EXHIBIT 2.1
================================================================================
AGREEMENT OF MERGER AND
PLAN OF REORGANIZATION
among
UNIVERSITY GIRLS CALENDAR, LTD.
TOWERSTREAM ACQUISITION, INC. and
TOWERSTREAM CORPORATION
January 12, 2007
================================================================================
TABLE OF CONTENTS
1.
The
Merger..................................................................
1
1.1
Merger................................................................
1
1.2
Effective
Time........................................................
2
1.3
Certificate of Incorporation, By-laws, Directors and
Officers.........
2
1.4
Assets and
Liabilities................................................
2
1.5
Manner and Basis of Converting
Shares.................................
2
1.6
Surrender and Exchange of
Certificates................................
3
1.7
Parent Common
Stock...................................................
4
1.8
Operation of Surviving
Corporation....................................
4
1.9
Further
Assurances....................................................
4
2.
Representations and Warranties of the
Company...............................
4
2.1
Organization, Standing, Subsidiaries,
Etc.............................
5
2.2
Qualification.........................................................
5
2.3
Capitalization of the
Company.........................................
5
2.4
Indebtedness..........................................................
5
2.5
Company
Stockholders..................................................
5
2.6
Corporate Acts and
Proceedings........................................
6
2.7
Compliance with Laws and
Instruments..................................
6
2.8
Binding
Obligations...................................................
6
2.9
Broker's and Finder's
Fees............................................
6
2.10
Financial
Statements..................................................
7
2.11
Absence of Undisclosed
Liabilities....................................
7
2.12
Changes...............................................................
7
2.13
Assets and
Contracts..................................................
8
2.14
Employees.............................................................
9
2.15
Tax Returns and
Audits................................................
10
2.16
Patents and Other Intangible
Assets...................................
10
2.17
Employee Benefit Plans;
ERISA.........................................
11
2.18
Title to Property and
Encumbrances....................................
12
2.19
Condition of
Properties...............................................
12
2.20
Insurance
Coverage....................................................
12
2.21
Litigation............................................................
12
2.22
Licenses..............................................................
12
2.23
Interested Party
Transactions.........................................
13
2.24
Environmental
Matters.................................................
13
2.25
Questionable
Payments.................................................
14
2.26
Obligations to or by
Stockholders.....................................
14
2.27
Duty to Make
Inquiry..................................................
14
2.28
Disclosure............................................................
14
3.
Representations and Warranties of Parent and Acquisition
Corp...............
14
3.1
Organization and
Standing.............................................
14
3.2
Corporate
Authority...................................................
15
3.3
Broker's and Finder's
Fees............................................
15
3.4
Capitalization of
Parent..............................................
15
i
3.5
Acquisition
Corp......................................................
15
3.6
Validity of
Shares....................................................
16
3.7
SEC Reporting and
Compliance..........................................
16
3.8
Financial
Statements..................................................
16
3.9
Governmental
Consents.................................................
17
3.10
Compliance with Laws and Other
Instruments............................
17
3.11
No General
Solicitation...............................................
17
3.12
Binding
Obligations...................................................
17
3.13
Absence of Undisclosed
Liabilities....................................
17
3.14
Changes...............................................................
18
3.15
Tax Returns and
Audits................................................
18
3.16
Employee Benefit Plans;
ERISA.........................................
19
3.17
Litigation............................................................
20
3.18
Interested Party
Transactions.........................................
20
3.19
Questionable
Payments.................................................
20
3.20
Obligations to or by
Stockholders.....................................
20
3.21
Assets and
Contracts..................................................
20
3.22
Employees.............................................................
21
3.23
Disclosure............................................................
21
4.
Additional Representations, Warranties and Covenants of the
Stockholders....
21
5.
Conduct of Businesses Pending the
Merger....................................
22
5.1
Conduct of Business by the Company Pending the
Merger.................
22
5.2
Conduct of Business by Parent and Acquisition
Corp....................
23
6.
Additional
Agreements.......................................................
24
6.1
Access and
Information................................................
24
6.2
Additional
Agreements.................................................
25
6.3
Publicity.............................................................
25
6.4
Appointment of Directors and
Officers.................................
25
6.5
Parent Name Change and Exchange
Listing...............................
25
7.
Conditions of Parties'
Obligations..........................................
25
7.1
Parent and Acquisition
Corp...........................................
25
7.2
Company
Obligations...................................................
27
8.
Non-Survival of Representations and
Warranties..............................
28
9.
Amendment of
Agreement......................................................
29
10.
Definitions.................................................................
29
11.
Closing.....................................................................
33
12. Indemnification and Related
Matters.........................................
33
12.1
Indemnification by
Parent.............................................
33
12.2
Survival..............................................................
34
12.3
Time
Limitations......................................................
34
12.4
Limitation on
Liability...............................................
34
12.5
Notice of
Claims......................................................
34
12.6
Payment of
Damages....................................................
35
13. Termination Prior to
Closing................................................
35
13.1
Termination of
Agreement..............................................
35
13.2
Termination of
Obligations............................................
36
ii
14.
Miscellaneous...............................................................
36
14.1
Notices...............................................................
36
14.2
Entire
Agreement......................................................
37
14.3
Expenses..............................................................
37
14.4
Dispute
Resolution....................................................
37
14.5
Time..................................................................
38
14.6
Severability..........................................................
38
14.7
Successors and
Assigns................................................
38
14.8
No Third Parties
Benefited............................................
38
14.9
Counterparts..........................................................
38
14.10 Recitals, Schedules and
Exhibits......................................
38
14.11 Section Headings and
Gender...........................................
38
14.12 Governing
Law.........................................................
39
iii
LIST OF EXHIBITS AND SCHEDULES
Exhibits
A
Certificate of Merger
B
Certificate of Incorporation of the Company
C
By-laws of the Company
D
Directors and Officers of the Surviving Corporation and Parent
E
Form of Opinion of Parent's Counsel
Company Disclosure Schedules
1.5
Holders of Parent Common Stock Post-Merger
1.5A Holders of Parent Common Stock Post-Merger Under the Options
and Warrants
iv
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
THIS AGREEMENT OF MERGER AND PLAN OF REORGANIZATION is made and
entered into on January 12, 2007, by and among UNIVERSITY GIRLS
CALANDER, LTD.,
a Delaware corporation ("Parent"), TOWERSTREAM ACQUISITION, INC., a
Delaware
corporation ("Acquisition Corp."), which is a wholly-owned
subsidiary of Parent,
and TOWERSTREAM CORPORATION, a Delaware corporation (the
"Company").
WITNESSETH:
WHEREAS, the Board of Directors of each of Acquisition Corp.,
Parent
and the Company have each determined that it is fair to and in the
best
interests of their respective corporations and stockholders for
Acquisition
Corp. to be merged with and into the Company (the "Merger") upon
the terms and
subject to the conditions set forth herein; and
WHEREAS, the Board of Directors of each of Parent, Acquisition
Corp.
and the Company have approved the Merger in accordance with the
Delaware General
Corporation Law (the "DGCL"), and upon the terms and subject to the
conditions
set forth herein and in the Certificate of Merger (the "Certificate
of Merger")
attached as Exhibit A hereto; and
WHEREAS, the requisite Stockholders (as such term is defined in
Section 10 hereof) have approved by written consent pursuant to
Section 228 of
the DGCL this Agreement and the Certificate of Merger and the
transactions
contemplated and described hereby and thereby, including, without
limitation,
the Merger, and Parent, as the sole stockholder of Acquisition
Corp., has
approved this Agreement, the Certificate of Merger and the
transactions
contemplated and described hereby and thereby, including, without
limitation,
the Merger; and
WHEREAS, immediately following the Closing (as such term is defined
herein), Parent (as it will exist as of the closing of the Merger)
will sell up
to a maximum of $11,250,000 of its units with each unit consisting
of (i) 50,000
shares of its common stock and (ii) a detachable transferable
warrant to
purchase 25,000 shares of its common stock at $4.50 per share, at
$112,500 per
unit, in a private placement offering to accredited investors (the
"Private
Placement"), pursuant to the terms of Company's Confidential
Private Placement
Memorandum, dated December 21, 2006, as supplemented (the
"Memorandum"), for the
purpose of financing the ongoing business and operations of the
Surviving
Corporation (as defined below) following the Merger; and
WHEREAS, the parties hereto intend that the Merger contemplated
herein
shall qualify as a reorganization within the meaning of Section
368(a)(1)(A) of
the Internal Revenue Code of 1986, as amended (the "Code"), by
reason of Section
368(a)(2)(E) of the Code.
NOW, THEREFORE, in consideration of the mutual agreements and
covenants hereinafter set forth, the parties hereto agree as
follows:
1. The Merger.
1.1 Merger. Subject to the terms and conditions of this Agreement
and
the Certificate of Merger, Acquisition Corp. shall be merged with
and into the
Company in
1
accordance with Section 251 of the DGCL. At the Effective Time (as
hereinafter defined), the separate legal existence of Acquisition
Corp. shall
cease, and the Company shall be the surviving corporation in the
Merger
(sometimes hereinafter referred to as the "Surviving Corporation")
and shall
continue its corporate existence under the laws of the State of
Delaware under
the name "Towerstream Corporation"
1.2 Effective Time. The Merger shall become effective upon the
filing
of the Certificate of Merger with the Delaware Secretary of State
in accordance
with Section 251 of the DGCL. The time at which the Merger shall
become
effective as aforesaid is referred to hereinafter as the "Effective
Time."
1.3 Certificate of Incorporation, By-laws, Directors and Officers.
(a) The Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, attached as Exhibit B
hereto, shall be
the Certificate of Incorporation of the Surviving Corporation from
and after the
Effective Time until amended in accordance with applicable law and
such
Certificate of Incorporation.
(b) The By-laws of the Company, as in effect immediately prior to
the Effective Time, attached as Exhibit C hereto, shall be the
By-laws of the
Surviving Corporation from and after the Effective Time until
amended in
accordance with applicable law, the Certificate of Incorporation
and such
By-laws.
(c) The directors and officers listed in Exhibit D hereto shall
be the directors and officers of the Surviving Corporation, and
each shall hold
his respective office or offices from and after the Effective Time
until his
successor shall have been elected and shall have qualified in
accordance with
applicable law, or as otherwise provided in the Certificate of
Incorporation or
By-laws of the Surviving Corporation.
1.4 Assets and Liabilities. At the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and
franchises of a
public as well as of a private nature, and be subject to all the
restrictions,
disabilities and duties of each of Acquisition Corp. and the
Company
(collectively, the "Constituent Corporations"); and all the rights,
privileges,
powers and franchises of each of the Constituent Corporations, and
all property,
real, personal and mixed, and all debts due to any of the
Constituent
Corporations on whatever account, as well for stock subscriptions
as all other
things in action or belonging to each of the Constituent
Corporations, shall be
vested in the Surviving Corporation; and all property, rights,
privileges,
powers and franchises, and all and every other interest shall be
thereafter as
effectively the property of the Surviving Corporation as they were
of the
several and respective Constituent Corporations, and the title to
any real
estate vested by deed or otherwise in either of such Constituent
Corporations
shall not revert or be in any way impaired by the Merger; but all
rights of
creditors and all liens upon any property of any of the Constituent
Corporations
shall be preserved unimpaired, and all debts, liabilities and
duties of the
Constituent Corporations shall thenceforth attach to the Surviving
Corporation,
and may be enforced against it to the same extent as if said debts,
liabilities
and duties had been incurred or contracted by it.
1.5 Manner and Basis of Converting Shares.
2
(a) At the Effective Time:
(i) each share of common stock, par value $0.001 per share,
of Acquisition Corp. that shall be outstanding immediately prior to
the
Effective Time shall, by virtue of the Merger and without any
action on the part
of the holder thereof, be converted into the right to receive one
(1) share of
common stock, par value $0.001 per share, of the Surviving
Corporation, so that
at the Effective Time, Parent shall be the holder of all of the
issued and
outstanding shares of the Surviving Corporation;
(ii) the shares of common stock, par value $0.001 per share,
of the Company (the "Company Stock") beneficially owned by the
Stockholders
listed in Schedule 1.5 (other than shares of Company Stock as to
which appraisal
rights are perfected pursuant to the applicable provisions of the
DGCL and not
withdrawn or otherwise forfeited and shares of Company Stock set
forth in
Section 1.5(a)(iv) hereof), shall, by virtue of the Merger and
without any
action on the part of the holders thereof, be converted into the
right to
receive the number of shares of Parent Common Stock specified in
Schedule 1.5
for each of the Stockholders, which shall be equal to 0.7007716 of
one share of
Parent Common Stock for each share of Company Stock;
(iii) the right to acquire any shares of Company Stock under
any warrants, options and convertible promissory notes (the
"Company Convertible
Securities") listed on Schedule 1.5A shall, by virtue of the Merger
and without
any action on the part of the holders of such Company Convertible
Securities,
the Company, the Surviving Corporation, or the Parent, be converted
into the
right to receive 0.7007716 of the number of shares of Parent Common
Stock
specified in such Company Convertible Security for each share of
Company Stock,
at the exercise price per share stated in such Company Convertible
Security of
the Company, including all obligations to issue such shares of
Company Stock
upon satisfaction of any and all conditions or agreements affecting
such
issuance by the holder thereof or the Company (including, without
limitation,
any vesting conditions or other restrictions and the obligation to
register such
shares under the Securities Act of 1933, as amended, if any) which
conditions,
restrictions, and obligations shall expressly be assumed by the
Parent as its
obligation and continued with respect to such holders and the
Parent shall
assume all of the obligations of the Company under the Warrants
following the
Effective Time; and
(iv) each share of Company Stock held in the treasury of the
Company immediately prior to the Effective Time shall be cancelled
in the Merger
and cease to exist.
(b) After the Effective Time, there shall be no further
registration of transfers on the stock transfer books of the
Surviving
Corporation of the shares of Company Stock that were outstanding
immediately
prior to the Effective Time.
1.6 Surrender and Exchange of Certificates. Promptly after the
Effective Time and upon (i) surrender of a certificate or
certificates
representing shares of Company Stock that were outstanding
immediately prior to
the Effective Time or an affidavit and indemnification in form
reasonably
acceptable to counsel for the Parent stating that such Stockholder
has lost
their certificate or certificates or that such have been destroyed
and (ii)
delivery of a Letter of
3
Transmittal (as described in Section 4 hereof), Parent shall issue
to each
record holder of Company Stock surrendering such certificate or
certificates and
Letter of Transmittal, a certificate or certificates registered in
the name of
such Stockholder representing the number of shares of Parent Common
Stock that
such Stockholder shall be entitled to receive as set forth in
Section 1.5(a)(ii)
hereof. Until the certificate, certificates or affidavit is or are
surrendered
together with the Letter of Transmittal as contemplated by this
Section 1.6 and
Section 4 hereof, each certificate or affidavit that immediately
prior to the
Effective Time represented any outstanding shares of Company Stock
shall be
deemed at and after the Effective Time to represent only the right
to receive
upon surrender as aforesaid the Parent Common Stock specified in
Schedule 1.5
hereof for the holder thereof or to perfect any rights of appraisal
which such
holder may have pursuant to the applicable provisions of the DGCL.
1.7 Parent Common Stock. Parent agrees that it will cause the
Parent
Common Stock into which the Company Stock is converted at the
Effective Time
pursuant to Section 1.5(a)(ii) and which Parent Common Stock may be
issued
following the Effective Time pursuant to Section 1.5(a)(iii)
pursuant to Company
Convertible Securities to be available for such purposes. Parent
further
covenants that immediately following the Effective Time, Parent
will effect
cancellations of its outstanding shares of Parent Common Stock and
that there
will be no more than 1,900,000 shares of Parent Common Stock issued
and
outstanding, and that no other common or preferred stock or equity
securities or
any options, warrants, rights or other agreements or instruments
convertible,
exchangeable or exercisable into common or preferred stock or other
equity
securities shall be issued or outstanding, except as described
herein.
1.8 Operation of Surviving Corporation. The Company acknowledges
that
upon the effectiveness of the Merger, and the material compliance
by the Parent
and Acquisition Corp. with their respective duties and obligations
hereunder,
Parent shall have the absolute and unqualified right to deal with
the assets and
business of the Surviving Corporation as its own property without
limitation on
the disposition or use of such assets or the conduct of such
business.
1.9 Further Assurances. From time to time, from and after the
Effective Time, as and when reasonably requested by Parent, the
proper officers
and directors of the Company as of the Effective Time shall, for
and on behalf
and in the name of the Company or otherwise, execute and deliver
all such deeds,
bills of sale, assignments and other instruments and shall take or
cause to be
taken such further actions as Parent, Acquisition Corp. or their
respective
successors or assigns reasonably may deem necessary or desirable in
order to
confirm or record or otherwise transfer to the Surviving
Corporation title to
and possession of all of the properties, rights, privileges,
powers, franchises
and immunities of the Company or otherwise to carry out fully the
provisions and
purposes of this Agreement and the Certificate of Merger.
2. Representations and Warranties of the Company.
The Company hereby represents and warrants to Parent, Acquisition
Corp. and
to as follows. Notwithstanding anything to the contrary contained
herein,
disclosure of items in the Memorandum (as supplemented on January
__, 2007 and
by the draft Current Report on Form 8-K of Towerstream Corporation)
(collectively, the "Disclosures") shall be deemed to be disclosure
of such items
for all purposes under this Agreement, including, without
limitation, for all
applicable representations and warranties of the Company:
4
2.1 Organization, Standing, Subsidiaries, Etc.
(a) The Company is a corporation duly organized and existing in
good standing under the laws of the State of Delaware and has all
requisite
power and authority (corporate and other) to carry on its business,
to own or
lease its properties and assets, to enter into this Agreement and
the
Certificate of Merger and to carry out the terms hereof and
thereof. Copies of
the Certificate of Incorporation and By-laws of the Company that
have been
delivered to Parent and Acquisition Corp. prior to the execution of
this
Agreement are true and complete and have not since been amended or
repealed.
(b) The Company has no subsidiaries or direct or indirect
interest (by way of stock ownership or otherwise) in any firm,
corporation,
limited liability company, partnership, association or business.
2.2 Qualification. The Company is duly qualified to conduct
business
as a foreign corporation and is in good standing in each
jurisdiction wherein
the nature of its activities or its properties owned or leased
makes such
qualification necessary, except where the failure to be so
qualified would not
have a material adverse effect on the condition (financial or
otherwise),
properties, assets, liabilities, business operations, results of
operations or
prospects of the Company taken as a whole (the "Condition of the
Company").
2.3 Capitalization of the Company. The authorized capital stock of
the
Company consists of 30,000,000 shares of Company Stock, of which
there are
21,404,977 shares of Company Stock issued and outstanding, all of
such shares
are duly authorized, validly issued, fully paid and non-assessable
and none of
such shares have been issued in violation of the preemptive rights
of any
Person. The offer, issuance and sale of such shares of Company
Stock were (a)
exempt from the registration and prospectus delivery requirements
of the
Securities Act, (b) registered or qualified (or were exempt from
registration or
qualification) under the registration or qualification requirements
of all
applicable state securities laws and (c) accomplished in conformity
with all
other applicable securities laws. None of such shares of Company
Stock are
subject to a right of withdrawal or a right of rescission under any
federal or
state securities or blue-sky law. Except as otherwise set forth in
this
Agreement or the Disclosures, the Company has no outstanding
options, rights or
commitments to issue Company Stock or other securities of the
Company, and there
are no outstanding securities convertible or exercisable into or
exchangeable
for Company Stock or other securities of the Company.
2.4 Indebtedness. The Company has no Indebtedness for Borrowed
Money,
except as otherwise set forth in this Agreement or disclosed on the
Balance
Sheet.
2.5 Company Stockholders. Schedule 1.5 and Schedule 1.5A hereto
contain a true and complete list of the names of the record owners
of all of the
outstanding shares of Company Stock and other securities of the
Company,
together with the number of securities held or to which such Person
has rights
to acquire. To the knowledge of the Company, there is no voting
trust, agreement
or arrangement among any of the beneficial holders of Company Stock
affecting
the nomination or election of directors or the exercise of the
voting rights of
Company Stock.
5
2.6 Corporate Acts and Proceedings. The execution, delivery and
performance of this Agreement and the Certificate of Merger
(together, the
"Merger Documents") have been duly authorized by the Board of
Directors of the
Company and have been approved by the requisite vote of the
Stockholders, and
all of the corporate acts and other proceedings required for the
due and valid
authorization, execution, delivery and performance of the Merger
Documents and
the consummation of the Merger have been validly and appropriately
taken, except
for the filings referred to in Section 1.2.
2.7 Compliance with Laws and Instruments. The business, products
and
operations of the Company have been and are being conducted in
compliance in all
material respects with all applicable laws, rules and regulations,
except for
such violations thereof for which the penalties, in the aggregate,
would not
have a material adverse effect on the Condition of the Company. The
execution,
delivery and performance by the Company of the Merger Documents and
the
consummation by the Company of the transactions contemplated by
this Agreement:
(a) will not require any authorization, consent or approval of, or
filing or
registration with, any court or governmental agency or
instrumentality, except
such as shall have been obtained prior to the Closing, (b) will not
cause the
Company to violate or contravene (i) any provision of law, (ii) any
rule or
regulation of any agency or government, (iii) any order, judgment
or decree of
any court, or (iv) any provision of the Certificate of
Incorporation or By-laws
of the Company, (c) will not violate or be in conflict with, result
in a breach
of or constitute (with or without notice or lapse of time, or both)
a default
under, any indenture, loan or credit agreement, deed of trust,
mortgage,
security agreement or other contract, agreement or instrument to
which the
Company is a party or by which the Company or any of its properties
is bound or
affected, except as would not have a material adverse effect on the
Condition of
the Company, and (d) will not result in the creation or imposition
of any Lien
upon any property or asset of the Company. The Company is not in
violation of,
or (with or without notice or lapse of time, or both) in default
under, any term
or provision of its Certificate of Incorporation or By-laws or of
any indenture,
loan or credit agreement, deed of trust, mortgage, security
agreement or, except
as would not materially and adversely affect the Condition of the
Company, any
other material agreement or instrument to which the Company is a
party or by
which the Company or any of its properties is bound or affected.
2.8 Binding Obligations. The Merger Documents constitute the legal,
valid and binding obligations of the Company and are enforceable
against the
Company in accordance with their respective terms, except as such
enforcement is
limited by bankruptcy, insolvency and other similar laws affecting
the
enforcement of creditors' rights generally and by general
principles of equity.
2.9 Broker's and Finder's Fees. Except for fees paid to the
placement
agents as set forth in the Disclosures, no Person has, or as a
result of the
transactions contemplated or described herein will have, any right
or valid
claim against the Company, Parent, Acquisition Corp. or any
Stockholder for any
commission, fee or other compensation as a finder or broker, or in
any similar
capacity. Parent and Acquisition Corp., on the one hand, and the
Company, on the
other hand, hereby indemnify and hold each other harmless from and
against any
and all claims, losses or liabilities for any such commission, fee
or other
compensation as a result of the claim by any other Person that the
indemnifying
party or parties introduced or assisted them in connection with the
transactions
contemplated or described here.
6
2.10 Financial Statements. Parent has previously been provided with
the Company's audited balance sheet (the "Balance Sheet") as of
December 31,
2006 (the "Balance Sheet Date") and December 31, 2005 and the
audited statements
of operations and accumulated deficits and cash flows for the years
ended
December 31, 2006 and December 31, 2005. Such financial statements
are
collectively referred to as the "Financial Statements". Such
financial
statements (i) are in accordance with the books and records of the
Company, (ii)
present fairly in all material respects the financial condition of
the Company
at the dates therein specified and the results of its operations
and changes in
financial position for the periods therein specified and (iii) have
been
prepared in accordance with generally accepted accounting
principles ("GAAP")
applied on a basis consistent with prior accounting periods.
2.11 Absence of Undisclosed Liabilities. The Company has no
material
obligation or liability (whether accrued, absolute, contingent,
liquidated or
otherwise, whether due or to become due), arising out of any
transaction entered
into at or prior to the Closing, except (a) as disclosed in the
Balance Sheet,
(b) to the extent set forth on or reserved against in the Balance
Sheet or the
Notes to the Financial Statements, (c) current liabilities incurred
and
obligations under agreements entered into in the usual and ordinary
course of
business since the Balance Sheet Date, none of which (individually
or in the
aggregate) has had or will have a material adverse effect on the
Condition of
the Company, and (d) by the specific terms of any written
agreement, document or
arrangement identified in the Disclosures.
2.12 Changes. Since the Balance Sheet Date, the Company has not (a)
incurred any debts, obligations or liabilities, absolute, accrued,
contingent or
otherwise, whether due or to become due, except for fees, expenses
and
liabilities incurred in connection with the Merger and related
transactions and
current liabilities incurred in the usual and ordinary course of
business, (b)
discharged or satisfied any Liens other than those securing, or
paid any
obligation or liability other than, current liabilities shown on
the Balance
Sheet and current liabilities incurred since the Balance Sheet
Date, in each
case in the usual and ordinary course of business, (c) mortgaged,
pledged or
subjected to Lien any of its assets, tangible or intangible other
than in the
usual and ordinary course of business, (d) sold, transferred or
leased any of
its assets, except in the usual and ordinary course of business,
(e) cancelled
or compromised any debt or claim, or waived or released any right,
of material
value, (f) suffered any physical damage, destruction or loss
(whether or not
covered by insurance) materially and adversely affecting the
Condition of the
Company, (g) entered into any transaction other than in the usual
and ordinary
course of business, (h) encountered any labor union difficulties,
(i) made or
granted any wage or salary increase or made any increase in the
amounts payable
under any profit sharing, bonus, deferred compensation, severance
pay,
insurance, pension, retirement or other employee benefit plan,
agreement or
arrangement, other than in the ordinary course of business
consistent with past
practice or as described in the Disclosures, or entered into any
employment
agreement, (j) issued or sold any shares of capital stock, bonds,
notes,
debentures or other securities or granted any options (including
employee stock
options), warrants or other rights with respect thereto, (k)
declared or paid
any dividends on or made any other distributions with respect to,
or purchased
or redeemed, any of its outstanding capital stock, (l) suffered or
experienced
any change in, or condition affecting, the Condition of the Company
other than
changes, events or conditions in the usual and ordinary course of
its business,
none of which (either by itself or in conjunction with all such
other changes,
events and conditions) has been materially adverse, (m) made any
change in the
accounting principles, methods or practices followed by it or
depreciation or
7
amortization policies or rates theretofore adopted, (n) made or
permitted any
amendment or termination of any material contract, agreement or
license to which
it is a party, (o) suffered any material loss not reflected in the
Balance Sheet
or its statement of income for the period ended on the Balance
Sheet Date, (p)
paid, or made any accrual or arrangement for payment of, bonuses or
special
compensation of any kind or any severance or termination pay to any
present or
former officer, director, employee, stockholder or consultant, (q)
made or
agreed to make any charitable contributions or incurred any
non-business
expenses in excess of $50,000 in the aggregate, or (r) entered into
any
agreement, or otherwise obligated itself, to do any of the
foregoing.
2.13 Assets and Contracts.
(a) The Disclosures contain a true and complete list of all real
property leased by the Company, including a brief description of
each item
thereof and of the nature of the Company's interest therein, and of
all tangible
personal property owned or leased by the Company having a cost or
fair market
value of greater than $200,000, including a brief description of
each item and
of the nature of the interest of the Company therein. All the real
property
listed in the Disclosures is leased by the Company under valid and
enforceable
leases having the rental terms, termination dates and renewal and
purchase
options described in the Disclosures; such leases are enforceable
in accordance
with their terms, and there is not, under any such lease, any
existing default
or event of default or event which with notice or lapse of time, or
both, would
constitute a default by the Company, and the Company has not
received any notice
or claim of any such default. The Company does not own any real
property.
(b) Except as expressly set forth in this Agreement, the Balance
Sheet or the notes thereto, the Company is not a party to any
written or oral
agreement not made in the ordinary course of business that is
material to the
Company. Except as set forth in the Disclosures, the Company is not
a party to
or otherwise bound by any written or oral (a) agreement with any
labor union,
(b) agreement for the purchase of fixed assets or for the purchase
of materials,
supplies or equipment in excess of normal operating requirements,
(c) agreement
for the employment of any officer, individual employee or other
Person on a
full-time basis or any agreement with any Person for consulting
services, (d)
bonus, pension, profit sharing, retirement, stock purchase, stock
option,
deferred compensation, medical, hospitalization or life insurance
or similar
plan, contract or understanding with respect to any or all of the
employees of
the Company or any other Person, (e) indenture, loan or credit
agreement, note
agreement, deed of trust, mortgage, security agreement, promissory
note or other
agreement or instrument relating to or evidencing Indebtedness for
Borrowed
Money or subjecting any asset or property of the Company to any
Lien or
evidencing any Indebtedness, (f) guaranty of any Indebtedness, (g)
lease or
agreement under which the Company is lessee of or holds or operates
any
property, real or personal, owned by any other Person under which
payments to
such Person exceed $200,000 per year or with an unexpired term
(including any
period covered by an option to renew exercisable by any other
party) of more
than 60 days, (h) lease or agreement under which the Company is
lessor or
permits any Person to hold or operate any property, real or
personal, owned or
controlled by the Company, (i) agreement granting any preemptive
right, right of
first refusal or similar right to any Person, (j) agreement or
arrangement with
any Affiliate or any "associate" (as such term is defined in Rule
405 under the
Securities Act) of the Company or any present or former officer,
director or
stockholder of the Company, (k)
8
agreement obligating the Company to pay any royalty or similar
charge for the
use or exploitation of any tangible or intangible property, (1)
covenant not to
compete or other restriction on its ability to conduct a business
or engage in
any other activity, (m) material distributor, dealer,
manufacturer's
representative, sales agency, franchise or advertising contract or
commitment,
(n) agreement to register securities under the Securities Act, (o)
collective
bargaining agreement, or (p) agreement or other commitment or
arrangement with
any Person continuing for a period of more than three months from
the Closing
Date which involves an expenditure or receipt by the Company in
excess of
$200,000. None of the agreements, contracts, leases, instruments or
other
documents or arrangements described in the Disclosures requires the
consent of
any of the parties thereto other than the Company to permit the
contract,
agreement, lease, instrument or other document or arrangement to
remain
effective following consummation of the Merger and the transactions
contemplated
hereby.
(c) The Disclosures contain a true and complete list of all
patents, patent applications, trade names, trademarks, trademark
registrations
and applications, copyrights, copyright registrations and
applications, and
grants of licenses, both domestic and foreign, presently owned,
possessed, used
or held by the Company; and the Company owns the entire right,
title and
interest in and to the same, free and clear of all Liens and
restrictions. The
Disclosures also contain a true and complete list of all licenses
granted to or
by the Company with respect to the foregoing. All patents, patent
applications,
trade names, trademarks, trademark registrations and applications,
copyrights,
copyright registrations and applications and grants of licenses set
forth (i)
are subject to no pending or, to the Company's knowledge,
threatened challenge,
and (ii) can and will be transferred by the Company to the
Surviving Corporation
as a result of the Merger and without the consent of any Person
other than the
Company. Neither the execution nor delivery of the Merger
Documents, nor the
consummation of the transactions contemplated thereby will give any
licensor or
licensee of the Company any right to change the terms or provisions
of,
terminate or cancel, any license to which the Company is a party.
(d) The Company has made available to Parent and Acquisition
Corp. true and complete copies of all agreements and other
documents and a
description of all applicable oral agreements disclosed or referred
to in the
Disclosures, as well as any additional agreements or documents,
requested by
Parent or Acquisition Corp. The Company has in all material
respects performed
all obligations required to be performed by it to date and is not
in default in
any respect under any of the contracts, agreements, leases,
documents,
commitments or other arrangements to which it is a party or by
which it or any
of its property is otherwise bound or affected. To the knowledge of
the Company,
all parties having material contractual arrangements with the
Company are in
substantial compliance therewith and none are in material default
thereunder.
The Company does not have outstanding any power of attorney.
2.14 Employees. The Company has complied in all material respects
with
all laws relating to the employment of labor, and the Company has
encountered no
material labor union difficulties. Other than pursuant to ordinary
arrangements
of employment compensation, the Company is not under any obligation
or liability
to any officer, director or employee of the Company.
9
2.15 Tax Returns and Audits. All required federal, state and local
Tax
Returns of the Company have been accurately prepared and duly and
timely filed,
and all federal, state and local Taxes required to be paid with
respect to the
periods covered by such returns have been paid. The Company is not
and has not
been delinquent in the payment of any Tax. The Company has not had
a Tax
deficiency proposed or assessed against it and has not executed a
waiver of any
statute of limitations on the assessment or collection of any Tax.
None of the
Company's federal income tax returns has been audited by any
governmental
authority; and none of the Company's state or local income or
franchise tax
returns has been audited by any governmental authority. The
reserves for Taxes
reflected on the Balance Sheet are and will be sufficient for the
payment of all
unpaid Taxes payable by the Company as of the Balance Sheet Date.
Since the
Balance Sheet Date, the Company has made adequate provisions on its
books of
account for all Taxes with respect to its business, properties and
operations
for such period. The Company has withheld or collected from each
payment made to
each of its employees the amount of all taxes (including, but not
limited to,
federal, state and local income taxes, Federal Insurance
Contribution Act taxes
and Federal Unemployment Tax Act taxes) required to be withheld or
collected
therefrom, and has paid the same to the proper Tax receiving
officers or
authorized depositaries. There are no federal, state, local or
foreign audits,
actions, suits, proceedings, investigations, claims or
administrative
proceedings relating to Taxes or any Tax Returns of the Company now
pending, and
the Company has not received any notice of any proposed audits,
investigations,
claims or administrative proceedings relating to Taxes or any Tax
Returns. The
Company is not obligated to make a payment, nor is it a party to
any agreement
that under certain circumstances could obligate it to make a
payment that would
not be deductible under Section 280G of the Code. The Company has
not agreed,
nor is it required, to make any adjustments under Section 481(a) of
the Code (or
any similar provision of state, local and foreign law), whether by
reason of a
change in accounting method or otherwise, for any Tax period for
which the
applicable statute of limitations has not yet expired. The Company
(i) is not a
party to, nor is it bound by or obligated under, any Tax sharing
agreement, Tax
indemnification agreement or similar contract or arrangement,
whether written or
unwritten (collectively, "Tax Sharing Agreements"), and (ii) does
not have any
potential liability or obligation to any Person as a result of, or
pursuant to,
any such Tax Sharing Agreements.
2.16 Patents and Other Intangible Assets. (a) The Company (i) owns
or
has the right to use, free and clear of all Liens, claims and
restrictions, all
patents, trademarks, service marks, trade names, copyrights,
licenses and rights
with respect to the foregoing used in or necessary for the conduct
of its
business as now conducted or proposed to be conducted without
infringing upon or
otherwise acting adversely to the right or claimed right of any
Person under or
with respect to any of the foregoing and (ii) is not obligated or
under any
liability to make any payments by way of royalties, fees or
otherwise to any
owner or licensor of, or other claimant to, any patent, trademark,
service mark,
trade name, copyright or other intangible asset, with respect to
the use thereof
or in connection with the conduct of its business or otherwise.
(b) To the best knowledge of the Company, the Company owns and
has the unrestricted right to use all trade secrets, if any,
including know-how,
negative know-how, formulas, patterns, programs, devices, methods,
techniques,
inventions, designs, processes, computer programs and technical
data and all
information that derives independent economic value, actual or
potential, from
not being generally known or known by competitors (collectively,
"Intellectual
Property") required for or incident to the development, operation
and
10
sale of all products and services sold by the Company, free and
clear of any
right, Lien or claim of others; provided, however, that the
possibility exists
that other Persons, completely independently of the Company or its
employees or
agents, could have developed Intellectual Property similar or
identical to that
of the Company. The Company is not aware of any such development of
substantially identical trade secrets or technical information by
others. All
Intellectual Property can and will be transferred by the Company to
the
Surviving Corporation as a result of the Merger and without the
consent of any
Person other than the Company.
2.17 Employee Benefit Plans; ERISA. (a) There are no "employee
benefit
plans" (within the meaning of Section 3(3) of the ERISA) nor any
other employee
benefit or fringe benefit arrangements, practices, contracts,
policies or
programs of every type other than programs merely involving the
regular payment
of wages, commissions, or bonuses established, maintained or
contributed to by
the Company, whether written or unwritten and whether or not
funded. The plans
listed in the Disclosures hereto are hereinafter referred to as the
"Employee
Benefit Plans."
(b) All current and prior material documents, including all
amendments thereto, with respect to each Employee Benefit Plan have
been made
available to Parent and Acquisition Corp. or their advisors.
(c) To the knowledge of the Company, all Employee Benefit Plans
are in material compliance with the applicable requirements of
ERISA, the
Internal Revenue Code of 1986, as amended (the "Code") and any
other applicable
state, federal or foreign law.
(d) There are no pending claims or lawsuits which have been
asserted or instituted against any Employee Benefit Plan, the
assets of any of
the trusts or funds under the Employee Benefit Plans, the plan
sponsor or the
plan administrator of any of the Employee Benefit Plans or against
any fiduciary
of an Employee Benefit Plan with respect to the operation of such
plan, nor does
the Company have any knowledge of any incident, transaction,
occurrence or
circumstance which might reasonably be expected to form the basis
of any such
claim or lawsuit.
(e) There is no pending or, to the knowledge of the Company,
contemplated investigation, or pending or possible enforcement
action by the
Pension Benefit Guaranty Corporation, the Department of Labor, the
Internal
Revenue Service or any other government agency with respect to any
Employee
Benefit Plan and the Company has no knowledge of any incident,
transaction,
occurrence or circumstance which might reasonably be expected to
trigger such an
investigation or enforcement action.
(f) No actual or, to the knowledge of the Company, contingent
liability exists with respect to the funding of any Employee
Benefit Plan or for
any other expense or obligation of any Employee Benefit Plan,
except as
disclosed on the financial statements of the Company, and no
contingent
liability exists under ERISA with respect to any "multi-employer
plan," as
defined in Section 3(37) or Section 4001(a)(3) of ERISA.
(g) No events have occurred or are expected to occur with respect
to any Employee Benefit Plan that would cause a material change in
the costs of
providing benefits
11
under such Employee Benefit Plan or would cause a material change
in the cost of
providing for other liabilities of such Employee Benefit Plan.
2.18 Title to Property and Encumbrances. The Company has good,
valid
and indefeasible marketable title to all properties and assets used
in the
conduct of its business (except for property held under valid and
subsisting
leases which are in full force and effect and which are not in
default) free of
all Liens and other encumbrances, except Permitted Liens and such
ordinary and
customary imperfections of title, restrictions and encumbrances as
do not,
individually or in the aggregate, materially detract from the value
of the
property or assets or materially impair the use made thereof by the
Company in
its business. Without limiting the generality of the foregoing, the
Company has
good and indefeasible title to all of its properties and assets
reflected in the
Balance Sheet, except for property disposed of in the usual and
ordinary course
of business since the Balance Sheet Date and for property held
under valid and
subsisting leases which are in full force and effect and which are
not in
default.
2.19 Condition of Properties. All facilities, machinery, equipment,
fixtures and other properties owned, leased or used by the Company
are in
reasonably good operating condition and repair, subject to ordinary
wear and
tear, and are adequate and sufficient for the Company's business.
2.20 Insurance Coverage. There is in full force and effect one or
more
policies of insurance issued by insurers of recognized
responsibility, insuring
the Company and its properties, products and business against such
losses and
risks, and in such amounts, as are customary for corporations of
established
reputation engaged in the same or similar business and similarly
situated. The
Company has not been refused any insurance coverage sought or
applied for, and
the Company has no reason to believe that it will be unable to
renew its
existing insurance coverage as and when the same shall expire upon
terms at
least as favorable to those currently in effect, other than
possible increases
in premiums that do not result from any act or omission of the
Company. No suit,
proceeding or action or, to the best current actual knowledge of
the Company,
threat of suit, proceeding or action has been asserted or made
against the
Company within the last five years due to alleged bodily injury,
disease,
medical condition, death or property damage arising out of the
function or
malfunction of a product, procedure or service designed,
manufactured, sold or
distributed by the Company.
2.21 Litigation. There is no legal action, suit, arbitration or
other
legal, administrative or other governmental proceeding pending or,
to the best
knowledge of the Company, threatened against or affecting the
Company or its
properties, assets or business, and after reasonable investigation,
the Company
is not aware of any incident, transaction, occurrence or
circumstance that might
reasonably be expected to result in or form the basis for any such
action, suit,
arbitration or other proceeding. The Company is not in default with
respect to
any order, writ, judgment, injunction, decree, determination or
award of any
court or any governmental agency or instrumentality or arbitration
authority.
2.22 Licenses. The Company possesses from all appropriate
governmental
authorities all licenses, permits, authorizations, approvals,
franchises and
rights necessary for the Company to engage in the business
currently conducted
by it, all of which are in full force and effect.
12
2.23 Interested Party Transactions. No officer, director or
stockholder of the Company or any Affiliate or "associate" (as such
term is
defined in Rule 405 under the Securities Act) of any such Person or
the Company
has or has had, either directly or indirectly, (a) an interest in
any Person
that (i) furnishes or sells services or products that are furnished
or sold or
are proposed to be furnished or sold by the Company or (ii)
purchases from or
sells or furnishes to the Company any goods or services, or (b) a
beneficial
interest in any contract or agreement to which the Company is a
party or by
which it may be bound or affected.
2.24 Environmental Matters.
(a) To the knowledge of the Company, the Company has never
generated, used, handled, treated, released, stored or disposed of
any Hazardous
Materials on any real property on which it now has or previously
had any
leasehold or ownership interest, except in compliance with all
applicable
Environmental Laws.
(b) To the knowledge of the Company, the historical and present
operations of the business of the Company are in compliance with
all applicable
Environmental Laws, except where any non-compliance has not had and
would not
reasonably be expected to have a material adverse effect on the
Condition of the
Company.
(c) There are no material pending or, to the knowledge of the
Company, threatened, demands, claims, information requests or
notices of
noncompliance or violation against or to the Company relating to
any
Environmental Law; and, to the knowledge of the Company, there are
no conditions
or occurrences on any of the real property used by the Company in
connection
with its business that would reasonably be expected to lead to any
such demands,
claims or notices against or to the Company, except such as have
not had, and
would not reasonably be expected to have, a material adverse effect
on the
Condition of the Company.
(d) To the knowledge of the Company, (i) the Company has not sent
or disposed of, otherwise had taken or transported, arranged for
the taking or
disposal of (on behalf of itself, a customer or any other party) or
in any other
manner participated or been involved in the taking of or disposal
or release of
a Hazardous Material to or at a site that is contaminated by any
Hazardous
Material or that, pursuant to any Environmental Law, (A) has been
placed on the
"National Priorities List", the "CERCLIS" list, or any similar
state or federal
list, or (B) is subject to or the source of a claim, an
administrative order or
other request to take "removal", "remedial", "corrective" or any
other
"response" action, as defined in any Environmental Law, or to pay
for the costs
of any such action at the site; (ii) the Company is not involved in
(and has no
basis to reasonably expect to be involved in) any suit or
proceeding and has not
received (and has no basis to reasonably expect to receive) any
notice, request
for information or other communication from any governmental
authority or other
third party with
