EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION
by and among
IMPLANT SCIENCES
CORPORATION
C ACQUISITION
CORP.
and
CORE SYSTEMS
INCORPORATED
and
DONALD LINDSEY
October 13, 2004
TABLE OF CONTENTS
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AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION
This AGREEMENT AND PLAN OF MERGER
AND REORGANIZATION (this “ Agreement ”) is
made as of October 13, 2004 (the “ Execution Date
”) by and among Implant Sciences Corporation, a Massachusetts
corporation (“ Parent ”), C Acquisition Corp., a
Delaware corporation and a wholly-owned subsidiary of Parent
(“ Merger Sub ”) and Core Systems Incorporated,
a California corporation (the “ Company ”) and
Donald Lindsey (“ Primary Stockholder ”), an
individual residing at 580 Church St., Rigby, Idaho. Parent,
Company and the Primary Stockholder are sometimes referred to
herein individually as a “ Party ” and
collectively as the “ Parties .”
RECITALS
WHEREAS , Primary Stockholder holds approximately 97% of
the outstanding shares of Company’s Common Stock as of the
Execution Date; and
WHEREAS , Merger Sub is a wholly-owned subsidiary of
Parent formed solely for the purpose of engaging in the Merger;
and
WHEREAS , the Boards of Directors of Parent, Merger Sub
and the Company each have determined that the business combination
between Parent and the Company through the merger of the Company
with and into Merger Sub pursuant to the terms and subject to the
conditions set forth herein (the “ Merger ”) is
advisable and in the best interests of their respective companies
and stockholders; and
WHEREAS , pursuant to the Merger, among other things:
(i) the shares of the Company’s Common Stock outstanding as
of the Effective Time, as defined herein, shall be converted into
the right to receive a number of shares of the Parent’s
common stock, $0.10 par value (the “ Parent Common
Stock ”) equal in value to $3,250,000, such Parent Common
Stock to be valued as described in Section 2.6 hereto and the
Company’s stockholders shall receive an aggregate of
$2,000,000 in cash; and (ii) each outstanding share of common stock
of Merger Sub shall remain issued and outstanding as a share of
common stock of the Surviving Corporation (as hereinafter defined);
and
WHEREAS , pursuant to the Merger, among other things,
the holders of the shares of the Company’s Common Stock
outstanding as of the Effective Time shall be entitled to receive
in the aggregate an earnout payment, in the form of a number of
shares of Parent Common Stock, determined in accordance with
Section 2.6 hereto, payable within thirty (30) days after the end
of the Core Systems EBTDA Earnout Lock-Up, as defined herein;
and
WHEREAS , the Company, the Primary Stockholder and the
Parent desire to make certain representations, warranties,
covenants and other agreements in connection with the Merger;
and
WHEREAS , 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
1
amended (the “ Code
”), and to cause the Merger to qualify as a tax-deferred
reorganization under the provisions of Section 368(a) 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 by all parties, the parties hereto agree as
follows:
Section
1
Defined Terms . Certain capitalized terms used in this
Agreement are defined on Schedule A hereto. Other capitalized
terms are defined elsewhere herein.
Section
2.1
The Merger . Subject to and in accordance with the
terms and conditions set forth in this Agreement, at the Effective
Time (as defined below), the Company shall be merged with and into
Merger Sub, which shall be the surviving corporation in the Merger
(“ Surviving Corporation ”), and the separate
existence of the Company shall thereupon cease. The name of
Surviving Corporation shall be “C Acquisition
Corp.” The Merger shall have the effects set forth in
the applicable provisions of the Delaware General Corporation Law
(“ Delaware Law ”) and the General Corporation
Law of California (“ California Law
”).
Section
2.2
Closing; Effective Time . It is anticipated that
the closing of the transactions contemplated hereby (the
“Closing”) shall take place simultaneously with the
execution of this Agreement, but in any event not later than ten
(10) business days after the satisfaction or waiver of each of the
conditions set forth in Article VII hereof or at such other time as
the parties hereto agree (the “Closing Date”).
The Closing shall take place at the offices of Ellenoff Grossman
& Schole LLP, 370 Lexington Avenue, 19th Floor, New York, New
York, or at such other location as the parties hereto agree.
The Parties shall cause the Merger to be consummated by filing, and
the Merger shall become effective immediately upon the filing, of
(i) the required certificate of merger, in substantially the form
attached hereto as Exhibit A (the “ Delaware
Certificate of Merger ”) with the Secretary of State of
the State of Delaware, executed in accordance with the relevant
provisions of Delaware Law, and (ii) a copy of the Delaware
Certificate of Merger with the Secretary of State of the State of
California, executed in accordance with the relevant provisions of
California Law. The Merger shall become effective at the time such
Delaware Certificate of Merger is filed with the Secretary of State
of the State of Delaware (the “ Effective Time
”). The date on which the Effective Time occurs is
referred to as the “Effective Date.”
Section
2.3
Effect of the Merger .
(a)
At the Effective Time, the effect of the Merger shall be as
provided in this Agreement, the Delaware Certificate of Merger and
the applicable provisions of Delaware Law
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and California Law. Without
limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers
and franchises of the Company (including, without limitation, all
rights to the Company Intellectual Property) and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and
duties of the Company and Merger Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
(b)
It is specifically understood and agreed by the parties
that:
(i)
The Primary Stockholder and all other stockholders of the Company
shall be responsible for all legal fees incurred on behalf of the
Company in connection with the Merger and the Company, Parent and
Surviving Corporation will not pay and shall not be liable for any
legal fees incurred by the Company in connection with the Merger
and the other transactions contemplated hereby; and
(ii)
notwithstanding the provisions of Section 2.3(a) to the contrary,
that portion of the pre-Closing Date debt of the Company consisting
of the deferred hiring bonus to Ron Eddy in the amount of $10,000
(“Eddy Bonus”) shall be assumed and paid as provided in
Section 6.12 below and shall not be assumed by the Surviving
Corporation.
Section 2.4
Certificate of Incorporation;
Bylaws .
(a)
At the Effective Time, the
Certificate of Incorporation of the Merger Sub shall be the
Certificate of Incorporation of the Surviving Corporation until
thereafter further amended as provided by Delaware Law.
(b)
At the Effective Time, the Bylaws of
Merger Sub shall be the Bylaws of the Surviving Corporation until
thereafter further amended as provided by Delaware Law and such
Bylaws.
Section
2.5
Directors and Officers . At the Effective Time: (i)
the existing directors and officers of the Company shall resign
their positions in writing, (ii) the directors of Merger Sub shall
become the directors of Surviving Corporation, until their
respective successors are duly elected or appointed and qualified,
and (ii) the officers of Merger Sub shall hold the offices of
President, Vice President, Secretary and Treasurer, respectively,
of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified.
Section
2.6
Consideration, Effect on Capital Stock and Lock-Up Period
.
(a)
Conversion of the Company Capital
Stock . By virtue
of the Merger and without any further action on the part of Parent,
the Company, Merger Sub or any of their respective stockholders, at
the Effective Time, all of the shares of the Company Common Stock
issued and outstanding immediately prior to the Effective Time, but
excluding any shares cancelled pursuant to Section 2.6(e),
will be automatically cancelled, extinguished and converted, at the
Closing, into the right to receive: (i) a number of shares of the
Parent Common Stock equal in value to $3,250,000; and (ii)
$2,000,000 in cash (the “ Initial Payment
”). The total of the Initial
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Payment to the Company shall equal
Three Million Two Hundred Fifty Thousand Dollars ($3,250,000) in
Parent Common Stock, the number of which shall be determined based
on the Closing Price as defined below, and Two Million Dollars
($2,000,000) in cash. At the Closing, Parent will hold-back
$200,000 in cash of the Initial Payment (“ Cash
Holdback ”), for a period of twelve (12) months after the
Closing (“ Cash Holdback Period” ), to settle
any and all liabilities that have not been reflected on the
Reference Balance Sheet and/or the Closing Balance Sheet, each as
hereinafter defined, for any amount in excess of $125,000 incurred
by Parent in connection with the audit of the Company’s
financial statements for the twelve month period ended November 30,
2003 and the period beginning on December 1, 2003 and ending on the
Closing Date, or any liability for breach of warranties made by the
Company and the Primary Stockholder, and which Parent becomes aware
of during the Cash Holdback Period, or pursuant to the terms of
Section 6.12 below. At the end of the Cash Holdback Period,
Parent will release any remaining portion of the Cash Holdback that
has not or will not be used or segregated for the repayment of any
liabilities that Parent has become aware of that were not reflected
on the Reference Balance Sheet and/or the Closing Balance
Sheet.
At the Closing, Parent will issue
that number of shares of Parent Common Stock determined based on
$3,250,000 divided by the Closing Price, as defined below, to
Primary Stockholder, as agent for the stockholders of the Company,
all of which shall be deposited with Parent, as escrow agent
(“ Escrow Agent ”), the number of which shall be
released at the end of the six month period following the Closing
Date (“ Holdback Release ”) determined in
accordance with 2.6(c) below and in accordance with the terms of
the holdback agreement (“ Holdback Agreement ”)
attached hereto as Exhibit N, entered into between the Company and
Parent. Upon the Holdback Release, ten percent (10%) of the
aggregate number of shares of Parent Common Stock (“
Parent Stock Holdback Shares ”) issued to the Company
as part of the Initial Payment, after adjustment as provided for in
2.6(c) below, shall continue to be held back by the Escrow Agent
for an additional six (6) months (“ Parent Stock Holdback
Period ”), to settle any and all liabilities that have
not been reflected on the Reference Balance Sheet and/or the
Closing Balance Sheet, as hereinafter defined, for any amount in
excess of $125,000 incurred by Parent in connection with the audit
of the Company’s financial statements for the twelve month
period ended November 30, 2003 and the period beginning on December
1, 2003 and ending on the Closing Date, or any liability for breach
of warranties made by the Company and the Primary Stockholder, or
pursuant to the terms of Section 6.12 below, and provided that the
Company or the holders of the Parent Common Stock are entitled to
all or any portion of the Parent Stock Holdback Shares, as
determined in accordance with subsections (b) and (c) below,
subject to the terms of the Core Systems Initial Payment Lock-Up,
as defined herein.
(b)
Earnout. The holders of the Parent Common
Stock issued pursuant to Section 2.6(a)(i) above shall be entitled
to receive an earnout payment (the “ EBTDA Earnout
”), payable within thirty (30) days after the end of the Core
Systems EBTDA Earnout Lock-Up, as defined below, in the form of
Parent Common Stock (“ Earnout Shares ”).
The aggregate number of shares of Parent Common Stock to be issued
pursuant to the EBTDA Earnout shall be determined based on the
Company’s earnings before taxes, depreciation and
amortization (“ EBTDA ”), determined in
accordance with generally accepted accounting principles, during
the twelve (12) month period after the Effective Date (the “
Earnout Period ”) divided by the Earnout Price, as
defined below, subject to the terms of the Core Systems EBTDA
Earnout
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Lock-Up, as defined below.
Additionally, the Earnout Shares shall be deposited with the Escrow
Agent and such number of Earnout Shares, adjusted in accordance
with 2.6(c)(ii) below, shall be released to the holders thereof
within thirty (30) days of the expiration of the Core Systems EBTDA
Earnout Lock-Up.
(c)
Valuation of Parent Common
Stock .
(i)
For the purpose of determining the
number of shares to be issued at the Closing as part of the Initial
Payment, all of which shall be deposited with the Escrow Agent, the
value of the Parent Common Stock shall be calculated using the
average closing price of the Parent Common Stock for the twenty
(20) trading days prior to October 8, 2004 (“ Closing
Price ”). Notwithstanding the foregoing, in the
event that on the expiration date of the Core Systems Initial
Payment Lock-Up (as defined herein) the Closing Price is more than
twenty-five percent (25%) higher or lower than the average closing
price for the twenty (20) trading days prior to the last day of the
Core Systems Initial Payment Lock-Up (as defined herein), holders
of the Parent Common Stock shall be required to surrender that
number of shares of the Parent Common Stock they received as
consideration in the Acquisition (“ Stock
Consideration ”) as is required to limit the increase in
value of the Stock Consideration to twenty-five percent (25%), or
shall be entitled to receive an additional number of shares of the
Parent Common Stock as is required to limit the decrease in value
of the Stock Consideration to twenty-five percent (25%),
respectively.
(ii)
For the purpose of determining the
number of shares to be issued as payment of the EBTDA Earnout, the
value of Parent Common Stock shall be calculated using the average
closing price of the Parent Common Stock for the twenty (20)
trading days prior to the last day of the Earnout Period (the
“ Earnout Price ”). Notwithstanding the
foregoing, in the event that on the expiration date of the Core
Systems EBTDA Earnout Lock-Up (as defined herein) the Earnout Price
is more than twenty-five percent (25%) higher or lower than the
average of the closing prices for each of the twenty (20) trading
days prior to the last day of the Core Systems EBTDA Earnout
Lock-Up (as defined herein), the number of shares of Parent Common
Stock issuable as payment of the EBDTA Earnout shall be adjusted as
is required to limit the increase in value of the Parent Common
Stock issued as payment for the EBDTA Earnout shares to twenty-five
percent (25%) above the Earnout Price, or shall be entitled to
receive that number of additional shares of the Parent Common Stock
as is required to limit the decrease in value of the EBDTA Earnout
shares to twenty-five percent (25%) below the Earnout Price,
respectively.
(d)
Core Systems Lock-Up
.
(i)
The term “ Date of
Issuance ” when used herein to refer to the Initial
Payment shall mean the Closing Date, and when used herein to refer
to EBTDA Earnout shall mean the last day of the Earnout
Period.
(ii)
The Company and the Primary
Stockholder hereby agree that all holders of the Parent Common
Stock shall be prohibited from selling the Parent Common Stock
received in the Merger as part of the Initial Payment for a period
of six (6) months from the Closing Date
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(“ Core Systems Initial
Payment Lock-Up ”) and as part of the EBTDA Earnout for a
period of six (6) months from the last day of the Earnout Period
(“ Core Systems EBTDA Earnout Lock-Up ”), as
applicable.
(e)
Cancellation of the Company
Capital Stock Owned by the Company . At the Effective Time, all shares of the
Company Capital Stock that are owned by the Company as treasury
stock shall be cancelled and extinguished without any rights to
conversion thereof and no consideration shall be delivered in
exchange therefore.
(f)
Treatment of the Company Option
Plans, the Company Options, Warrants, Rights and all Outstanding
Convertible Securities . At the Effective Time, the Company Stock
Option Plans, the Company Options then outstanding under the
Company Stock Option Plans, and all Company Convertible Securities,
shall be either converted or cancelled and of no further force and
effect. All Company Options shall either be exercised prior
to the Effective Time or shall be terminated and of no further
force and effect following the Effective Time in accordance with
this Section 2.6(f). The Company covenants that there will be
no shares of Company Capital Stock authorized or issued as of the
Effective Time other than shares of Company Common Stock. At
the sole discretion of the board of directors of Parent, Parent may
grant options to purchase Parent Common Stock to Company employees
that become employees of Parent. Any such option grant will
be made subsequent to Parent’s 2004 annual meeting of
stockholders.
(g)
Adjustments
. If at any time during the
period between the date of this Agreement and the Effective Time,
any change in the outstanding capital stock of Parent shall occur,
solely by reason of any reclassification, recapitalization, stock
dividend, stock split, or combination, exchange or readjustment of
shares of capital stock of Parent, or any stock dividend thereof
(but excluding any issuance of any shares of capital stock of
Parent or securities convertible into any shares of capital stock
of Parent, including: (i) any issuances pursuant to the Parent
Stock Option Plan and (ii) any exercises of warrants or options of
Parent), the shares of the Parent Common Stock to be received by
the Primary Stockholder shall be appropriately adjusted.
(h)
No Fractional Shares
. No fraction of a share of
Parent Common Stock will be issued in connection with the
Merger. Each fraction of a share of Parent Common Stock shall
be rounded to the nearest whole number.
(i)
Capital Stock of Merger
Sub . At the
Effective Time, each share of common stock of Merger Sub issued and
outstanding immediately prior to the Effective Time shall remain
unchanged and be converted into and exchanged for one (1) validly
issued, fully paid and non-assessable share of common stock of the
Surviving Corporation. Each stock certificate of Merger Sub
evidencing ownership of any such shares shall continue to evidence
ownership of such shares of Common Stock of the Surviving
Corporation.
Section
2.7
No Further Ownership Rights in
the Company Capital Stock . All shares of Parent Common Stock issued
upon the surrender for exchange of shares of the Company Capital
Stock in accordance with the terms hereof shall be deemed to have
been issued in full satisfaction of all rights pertaining to such
shares of the Company Capital Stock, and after the
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Effective Time there shall be no
further registration of transfers on the records of the Surviving
Corporation of shares of the Company Capital Stock which were
outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates are presented to the
Surviving Corporation for any reason, they shall be exchanged and
cancelled as provided in this Article II.
Section
2.8
Tax Consequences
. It is intended by the
parties hereto that the Merger shall constitute a tax-deferred
reorganization within the meaning of Section 368 of the
Code. The parties to this Agreement hereby adopt this
Agreement as a “plan of reorganization” within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United
States Treasury Regulations.
Section
2.9
Withholding Rights
. Parent and the Surviving
Corporation shall be entitled to deduct and withhold from the
number of shares of Parent Common Stock otherwise deliverable under
this Agreement, and from any other payments made pursuant to this
Agreement, such amounts as Parent and the Surviving Corporation are
required to deduct and withhold with respect to such delivery and
payment under the Code or any provision of state, local, provincial
or foreign tax Law. To the extent that amounts are so
withheld, such withheld amounts shall be treated for all purposes
of this Agreement as having been delivered and paid to the Primary
Stockholder and the other holders of shares of the Company Capital
Stock in respect of which such deduction and withholding was made
by Parent and the Surviving Corporation.
Section
2.10
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 all right, title and
possession to all assets, property, rights, privileges, powers and
franchises of the Company and its assets (including, without
limitation, all rights to the Company Intellectual Property), the
officers and directors of the Company, Parent and the Surviving
Corporation 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.
Section
2.11
Restricted Securities
. The shares of Parent Common
Stock to be issued pursuant to Section 2.6 hereof will be
restricted securities within the meaning of the Securities Act,
will not have been registered with the Securities and Exchange
Commission (the “ SEC ”) pursuant to the
Securities Act and may not be sold or transferred absent such
registration or unless an exception from registration is available.
The Company and the Primary Stockholder acknowledge and understand
that the Parent Common Stock being issued pursuant to this
Agreement, has been purchased for investment purposes and not with
a view to distribution or resale, nor with the intention of
selling, transferring or otherwise disposing of all or any part
thereof for any particular price, or at any particular time, or
upon the happening of any particular event or circumstances, except
selling, transferring, or disposing the Parent Common Stock made in
full compliance with all applicable provisions of the Act, the
rules and regulations promulgated by the SEC thereunder, and
applicable state securities laws; and that an investment in the
Parent Common Stock is not a liquid investment. The certificates
evidencing such shares of Parent Common Stock shall bear a legend
substantially in the following form, in addition to any other
legends required by applicable state Law:
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“THE SECURITIES REPRESENTED
HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE “SECURITIES ACT”) OR THE SECURITIES
LAWS OF ANY STATE, AND MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO: (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, (II) TO THE EXTENT APPLICABLE, RULE 144 UNDER THE ACT (OR ANY
SIMILAR RULE UNDER SUCH ACT RELATING TO THE DISPOSITION OF
SECURITIES), OR (III) AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL TO THE ISSUER, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.”
Upon the written request from a
holder thereof, Parent shall remove the restrictive legend from the
shares of Parent Common Stock, upon the transfer of such shares,
which request shall be accompanied by an opinion of counsel,
reasonably acceptable to Parent, to the effect that the holders
thereof are entitled to have such legend removed pursuant to the
provisions of the Securities Act and Rule 144 promulgated
thereunder. Parent’s obligation to remove such legend
shall be conditioned upon the receipt of such legal opinion.
Parent shall have no obligation to remove any restrictive legends
from the shares of Parent Common Stock.
ARTICLE
III .
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE PRIMARY STOCKHOLDER
Except as disclosed in the Company
Disclosure Schedule (as defined on Schedule A hereto) or as
specifically provided for in this Article III, the Company and the
Primary Stockholder, jointly and severally, represent and warrant
to Parent and Surviving Corporation as follows:
Section 3.1
Organization, Standing and
Power . Each of the
Company and its corporate Affiliates is a corporation duly
organized, validly existing and in good standing under the Laws of
its jurisdiction of organization. The Company has the
corporate power to own its properties and to carry on its business
as now being conducted and as currently proposed to be conducted
and is duly qualified to do business and is in good standing in
each jurisdiction in which the failure to be so qualified and to be
in good standing would have a Company Material Adverse Effect (as
defined on Schedule A hereto). The Company has
delivered or made available a true and correct copy of the
Certificate of Incorporation and Bylaws or other charter documents,
as applicable, of the Company and each of its corporate Affiliates,
each as amended to the date of the execution of this Agreement, to
Parent. The Company is not in violation of any of the
provisions of its Certificate of Incorporation or Bylaws or
equivalent organizational documents. A list of the
Company’s subsidiaries, including name, state of
incorporation, number of shares outstanding and a list of
shareholders, is included on Schedule 3.1 to the Company Disclosure
Schedule. The 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 non-individual Person.
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(a)
The authorized capital stock of the
Company consists of 3,000,000 shares of Company Common Stock, of
which there were 1,415,218 shares issued and outstanding as of the
Effective Date, and 2,000,000 shares of preferred stock (“
Company Preferred Stock ”), 66,957 of which have been
designated Series A Preferred Stock (“ Company Series A
Preferred Stock ”) and 70,000 of which have been
designated Series B Preferred Stock (“ Company Series B
Preferred Stock ”). As of the Effective Date there
will be no shares of Company Preferred Stock, Company Series A
Preferred Stock or Company Series B Preferred Stock
outstanding. On the Execution Date there are, and as of the
Effective Time there will be, no options, warrants, convertible
notes or other outstanding commitments to issue any shares of
Company Capital Stock (each a “ Company Derivative
Securities ”). Schedule 3.2(a) to the
Company Disclosure Schedule lists all of the stockholders of the
Company.
(b)
All outstanding shares of the
Company Capital Stock are duly authorized, validly issued, fully
paid and non-assessable and are free of any Liens (as defined on
Schedule A hereto), other than any Liens created by or
imposed upon the holders thereof, and are not subject to preemptive
rights or rights of first refusal created by California Law, the
Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is
bound. All outstanding shares of the Company Capital Stock
were issued in compliance in all material respects with all
applicable federal and state securities Laws.
Except for the agreements contemplated by this Agreement and the
agreements set forth on Schedule 3.2(b) to the Company
Disclosure Schedule, there are no contracts, commitments or
agreements relating to voting, purchase or sale of the Company
Capital Stock: (i) between or among the Company and any of its
security holders and (ii) between or among any of the
Company’s security holders, including the Primary
Stockholder.
(c)
The Primary Stockholder represents
that all shares of Company Common Stock owned by him are free and
clear of any and all liens and encumbrances, including but not
limited to any pledge, claim, security interest or other security
arrangement.
Section 3.3
Authority; No Conflicts or
Consents .
(a)
The Company and the Primary
Stockholder have all requisite corporate power and authority to
enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated
hereby have been duly authorized by all necessary corporate action
on the part of the Company, including approval by the Primary
Stockholder, the Company stockholders and any other
Person.
(b)
This Agreement has been duly
executed and delivered by the Company and the Primary Stockholder
and constitutes the valid and binding obligation of the Company and
the Primary Stockholder enforceable against the Company and the
Primary Stockholder by Parent and Merger Sub in accordance with its
terms. The execution and delivery of this Agreement by the
Company and its Primary Stockholder does not, and the execution of
the other agreements
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contemplated by this Agreement and
the consummation of the transactions contemplated hereby and
thereby 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 Certificate of Incorporation or
Bylaws of the Company, (ii) any Company Authorization (as
defined in Section 3.8) or (ii) any Material
Contract.
(c)
Except as set forth on
Schedule 3.3(c) to the Company Disclosure Schedule, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any foreign, federal, state or local
court, administrative agency or commission or other governmental
authority or instrumentality (each, a “ Governmental
Entity ”) is required with respect to the Company in
connection with the execution and delivery of this Agreement or the
consummation of the transactions contemplated hereby, except for:
(i) the filings of the Certificate of Merger, together with
the required officers’ certificates, (ii) any notice
described in Section 6.5 hereof and (iii) such other
consents, authorizations, filings, approvals and registrations
which, if not obtained or made, would not prevent, materially alter
or delay any of the transactions contemplated by this
Agreement.
(d)
Except as set forth on Schedule
3.3(d) to the Company Disclosure Schedule, neither the Company,
the Primary Stockholder nor their respective Affiliates is subject
to or bound by any provision of:
(i)
any Law;
(ii)
any contract, mortgage, deed of
trust, lease, note, agreement, understanding, proxy, bond,
indenture, other instrument or agreement, license, permit, trust,
custodianship or other restriction, or
(iii)
any consent, judgment, order, writ,
award, injunction or decree of any Governmental Authority or
arbitrator,
that would conflict with, prevent or be violated
by or that would result in the creation of any Lien as a result of,
or under which there would be a default or right of termination,
amendment, acceleration, revocation, cancellation or suspension as
a result of, the execution, delivery and performance by the Company
or the Primary Stockholder of this Agreement, any other document
contemplated hereby, including all agreements and instruments which
are Exhibits hereto (each, an “ Other Document
”), the consummation of the Merger or the other transactions
contemplated hereby or thereby. Except as set forth on
Schedule 3.3(d) to the Company Disclosure Schedule, no
consent, novation, order, license, permit, approval or
authorization of or declaration, notice or filing with any Person
is required for: (i) the valid execution, delivery and performance
by the Company and the Primary Stockholder of this Agreement or any
Other Document and the consummation of the Merger or the other
transactions contemplated hereby and thereby or (ii) the ability of
Parent to operate the Company’s business in substantially and
materially the same manner as the business was operated by the
Company prior to the Effective Time.
10
Section 3.4
Financial Statements;
Liabilities .
(a)
The Company has heretofore furnished
Parent with copies of the following unaudited financial statements
of the Company: (i) balance sheet as at November 30, 2003;
(ii) statements of operations for each of the years ended on
November 30, 2003 and 2002; (iii) a balance sheet (the “
Reference Balance Sheet ”) as at May 31, 2004 (the
“ Reference Balance Sheet Date ”); (iv) a
statement of operations (the “ Reference Income
Statement ”) for the six months ended May 31, 2004; and a
balance sheet dated as of the Closing Date (“ Closing
Balance Sheet ”). Except as set forth
on Schedule 3.4(a) to the Company Disclosure Schedule, all
such financial statements are complete and correct and were
prepared in accordance with generally accepted accounting
principles of the United States (“ GAAP ”),
consistently applied throughout the periods indicated, and have
been prepared in accordance with the Books and Records of the
Company, and present fairly the financial position of the Company
at such dates and the results of its operations and cash flows for
the periods then ended, subject to normal year end adjustments made
in accordance with GAAP and to such inaccuracies, if any, which are
not material in nature or amount. The financial statements of
the Company provided to Parent pursuant to this Section 3.4(a) are
referred to herein as the “ Company Financial
Statements .”
(b)
There are no Liabilities of or
against the Company of any nature (accrued, absolute or contingent,
unasserted, known, unknown or otherwise), except: (i) as and to the
extent reflected or reserved against on the Closing Balance
Sheet; (ii) as set forth on Schedule 3.4(b) to the
Company Disclosure Schedule; (iii) those that are
individually, or in the aggregate, not material and were incurred
since the Reference Balance Sheet Date in the ordinary course of
business consistent with prior practice, and reflected on the
Closing Balance Sheet; (iv) open purchase or sales orders or
agreements for delivery of goods and services in the ordinary
course of business consistent with prior practice; (v) those
incurred in connection with the execution of this Agreement; and
(vi) those disclosed on Schedule 3.7 to the Company
Disclosure Schedule.
(c)
As of June 30, 2004 and as of the
Closing Date, the Company’s outstanding accounts receivable
(“ Accounts Receivable ”) and outstanding
accounts payable (“ Accounts Payable ”) are as
set forth on Schedule 3.4(c) to the Company Disclosure Schedule,
which shall include with respect to each of the Accounts Receivable
the account debtor’s name, amount due, and number of days
outstanding for each such debtor, and with respect to each of the
Accounts Payable shall include the vendor’s name, amount
owed, and number of days outstanding for each such
vendor.
Section 3.5
Absence of Certain
Changes . Except as
set forth on Schedule 3.5 to the Company Disclosure Schedule
or as expressly contemplated by this Agreement, since the Reference
Balance Sheet Date there has not occurred: (i) any change, event or
condition (whether or not covered by insurance or similar
indemnification agreement) that has resulted in, or would
reasonably be expected to result in, a Company Material Adverse
Effect, (ii) any acquisition, sale or transfer of any material
asset of the Company or any of its Affiliates, (iii) any
change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company or
any revaluation by the Company of any of its or any of its
Affiliates’ assets, (iv) any declaration, setting aside,
or payment of a dividend or other distribution with respect to the
shares of the Company, or any direct or indirect redemption,
purchase or other acquisition by the Company of the
11
Company Capital Stock, (v) any
action to amend or change the Certificate of Incorporation or
Bylaws of the Company (nor will there be prior to the Effective
Time) or (vi) any negotiation or agreement by the Company or
any of its Affiliates to do any of the things described in the
preceding clauses (i) through (v) (other than negotiations
with Parent and its representatives regarding the transactions
contemplated by this Agreement).
Section 3.6
Intentionally left
blank.
Section 3.7
Litigation
. Except as set forth on
Schedule 3.7 to the Company Disclosure Schedule, there
is no civil or criminal, private or governmental action, suit,
proceeding, claim, arbitration, governmental investigation, or to
the knowledge of the Company, any governmental or private
regulatory activity or investigation pending before or being
undertaken by any agency, court or tribunal, foreign or domestic
(each a “ Proceeding
”) against the Company, any of
its Affiliates, the Primary Stockholder or any of their respective
properties or any of their respective officers or directors (in
their capacities as such). To the knowledge of the Company,
no Proceeding is being threatened against the Company, any of its
Affiliates, the Primary Stockholder or any of their respective
properties or any of their respective officers or directors (in
their capacities as such). There is no Proceeding, judgment,
decree or order against the Company or any of its Affiliates
(including the Primary Stockholder), or, to the knowledge of the
Company, or any of its Affiliates (including the Primary
Stockholder), or any of their respective directors or officers (in
their capacities as such), that could prevent, enjoin, or
materially alter or delay the Merger or any of the other
transactions contemplated by this Agreement, or that could
reasonably be expected to have a Company Material Adverse
Effect.
Section 3.8
Governmental
Authorization . The
Primary Stockholder and the Company have obtained each federal,
state, county, local or foreign governmental consent, license,
permit, grant, or other authorization of a Governmental Entity:
(i) pursuant to which the Company currently operates or holds
any interest in any of its properties or (ii) that is required
for the operation of the Company’s business as currently
conducted or the holding of any such interest ((i) and
(ii) herein collectively called the “
Company
Authorizations ”), and
all of such Company Authorizations are in full force and effect,
except where the failure to obtain or have any such Company
Authorizations could not reasonably be expected to have a Company
Material Adverse Effect.
Section 3.9
Title to Personal
Property . Except
as set forth on Schedule 3.9 to the Company Disclosure
Schedule, the Company has good, valid and marketable title to all
of its personal property, interests in personal properties and
material assets reflected in the Reference Balance Sheet or
acquired after the Reference Balance Sheet Date. Such
properties and assets with a book value of $10,000 or above are
listed on Schedule 3.9 to the Company Disclosure
Schedule (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 with respect to leased
properties and assets, valid leasehold interests, free and clear of
all Liens, except: (i) a lien for 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
12
materially impair business
operations involving such properties, (iii) liens securing
debt which are reflected on the Reference Balance Sheet, and
(iv) liens that in the aggregate would not have a Company
Material Adverse Effect. To the Company’s knowledge,
the plant, property and equipment of the Company that are used in
the operations of its business are in good operating condition and
repair, subject to normal wear and tear. All personal
properties used in the operations of the Company are reflected in
the Reference Balance Sheet to the extent GAAP requires the same to
be reflected.
(a)
Set forth on Schedule
3.10(a)(i) to the Company Disclosure Schedule is a true,
accurate and complete list of all Intellectual Property (as defined
on Schedule A hereto) directly or indirectly owned,
licensed, optioned or otherwise used or proposed to be used by the
Company or its Affiliates in its business and by the Primary
Stockholder in connection with the business of the Company
(collectively, the “ Company Intellectual Property
”). Set forth on Schedule 3.10(a)(ii) to the
Company Disclosure Schedule is a true, accurate and complete list
of all grant, license, acquisition, purchase, assignment, option,
product development, evaluation, confidentiality, non-disclosure,
marketing and similar agreements, instruments or arrangements (and
any letters of intent relating to any potential agreement)
(collectively, the “ Company IP Agreements ”) to
which the Company, its Affiliates or the Primary Stockholder is a
party relating or pertaining to the Company Intellectual
Property.
(b)
The Company either: (i) owns
and is listed in the records of the appropriate United States,
state or foreign registry as the current owner of record for each
application and registration of Company Intellectual Property or
(ii) has a legally enforceable license or other valid and
lawful rights to use (in each case, free and clear of any Liens
encumbering the Company or its assets) all Company Intellectual
Property used in or necessary for the conduct of its business as
currently conducted, including without limitation all patents and
patent applications and all trademark registrations and trademark
applications.
(c)
Except as set forth on Schedule
3.10(c) to the Company Disclosure Schedule, to the
Company’s knowledge, the conduct of the business of the
Company as currently conducted does not infringe on or
misappropriate, either directly or indirectly (such as through
contributory infringement or inducement to infringe), the
Intellectual Property rights of any Person, and the use by the
Company of any Company Intellectual Property is in accordance with
the applicable Company IP Agreement.
(d)
Except as set forth on Schedule
3.10(d) to the Company Disclosure Schedule, to the
Company’s knowledge, no Person is misappropriating,
infringing, diluting or otherwise violating any right of the
Company with respect to any Company Intellectual Property owned or
used by the Company, and no such claims, suits, arbitrations or
other adversarial proceedings have been brought or threatened
against any Person by the Company or any of its Affiliates or the
Primary Stockholders.
(e)
Except as set forth on
Schedule 3.10(e) to the Company Disclosure Schedule,
neither the Company nor any of its Affiliates or the Primary
Stockholder have received any
13
written or other notice by any
Person of any pending or threatened claim, suit, action, mediation,
arbitration, order or other adversarial proceeding:
(i) alleging infringement (or other violation) by the Company
or any of its Affiliates or the Primary Stockholders of
Intellectual Property or other rights of any Person or
(ii) challenging the Company’s or its Affiliates or the
Primary Stockholders’ ownership or use of, or the
validity, enforcement, registrability or maintenance of, any
Company Intellectual Property owned or used by the Company, its
Affiliates or the Primary Stockholders. No Company
Intellectual Property owned or used by the Company or any of its
Affiliates is being used or enforced in a manner that would
reasonably be expected to result in the abandonment, cancellation
or unenforceability of such Company Intellectual
Property.
(f)
Except as set forth on Schedule
3.10(f) to the Company Disclosure Schedule, the Company
Intellectual Property owned or used by the Company or its
Affiliates: (i) is being owned or used by the Company in accordance
with, and not in breach of, any Company IP Agreements, (ii) has
been duly maintained, (iii) is subsisting, in full force and
effect, (iv) is valid and enforceable, (v) has not
expired, been cancelled or abandoned and (vi) all maintenance,
registration and renewal fees necessary to preserve the rights of
the Company in connection with such Company Intellectual Property
have been paid in a timely manner, and there are no actions that
must be taken by the Company, its Affiliates or the Primary
Stockholder within ninety (90) days of the Execution Date,
including the payment of any registration, maintenance or renewal
fees or the filing with the United States Patent and Trademark
Office or such other appropriate U.S. or foreign office or similar
administrative agency of documents, applications or certificates
for the purposes of obtaining, maintaining, perfecting, preserving
or renewing any rights in the registered or applied-for Company
Intellectual Property.
(g)
Except as set forth on Schedule
3.10(g) to the Company Disclosure Schedule, neither the Company,
its Affiliates or the Primary Stockholder has entered into any
consents, judgments, orders, indemnifications, forbearances to sue,
settlement agreements, licenses or other arrangements which:
(i) restrict the Company’s or its Affiliates or the
Primary Stockholder’s right to use any Company Intellectual
Property, (ii) restrict the business of the Company’s or
its Affiliates in order to accommodate a third Person’s
Intellectual Property rights, (iii) permit third parties to
use any Company Intellectual Property, (iv) reasonably would
be expected to provide any third party a defense to patent
infringement in connection with any Company Intellectual
Property.
(h)
To the Company’s knowledge,
all Company Intellectual Property developed by and belonging to the
Company or its Affiliates which has not been patented has been kept
confidential so as, among other things, all such information may be
deemed proprietary to the Company. Each Person (including any
current and former employee of or consultant to the Company) who
has contributed to or participated in the research and development
activities of the Company will not, after giving effect to the
Merger and the other transactions contemplated by this Agreement,
own or retain any rights to use any of the Company Intellectual
Property. Except as set forth on Schedule 3.10 (h), neither
the Company nor its Affiliates has granted or assigned to any other
Person any right to manufacture, have manufactured, assemble or
sell the current products and services of the Company.
14
Section 3.11
Company Products and
Services .
(a)
Schedule 3.11(a)
to the Company Disclosure Schedule
sets forth a complete and accurate listing and description of: (i)
any and all products and services designed, developed, licensed,
manufactured, sold, promoted, labeled or distributed by, or on
behalf of, the Company, including any proposed products as of the
Execution Date (collectively, the “ Company
Products ”) and (ii) the status and a brief
description of any material activities being undertaken or proposed
to be undertaken by the Company or any other Person with respect to
each Company Product, in each case as of the Execution Date (the
“ Development Activities ”).
(b)
The approvals and authorizations
listed on Schedule 3.11(b) to the Company Disclosure
Schedule are those which are required to operate the
Company’s business as currently conducted.
(c)
To the Company’s knowledge,
the Company and its designated manufacturers in connection with the
Development Activities are, in compliance in all material respects
with all applicable terms and conditions of each Law pertaining to
the design, development, manufacture, labeling, sale, distribution
and promotion of the Company Products (including, without
limitation, all Laws administered by the Radiologic Health Branch
of the State of California).
(d)
To the Company’s knowledge,
the Company and its designated manufacturers in connection with the
Development Activities are in compliance in all material respects
with all applicable Laws regarding registration, license, and
certification for each site at which a Company Product is
manufactured, labeled, sold or distributed.
(e)
To the extent any Company Product
has been exported by the Company or Persons with whom the Company
is in privity of contract from the United States, to the
Company’s knowledge, the Company has and such other Persons
have exported such Company Products in compliance in all material
respects with all applicable Laws.
(f)
No filing or submission to the
Radiologic Health Branch of the State of California or any other
Governmental Entity with regard to the Company Products that is the
basis for any approval or clearance contains any material omission
or materially false information.
(g)
The Company has not received any
written notice or other written communication from the Radiologic
Health Branch of the State of California or any other Governmental
Entity alleging any violation of any Laws by the Company or the
Primary Stockholder in connection with the Company.
Section 3.12
Compliance With Laws
. The Company and the Primary
Stockholder in connection with the Company have not received any
notices of violation with respect to, and, to the Company’s
knowledge, have complied with, and are not in violation of, any Law
with respect to the ownership, operation or conduct of the
Company’s business, except for such violations or failures to
comply as could not be reasonably expected to have a Company
Material Adverse Effect.
15
(i)
To the Company’s knowledge,
the operations of the Company have at all times been and are in
compliance with all Environmental Laws, except where any
noncompliance would not have a Company Material Adverse
Effect.
(ii)
The Company has obtained and is in
full compliance with all permits, licenses, authorizations and
approvals required under Environmental Law with respect to the
operation or conduct of its business or the ownership or operation
of its properties and facilities (the “ Environmental
Approvals” ), each such Environmental Approval is in full
force and effect, and each such Environmental Approval will remain
in full force and effect after the execution, delivery and
performance of this Agreement, provided that any transfer documents
required by Environmental Law for such Environmental Approval and
identified on Schedule 3.13(ii) to the Company Disclosure
Schedule are completed as required by Environmental Law.
(iii)
Neither Company nor any of its
Property or Facilities is subject to any order or, to the
Company’s knowledge, any proposed order under any
Environmental Law. The Company has not received any notice
from any person or Governmental Entity regarding or alleging, and
no condition or circumstance exists that is reasonably likely to
result in (with or without notice or lapse of time or both) a
violation or failure to comply with any term or requirement of any
Environmental Law or Environmental Approval.
(iv)
The Company has provided or made
available to Parent true, complete and correct copies and results
of all studies, reports, assessments, surveys, correspondence,
investigations, audits, analysis, tests and other documents
(whether in hard copy or electronic form) in the Company’s or
their counsel’s possession or control pertaining to the
presence or alleged presence of any Hazardous Material at, on or
affecting any Property or Facilities, or regarding the
Company’s compliance with any applicable Environmental Law or
Environmental Approval.
(v)
To the Company’s knowledge,
none of the following exists at any Property or Facilities: any
asbestos-containing material in any form which is friable; urea
formaldehyde foam insulation; polychlorinated biphenyls; active or
out-of-service or underground storage tanks or sites from which
such storage tanks have been removed; or landfills, surface
impoundments, waste piles or land disposal areas.
(vi)
The Company has received no notice
that it is, and to its knowledge believes that it is not, a
potentially responsible party under the federal Comprehensive
Environmental Response, Compensation and Liability Act (CERCLA), or
state analog statute, arising out of events occurring on or prior
to the Closing Date.
Section 3.14
Taxes . Except as disclosed on Schedule
3.14 to the Company Disclosure Schedule:
(a)
The Company has timely filed all Tax
Returns (as defined below) that it was required to file, and such
Tax Returns are true, correct and complete in all material
respects. All Taxes (as defined below) shown to be payable on
such Tax Returns or on subsequent
16
assessments with respect thereto have been paid
in full on a timely basis, and no other Taxes are payable by the
Company or any subsidiary with respect to any period ending prior
to the date of this Agreement, whether or not shown due or
reportable on such Tax Returns, other than Taxes for which adequate
accruals have been provided and are reflected in the Company
Financial Statements or amounts payable with respect to periods or
portions of periods after the Company Balance Sheet Date. The
Company has withheld and paid over all Taxes required to have been
withheld and paid over, and complied with all information reporting
and backup withholding requirements, including maintenance of
required records with respect thereto. Neither the Company
nor any subsidiary has any material liability for unpaid Taxes
accruing after the date of its Reference Balance Sheet Date, except
for Taxes incurred in the ordinary course of business. There
are no Liens for Taxes on the properties of the Company.
(b)
No Tax Returns of the Company have been audited. The Company
has delivered or made available to Parent correct and complete
copies of all Tax Returns filed, examination reports, and
statements of deficiencies assessed or agreed to by the Company
since inception. The Company has not waived any statute of
limitations in respect of any Tax or agreed to an extension of time
with respect to any Tax assessment or deficiency.
(c)
Neither the Company nor the Primary Stockholder in connection with
the Company is a party to or bound by any tax indemnity agreement,
tax sharing agreement or similar contract. The Company is not
a party to any joint venture, partnership, or other arrangement or
contract which could be treated as a partnership or
“disregarded entity” for United States federal income
tax purposes.
(d)
The Company is not obligated under any agreement, contract or
arrangement that will result in the payment of any amount that
would not be deductible by reason of Sections 162(m) or 280G
of the Code.
(e)
The Company has not been nor, to the Company’s knowledge,
will 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 comparable provision
under state or foreign Tax Laws as a result of transactions, events
or accounting methods employed prior to the Merger other than any
such adjustments required as a result of the Merger. The
Company has filed or will file any consent to have the provisions
of paragraph 341(f) of the Code (or comparable provisions of any
state Tax Laws) apply to the Company. The Company has not
filed any disclosures under Section 6662 or comparable
provisions of state, local or foreign Law to prevent the imposition
of penalties with respect to any Tax reporting position taken on
any Tax Return. The Company is not currently and has not been
a United States real property holding corporation (within the
meaning of Section 897(c)(2) of the Code) during the
applicable periods specified in Section 897(c)(1)(A)(ii) of
the Code.
(f)
The Company has not incurred any liability for Taxes pursuant to
Section 1374 or 1375 of the Code (and any predecessor
provision and any similar provision of applicable state or local or
other Tax Law).
(g)
The Company has not been the “distributing corporation”
(within the meaning of
17
Section 355(c)(2) of the Code) with respect
to a transaction described in Section 355 of the Code within
the three (3) year period ending as of the date of this
Agreement.
Section 3.15
Employee Benefit Plans
.
(a)
Schedule 3.15(a) to the Company’s Disclosure
Schedule lists: (i) all current employees and their current annual
salaries; (ii) all “employee benefit plans” within
the meaning of Section 3(3) of ERISA, (iii) all
employment agreements, including, but not limited to, any
individual benefit arrangement, policy or practice with respect to
any current or former employee or director of the Company, and
(iv) all other employee benefit, bonus or other incentive
compensation, stock option, stock purchase, stock appreciation,
severance pay, lay-off or reduction in force, change in control,
sick pay, vacation pay, salary continuation, retainer, leave of
absence, educational assistance, service award, employee discount,
fringe benefit plans, arrangements, policies or practices, whether
legally binding or not, which the Company maintains, to which any
of them contributes, or for which any of them has any obligation or
liability (collectively, the “ Plans
”).
(b)
None of the Plans is a Defined Benefit Plan, and neither the
Company nor Member of the Controlled Group has ever sponsored,
maintained or contributed to, or ever been obligated to contribute
to, a Defined Benefit Plan.
(c)
None of the Plans is a Multiemployer Plan, and neither the Company
nor a Member of the Controlled Group has ever contributed to, or
ever been obligated to contribute to, a Multiemployer
Plan.
(d)
The Company does not maintain or contribute to any plan that
provides health benefits to an employee after the employee’s
termination of employment or retirement except as required under
Section 4980B of the Code and Sections 601 through 608 of
ERISA.
(e)
Each Plan which is an “employee benefit plan,” as
defined in Section 3(3) of ERISA, complies in all material respects
by its terms and in operation with the requirements provided by any
and all statutes, orders or governmental rules and regulations
currently in effect and applicable to the Plan, including but not
limited to ERISA and the Code.
(f)
All reports, forms and other documents required to be filed with
any government entity or furnished to employees, former employees
or beneficiaries with respect to any Plan (including without
limitation, summary plan descriptions, Forms 5500 and summary
annual reports) have been timely filed and furnished and are
accurate, except for those instances which, either individually or
in the aggregate, would not have a Company Material Adverse
Effect.
(g)
Each of the Plans that are intended to qualify under
Section 401(a) of the Code has been determined by the Internal
Revenue Service to so qualify after January 1, 1989, and each
trust maintained pursuant thereto has been determined by the
Internal Revenue Service to be exempt from taxation under
Section 501 of the Code. Nothing has occurred since the
date of the Internal Revenue Service’s favorable
determination letter that could adversely affect the qualification
of the Plan and its related trust. The Company and each
Member of the Controlled
18
Group or have timely amended and operated each
of these Plans to comply with the Small Business and Job Protection
Act of 1996 and subsequent legislation enacted through the date
hereof, and Section 501 of the Code.
(h)
All contributions for all periods ending prior to the Closing Date
(including periods from the first day of the current plan year to
the Closing Date) have been made prior to the Closing Date by the
Company or have been reserved against on the Company Financial
Statements.
(i)
All insurance premiums have been paid in full, subject only to
normal retrospective adjustments in the ordinary course, with
regard to the Plans for plan years ending on or before the Closing
Date, except for those instances which, either individually or in
the aggregate, would not have a Company Material Adverse
Effect.
(j)
With respect to each Plan: (i) to the Company’s
knowledge, no “prohibited transactions” (as defined in
Section 406 or 407 of ERISA or Section 4975 of the Code)
have occurred for which a statutory exemption is not available;
(ii) no action or claims (other than routine claims for
benefits made in the ordinary course of Plan administration for
which Plan administrative review procedures have not been
exhausted) are pending, or to the knowledge of the Company and the
Primary Stockholder, threatened or imminent against or with respect
to the Plan, any employer who is participating (or who has
participated) in any Plan or any fiduciary (as defined in
Section 3(21) of ERISA), of the Plan; (iii) neither the
Company nor the Primary Stockholder, nor any fiduciary thereof, has
any knowledge of any facts that could give rise to any such action
or claim; and (iv) it provides that it may be amended or
terminated at any time and, except for benefits protected under
Section 411(d) of the Code, all benefits payable to current,
terminated employees or any beneficiary may be amended or
terminated by the Company at any time without liability other than
ordinary administrative expenses.
(k)
Neither the Company nor, to the knowledge of the Company, any of
its Affiliates has any material liability or is, to the knowledge
of the Company and the Primary Stockholder, threatened with any
material liability (whether joint or several): (i) for any
excise tax imposed by Sections 4971, 4975, 4976, 4977 or 4979
of the Code, or (ii) to a fine under Section 502 of
ERISA.
(l)
All of the Plans, to the extent applicable, are in material
compliance with the continuation of group health coverage
provisions contained in Section 4980B of the Code and
Sections 601 through 608 of ERISA.
(m)
True, correct and complete copies of all documents creating or
evidencing any Plan have been delivered or made available to
Parent, and true, correct and complete copies of all reports, forms
and other documents required to be filed with any Governmental
Entity or furnished to employees, former employees or beneficiaries
(including, without limitation, summary plan descriptions, Forms
5500 and summary annual reports for all plans subject to ERISA, but
excluding individual account statements and tax forms) have been
delivered to Parent. There are no negotiations, demands or
proposals which are pending or have been made which concern matters
now covered, or that would be covered, by the type of
agreements
19
required to be listed in
Schedule 3.15(a) and that are reasonably likely to have
a Company Material Adverse Effect.
(n)
All expenses and liabilities relating to all of the Plans have
been, and will on the Closing Date be fully and properly accrued on
the Books and Records.
Section 3.16
Certain Agreements Affected by
the Merger . Except
as set forth on Schedule 3.16 to the Company’s
Disclosure Schedule, neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated
hereby will: (i) result in any material payment (including,
without limitation, any severance, unemployment compensation,
golden parachute or bonus payment) becoming due to any director,
officer, agent or employee of the Company or any other third party,
(ii) materially increase any benefits otherwise payable by the
Company to its respective employees, (iii) result in the
acceleration of the time of payment or vesting of any such benefits
or (iv) breach, cause an event of default or give any third party
any rights against the Company or the Company Intellectual Property
under any Company IP Agreement.
(a)
The Company is in compliance in all material respects with all
currently applicable Laws respecting employment, discrimination in
employment, terms and conditions of employment, wages, hours and
occupational safety and health and employment practices, and are
not engaged in any unfair labor practice, except where the failure
to be in compliance or the engagement in unfair labor practices has
not had and would not be reasonably expected to have a Company
Material Adverse Effect. The Company has in all material
respects withheld all amounts required by Law or by agreement to be
withheld from the wages, salaries, and other payments to their
respective employees; and are not liable for any arrears of wages
or any taxes or any penalty for failure to comply with any of the
foregoing.
(b)
The Company is not liable for any payment to any trust or other
fund or to any Governmental Entity, with respect to unemployment
compensation benefits, social security 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 that are not covered by insurance. The
Company has no obligations under COBRA with respect to any former
employees or qualifying beneficiaries thereunder, except
obligations that would not have a Material Adverse Effect on the
Company.
(c)
There are no controversies pending or, to the knowledge of the
Company, threatened, between the Company and its employees
(including, without limitation, controversies relating to sexual or
age discrimination, sexual harassment or similar controversies),
which controversies have or could reasonably be expected to result
in a Proceeding against the Company before any Governmental Entity
except for such Proceeding that would not have a Company Material
Adverse Effect.
(d)
The Company is not a party to any collective bargaining agreement
or other labor
20
union contract, nor does the Company know of any
activities or proceedings of any labor union or organization of any
such employees.
(e)
To the Company’s knowledge, no employees of the Company are
in violation of any term of any employment contract, patent
disclosure agreement, enforceable non-competition agreement, or any
enforceable 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 presently
proposed to be conducted by the Company or to the use of trade
secrets or proprietary information of others. No employees or
consultants who are considered key to the operations or the
business 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 or consultancy with the
Company.
Section 3.18
Insurance . The Company has made available to Parent
all material policies of insurance of the Company as set forth on
Schedule 3.18 to the Company Disclosure Schedule, and such
Schedule is complete and accurate. There is no material claim
pending under any of such policies or bonds as to which coverage
has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all
such policies and bonds have been paid and the Company is otherwise
in compliance with the terms of such policies and bonds. The
Company and the Primary Stockholder have no knowledge of any
threatened termination of, or material premium increase with
respect to, any of such policies. The Company and the Primary
Stockholder have not been refused any insurance coverage sought or
applied for, and the Company has no reason to believe that it will
not be able to renew its existing insurance coverage as and when
such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost
that would not materially adversely affect the business, business
prospects, properties, condition (financial or otherwise) or
results of operations of the Company.
Section 3.19
Customers and
Suppliers .
Schedule 3.19 to the Company Disclosure Schedule lists
the top twenty suppliers and top twenty customers of the Company in
terms of gross purchases and gross revenues, respectively, during
the year ended November 30, 2003 and for the nine month period
ended August 31, 2004, as well as any accounts receivable of the
Company that are in dispute as of the Closing Date. No such
customer and no such supplier of the Company has cancelled or
otherwise terminated or made any written threat to the Company or
the Primary Stockholder to cancel or otherwise terminate its
relationship with the Company or, at any time on or after the
Reference Balance Sheet Date, has materially decreased its
purchases or supplies to the Company and, to the Company’s
and the Primary Stockholder’ knowledge, no such supplier or
customer intends to cancel or otherwise terminate its relationship
with the Company or to decrease materially its services or supplies
to the Company or its usage of the services or products of the
Company, as the case may be. The Company has not knowingly
breached, so as to provide a benefit to the Company or any of
it’s Affiliates (including the Primary Stockholder) not were
intended by the parties, any agreement with, or engaged in any
fraudulent conduct with respect to, any customer or supplier of the
Company.
21
Section 3.20
Material Contracts
. Except: (i) for the Company
IP Agreements, (ii) as set forth on Schedule 3.20 to
the Company Disclosure Schedule (the contracts listed on such
Schedule, together with the Company IP Agreements, being
collectively referred to herein as the “ Material Contracts
”) and (iii) for this
Agreement, and other contracts and agreements which individually or
in the aggregate are not material to the Company’s business,
the Company is not a party to or bound by:
(a)
any agreement, contract, instrument or understanding relating to
any Intellectual Property (including the Company Intellectual
Property);
(b)
any distributor, sales, agency or manufacturer’s
representative, consulting, joint-venture, or partnership contract,
joint research and development contract or technology sharing
arrangements;
(c)
any continuing contract for the purchase of materials, supplies,
equipment or services involving in the case of any such contact
more than $10,000 over the life of the contract;
(d)
any trust indenture, mortgage, promissory note, loan agreement or
other contract for the borrowing of money, any currency exchange,
commodities or other hedging arrangement or any leasing transaction
of the type required to be capitalized in accordance with
GAAP;
(e)
any contract for capital expenditures in excess of $10,000 in the
aggregate;
(f)
any contract limiting the freedom of the Company to engage in any
line of business, to acquire any product or asset from any other
Person, to sell any product or asset to, or to perform any service
for, any Person, or to compete with any other Person;
(g)
any confidentiality, secrecy or non-disclosure contract, which
individually or in the aggregate, materially affects or could be
reasonably anticipated to materially affect the business or
operations of the Company;
(h)
any contract pursuant to which the Company is a lessor of real
property or any machinery, equipment, motor vehicles, office
furniture, fixtures or other personal property involving in the
case of any such personal property contact more than $10,000 over
the life of the contract;
(i)
any contract with any Person with whom the Company does not deal at
arm’s length or any agreement with the Primary
Stockholder;
(j)
any contract which provides for the indemnification of any officer,
director, employee or agent;
(k)
any agreement of guarantee, support, indemnification, assumption or
endorsement of, or any similar commitment with respect to, the
obligations, liabilities (whether accrued, absolute, contingent or
otherwise) or indebtedness of any other Person; or
22
(l)
any agreement of any kind with any Stockholder.
Section 3.21
No Breach of Material
Contracts . All
Material Contracts are in the written form previously provided or
made available to Parent. The Company has performed all of
the material obligations required to be performed by it as of the
date hereof and is entitled to all benefits under, and, to
Company’s knowledge, is not alleged to be in breach or
default in respect of any Material Contract. Each of the
Material Contracts is in full force and effect, unamended except as
provided or made available to Parent, and there exists no default
or event of default or event, occurrence, condition or act, with
respect to the Company or, to the Company’s knowledge, with
respect to the other contracting party, which, with the giving of
notice or the lapse of the time, would become a default or event of
default under any Material Contract or would give any Person the
right to exercise any remedy, or the right to any rebate,
chargeback, penalty or change in delivery schedule, except to the
extent such defaults, remedies, penalties or changes have not had
and would not be reasonably expected to have a Company Material
Adverse Effect.
Section 3.22
Real Property and Real Property
Leases .
(a)
The Company does not own any real property.
(b)
Schedule 3.22(b) to the Company Disclosure Schedule
sets forth a list of all leases, licenses or other occupancy
agreements to which the Company is a party, that are for the use or
occupancy of real estate owned by a third party (“
Leases ”) (copies of which have previously been
furnished to Parent), in each case, setting forth: (i) the lessor
and lessee thereof and the commencement date, term and renewal
rights under each of the Leases, and (ii) the street address
or legal description of each property covered thereby (the “
Leased Premises ”). The Leases are in full force
and effect in all material respects, and to the knowledge of the
Company and the Primary Stockholder, have not been amended, and the
Company is not and, to the knowledge of the Company and the Primary
Stockholder, no other party thereto, is in default or breach under
any such Lease and no event has occurred by the Company that, with
the passage of time or the giving of notice or both, would cause a
breach of or default of the Company under any of such Leases,
except to the extent such default would not have a Company Material
Adverse Effect. Except as set forth on
Schedule 3.22(b) to the Company Disclosure Schedule,
the Company has valid leasehold interests in each of the Leased
Premises, which leasehold interest is free and clear of any Liens,
covenants and easements or title defects of any nature
whatsoever.
(c)
With respect to the Leased Premises, and except as set forth on
Schedule 3.22(c) to the Company Disclosure
Schedule:
(i)
there are no pending or, to the knowledge of the Company and the
Primary Stockholder, threatened condemnation proceedings, suits or
administrative actions relating to any such parcel or other matters
affecting materially and adversely the current use, occupancy or
value thereof,
23
(ii)
to the knowledge of the Company and the Primary Stockholder, all
improvements, buildings and systems on any such parcel are in good
repair and safe for their current occupancy and use,
(iii)
to the knowledge of the Company and the Primary Stockholder, there
are no contracts or agreements (whether oral or written) granting
to any party or parties the right of use or occupancy of any such
parcel, and there are no parties (other than the Company) in
possession of any such parcel,
(iv)
to the knowledge of the Company and the Primary Stockholder, there
are no outstanding options or rights of first refusal or similar
rights to purchase any such parcel or any portion thereof or
interest therein,
(v)
to the knowledge of the Company and the Primary Stockholder, all
Facilities located on each such parcel are supplied with utilities
and other services necessary for their ownership, operation or use,
currently or as currently proposed by the Company, all of which
services are adequate in accordance with all applicable Laws,
and
(vi)
to the knowledge of the Company and the Primary Stockholder, each
such parcel abuts on and has adequate direct vehicular access to a
public road and there is no pending or, to the knowledge of the
Company and the Primary Stockholder, threatened termination of such
access.
Section 3.23
Certain Business Practices . Neither the Company, the
Primary Stockholder nor any of their respective employees or agents
has at any time: (i) used any Company funds for unlawful
contributions, gifts, entertainment or other unlawful expenses
relating to political activity in respect of the Company’s or
such subsidiary’s business, (ii) directly or indirectly, paid
or delivered any fee, commission or other sum of money or item of
property, however characterized, to any finder, agent, or other
party acting on behalf of or under the auspices of a governmental
official or Governmental Entity, in the United States or any other
country, which is in any manner illegal under any applicable Law or
(iii) to the knowledge of the Company and the Primary Stockholder,
made any payment to any customer or supplier of the Company or such
Subsidiary, or given any other consideration to any such customer
or supplier in respect of the Company’s or such
subsidiary’s business that violates applicable Law in any
material respect.
Section 3.24
Interested-Party Transactions . Except as set forth on
Schedule 3.24 to the Company Disclosure Schedule, no
officer, director or stockholder of the Company, no relative or
spouse (or relative of such spouse) who resides with, or is a
dependent of any of the foregoing, and no Affiliate of any of the
foregoing has or has had, directly or indirectly: (i) an economic
interest in any Person that has furnished or sold, or furnishes or
sells, services or products that the Company furnishes or sells, or
proposes to furnish or sell, (ii) an economic interest in any
Person that purchases from or sells or furnishes to, the Company,
any goods or services, (iii) a beneficial interest in any Material
Contract or (iv) holds any indebtedness to or from the
Company.
24
Section 3.25
Information Supplied . None of: (i) the information,
documents or other due diligence matters supplied or to be supplied
by or on behalf of Company to Parent in written form in connection
with this Agreement or any of the transactions contemplated hereby,
(ii) the representations and warranties of the Company and the
Primary Stockholder contained in this Agreement or any Other
Agreement or (iii) the Company Disclosure Schedule contain any
untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which
they are made, not misleading.
Section 3.26
Brokers’ and Finders’
Fees . The Company
has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders’ fees or agents’
commissions or investment bankers’ fees or any similar
charges in connection with this Agreement, the Merger or any other
transaction contemplated hereby or pursuant to any Other
Document.
Section 3.27
Vote Required
. The affirmative vote of the
holders of a majority of the shares of the Company Common Stock
outstanding is the only vote of the holders of any of the
Company’s Capital Stock or any other agreement to which the
Company or the Primary Stockholder are a party necessary to approve
this Agreement, any Other Agreement and the transactions
contemplated hereby and thereby.
Section 3.28
Board Approval
. The Board of Directors of
the Company has: (i) reviewed, deliberated and approved this
Agreement and the Merger, (ii) determined that there are no
other proposed extraordinary transactions with the Company on terms
more advantageous to the stockholders of the Company, (iii) that
the Merger is in the best interests of the stockholders of the
Company and is on terms that are fair to such stockholders, and
(iv) recommended that the stockholders of the Company approve
this Agreement and the Merger.
Section 3.29
Reorganization Matters
. To the Company’s
knowledge neither the Company nor any of its Affiliates has taken
or agreed to take any action, nor does the Company have knowledge
of any fact or circumstance, that would prevent the Merger from
qualifying as a reorganization within the meaning of
Section 368 of the Code.
Section 3.30
No Opinion of Financial
Advisor . The
Company has not and will not engage the services of a financial
advisor for a fairness opinion.
Section 3.31
Investigation by the Company and
the Primary Stockholder . The Company and the Primary Stockholder
have conducted their own independent investigation, review and
analysis of the business, operations, assets, liabilities, results
of operations, financial condition, Intellectual Property and
prospects of the Parent, which investigation, review and analysis
was done by the Company and its Affiliates and, to the extent the
Company deemed appropriate, by the Company’s
representatives. The Company and the Primary Stockholder have
received, read, reviewed and investigated all material information
contained within the Parent SEC Documents (as defined
below)
25
including, without limitation, all
risk factors contained in the registration statements and annual
reports of Parent. The Company and the Primary Stockholder
acknowledge that it and its representatives have been provided
adequate access to the personnel, properties, premises and records
of the Parent and its subsidiaries as they have requested for such
purpose. In entering into this Agreement, the Company
acknowledges that it has relied solely upon the aforementioned
investigation, review and analysis and not on any factual
representations or opinions of the Parent’s or any of the
Parent’s representatives (except the specific representations
and warranties of the Parent set forth in this Agreement and the
Parent Disclosure Schedule). The Company and the Primary
Stockholder have formed an independent judgment concerning the
Parent.
Section 3.32
Dissenter’s
Rights. The
Company and the Primary Stockholder represent that the
Company’s Primary Stockholder has not exercised and will not
exercise dissenter’s rights under California Law.
ARTICLE
IV .
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Except as disclosed in the Parent
Disclosure Schedule (as defined on Schedule A hereto) or as
specifically provided for in this Article IV, Parent hereby
represents and warrants to the Company and the Primary Stockholder
as follows:
Section
4.1
Organization, Standing and Power . Parent and Merger
Sub, are corporations duly organized, validly existing and in good
standing under the Laws of their respective jurisdictions of
organization. Each of Parent and its subsidiaries, including
Merger Sub, have the corporate power to own their respective
properties and to carry on their respective businesses as now being
conducted and as proposed to be conducted and are each duly
qualified to do business and are in good standing in each
jurisdiction in which the failure to be so qualified and in good
standing would have a Parent Material Adverse Effect (as defined on
Schedule A hereto). Neither Parent nor any of its
subsidiaries, including Merger Sub, is in violation of any of the
provisions of its respective Certificate of Incorporation or Bylaws
or equivalent organizational documents. Parent is the owner
of all outstanding shares of capital stock of each of its
subsidiaries and all such shares are duly authorized, validly
issued, fully paid and non-assessable. Except as disclosed in
the Parent SEC Documents, Parent 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, excluding securities in any publicly traded
company held for investment by Parent or any of it subsidiaries in
accordance with and pursuant to the Parent’s formal
investment policy and comprising less than 5% of the outstanding
stock of such company.
Section
4.2
Capital Structure. The authorized capital stock of
Parent consists of: (i) 45,000,000 shares of Parent Common Stock,
of which there were 7,085,863 shares issued and 6,985,763 shares
outstanding as of the Execution Date, and (ii) 5,000,000 shares of
preferred stock, par value $.001 per share. The authorized
capital stock of Merger Sub consists of 1,000 shares of common
stock, par value $0.001, of which 100 shares are issued and
outstanding and
26
held by Parent. The shares of Parent
Common Stock to be issued in the Merger will, upon issuance, be
duly authorized, validly issued, fully paid and
non-assessable.
Section
4.3
Authority.
(a)
Parent and Merger Sub each have all requisite corporate power and
authority to enter into this Agreement, each Other Document to
which they are a party and to consummate the transactions
contemplated hereby and thereby. The execution and delivery
of this Agreement, each Other Document and the consummation of the
transactions contemplated hereby and thereby have been duly
authorized by all necessary corporate action on the part of each of
Parent and Merger Sub, as applicable, other than approval by
stockholders of Parent.
(b)
This Agreement and each Other Document to which they are a party
have been duly executed and delivered by each of Parent and Merger
Sub, as applicable, and each constitutes the valid and binding
obligations of Parent and Merger Sub enforceable against each by
the Company in accordance with its terms, except as may be limited
by bankruptcy, insolvency, reorganization, moratorium and other
similar Laws and equitable principles relating to or limiting
creditors’ rights generally and by general principles of
equity. The execution and delivery of this Agreement and each
Other Document to which they are a party do not, and the
consummation of the transactions contemplated hereby and thereby
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 a benefit under: (i) any provision of
the Certificate of Incorporation or Bylaws of Parent or the
Certificate of Incorporation or Bylaws of Merger Sub, 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 Parent, Merger Sub or their respective
properties or assets, except where such conflict, violation,
default, termination, cancellation or acceleration with respect to
the foregoing provisions in subsection (ii) would not have had
and would not be reasonably expected to have a Parent Material
Adverse Effect.
(c)
Except as would not have a Parent Material Adverse Effect, no
consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity is required
with respect to Parent or Merger Sub in connection with the
execution and delivery of this Agreement by Parent and Merger Sub
or the consummation by Parent and Merger Sub of the transactions
contemplated hereby and thereby, except for (i) the filing of
the Certificate of Merger, together with the required
officers’ certificates, as provided in Section 2.2, (ii)
any filings as may be required under applicable federal, state and
local securities laws and the securities laws of any foreign
country, (iii) such filings as may be required under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, (iv) the
filing with the American Stock Exchange (“ AMEX
”) for the listing of shares of Parent Common Stock issuable
in the Merger; and (v) such other consents, authorizations,
filings, approvals and registrations which, if not obtained or
made, would not prevent, materially alter or delay any of the
transactions contemplated by this Agreement.
27
Section
4.4
SEC Documents; Financial Statements . Parent has made
available to the Company (via the SEC’s EDGAR system) each
statement, report, registration statement (with the prospectus in
the form filed pursuant to Rule 424(b) of the Securities Act,
including the risk factors contained therein), definitive proxy
statement, and other filing filed with the SEC by Parent since
January 1, 2002 (the “ Parent SEC Documents
”). In addition, Parent has made available to the
Company (via the SEC’s EDGAR system) all exhibits to the
Parent SEC Documents filed prior to the date hereof, and will
promptly make available to the Company all exhibits to any
additional Parent SEC Documents filed prior to the Effective
Time. Except as set forth on Schedule 4.4 to the
Parent Disclosure Schedule, as of their respective filing dates,
the Parent SEC Documents complied in all material respects with the
requirements of the Exchange Act and the Securities Act. The
financial statements of Parent, including the notes thereto,
included in the Parent SEC Documents (the “ Parent
Financial Statements ”) were complete and correct in all
material respects as of their respective dates, complied as to form
in all material respects with applicable accounting requirements
and with the published rules and regulations of the SEC with
respect thereto as of their respective dates, and have been
prepared in accordance with GAAP applied on a basis consistent
throughout the periods indicated and consistent with each other
(except as may be indicated in the notes thereto or, in the case of
unaudited statements, included in Quarterly Reports on
Form 10-QSB’s, as permitted by Form 10-QSB of the
SEC). The Parent Financial Statements fairly present in all
material respects the consolidated financial condition and
operating results of Parent as of the dates and for the periods
indicated therein (subject, in the case of unaudited statements, to
normal, recurring year-end adjustments). Parent has fully
complied with all certification requirements, and will comply with
all certification requirements prior to the Effective Time, under
the Sarbanes-Oxley Act of 2002 and the rules and regulations
promulgated thereunder.
Section
4.5
Absence of Undisclosed Liabilities . Parent 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 the balance sheet or in the
notes to the Parent Financial Statements included in the Parent
Financial Statements in Parent’s Annual Report on
Form 10-KSB for the fiscal year ended on June 30, 2004 (the
“ Parent Balance Sheet Date ”), (ii) those
incurred in the ordinary course of business since the Parent
Balance Sheet Date and consistent with past practice,
(iii) those incurred in connection with the execution of this
Agreement, and (iv) those disclosed on
Schedule 4.5 to the Parent Disclosure
Schedule.
Section
4.6
Litigation . Except as set forth in the Parent SEC
Documents, as of the date of this Agreement, there is no material
private or governmental action, suit, proceeding, claim,
arbitration, governmental investigation, or to the knowledge of
Parent private investigation, pending before any agency, court or
tribunal, foreign or domestic, or, to the knowledge of Parent or
any of its subsidiaries, threatened against Parent, any of its
subsidiaries or any of their respective properties or any of their
respective officers or directors (in their capacities as
such). There is no judgment, decree or order against Parent
or any of its subsidiaries, or, to the knowledge of Parent, or any
of its subsidiaries, or any of their respective directors or
officers (in their capacities as such), that could prevent, enjoin,
or materially alter or delay any of the transactions contemplated
by this Agreement, or that could reasonably be expected to have a
Parent Material Adverse Effect. Schedule 4.6 to
the Parent Disclosure
28
Schedule also lists all material litigation that
Parent has pending as of the date of this Agreement against other
parties which is not disclosed in the Parent SEC
Documents.
Section
4.7
Reorganization Matters . To Parent’s knowledge,
neither Parent nor any of its Affiliates has taken or agreed to
take any action, nor does Parent have knowledge of any fact or
circumstance, that would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368 of the
Code.
Section
4.8
Brokers’ and Finders’ Fees . Except for
certain investment banking fees to be paid to The Ugroup, neither
Parent nor Merger Sub has incurred, nor will it incur, directly or
indirectly, any liability for brokerage or finders’ fees or
agents’ commissions or investment bankers’ fees or any
similar charges in connection with this Agreement, the Merger or
any other transaction contemplated hereby or pursuant to any Other
Document.
Section
4.9
Board Approval . The Board of Directors of Parent
has approved the transactions contemplated by this Agreement
and the Merger.
Section
4.10
Investigation by Parent . Parent has conducted its own
independent investigation, review and analysis of the business,
operations, assets, liabilities, results of operations, financial
condition, Intellectual Property and prospects of the Company,
which investigation, review and analysis was done by Parent and its
Affiliates and, to the extent Parent deemed appropriate, by
Parent’s representatives. Parent acknowledges that it
and its representatives have been provided adequate access to the
personnel, properties, premises and records of the Company and the
Company Subsidiaries as Parent has requested for such
purpose. In entering into this Agreement, Parent acknowledges
that it has relied solely upon the aforementioned investigation,
review and analysis and not on any factual representations or
opinions of the Company’s or any of the Company’s
representatives (except the specific representations and warranties
of the Company set forth in this Agreement and the Company
Disclosure Schedule). Parent has formed an independent
judgment concerning the Company.
Section
4.11
Absence of Certain Changes . Except as set forth in
the Parent SEC Documents prior to the date hereof or as expressly
contemplated by this Agreement or as disclosed on Schedule
4.11 to the Parent Disclosure Schedule, since the Parent
Balance Sheet Date there has not occurred any change, event or
condition (whether or not covered by insurance or similar
indemnification agreement) that has resulted in, or would
reasonably be expected to result in, a Parent Material Adverse
Effect.
ARTICLE
V .
CONDUCT PRIOR TO THE EFFECTIVE TIME
Section 5.1
Conduct of Business
. During the period from the
date of this Agreement and continuing until the earlier of the
termination of this Agreement or the Effective Time, the Company
agrees (except to the extent expressly contemplated by this
Agreement, Section 5.2 hereof or as consented to in writing by
Parent), to carry on its business in the usual, regular and
ordinary course in substantially the same manner as heretofore
conducted. Subject to Section 5.2 hereof, the Company
further agrees to pay all
29
debts and Taxes when due, subject
to: (i) good faith disputes over such debts or Taxes and
(ii) the filing of material Tax Returns (provided that the
Company shall inform Parent of its intention to file such Tax
Returns prior to filing), to pay or perform other obligations when
due, and to use all reasonable efforts consistent with past
practice and policies to preserve intact its present business
organizations, to keep available the services of its present
officers and key employees and to use its best efforts and all
available resources to preserve its relationships with customers,
suppliers, distributors, licensors, licensees and others having
business dealings with it, to the end that its goodwill and ongoing
businesses shall be unimpaired at the Effective Time, other than
what would not have a Material Adverse Effect on the Company.
The Company agrees to promptly notify Parent in writing of any
event or occurrence not in the ordinary course of its business, and
of any event which could reasonably be expected to have a Company
Material Adverse Effect.
Section 5.2
Restriction on Conduct of
Business of the Company . During the period from the date of this
Agreement and continuing until the earlier of the termination of
this Agreement or the Effective Time, except as set forth in the
Company Disclosure Schedule or as expressly contemplated by this
Agreement, the Company and the Primary Stockholder shall not do,
cause or permit any of the following, without the prior written
consent of Parent, which consent shall be given within ten (10)
days of written notification from the Company requesting such
consent:
(a)
Charter Documents . Cause or permit any amendments to
its Certificate of Incorporation or Bylaws (including the adoption
of a “poison pill”).
(b)
Dividends; Changes in Capital Stock . Declare or pay
any dividends on or make any other distributions (whether in cash,
stock or property) in respect of any of its capital stock; or
split, combine or reclassify any of its capital stock or issue or
authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or
repurchase or otherwise acquire, directly or indirectly, any shares
of its capital stock.
(c)
Material Contracts . Violate, breach, cause a default,
comprise (or take any action which would reasonably lead to any of
the foregoing) or terminate, amend or otherwise modify or waive any
of the terms of any Material Contracts (including, without
limitation, any Company IP Contracts or contracts, agreements or
understandings with employees, officers, directors, stockholders or
consultants).
(d)
Issuance of Securities . Except for: (i) the transfer
of the Company Common Stock contemplated by this Agreement; and
(ii) the issuance of shares of the Company Common Stock pursuant to
the exercise or conversion of the Company Derivative Securities
issued and outstanding on the Execution Date (all which shall be
exercised prior to the Closing Date), the Company shall not issue,
deliver or sell or authorize or propose the issuance, delivery or
sale of, or purchase or propose the purchase of, any shares of
Company Capital Stock, or any Company Derivative Security or any
other securities of the Company, or subscriptions or other rights
to acquire, or other agreements or commitments of any character
obligating it to issue any such securities.
30
(e)
Intellectual Property . Sell, license, transfer or
assign to any Person, or create any Lien encumbering, any Company
Intellectual Property or any rights to any Company Intellectual
Property, other than customer licenses in the Company’s
ordinary course of business and consistent with its past
practices.
(f)
Indebtedness . Incur any indebtedness for borrowed
money or guarantee any such indebtedness or issue or sell any debt
securities or guarantee any debt securities of others.
(g)
Payment of Obligations . Pay, discharge or satisfy or
commit or agree to pay, discharge or satisfy, any claim, liability
or obligation (absolute, accrued, asserted or unasserted,
contingent or otherwise) including the repayment of any outstanding
convertible debt, other than the payment in the ordinary course of
business, and not prior to the maturity date of any such
liability.
(h)
Exclusive Rights . Enter into or amend any agreements
pursuant to which any other party is granted exclusive marketing or
other exclusive rights of any type or scope with respect to any of
its technology or Company Products.
(i)
Capital Expenditures . Make any capital expenditures,
capital additions or capital improvements in excess of $25,000 in
any one case or $75,000 in the aggregate.
(j)
Other Prohibited Transaction . Enter into any
transaction or agreement or take any action out of the ordinary
course of business, including any transaction or commitment or
series of related transactions greater that $25,000, other than
selling services to customers and consistent with past
practices.
(k)
Insurance . Reduce the amount of any insurance
coverage provided by existing insurance policies.
(l)
Employee Benefit Plans; Pay Increases . (i) Adopt or
amend any employee benefit or stock purchase or option plan, except
for amendments required under ERISA or except as necessary to
maintain the qualified status of such plan under the Code or (ii)
increase the annual level of compensation of any employee, or grant
any unusual or extraordinary bonuses, benefits or other forms of
direct or indirect compensation to any employee, officer, director
or consultant, except as required by a Material
Contract.
(m)
Lawsuits . Commence a lawsuit other than: (i) for
the routine collection of bills, (ii) in such cases where it
in good faith determines that failure to commence suit would result
in the material impairment of a valuable aspect of its business,
provided that it consults with Parent prior to the filing of such a
suit, or (iii) for a breach of this Agreement or any Exhibits
hereto.
(n)
Taxes and Accounting . (i) Other than as required by
GAAP, make or change any material election in respect of Taxes,
(ii) adopt or change any accounting method in respect of Taxes or
otherwise or (iii) write up, write down or write off the value of
any assets or revalue any assets including, without limitation, any
Company Intellectual Property.
31
(o)
Employment Agreements . Enter into any new employment
agreements with employees, amend or terminate any existing
employment agreements with current employees, or increase
compensation of any existing employee.
Section 5.3
No Solicitation
. The Primary Stockholder, the
Company and the Company’s officers, directors, employees or
other agents will not, directly or indirectly: (i) take any
action to solicit, initiate or intentionally encourage any Takeover
Proposal (as defined below) or (ii) take any action to solicit,
intentionally facilitate, intentionally encourage or engage in
negotiations or discussions with, or disclose any nonpublic
information relating to the Company to, or afford access to the
properties, Books or Records of the Company to, any Person that has
advised the Company in writing that it intends to make, or that has
made, a Takeover Proposal. For purposes of this Agreement,
the term “ Takeover Proposal
” shall mean any offer or
proposal for, or any indication of interest in (whether written or
oral), a merger or other business combination involving the Company
or the acquisition of any equity interest in, or any of material
assets of, the Company, other than the transactions contemplated by
this Agreement. Additionally, immediately upon the receipt of
any such Takeover Proposal the Company and its Primary Stockholder
shall notify Parent of the identity of the Person making such
Takeover Proposal and the terms thereof.
ARTICLE
VI .
ADDITIONAL AGREEMENTS
Section 6.1
Access to Information; Disclosure
Schedule Updates .
(a)
Upon reasonable notice, the Company shall afford Parent and its
accountants, legal counsel and other representatives, reasonable
access during normal business hours during the period from the
Execution Date until the Effective Time or the earlier termination
of this Agreement in accordance with its terms, provided that
Parent contacts the Company’s Chief Executive Officer prior
to contacting any other employee of the Company, to:
(i) review all of the Company Products and all of the
Company’s properties, books, contracts, commitments and
records, and (ii) all other information concerning the
business, properties and personnel of the Company as Parent may
request. The Company agrees to provide to Parent and its
accountants, legal counsel and other representatives copies of
internal financial statements and other business analysis and
documentation promptly upon request.
(b)
Subject to compliance with applicable Law, from the date hereof
until the Effective Time or the earlier termination of this
Agreement in accordance with its terms, the Company and Parent
shall confer on a regular and frequent basis to report operational
matters and the general status of ongoing operations of the
Company.
(c)
No information or knowledge obtained in any investigation after the
Execution Date pursuant to this Section 6.1 shall affect or be
deemed to modify any representation or warranty contained herein or
the conditions to the obligations of the parties to consummate the
Merger; provided, however , that the Company shall promptly
inform Parent of any such information or knowledge obtained in its
investigation which would reasonably be likely to have
32
a Company Material Adverse Effect.
Additionally, during the period from the date hereof and prior to
the Effective Time or the earlier termination of this Agreement in
accordance with its terms, the Company shall promptly notify Parent
in writing of:
(i)
the discovery of any event, condition, fact or circumstance which
causes, caused, constitutes or constituted a breach of any
representation or warranty made by the Company in this Agreement or
any other agreement contemplated hereby;
(ii)
any material breach of any covenant or obligation by the Company;
and
(iii)
any event, condition, fact or circumstance that may make the timely
satisfaction of any of the covenants or conditions set forth in
this Article VI or Article VII impossible or
unlikely.
(d)
If any event, condition, fact or circumstances that is required to
be disclosed pursuant to Section 6.1(c) requires any material
change in the Company’s Disclosure Schedule, or if any such
event, condition, fact or circumstance would require such a change
assuming the Company’s Disclosure Schedule were dated as of
the date of the occurrence, existence or discovery of such event,
condition, fact or circumstances, then the Company shall promptly
deliver to Parent an update to its Disclosure Schedule specifying
such change (a “ Disclosure Schedule Update
”).
(e)
The Company shall provide Parent and its accountants, legal counsel
and other representatives reasonable access, during normal business
hours during the period prior to the Effective Time, to: (i) all
Company Books and Records, including for the purpose of auditing or
preparing for the audit of the Company’s financial statements
as required by applicable SEC rules and regulations and (ii) all of
the Company’s Tax Returns and other records and work papers
relating to Taxes, provided that Parent contacts the
Company’s Chief Financial Officer prior to contacting any
other employee of the Company, and shall provide to Parent and its
representatives the following information promptly upon the request
of Parent: (A) the types of Tax Returns being filed by the
Company in each taxing jurisdiction, (B) the year of the
commencement of the filing of each such type of Tax Return, (C) all
closed years with respect to each such type of Tax Return filed in
each jurisdiction, (D) all material Tax elections filed in
each jurisdiction by the Company, (E) any deferred
inter-company gain with respect to transactions to which the
Company has been a party, and (F) receipts for any
Taxes.
Section 6.2
No Dissenters’
Rights . The
Primary Stockholder covenants and agrees that: (a) it shall vote
for or otherwise approve of the Merger prior to the Closing (both
as stockholder and director of the Company) and (b) the Primary
Stockholder will not exercise any dissenter’s rights under
California Law.
Section 6.3
Confidentiality
. Each of the Company and
Parent acknowledges that: (i) it may have access to material,
nonpublic information of the other party (“
Confidential
Information ”), (ii) it
shall retain and hold the Confidential Information of the other
party in confidence and, except as required by Law or judicial or
other process of a Governmental
33
Entity, not disclose or reveal any
such Confidential Information to others or permit the disclosure
thereof, and (iii) return the all Confidential Information of the
other party in the event that this Agreement is terminated.
The Company and the Primary Stockholder acknowledge and agree that
a purpose of the confidentiality provisions of this Section 6.3 is
so that Parent may be in compliance with Regulation FD promulgated
by the SEC.
Section 6.4
Public Disclosure
. The Company and Parent shall
consult with each other before issuing any press releases or
otherwise make any public statements or make any other public (or
non-confidential) disclosures (whether or not in response to an
inquiry) regarding the terms of this Agreement and the transactions
contemplated hereby, and neither shall issue a press release or
make any statements or disclosures without the prior written
approval of the other (which consent shall not be unreasonably
withheld), except as may be required by Law.
Section 6.5
Consents; Cooperation
.
(a)
Each of Parent and the Company shall promptly apply for or
otherwise seek, and use commercially reasonable efforts to obtain,
all consents and approvals required to be obtained by it for the
consummation of the Merger. The Company and Parent shall each
use their respective reasonable best efforts to obtain all
necessary consents, waivers and approvals under any of their
respective material contracts in connection with the Merger
(including, without limitation, under the Company IP Agreements) to
the extent required under such contracts.
(b)
The Company shall furnish Parent, on or prior to the Closing Date,
with evidence satisfactory to it of the consent or approval of
those Persons whose consent or approval shall be required in
connection with the Merger under the applicable contracts of the
Company set forth, or required to be set forth, on the Company
Disclosure Schedule.
Section 6.6
Legal Requirements
. Each of the Company, the
Primary Stockholder and Parent shall take all reasonable actions
necessary to comply promptly with all legal requirements which may
be imposed on them with respect to the consummation of the
transactions contemplated by this Agreement and will promptly
cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon
such other party in connection with the consummation of the
transactions contemplated by this Agreement and will take all
reasonable actions necessary to obtain (and will cooperate with the
other parties hereto in obtaining) any consent, approval, order or
authorization of, or any registration, declaration or filing with,
any Governmental Entity or other Person, required to be obtained or
made in connection with the taking of any action contemplated by
this Agreement.
Section 6.7
Treatment as
Reorganization .
Neither the Company nor Parent shall take any action prior to or
following the Closing that would cause the merger to fail to
qualify as a “reorganization” within the meaning of
Section 368 of the Code.
Section 6.8
Financing of the Surviving
Corporation .
Following the Closing, and during the Earnout Period, Parent
will:
34
(a)
Provide up to $250,000 to the Surviving Corporation specifically
for investment into capital projects or opportunities that are
reasonably determined by Parent to have a high potential of
generating incremental revenues or earnings for Surviving
Corporation and/or Parent. Attached hereto as Exhibit C is a
list of specific projects Surviving Corporation will require
funding for, along with an evaluation of a reasonable return on any
such investment.
(b)
Maintain the Surviving Corporation as an independent operating unit
with substantially the same policies and procedures with respect to
management, operations, and the manufacture, marketing and sale of
Company Products.
Section 6.9
Listing of Additional
Shares . To the
extent required and prior to the public registration thereof,
Parent shall cause all shares of Parent Common Stock to be issued
pursuant to the terms of this Agreement to be approved for listing
on AMEX. Pursuant to the Registration Rights Agreement, as
defined below, Parent shall use commercially reasonable efforts to
file a registration statement with the Securities and Exchange
Commission for the purposes of registering the Parent Common Stock
to be issued pursuant to this Agreement on or before the date that
is ninety (90) days from the Closing Date (and, with respect to the
Earnout Shares, the Core Systems EBTDA Earnout
Lock-Up).
Section 6.10
Location of Company
. The parties agree that,
following the Effective Time and during the Earnout Period, the
Surviving Corporation shall be located in Sunnyvale,
California.
Section 6.11
Offer of Employment to Employees;
Consulting Agreement . The Surviving Corporation shall offer
employment to key employee Walter Wriggins during the Earnout
Period. Surviving Corporation shall retain Primary
Stockholder to act as a consultant to the Surviving Corporation
during the Earnout Period. Parent and Primary Stockholder
shall jointly agree whether to offer employment to other Company
employees and any such offer of employment shall be in accordance
with Parent’s and Surviving Corporation’s policies and
the compensation of any such employees will be at levels comparable
to that of employees of similar levels of responsibility and
authority. Additionally, Parent may in its sole discretion,
subject to the approval of its board of directors, grant options to
purchase Parent Common Stock to Company employees who become
employees of the Surviving Corporation.
Section 6.12
Payment of Eddy Bonus.
The Primary Stockholder shall
be liable for the payment of the Eddy Bonus. Parent shall be
entitled to deduct such payment if not made by the Primary
Stockholders, in its sole discretion, from the cash portion of the
Initial Payment, the Cash Holdback, or the Parent Stock
Holdback.
35
ARTICLE
VII .
CONDITIONS TO THE MERGER
Section 7.1
Conditions to Obligations of Each
Party to Effect the Merger . The respective obligations of each party
to this Agreement to consummate and effect this Agreement, each
Other Document to which such party is a party or signatory, the
Merger and the transactions contemplated hereby and thereby shall
be subject to the satisfaction at or prior to the Effective Time of
each of the following conditions, any of which may be waived, in
writing, by agreement of all the parties hereto:
(a)
No Injunctions or Restraints; Illegality . No
temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or other
legal or regulatory restraint or prohibition preventing the
consummation of the Merger shall be in effect, nor shall any
proceeding brought by an administrative agency or commission or
other governmental authority or instrumentality, domestic or
foreign (which has jurisdiction over the Company or Parent),
seeking any of the foregoing be pending; nor shall there be any
action taken, or any statute, rule, regulation or order enacted,
entered, enforced or deemed applicable to the Merger, which makes
the consummation of the Merger illegal. In the event an
injunction or other order shall have been issued, each party agrees
to use its reasonable efforts to have such injunction or other
order lifted.
(b)
Governmental Approval . Parent, Merger Sub and the
Company shall have timely obtained from each Governmental Entity
all approvals, waivers and consents, if any, necessary for
consummation of or in connection with the Merger and the several
transactions contemplated hereby, including but not limited to such
approvals, waivers and consents as may be required under the
Securities Act, under state blue sky Laws.
(c)
Reorganization . The Company and Parent shall be
reasonably satisfied, in their respective discretions, that the
Merger constitutes a tax-deferred reorganization under Section
368(a) of the Code.
Section 7.2
Additional Conditions to
Obligations of the Company and the Primary Stockholder
. The obligations of the
Company and the Primary Stockholder to consummate and effect this
Agreement, each Other Document to which they are a party or
signatory, the Merger and the transactions contemplated hereby and
thereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which
may be waived, in writing, by the Company:
(a)
Representations, Warranties and Covenants . Except as
disclosed in the Parent Disclosure Schedule dated as of the
Execution Date: (i) the representations and warranties of
Parent in this Agreement shall be true and correct in all material
respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time or,
in the case of representations and warranties of Parent which speak
specifically as of an earlier date, shall be true and correct as of
such earlier date, except in each case, (A) for changes
contemplated by the Agreement, or (B) where the failure to be
true and correct has not had, and would not reasonably be expected
to result in, a Parent Material Adverse Effect; and
(ii) Parent shall have performed and complied in all material
respects with all covenants, obligations and conditions of this
Agreement required to be performed and complied with by Parent as
of the
36
Effective Time.
(b)
Parent Officer’s Certificate . At the Closing,
the Company and the Primary Stockholder shall have received a duly
executed certificate on behalf of Parent by an authorized officer
to the effect set forth in Section 7.2(a), in the form
attached hereto as Exhibit D .
(c)
Merger Sub Secretary Certificate . At the Closing, the
Company and the Primary Stockholder shall have received a duly
executed certificate from the Secretary of Merger Sub with respect
to: (i) the certificate of incorporation, as certified by the
Secretary of State of Delaware as of a recent date, and bylaws of
such entity, (ii) a resolution of the board of directors of
Merger Sub with respect to the authorization of this Agreement and
the other agreements contemplated hereby, (iii) a certificate of
existence and good standing as of a recent date from the Secretary
of State of the State of Delaware, and (iv) the incumbency of the
executing officers of Merger Sub, in the form attached hereto as
Exhibit E .
(d)
Registration Rights Agreement . At the Closing, Parent
shall have executed and delivered to the Primary Stockholder a
registration rights agreement in the form attached hereto as
Exhibit F (the “ Registration Rights Agreement
”).
(e)
Employment Agreement . Surviving Corporation shall
have duly executed and delivered to Walter Wriggins an employment
agreement between Surviving Corporation and Walter Wriggins
substantially in the form attached hereto as Exhibit G (the
“ Employment Agreement ”).
(f)
Consulting Agreement . Surviving Corporation shall
have duly executed and delivered to Primary Stockholder a
consulting agreement between Surviving Corporation and Primary
Stockholder, substantially in the form attached hereto as Exhibit H
(the “ Consulting Agreement ”).
(g)
Parent Counsel Legal Opinion . The Company shall have
been furnished with the opinion of Ellenoff Grossman & Schole
LLP, counsel to Parent, dated as of the Closing Date, substantially
in the form attached hereto as Exhibit I .
(h)
Removal of Primary Stockholder as Guarantor on Certain Debt
. Prior to or simultaneously with the Closing, Primary
Stockholder shall have been released as a guarantor from the
following Company liabilities: (i) Dick Lee Corp. in the amount of
approximately $189,625.00, (ii) Bridge Bank line of credit; and
(iii) the Wells Fargo Bank Loan specifically relating to account
number 16-75803560-0 (Obligation #109) in the amount of
approximately $80,263.00.
Section 7.3
Additional Conditions to the
Obligations of Parent . The obligations of Parent to consummate
and effect Agreement, each Other Document to which it is a part or
signatory, the Merger and the transactions contemplated hereby and
thereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which
may be waived, in writing, by Parent:
37
(a)
Representations, Warranties and Covenants . Except as
disclosed in the Company Disclosure Schedule dated as of the
Execution Date (as amended by any Disclosure Schedule Update):
(i) the representations and warranties of the Company and the
Primary Stockholder in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though
such representations and warranties were made on and as of such
time or, in the case of representations and warranties of the
Company and the Primary Stockholder which speak specifically as of
an earlier date, shall be true and correct as of such earlier date,
except in each case, (A) for changes contemplated by the
Agreement, or (B) where the failure to be true and correct has
not had, and would not reasonably be expected to result in, a
Company Material Adverse Effect and (ii) the Company and the
Primary Stockholder shall have performed and complied in all
material respects with all covenants, obligations and conditions of
this Agreement required to be performed and complied with by the
Company and the Primary Stockholder as of the Effective
Time.
(b)
Company Officer’s Certificate . Parent shall
have been provided with a certificate executed on behalf of the
Company by an authorized officer to the effect set forth in
Section 7.3(a), substantially in the form attached hereto as
Exhibit J.
(c)
Company Secretary Certificate . Parent shall have
received a duly executed certificate from the Secretary of the
Company with respect to: (i) the certificate of incorporation,
as certified by the Secretary of State of California as of a recent
date, and bylaws of the Company, (ii) resolutions of the board
of directors of the Company with respect to the authorizations of
this Agreement and the other agreements contemplated hereby, (iii)
a certificate of existence and good standing as of a recent date
from the Secretary of State of the State of California and (iv) the
incumbency of the executing officers of the Company, substantially
in the form attached hereto as Exhibit K.
(d)
Legal Opinion . Parent shall have been furnished with
the opinion of Morgan, Franich, Fredkin & Marsh, counsel to the
Company, dated as of the Closing Date, substantially in the form
attached hereto as Exhibit L .
(e)
Acceleration and Exercise of Options . At the Closing,
Parent shall have received satisfactory written evidence that the
all Company Options outstanding as of the Execution Date have been
exercised and are no longer outstanding as of the Closing
Date.
(f)
Cancellation of Accrued Salaries . At the Closing,
Parent shall have received satisfactory written evidence that the
accrued salaries referred to in Section 2.3(b)(ii) hereof shall
have been canceled effective as of the Execution Date.
(g)
Lock-Up Agreement. At the Closing the Primary
Stockholder shall have entered into a lock-up agreement with Parent
in the form attached hereto as Exhibit M .
(h)
Employment Agreement . Walt Wriggens shall have duly
executed and delivered to Parent the Employment
Agreement.
(i)
Consulting Agreement . Primary Stockholder shall have
duly executed and
38
delivered to Parent the Consulting
Agreement.
(j)
Registration Rights Agreement . At the Closing, the
Primary Stockholder shall have duly executed and delivered to
Parent the Registration Rights Agreement.
(k)
Facilities Lease Agreement . At or prior to the
Closing, the Company shall have entered into an amended lease
agreement with Sunnyvale Industrials, its current landlord, for the
premises located at 1050 Kifer Road, Sunnyvale, California 94086,
on substantially the terms as set forth on Exhibit O attached
hereto.
(l)
Resignations . All current officers and directors of
the Company shall have resigned in writing and delivered such
written resignations to Parent.
(m)
Company Common Stock . The holders of all shares of
Company Common Stock shall have delivered original stock
certificates representing such shares to Parent.
(n)
Company Material Adverse Effect . No Company Material
Adverse Effect shall have occurred since June 30, 2004.
(o)
Suppliers and Customers . Parent shall have had an
opportunity to meet with (which Parent agrees to do together with a
designee of the Company) and satisfy itself, in its own discretion,
as to the viability of ongoing relationships with such licensors,
suppliers and customers of the Company.
(p)
Third Party Consents . The Company shall have obtained
all necessary consents from third parties.
(q)
Due Diligence Review . Parent s
