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Exhibit
2.1
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NEUTRON ENTERPRISES, INC.
AND NEUTRON ACQUISITION CORP.
AND MARK BROOKSHIRE
AND
STOCK-TRAK, INC.
November 29, 2006
AGREEMENT AND PLAN
OF MERGER
This Agreement and Plan of Merger (this " Agreement ") is
entered into as of November 29, 2006 by and among Neutron
Enterprises, Inc., a Nevada corporation (the " Parent "),
Neutron Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of the Parent (the " Transitory
Subsidiary " or " Buyer "), Stock-Trak, Inc., a Georgia
corporation (the " Company "), and Mr. Mark Brookshire, (the
" Seller ").
This Agreement contemplates a reorganization and merger of the
Company with and into the Transitory Subsidiary within the meaning
of Section 368(a) of the Code. In such merger (the " Merger
"), the Seller will receive cash and common stock of the Parent in
exchange for his capital stock of the Company.
The Boards of Directors and the shareholders of Buyer and the
Company have adopted and approved this Agreement and the Merger and
the transactions contemplated hereby and thereby.
Unless defined elsewhere herein, capitalized terms shall have
the meanings set forth in Article III hereof.
Now, therefore, in consideration of the representations,
warranties and covenants herein contained and other good and
valuable consideration the receipt and sufficiency of which is
hereby acknowledged, the Parties agree as follows.
1.1
The Merger . Upon and subject to the terms and conditions of
this Agreement, the Company shall merge with and into the
Transitory Subsidiary at the Effective Time. From and after the
Effective Time, the separate corporate existence of the Company
shall cease and the Transitory Subsidiary shall continue as the
Surviving Corporation. The Merger shall have the effects set forth
in Section 259 of the Delaware General Corporation Law and
Section 14-2-1106 of the Georgia Business Corporations
Act.
1.2 Merger Consideration .
In consideration of the Seller and the Company agreeing to the
Merger, the Parent shall pay to the Seller the amount of Two
Million Dollars ($2,000,000), less an amount equal to the aggregate
of the Option Payments, the Transaction Expenses and the Payoff
Amount (the Option Payments, Transaction Expenses and Payoff Amount
are collectively referred to as, the " Directed Closing
Payments "), in cash and the Parent Shares, payable as set
forth below and as may be adjusted by the Adjusted Amount.
In the event that the total assets of the Company (including any
receivables owed by Parent to the Company) less the total
liabilities of the Company (including any deferred revenue and
excluding any liabilities for the Directed Closing Payments, as of
the Effective Time, as determined in accordance with GAAP applied
on a consistent basis with the Company’s past practices, as
reasonably and in good faith agreed to by the Parties or, failing
such agreement, as determined by arbitration pursuant to the
provisions of Section 6.2 hereof, is less than or more than
$150,000, the Purchase Price shall be reduced or increased, as
applicable, by an amount (the " Adjustment Amount ") equal
to the amount of such deficit (the " Deficit ") or overage
(the " Overage "), as the case may be. Prior to the Closing,
the Parties, acting reasonably and in good faith, shall attempt to
agree upon the Adjustment Amount (the " Estimated Adjustment
Amount "). Once the Adjustment Amount is determined, the Cash
Consideration shall be reduced or increased, as applicable, and the
appropriate adjustment shall be paid by the Seller to the Parent or
by the Parent to the Seller, as the case may be, within
10 days from the determination of the amount thereof. In
determining the Adjustment Amount, liabilities for the Directed
Closing Payments shall not be included in the liabilities of the
Company.
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1.3 Payments at Closing .
At Closing:
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(a) Parent shall, or shall cause
Buyer to, pay Seller, as the sole shareholder of the Company, an
amount equal to Two Million Dollars ($2,000,000.00), less the
Estimated Adjustment Amount (in the case of a Deficit) or plus the
Estimated Adjustment Amount (in the case of an Overage), and less
the Directed Closing Payments, (the " Cash Consideration ")
by wire transfer of immediately available funds at the
Closing;
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(b) Parent shall issue to Seller,
as the sole shareholder of the Company, the Parent Shares. The said
shares shall be "restricted securities", as that term is defined
under the Securities Act and the rules thereunder; and
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(c) Parent shall, or shall cause
Buyer to, pay, on behalf of the Company, an aggregate amount equal
to the Option Payments to the Option Holders specified on Schedule
I to be delivered by the Company on or before the Closing Date in
the amounts set forth therein, by wire transfer of immediately
available funds at the Closing, less the tax withholdings as
permitted by Section 1.8.
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(d) Pay, on behalf of the Company,
to one of more accounts designated in writing by the Company, an
aggregate amount equal to the Payoff Amount.
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(e) Parent shall, or shall cause
the Buyer to, pay, on behalf of the Company, to one of more
accounts designated in writing by the Company, an aggregate amount
equal to the Transaction Expenses known at such time.
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1.4
The Closing . The Closing shall take place at the offices of
the Buyer’s attorneys commencing at 10:00 a.m. local
time on the Closing Date.
1.5 Actions at the Closing
. At the Closing:
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(a) the
Company and/or the Seller shall deliver to the Buyer the various
certificates, instruments and documents referred to in
Section 5.1;
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(b) the
Buyer shall deliver to the Company the various certificates,
instruments and documents referred to in
Section 5.2;
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(c) the
Seller shall deliver to the Buyer the certificate(s) representing
his Company Shares, duly endorsed for transfer;
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(d) the
Parent or Buyer shall make the cash payments contemplated by
Section 1.3 to the respective parties set forth therein, and
Parent or its transfer agent shall deliver the Parent Shares to and
in the name of the Seller;
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(e) the
Surviving Corporation shall file the Certificate of Merger with the
Secretary of State of the State of Delaware and the Secretary of
State of the State of Georgia.
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1.6
Additional Action . The Transitory Subsidiary may, at any
time after the Closing, take any action, including executing and
delivering any document, in the name and on behalf of either the
Company or the Transitory Subsidiary, in order to consummate the
transactions contemplated by this Agreement.
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1.7
Conversion of Shares .
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(a) At
the Effective Time, by virtue of the Merger and without any action
on the part of any party hereto, the shares of the Company’s
capital stock issued and outstanding immediately prior to the
Effective Time shall be converted into and represent the right to
receive the Cash Consideration and the Parent Shares set forth in
Section 1.3 hereof;
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(b) Each share of the
Company’s capital stock held in the Company’s treasury
immediately prior to the Effective Time and each share of the
Company’s capital stock owned beneficially by the Transitory
Subsidiary shall be cancelled and retired without payment of any
consideration therefore;
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(c) Each share of common stock,
$.001 par value per share, of the Transitory Subsidiary issued and
outstanding immediately prior to the Effective Time shall remain
issued and outstanding as the capital stock of the Surviving
Corporation;
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1.8
Options and Warrants . The Company shall take all requisite
action so that, prior to the Closing, all Options shall be
cancelled and all Company Stock Plans shall terminate at the
Effective Time. Parent or the Surviving Corporation shall be
entitled to deduct and withhold from the Option Payments payable
under this Agreement such amounts as may be required to be deducted
or withheld therefrom under (a) the Code or (b) any applicable
state, local or foreign tax laws. To the extent that any amounts
are so deducted and withheld, those amounts shall be treated as
having been paid to the person in respect of whom such deduction or
withholding was made for all purposes under this
Agreement.
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1.9
No Further Rights . From and after the Effective Time, no
Company Shares other than those held by the Transitory Subsidiary
shall be deemed to be outstanding, and holders of Certificates
shall cease to have any rights with respect thereto, except as
provided herein or by law.
1.10 Release of Claims By the
Seller . Effective as of the Closing Date, and except for any
obligations or liabilities arising out of this Agreement, the
Merger or the transactions contemplated hereby and thereby, the
Seller, and his heirs, assigns, agent, legal representatives and
all persons acting by, through or under them, hereby release the
Company and each of its successors, predecessors, assigns, agents,
advisors, officers, directors, employees, legal representatives,
partners and all persons acting by, through or under each of them,
from any and all claims, obligations, causes of action, actions,
suits, contracts, controversies, agreements, promises, damages,
demands, costs, attorneys’ fees and liabilities of any nature
whatsoever from the beginning of time up to and including the
Closing Date, in law or at equity, whether known now or on the
Closing Date or unknown, anticipated or unanticipated, suspected or
claimed, fixed or contingent, liquidated or unliquidated, arising
out of, in connection with or relating to any matter, cause or
thing whatsoever.
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1.11
Certificate of Incorporation and By-laws .
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(a)
The Certificate of Incorporation of the Surviving Corporation
immediately following the Effective Time shall be the same as the
Certificate of Incorporation of the Transitory Subsidiary
immediately prior to the Effective Time, except that (i) the name
of the corporation set forth therein shall be changed to the name
of the Company and (ii) the identity of the incorporator shall be
deleted;
(b) The By-laws of the Surviving
Corporation immediately following the Effective Time shall be the
same as the By-laws of the Transitory Subsidiary immediately prior
to the Effective Time, except that the name of the corporation set
forth therein shall be changed to the name of the Company.
1.12 Closing of Transfer
Books . At the Effective Time, the stock transfer books of the
Company shall be closed and no transfer of shares of the
Company’s capital stock shall thereafter be made.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE SELLER
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To induce the Buyer to enter into
this Agreement and to consummate the transactions contemplated
hereby, the Seller represents and warrants to and covenants with
the Buyer that, except as set forth in the Disclosure Schedule, the
statements contained in this Article II are true and correct
as of the date of this Agreement and will be materially true and
correct as of the Closing as though made as of the Closing Date,
except to the extent such representations and warranties are
specifically made as of a particular date (in which case such
representations and warranties will be true and correct as of such
date). The Disclosure Schedule shall be arranged in sections and
subsections corresponding to the numbered and lettered sections and
subsections contained in this Article II. The disclosures in any
section or subsection of the Disclosure Schedule shall qualify only
the corresponding section or subsection in this Article II, unless
it is reasonably apparent that such disclosure relates to another
section or subsection of this Agreement. For purposes of this
Article II, the phrase "to the knowledge of the Company" or any
phrase of similar import shall be deemed to refer to the actual
knowledge of the Seller, as well as any other knowledge which the
Seller would have possessed had he made reasonable inquiry of
appropriate employees of the Company, with respect to the matter in
question.
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2.1 Organization, Qualification
and Corporate Power . The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Georgia. The Company is duly qualified to conduct
business and is in corporate and tax good standing under the laws
of each jurisdiction listed in Section 2.1 of the Disclosure
Schedule, which jurisdictions constitute the only jurisdictions in
which the nature of the Company's businesses or the ownership or
leasing of its properties requires such qualification, except for
those jurisdictions in which the failure to be so qualified or in
good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse
Effect. The Company has all requisite corporate power and authority
to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has furnished
to the Buyer complete and accurate copies of its Certificate of
Incorporation and by-laws. The Company is not in default under or
in violation of any provision of its Certificate of Incorporation
or by-laws.
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(a) The
authorized capital stock of the Company consists of 10,000,000
Common Shares, of which, as of the date of this Agreement,
9,000,000 shares are issued and outstanding;
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(b) Section 2.2 of the
Disclosure Schedule sets forth a complete and accurate list, as of
the date of the Agreement, of the holders of capital stock of the
Company, showing the number of shares of capital stock, and the
class or series of such shares, held by each stockholder and (for
shares other than Common Stock) the number of Common Shares (if
any) into which such shares are convertible. Section 2.2 of
the Disclosure Schedule also indicates all outstanding Common
Shares that constitute Restricted Stock or that are otherwise
subject to a repurchase or redemption right, indicating the name of
the applicable stockholder, the vesting schedule (including any
acceleration provisions with respect thereto), and the repurchase
price payable by the Company. All of the issued and outstanding
shares of capital stock of the Company have been duly authorized
and validly issued and are fully paid and non-assessable. All of
the issued and outstanding shares of capital stock of the Company
have been offered, issued and sold by the Company in compliance
with all applicable federal and state securities laws, if
applicable;
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(c) Except as set forth in
Section 2.2 of the Disclosure Schedule, there are not now and
have never been any Company Stock Plans;
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(d) Except as set forth in
Section 2.2 of the Disclosure Schedule, (i) no subscription,
warrant, option, convertible security or other right (contingent or
otherwise) to purchase or acquire any shares of capital stock of
the Company is authorized or outstanding, (ii) the Company has no
obligation (contingent or otherwise) to issue any subscription,
warrant, option, convertible security or other such right, or to
issue or distribute to holders of any shares of its capital stock
any evidences of indebtedness or assets of the Company (iii) the
Company has no obligation (contingent or otherwise) to purchase,
redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or to make any other
distribution in respect thereof, and (iv) there are no outstanding
or authorized stock appreciation, phantom stock or similar rights
with respect to the Company;
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(e) Except as set forth in
Section 2.2 of the Disclosure Schedule, there is no agreement,
written or oral, between the Company and any holder of its
securities, or among any holders of its securities, relating to the
sale or transfer (including agreements relating to rights of first
refusal, co-sale rights or "drag-along" rights), or voting of the
capital stock of the Company;
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(f) The
Seller is the record and beneficial owners of 9,000,000 shares of
Company Common Stock, and will be at Closing, the record and
beneficial owner of 9,000,000 shares of Company Common Stock, which
will represent at the Closing 100% of the Company’s
outstanding capital stock, free and clear of all claims, liens,
hypothecs, prior claims, options, agreements, restrictions and
encumbrances whatsoever.
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2.3
Authorization of Transaction . The Company has all requisite
power and authority to execute and deliver this Agreement and to
perform its obligations hereunder. The execution and delivery by
the Company of this Agreement and the consummation by the Company
of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the
Company. Without limiting the generality of the foregoing, the
Board of Directors of the Company, at meetings duly called and
held, by the unanimous vote of all directors (i) determined
that the transactions contemplated hereby are fair and in the best
interests of the Company and its stockholders, (ii) adopted
this Agreement in accordance with the provisions of the Act, and
(iii) directed that this Agreement be submitted to the
stockholders of the Company for their adoption and approval with a
recommendation that the stockholders of the Company vote in favor
of the adoption of this Agreement and the approval of the
transactions contemplated hereby and thereby. This Agreement has
been duly and validly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent transfer,
reorganization, moratorium and other similar laws of generally
applicability relating to or affecting creditors’ rights and
to general equity principles.
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2.4 Non-contravention .
Other than as set forth on Schedule 2.4, neither the execution and
delivery by the Seller or the Company of this Agreement, nor the
consummation by the Seller or the Company of the transactions
contemplated hereby, will (a) conflict with or violate any
provision of the Articles of Incorporation or By-laws of the
Company, (b) require on the part of the Seller or the Company
any notice to or filing with, or any permit, authorization, consent
or approval of, any Governmental Entity, (c) conflict with,
result in a breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration
of obligations under, create in any party the right to terminate,
modify or cancel, or require any notice, consent or waiver under,
any contract or instrument to which the Seller or the Company is a
party or by which the Seller or the Company is bound or to which
any of the Company’s assets are subject, except for
(i) any conflict, breach, default, acceleration, termination,
modification or cancellation which, individually or in the
aggregate, would not have a Company Material Adverse Effect and
would not adversely affect the consummation of the transactions
contemplated hereby or (ii) any notice, consent or waiver the
absence of which, individually or in the aggregate, would not have
a Company Material Adverse Effect and would not adversely affect
the consummation of the transactions contemplated hereby,
(d) result in the imposition of any Security Interest upon any
assets of the Company or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the
Seller or the Company or any of their properties or assets.
2.5 Subsidiaries . The
Company does not have, and has never had, any Subsidiaries.
2.6 Financial Statements .
The Company has provided to the Buyer
the Financial Statements. The Financial Statements have been
prepared in accordance with GAAP, and the accounting policies of
the Company applied on a consistent basis throughout the periods
covered thereby, fairly present, in all material respects, the
financial condition and results of operations of the Company as of
the respective dates thereof and for the periods referred to
therein and are consistent with the books and records of the
Company; provided , however , that the Financial
Statements are subject to normal recurring year-end adjustments
(which will not be material). The Company shall continue to provide
the Buyer through the Closing Date interim financial statements
prepared in accordance with GAAP, subject to normal recurring
year-end adjustments or adjustments in connection with the audit
(the effect of which will not, individually or in the aggregate, be
materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the
Balance Sheet), applied on a consistent basis, and will fairly
reflect in all material respects the financial condition of the
Company as at the dates thereof and the results of the operations
of the Company for the periods then ended, and will be true and
complete and are consistent with the books and records of the
Company.
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2.7
Absence of Certain Changes .
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(a) Since the Most Recent Balance
Sheet Date, (a) there has occurred no event or development,
which, individually or in the aggregate, has had, or could
reasonably be expected to have in the future, a Company Material
Adverse Effect, and (b) the Company has not taken any of the
actions set forth in paragraphs (a) through (n) of
Section 4.4;
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(b) Since the Most Recent Balance
Sheet Date, there has not been any: (i) change in the
Company’s authorized or issued capital stock, retirement, or
other acquisition by the Company of any shares of any such capital
stock; (ii) a declaration or payment of any dividend or other
distribution or payment in respect of shares of capital stock;
(iii) amendment to the Articles of Incorporation or Bylaws of
the Company; (iv) increase by the Company of any bonuses,
salaries, or other compensation to any shareholder, director,
officer or (except in the ordinary course of
business) employee or entry into any employment, severance, or
similar agreement with any director, officer, employee;
(v) adoption of, or increase in the payments to or benefits
under, any profit sharing, stock option, bonus, deferred
compensation, savings, insurance, pension, retirement, or other
employee benefit plan for or with any employees of the Company;
(vi) sale (other than sales of inventory in the ordinary
course of business), lease, or other disposition of any asset or
property of the Company or mortgage, pledge, or imposition of any
lien or other encumbrance on any material asset or property of the
Company; (vii) cancellation or waiver of any claims or rights
with a value to the Company in excess of $10,000.00;
(viii) material change in the accounting methods used by the
Company; or (ix) agreement, whether oral or written, by the
Company to do any of the foregoing.
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2.8
Undisclosed Liabilities . The Company does not have any
liability (whether known or unknown, whether accrued, absolute,
contingent or otherwise, whether liquidated or unliquidated and
whether due or to become due), except for (a) liabilities
shown on the Most Recent Balance Sheet, and (b) liabilities
which have arisen since the Most Recent Balance Sheet Date in the
Ordinary Course of Business.
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(a) The
Company has filed on a timely basis all Tax Returns that it was
required to file, and all such Tax Returns were complete and
accurate in all material respects. The Company has paid on a timely
basis all Taxes that were due and payable. The unpaid Taxes of the
Company for tax periods through the Most Recent Balance Sheet Date
do not exceed the accruals and reserves for Taxes (excluding
accruals and reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on the
Most Recent Balance Sheet. The Company does not have any actual or
potential liability for any Tax obligation of any taxpayer
(including any affiliated group of corporations or other entities
that included the Company during a prior period) other than the
Company. All Taxes that the Company is or was required by law to
withhold or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper Governmental
Entity. The Company has made adequate and timely installments of
Taxes required to be made;
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(b) The
Company has delivered to the Buyer complete and accurate copies of
all Tax Returns, examination reports and statements of deficiencies
assessed against or agreed to by the Company for the last six tax
years. No examination or audit of any Tax Return of the Company by
any Governmental Entity is currently in progress or, to the
knowledge of the Company, threatened or contemplated. The Company
has not been informed by any jurisdiction that the jurisdiction
believes that the Company was required to file any Tax Return that
was not filed or that there are taxes due to such jurisdiction. The
Company has not waived any statute of limitations with respect to
Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency;
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(c) Except as may be accrued for
on the Most Recent Balance Sheet or as an accrued liability in
determining the Adjustment Amount, there are no contingent Tax
liabilities for unpaid Taxes due and payable prior to the Closing
Date or, to the knowledge of the Seller, any grounds that could
prompt an assessment or reassessment of the Company in the filing
of earlier or current Tax Returns, nor has the Company received any
written notice from any Tax authorities that an assessment or
reassessment of Tax is proposed;
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(d) Except for the filings
specified in Section 2.9(d) of the Disclosure Schedule, the
Company has not been and is not currently required to file any Tax
Returns or other reports, elections, designations or filings with
any Tax authority located in any jurisdiction outside the United
States of America;
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(e) The
Company has at all time conducted its business activities on an
arm’s length basis on fair and reasonable terms when entering
into transactions with any shareholder other individual or entity
related to the Company within the meaning of Sections 318, 482 and
958 of the Code;
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(f) As
of Closing, there will not be any agreement, plan or arrangement,
covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any
amount that would not be deductible by the Company as an expense
under applicable law other than reimbursements of a reasonable
amount of entertainment expenses and other non-deductible expenses
that are commonly paid by similarly situated businesses in
reasonable amounts;
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(g) The
Company's cost basis, as defined in Section 1012 of the Code, in
respect of its assets is accurately reflected on the Company's Tax
records;
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(h) The
paid-up capital for Tax purposes for each share of the
Company’s capital stock is no less than its stated par value
for purposes of the Georgia Business Corporations Code;
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(i) The
Company has made an election to be treated as a Subchapter S
Corporation pursuant to section 1361(a) of the Code. The
foregoing election has been in effect since the date of
incorporation of the Company.
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(a) At
the Closing, the Company will be the sole, true and lawful owner,
and has good title to, all of the assets (tangible or intangible)
purported to be owned by the Company, free and clear of all
Security Interests. At the Closing, the Company will own or lease
all tangible assets sufficient for the conduct of its businesses as
presently conducted and as presently proposed to be conducted
(without reference to Parent’s business plans for the
Company). Each material tangible asset is free from material
defects, has been maintained in accordance with normal industry
practice, is in good operating condition and repair (subject to
normal wear and tear) and is suitable for the purposes for which it
presently is used;
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(b) Section 2.10(b) of the
Disclosure Schedule lists individually (i) all fixed assets
(within the meaning of GAAP) of the Company, indicating the cost,
accumulated book depreciation (if any) and the net book value of
each such fixed asset as of the Most Recent Balance Sheet Date, and
(ii) all other assets of a tangible nature (other than inventories)
of the Company whose book value exceeds $5,000.00;
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(c) Each item of equipment, motor
vehicle and other asset that the Company has possession of pursuant
to a lease agreement or other contractual arrangement is in such
condition that, upon its return to its lessor or owner under the
applicable lease or contract, the obligations of the Company to
such lessor or owner will have been discharged in full.
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2.11
Owned Real Property . The Company does not own and has never
owned any Owned Real Property.
2.12 Real Property Leases .
Section 2.12 of the Disclosure Schedule lists all Leases and
lists the term of such Lease, any extension and expansion options,
and the rent payable thereunder. The Company has delivered to the
Buyer complete and accurate copies of the Leases. With respect to
each Lease:
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(a) such Lease is legal, valid,
binding, enforceable and in full force and effect;
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(b) such Lease will continue to be
legal, valid, binding, enforceable and in full force and effect
immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws of generally applicability
relating to or affecting creditors’ rights and to general
equity principles;
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(c) neither the Company nor, to
the knowledge of the Company, any other party, is in breach or
violation of, or default under, any such Lease, and no event has
occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a breach or default by the Company
or, to the knowledge of the Company, any other party under such
Lease;
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(d) there are no disputes, oral
agreements or forbearance programs in effect as to such
Lease;
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(e) the
Company has not assigned, transferred, conveyed, mortgaged, deeded
in trust or encumbered any interest in the leasehold or
subleasehold;
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(f) to
the knowledge of the Company, all facilities leased or subleased
thereunder are supplied with utilities and other services adequate
for the operation of said facilities; and
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(g) the
Company is not aware, without independent investigation, of any
Security Interest, easement, covenant or other restriction
applicable to the real property subject to such lease which would
reasonably be expected to materially impair the current uses or the
occupancy by the Company of the property subject
thereto.
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2.13
Intellectual Property .
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(a) Section 2.13(a) of the
Disclosure Schedule lists (i) each patent, patent application,
copyright registration or application therefor, mask work
registration or application therefor, and trademark, service mark
and domain name registration or application therefor of the
Company, (ii) each of the Deliverables of the Company and
(iii) all other material Intellectual Property used in the conduct
of the Company’s business as presently conducted and as
presently proposed to be conducted (without reference to
Parent’s business plans for the Company);
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(b) At
the Closing, the Company will own or will have the right to use all
Intellectual Property necessary (i) to use, market and license the
Deliverables and (ii) to operate the Internal Systems. Each item of
Company Intellectual Property will be owned or available for use by
the Buyer and the Company immediately following the Closing on
substantially identical terms and conditions as it was immediately
prior to the Closing. The Company has taken all reasonable measures
to protect the proprietary nature of each item of Company
Intellectual Property and to maintain in confidence all trade
secrets and confidential information that it owns or uses. No other
person or entity has any rights to any of the Company Intellectual
Property owned by the Company (except pursuant to agreements or
licenses specified in Section 2.13(b) of the Disclosure
Schedule), and, to the knowledge of the Company, no other person or
entity is infringing, violating or misappropriating any of the
Company Intellectual Property;
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(c) None of the Intellectual
Property as used by the Company, or the marketing, distribution,
provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person
or entity. None of the Internal Systems, or the use thereof,
infringes or violates, or constitutes a misappropriation of, any
Intellectual Property rights of any person or entity.
Section 2.13(c) of the Disclosure Schedule lists any
complaint, claim or notice, or written threat thereof, received by
the Company alleging any such interference, infringement, violation
or misappropriation; and the Company has provided to the Buyer
complete and accurate copies of all written documentation in the
possession of the Company relating to any such complaint, claim,
notice or threat. The Company has provided to the Buyer complete
and accurate copies of all written documentation in the
Company’s possession relating to claims or disputes known to
the Company concerning any Company Intellectual
Property;
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(d) Section 2.13(d) of the
Disclosure Schedule identifies each license or other agreement
pursuant to which the Company has licensed, distributed or
otherwise granted any rights to any third party with respect to,
any Company Intellectual Property. Except as described in
Section 2.13(d) of the Disclosure Schedule, the Company has
not agreed to indemnify any person or entity against any
infringement, violation or misappropriation of any Intellectual
Property rights;
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(e) Section 2.13(e) of the
Disclosure Schedule identifies each item of Company Intellectual
Property that is owned by a party other than the Company and the
license or agreement pursuant to which the Company uses it
(excluding off-the-shelf software programs licensed by the Company
pursuant to "shrink wrap" licenses (" Off-the-Shelf Software
"));
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(f) All
of the copyrightable materials incorporated in or bundled with the
Deliverables have been created by employees of the Company within
the scope of their employment by the Company or by independent
contractors of the Company, and the current employees of the
Company have executed agreements expressly assigning all right,
title and interest in such copyrightable materials to the
Company;
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(g) To
the knowledge of the Company, the Deliverables and the Internal
Systems are free from significant defects or programming errors and
conform in all material respects to the written documentations and
the specifications therefore, to the extent that they
exist;
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(h) Except as set forth on
Section 2.13(h) of the Disclosure Schedule, at the time of the
Closing, (A) the Company will own all right, title and interest in,
or will have a valid and binding license to use, the Intellectual
Property, and, to the extent required in connection with the way in
which the Company has conducted its business, to make, have made,
use, sell, import and export, distribute, publicly perform,
publicly display, reproduce and prepare derivative works or
otherwise exploit the Intellectual Property as currently utilized
in its business operations; (B) the rights of the Company to the
Intellectual Property will be free and clear of all Security
Interests; (C) all registrations with and applications to
governmental or regulatory bodies in respect of the Intellectual
Property are valid and in full force and effect, and the Company
has taken all action required to maintain their validity and
effectiveness; (D) with respect to the Company’s licensed
Intellectual Property, other than Off-the-Shelf Software, there are
no restrictions on the direct or indirect (i) transfer of any
license, or any interest therein, held by the Company or (ii)
changes of control of the Company; (E) the Company has taken
reasonable measures to protect the secrecy, confidentiality and
value of its trade secrets; (F) the Company will deliver to the
Buyer any existing documentation with respect to any design,
computer program or other know-how or trade secret included in the
Intellectual Property, which documentation, to the best of the
Company’s knowledge, is accurate in all material respects,
and (F) the Company is not, nor has it received any notice that it
is, in default (or with the giving of notice or lapse of time or
both, would be in default) under any license with respect to the
Intellectual Property;
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(i) Except as identified on
Section 2.13(i) of the Disclosure Schedule, no approval or
consent of any person is needed so that the interest of the Company
in the Intellectual Property shall continue to be in full force and
effect following the transactions contemplated by this Agreement,
and the Company is not subject to any restriction, agreement,
instrument, order, judgment or decree which would be violated or
breached by the consummation of the transactions contemplated by
this Agreement;
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(j) Except for the fees identified
in Section 2.13(j) of the Disclosure Schedule for the
agreements identified therein, no licensing fees, royalties or
payments are due or payable by the Company in connection with the
Intellectual Property, other than maintenance fees, if
any;
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(k) Other than as identified in
Section 2.13(k) of the Disclosure Schedule, the Company has
kept secret and has not disclosed the source code for its Software
to any person or entity other than certain employees or independent
contractors of the Company who are subject to the terms of a
binding confidentiality agreement with respect thereto. The Company
has taken reasonable measures to protect the confidentiality and
proprietary nature of its Software, including without limitation,
the use of the confidentiality agreements with all of its employees
or independent contractors having access to its Software source and
object code;
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(l) No
employee of the Company is in default under, and the consummation
of the transactions contemplated by this Agreement will not result
in a default of, any term of any employment contract, agreement or
arrangement relating to the Software or any non-competition
arrangement, or any other agreement or any restrictive covenant
relating to the Software or its development or exploitation. Other
than as identified in Section 2.13(l) of the Disclosure
Schedule the Company does not have any obligation to compensate any
person for the development, use, sale or exploitation of the
Software, nor has the Company granted to any other person or entity
any license, option or other rights to develop, use, sell or
exploit in any manner the Software whether requiring the payment of
royalties or not;
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(m) All
Intellectual Property owned by the Company and for which
confidentiality is appropriate has been maintained in confidence in
accordance with protection procedures believed by the Company to be
adequate for protection customarily used in the industry to protect
rights of like importance. All current and former employees who
have authored, co-authored or otherwise contributed to or
participated in any material way in the conception and development
of Intellectual Property which is used in and material to the
Company’s business (" IP Participant ") have executed
and delivered to the Company a proprietary information agreement,
pursuant to which, inter alia, such IP Participant has assigned any
and all of his rights in such IP to the Company and has agreed to
keep such IP confidential and not to use such IP for any purpose
unrelated to his work for the Company. No former or current IP
Participant has filed, asserted in writing or, to the knowledge of
the Company (or management employees of the Company with direct
responsibility for Intellectual Property matters), threatened any
claim against the Company in connection with his involvement in
Intellectual Property which is used in the Company’s
business. To the knowledge of the Company (or management employees
of the Company with direct responsibility for Intellectual Property
matters), no IP Participant has any patents issued or applications
pending for any device, process, design or invention of any kind
now used or needed by the Company, which patents or applications
have not been assigned to the Company;
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(n) With respect to privacy and
security agreements and other privacy contractual commitments (the
" Commitments "), (A) the Company is in full compliance with
all applicable Commitments; (B) the transactions contemplated by
this Agreement will not violate any Commitments; (C) the Company
has not received inquiries from any other federal or state
governmental agencies regarding Commitments; (D) the Company has
not received any written (including email) complaints regarding
Commitments, or compliance with Commitments; (E) the Commitments
have not been rejected by any applicable certification organization
which has reviewed such Commitment or to which any such Commitment
has been submitted, and (F) the Company has not experienced the
cancellation, termination or revocation of any privacy or security
certification issued by any Commitments;
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2.14
Accredited Investor; Investment Intent; Access to Information;
Restrictions on Transfer .
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(a)
Seller is an "accredited investor" as that term is defined in Rule
501(a) of Regulation D under the Securities Act. The Parent Shares
are being acquired for the Seller’s own account for
investment purposes only, not as a nominee or agent and not with a
view to the resale or distribution of any part thereof, and Seller
has no present intention of selling, granting any participation in
or otherwise distributing the same and Seller does not have any
contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or third
person with respect to any of the Parent Shares. Seller
acknowledges that it has had access to and has reviewed all
documents and records relating to the Parent, including, but not
limited to, the Parent SEC Reports, that it has deemed necessary in
order to make an informed investment decision with respect to an
investment in the Parent Shares; that it has had the opportunity to
ask representatives of the Parent certain questions and request
certain additional information regarding the finances, operations,
business and prospects of the Parent and has had any and all such
questions and requests answered to its satisfaction; and that it
understands the risks and other considerations relating to an
investment;
(b) Seller understands that the
Parent Shares are "restricted securities" as such term is defined
in Rule 144 under the Securities Act and have not been registered
under the Securities Act or registered or qualified under any state
securities law, and may not be, directly or indirectly, sold,
transferred, offered for sale, pledged, hypothecated or otherwise
disposed of without registration under the Securities Act and
registration or qualification under applicable state securities
laws or the availability of an exemption therefrom in the opinion
of counsel to Parent;
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(a) Section 2.15 of the
Disclosure Schedule lists the following agreements (written or
oral) to which the Company is a party as of the date of this
Agreement:
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(i) any
agreement (or group of related agreements) for the lease of
personal property from or to third parties providing for lease
payments having a remaining term longer than twelve months or a
monthly rental amount in excess of $5,000.00;
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(ii) any
agreement (or group of related agreements) for the purchase or sale
of products or for the furnishing or receipt of services (A) which
calls for performance over a period of more than one year, or (B)
in which the Company has granted manufacturing rights, "most
favored nation" pricing provisions or exclusive marketing or
distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has
agreed to purchase goods or services exclusively from a certain
party;
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(iii) any
agreement concerning the establishment or operation of a
partnership, joint venture or limited liability company;
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(iv) any
agreement (or group of related agreements) in effect as of the
Closing under which it has created, incurred, assumed or guaranteed
(or may create, incur, assume or guarantee) indebtedness (including
capitalized lease obligations) or under which it has imposed (or
may impose) a Security Interest on any of its assets, tangible or
intangible;
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(v) any
agreement for the disposition of any significant portion of the
assets or business of the Company (other than sales of products in
the Ordinary Course of Business) or any agreement for the
acquisition of the assets or business of any other entity (other
than purchases of inventory or components in the Ordinary Course of
Business);
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(vi) any
agreement concerning confidentiality or non-competition, including,
without limitation, those listed in Schedule 2.15(a)(vi) of
the Disclosure Schedule, which shall include, without limitation,
the Employee Covenant Agreements;
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(vii) any
employment or consulting agreement, including any severance,
notice, change of control or similar agreement;
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(viii) any
agreement involving any current or former officer, director or
stockholder of the Company or an Affiliate thereof;
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(ix) any
agreement under which the consequences of a default or termination
would reasonably be expected to have a Company Material Adverse
Effect;
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(x) any
agreement which contains any provisions requiring the Company or
any Subsidiary to indemnify any other party; and
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(xi) any
other agreement (or group of related agreements) either involving
more than $5,000.00 or not entered into in the Ordinary Course of
Business.
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(b) The
Company has delivered to the Buyer a complete and accurate copy of
each material agreement listed in Section 2.13 or
Section 2.15 of the Disclosure Schedule. With respect to each
agreement so listed: (i) the agreement is legal, valid,
binding and enforceable and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable
and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to
the Closing; and (iii) neither the Company nor, to the
knowledge of the Company, any other party, is in breach or
violation of, or default under, any such agreement, and no event
has occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time,
or otherwise, would constitute a breach or default by the Company
or, to the knowledge of the Company, any other party under such
agreement; (A) subject to in the case of sub-clause (i) and (ii),
bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and other similar laws of generally applicability
relating to or affecting creditors’ rights and to general
equity principles and (B) except as would not reasonably be
expected to have a Company Material Adverse Effect in the
aggregate.
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2.16
Accounts Receivable . Except as listed in Section 2.16
of the Disclosure Schedule, all accounts receivable of the Company
reflected on the Most Recent Balance Sheet (other than those paid
since such date) are valid receivables subject to no setoffs or
counterclaims and are all current and collectible (within
90 days after the date on which it is due and payable), net of
the applicable reserve for bad debts as they were reflected on the
Most Recent Balance Sheet. A complete and accurate list of the
accounts receivable reflected on the Most Recent Balance Sheet,
showing the aging thereof, is included in Section 2.16 of the
Disclosure Schedule. All accounts receivable of the Company that
have arisen since the Most Recent Balance Sheet Date are valid
receivables subject to no setoffs or counterclaims and are
collectible (within 90 days after the date on which it first became
due and payable), net of a reserve for bad debts in an amount
proportionate to the reserve shown on the Most Recent Balance
Sheet. Except as listed in Section 2.16 of the Disclosure
Schedule, the Company has not received any written notice from an
account debtor stating that any account receivable is subject to
any contest, claim or setoff by such account debtor.
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2.17 Powers of Attorney .
There are no outstanding powers of attorney executed on behalf of
the Company.
2.18 Insurance .
Section 2.18 of the Disclosure Schedule lists each insurance
policy (including fire, theft, casualty, comprehensive general
liability, workers compensation, business interruption,
environmental, product liability, errors and omissions and
automobile insurance policies and bond and surety arrangements) to
which the Company is a party, all of which are in full force and
effect. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or
owning assets similar to those of the Company. There is no material
claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy.
All premiums due and payable under all such policies have been
paid, the Company may not be liable for retroactive premiums or
similar payments, and the Company is otherwise in compliance in all
material respects with the terms of such policies. The Company has
no knowledge of any threatened termination of, or premium increase
with respect to, any such policies. Such policies will cease to be
in force and effect following the Closing.
2.19 Litigation . Except as
set forth on Section 2.19 of the Disclosure Schedule, as of
the date of this Agreement there is no Legal Proceeding which is
pending or has been threatened in writing against the Company which
(a) seeks either damages or equitable relief or (b) in any
manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement. There are no
judgments, orders or decrees outstanding against the Company.
2.20 Warranties . No
product or service manufactured, sold, leased, licensed or
delivered by the Company is subject to any guaranty, warranty,
right of return, right of credit or other indemnity other than
(i) the applicable standard terms and conditions of sale or
lease of the Company, which are set forth in Section 2.20 of
the Disclosure Schedule; and (ii) manufacturers’
warranties for which the Company does not have any liability.
Section 2.20 of the Disclosure Schedule sets forth the
aggregate expenses incurred by the Company in fulfilling its
obligations under its guaranty, warranty, right of return and
indemnity provisions during each of the fiscal years and the
interim period covered by the Financial Statements; and the Company
does not know of any reason why such expenses should significantly
increase as a percentage of sales in the future.
2.21 Employees .
Section 2.21 of the Disclosure Schedule contains a list of all
employees of the Company, along with the position and the annual
rate of compensation of each such person. Section 2.21 of the
Disclosure Schedule contains the names of all of the employees of
the Company who are parties to a non-competition or
non-solicitation agreement with the Company. Each current employee
of the Company has entered into an Employee Confidentiality
Agreement in the form attached to Section 2.21 of the
Disclosure Schedule. All of the agreements referenced in the two
preceding sentences will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the
Closing in accordance with the terms thereof as in effect
immediately prior to the Closing. Section 2.21 of the
Disclosure Schedule contains a list of all employees of the Company
who are not citizens of the United States of America. As of the
date hereof, to the knowledge of the Company, no key employee or
group of employees has any plans to terminate employment with the
Company.
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(a) The
Company is not a party to or bound by any collective bargaining
agreement, nor has it experienced any strikes, slowdown, lockout,
grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any
organizational effort made or threatened, either currently or
within the past two years, by or on behalf of any labor union with
respect to employees of the Company.
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(b) The
Company has complied and is in compliance in all material respects
with all applicable laws relating to employment and labor matters,
including any provision thereof relating to wages, hours of work,
vacation pay, overtime pay, occupational health and safety and
conditions of employment.
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(c) The
Company is not subject to any claim for wrongful dismissal,
constructive dismissal or any other claim, complaint or litigation
relating to employment discrimination or termination of employment
of any of its employees or former employees or relating to any
failure to hire a candidate for employment.
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(d) There is no order pursuant to
any law requiring the taking of any action or the refraining from
taking any action in respect of any employee or former employee of
the Company.
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(e) There are no outstanding loans
made by the Company to any employee or former employee of the
Company (for greater certainly, travel advances or advances against
commission of less than $1000.00 are not considered as a loan for
the purposes of this paragraph).
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(f) To
the Seller’s actual knowledge (without inquiry), no employee
of the Company has any plans to terminate his or her employment
with the Company.
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2.22
Employee Benefit . Section 2.22(a) of the Disclosure
Schedule contains a complete and accurate list of all Company
Plans. Complete and accurate copies of (i) all Company Plans
which have been reduced to writing, (ii) written summaries of
all unwritten Company Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and
(iv) all annual reports filed with a Governmental Entity and
(for all funded plans) all plan financial statements for the last
five plan years for each Company Plan, if applicable for such plan,
have been delivered to the Buyer.
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(a) Each Company Plan has been
administered in all material respects in accordance with its terms
and the Company has in all material respects met its obligations
with respect to each Company Plan and has made all required
contributions thereto. The Company and each Company Plan are in
compliance in all material respects with all provisions of
applicable law. All filings and reports as to each Company Plan
required to have been submitted to any Governmental Entity have
been duly submitted. No Company Plan has assets that include
securities issued by the Company or any Affiliate.
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- 18 -
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(b) There are no Legal Proceedings
(except claims for benefits payable in the normal operation of the
Company Plans and proceedings with respect to qualified domestic
relations orders) against or involving any Company Plan or
asserting any rights or claims to benefits under any Company Plan
that could give rise to any material liability.
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(c) All
the Company Plans that are intended to be registered have received
determination letters from the applicable taxing authorities to the
effect that such Company Plans are registered, the plans and the
trusts related thereto are exempt from income taxes under
applicablelaws, no such determination letter has been revoked and
revocation has not been threatened, no such Company Plan has been
amended since the date of its most recent determination letter or
application therefor in any respect, and no act or omission has
occurred that would adversely affect its qualification or
materially increase its cost.
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(d) There are no unfunded
obligations under any Company Plan providing benefits after
termination of employment to any employee of the Company (or to any
beneficiary of any such employee), including, but not limited to,
retiree health coverage and deferred compensation. The assets of
each Company Plan which is funded are reported at their fair market
value on the books and records of such Company Plan.
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(e) No
act or omission has occurred and no condition exists with respect
to any Company Plan that would subject the Company or any Affiliate
or Company Plan to (i) any material fine, penalty, tax or liability
of any kind imposed under any law, or (ii) any contractual
indemnification or contribution obligation protecting any
fiduciary, insurer or service provider with respect to any Company
Plan.
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(f) Each Company Plan is amendable
and terminable unilaterally by the Company at any time without
liability or expense to the Company or such Company Plan as a
result thereof (other than for benefits accrued through the date of
termination or amendment and reasonable administrative expenses
related thereto), and no Company Plan, plan documentation or
agreement, summary plan description or other written communication
distributed generally to employees by its terms prohibits the
Company from amending or terminating any such Company
Plan.
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(g) Section 2.22(g) of the
Disclosure Schedule discloses each: (i) agreement with any
stockholder, director, executive officer or other key employee of
the Company (A) the benefits of which are contingent, or the
terms of which are altered, upon the occurrence of a transaction
involving the Company of the nature of any of the transactions
contemplated by this Agreement; (B) providing any term of
employment or compensation guarantee; or (C) providing
severance benefits, notices of termination, change of control
awards or other benefits after the termination of employment of
such director, executive officer or key employee;
(ii) agreement or plan binding the Company, including any
stock option plan, stock appreciation right plan, restricted stock
plan, stock purchase plan, severance benefit plan or Company Plan,
any of the benefits of which will be increased, or the vesting of
the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of
any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement.
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(h) Section2.22(h) of the
Disclosure Schedule sets forth the policy of the Company with
respect to accrued vacation, accrued sick time and earned time off
and the amount of such liabilities as of the Most Recent Balance
Sheet Date.
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(i) No
Company Plan provides for a payment to an employee as a result of a
change in control of the Company or the transfer of his employment
from his current employer to the Company or an Affiliate
thereof.
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2.23
Legal Compliance . The Company is currently conducting, and
has at all times since January 1, 2005 conducted, its businesses in
compliance with each applicable law (including rules and
regulations thereunder) of any federal, state, local or foreign
government, or any Governmental Entity, except for any violations
or defaults that, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse
Effect. The Company has not received any notice or communication
from any Governme
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