Parent Company Stock shall be
issued to the stockholders of the Company in connection with the
Merger.
(b) Cancellation of Company
Common Stock Owned by Company . At the Effective Time, all
shares of Company Common Stock that are owned by Company as
treasury stock and each share of Company Common Stock owned by any
direct or indirect wholly owned subsidiary of Company immediately
prior to the Effective Time shall be canceled and extinguished
without any conversion thereof.
(c) Intentionally
Omitted .
(d) No Fractional
Shares . No fractional shares of Parent Common Stock shall
be issued in connection with the Merger, and no certificates or
scrip for any such fractional shares shall be issued. Any holder of
Company Common Stock who would otherwise be entitled to receive a
fraction of a share of Parent Common Stock (after aggregating all
fractional shares of Parent Common Stock issuable to such holder)
shall, in lieu of such fraction of a share, be paid in cash the
dollar amount (rounded to the nearest whole cent), without
interest, determined by multiplying such fraction by the closing
bid price of a share of Parent Common Stock on the OTC BB on the
Closing Date.
1.6 No Further Ownership Rights
in Company Common Stock . All shares of Parent Common Stock
issued upon the surrender for exchange of shares of Company Common
Stock then outstanding in accordance with the terms hereof shall be
deemed to have been issued in full satisfaction of all rights
pertaining to such securities, and there
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shall be
no further registration of transfers on the records of the
Surviving Corporation of shares of Company Common Stock which were
outstanding immediately prior to the Effective Time;
provided , however , that the aggregate number of
shares of Parent Common Stock issued to the stockholders of the
Company in connection with the Merger shall not exceed 6,250,000 at
any time.
1.7 Tax Consequences .
It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368
of the Code.
1.8 Taking of Necessary Action;
Further Action . If, at any time after the Effective Time,
any 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 assets, property,
rights, privileges, powers and franchises of Company and Merger
Sub, the officers and directors of Company and Merger Sub are fully
authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary
action, so long as such action is not inconsistent with this
Agreement.
1.9 Exemption from
Registration; Blue Sky . Parent and Company intend that the
shares of Parent Common Stock to be issued pursuant to
Section 1.5 hereof in connection with the Merger will
be issued in a transaction exempt from registration under the
Securities Act by reason of Section 4(2) of the
Securities Act and/or Rule 506 of Regulation D
promulgated under the Securities Act. Parent shall use its
reasonable best efforts to comply with the securities and blue sky
laws of all jurisdictions which are applicable to the issuance of
the Parent Common Stock and other securities of Parent in
connection with the Merger. Company shall use its reasonable best
efforts to assist Parent as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock
and other securities of Parent in connection with the Merger.
1.10 Shares Subject to
Appraisal Rights .
(a) Notwithstanding
Section 1.5 , Dissenting Shares (as hereinafter
defined) shall not be converted into a right to receive Parent
Common Stock and the holders thereof shall be entitled only to such
rights as are granted by the North Carolina Law. Each holder of
Dissenting Shares who becomes entitled to payment for such shares
pursuant to North Carolina Law shall receive payment therefor from
the Surviving Corporation in accordance with the North Carolina
Law, provided, however, that (i) if any stockholder of Company
who asserts appraisal rights in connection with the Merger (a
“ Dissenter ”) has failed to establish
entitlement to such rights as provided in North Carolina Law, or
(ii) if any such Dissenter has effectively withdrawn a demand
for payment for such shares or waived or lost the right to payment
for such shares under the appraisal rights process under North
Carolina Law the shares of Company Common Stock held by such
Dissenter shall be treated as if they had been converted, as of the
Effective Time, into a right to receive Parent Common Stock and as
provided in !Section 1.5 . Company has given Parent
prompt notice of any demands for payment received by Company from a
person asserting appraisal rights, and
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Parent shall
have the right to participate in all negotiations and proceedings
with respect to such demands. Company shall not, except with the
prior written consent of Parent, make any payment with respect to,
or settlement or offer to settle, any such demands.
(b) As used herein, “
Dissenting Shares ” means any shares of Company Common
Stock held by stockholders of Company who are entitled to appraisal
rights under North Carolina Law, and who have properly exercised,
perfected and not subsequently withdrawn or lost or waived their
rights to demand payment with respect to their shares in accordance
with North Carolina Law.
ARTICLE II
REPRESENTATIONS
AND WARRANTIES OF COMPANY
In this Agreement, any reference to
any event, change, condition or effect being “
material ” with respect to any person means any
material event, change, condition or effect related to the
condition (financial or otherwise), properties, assets (including
intangible assets), liabilities, business, operations or results of
operations of such person and its subsidiaries, taken as a whole.
In this Agreement, any reference to a “ Material Adverse
Effect ” with respect to any person means any event,
change or effect that is materially adverse to the condition
(financial or otherwise), properties, assets (including intangible
assets), liabilities, business, operations or results of operations
of such person and its subsidiaries, taken as a whole.
In this Agreement, any reference to
the Company’s “ knowledge ” means the
Company’s actual knowledge after reasonable inquiry of the
Company’s directors and executive officers (within the
meaning of Rule 405 under the Securities Act).
Except as disclosed in that section
of the document of even date herewith delivered by Company to
Parent prior to the execution and delivery of this Agreement (the
“ Company Disclosure Schedule ”) corresponding
to the Section of this Agreement to which any of the following
representations and warranties specifically relate or as disclosed
in another section of the Company Disclosure Schedule if it is
reasonably apparent from the nature of the disclosure that it is
applicable to another Section of this Agreement, Company represents
and warrants to Parent and Merger Sub as follows:
2.1 Organization, Standing and
Power . The Company is a corporation duly organized,
validly existing and in good standing under North Carolina Law, and
no certificate of dissolution has been filed under North Carolina
Law. The Company has the power to own its properties and to carry
on its business as now being conducted and as presently proposed to
be conducted and is duly authorized and qualified to do business
and is in good standing in each jurisdiction in which the failure
to be so qualified and in good standing would have a Material
Adverse Effect on Company. Company has delivered or made available
to Parent a true and correct copy of the Articles of Incorporation,
as amended (the “ Articles of Incorporation ”),
and the Bylaws, or other charter documents, as applicable, of
Company, each as amended to date. The Company is not in violation
of any of the provisions of its charter or bylaws or
equivalent
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organization documents. Except as set forth on
Schedule 2.1. of the Company Disclosure Schedule ,
there are no outstanding subscriptions, options, warrants, puts,
calls, rights, exchangeable or convertible securities or other
commitments or agreements of any character relating to the issued
or unissued capital stock of the Company or otherwise obligating
Company to issue, transfer, sell, purchase, redeem or otherwise
acquire any such securities. Company does not directly or
indirectly own any equity or similar interest in, or any interest
convertible or exchangeable or exercisable for, any equity or
similar interest in, any corporation, partnership, joint venture or
other business association or entity.
2.2 Capital Structure .
The authorized capital stock of Company consists of 17,500,000
shares of common stock, no par value, and no shares of preferred
stock, of which there were issued and outstanding as of the close
of business on September 14, 2007, 13,780,000 shares of common
stock. Schedule 2.2 sets forth the names of each stockholder
of the Company, the number of shares of the Company’s Common
Stock held by each stockholder and the stock certificate number of
each certificate held by each person listed on Schedule 2.2.
There are no other outstanding shares of capital stock or voting
securities and no outstanding commitments to issue any shares of
capital stock or voting securities after the date hereof. All
outstanding shares of Company Common Stock are duly authorized,
validly issued, fully paid and non-assessable and, as of the date
of this Agreement, are free of any liens or encumbrances, and are
not subject to preemptive rights or rights of first refusal created
by statute, the Articles of Incorporation or Bylaws of Company or
any agreement to which Company is a party or by which it is bound.
As of the date of this Agreement, Company has reserved 6,580,000
shares of its common stock for issuance to employees, consultants
and directors pursuant to restricted stock purchase agreements and
stock option agreements under its 2006 Stock Award Plan, of which
4,580,000 shares have been issued pursuant to restricted stock
purchase agreements, no shares have been issued pursuant to option
exercises and no shares are subject to outstanding, unexercised
options. Except as set forth on Schedule 2.2 of the Company
Disclosure Schedule and except for the rights created pursuant
to this Agreement and as of the date of this Agreement, there are
no other options, warrants, calls, rights, commitments or
agreements of any character to which Company is a party or by which
it is bound obligating Company to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of capital stock of Company or obligating
Company to grant, extend, accelerate the vesting and/or repurchase
rights of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement.
Except as created pursuant to this Agreement and as of the date of
this Agreement, there are no contracts, commitments or agreements
relating to voting, purchase or sale of Company’s capital
stock (including without limitation agreements relating to
preemptive rights, rights of first refusal, co-sale rights or
“drag-along” rights), or registration of securities of
Company under the Securities Act to which Company is a party or by
which it is bound.
2.3 Authority . Company
has all requisite corporate power and authority to enter into this
Agreement and to perform its obligations hereunder. The execution
and delivery of this Agreement and the consummation of the
transactions contemplated
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hereby
have been duly authorized by all necessary corporate action on the
part of Company. This Agreement has been duly executed and
delivered by Company and constitutes the valid and binding
obligation of Company enforceable against Company in accordance
with its terms, except as enforceability may be limited by
bankruptcy, antitrust laws, and other laws affecting the rights and
remedies of creditors generally and general principles of equity.
The execution and delivery of this Agreement by Company does not,
and the consummation of the transactions contemplated hereby will
not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to
a right of termination, cancellation or acceleration of any
obligation or loss of any benefit under (i) any provision of
the Articles of Incorporation or Bylaws of Company, as amended, or
(ii) any material mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Company or any of its properties or
assets, except where such conflict, violation, default,
termination, cancellation or acceleration with respect to the
foregoing provisions of (ii) could not have had and could not
reasonably be expected to have a Material Adverse Effect on
Company. No consent, approval, order or authorization of, or
registration, declaration or filing with, any court, administrative
agency or commission or other governmental authority or
instrumentality (“ Governmental Entity ”) is
required by or with respect to Company in connection with the
execution and delivery of this Agreement, or the consummation of
the transactions contemplated hereby and thereby, except for
(i) the filing of the Certificate of Merger as provided in
Section 1.2 ; (ii) such consents, approvals,
orders, authorizations, registrations, declarations and filings as
may be required under applicable state securities laws and the
securities laws of any foreign country; and (iii) such other
consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not have a Material Adverse
Effect on Company and would not prevent, or materially alter or
delay any of the transactions contemplated by this Agreement. The
Company does not have any subsidiaries or own any securities of any
other entity.
2.4 Financial
Statements .
(a) Company has provided to Parent a
correct and complete copy of its audited combined financial
statements (including any related notes thereto) of Company for the
fiscal years ended December 31, 2006, 2005 and 2004 (the
“ Audited Financial Statements ”). The Audited
Financial Statements were prepared in accordance with generally
accepted accounting principles of the United States (“
GAAP ”) applied on a consistent basis throughout the
periods involved (except as may be indicated in the notes thereto),
and each fairly presents in all material respects the financial
position of Company at the respective dates thereof and the results
of its operations and cash flows for the periods indicated.
(b) Company has provided to Parent a
correct and complete copy of the reviewed combined financial
statements (including any related notes thereto) of Company for the
six months ended June 30, 2007 (the “Reviewed Financial
Statements”). The Reviewed Financial Statements were prepared
in accordance
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with GAAP
applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto), and each fairly
presents in all material respects the financial position of Company
at the respective dates thereof and the results of its operations
and cash flows for the periods indicated.
(c) Company has provided to Parent a
correct and complete copy of the unaudited combined financial
statements of the Company for the seven month period ended
July 31, 2007 (the “ Unaudited Financial
Statements ”). The Unaudited Financial Statements were
prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved, and fairly present in all material
respects the financial position of the Company at the date thereof
and the results of its operations and cash flows for the period
indicated, except that such statements do not contain notes and are
subject to normal adjustments that are not expected to have a
Material Adverse Effect on Company.
2.5 Absence of Certain
Changes . Except as set forth on Schedule 2.5 of
the Company Disclosure Schedule , since July 31, 2007 (the
“ Company Balance Sheet Date ”), Company has
conducted its business in the ordinary course consistent with past
practice and there has not occurred: (i) any change, event or
condition (whether or not covered by insurance) that has resulted
in, or is reasonably likely to result in, or to the best of
Company’s knowledge any event beyond Company’s control
that is reasonably likely to result in, a Material Adverse Effect
to Company; (ii) any acquisition, sale or transfer of any
material asset of Company other than in the ordinary course of
business and consistent with past practice; (iii) any change
in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by Company or any
revaluation by Company of any of its assets; (iv) any
declaration, setting aside, or payment of a dividend or other
distribution with respect to the shares of Company, or any direct
or indirect redemption, purchase or other acquisition by Company of
any of its shares of capital stock; (v) any material contract
entered into by Company, other than in the ordinary course of
business and as provided to Parent, or any amendment or termination
of, or default under, any material contract to which Company is a
party or by which it is bound; (vi) any amendment or change to
Company’s Articles of Incorporation or Bylaws; or
(vii) any increase in or modification of the compensation or
benefits payable, or to become payable, by Company to any of its
directors or employees, other than pursuant to scheduled annual
performance reviews, provided that any resulting modifications are
in the ordinary course of business and consistent with
Company’s past practices. Company has not agreed since
July 31, 2007 to take any of the actions described in the
preceding clauses (i) through (vii) and is not currently
involved in any negotiations to do any of the things described in
the preceding clauses (i) through (vii) (other than
negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement and the forgiveness of
all loans to officers and directors of the Company as set forth on
Schedule 2.5 of the Company Disclosure Schedule).
2.6 Absence of Undisclosed
Liabilities . Except as set forth on Schedule 2.6
of the Company Disclosure Schedule , Company has no material
obligations or liabilities of any nature (matured or unmatured,
fixed or contingent) other than (i) those set forth or
adequately provided for in its balance sheet included in its
unaudited financial statements
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for the
seven months ended July 31, 2007 (the “ Company
Balance Sheet ”), (ii) those incurred in the
ordinary course of business, not required to be set forth in the
Company Balance Sheet under GAAP and not reasonably likely to have
a Material Adverse Effect on Company, (iii) those incurred in
the ordinary course of business since the Company Balance Sheet
Date and not reasonably likely to have a Material Adverse Effect on
Company; and (iv) those incurred in connection with the
execution of this Agreement.
2.7 Litigation . There
is no private or governmental action, suit, proceeding, claim,
arbitration, audit or investigation pending before any agency,
court or tribunal, foreign or domestic, or, to the knowledge of
Company, threatened against Company or any of its properties or any
of its officers or directors (in their capacities as such). There
is no injunction, judgment, decree, order or regulatory restriction
imposed upon Company or any of its assets or business, or, to the
knowledge of Company, any of its respective directors or officers
(in their capacities as such), that would prevent, enjoin, alter or
materially delay any of the transactions contemplated by this
Agreement, or that could reasonably be expected to have a Material
Adverse Effect on Company.
2.8 Restrictions on Business
Activities . There is no agreement, judgment, injunction,
order or decree binding upon Company which has or reasonably could
be expected to have the effect of prohibiting or materially
impairing any business practice of Company, any acquisition of
property by Company or the conduct of business by Company.
2.9 Governmental
Authorization . The Company has obtained each federal,
state, county, local or foreign governmental consent, license,
permit, grant, or other authorization of a Governmental Entity
(i) pursuant to which Company currently operates or holds any
interest in any of its properties or (ii) that is required for
the operation of Company’s business or the holding of any
such interest ((i) and (ii) herein collectively called “
Company Authorizations ”), and all of such Company
Authorizations are in full force and effect, except where the
failure to obtain or have any of such Company Authorizations or
where the failure of such Company Authorizations to be in full
force and effect could not reasonably be expected to have a
Material Adverse Effect on Company.
2.10 Title to Property
. Company has good and valid title to all of its properties,
interests in properties and assets, real and personal, reflected in
the Company Balance Sheet or acquired after the Company Balance
Sheet Date (except properties, interests in properties and assets
sold or otherwise disposed of since the Company Balance Sheet Date
in the ordinary course of business), or in the case of 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, (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 Balance Sheet, and
(iv) liens that in the aggregate would not have a Material
Adverse Effect on Company. The plants, property and equipment of
Company that are used in the operations of their
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businesses are in good operating condition and repair, except where
the failure to be in good operating condition or repair would not
have a Material Adverse Effect. All properties used in the
operations of Company are reflected in the Company Balance Sheet to
the extent GAAP requires the same to be reflected. The Company does
not own or lease any real property.
2.11 Intellectual
Property .
(a) Except as set forth on
Schedule 2.11(a) of the Company Disclosure Schedule ,
Company owns, or is licensed or otherwise possess legally
enforceable and unencumbered rights to use, all patents,
trademarks, trade names, service marks, domain names, copyrights,
and any applications therefor, maskworks, schematics, trade
secrets, computer software programs (in both source code, except in
circumstances where Company only possesses a license to the object
code form, and object code form), and tangible or intangible
proprietary information or material (“ Intellectual
Property ”) that are used in the business of Company
(“ Company Intellectual Property ”). Company has
not entered into any exclusive agreements relating to Company
Intellectual Property. No royalties or other continuing payment
obligations are due in respect of Third Party Intellectual Property
Rights (as defined below).
(b) Schedule 2.11(b) of the
Company Disclosure Schedule lists (i) all patents and
patent applications and all registered trademarks, trade names and
service marks, registered copyrights, 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 material non-registered Intellectual
Property, (iii) all licenses, sublicenses and other agreements
as to which Company is a party and pursuant to which any person is
authorized to use any Company Intellectual Property (except for
non-material licenses entered into by Company in the ordinary
course of business), and (iv) all licenses, sublicenses and
other agreements as to which Company is a party and pursuant to
which Company is authorized to use any third party patents,
trademarks or copyrights, including software (“ Third
Party Intellectual Property Rights ”) which are
incorporated in, are, or form a part of any Company product, other
than commercially available, off-the-shelf software.
(c) Except as set forth on
Schedule 2.11(c) of the Company Disclosure Schedule ,
to Company’s knowledge, there is no unauthorized use,
disclosure, infringement or misappropriation of any Company
Intellectual Property rights, or any Intellectual Property right of
any third party to the extent licensed by or through Company, to
any third party, including any employee or former employee of
Company. The Company has not entered into any agreement to
indemnify any entity against any charge of infringement of any
Intellectual Property, other than indemnification provisions
contained in purchase orders, license agreements, and distribution
and other customer agreements.
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(d) 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.
(e) Except as set forth on
Schedule 2.11(e) of the Company Disclosure Schedule ,
to Company’s knowledge, all patents, trademarks, service
marks and copyrights held by Company are valid and subsisting.
Company (i) has not been sued in any suit, action or
proceeding (or received any notice or, to Company’s
knowledge, threat) 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 Company Intellectual Property or breach of any
license or agreement involving Company Intellectual Property
against any third party. To Company’s knowledge, the
manufacture, use, marketing, licensing or sale of Company’s
products does not infringe any patent, trademark, service mark,
copyright, trade secret or other proprietary right of any third
party.
(f) Company has secured valid written
assignments from all consultants and employees of the Company and
its affiliates and all other parties who are known by the Company
to have contributed to the creation or development of Company
Intellectual Property or the rights to such contributions that
Company does not already own by operation of law.
(g) Company has taken all reasonably
necessary steps to protect and preserve the confidentiality of all
Company Intellectual Property not otherwise protected by patents or
copyright (“ Confidential Information ”). All
use, disclosure or appropriation of Confidential Information owned
by Company by or to a third party has been pursuant to the terms of
a written agreement between Company and such third party. All use,
disclosure or appropriation of Confidential Information not owned
by Company has been pursuant to the terms of a written agreement
between Company and the owner of such Confidential Information, or
is otherwise lawful.
(h) There are no actions that, to the
Company’s knowledge, must be taken by Company within sixty
(60) days of the Closing Date that, if not taken, will result
in the loss of any Company Intellectual Property, including the
payment of any material registration, maintenance or renewal fees
or the filing of any responses to the U.S. Patent and Trademark
Office actions, documents, applications or certificates for the
purposes of obtaining, maintaining, perfecting or preserving or
renewing any Company Intellectual Property.
(i) Except as set forth on
Schedule 2.11(i) of the Company Disclosure Schedule ,
Company has not received any opinion of counsel, written or oral,
addressing: (i) the unauthorized use, disclosure,
infringement, or misappropriation of any Company Intellectual
Property; (ii) the validity or enforceability of any Company
Intellectual Property; or (iii) the unauthorized use,
disclosure,
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infringement,
or misappropriation of any third party intellectual property by
Company.
2.12 [INTENTIONALLY
OMITTED] .
2.13 Taxes .
(a) For purposes of this Agreement,
the following terms have the following meanings: “ Tax
” (and, with correlative meaning, “ Taxes
” and “ Taxable ”) means (i) any net
income, alternative or add-on minimum tax, gross income, gross
receipts, sales, use, ad valorem, transfer, franchise, profits,
license, withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or windfall
profit tax, custom, duty or other tax, governmental fee or other
like assessment or charge of any kind whatsoever, together with any
interest or any penalty, addition to tax or additional amount
imposed by any governmental entity (a “ Tax authority
”) responsible for the imposition of any such tax (domestic
or foreign); (ii) any liability for the payment of any amounts
of the type described in (i) as a result of being a member or
a former member of an affiliated, consolidated, combined or unitary
group for any Taxable period; and (iii) any liability for the
payment of any amounts of the type described in (i) or
(ii) as a result of being a transferee of or successor to any
person or as a result of any express or implied obligation to
indemnify any other person, including pursuant to any Tax sharing
or Tax allocation agreement. “ Tax Return ”
means any return, statement, report or form (including, without
limitation estimated Tax returns and reports, withholding Tax
returns and reports and information reports and returns) required
to be filed with respect to Taxes.
(b) Company, and any consolidated,
combined, unitary or aggregate group for Tax purposes of which
Company is or has been a member, have properly completed and timely
filed all Tax Returns required to be filed by them and have paid
all Taxes required to be paid, whether or not shown on any Tax
Return. All unpaid Taxes of Company and its subsidiaries for
periods through July 31, 2007, are reflected in the Company
Balance Sheet. Company has no liability for unpaid Taxes accruing
after July 31, 2007.
(c) There is (i) no claim for
Taxes that is a lien against the property of Company being asserted
against Company other than liens for Taxes not yet due and payable;
(ii) no audit of any Tax Return of Company that is being
conducted by a Tax authority that is currently pending or
threatened, and Company has not been notified of any proposed Tax
claims or assessments against Company; (iii) no extension of
the statute of limitations on the assessment of any Taxes that has
been granted by Company and that is currently in effect; and
(iv) no agreement, contract or arrangement to which Company is
a party obligates the Company to make a payment of any amount that
would not be deductible by reason of Section 280G, 162 or 404
of the Code. Company has not been nor will it be required to
include any material adjustment in Taxable income for any Tax
period (or portion thereof) pursuant to Section 481 or 263A of
the Code or any
13
comparable
provision under state or foreign Tax laws as a result of
transactions, events or accounting methods employed prior to the
Merger.
(d) There are no Tax sharing or Tax
allocation agreements to which Company is a party or to which it is
bound. Company has not filed any disclosures under
Section 6662 or comparable provisions of state, local or
foreign law to prevent the imposition of penalties with respect to
any Tax reporting position taken on any Tax Return. Company has in
its possession receipts for any Taxes paid to foreign Tax
authorities.
(e) Company has not been either a
“distributing corporation” or a “controlled
corporation” in a distribution of stock qualifying for
tax-free treatment under Section 355 of the Code (x) in
the two years prior to the date of this Agreement or (y) in a
distribution which could otherwise constitute part of a
“plan” or “series of related transactions”
(within the meaning of Section 355(e) of the Code) in conjunction
with the Merger.
(f) Except as set forth on
Section 2.13 of the Company Disclosure Schedule ,
Company has withheld (and paid over to the appropriate governmental
authorities) with respect to either its employees or any third
party all Taxes required to be withheld, including, but not limited
to, FICA and FUTA.
(g) Company has not ever been a
United States real property holding corporation within the meaning
of Section 897 of the Code.
2.14 Employee Benefit
Plans .
(a) Schedule 2.14 of the
Company Disclosure Schedule lists each deferred compensation
and each bonus or other incentive compensation, stock option, stock
appreciation right and other equity compensation plan, program or
arrangement; each severance, medical, surgical, hospitalization,
life insurance and other “welfare” plan, fund or
program (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended (“
ERISA ”)); each profit-sharing, 401(k) savings or
other “pension” plan, fund or program (within the
meaning of Section 3(2) of ERISA); each employment, retention
or severance agreement (except employment, retention or severance
agreements in each case involving annual payment to any one
individual of less than $50,000); and each other employee benefit
plan, program, policy or agreement, in each case, that is
sponsored, maintained or contributed to or required to be
contributed to by Company or by any trade or business, whether or
not incorporated (an “ ERISA Affiliate ”), that
together with Company would be deemed a “single
employer” within the meaning of Section 4001(b) of ERISA, for
the benefit of any employee or former employee of Company
(collectively, the “ Company Plans ”) have been
maintained and administered in all material respects in compliance
with their respective terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations which are
applicable to such Company Plans, and all liabilities with respect
to the Company Plans have been properly reflected in the
14
financial
statements and records of Company. No suit, action or other
litigation (excluding claims for benefits incurred in the ordinary
course of Company Plan activities) has been brought, or, to the
knowledge of Company, is threatened, against or with respect to any
Company Plans. There are no audits, inquiries or proceedings
pending or, to the knowledge of Company, threatened by any
governmental agency with respect to any Company Plan. All
contributions, reserves or premium payments required to be made or
accrued as of the date hereof to the plans have been timely made or
accrued. Company does not have any plan or commitment to establish
any new Company Plan, to modify any Company Plan (except to the
extent required by law or to conform any such Company Plan to the
requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement),
or to enter into any new plan. Each Company Plan can be amended,
terminated or otherwise discounted after the Closing in accordance
with
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