<PAGE>
Exhibit 2.1
IMPORTANT NOTICE
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION
(THE
"MERGER AGREEMENT")
CONTAINS CERTAIN REPRESENTATIONS AND WARRANTIES (THE
"REPRESENTATIONS") BY
DGSE COMPANIES,
INC. ("DGSE") AND DGSE MERGER CORP.,
A
WHOLLY-OWNED
SUBSIDIARY OF
DGSE, IN FAVOR OF SUPERIOR GALLERIES, INC.
("SUPERIOR"), AND BY
SUPERIOR IN FAVOR OF DGSE. NO PERSON, OTHER THAN THE
PARTIES TO THE MERGER
AGREEMENT, ARE
ENTITLED TO RELY ON
THE
REPRESENTATIONS
CONTAINED IN THE MERGER AGREEMENT. THE MERGER AGREEMENT IS FILED IN
ACCORDANCE
WITH THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION AS A MATERIAL PLAN
OF
ACQUISITION, AND IS
INTENDED BY DGSE AND SUPERIOR SOLELY AS A RECORD OF THE
AGREEMENT REACHED BY THE PARTIES THERETO. THE FILING OF THE MERGER AGREEMENT
IS
NOT INTENDED AS A
MECHANISM TO UPDATE,
SUPERSEDE OR OTHERWISE MODIFY PRIOR
DISCLOSURES OF INFORMATION AND RISKS CONCERNING DGSE AND SUPERIOR
WHICH DGSE AND
SUPERIOR HAVE MADE TO THEIR RESPECTIVE STOCKHOLDERS.
INVESTORS AND POTENTIAL INVESTORS SHOULD ALSO BE AWARE
THAT THE REPRESENTATIONS
ARE QUALIFIED BY INFORMATION IN CONFIDENTIAL DISCLOSURE SCHEDULES THAT DGSE
HAS
DELIVERED TO SUPERIOR,
AND CONFIDENTIAL
DISCLOSURE SCHEDULES THAT SUPERIOR HAS
DELIVERED TO DGSE (THE "DISCLOSURE SCHEDULES"). THE DISCLOSURE
SCHEDULES CONTAIN
INFORMATION THAT
MODIFIES,
QUALIFIES
AND CREATES EXCEPTIONS TO THE
REPRESENTATIONS.
INVESTORS AND
POTENTIAL
INVESTORS
SHOULD
ALSO BE AWARE THAT CERTAIN
REPRESENTATIONS MADE
IN THE MERGER AGREEMENT ARE NOT INTENDED TO BE AFFIRMATIVE
REPRESENTATIONS OF FACTS, SITUATIONS OR CIRCUMSTANCES, BUT ARE INSTEAD DESIGNED
AND INTENDED
TO ALLOCATE CERTAIN RISKS BETWEEN DGSE AND ITS WHOLLY-OWNED
SUBSIDIARY, ON THE ONE
HAND, AND SUPERIOR AND
ITS STOCKHOLDERS,
ON THE OTHER
HAND. THE USE OF
REPRESENTATIONS AND
WARRANTIES TO ALLOCATE RISK IS A STANDARD
DEVICE IN MERGER AGREEMENTS.
ACCORDINGLY,
STOCKHOLDERS, INVESTORS AND POTENTIAL INVESTORS SHOULD NOT RELY
ON
THE REPRESENTATIONS
AS AFFIRMATIONS OR CHARACTERIZATIONS
OF INFORMATION
CONCERNING DGSE OR SPACEDEV AS OF THE DATE OF THE MERGER AGREEMENT,
OR AS OF ANY
OTHER DATE.
-1-
<PAGE>
================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
DGSE COMPANIES, INC.
DGSE MERGER CORP.
SUPERIOR GALLERIES, INC.
and
STANFORD INTERNATIONAL BANK, LTD.,
as Stockholder Agent
----------------------------------
January 6, 2007
----------------------------------
================================================================================
-1-
<PAGE>
TABLE OF CONTENTS
-----------------
Page
----
Article I. Defined Terms;
Construction.........................................2
Section 1.1 Certain
Definitions.................................2
Section 1.2 Other
Definitions..................................15
Section 1.3
Construction.......................................15
Article II. The
Merger........................................................17
Section 2.1 The
Merger.........................................17
Section 2.2 The
Closing........................................17
Section 2.3 Effective
Time.....................................17
Section 2.4 Effect of
the Merger...............................17
Section 2.5
Certificate of Incorporation; Bylaws...............17
Section 2.6 Directors
and Officers.............................18
Article III. Conversion of Securities; Exchange of
Certificates...............18
Section 3.1 Conversion
of Securities...........................18
Section 3.2
Capitalization Adjustments to Shares...............18
Section 3.3 Allocation
and Distribution of
Merger Consideration...............................19
Section 3.4 Surrender
of Certificates; Payment.................19
Section 3.5
Withholding Rights.................................21
Section 3.6 Share
Transfer Books...............................21
Section 3.7 Company
Options....................................21
Section 3.8 Unvested
Company Shares............................22
Section 3.9 Company
Warrants...................................23
Section 3.10 Appraisal
Rights...................................24
Section 3.11
Taking of Necessary Action; Further Action.........24
Section 3.12 Tax
Consequences...................................24
Section 3.13 Accounting
Treatment...............................24
Section 3.14 Escrow
Agreement; Escrow Account...................24
Section 3.15 Transfer Of
Contingent Rights......................25
Article IV. Company Representations and
Warranties............................26
Section 4.1
Organization and Qualification; Subsidiaries.......26
Section 4.2
Certificate of Incorporation and Bylaws;
Corporate Books and Records........................26
Section 4.3
Capitalization.....................................27
Section 4.4
Authority..........................................29
Section 4.5 No
Conflict; Required Filings and Consents.........30
Section 4.6 Permits;
Compliance With Law.......................31
Section 4.7 SEC
Filings; Financial Statements..................31
Section 4.8 Disclosure
Documents...............................33
Section 4.9 Absence of
Certain Changes or Events...............34
Section 4.10 Employee Benefit
Plans.............................35
Section 4.11
Customers..........................................39
Section 4.12
Contracts..........................................39
Section 4.13
Litigation.........................................42
Section 4.14 Environmental
Matters..............................42
Section 4.15 Intellectual
Property..............................43
-i-
<PAGE>
Section 4.16
Taxes..............................................46
Section 4.17
Insurance..........................................48
Section 4.18 Opinion of
Financial Advisor.......................48
Section 4.19
Brokers............................................48
Section 4.20
Properties.........................................48
Section 4.21 Interested Party
Transactions......................48
Section
4.22
Export and Import Laws.............................48
Section 4.23 Pseudo-Foreign
Corporation.........................49
Section 4.24 Representations
Complete...........................49
Article V. Representations and Warranties of Parent and Merger
Sub............49
Section 5.1
Organization and Qualification; Subsidiaries.......49
Section 5.2
Certificate of Incorporation and Bylaws;
Corporate Books and Records........................50
Section 5.3
Capitalization.....................................50
Section 5.4
Authority..........................................51
Section 5.5 No
Conflict; Required Filings and Consents.........52
Section 5.6 Permits;
Compliance With Law.......................53
Section 5.7 SEC
Filings; Financial Statements..................53
Section 5.8 Disclosure
Documents...............................55
Section 5.9 Absence of
Certain Changes or Events...............56
Section 5.10 Employee Benefit
Plans.............................57
Section 5.11
Customers..........................................61
Section 5.12
Contracts..........................................61
Section 5.13
Litigation.........................................64
Section 5.14 Environmental
Matters..............................64
Section 5.15 Intellectual
Property..............................64
Section 5.16
Taxes..............................................67
Section 5.17
Insurance..........................................69
Section 5.18 Opinion of
Financial Advisor.......................69
Section 5.19
Brokers............................................69
Section 5.20
Properties.........................................69
Section 5.21 Interested Party
Transactions......................70
Section 5.22 Export and
Import Laws.............................70
Section 5.23 Capitalization,
Ownership and
Prior Activities of Merger Sub.....................70
Section 5.24 Interested
Stockholders............................70
Section 5.25 Representations
Complete...........................70
Article VI.
Covenants.........................................................71
Section 6.1
SEC
Reports; Preparation of Form S-4
and Proxy Statement................................71
Section 6.2 Parent
Stockholders Meeting........................73
Section 6.3 Company
Stockholders Meeting.......................73
Section 6.4 Access to
Information; Confidentiality.............74
Section 6.5 Notice of
Acquisition Proposals....................75
Section 6.6 Affiliate
Letters..................................75
Section 6.7 Certain
Notices....................................76
Section 6.8 Public
Announcements...............................76
Section 6.9 Certain
Litigation.................................76
Section 6.10
Employees..........................................77
Section 6.11 Termination of
Benefit Plans.......................77
Section 6.12 Parent
Board.......................................77
Section 6.13 Company
Board......................................78
-ii-
<PAGE>
Section 6.14 Tax
Matters........................................78
Section 6.15 Third Party
Consents...............................78
Section 6.16 Best
Efforts.......................................78
Section 6.17
Refinancings.......................................79
Section 6.18
Indemnification....................................79
Article VII. Closing
Conditions...............................................80
Section 7.1 Conditions
to Obligations of Each
Party Under This Agreement.........................80
Section 7.2 Additional
Conditions to Obligations
of Parent and Merger Sub...........................81
Section 7.3 Additional
Conditions to Obligations
of the Company.....................................82
Article VIII. Survival of Representations, Warranties and
Covenants;
Indemnification....................................83
Section 8.1 Survival
of Representations, Warranties
and Covenants......................................83
Section 8.2
Indemnification; Closing Balance Sheet;
Escrow Account.....................................84
Section 8.3 Limitation
on Indemnification......................85
Section 8.4
Indemnification Procedures.........................85
Section 8.5
Stockholder Agent..................................87
Section 8.6 Resolution
of Conflicts............................90
Section 8.7 No
Contribution....................................91
Section 8.8 Fraud;
Willful Misrepresentation...................91
Section 8.9 Exclusive
Remedies.................................91
Section 8.10 Purchase Price
Adjustment..........................91
Article IX. Termination, Amendment and
Waiver.................................92
Section 9.1
Termination........................................92
Section 9.2 Effect of
Termination..............................93
Section 9.3
Amendment..........................................93
Section 9.4
Waiver.............................................93
Section 9.5 Fees and
Expenses..................................93
Article X. General
Provisions.................................................94
Section 10.1
Notices............................................94
Section 10.2
Headings...........................................95
Section 10.3
Severability.......................................95
Section 10.4 Entire
Agreement...................................95
Section 10.5
Assignment.........................................96
Section 10.6 Parties in
Interest................................96
Section 10.7 Governing Law;
Consent to Jurisdiction;
Waiver of Trial by Jury............................96
Section 10.8
Disclosure.........................................97
Section 10.9
Counterparts.......................................97
Section 10.10 Facsimile
Execution................................97
Section 10.11 Remedies
Cumulative................................97
Section 10.12 Specific
Performance...............................97
Section 10.13
Time...............................................97
Section 10.14 Certain
Taxes......................................97
-iii-
<PAGE>
TABLE OF EXHIBITS AND SCHEDULES
-------------------------------
Exhibit A.............Form of Certificate of Merger
Exhibit B.............Form of Letter of Transmittal
Exhibit C.............Form of Escrow Agreement
Exhibit D.............Form of Amended and Restated Commercial Loan
and
Security Agreement
Exhibit E.............Form of Warrant
Exhibit F ............Form of Note Exchange Agreement
Exhibit G.............Form of Stanford Termination and Release
Agreement
Exhibit H.............Form of Registration Rights Agreement
Exhibit I.............Form of Corporate Governance Agreement
Exhibit J.............Form of Stanford Officer's Certificate
Exhibit K.............Form of Company Legal Opinion
Exhibit L.............Form of Stanford Legal Opinion
Exhibit M.............Form of Parent Officers' Certificate
Exhibit N.............Form of Parent Legal Opinion
-iv-
<PAGE>
<TABLE>
<CAPTION>
INDEX OF DEFINED TERMS
----------------------
<S>
<C>
401(k) Plan................................77
Company Information...........................5
A Warrants.................................79
Company Insider..............................22
Acquisition Proposal........................2
Company IP...................................43
Actions.....................................3
Company Material Contract....................39
Actual Knowledge............................3
Company Option................................5
Affiliate...................................3
Company Permits..............................31
Affiliate Letter...........................76
Company Preferred Shares.....................27
Agreement...................................1
Company Products.............................43
Amend.......................................3
Company SEC Reports...........................5
Amended and Restated Stanford LOC..........79
Company Stock Option Plan.....................5
Applicable Time.............................3
Company Stockholder Approval.................30
B Warrants.................................79
Company Stockholders Meeting.................30
Balance Sheet Correction...................85
Company Subsidiaries.........................26
Basket Amount..............................85
Company Subsidiary...........................26
Beneficial Owner............................3
Company Warrant...............................5
Beneficial Ownership........................3
Company-Owned IP.............................43
Beneficially Own............................3
Confidentiality Agreement....................75
Beneficially Owning.........................3
Consent.......................................5
Best Efforts................................3
Continuing Employees.........................77
Blue Sky Laws...............................3
Contract......................................5
Board Recommendation........................3
Control.......................................5
Breach......................................3
controlled by.................................5
Business Day................................4
Conversion Agreements.........................5
Capitalization Adjustment...................4
D&O Insurance................................79
Certificate of Merger......................17
Defending Party..............................90
Certificates................................4
DGCL..........................................1
Claim Notice...............................84
DiGenova.....................................25
Closing....................................17
DiGenova Warrant..............................5
Closing Company Common Shares...............4
Dissenting Shares............................24
Closing Date...............................17
Dissenting Stockholders.......................5
COBRA......................................36
Effective Time...............................17
Code........................................4
Employment Agreements.........................5
Commitment..................................4
Encumber......................................6
Company.....................................1
Encumbrance...................................5
Company Affiliate..........................75
Entity........................................6
Company Balance Sheet.......................4
Environment...................................6
Company Balance Sheet Date..................4
Environmental Claims..........................6
Company Benefit Plans......................35
Environmental Laws............................6
Company Board...............................2
Environmental Release.........................6
Company Board Recommendation................4
Environmentally Released......................6
Company Bylaws.............................26
Equity Interest...............................6
Company Certificate of Incorporation.......26
ERISA.........................................7
Company Common Share........................4
ERISA Affiliate...............................7
Company Common Stock........................4
Escrow Account...............................24
Company Disclosure Schedules...............26
Escrow Agent..................................7
Company Financial Advisor..................48
Escrow Agreement.............................25
Company Financial Statements...............32
Escrow Assets................................88
Company Group..............................46
Escrow Period................................25
</TABLE>
-v-
<PAGE>
<TABLE>
<CAPTION>
<S>
<C>
Escrow Stock...............................24
Open Source Materials........................11
Escrow Termination Date.....................7
Order........................................11
Event.......................................7
Ordinary Course of Business..................11
Exchange Act................................7
Organizational Documents.....................11
Exchange Agent.............................20
Original
Agreement............................1
Exchange Ratio.............................18
OTCBB........................................11
Exemption Conditions.......................29
Other Filings................................11
Expenses....................................7
Other Merger Filings.........................71
Facilities..................................7
Outside Date.................................92
Forbearance Agreement......................92
Outstanding Company Common Shares............29
Foreign Plan...............................37
Parent........................................1
Form S-4....................................7
Parent Authorized Stock Increase.............71
GAAP........................................7
Parent Balance Sheet.........................11
Governmental Entity.........................7
Parent Balance Sheet Date....................11
Governmental Permit.........................8
Parent Benefit Plans.........................57
Group.......................................8
Parent Board..................................2
Hazardous Materials.........................8
Parent Board Recommendation..................11
Indebtedness................................8
Parent Bylaws................................50
Indemnified Parties........................84
Parent Certificate of Incorporation..........50
Indemnifying Parties.......................84
Parent Common Share..........................12
Independent Committee.......................8
Parent Disclosure Schedules..................49
Insured Parties............................79
Parent Financial Advisor.....................69
Intellectual Property.......................8
Parent Financial Statements..................54
Interim Company Board......................78
Parent Group.................................67
IRS.........................................9
Parent Information...........................12
JAMS.......................................91
Parent IP....................................64
Key Employee................................9
Parent Material Contract.....................61
Knowledge...................................9
Parent Option................................12
Law.........................................9
Parent Permits...............................53
Lease.......................................9
Parent Products..............................64
Letters of Transmittal.....................19
Parent SEC Reports...........................12
Liability...................................9
Parent Stock Option Plan.....................12
Liable......................................9
Parent Stockholder Approval..................52
Lien........................................9
Parent Stockholders Meeting..................52
Limited Joinder Agreement...................1
Parent Subsidiaries..........................49
Lock-Up Agreement..........................10
Parent Subsidiary............................49
Losses......................................9
Parent
Warrant...............................12
Made Available.............................10
Parent-Owned IP..............................64
Management Agreement.......................10
PCAOB........................................12
Material...................................10
Person.......................................12
Material Adverse Effect....................10
Post-Merger Parent Board.....................77
Materially.................................10
Principal Market.............................12
Materials of Environmental Concern.........10
Property.....................................12
Maximum Amount.............................79
Prosecuting Party............................91
Merger......................................1
Proxy Statement..............................12
Merger Sub..................................1
Registered Intellectual Property.............12
Minimum Company Stockholders Equity........11
Registration Rights Agreement................82
Minute Books...............................11
Related Agreement............................13
New Option.................................21
Representative...............................13
Note Exchange Agreement....................81
Repurchase Rights............................13
NPCA........................................1
SEC..........................................13
</TABLE>
-vi-
<PAGE>
<TABLE>
<CAPTION>
<S>
<C>
SEC Reports................................13
Support Agreements...........................14
SEC Rules..................................13
Surviving Corporation........................17
Securities.................................13
SVCH.........................................81
Securities Act.............................13
Tangible Personal Property...................14
Security Interest..........................13
Tax Authority................................14
SFG........................................81
Tax Return...................................15
Shared Expenses Agreement..................93
Taxes........................................14
Significant Company Customer...............39
Termination and Release Agreement............81
Significant Parent Customer................61
Third Party Intellectual Property Rights.....15
SOX........................................14
Transaction..................................15
Specified Consents.........................30
Transaction Document.........................15
Stanford....................................1
Transfer.....................................15
Stanford LOC...............................79
Transferred..................................15
Stockholder Agent...........................1
Transferring.................................15
Stockholder Agent Expense Cap..............90
U.S. Export and Import Laws..................15
Stockholders...............................14
under common control with.....................5
Subsidiary.................................14
Unvested Company Shares......................22
Superior....................................1
WARN Act.....................................39
Superior Offer.............................14
</TABLE>
-vii-
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
is made and entered into as of January 6, 2007 (together with all schedules
and
exhibits hereto, this
"Agreement"),
by and among (i) DGSE
Companies, Inc., a
Nevada corporation
(together
with its successors and permitted assigns,
"Parent"), (ii)
DGSE Merger Corp., a Delaware corporation and a direct
wholly-owned
subsidiary of Parent
(together with its
successors and permitted
assigns, "Merger
Sub"), (iii) Superior Galleries, Inc., a Delaware corporation
(f/k/a Tangible Asset Galleries, Inc., a Nevada corporation)
(together with its
successors, the
"Company" or "Superior"), and (iv) Stanford International
Bank
Ltd., a company
organized under the laws of Antigua and Barbuda (together with
its successors,
"Stanford"), as agent,
attorney-in-fact and representative for
the stockholders of the Company (together with its successors in
such capacity,
the "Stockholder
Agent"). Stanford is
not a signatory to this Agreement but is
joining, and becoming
a party to, this Agreement in its individual capacity and
as Stockholder
Agent to the limited
extent provided in that certain
Limited
Joinder Agreement,
made and entered into as of even date herewith (the "Limited
Joinder Agreement"), by and among the parties hereto (including
Stanford).
R E C I T A L S
---------------
WHEREAS, the
respective Boards of Directors of Parent, Merger Sub and the
Company have approved and declared advisable this Agreement and the merger of
Merger Sub with and into the Company (the "Merger"), with the Company being the
surviving corporation;
WHEREAS, on July 12, 2006, Parent, Merger Sub and the Company entered
into
that certain Agreement
and Plan of Merger and
Reorganization
(the "Original
Agreement"), and Stanford joined the Original Agreement pursuant to
that certain
Limited Joinder Agreement, made and entered into as of July
12, 2006, relating
to the Merger;
WHEREAS, the
"Outside Date" (as defined in the Original
Agreement)
has
transpired without the consummation of the Merger;
WHEREAS, since the date of the Original Agreement, the financial
statements
of the Company have changed in material respects;
WHEREAS, the
parties hereto desire to amend and restate the Original
Agreement and that certain Limited Joinder Agreement, made and entered into as
of July 12, 2006, by and among the parties hereto, in its
entirety;
WHEREAS, the parties
hereto wish to state
herein their mutual
agreements
and obligations
and to set forth
certain requirements with respect to the
disposition of Company
Common Shares, the issuance of Parent Common
Shares,
access to information about the Company and the management of the
Company;
WHEREAS, in the Merger, one hundred percent (100%) of the issued and
outstanding shares of
capital stock of the
Company will be converted into the
right to receive shares of Common Stock of Parent (as set forth in
Article III),
on the terms and subject to the conditions set forth in this Agreement and in
accordance with the
General Corporation Law of the State of Delaware (the
"DGCL") and Chapters 78 and 92A of Title 7 of the Nevada
Revised Statutes (the
"NPCA"); and
-1-
<PAGE>
WHEREAS, the Board of
Directors of the Company (the "Company Board") and
the Board of Directors
of Parent (the
"Parent Board") has each resolved to
recommend to its
stockholders the
adoption and approval of this Agreement and
the Merger.
A G R E E M E N T
-----------------
NOW,
THEREFORE,
in consideration of the foregoing and the respective
representations,
warranties, covenants
and agreements set forth in this
Agreement, and
intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I.
DEFINED TERMS; CONSTRUCTION
Section 1.1. Certain
Definitions. Unless
otherwise expressly provided
herein, the following
terms, whenever used in this Agreement,
shall have the
meanings ascribed to them below or in the referenced Sections of
this Agreement:
"Acquisition Proposal"
means, (A) with respect to the Company, any
agreement, offer, proposal or indication of interest (other than
this Agreement,
the Merger or any other offer, proposal or indication of interest
by Parent), or
any public
announcement of intention to enter into any such agreement or of
any
intention to make any offer, proposal or indication of interest,
relating to or
involving (i) the
purchase from the
Company or any Company
Subsidiary or any
acquisition by any
Person of more than a 10% interest (or, with respect to any
Person holding more
than a 10% interest on the date hereof, of an additional
interest) in the total
outstanding
voting securities of the Company or any
Company Subsidiary
(other than
acquisitions of voting
securities of a Company
Subsidiary by the
Company) or any tender offer or exchange offer that if
consummated would
result in any Person
Beneficially Owning
10% or more of the
total outstanding
voting securities of
the Company or any Company Subsidiary,
(ii) any merger,
consolidation,
business combination
or similar
transaction
involving the Company or any Company Subsidiary, or (iii) any sale (other than
in the Ordinary Course
of Business) or disposition of the assets of the Company
and the Company
Subsidiaries
in any single
transaction
or series of
related
transactions that
constitute
or represent 10% or
more of the total revenue or
operating assets of the Company and the Company Subsidiaries taken as a whole,
in each case other than (x) the Merger, (y) the exercise of Company
Options, or
(z) the conversion or exchange of Company Preferred Shares or Company
Indebtedness by
Stanford, as
contemplated by Article VII; and (B) with respect
to Parent, any agreement, offer, proposal or indication of
interest (other than
this Agreement,
the Merger or any other offer, proposal or indication of
interest by the Company), or any public announcement of
intention to enter into
any such agreement or of any intention to make any offer, proposal
or indication
of interest, relating
to or involving (i)
the purchase from the
Parent or any
Parent Subsidiary or
any acquisition by any
Person of more than a 10% interest
(or, with respect to any Person holding more than a 10% interest on the
date
hereof, of an additional interest) in the total outstanding voting
securities of
Parent or any Parent Subsidiary (other than acquisitions of voting
securities of
a Parent Subsidiary
by Parent) or any
tender offer or
exchange offer that
if
consummated would
result in any Person
Beneficially Owning
10% or more of the
total outstanding voting securities of Parent or any Parent
Subsidiary, (ii) any
merger, consolidation, business combination or similar transaction
involving the
Parent or any Parent
Subsidiary, or (iii)
any sale (other than in the Ordinary
Course of Business)
or disposition of the assets of Parent and the Parent
Subsidiaries in any single transaction or series of related
transactions
that
constitute or represent 10% or more of the total revenue or
operating assets
of
Parent and the Parent Subsidiaries taken as a whole, in each case
other than the
Merger and the exercise of Parent Options.
-2-
<PAGE>
"Actions" means any action, appeal, petition, plea, charge, complaint,
claim, suit (whether civil, criminal, administrative, judicial or
investigative,
whether formal or informal, whether public, private or otherwise,
whether at law
or in equity), demand,
litigation,
arbitration,
mediation, hearing,
inquiry,
investigation, audit
or similar event, occurrence, or proceeding, in each case
commenced, brought, conducted or heard by or before, or otherwise
involving, any
Governmental Entity, arbitrator or mediator.
"Actual Knowledge"
means, with respect to a particular fact or other
matter, (i) with
respect to an
individual, that such
individual
is actually
aware of such fact or other matter, and (ii) with respect to an
Entity, that any
Person who is serving,
or who has at any time served, as a director, officer,
management-level
employee, partner,
executor or trustee of such Entity (or, in
all cases above, in any similar or equivalent capacity), or any
employee of such
Entity charged with responsibility for a particular functional or regional area
of such Entity's
business or operations, has, or at any time had, Actual
Knowledge of such fact or other matter.
"Affiliate" shall
have the meaning ascribed to such term in Rule 144
promulgated under the Securities Act.
"Amend" means, with respect to any Contract, Law, filing or
Organizational Document, to amend, supplement, extend, waive a
provision of or
otherwise modify such Contract, Law, filing or Organizational
Document. The
related terms "Amended" and "Amendment" shall have the correlative
meanings.
"Applicable Time" means (i) with respect to the Form S-4, the time
the Form
S-4, or any amendment or supplement thereto, is filed with the SEC,
the time the
Form S-4 becomes
effective under the
Securities Act and at the Effective Time,
(ii) with respect to the Proxy Statement, the date the Proxy Statement,
or any
amendment or supplement thereto, is first mailed to the
stockholders of Parent
or the Company, at the
times of the Parent Stockholder Meeting and the Company
Stockholder Meeting,
and at the
Effective Time, or (iii) with respect to
any
Other Filing,
the date such
Other Filing, or any amendment or supplement
thereto, is filed with the applicable Governmental Entity.
"Beneficial Owner"
shall have the
meaning ascribed to such term in Rule
13d-3 under
the Exchange Act. The related terms "Beneficially Own",
"Beneficially Owning"
and "Beneficial
Ownership"
shall have the
correlative
meanings.
"Best Efforts"
means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to achieve that
result as
expeditiously and effectively as possible.
"Board Recommendation" means the Company Board Recommendation or
the Parent
Board Recommendation.
"Blue Sky Laws" means state securities or "blue sky" laws.
"Breach" means (a) any breach of, or inaccuracy in, any
representation
or
warranty, (b)
any breach or violation of, default under (including any
designated "event of
default"), failure to
perform, failure to
comply with or
failure to notify, or noncompliance with, any covenant, agreement
or obligation,
or (c) any one or more other Events the existence of which, individually or
together, whether
unconditionally or
with the passing of time or the giving of
notice, or both, would (i) constitute a breach, violation, default, failure or
noncompliance referred
to in clauses (a) and (b) next above, (ii) result in the
acceleration of, or
permit any Person to accelerate, any monetary obligation,
(iii) result
in the abridgement, modification, acceleration, termination,
revocation,
rescission,
redemption,
cancellation or vesting of, or permit any
Person to abridge,
modify, accelerate,
delay, condition,
terminate,
revoke,
-3-
<PAGE>
rescind, redeem or cancel, any right, license, liability,
benefit, debt,
power,
authority, privilege
or obligation,
or (iv) require,
or permit any Person
to
require, the payment of a monetary penalty or liquidated
damages.
"Business Day" means any day other than (i) a Saturday or Sunday,
and (ii)
any day on which the SEC shall be closed for business.
"Capitalization
Adjustment" means, with respect to any class of shares, an
adjustment based
on any stock split, reverse stock split, combination,
consolidation,
reorganization or
reclassification
of, or any stock
dividend
(including any dividend or distribution of Securities convertible into capital
stock) on, such class of shares, the recapitalization of the issuer
thereof, or
any like change.
"Certificates" means,
collectively,
the stock certificates
representing
Company Common Shares immediately before the Effective Time.
"Closing Company Common Shares" means the Company Common Shares
outstanding
immediately at the Effective Time, including any Company Common
Shares issued or
issuable upon the exercise or conversion, before or at the Effective
Time, of
any Company Options,
Company Warrants or other Commitments therefor, including
the conversions and exchanges contemplated by the Conversion
Agreements and Note
Exchange Agreement, but, for avoidance of doubt, excluding Company
Common Shares
(i) to be cancelled
pursuant to Section 3.1(b), or (ii) issuable upon the
exercise of any
Company Options or
Company Warrants
being assumed by Parent
pursuant to Section 3.7 and Section 3.9, respectively.
"Code" means the United States Internal Revenue Code of 1986, as
Amended.
"Commitment"
means (a) options, warrants, convertible securities,
exchangeable
securities,
subscription rights,
purchase or acquisition rights,
conversion rights, exchange rights, or other Contracts that require
an Entity to
issue any of its Equity Interests, (b) any other securities
convertible into,
exchangeable or exercisable for, or representing the right to
subscribe for, in
each case with or without consideration, any Equity Interest of an Entity,
(c)
statutory pre-emptive
rights or pre-emptive rights granted under an
Entity's
Organizational Documents, (d) rights of first refusal, tag-along
rights, co-sale
rights, drag-along
rights, registration rights, piggyback rights, buy-sell
arrangements, or
voting agreements, or
(e) stock appreciation rights, phantom
stock, profit participation, or other similar rights with respect
to an Entity.
"Company Balance
Sheet" means the
balance sheet of the
Company as of the
Company Balance Sheet Date, as previously Made Available to
Parent.
"Company Balance Sheet Date" means September 30, 2006.
"Company Board
Recommendation" means
the unanimous
recommendation by the
Company Board that the Company's stockholders vote in favor of (i)
the adoption
and approval of this Agreement and the Merger, and (ii) the Stockholder Agent
Appointment.
"Company Common Share" means a share of Company Common Stock.
"Company Common Stock" means the common stock, par value $0.001 per share,
of the Company.
-4-
<PAGE>
"Company Information"
means the statements regarding the Company, its
operations,
business, directors,
officers, Subsidiaries and stockholders
contained in the Form S-4, Proxy Statement or Other Filings.
"Company Option" means
any option granted,
to the extent not
exercised,
expired or terminated,
to a current or former
employee, director,
officer or
consultant of the Company or any Company Subsidiary, or any predecessor of any
of the foregoing,
to purchase
or otherwise acquire Company Common Shares
pursuant to any Company Stock Option Plan.
"Company SEC Reports"
means all SEC Reports
filed by the Company with the
SEC, including those that the Company may file subsequent to the
date hereof.
"Company Stock Option Plan" means any equity incentive, stock
option, stock
bonus, stock award or stock purchase plan, program or arrangement,
as amended to
date, of the Company or any Company Subsidiary, or any predecessor
of any of the
foregoing, including
the Company's 2003 Omnibus Stock Option Plan and 2000
Omnibus Stock Option Plan.
"Company Warrant"
means a warrant or similar right to purchase any Company
Common Shares.
"Consent" means any consent, approval, authorization, permit,
ratification,
favorable vote, authorization, waiver, or other similar action.
"Contract" means any agreement, contract, subcontract, lease, sublease,
power of attorney,
note, loan, evidence of indebtedness, letter of credit,
binding undertaking,
covenant not to compete, license, instrument, obligation,
binding commitment,
binding understanding,
indenture,
option or warranty;
in
each case whether oral or written, express or implied.
"Control" means the
possession, directly
or indirectly, or as
trustee or
executor, of the power
to direct or cause the
direction of the
management or
policies of a person,
whether through the
ownership of stock or
as trustee or
executor, by contract
or credit arrangement
or otherwise. The related terms
"controlled by" and
"under common
control with" shall have the correlative
meanings.
"Conversion Agreements" means those certain Conversion Agreements,
made and
entered into as of the date hereof, by and between the Company, on
the one hand,
and Stanford or DiGenova, on the other hand.
"DiGenova Warrant" means that certain Warrant, issued by Parent to
DiGenova
on the date hereof pursuant to that certain Securities Exchange
Agreement, dated
as of the date hereof, by and between Parent and DiGenova.
"Dissenting
Stockholders" means
stockholders
of the Company who have
perfected their
appraisal rights pursuant to Section 262 of the
DGCL, or are
otherwise duly exercising dissenters' or appraisal rights
under applicable Law,
in respect of the Merger.
"Employment
Agreements" means the executive employment agreements between
Parent, on the one
hand, and Dr. L.S. Smith or William H. Oyster, on the other
hand, previously approved by the Parent Board and Made Available to
the Company.
"Encumbrance" means,
with respect to any Property, any Order, Lien,
easement, right of way, encroachment, servitude, right of first
option, right of
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<PAGE>
first refusal or similar restriction, drag-along or similar rights,
community or
other marital
property interest, condition, equitable interest, license,
encumbrance or other binding restriction of any kind (including
restrictions on
use, Transfer,
receipt of income or
exercise of any other attribute or indicia
of ownership) on such Property or any interest therein or right
thereto, whether
directly or indirectly (through one or more intermediary
Persons or
otherwise),
whether
voluntarily,
involuntarily or
by operation of law, and, where
applicable, any
restriction on voting
thereof or receipt of income thereon and
any Commitments in respect thereof; provided that Transfer
restrictions
under
federal securities and
Blue Sky Laws and regulations shall be deemed not to be
an Encumbrance. The term "Encumber" shall have the correlative
meaning.
"Entity" means any
corporation (including
any non-profit corporation),
general partnership,
limited partnership,
limited liability partnership, joint
venture, estate,
trust, company (including any limited
liability company
or
joint stock company), firm, labor organization, unincorporated organization,
or
other enterprise, association, organization or business entity.
"Environment" means soil, land surface or subsurface strata,
surface waters
(including navigable
waters and ocean
waters), groundwaters, drinking water
supply, stream
sediments, ambient air
(including indoor air), plant and animal
life and any other environmental medium or natural resource.
"Environmental Claims"
means, with respect to any Person, all accusations,
allegations, notices
of violation,
Encumbrances,
claims, demands, suits or
causes of action for any damage, arising out of or related to the
presence or
Release of, or exposure to, any Hazardous Substances at any of such Person's
Facilities, or the material failure by such Person to comply with
any applicable
Environmental Laws.
"Environmental Laws" means any Law that requires or relates to (i)
advising
appropriate
authorities, employees
or the public of
intended, threatened
or
actual Environmental Releases of Materials of Environmental
Concern,
violations
of discharge limits or
other prohibitions
and the commencement
of activities,
such as resource extraction or construction, that could have significant
impact
on the Environment,
(ii) preventing or reducing to acceptable levels the
Environmental
Release of
Materials
of Environmental Concern into the
Environment, (iii) reducing the quantities, preventing the
Environmental Release
or minimizing the hazardous characteristics of wastes that are
generated, (iv)
assuring that products are designed, formulated, packaged and used so that they
do not present
unreasonable risks to
human health or the Environment when used
or disposed of, (v) protecting the Environment, resources, species
or ecological
amenities, (vi)
reducing to acceptable levels the risks inherent in the
transportation of
Materials of Environmental Concern, (vii) cleaning up
Materials of
Environmental
Concern that have been
Environmentally
Released,
preventing the threat of Environmental Release or paying the costs
of such clean
up or prevention,
(viii) making
responsible parties
pay private parties,
or
groups of them, for damages done to their health or the Environment or
permitting self-appointed representatives of the public
interest to recover for
injuries done
to public assets, or (ix) the manufacture, processing,
distribution, use,
treatment,
storage, disposal, transport or handling of
Materials of
Environmental
Concern or the
protection
of human health or
the
Environment.
"Environmental
Release" means
any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or
migration on or into the Environment or into or out of
any property.
The related term "Environmentally Released" shall have the
correlative meaning.
"Equity Interest"
means (a) with respect to any corporation, any and all
shares of capital
stock and any
Commitments with
respect thereto, (b) with
respect to any general or limited partnership, limited liability company,
trust
or similar Entity,
any and all units,
interests or other
partnership/limited
liability company interests, and any Commitments with respect
thereto, and (c)
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<PAGE>
with respect to any other Entity, any other direct or indirect
equity ownership,
participation or interest therein and any Commitments with respect
thereto.
"ERISA" means the
Employee Retirement
Income Security Act of 1974, as
Amended, and the regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any Person, any Entity or
trade or
business (whether or not incorporated), other than such Person,
that together
with such Person is
considered
under common control and treated as a
single
employer under Sections 414(b), (c), (m) or (o) of the Code.
"Event" means any act,
omission, occurrence,
circumstance,
development,
change, condition or other event or effect.
"Escrow Agent" means the escrow agent appointed by Parent to act as
escrow
agent under the Escrow
Agreement, together
with its successors as escrow agent
thereunder.
"Escrow Termination Date" means the last day of the Escrow
Period.
"Exchange Act" means the Securities Exchange Act of 1934, as Amended,
and
the rules and regulations promulgated thereunder.
"Expenses" includes
all reasonable
out-of-pocket expenses
(including all
reasonable fees and expenses of legal counsel, accountants,
investment
bankers,
experts and
consultants to a party
hereto and its
Affiliates)
incurred by a
party or on its behalf
in connection
with or related to the authorization,
preparation,
negotiation, execution
and performance of
this Agreement and the
Transactions,
including the
preparation, printing,
filing and mailing of
the
Form S-4 and Proxy Statement and the solicitation of stockholder
approvals and
all other matters related to the Transactions.
"Facilities" means (i) plants, offices, manufacturing facilities,
stores,
warehouses,
administration
buildings and real property and related facilities,
and (ii) with respect to any Person, all Facilities owned,
leased, operated or
occupied at any time by such Person or any of such Person's
Subsidiaries.
"Form S-4"
means the registration statement on Form S-4 to be filed by
Parent with the SEC in connection with the issuance of the Parent
Common Shares
constituting the Merger Consideration in the Merger,
including the joint
proxy
statement/prospectus forming a part thereof.
"GAAP" means
generally accepted accounting principles for financial
reporting, as applied in the United States and in effect from time
to time.
"Governmental Entity"
means any (i) nation,
state, county,
city, town,
borough, village, district or other jurisdiction, (ii)
supranational,
national,
federal, state,
local, municipal, foreign or other government, (iii)
governmental or
quasi-governmental
authority of any nature (including any
legislature, agency,
board, bureau, branch, department, division, commission,
instrumentality, court, tribunal, magistrate, justice or other
entity exercising
governmental or quasi-governmental powers), (iv) multi-national
organization or
body, (v) any body
exercising,
or entitled to
exercise, any
administrative,
executive, judicial,
legislative,
police,
military, regulatory or taxing
authority or
power, (v) any stock exchange or similar self-regulatory
organization or
any quasi-governmental
or private body exercising any
regulatory, taxing or any other governmental or quasi-governmental
authority, or
(vi) any official of any of the foregoing.
-7-
<PAGE>
"Governmental Permit"
means any permit,
license, certificate, Consent,
clearance, certificate, registration, approval,
accreditation, or other similar
authorization required by any Law or Governmental Entity.
"Group" has the meaning ascribed to such term in Section 13 of the
Exchange
Act.
"Hazardous Substances"
means all pollutants, contaminants, chemicals,
wastes, and any other
infectious, toxic or
otherwise hazardous
substances or
materials (whether solids, liquids or gases) subject to
regulation, control
or
remediation under
applicable
Environmental
Laws, including any material,
substance or
waste which is defined as a "hazardous waste," "hazardous
material," "hazardous
substance,"
"extremely
hazardous waste," "restricted
hazardous waste,"
"contaminant,"
"toxic waste" or
"toxic substance" under any
provision of Environmental Law, and including radioactive
materials,
petroleum,
petroleum products,
asbestos,
presumed
asbestos-containing material or
asbestos-containing material, urea formaldehyde and polychlorinated
biphenyls.
"Indebtedness" means, with respect to any Person, without
duplication, (i)
all obligations of
such Person for borrowed money, or with respect to
deposits
or advances of any
kind to such Person,
(ii) all obligations of such Person
evidenced by
bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person upon which interest charges are customarily paid,
(iv) all obligations
of such Person under conditional sale or other title
retention agreements
relating to property
purchased by such
Person, (v) all
obligations of such
Person issued or assumed as the deferred purchase price of
Property or services (excluding obligations of such Person to
creditors for raw
materials, inventory,
services and supplies
incurred in the ordinary course of
such Person's business), (vi) all capitalized lease
obligations of such Person,
(vii) all obligations
of others secured by any Encumbrance on Property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed,
(viii) all
obligations
of such Person under
interest rate or
currency swap transactions (valued at the termination value
thereof), (ix) all
letters of credit
issued for the account of such Person (excluding letters of
credit issued for the
benefit of
suppliers to support accounts payable to
suppliers incurred in
the ordinary course of business), (x) all obligations of
such Person to purchase Securities (or other Property) that arise out of or
in
connection with the
sale of the same or
substantially similar
Securities
or
Property, and (xi) all guarantees and arrangements having the
economic effect of
a guarantee of such Person of any Indebtedness of any other
Person.
"Independent
Committee" has the
meaning ascribed to such term in the
Management Agreement.
"Intellectual
Property" means any and all worldwide intellectual property
and intellectual
property rights, including all patents and applications
therefor and
all reissues, divisions, renewals, extensions, provisionals,
continuations and
continuations-in-part thereof; all inventions (whether
patentable or
not), invention disclosures, improvements, trade secrets,
proprietary
information, know how,
technology,
technical data, proprietary
processes and formulae, algorithms, specifications, customer lists and supplier
lists; all designs and any registrations and applications
therefor; all trade
names, logos,
common law trademarks
and service marks,
trademark and
service
mark registrations
and applications therefor; Internet domain names and
toll-free numbers;
all copyrights,
copyright registrations and applications
therefor; all
computer software, including all source code, object code,
firmware, and development tools, game engines, game rules, scripts,
voice-overs,
characters, images,
drawings, graphics,
files, records and data; all rights in
prototypes; all databases and data collections and all rights
therein; all moral
and economic
rights of authors and inventors; and all other intellectual
property of any kind or nature.
-8-
<PAGE>
"IRS" means the United States Internal Revenue Service and, to the
extent
relevant, the United States Department of the Treasury.
"Key
Employee" means, with respect to any Entity, any employee at the vice
president level or higher, or who is otherwise material to such Entity and
such
Entity's Subsidiaries taken as a whole.
"Knowledge" means,
with respect to a particular fact or other matter, (a)
in the case of an individual, (i) that such individual is actually
aware of such
fact or other matter,
or (ii) a prudent
individual
could be expected to
have
discovered or
otherwise have become aware of such fact or
other matter in the
course of conducting a comprehensive investigation concerning the existence of
such fact or other matter, and (b) in the case of an Entity, that
any Person who
is serving,
or who has at any time served, as a director, officer,
management-level
employee, partner,
executor or trustee of such Entity (or, in
all cases above, in any similar or equivalent capacity), or any
employee of such
Entity charged with responsibility for a particular functional or regional area
of such Entity's business or operations, has, or at any time had,
Knowledge of
such fact or other matter.
"Law" means any federal, state, local, domestic, foreign,
international or
multi national law
(statutory, common,
or otherwise),
constitution,
treaty,
statute, code, order, writ, injunction, decree, award, stipulation,
ordinance or
administrative doctrine, ordinance, equitable principle, code,
rule, regulation,
executive order,
request,
or other similar authority enacted, adopted,
promulgated, or applied by any Governmental Entity, each as
Amended.
"Lease" means any lease of real or personal property or any lease
or rental
agreement, license,
right to use or
installment and conditional sale agreement
to which the
Company is a party or subject, and any other Contract of the
Company pertaining to the leasing or use of any Tangible Personal
Property. The
related terms
"Lease" and "Leased"
used as a verb shall
have the
correlative
meanings.
"Liability" or
"Liable" means any
liability or
obligation
of any kind,
character or
description, whether
known or unknown,
absolute or
contingent,
matured or unmatured, disputed or undisputed, secured or unsecured,
conditional
or unconditional,
accrued or unaccrued,
liquidated or unliquidated, vested or
unvested, joint
or several, due or to become due, executory, determined,
determinable or otherwise, and whether or not the same is required
to be accrued
on financial statements.
"Lien" means, in respect of any Property, any security interest, deed of
trust, mortgage,
pledge,
lien, statutory liens of any kind or nature,
hypothecation, charge,
claim, lease or other similar interest or right in
respect of such Property.
"Losses" means,
without duplication,
all damages, losses
(including loss
due to business interruption or operation shutdowns, increased costs of
operation, the loss of
any available tax
deduction,
and including special,
exemplary, punitive
or incidental loss or damage), deficiencies, costs of
mitigation or
avoidance,
Liabilities,
expenses of whatever nature, costs
(including increased
costs of business
or operations), obligations, fines,
interest, penalties,
and payments, whether incurred by or issued against a
Person, including
(i) with respect to
environmental
liabilities
and losses,
clean-up, remedial
correction and
responsive action, and
(ii) with respect to
any Action or
threatened
Action, amounts paid in defense, settlement and
discovery, costs
associated with obtaining injunctive relief, administrative
costs and expenses, reasonable fees and expenses of attorneys,
expert witnesses,
accountants and other professional advisors, and other out-of-pocket costs of
investigation, preparation, and litigation in connection therewith.
In computing
the amount of Losses, an offset shall be taken into account for tax
savings (net
of reasonable costs and expenses incurred in obtaining such
savings, and
taking
into account
the tax effect of any indemnity to which the Person may be
entitled) and
for insurance benefits (without duplication of any amounts
credited or repaid pursuant to Section 8.1(d)).
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<PAGE>
"Lock-Up Agreement" means that certain Lock-Up Agreement,
made and entered
into as of the date hereof, by and between DGSE and DiGenova.
"Made Available"
means (a) in the case
of Parent,
that either (i) the
Company or its
Representatives has
delivered such
materials to Parent or
its
designated representatives via email or otherwise on or before
December 31, 2006
(or such later date as Parent and the Company may agree in writing), or (ii)
such material
constitutes
part of the Parent SEC
Reports filed with the SEC
prior to the date of this Agreement which are currently available through the
SEC's EDGAR system,
and (b) in the case of the Company, that either (i) Parent
or its Representatives
has delivered such materials to the Company or its
designated representatives via email or otherwise on or before
December 31, 2006
(or such later date as Parent and the Company may agree in writing), or (ii)
such material
constitutes
part of the Company
SEC Reports filed with
the SEC
prior to the date of this Agreement which are currently available through the
SEC's EDGAR system.
"Management Agreement"
means that certain Management Agreement, made and
entered into as of the date hereof, by and between Merger Sub and
the Company.
"Material" or "Materially" means, with respect to any Person and
any Event,
violation or Breach,
any of the foregoing
which, alone or in
combination with
any other Events,
violations or Breaches, is reasonably likely to result in
or
have a Material
Adverse Effect, taken as a whole, on such Person and its
Subsidiaries, taken as a whole.
"Material Adverse Effect" means, with respect to any Person and any
Events,
that such Events,
taken individually or in the aggregate, (i) have had, or are
reasonably likely to have, a materially adverse effect on the assets
(including
intangible assets),
Properties,
business, financial condition or results of
operations of such
Person and its Subsidiaries, taken as a whole, or (ii)
materially impede or
delays, or are
reasonably likely
materially to impede or
delay, the ability of such Person or its Subsidiaries to perform
its obligations
under this Agreement or any Related Agreements to which it is a
signatory, or to
consummate the Transactions, in accordance with the terms hereof
and thereof and
applicable Laws; provided, however, that no such Events to
the extent resulting
from or arising out of any of the following shall be deemed to constitute, in
and of itself, a Material Adverse Effect, nor shall it be taken into
consideration when
determining
whether there has
occurred a Material
Adverse
Effect: (i) any change
in applicable Laws, GAAP, regulations or application or
interpretations of
such Laws, GAAP or regulations, but only to the extent that
such changes do not
adversely affect such Person and its Subsidiaries in a
disproportionate
manner from others in the industry or market generally, (ii)
the negotiation,
execution,
delivery,
pendency or announcement of this
Agreement, the Related
Agreements
or the consummation of the Transactions,
including any
loss of or
adverse impact on relationships with employees,
customers, suppliers,
licensors,
licensees, or
distributors of such Person or
its Subsidiaries as a result thereof, (iii) any Events affecting
the industry in
which such Person operates generally, but only to the extent that
such Events do
not adversely
affect such Person and
its Subsidiaries
in a disproportionate
manner, (iv) changes
in United States or world general political, economic or
capital market
conditions,
but only to the
extent that such changes do not
adversely affect such Person and its Subsidiaries in a
disproportionate
manner,
(v) actual or threatened stockholder litigation arising from allegations of
breach of fiduciary duty relating to this Agreement or the Related
Agreements,
including related
claims with respect to disclosure of the Merger or this
Agreement, or (vi) any
delay in the mailing of the Form S-4 or Proxy Statement
due to the SEC or Blue Sky Laws review process related thereto.
"Materials of
Environmental
Concern"
means chemicals, pollutants,
pollution,
contaminants, wastes,
Hazardous Substances
and any other substance
that is now or hereafter regulated by any applicable
Environmental Law or
that
is otherwise a danger to health, reproduction or the
Environment.
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<PAGE>
"Merger Consideration" means 3,700,000 Parent Common Shares.
"Minimum Company
Stockholders
Equity" means
negative Three Million One
Hundred Twenty-Three
Thousand Four Hundred
Twenty-Eight
Dollars and no
cents
(-$3,123,428).
"Minute Books" means, (i) with respect to any corporation,
minute books of
such corporation
containing records of all proceedings, consents, actions and
meetings of the
Board of Directors, committees of the Board of Directors,
stockholders and
committees of stockholders of such corporation, or (ii) with
respect to any other Entity, minutes or similar books and records
of such Entity
containing records of
all proceedings,
consents, actions and meetings of the
equivalent governing bodies, including managing members in the case
of a limited
liability company or
general partners in
case of a partnership,
and owners of
such Entity.
"Order" means any order, ruling, decision, verdict, decree, writ,
subpoena,
award, judgment,
injunction,
assessment,
or other similar
determination
or
finding by,
before, or under the supervision of any Governmental Entity,
arbitrator or mediator.
"Ordinary Course of
Business" means, with respect to any action by any
Person, that such action (i) is consistent in nature, scope,
quality, frequency
and magnitude with the past customs and practices of such Person,
to the extent
practicable if such Person has a rapidly growing business, and is taken in the
ordinary course of the normal, day-to-day operations of such Person,
and (ii)
does not require
authorization by (1)
such Person's board of directors (or any
committee thereof), (2) such Person's stockholders (or by any
Person or group of
Persons exercising similar authority), or (3) more than one of such
Person's (A)
principal executive
officer, (B) principal
operating officer, (C) principal
financial officer,
and (D) other officer performing substantially similar
functions.
"Organizational
Documents" means,
with respect to any Entity,
(i) if a
corporation, its
articles or certificate of incorporation and its bylaws, or
(ii) if another
type of Entity, any other charter, regulations or similar
document, including Contracts, adopted or filed in connection with
the creation,
formation or organization of such Entity; in each case as
Amended.
"OTCBB" means the OTC Bulletin Board.
"Other Filings"
means all filings made
by, or required to be made by, the
Company or
Parent, as the case may be, with the SEC in connection with the
Transactions, other than the Form S-4 and Proxy Statement.
"Open Source Materials" means all software or other copyrightable
work that
is distributed
as "free software" or "open source software" or under
substantially similar
licensing or distribution terms, including any software
licensed under
a license approved as "Open Source" by the Open Source
Initiative,
http://www.opensource.org/, or as "Free Software" by The Free
Software Foundation, http://www.fsf.org/.
"Parent Balance
Sheet" means the
balance sheet of Parent as of the Parent
Balance Sheet Date, as contained in the Parent SEC Reports.
"Parent Balance Sheet Date" means September 30, 2006.
"Parent Board
Recommendation" means
the unanimous
recommendation by
the
Parent Board that the
Parent's stockholders
vote in favor of (i)
the adoption
and approval of this
Agreement and the Merger, and (ii) the Parent Authorized
Stock Increase.
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<PAGE>
"Parent Common Share"
means a share of common stock, par value $0.01 per
share, of Parent.
"Parent Information" means the statements regarding Parent, its
operations,
business, directors,
officers, Subsidiaries and stockholders
contained in the
Form S-4, Proxy Statement or Other Filings.
"Parent Option"
means any option
granted, to the extent not exercised,
expired or terminated,
to a current or former
employee, director,
officer or
consultant of Parent or any Parent Subsidiary, or any predecessor of any of
the
foregoing, to purchase or otherwise acquire Parent Common Shares
pursuant to any
Parent Stock Option Plan.
"Parent SEC Reports"
means all SEC Reports
filed by Parent with
the SEC,
including those that Parent may file subsequent to the date
hereof.
"Parent Stock Option Plan" means any equity incentive, stock option, stock
bonus, stock award or stock purchase plan, program or arrangement,
as amended to
date, of Parent or any
Parent Subsidiary, or any predecessor of any of the
foregoing, including Parent's Stock Option Plan, effective as of
January 1, 2004
and, if approved at Parent's 2006 annual meeting of its
stockholders,
Parent's
2006 Equity
Incentive Plan (as such plan is described in Parent's proxy
statement filed with the SEC on April 27, 2006).
"Parent Warrant"
means a warrant or
similar right to
purchase any Parent
Common Shares.
"PCAOB" means the United States Public Company Accounting Oversight
Board.
"Person" means any individual, Group, Governmental Entity or
Entity.
"Principal Market"
means, with respect to
any Entity, the Nasdaq
Capital
Market, the New York
Stock Exchange, the
Nasdaq National Market, the American
Stock Exchange, the
OTCBB or any other national securities exchange registered
under Section 6 of the
Exchange Act,
whichever is at the time the principal
trading exchange,
market or inter-dealer or automated quotation system for the
shares of common stock of such Entity.
"Property" means any
present or
future, legal or equitable, vested or
contingent right to or interest in any fixture, real property,
personal property
or any other property or asset, including goods, leases,
securities (whether
or
not certificated),
commercial paper, financial assets, commodities, accounts,
equipment, chattel
paper, derivatives,
instruments,
money, claims,
licenses,
Contracts,
Intellectual Property,
royalties and general
intangibles, and
any
proceeds of any of the foregoing.
"Proxy Statement" means the proxy materials constituting part of the joint
proxy
statement/prospectus forming part of the Form S-4 or otherwise
communicated to Parent or Company stockholders in connection with
the Merger or
relating to the Company Stockholders Meeting or the Parent
Stockholders Meeting.
"Registered
Intellectual Property"
means, with respect to any Person, all
United States,
international
and foreign (i)
patents and patent
applications
(including provisional
applications),
(ii) registered trademarks or service
marks, applications
to register
trademarks
or service
marks, intent-to-use
applications, or other
registrations or
applications related
to trademarks or
service marks, (iii) registered Internet domain names or toll-free
numbers, and
(iv) registered copyrights and applications for copyright
registration, in
each
case of clauses (i) through (iv) next preceding, that is owned by,
registered or
filed in the name of, such Person or any Subsidiary of such
Person.
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<PAGE>
"Related Agreements"
means the Confidentiality Agreement, the Shared
Expenses Agreement,
the Escrow Agreement,
the Limited Joinder
Agreement, the
Certificate of
Merger, the Employment Agreements, the A Warrants, the B
Warrants, the
DiGenova Warrant, the Registration Rights Agreement, the
Termination and Release Agreements, the Management Agreement, the Conversion
Agreements, the Note
Exchange Agreement, the Securities Exchange Agreement, the
Support Agreements,
the Lock-Up Agreement, the Consulting Agreement, the
amendment to the Stanford LOC dated the date hereof, the
Forbearance
Agreement,
the Amended and Restated Stanford LOC, and any other agreement
delivered on the
date hereof or at or in connection with the Closing.
"Representatives" means, with respect to any Person, such Person's
officers, directors,
employees, managers,
consultants,
contractors,
agents,
investment bankers,
brokers, agents, and other financial, banking and legal
advisors or other representatives.
"Repurchase Rights"
means, with respect to any Entity, outstanding rights
held by such Entity to repurchase or redeem Equity Interests in
such Entity, or
similar restrictions
in such Entity's
favor with respect to
any of its Equity
Interests.
"SEC" means the United States Securities and Exchange
Commission.
"SEC
Reports" means any forms, statements, schedules, requests, reports
and
documents (including
items incorporated by reference) required or authorized to
be filed with the SEC pursuant to the Securities Act or the Exchange Act
or the
rule and regulations promulgated by the SEC thereunder.
"SEC
Rules" means the rules and regulations promulgated by the SEC under
the Securities Act, the Exchange Act or SOX.
"Securities Act" means
the Securities
Act of 1933,
as Amended,
and the
rules and regulations promulgated thereunder.
"Securities" means any
stock, capital stock
or similar security,
shares,
partnership (general
or limited) interests,
membership
or limited
liability
company interests
or units, interests in a joint venture, voting trust
certificates,
certificates of interest or participation in any profit sharing
agreement or arrangement or business trust, voting trust
certificate, investment
contract, bonds, debentures, notes, or other evidences of
indebtedness,
secured
or unsecured,
convertible,
subordinated
or otherwise, or in general any
instruments commonly
known as "securities",
or any certificates of interest or
participations
in, temporary
or interim certificates for, receipt for,
guarantees of,
warrants or rights to subscribe to, purchase or otherwise
acquire, or
any other Commitments, puts or other options, futures, or
certificate of deposit for, any of the foregoing.
"Security Interest"
means any Lien, except for (i) liens for taxes,
assessments,
governmental charges,
or claims that are
being contested in good
faith by appropriate
Actions promptly
instituted and diligently conducted and
only to the extent that a reserve or other appropriate provision, if any, has
been made on the face of the Company Financial Statements in an amount equal
to
the Liability for which the lien is asserted, (ii) statutory liens of
landlords
and
warehousemen's, carriers',
mechanics',
suppliers',
materialmen's,
repairmen's or other like liens (including contractual landlords'
liens) arising
in the Ordinary
Course of Business and with respect to amounts not yet
delinquent, or with
respect to amounts being contested in good faith by
appropriate
proceedings, and (iii)
liens incurred or deposits made in the
Ordinary Course
of Business in connection with workers' compensation,
unemployment insurance and other similar types of social
security.
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<PAGE>
"SOX" means the Sarbanes-Oxley Act of 2002, as Amended,
and the rules and
regulations promulgated thereunder.
"Stockholders" means
all of the
stockholders of the
Company from time to
time, other than
stockholders
who do not hold any
Company Common Shares other
than Dissenting Shares.
"Subsidiary" means,
with respect to any
Person, (a) any
corporation
in
which a controlling
interest in the total
voting power of all classes of the
Equity Interests
entitled (without regard to the occurrence of any contingency)
to vote in the election of directors of such corporation is owned
by such Person
directly or through one or more other Subsidiaries of such Person,
and (b) any
Person other than a corporation of which at least a controlling
interest of the
Equity Interests (however designated) entitled (without regard to
the occurrence
of any contingency)
to vote in the
election of the governing body, partners,
managers, or others
that will control the management of such Entity is owned by
such Person directly or through one or more other Subsidiaries of
such Person.
"Superior Offer"
means, with respect to
the party receiving an offer, any
bona fide written offer, not solicited after the date of this Agreement
by the
party or on behalf of the party by any of its Representatives,
made by a Person
to acquire, directly or indirectly, pursuant to a tender offer,
exchange offer,
merger, consolidation
or other business
combination
(including by means of
a
tender offer followed promptly by a back-end merger), all or substantially all
of the assets of the party receiving the offer or all of the
total outstanding
voting securities
of such party and as a
result of which (i) Equity Interests
held by stockholders of such party immediately preceding such transaction
would
represent or be
converted into less than 50% of the Equity
Interests in the
surviving or
resulting Entity of such transaction or any direct or indirect
parent or Subsidiary
thereof, or (ii) such
third party acquiring,
directly or
indirectly, all or
substantially
all of the assets of
the party receiving the
offer and such party's Subsidiaries, taken as a whole, in each case for
consideration
consisting
exclusively of
cash or publicly-traded equity
securities, on terms
that such party's
Board of Directors has in good faith
determined (after
consulting
with such party's
legal counsel and financial
advisors), to be more favorable to its stockholders than the terms
of the Merger
and taking into consideration whether such offer is reasonably
capable of being
consummated, and
whether financing to
the extent required by the Person making
such offer, is then fully committed and available, and is not
contingent.
"Support Agreements"
means those
certain Support Agreements, made and
entered into as of the date hereof, by and between certain
stockholders of
the
Company and Parent, and by and between Dr. L.S. Smith and the
Company.
"Tangible Personal
Property" means, with respect to any Person, all
machinery, equipment,
tools, furniture,
office equipment,
computer hardware,
supplies, materials,
vehicles and other items of tangible
personal property
(other than inventories) of every kind owned or leased by such
Person, wherever
located and whether or not carried on such Person's books.
"Taxes" means (i) all taxes, levies, assessments, duties, imposts or other
like assessments, charges or fees (including estimated taxes,
charges and fees),
including income, profits, corporations, advance corporation, gross receipts,
transfer, excise,
property, sales, use value-added, ad valorem, license,
capital, wage, employment, payroll, withholding, social security, severance,
occupation, import, custom, stamp, alternative, add-on minimum, environmental,
franchise or other
governmental taxes or
charges, imposed by
any Governmental
Entity responsible for the imposition of any such tax (each, a "Tax
Authority"),
including any
interest, penalties or additions to tax
applicable
or related
thereto, (ii) all liability for the payment of any amounts of the
type described
in clause (i) as the result of being (or ceasing to be) a member of an
affiliated,
consolidated, combined
or unitary
group (or being
included (or
required to be
included) in any Tax Return related thereto), and (iii) all
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<PAGE>
liability for the
payment of any
amounts as a result of
an express or implied
obligation to
indemnify or otherwise
assume or succeed to the liability of any
other person with respect to the payment of any amounts of the type
described in
clause (i) or clause (ii).
"Tax
Return" means any report, return, statement, declaration, claim for
refund, information
return or other written information (including any related
or supporting schedules, statements or information and amended
returns) filed or
required to be filed in connection with any Taxes, including the administration
of any Laws, regulations or administrative requirements relating to
any Taxes.
"Third Party
Intellectual
Property Rights" means, with respect to any
Person, any Intellectual Property owned by, or exclusively
licensed by, another
Person (other than a Subsidiary of such first Person).
"Transaction
Documents" means this Agreement, the Related Agreements and
any certificates, instruments, proxies or documents delivered or to
be delivered
pursuant to or in connection with this Agreement, any Related Agreement or any
Transaction.
"Transactions"
means all of the transactions contemplated by this
Agreement, including the Merger.
"Transfer" means, with
respect to any Property, to sell, deed, dividend,
distribute (including
upon liquidation or distribution), exchange, convey,
consign, negotiate,
gift, devise, bequeath, pass by intestate succession,
assign, issue, or
otherwise alienate,
transfer or dispose of
such Property or
any interest therein or right thereto, whether directly or indirectly
(through
another Person or otherwise), whether voluntarily, involuntarily or
by operation
of law, and whether with or without consideration. The related terms
"Transferred" and "Transferring" shall have the correlative
meanings.
"U.S. Export and
Import Laws" means all
United States
export and import
Laws and controls,
including the Arms Export Control Act (22 U.S.C. ss. 2778),
the International
Traffic in Arms Regulations (ITAR) (22 C.F.R. Subchapter M),
the Export Administration Act of 1979, as amended (50 U.S.C. ss.ss.
2401-2420),
the Export Administration Regulations (EAR) (15 C.F.R.
730-774), and all
other
laws and regulations of the United States Government regulating the
provision of
services to non-U.S. parties or the export and import of articles
or information
from and to the United States of America and non-U.S. parties.
Section 1.2. Other
Definitions. All other
capitalized
terms used in
this Agreement and not
defined in Section 1.1 shall have the meanings ascribed
to such terms elsewhere in this Agreement.
Section 1.3. Construction. The parties hereto have participated
jointly
in the negotiation
and drafting of this
Agreement with the assistance of legal
counsel, and any rule of construction or interpretation otherwise
requiring this
Agreement to be construed or interpreted against any party shall not apply
to
any construction or interpretation hereof. If an ambiguity or
question of intent
or interpretation
arises, this Agreement shall be construed as if drafted
jointly by the parties
hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party because of the
authorship of any provision of
this Agreement.
The parties
intend that each representation, warranty and
covenant contained herein shall have independent significance.
If any party has
Breached any
representation,
warranty, or covenant contained herein in any
respect, the fact
that there exists another representation, warranty, or
covenant relating to a similar subject matter (regardless of the
relative levels
of specificity) which the party has not breached shall not
-15-
<PAGE>
detract from or
mitigate the fact that the party is in Breach of the first
representation,
warranty, or
covenant. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context
otherwise requires:
(a) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions, or to designated "Exhibits,"
"Schedules" or
"Appendices," are to the designated Articles, Sections and other subdivisions
of, or the designated Exhibits, Schedules or Appendices to, this
Agreement;
(b) references to any
Person includes such
Person's successors and
assigns but,
if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a
particular capacity
excludes such Person in any other capacity or individually;
(c) references to any
agreement,
document or
instrument
means such
agreement, document or
instrument as Amended and in effect from time to time in
accordance with the
terms thereof, and
shall be deemed to refer as well to all
addenda, annexes, appendices, exhibits, schedules and other
attachments thereto;
(d) reference to any Law means such Law as Amended, codified,
replaced
or reenacted, in whole
or in part, and in
effect from time to time, including
rules and regulations
promulgated
thereunder, and
reference to any section or
other provision of any Law means that provision of such Law from
time to time in
effect and constituting the substantive Amendment, codification,
replacement or
reenactment of such section or other provision;
(e) references
to "dollars" or "cash", and the "$" symbol, are
references to the lawful money of the United States of America;
(f) with respect to
the determination
of any period of time,
"from"
means "from and including" and "to" means "to but excluding";
(g) the words "include," "includes," and "including" shall be
deemed to
be followed by "without limitation";
(h) the term "or" shall not be exclusive;
(i) pronouIns in
masculine,
feminine, and neuter genders shall be
construed to include any other gender;
(j) whenever the singular number is used, if required by the context,
the same shall include the plural, and vice versa;
(k) the words "this Agreement," "herein," "hereof," "hereby,"
"hereunder," and words
of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision;
and
(l) all accounting
terms shall be interpreted, and all accounting
determinations hereunder shall be made, in accordance with
GAAP.
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<PAGE>
ARTICLE II.
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to
satisfaction or
waiver of the conditions set forth in this Agreement, and in
accordance with the
DGCL, Merger
Sub, at the Effective Time, shall be merged with and into
the
Company. As a result
of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving
corporation of
the Merger (together with its successors, the "Surviving Corporation") and
as a
wholly-owned subsidiary of Parent.
Section 2.2. The
Closing. The closing of the Merger (the
"Closing")
shall take place (i) on the second Business Day after the
satisfaction or waiver
of each of the
conditions set forth
in Article VII, or (ii) at such other time
as Parent and the Company shall agree in writing (the date
of the Closing,
the
"Closing Date").
The Closing shall take place at the offices of Sheppard,
Mullin, Richter &
Hampton LLP,
12275 El Camino
Real, Suite 200, San Diego,
California 92130-2006, or at such other location as Parent and the
Company agree
in writing.
Section 2.3. Effective Time. On the Closing Date, or on such other
date
as may be mutually
agreed by Parent and the Company, the parties hereto shall
cause the Merger to be consummated by filing a certificate of merger in
substantially the form
of Exhibit A (the
"Certificate
of Merger") with the
Office of the
Secretary of State of the State of Delaware, executed and
otherwise filed in accordance with the relevant provisions of the
DGCL (the date
and time of such
filing, or if another date and time is specified in the
Certificate of Merger, such specified date and time, the "Effective
Time").
Section 2.4. Effect of the Merger. At the Effective Time, the
effect of
the Merger shall be as provided in this Agreement, the Certificate
of Merger and
the applicable
provisions of the DGCL. Without limiting the generality of the
foregoing, at the
Effective Time, except as otherwise provided herein, all the
Property, rights,
privileges,
powers and franchises
of the Company and Merger
Sub shall vest in the Surviving Corporation, and all Indebtedness, Liabilities
and duties of the
Company and Merger Sub shall become the Indebtedness,
Liabilities and duties of the Surviving Corporation.
Section 2.5.
Certificate of Incorporation; Bylaws. The certificate of
incorporation and
bylaws of Merger Sub
as in effect
immediately prior to
the
Effective Time shall constitute the certificate of incorporation and bylaws of
the Surviving
Corporation at and after the Effective Time; provided, however,
that (i) Article I of the certificate of incorporation of the Surviving
Corporation will be
amended at the Effective Time to read "The name of the
corporation is
Superior Galleries, Inc." (or as Parent and the
Company may
otherwise agree prior to the filing of the Certificate of Merger),
and (ii) at
the election of Parent, such election to be made in Parent's sole
discretion and
effected by delivery
of a notice to the Company on or before the Closing Date,
Article IV of the certificate of incorporation of the Surviving
Corporation will
be amended at the Effective Time to read "The total number of
shares of capital
stock which the corporation shall have authority to issue is
6,000,000 shares of
common stock,
$0.0001 par value per share."; in each case until thereafter
amended.
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<PAGE>
Section 2.6. Directors
and Officers. Unless
otherwise determined by
Parent prior to the
Effective Time,
the directors and officers of Merger
Sub
immediately prior to the Effective Time shall be the sole directors
and officers
of the Surviving
Corporation effective
as of the Effective
Time, each to hold
office in accordance
with the certificate
of incorporation
and bylaws of the
Surviving Corporation
until their successors
are duly elected or appointed and
qualified or until their earlier death, resignation or removal.
ARTICLE III.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.1. Conversion of Securities. At the Effective Time, by
virtue
of the Merger and
without any action on
the part of Parent,
Merger Sub,
the
Company or the holders of any of the following securities:
(a) Company Common Shares. Each Closing Company Common Share issued
and
outstanding
immediately prior to
the Effective Time
(exclusive of
Dissenting
Shares referred to in
Section 3.10) shall be
automatically
be cancelled
and
retired and shall cease to exist, and the holder of a stock
certificate
that,
immediately prior to
the Effective Time,
represented
issued and
outstanding
Closing Company
Common Shares shall cease to have any rights
with respect
thereto, except the
right to receive, upon
the surrender of such
certificates
(or delivery of the affidavit and bond, if any, specified in
Section 3.4(i)) and
upon the terms and subject to the conditions set forth in this Article III
and
elsewhere in this Agreement, 0.2731 Parent Common Shares for each
Company Common
Share (the "Exchange Ratio").
(b) Cancellation
of Certain
Shares. Each Company Common Share held
immediately prior to
the Effective Time by the Company, Parent, Merger Sub or
any Subsidiary of the Company, Parent or Merger Sub, and each share
of any class
of capital stock of the Company other than the Company Common Stock (including
each series of preferred stock of the Company), shall be
automatically cancelled
and retired
and shall cease to exist, without any conversion thereof or
consideration therefor, and no payment shall be made with respect
thereto.
(c) Capital Stock of
Merger Sub. Each share of capital stock of Merger
Sub that is issued and
outstanding
immediately
prior to the
Effective Time
shall, by virtue of
the Merger and without
further action on the part of the
sole stockholder
of Merger Sub, be
converted into and become (i) if Article IV
of the certificate of incorporation of the Surviving Corporation is amended at
the Effective
Time as provided
in clause (ii) in the
proviso in Section
2.5,
five thousand, or (ii)
otherwise, one; in
either case, validly
issued, fully
paid and
non-assessable
share(s) of common stock of the Surviving Corporation
(and the shares of
Surviving Corporation into which the shares of Merger
Sub
capital stock
are so converted shall be the only shares of the Surviving
Corporation's capital
stock that are issued and outstanding immediately after
the Effective Time). Each certificate evidencing ownership of shares of Merger
Sub common stock will
evidence ownership of
such shares of common stock of the
Surviving Corporation.
Section 3.2. Capitalization Adjustments to Shares. In the
event of any
Capitalization
Adjustment with
respect to the Company
Common Shares or Parent
Common Shares
occurring after the date of this Agreement and prior to the
Effective Time, or with respect to Parent Common Shares being held
in the Escrow
Account pursuant to the Escrow Agreement after the Effective Time
for so long as
held therein, all references in this Agreement to specified numbers
of shares of
any class or series affected thereby, and all calculations provided
for that are
based upon numbers of shares of any class or series (or trading
prices therefor)
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<PAGE>
affected thereby, shall be equitably adjusted to the extent
necessary to provide
the parties the same economic effect as contemplated by this
Agreement prior to
such Capitalization Adjustment.
Section 3.3.
Allocation
and Distribution of Merger Consideration.
Subject to Section
3.1(b), Section 3.5,
Section 3.14 and other
provisions of
this Article
III, the Merger Consideration shall be allocated among all
pre-Closing
Stockholders pro rata according to the respective number of
Closing
Company Common Shares held by each such stockholder. Parent (and, to the extent
applicable, the Stockholder Agent) shall deliver the Merger
Consideration to the
Exchange Agent for distribution to such stockholders, provided that Parent may
retain any
consideration
in respect of any Dissenting Stockholders for
distribution pursuant
to Section 3.10 or for
paying any settlement,
award or
judgment of any Actions relating to such stockholder's Dissenting
Shares.
Section 3.4. Surrender of Certificates; Payment.
(a) Exchange Procedures.
(1) Promptly after the Effective Time, Parent shall instruct
the Exchange Agent to mail to each holder of record of Closing
Company
Common Shares (i) a letter of transmittal, substantially in the
form of
Exhibit B (collectively, the "Letters of Transmittal"), and (ii)
instructions for use
in effecting
surrender by such holder of its
Certificates to
the Exchange Agent in exchange for the Merger
Consideration.
(2) The holder of each Certificate, upon the surrender of such
Certificate by such
holder to the Exchange
Agent (or the delivery
of
the affidavit and bond, if any, specified in Section 3.4(i)),
together
with a Letter of
Transmittal duly
completed and validly
executed by
such holder in accordance with the instructions thereto, and such
other
documents as may reasonably be required by the Exchange
Agent, shall,
subject to Section
3.4(e) and Section
3.14, be entitled to receive in
exchange for such Certificate a certificate representing the number of
Parent Common Shares
for which the Company
Common Shares
theretofore
represented by such
Certificate may be
exchanged pursuant to
Section
3.1, and such
surrendered
Certificate shall
forthwith thereafter
be
cancelled and retired.
(3) Each Certificate
shall be deemed
at all times
from and
after the Effective
Time to represent only
the right to receive,
upon
exchange as contemplated in this Section 3.4, the Merger
Consideration
to which the holder of the Company Common Shares formerly represented
by such Certificate is entitled to receive in the Merger.
(b) Distributions With
Respect to Unexchanged
Shares. No dividends or
other distributions
declared or made after
the Effective Time
with respect to
Parent Common Shares
with a record date thirty or more days after the Effective
Time but prior to the surrender of a Certificate (or the delivery of the
affidavit and bond, if any, specified in Section 3.4(i)) will
be paid or due to
the holder
of such Certificate in respect of the Parent Common Shares
exchangeable therefor.
(c) Transfers of Ownership. In the event of a transfer of
ownership of
Company Common
Shares that is not
registered
on the transfer
records of the
Company, the Merger Consideration payable hereunder with respect to
such Company
Common Shares
may be paid to a
Person other than the
Person in whose name the
Certificate so surrendered is registered, but only if (i) such
Certificate shall
be properly endorsed and otherwise be in proper form for transfer,
and (ii) that
the Person
requesting
such exchange shall have paid to Parent or any
agent
designated by it any transfer or other taxes required by reason of the
issuance
of a certificate
for Parent
Common Shares in any name other than that
of the
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<PAGE>
registered holder
of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax
has been paid
or is not payable.
(d) Exchange Agent.
Prior to the Effective Time, Parent or a direct or
indirect Subsidiary
of Parent shall make available to Registrar & Transfer
Company (or such other
transfer agent
which Parent may appoint to act as
the
exchange agent
hereunder from time to
time), as exchange
agent hereunder
(in
such capacity,
together with its
successors in such
capacity, the "Exchange
Agent"), for
distribution by the Exchange Agent in accordance with this
Article
III, certificates representing Parent Common Shares to deliver to
the holders of
outstanding Company
Common Shares (other
than any Company
Common Shares to be
canceled pursuant to Section 3.1(b) and Dissenting Shares referred
to in Section
3.10), as the aggregate Merger Consideration payable to such
holders pursuant to
Section 3.1 in exchange for such Company Common Shares. Parent shall deliver
irrevocable
instructions to the
Exchange Agent to
cause the Exchange Agent to
deliver the Merger
Consideration
contemplated to be issued pursuant to Section
3.1 as promptly
as reasonably practicable upon receipt of the documents,
including Letters
of Transmittal and Certificates, described above. Upon
surrender of a Certificate to the Exchange Agent for exchange, together with a
duly executed
Letter of Transmittal and such other documents as may be
reasonably required by
the Exchange Agent, the Exchange Agent shall (i) deliver
to the holder of such
Certificate
a certificate representing the number of
Parent Common
Shares that such holder has the right to receive as Merger
Consideration pursuant to this Article III, and (ii) deliver to the
Escrow Agent
under the Escrow Agreement on behalf of such holder a certificate
in the name of
the Escrow Agent with
respect to the
portion of the Escrow
Shares that such
holder has placed in escrow pursuant to this Article III.
(e) No Fractional Shares. No certificate or scrip representing
fractional
Parent Common
Shares shall be issued upon the surrender of
certificates formerly
representing
Company Common Shares or otherwise in
the
Merger, and in lieu thereof, any fractional Parent Common Share
shall be rounded
up to the nearest whole Parent Common Share; provided that, prior to applying
the sentence next preceding with respect to any holder of Company
Common Shares,
all Company Common Shares held by such holder shall be aggregated, taking into
account all certificates formerly representing Company Common Shares
delivered
by such holder and the aggregate number of Company Common Shares represented
thereby, and after
giving effect to the exercise of any Company Options or
Company Warrants to be exercised by such holder in connection with
the Closing.
(f) Further Rights in Company Common Shares. All Merger Consideration
issued and paid upon
conversion of the Company Common Shares in accordance with
the terms hereof shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such Company Common
Shares.
(g) Unclaimed
Merger Consideration. The Exchange Agent shall upon
demand promptly
return any portion of
the Merger
Consideration that
remains
undistributed six
months after the Effective Time, and any holders of Company
Common Shares
immediately prior to
the Effective Time who have not theretofore
complied with this Article III shall thereafter look only to Parent
(subject to
applicable abandoned
property, escheat and similar Laws) for the Merger
Consideration. Notwithstanding anything to the contrary contained
herein, if any
Certificate has not been surrendered within three years of the
Effective Time,
subject to applicable
Law, any amounts
payable in respect of such Certificate
shall, to the extent
permitted by applicable Laws, become the property of the
Parent, free and clear
of all claims or
interests of any Person previously
entitled thereto.
(h) No Liability.
None of Parent, the Company, Merger Sub or the
Surviving Corporation shall be liable to any Person for any Merger
Consideration
delivered to a public official pursuant to any abandoned
property, escheat or
similar Law.
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<PAGE>
(i) Lost Certificates.
If any Certificate shall have been lost, stolen
or destroyed, upon (i) the making of an affidavit of that fact by
holder thereof
claiming such Certificate to be lost, stolen or destroyed,
and (ii) if
required
by Parent or the Exchange Agent in their respective discretion, the posting by
such holder of a bond, in such reasonable amount as Parent or the
Exchange Agent
may direct, as
indemnity against any claim that may be made
against it with
respect to such Certificate; the Exchange Agent or Parent, as
applicable, shall
deliver to such holder the appropriate Merger Consideration in exchange for
the
Company Common Shares represented by such lost, stolen or destroyed
Certificate.
Section 3.5
Withholding
Rights. Each of Parent, Merger Sub, the
Surviving Corporation
and the Exchange Agent shall be entitled to deduct
and
withhold from the
Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Shares or Company Options
such amounts
as it is required
to deduct and
withhold with respect to the making of such
payment under the Code and the rules and regulations promulgated
thereunder, or
any provision
of a Tax Law,
or pursuant to other
applicable
Orders. To the
extent that amounts are so withheld from the Merger Consideration,
such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of
Company Common
Shares or Company
Options in respect of
whom
such deduction and withholding was made.
Section 3.6 Share
Transfer Books.
At the Effective
Time, the share
transfer books of the Company shall be closed, and, thereafter, there shall be
no further
registration of
Transfers of Company Common Shares theretofore
outstanding on the
records of the Company. From and after the Effective
Time,
the holders of
certificates
representing Company
Common Shares outstanding
immediately prior to
the Effective
Time shall
cease to have any
rights with
respect to such Company Common Shares, except as otherwise provided
herein or by
applicable Laws. On and after the Effective Time, any certificates
presented to
the Exchange Agent or Parent for any reason shall be cancelled and
retired, and
the holder
thereof
shall
only have the right to receive the Merger
Consideration, without
interest, upon the terms and subject to the
conditions
hereof.
Section 3.7 Company Options.
(a) Before
the Effective Time, the Company shall take all action
necessary such that
each Company Option
that is outstanding
and unexercised
immediately prior to the Effective Time and that is not surrendered
to Parent as
provided in
Section 3.7(b) within 30 days of the Closing Date shall be
cancelled. As soon as
practicable following
the date hereof, the Company Board
(or, if appropriate,
any committee thereof administering the Company Stock
Option Plans) shall adopt such resolutions or take such other
actions as may be
required to effect the
provisions of this
Section 3.7,
including making the
appropriate election
under Section 8.3 of the Company's 2003 Omnibus Stock
Option Plan or 2000 Omnibus Stock Option Plan. The Company shall use its Best
Efforts to prevent the acceleration of any Company Option in
connection with the
Merger or other Transactions.
(b) After the
Effective Time, promptly upon the surrender by the
optionee for exchange of a Company Option granted pursuant to any Company Stock
Option Plan, Parent
shall grant the optionee thereof a new option (each, a "New
Option") under a
Parent Stock
Option Plan to
purchase Parent
Common Shares
subject to, and
exercisable upon,
the terms and
conditions
of the Contracts
evidencing such Company Option previously Made Available to Parent,
except:
(1) from and after the Effective Time, Parent and the Parent
Board or the
Compensation Committee
of the Parent Board,
as the case
may be, shall be substituted for the Company and the Company
Subsidiaries and their
respective
Boards of Directors
and committees
thereof for the purpose of administering the terms and conditions of
the substituted New Option;
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<PAGE>
(2) all references to the Company (or any Company Subsidiary)
shall be replaced by references to Parent;
(3) all references to the Company (or any Company Subsidiary)
or its state of incorporation, address and similar information
shall be
replaced by
references
to Parent and its state of incorporation,
address and other corresponding information;
(4) all references to
Company Common Shares shall be replaced
by references to Parent Common Shares;
(5) the number of Parent Common Shares subject to the
substituted New Option shall equal the product of the number of
Company
Common Shares
subject to the
surrendered
Company Option times the
Exchange Ratio (with
such product being
rounded to the nearest
whole
number of Parent Common Shares);
(6) the exercise
price per Parent Common Share under the
substituted New Option shall be equal to the quotient of exercise
price
per Company Common Share under the surrendered Company Option divided
by the Exchange Ratio (with such exercise price not to be less than
the
par value per Parent Common Share); and
(7) any other changes
required by Section 3.7(c) shall be
made.
Upon such surrender
of a Company
Option and the grant
of a New Option,
such
Company Option shall terminate and be of no further force or
effect.
(c) The adjustments
provided in this
Section 3.7 with
respect to any
Company Options that are "incentive stock options" (as defined in
Section 422 of
the Code) shall be effected in a manner that complies with Code
Section 424(a).
Except as otherwise
provided in this
Section 3.7, the duration and other terms
of each substituted
New Option shall, to the extent permitted by Law and
otherwise reasonably practicable, be the same as the corresponding
surrendered
Company Option (taking into account any changes thereto,
including
acceleration
thereof, provided
for in the
Company Stock Option Plan by reason of this
Agreement or the Transactions).
(d) Prior to the Effective Time, the Board of Directors of
Parent, or
an appropriate
committee of non-employee directors thereof, shall adopt a
resolution consistent
with the interpretive guidance of the SEC so that the
assumption of the Company Options held by Company Insiders pursuant to Section
3.7(a) shall be an exempt transaction for purposes of Section 16 of
the Exchange
Act by any officer
or director of the Company who becomes subject to the
provisions of Section
16 of the Exchange
Act in respect of
Parent (a "Company
Insider").
(e) The Company
and Parent shall take all commercially reasonable
actions that are necessary in order to effect the foregoing provisions of this
Section 3.7 as of the Effective Time.
(f) The total number of Parent Common Shares issuable under all Parent
Stock Option
Plans immediately after the Effective Time shall not exceed
2,450,000.
Section 3.8 Unvested Company Shares. Parent Common Shares delivered
as
Merger Consideration pursuant to this Article III in exchange for
Company Common
Shares that immediately prior to the Effective Time were
restricted, not
fully
vested or subject to Repurchase Rights ("Unvested Company Shares") shall be
subject to the same terms, conditions, restrictions, vesting arrangements or
Repurchase Rights,
including rights to
dividends and voting rights, that were
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<PAGE>
applicable to such
Unvested Company Shares immediately prior to or at the
Effective Time
(and, except as set forth in Section 3.8 of the Company
Disclosure Schedules, no vesting, acceleration, or lapse of Repurchase Rights,
shall occur
with respect to such Unvested Company Shares by reason of the
Merger), and,
notwithstanding
any other provision of
this Article III, Parent
shall be entitled to place or have placed appropriate legends or other
restrictions on the
certificates
representing such
Parent Common Shares or to
delay the delivery or release of such Parent Common Shares to the
holder of such
Unvested Company Shares. By virtue of this Agreement, all
outstanding Repurchase
Rights with
respect to
Unvested Company Shares that the Company may hold
immediately prior to
the Effective
Time shall be assigned to Parent in the
Merger and shall
thereafter be
exercisable
by Parent upon the
same terms and
subject to the same
conditions
that were in effect
immediately
prior to the
Effective Time,
except that
Repurchase
Rights may be
exercised by Parent for
each Unvested
Company Share by paying to the former holder thereof the
repurchase price in effect for such Unvested Company Share
immediately prior
to
the Effective Time divided by the Exchange Ratio and retaining the
Parent Common
Shares for which such Unvested Company Share may have otherwise
been exchanged.
Following the Effective Time, no Unvested Company Share, or right thereto,
may
be Encumbered or
Transferred by any Person, other than Parent, or be taken or
reached by any legal or equitable process in satisfaction of any
Indebtedness or
other Liability of such Person, prior to the distribution to such
Person of the
Parent Common Shares exchangeable therefor in accordance with this
Agreement.
Section 3.9
Company
Warrants.
At the Effective Time, each
then-outstanding
Company Warrant
disclosed in Section 4.3(d) of the Company
Disclosure Schedules
shall be assumed by Parent (and the Company covenants and
agrees to Amend each Company Warrant to provide for such assumption
if necessary
to ensure that no Commitment to acquire any Company
Common Shares or any
other
Equity Interests of
the Company will
remain outstanding
after the Effective
Time), subject to, and
exercisable upon, the same terms and conditions as under
the applicable Company Warrant (as Amended and made available to
Parent prior to
the date hereof), except:
(1) all references to the Company shall be replaced by
references to Parent;
(2) all references to the Company or its state of
incorporation, address
and similar
information
shall be replaced
by
references to Parent and its state of incorporation, address and other
corresponding information;
(3) all references to
Company Common Shares shall be replaced
by references to Parent Common Shares;
(4) the number of Parent Common Shares subject to the Company
Warrant, as assumed,
shall equal the
product of the number of Company
Common Shares subject to such Company Warrant times the Exchange
Ratio
(with such product
being rounded to the nearest whole number of Parent
Common Shares);
(5) the exercise
price per Parent Common Share under the
Company Warrant, as assumed, shall be equal to the quotient of
exercise
price per Company
Common Share under such Company Warrant divided by
the Exchange Ratio
(with such exercise
price not to be less
than the
par value per Parent Common Share); and
(6) the anti-dilution
provisions,
if any, of such Company
Warrant shall not
apply to, and the
exercise price of such Company
Warrant shall
not be effected by, the issuance of the Merger
Consideration.
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<PAGE>
Upon surrender of a Company Warrant to Parent for exchange,
Parent shall issue
to the registered
holder thereof a new warrant of like
tenor, subject to
the
changes and other provisions specified in this Section 3.9.
Section 3.10
Appraisal Rights. Notwithstanding anything in this
Agreement to
the contrary, Company Common Shares that are outstanding
immediately prior to
the Effective Time and
held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Company Common Shares in accordance
with Section 262 of
the
DGCL ("Dissenting Shares") shall not be cancelled and retired or be
exchangeable
for the Merger
Consideration and will be paid for by the Surviving Corporation
in accordance with Section 262 of the DGCL; provided, however, that if any such
holder shall fail to
perfect or otherwise
shall waive, withdraw or lose the
right to appraisal and payment under the DGCL, the right of such holder to
such
appraisal of its Company Common Shares shall cease, and such Company Common
Shares shall be deemed
cancelled and retired as of the Effective Time and the
holder thereof
shall have the right
to receive the
Merger Consideration as
provided in this Article III. The Company shall give Parent (i)
prompt notice of
any written demands (or purported demands) for appraisal received
by the Company
with respect
to shares of capital stock of the Company, withdrawals (or
attempted withdrawals) of such demands, and any other written
instruments served
pursuant to Section 262 of the DGCL or other applicable Law and received by
the
Company relating to stockholder appraisal rights, and (ii) the opportunity to
direct, in its reasonable business judgment, all negotiations and
proceedings
with respect to exercise of such appraisal rights. The Company
shall not, except
with Parent's
prior written
consent, (1) voluntarily make any payment with
respect to any demands for appraisal for Dissenting Shares, (2)
offer to settle,
or settle, any such
demands, (3) waive any
failure to timely deliver a written
demand for appraisal in accordance with the DGCL, or (4) agree to do
any of the
foregoing.
Section 3.11 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any such further action is necessary
or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title, and possession to all
Contracts,
Property,
rights, privileges
and powers of the
Company and Merger Sub, the officers and
directors of the Company, Parent and Merger Sub are fully
authorized in the name
of their respective
corporations
or otherwise to take, and the Company and
Parent shall cause them to take, all such lawful and necessary
action.
Section 3.12 Tax
Consequences. For
federal income tax
purposes, the
Merger is intended to constitute a reorganization within the meaning of Section
368 of the Code.
Nothing in this Section 3.12 shall be interpreted as requiring
any change in the amount or kind of Merger Consideration
payable to any
Company
stockholder in connection with the Merger.
Section 3.13 Accounting Treatment. For accounting purposes, the
Merger
is intended to be treated as a "purchase."
Section 3.14 Escrow Agreement; Escrow Account.
(a) At the Closing, Parent shall deliver to the Escrow Agent, on
behalf
of the pre-Merger
stockholders of the Company, stock certificates evidencing a
number of shares equal to 15% of (i) the number of Parent Common
Shares issuable
at Closing pursuant
to Section 3.1(a), and (ii) the total number of Parent
Common Shares for which the DiGenova Warrant may be exercised
(collectively, the
"Escrow Stock"); provided, however, that Parent may deduct from the
Escrow Stock
the amount,
if any, owing to Parent at the time of the
Closing pursuant to
Section 8.2(b),
using the cash value
per share set forth in the sentence next
succeeding. Parent shall cause the Escrow Agent to deposit the
Escrow Stock into
an escrow account with
the Escrow Agent (the "Escrow Account") for the purpose
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<PAGE>
of securing the indemnification obligations set forth in Article
VIII, with each
Parent Common
Shares being valued at $2.67 per share,
subject to
equitable
adjustment in the event of any post-Closing Capitalization Adjustment of
Parent
Common Shares.
The Escrow
Agent shall
maintain the Escrow Account for such
purposes until the
date one calendar year after the Effective Time (the "Escrow
Period"); provided, however, that in the event any Indemnified
Parties have made
any claims under Article VIII prior to the end of the Escrow
Period, the Escrow
Period and the release
of any Escrow Assets
shall be tolled,
and a number of
Parent Common
Shares having an aggregate value up to the sum of the
maximum
aggregate amount of
such claims shall remain in the Escrow Account as security
and not be
released to the pre-Merger Stockholders and Silvano DiGenova
("DiGenova"), until
all such claims shall have been fully and finally resolved
and settled, as
provided in the Escrow
Agreement. The Escrow
Account shall be
subject to the terms and provisions of Section 8.2 and the Escrow
Agreement.
(b) Releases of Escrow Stock from the Escrow Account shall be subject
to the terms and conditions of an Escrow Agreement substantially in the form of
Exhibit C (with such
amendments thereto as
DGSE and the Escrow Agent may agree
with the consent of the Stockholder Agent, such consent not to be
unreasonably
withheld, conditioned or delayed, the "Escrow Agreement") and
Section 3.4(e).
(c) In the event that this Agreement is adopted by the stockholders of
the Company, then all
such stockholders shall, without further act of any
such
stockholder, be
deemed to have
consented to and approved (i) the terms and
conditions of the
Escrow Agreement, (ii) the use of the Escrow Account as
collateral to secure the rights of the Indemnified Parties under Article VIII,
and (iii) the appointment by the Stockholders receiving Parent Common Shares
in
the Merger of the Stockholder Agent as their exclusive agent,
attorney-in-fact
and representative for
and on behalf of each such Person (other than holders of
Dissenting Shares) under this Agreement and the Escrow
Agreement.
(d) In the event of any inconsistency between this Agreement and the
Escrow Agreement regarding the powers, authorities, rights, duties, obligations
or liabilities
of the Escrow
Agent, the terms and provisions of the Escrow
Agreement shall control.
Section 3.15 Transfer Of Contingent Rights.
(a) The Merger
Consideration and the
interests in the Escrow Account,
and the provisions of this Article III and the Escrow Agreement
related thereto,
are intended solely for the benefit of the Persons who immediately
prior to the
Effective Time were
Stockholders.
Without limiting the generality of
Section
10.5, except as
expressly provided in Section 3.15(b), no Person may sell,
assign or otherwise Transfer (whether in connection with any sale,
assignment or
other Transfer of any Parent Common Shares or otherwise) to any
other Person (i)
any interest in any Merger Consideration not distributed to such first
Person,
including any interest in the Escrow Account, or in any portion
thereof, or (ii)
any right to participate, in whole or in part, in the distribution
of any Merger
Consideration or to
obtain any
proceeds or shares from the Escrow Account
pursuant to Section 3.14 or the Escrow Agreement; and any attempt
to do so shall
be null and void ab
initio and of no force
or effect.
In no event
shall the
right to receive
contingent shares be
evidenced by a negotiable instrument or
certificated security, or be readily marketable.
(b) Notwithstanding
Section 3.15(a) and Section 10.5, an
interest in
Merger Consideration
may be assigned or Transferred involuntarily pursuant to
bequest, the laws of
intestate succession or the order of a court in connection
with a settlement of property rights incident to divorce.
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<PAGE>
ARTICLE IV.
COMPANY
REPRESENTATIONS AND WARRANTIES
The
Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article IV are true, correct and
complete as of the
date of this
Agreement, except as
set forth,
with respect to any specific
Section or
subsection
in this Article IV, in the corresponding section or
subsection of the
schedules the Company
has delivered to
Parent
concurrently
with the execution and delivery hereof (the "Company Disclosure Schedules") as
follows (it being
understood that the
disclosure of any
matter or item in the
Company
Disclosure
Schedules shall
not be deemed to constitute an
acknowledgement that
such matter or item is required to be disclosed therein or
is material to a
representation or
warranty set forth in
this Agreement
and
shall not be used as a basis for interpreting the terms "material,"
"materially,"
"materiality" or "Material Adverse Effect" or any word or
phrase
of similar import,
and does not mean that
such matter or item would, with any
other matter or item, have or be reasonably expected to have,
individually or in
the aggregate, a Material Adverse Effect on the Company):
Section 4.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each
Subsidiary of the
Company (each
a "Company Subsidiary" and, collectively, the "Company
Subsidiaries") has
been duly organized,
and is validly
existing and in good
standing, under
the laws of the jurisdiction of its incorporation or
organization, as the
case may be. Each of the Company and each Company
Subsidiary has the requisite power and authority and all necessary
governmental
approvals to own,
lease and operate its properties and to carry on its business
as it is now being
conducted and as
currently proposed by
it to be conducted.
Each of the Company and each Company Subsidiary is duly qualified
or licensed to
do business, and is in
good standing, in each
jurisdiction where the character
of the properties owned, leased or operated by it or the
nature of its business
makes such
qualification,
licensing or good standing necessary other than in
such jurisdictions
where the failure to be so qualified individually or in the
aggregate would not have a Material Adverse Effect on the
Company.
(b) Section 4.1(b) of
the Company Disclosure
Schedules sets forth a
true, correct
and complete list of all of the Company
Subsidiaries
and the
jurisdictions of their
organization.
Except as set forth on
Section 4.1(b) of
the Company
Disclosure
Schedules,
none
of the Company and the Company
Subsidiaries holds an Equity Interest in any other Entity. The
Company directly,
or indirectly through the ownership of a Company Subsidiary, is the
owner of all
of the issued and outstanding Equity Interests in each Company
Subsidiary,
and
all such Equity
Interests are duly authorized, validly issued, fully paid and
nonassessable. Except
as set forth in Section 4.1(b) of the Company Disclosure
Schedules, all of the
issued and outstanding
Equity Interests of
each Company
Subsidiary are
owned directly by the Company, or indirectly through the
ownership of a Company
Subsidiary, free and
clear of all
Encumbrances and are
not subject to any preemptive right or right of first refusal
created by Law or
the Organizational Documents of such Company Subsidiary or any
Contract to which
such Company
Subsidiary
is a party
or by which it is bound. There are no
outstanding
Commitments or other
Contracts of any
character relating to the
issued or unissued Equity Interests or other Securities of any Company
Subsidiary, or
otherwise obligating
the Company or any
Company Subsidiary
to
issue, transfer,
sell, purchase,
redeem or otherwise
acquire or sell any such
Equity Interests or Securities.
Section 4.2 Certificate of Incorporation and Bylaws; Corporate Books
and Records.
The Company has Made Available to Parent a true, correct and
complete copy of the Company's Certificate of Incorporation, as Amended (the
"Company Certificate
of Incorporation"),
and the Company's
Bylaws, as Amended
(the "Company
Bylaws"), in each case as now in effect.
The Company has Made
Available to Parent a
true, correct and
complete copy of the Organizational
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Documents of each Company Subsidiary, in each case as Amended and
now in effect.
Neither the Company nor any Company Subsidiary is in material
violation of any
of the provisions
of its Organizational Documents. Except as set forth in
Section 4.2 of the Company Disclosure Schedules, (i) true, correct and complete
copies of all Minute Books of the Company and the Company
Subsidiaries have been
Made Available
to Parent,
and (ii) the Minute
Books of the
Company and each
Company Subsidiary
Made Available to Parent contain accurate summaries of all
meetings of directors and stockholders (or equivalent managers and owners) or
actions by written
consent of the directors and stockholders (or equivalent
managers and
owners) of the Company
and the respective
Company Subsidiaries
through the date of this Agreement or the Closing Date, as the case
may be.
Section 4.3 Capitalization.
(a) The authorized
capital shares of the Company consist of 20,000,000
Company Common Shares and 10,000,000 shares of preferred stock, par
value $0.001
per share (the "Company Preferred Shares"). As of December 31, 2006,
4,808,280
Company Common Shares (other than treasury shares) were issued and
outstanding,
all of which are
validly issued
and fully paid, nonassessable and free of
preemptive rights (excluding shares held in the treasury of the
Company). As of
the Closing Date (after giving effect to the conversions
pursuant to
Stanford's
Conversion
Agreement), no
Company Preferred Shares will be issued and
outstanding. As of
December 31, 2006, the
following (and only
the following)
Company Preferred
Shares were (i)
authorized and (ii)
issued and
outstanding
(all of which issued and outstanding shares were validly issued and are fully
paid, nonassessable
and free of preemptive rights, excluding shares held in the
treasury of the Company):
Shares of Series
Issued and
Designation of Series of Company
Shares of Series
Outstanding on
Preferred Shares
Authorized
Date
Hereof
Series A $5.00 Redeemable 8%
Convertible Preferred Stock
125,000
0
Series B $1.00 Convertible Preferred Stock
3,400,000
3,400,000
Series D $1.00 Convertible Preferred Stock
2,000,000
2,000,000
Series E $1.00 Convertible Preferred Stock
2,500,000
2,500,000
(b) Except for the Company Common Shares reserved for issuance as set
forth in this Section 4.3 or in Section 4.3 of the Company
Disclosure Schedules,
there are no Commitments or other rights or Contracts obligating the Company or
any Company Subsidiary
to issue or sell any
Equity Interests,
or Securities
convertible into or
exchangeable for
Equity Interests,
in the Company or
any
Company Subsidiary.
Since the Company
Balance Sheet Date,
the Company has not
issued any Equity Interests, or Securities convertible into or
exchangeable for
such Equity Interests,
other than those
Company Common Shares reserved for
issuance as set forth
in this Section
4.3 or in Section 4.3 of the Company
Disclosure Schedules.
All issued and
outstanding Company Common Shares and all
outstanding Company
Options were issued,
and all repurchases of Company Common
Shares were made, in material compliance with all applicable
Laws.
(c) As of December 31, 2006, the Company has reserved 1,145,000
Company
Common Shares for issuance to employees, non-employee directors and
consultants
pursuant to the Company Stock Option Plans, of which 356,250 shares are
subject
to outstanding
and unexercised Company Options and 788,750 shares remain
available for issuance
thereunder, and 3,000
Company Common Shares for Company
Options granted outside the Company Stock Option Plans. As of
December 31, 2006,
no outstanding Company Common Shares were subject to Repurchase
Rights. Section
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4.3(c)(1) of the Company Disclosure Schedules identifies (i) the name and
full
address of each Person who held Company Options or Company Common
Shares subject
to a Repurchase Right as of December 31, 2006, (ii) the particular
Company Stock
Option Plan pursuant
to which such Company
Option was granted or
such Company
Common Shares
were issued, (iii) the date on which such
Company Option was
granted or such Company Common Shares were issued, (iv) the exercise or base
price of such Company
Option or the
repurchase price of
such Company
Common
Shares, (v) the number
of Company Common
Shares subject to such Company Option
or Repurchase Right or value covered thereby, (vi) the number of Company
Common
Shares as to which such Company Option had vested (or such
Repurchase Right
had
lapsed) at such date,
(vii) the applicable
vesting schedule for such Company
Option or such Company Common Shares and whether the exercisability or vesting
of such Company Option, or lapsing of the Repurchase
Right, will be accelerated
or affected in any way
by the Merger or the
transactions
contemplated
hereby
(whether alone or in
combination
with any other event
or condition,
such as
termination of
employment),
(viii) the date on
which such Company
Option or
Repurchase Right expires, and (ix) in the case of shares subject to
a Repurchase
Right, the material
terms of any
promissory
note delivered in
payment of the
purchase price
for such Company Common Shares (including limitations on
recourse). All Company
Options are nonqualified options under the Code. Section
4.3(c)(2) of the Company Disclosure Schedules sets forth a true, correct and
complete list of all
holders of outstanding
Company Options that are held by
Persons that
are not employees of the Company or any Company Subsidiary
(including non-employee directors, consultants, advisory board
members, vendors,
service providers or
other similar
Persons). All of the
Company Common Shares
subject to issuance under the Company Stock Option Plans, upon
issuance prior to
the Effective
Time on the terms and
conditions
specified in the
instruments
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid,
nonassessable and free of preemptive rights. The terms of each of
the Company Stock Option Plans and the applicable stock option
agreements permit
(or, pursuant to action taken or to be taken by the Company prior
to the Closing
Date, will permit) the assumption by Parent of all outstanding
Company Options,
whether vested or unvested, as provided in this Agreement,
without the
consent
or approval of the holders of such securities or any other party.
True, correct
and complete copies of
each of the Company
Stock Option Plans and the standard
form of all agreements and instruments relating to or issued under each
Company
Stock Option Plan and all agreements and instruments relating to or
issued under
the Company Stock
Option Plans or
Company Options that
differ in any material
respect from
such standard form agreements (it being understood that any
extension of the term,
acceleration
of vesting or
reduction in the exercise
price shall be deemed
material) have been
Made Available to
Parent, and such
agreements and
instruments have not
been Amended since being Made Available to
Parent, and there are no agreements, understandings or commitments
to Amend such
agreements or instruments in any case from those Made Available to
Parent. Each
Company Option
(i) has been granted in accordance with the terms of the
applicable Company
Stock Option
Plan, (ii) has been granted with an
exercise
price at least equal to the fair market value of the Company Common Shares on
the grant date, and
(iii) has a grant date that is the date the option would be
considered
granted for
tax, corporate law and under generally accepted
accounting principles (that is, no Company Option has been
backdated).
(d) Section 4.3(d) of the Company Disclosure Schedules sets forth all
outstanding Company
Warrants and other Commitments (other than Company Options
disclosed in Section 4.3(c) of the Company Disclosure Schedules). The Company
has Made Available to Parent complete and correct copies of all
Company Warrants
and Contracts governing such other Commitments, in each case as
Amended to date.
At the Effective Time, no Company Options, Company Warrants or
other Commitments
to acquire any Equity Interests of the Company shall be
outstanding, except
for
(i) Company
Options disclosed in Section 4.3(c) of the Company Disclosure
Schedules and to be assumed by Parent pursuant to Section 3.7, and (ii)
Company
Warrants disclosed in Section 4.3(d) of the Company Disclosure
Schedules and to
be assumed by Parent pursuant to Section 3.9.
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<PAGE>
(e) Section 4.3(e) of the Company Disclosure Schedules sets forth all
outstanding Contractual obligations of the Company or any Company
Subsidiary (i)
restricting the
transfer of, (ii) affecting the voting rights of, (iii)
requiring the
repurchase, redemption
or disposition
of, or (iv) granting
any
preemptive or anti-dilutive right with respect to; any Company
Common Shares or
any other Equity Interests in the Company or any Company
Subsidiary.
(f) After giving effect to the conversion of Preferred Shares pursuant
to the Conversion
Agreements on the date hereof, (i) as of the date hereof and
(ii) if each of the
Exemption Conditions
is then satisfied,
as of the record
date for the
determination of the
stockholders of the Company entitled to vote
at the Company Stockholders Meeting; not more than 25 percent of
the Outstanding
Company Common
Shares is or will be,
as the case may be,
held by Persons
who
have addresses
within the State of
California according
to the records of the
Company or its transfer agent. If each of the Exemption Conditions
are satisfied
as of such record
date, the exchange of the Merger Consideration for the
outstanding shares of
capital stock of the Company will be exempt from the
qualification requirements of the California Securities Law of
1968, as amended,
by virtue of the exemption provided by Section 25103(c)
thereof. "Outstanding
Company Common Shares" means, as of the date of determination,
the total number
of outstanding
Company Common Shares and Company Common Shares subject to
outstanding Company Options, minus the sum of (1) any Company
Common Shares held
to the knowledge of
the Company in the names of broker-dealers or nominees of
broker-dealers, and
(2) any Company
Common Shares and such Company Options
controlled by any one
Person who controls
directly or indirectly 50 percent or
more of the outstanding Company Common Shares. "Exemption Conditions" means,
as
of a date of
determination, each of
the following
conditions:
(A) no Equity
Interests (other than
Company Common Shares issued upon the exercise of Company
Options outstanding
on the date
hereof), or Commitments to acquire Equity
Interests, in the
Company shall have
been issued or
redeemed after the date
hereof and
prior to or on such
date of determination,
(B) between the date
hereof and such date of determination, no stockholder of the Company
shall have
acquired direct or indirect control of additional Company Common Shares,
such
that such stockholder
then controls
directly or indirectly
50% or more of the
outstanding Company
Common Shares, and (C) the sum of (1) the number of Company
Common Shares or Company Options to acquire Company Common Shares held on the
date hereof by Persons who have addresses without the State of California
and
which prior to or on
such date of
determination
shall have become held by
Persons who have addresses within the State of California
(including by means of
a change of address of record of any such a Person or upon the
exercise of any
such Company Option),
plus (2) the quotient of (x) the number of Company Common
Shares held on the date hereof by Persons who have addresses without the State
of California
which are then held to
the knowledge of the Company in the names
of broker-dealers or nominees of broker-dealers, divided by (y) four; shall be
less than 100,000.
Section 4.4 Authority.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and each Related
Agreement to which it
is a
signatory, to perform its obligations hereunder and thereunder and
to consummate
the transactions
contemplated
hereby and
thereby (other than, on the date
hereof, the
Company Stockholder Approval), including the filing of the
Certificate of Merger
pursuant to the DGCL.
The execution and delivery of this
Agreement and each
Related Agreement to
which it is a signatory by the Company
and the consummation by the Company of the transactions
contemplated hereby
and
thereby, including
said filing of the Certificate of Merger, have been duly and
validly authorized by
all necessary
corporate action
(other than, on the date
hereof, the Company
Stockholder
Approval).
Assuming the due authorization,
execution and
delivery by Parent and Merger Sub of this Agreement, this
Agreement and each
Related Agreement
to which the Company
is a signatory has
been duly authorized
and validly
executed and delivered by the Company and
constitutes a legal,
valid and binding
obligation of the Company, enforceable
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<PAGE>
against the Company in accordance with their respective
terms, subject only to
the effect,
if any, of (i) applicable bankruptcy and other similar Laws
affecting the rights
of creditors
generally, and (ii)
rules of law
governing
specific performance,
injunctive
relief and other equitable remedies. The
Company Board
has unanimously (A) approved and declared advisable this
Agreement, each
Related Agreement to which the Company is a
signatory,
the
Merger and the other
Transactions
applicable to it, (B)
determined that
this
Agreement and each
Related Agreement to
which it is a signatory and the terms
and conditions of the Merger and other Transactions are fair to, advisable and
in the best interests of the Company and its stockholders, and (C)
directed that
the adoption of this Agreement and the approval of this
Agreement,
the Merger,
and the Stockholder Agent Appointment be submitted to the Company's
stockholders
for approval at a meeting of such stockholders and recommended that all of
the
Company's stockholders
adopt and approve this Agreement and approve the Merger,
and the Stockholder Agent Appointment; provided, however, that after the date
hereof the Company
Board acting in good faith may withdraw its recommendation.
The affirmative
vote of the holders of
a majority of the
voting power of
all
Company Common Shares and Company Preferred Shares issued and
outstanding on the
record date set for
the meeting
of the Company's stockholders to adopt and
approve this
Agreement and approve the Merger (the "Company Stockholders
Meeting") is the only
vote of the
holders of capital stock of the Company
necessary to
adopt this Agreement under applicable Law and the Company's
Organizational Documents (the "Company Stockholder Approval").
(b) Assuming the
representation set
forth in Section 5.24 is true and
correct, the Company
has taken all appropriate actions so that the restrictions
on "business
combinations"
contained in Section 203 of the DGCL will not apply
with respect to or as a result of this Agreement, the Related
Agreements and the
transactions contemplated hereby and thereby, including the Merger, without
any
further action on the part of the Company's stockholders or the
Company Board.
Section 4.5 No Conflict; Required Filings and Consents.
(a) The execution
and delivery of this Agreement and the Related
Agreements to which
the Company is a signatory by the Company do not,
and the
performance of this
Agreement and such
Related Agreements by
the Company will
not, (i) conflict with or violate any provision of the
Organizational
Documents
of the Company or any Company Subsidiary, (ii) subject to obtaining the
Company
Stockholder Approval
and assuming that all Consents described in Section 4.5(b)
have been obtained and all filings and notifications described in
Section 4.5(b)
have been made and any waiting periods thereunder have terminated or expired,
conflict with or
violate any Law
applicable
to the Company or any Company
Subsidiary, or by which any Property of the Company or any Company
Subsidiary is
bound or affected, (iii) result in the creation of any Encumbrance
on any of the
Properties of the Company or any Company Subsidiary, or (iv)
require any Consent
under, or result in
any Breach of, any
Company Material
Contract or Company
Permit, in
each case except as set forth in Section 4.5 of the Company
Disclosure Schedules.
(b) The execution
and delivery of this Agreement and the Related
Agreements to which
the Company is a signatory by the Company do not,
and the
performance of this
Agreement and such Related Agreements by the Company and
then consummation
of the Transactions will not, require any Consent of, or
filing with or
notification to, any
Governmental
Entity, except under or in
relation to (i) the Exchange Act, (ii) the Securities Act, (iii) any applicable
Blue Sky Laws, (iv) the rules and regulations of Parent's
Principal Market,
(v)
the filing and
recordation of the Certificate of Merger as required by the
DGCL
(together with the Consents, filings and notifications enumerated
in clauses (i)
through (iv) next
preceding, the
"Specified
Consents"),
and (vi) such
other
Consents and filings with or notifications to Governmental Entities
the failures
of which to make or obtain, individually or in the aggregate,
would not have a
Material Adverse Effect on the Company or Parent.
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<PAGE>
Section 4.6 Permits; Compliance With Law.
(a) Each of the Company and each Company Subsidiary is in
possession of
all material
Governmental
Permits,
and has made all material filings,
applications and registrations with any Governmental Entity, in each case that
are necessary
for the Company and
each Company
Subsidiary
to own, lease or
operate its Properties, or to carry on its respective
businesses
substantially
in the manner
described in the
Company SEC Reports filed prior to the date
hereof or the Closing Date, as the case may be, and substantially
as it is being
conducted as of the date hereof (the "Company Permits"), and all such Company
Permits are valid and
in full force and
effect, except
where the failure to
have, or the
suspension or
cancellation of, or
failure to be valid or in full
force and effect of, any of the Company Permits would not, individually or in
the aggregate,
reasonably
be expected to (i) prevent or materially delay
consummation of the
Merger or any other transactions contemplated by this
Agreement, (ii) otherwise prevent or materially delay performance
by the Company
of any of its material obligations under this Agreement or any
Related Agreement
to which it is a
signatory, or (iii)
have a Material Adverse Effect on the
Company.
(b) None of the
Company and the
Company Subsidiaries
is in conflict
with, or in
default or
violation of, (A) in any material respect, any Law
applicable to the Company or any Company Subsidiary or by which any
Property of
the Company or any Company Subsidiary is bound or affected,
or (B) any Company
Permit, except,
with respect to clause (A) next preceding, for any such
conflicts, defaults
or violations that would not, individually or in the
aggregate,
reasonably be
expected to (i) prevent or materially delay
consummation of the
Merger or any other transactions contemplated by this
Agreement, (ii) otherwise prevent or materially delay performance
by the Company
of any of its material obligations under this Agreement or any
Related Agreement
to which it is a
signatory, or (iii)
have a Material Adverse Effect on the
Company. None of the
Company Permits
will be terminated or impaired or will
become terminable,
in whole or in part, as a result of the transactions
contemplated by this
Agreement or any Related Agreement to which it is a
signatory.
(c) Neither the Company nor any Company Subsidiary has, within the
last
three years,
received any warning, notice, notice of violation or
probable
violation, notice of
revocation or other communication from or on behalf of any
Governmental Entity, alleging (x) any conflict with, or default or
violation of,
any Company Permit, or (y) that the Company or any Company
Subsidiary
requires
any Company Permit for its business as currently conducted that is
not currently
held by it. Except
as set forth in Section 4.6 of the Company Disclosure
Schedules, to the Company's Actual Knowledge, no investigation or
inquiry by any
Governmental Entity
with respect to the
Company or any Company
Subsidiary is
pending or
threatened,
in each case with
respect to any alleged or claimed
violation of Law applicable to the Company or any Company
Subsidiary or by which
any Property of the Company or any Company Subsidiary is bound or
affected.
(d) Neither the Company nor any of the Company Subsidiaries, nor to
the
Company's Actual
Knowledge,
any director, officer, Affiliate or employee
thereof, has on behalf
of or with respect to the Company engaged in any conduct
constituting a
violation of the Foreign Corrupt Practices Act of 1977, as
amended.
Section 4.7 SEC Filings; Financial Statements.
(a) The Company has filed all SEC Reports required under applicable
Law
to be filed by it with the SEC since the effective date of the filing of the
initial Form 10-SB by the Company. All of the Company SEC Reports
have been Made
Available to Parent.
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<PAGE>
(b) As of their respective dates, each Company SEC Report (i)
complied
as to form in all material respects with the requirements of the
Securities Act,
the Exchange Act and the SEC Rules applicable to such Company SEC Report,
and
(ii) did not at the time it was filed contain any untrue statement
of a material
fact or omit to state a material fact required to be stated therein
or necessary
in order to make the statements therein, in the light of the
circumstances under
which they were made, not misleading, except to the extent corrected (A)
in the
case of a Company SEC Report filed prior to the date of this
Agreement that was
amended or superseded prior to the date of this Agreement, by the
filing of such
amending or superseding Company SEC Report, and (B) in the case of
a Company SEC
Report filed
after the date of this
Agreement that is amended or superseded
prior to the Effective
Time, by the filing of such amending or superseding
Company SEC Report. None of the Company Subsidiaries is required to
file any SEC
Reports with the SEC.
(c) As of their respective dates, each of the consolidated
financial
statements (including, in each case, any related notes thereto)
contained in the
Company SEC Reports,
including the statement of stockholders' equity, (all of
the foregoing, the
"Company Financial
Statements") (i)
complied as to form in
all material respects with the SEC Rules applicable thereto,
(ii) were prepared
in accordance with
GAAP applied on a consistent basis throughout the periods
involved (except as
may be indicated
in the notes
thereto or, in the
case of
unaudited interim financial statements, as may be permitted by the SEC on
Form
10-Q, Form 8-K or any
successor form under
the Exchange Act), and (iii) fairly
presented in all material respects the consolidated
financial position of the
Company and the Company Subsidiaries as at the respective
dates thereof and the
consolidated results of Company's and the Company Subsidiaries' operations and
cash flows for the periods indicated in accordance
with GAAP,
except that the
unaudited interim financial statements may not contain footnotes
and were or are
subject to normal and recurring year-end adjustments in accordance
with GAAP.
Neither the Company nor any Company Subsidiary has any liabilities (absolute,
accrued, contingent
or otherwise) required under GAAP to be set forth on a
balance sheet
that are, individually or in the aggregate, material to the
business, results of
operations or
financial condition of
the Company and the
Company Subsidiaries taken as a whole, except for (A) liabilities
incurred since
the Company Balance
Sheet Date in the Ordinary Course of Business which are
of
the type that
typically recur and which do not result from any Breach of
Contract, tort or
default or violation of any Law, (B) those specifically set
forth or specifically
and adequately
reserved against in the Company Balance
Sheet, and (C) the
fees and expenses
of investment bankers, attorneys and
accountants incurred
in connection with
this Agreement
and the Transactions
accruing after the
Company Balance
Sheet Date. Except as reflected in the
Company Financial Statements, neither the Company nor any
Company Subsidiary is
a party to any material off-balance sheet arrangements (as defined in Item
303
of Regulation
S-K promulgated by the SEC). The Company has not had any
disagreement with any of its auditors regarding accounting matters or policies
during any of its past three full fiscal years or to date during the current
fiscal year. The books
and records of the Company and each Company Subsidiary
have been maintained,
and are being
maintained,
in all material
respects in
accordance with applicable legal and accounting requirements, and the Company
Financial Statements are consistent in all material respects with
such books and
records.
(d) No investigation
by the SEC with
respect to the Company or any
Company Subsidiary is pending or, to the Knowledge of the Company,
threatened.
(e) The Company has established and maintains "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e)
promulgated
under the
Exchange Act) that are reasonably designed to ensure that material
information
(both financial
and non-financial) relating to the Company and the Company
Subsidiaries required
to be disclosed
by the Company in the reports
that it
files or submits
under the Exchange Act is communicated to the Company's
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<PAGE>
principal
executive officer
and principal financial officer, or persons
performing similar functions, as appropriate to allow timely
decisions regarding
required disclosure
and to make the
certifications of the principal executive
officer and the principal financial officer of the Company required by
Section
302 of SOX, with respect to such reports. For purposes of this Section
4.7(e),
"principal executive
officer" and "principal financial officer" shall have
the
meanings ascribed to such terms in SOX. Each of the principal
executive officer
and the principal
financial officer of the Company (or each
former principal
executive officer and each former principal financial officer of
the Company, as
applicable) has made all certifications required by Sections 302 and 906
of SOX
and the rules and regulations promulgated by the SEC thereunder
with respect to
the Company SEC Reports.
(f) The Company
maintains a system of
internal accounting controls
designed to provide
reasonable assurance
that (i) transactions are executed in
accordance with
management's
general
or specific authorizations, (ii)
transactions are
recorded as
necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset
accountability,
(iii)
access to assets is permitted only in accordance with management's general or
specific
authorization, and
(iv) the recorded
accountability
for assets is
compared with the existing assets at reasonable intervals and
appropriate action
is taken with respect
to any differences.
The Company has Made
Available to
Parent accurate and complete copies of all material policies,
manuals and other
documents promulgating such internal accounting controls. Except as
set forth in
Section 4.7(f) of the Company Disclosure Schedules, to the Company's Knowledge,
there are no "material
weaknesses"
(as defined by the
PCAOB) and there are no
series of multiple "significant deficiencies" (as defined by the
PCAOB) that are
reasonably likely to collectively represent a "material weakness" in
the design
or operation of the
Company's internal
controls and procedures, and to the
Company's Knowledge,
there are no
significant
deficiencies
in the design or
operation of the Company's internal controls and procedures.
To the Company's
Knowledge, since the
date of the filing of its initial Form 10-SB, there has
been no fraud that involves management or other employees who have
a significant
role in the Company's internal controls and procedures.
(g) To the Company's Knowledge, Singer Lewak Greenbaum &
Goldstein LLP,
which has expressed its opinion with respect to the Company
Financial Statements
as of June 30,
2004, June 30, 2005 and June 30, 2006 and for each of the
Company's fiscal
years in the
three-year
period ended June 30, 2006, and
included in
the Company SEC Reports (including the related notes), is
"independent" with
respect to the Company and the Company Subsidiaries within
the meaning of Regulation S-X and, together with the Company's
prior independent
public accounting firm Haskell & White LLP, has been
"independent"
within such
meaning at all times since January 1, 2002. The Company has made
such disclosure
of non-audit services
performed by Singer
Lewak Greenbaum &
Goldstein LLP or
Haskell & White LLP in its proxy statements with respect to its
annual meetings
of its stockholders
as is required under
the Exchange Act,
Securities Act and
SEC Rules, and all such non-audit services have been approved in
advance by the
audit committee of the
Company Board.
The Company is in
compliance
with the
applicable criteria
for continued listing
of the Company Common
Shares on the
OTCBB.
Section 4.8 Disclosure Documents.
(a) The Company
Information included
in, or incorporated by reference
into, the Form S-4, Proxy Statement and any Other Filings, and any
amendments or
supplements thereto,
will, at the
Applicable Times,
comply as to form in
all
material respects with
the applicable
requirements of the
Securities Act, the
Exchange Act, the SEC Rules and other applicable Laws.
(b) The information
supplied or to be
supplied by or on behalf of the
Company or any of its officers, directors or stockholders for
inclusion or use,
or incorporation by reference, in (i) the Form S-4, (ii) the Proxy
Statement, or
(iii) any other
document (including
any report filed by
the Company or Parent
under the Exchange Act) filed with any Governmental Entity in connection with
the Transactions, or
in each case any amendment or supplement thereto; in each
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case do not and will not, at the Applicable Times, contain any untrue statement
of a material fact or
omit to state any
material fact
required to be stated
therein or necessary
to make the
statements
therein regarding the Company
Information, in light
of the circumstances
under which they are made, not
misleading. The
Company Information
provides all
information relating
to the
Company or its
operations, business,
directors,
officers, Subsidiaries and
stockholders required
to be provided by the provisions of the Securities Act,
the Exchange Act and the SEC Rules, including form S-4 and
Regulation 14A.
(c) Notwithstanding
the foregoing
provisions of this Section 4.8, the
Company makes no representation or warranty, and assumes no
responsibility, with
respect to statements
made or incorporated by reference in the Form S-4,
the
Proxy Statement
or any Other Filings, or in each case any amendment or
supplement thereto,
supplied by Parent
(other than Company Information so
supplied) for inclusion or incorporation by reference therein.
Section 4.9
Absence of Certain
Changes or Events.
Since the Company
Balance Sheet Date, except as specifically disclosed in the Company SEC
Reports
filed thereafter
or as set forth in Section 4.9 of the Company Disclosure
Schedules, the Company
and each Company
Subsidiary has
conducted its business
only in the Ordinary Course of Business and, since such date:
(a) no Events have caused a Material Adverse Effect on the
Company;
(b) there has not been any declaration, setting aside or payment of
any
dividend on, or other distribution (whether in cash, Securities or
Property) in
respect of, any of the Company's Equity Interests, or any purchase, redemption
or other acquisition
by the Company of any of the Company's Equity Interests or
any other Securities
of the Company or any Commitments for any such Equity
Interests of Securities, other than repurchases from employees or consultants
following their termination pursuant to the terms of existing
Repurchase Rights;
(c) there has not been any Capitalization Adjustment of any of the
Company's Equity Interests;
(d) there has not been any increase in compensation or fringe
benefits
paid or payable to any of the officers, directors or managers or employees of
the Company or any Company Subsidiary at the vice president or
director level or
higher, or who earn base salary of more than $75,000 per year, or
any payment by
the Company
or any of the
Company Subsidiaries of any bonus to any of their
officers, directors or
managers or employees at the vice president or director
level or higher, or
who earn base salary of more than $75,000 per year, or any
granting by the Company or any of the Company Subsidiaries of any increase in
severance or termination pay, or any entry by the Company
or any of the Company
Subsidiaries into, or material Amendment of, any currently
effective employment,
severance, termination
or indemnification agreement or any agreement the
benefits of which are contingent, or the terms of which are
materially altered,
upon the occurrence of a transaction involving the Company of the
nature of any
Transactions, or any
subsequent
event, other than increases in the Ordinary
Course of Business in base salary and target bonuses for employees who are not
officers of the
Company, in an amount that does not exceed 50% of such base
salary, in connection with periodic compensation or performance
reviews or for
ordinary course severance and release agreements as made in connection
with the
termination of
employment
that do not
provide severance in excess of the
Company's standard policies;
(e) there has not been any change by the Company or any of the Company
Subsidiaries in its accounting methods, principles or practices
(including any
material change in
depreciation or
amortization
policies or rates or
revenue
recognition policies), except as required by concurrent changes in
GAAP;
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<PAGE>
(f) there has not been any sale, transfer, or other disposition of any
Company IP Rights or any other Properties by the Company or any of the
Company
Subsidiaries, except in the Ordinary Course of Business;
(g) neither the Company nor any Company Subsidiary has made any loan,
advance or capital contribution to, or investment in, any Person,
including any
director, officer or Affiliate of the Company, other than (i)
loans, advances or
capital contributions to or investments in wholly-owned
Subsidiaries or Entities
that became
wholly-owned
Subsidiaries made in the Ordinary Course of Business,
(ii) investments made in accordance with the Company's investment
guidelines, a
copy of which has been Made Available to Parent, in the Ordinary Course of
Business, (iii)
routine travel and entertainment expense advances in the
Ordinary Course of
Business and in
accordance with the
Company's travel and
expense policy,
a copy of which has
been Made Available
to Parent,
and (iv)
loans and advances
to third party
customers made in the Ordinary Course of
Business;
(h) there has not been any material change with respect to the
management or other key personnel of the Company, any termination of employment
of any such employees or a material number of employees, or any material labor
dispute or material claim of unfair labor practices involving the
Company or any
Company Subsidiary; and
(i) neither the Company nor any Company Subsidiary has agreed,
whether
in writing or otherwise, to take any action described in this
Section 4.9.
Section 4.10 Employee Benefit Plans.
(a) Section 4.10(a) of the Company Disclosure Schedules lists as of
the
date of this Agreement, with respect to the Company and the Company
Subsidiaries
and their respective ERISA Affiliates, (i) all employee benefit
plans within the
meaning of Section 3(3) of ERISA, (ii) each loan from the Company,
any Company
Subsidiary or any such
ERISA Affiliate
to an employee in excess of $10,000,
(iii) all stock option, stock purchase, phantom stock, stock
appreciation right,
supplemental retirement, severance, salary continuation,
sabbatical,
employee
relocation, cafeteria benefit (Section 125 of the Code), dependent
care (Section
129 of the Code), life
insurance or accident insurance plans, programs or
arrangements, (iv) all
bonus, pension,
profit sharing,
savings, retirement,
deferred compensation
or incentive plans,
programs or
arrangements,
whether
written or oral,
qualified or nonqualified, funded or unfunded, currently
effective or terminated, (v) other fringe or employee benefit
plans, programs or
arrangements that
apply to senior management and that do not generally apply to
all employees, and
(vi) any employment or service agreements (except for offer
letters providing
for at-will
employment
that do not provide
for severance,
acceleration or post-termination benefits), compensation agreements
or severance
agreements, written or
otherwise,
for the benefit of, or relating to, any
present or former director, officer, employee, or consultant
(provided that, for
(1) former and current
consultants,
and (2) former
directors,
officers and
employees; such
arrangements need only be listed if unsatisfied obligations of
the Company or any Company Subsidiary of greater than $10,000
remain thereunder)
of the Company or any Company Subsidiary (all of the foregoing described in
clauses (i) through (vi) next preceding, collectively, the "Company Benefit
Plans"). The Company
has no liability with respect to any plan, arrangement or
practice of the type described in the preceding sentence other than the
Company
Benefit Plans.
The Company has not, since July 30, 2002, extended credit,
arranged for the
extension of credit, or renewed, modified or forgiven an
extension of credit made prior to such date, in the form of a personal
loan to
or for any person who was, at any time since such date,
an officer or
director
of the Company.
(b) Prior to the date of this Agreement, the Company has Made
Available
to Parent a true, correct and complete copy of each Company Benefit
Plan and all
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<PAGE>
current and prior related plan documents (including adoption
agreements, vendor
contracts and administrative services agreements, trust documents, insurance
policies or
contracts (including policies relating to fiduciary liability
insurance covering
the fiduciaries of such Company Benefit Plans), bonds
required by ERISA,
employee booklets, summary plan descriptions and other
authorizing documents,
summaries of material modifications and any material
written employee
communications relating thereto) and has, with respect to each
Company Benefit
Plan that is subject
to ERISA reporting requirements, Made
Available to Parent true, correct and complete copies of the Form 5500
reports
filed for the last three plan years (including all audits,
financial statements,
schedules and attachments thereto, where applicable). Any Company Benefit Plan
intended to be qualified under Section 401(a) of the Code
has (i) obtained from
the IRS a current
favorable
determination letter
as to its qualified
status
under the Code and as to the exemption from tax under the provisions of Code
Section 501(a) of each trust created thereunder, or (ii) has been established
under a standardized
master and prototype or volume submitter plan for which a
favorable Internal
Revenue Service
advisory letter or
opinion letter has been
obtained by the plan
sponsor and is valid as to the
adopting employer. The
Company has also Made
Available to Parent a true, correct and complete copy of
the most recent such Internal Revenue Service determination letter, advisory
letter or opinion letter issued with respect to each Company
Benefit Plan, and,
to the Company's Knowledge, nothing has occurred since the issuance
of each such
letter that could reasonably be expected to cause the loss of the
tax-qualified
status of any Company
