Agreement and Plan of Merger and Reorganization - TrafficLogic Inc. and MAC Worldwide Inc.
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
TRAFFICLOGIC, INC.,
MAC WORLDWIDE, INC.
AND
TRAFFICLOGIC ACQUISITION CORP.
December 30, 2004
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ARTICLE I THE MERGER...............................................1
1.1 The Merger...................................................1
1.2 The Closing..................................................2
1.3 Actions at the Closing.......................................2
1.4 Additional Actions...........................................3
1.5 Conversion of Shares.........................................3
1.6 Dissenting Shares............................................4
1.7 Fractional Shares............................................4
1.8 Options and Warrants.........................................5
1.9 Escrow.......................................................5
1.10 Articles of Incorporation and Bylaws.........................6
1.11 No Further Rights............................................6
1.12 Closing of Transfer Books....................................6
1.13 Post-Closing Adjustment......................................6
1.14 Exemption From Registration..................................7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY............7
2.1 Organization, Qualification and Corporate Power..............7
2.2 Capitalization...............................................8
2.3 Authorization of Transaction.................................8
2.4 Noncontravention.............................................9
2.5 Subsidiaries................................................10
2.6 Financial Statements........................................11
2.7 Absence of Certain Changes..................................11
2.8 Undisclosed Liabilities.....................................11
2.9 Tax Matters.................................................11
2.10 Assets......................................................13
2.11 Owned Real Property.........................................13
2.12 Real Property Leases........................................13
2.13 Intellectual Property.......................................14
2.14 Contracts...................................................15
2.15 Accounts Receivable.........................................16
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2.16 Powers of Attorney..........................................16
2.17 Insurance...................................................16
2.18 Litigation..................................................17
2.19 Warranties..................................................17
2.20 Employees...................................................17
2.21 Employee Benefits...........................................18
2.22 Environmental Matters.......................................20
2.23 Legal Compliance............................................21
2.24 Customers and Suppliers.....................................21
2.25 Permits.....................................................21
2.26 Certain Business Relationships With Affiliates..............22
2.27 Brokers' Fees...............................................22
2.28 Books and Records...........................................22
2.29 Disclosure..................................................22
2.30 Board Actions...............................................23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE BUYER AND
THE ACQUISITION SUBSIDIARY..............................23
3.1 Organization, Qualification and Corporate Power.............23
3.2 Capitalization..............................................23
3.3 Authorization of Transaction................................23
3.4 Noncontravention............................................24
3.5 Subsidiaries................................................24
3.6 Exchange Act Reports........................................25
3.7 Compliance with Laws........................................26
3.8 Financial Statements........................................26
3.9 Absence of Certain Changes..................................27
3.10 Litigation..................................................27
3.11 Undisclosed Liabilities.....................................27
3.12 Tax Matters.................................................27
3.13 Assets......................................................29
3.14 Owned Real Property.........................................29
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3.15 Real Property Leases........................................29
3.16 Intellectual Property.......................................30
3.17 Contracts...................................................31
3.18 Accounts Receivable.........................................32
3.19 Powers of Attorney..........................................32
3.20 Insurance...................................................33
3.21 Warranties..................................................33
3.22 Employees...................................................33
3.23 Employee Benefits...........................................34
3.24 Environmental Matters.......................................36
3.25 Permits.....................................................37
3.26 Certain Business Relationships With Affiliates..............37
3.27 Tax-Free Reorganization.....................................37
3.28 Split-Off...................................................38
3.29 Brokers' Fees...............................................38
3.30 Disclosure..................................................38
3.31 Interested Party Transactions...............................39
3.32 Duty to Make Inquiry........................................39
3.33 Accountants.................................................39
3.34 Minute Books................................................39
3.35 Board Action................................................40
ARTICLE IV COVENANTS...............................................40
4.1 Closing Efforts.............................................40
4.2 Governmental and Third-Party Notices and Consents...........40
4.3 Current Report..............................................40
4.4 Operation of Business.......................................40
4.5 Access to Information.......................................42
4.6 Expenses....................................................42
4.7 Indemnification.............................................43
4.8 Listing of Merger Shares....................................43
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ARTICLE V CONDITIONS TO CONSUMMATION OF MERGER....................43
5.1 Conditions to Each Party's Obligations......................43
5.2 Conditions to Obligations of the Buyer and the
Acquisition Subsidiary......................................44
5.3 Conditions to Obligations of the Company....................45
ARTICLE VI INDEMNIFICATION.........................................47
6.1 Indemnification by the Company Shareholders.................47
6.2 Indemnification by the Buyer................................47
6.3 Indemnification Claims by the Buyer.........................47
6.4 Survival of Representations and Warranties..................51
6.5 Limitations on Buyer's Claims for Indemnification...........51
ARTICLE VII DEFINITIONS.............................................52
ARTICLE VIII MISCELLANEOUS...........................................54
8.1 Press Releases and Announcements............................54
8.2 No Third Party Beneficiaries................................54
8.3 Entire Agreement............................................54
8.4 Succession and Assignment...................................54
8.5 Counterparts and Facsimile Signature........................54
8.6 Headings....................................................55
8.7 Notices.....................................................55
8.8 Governing Law...............................................55
8.9 Amendments and Waivers......................................56
8.10 Severability................................................56
8.11 Submission to Jurisdiction..................................56
8.12 Construction................................................57
EXHIBITS
Exhibit A.........Form Subscription Agreement
Exhibit B.........Form Split-Off Agreement
Exhibit C.........Amendment to Certificate of Incorporation of Buyer
Exhibit D.........Amendment to Certificate of Incorporation of Acquisition
Subsidiary
Exhibit E.........Form Escrow Agreement
Exhibit F.........Form Lock-up Agreement
Exhibit G.........Opinion of Counsel to the Company
Exhibit H.........Opinion of Counsel to the Buyer and the Acquisition Subsidiary
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
This Agreement and Plan of Merger and Reorganization (this "Agreement") is
entered into as of December 30, 2004 by and among MAC Worldwide, Inc., a
Delaware corporation (the "Buyer"), Trafficlogic Acquisition Corp., a Delaware
corporation and a wholly-owned subsidiary of the Buyer (the "Acquisition
Subsidiary"), and Trafficlogic, Inc., a California corporation (the "Company").
The Buyer, the Acquisition Subsidiary and the Company are referred to
collectively herein as the "Parties."
WHEREAS, this Agreement contemplates a merger of the Company with and into
the Acquisition Subsidiary (the "Merger"). In the Merger, the shareholders of
the Company will receive common stock of the Buyer in exchange for their capital
stock of the Company.
WHEREAS, concurrently with the closing of the Merger, the Buyer will
complete a private placement of approximately $3,250,000 shares of common stock
of the Buyer at the purchase price of $1.00 per share (the "Private Placement
Offering") pursuant to a subscription agreement, substantially in the form of
Exhibit A attached hereto (the "Subscription Agreement").
WHEREAS, concurrently with the closing of the Merger, the Buyer intends to
split-off its wholly owned subsidiary, Mimi & Coco, Inc., a Canadian corporation
("Mimi & Coco"), through the sale of all of the outstanding capital stock of
Mimi & Coco (the "Split-Off") upon the terms and conditions of a split-off
agreement by and among Buyer, Vincenzo Cavallo and Anthony Cavallo
(collectively, the "Cavallo Family"), the Company and Mimi & Coco, substantially
in the form of Exhibit B attached hereto (the "Split-Off Agreement").
WHEREAS, Buyer, Acquisition Subsidiary, and the Company desire that the
Merger qualifies as a "plan of reorganization" under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and not subject the
holders of equity securities of the Company to tax liability under the Code.
NOW, THEREFORE, in consideration of the representations, warranties and
covenants herein contained, and for other good and valuable consideration the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Parties
hereto, intending legally to be bound, agree as follows.
ARTICLE I
THE MERGER
1.1 The Merger. Upon and subject to the terms and conditions of this
Agreement, the Company shall merge with and into the Acquisition Subsidiary at
the Effective Time (as defined below). From and after the Effective Time, the
separate corporate existence of the Company shall cease and the Acquisition
Subsidiary shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"). The "Effective Time" shall be the later to occur of
the time at which the Company and the Buyer file a certificate of merger and
other appropriate or required documents prepared and executed in accordance with
Section 251(c) of the Delaware General Corporation Law (the "Certificate of
Merger") with the Secretary of State of Delaware and the time at which the
Company and the Buyer file a copy thereof in accordance with the relevant
provisions of the California Corporations Code with the Secretary of State of
California. The Merger shall have the effects set forth in Section 259 of the
Delaware General Corporation Law and Section 1107 of the California General
Corporation Law (the "California Corporations Code").
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1.2 The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of McGuireWoods LLP in
New York, New York commencing at 9:00 a.m. local time on December 30 2004, or,
if all of the conditions to the obligations of the Parties to consummate the
transactions contemplated hereby have not been satisfied or waived by such date,
on such mutually agreeable later date as soon as practicable (and in any event
not later than three (3) business days) after the satisfaction or waiver of all
conditions (excluding the delivery of any documents to be delivered at the
Closing by any of the Parties) set forth in Article V hereof (the "Closing
Date").
1.3 Actions at the Closing. At the Closing:
(a) the Company shall deliver to the Buyer and the Acquisition
Subsidiary the various certificates, instruments and documents referred to in
Section 5.2;
(b) the Buyer and the Acquisition Subsidiary shall deliver to the
Company the various certificates, instruments and documents referred to in
Section 5.3;
(c) the Surviving Corporation shall file with the Secretary of State
of Delaware the Certificate of Merger;
(d) each of the shareholders of record of the Company immediately
prior to the Effective Time (the "Company Shareholders") shall deliver to the
Buyer the certificate(s) representing his, her or its Company Shares (as defined
below);
(e) the Buyer, shall deliver certificates for the Initial Shares (as
defined below) to each Company Shareholder in accordance with Section 1.5;
(f) the Buyer shall deliver to the Company evidence of the filing
with the Secretary of State of Delaware an amendment to its Certificate of
Incorporation, in substantially the form attached hereto as Exhibit C;
(g) the Surviving Corporation shall file with the Secretary of State
of Delaware an amendment to its Certificate of Incorporation, in substantially
the form attached hereto as Exhibit D; and
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(h) the Buyer, Steven Lazuka (the "Indemnification Representative"),
and McGuireWoods LLP (the "Escrow Agent") shall execute and deliver the Escrow
Agreement in substantially the form attached hereto as Exhibit E (the "Escrow
Agreement") and the Buyer shall deliver to the Escrow Agent a certificate for
the Escrow Shares (as defined below) being placed in escrow on the Closing Date
pursuant to Section 1.9.
1.4 Additional Actions. If at any time after the Effective Time, the
Surviving Corporation shall consider, or be advised that, any further
assignments or assurance in law or any other acts are necessary or desirable to
vest, perfect or confirm, of record or otherwise, in the Surviving Corporation,
title to and possession of any property or right of the Company acquired by
reason of, or as a result of, the Merger, the Company shall be deemed to have
granted to the Surviving Corporation an irrevocable power of attorney to execute
and deliver all such deeds, assignments and assurances in law and to do all acts
necessary or proper to vest, perfect or confirm title to, and possession of,
such property or rights in the Surviving Corporation, and the proper directors
and officers of the Surviving Corporation are fully authorized in the name of
the Company to take any and all such actions.
1.5 Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of any Party or the holder of any of the
following securities:
(a) Each share of Class A Voting Common Stock, no par value per
share, of the Company ("Class A Shares") issued and outstanding immediately
prior to the Effective Time (other than Class A Shares owned beneficially by the
Buyer or the Acquisition Subsidiary and Dissenting Shares (as defined below))
shall be converted into and represent the right to receive (subject to the
provisions of Section 1.9) such number of shares of common stock, $0.001 par
value per share, of the Buyer ("Buyer Common Stock") as is equal to the Common
Conversion Ratio (as defined below).
(b) The "Common Conversion Ratio" shall be equal to 279.133569401,
the result obtained by dividing (i) 17,500,000 shares of Buyer Common Stock by
(ii) 62,694, the total number of outstanding Class A Shares and shares of the
Company's Class B Non-Voting Common Stock ("Class B Shares" and collectively
with the Class A Shares the "Company Shares") immediately prior to the Effective
Time on diluted basis after giving effect to the exercise of all outstanding
Options (as defined below). Shareholders of record of the Company as of
September 1, 2004 (the "Indemnifying Shareholders") shall be entitled to receive
immediately 95% of the shares of Buyer Common Stock into which their Company
Shares were converted pursuant to this Section 1.5 (the "Initial Shares"); the
remaining 5% of the shares of Buyer Common Stock into which their Company Shares
were converted pursuant to this Section 1.5, rounded to the nearest whole number
(with .5 shares rounded upward to the nearest whole number) (the "Escrow
Shares"), shall be deposited in escrow pursuant to Section 1.9 and shall be held
and disposed of in accordance with the terms of the Escrow Agreement. The
Initial Shares and the Escrow Shares shall together be referred to herein as the
"Merger Shares."
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(c) Each share of Class B Shares issued and outstanding immediately
prior to the Effective Time (other than Class B Shares owned beneficially by the
Buyer or the Acquisition Subsidiary) shall be converted into and represent the
right to receive one share of Class B Non-Voting Company Stock, $0.001 par value
per share, of the Acquisition Subsidiary.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means
Company Shares held as of the Effective Time by a Company Shareholder who has
not voted such Company Shares in favor of the adoption of this Agreement and the
Merger and with respect to which appraisal shall have been duly demanded and
perfected in accordance with Chapter 13 of the California Corporations Code and
not effectively withdrawn or forfeited prior to the Effective Time. Dissenting
Shares shall not be converted into or represent the right to receive the Merger
Shares, unless such Company Shareholder's right to appraisal shall have ceased
in accordance with Section 1309 of the California Corporations Code. If such
Company Shareholder has so forfeited or withdrawn his, her or its right to
appraisal of Dissenting Shares, then, (i) as of the occurrence of such event,
such holder's Dissenting Shares shall cease to be Dissenting Shares and shall be
converted into and represent the right to receive the Merger Shares issuable in
respect of such Company Shares pursuant to Section 1.5, and (ii) promptly
following the occurrence of such event, the Buyer shall deliver to such Company
Shareholder a certificate representing 95% of the Merger Shares to which such
holder is entitled pursuant to Section 1.5 (which shares shall be considered
Initial Shares for all purposes of this Agreement) and shall deliver to the
Escrow Agent a certificate representing the remaining 5% of the Merger Shares to
which such holder is entitled pursuant to Section 1.5 (which shares shall be
considered Escrow Shares for all purposes of this Agreement).
(b) The Company shall give the Buyer prompt notice of any written
demands for appraisal of any Company Shares, withdrawals of such demands, and
any other instruments that relate to such demands received by the Company. The
Company shall not, except with the prior written consent of the Buyer, make any
payment with respect to any demands for appraisal of Company Shares or offer to
settle or settle any such demands.
1.7 Fractional Shares. No certificates or scrip representing fractional
Initial Shares shall be issued to Company Shareholders on the surrender for
exchange of certificates that immediately prior to the Effective Time
represented Company Shares converted into Merger Shares pursuant to Section 1.5
("Certificates") and such Company Shareholders shall not be entitled to any
voting rights, rights to receive any dividends or distributions or other rights
as a stockholder of the Buyer with respect to any fractional Initial Shares that
would have otherwise been issued to such Company Shareholders. In lieu of any
fractional Initial Shares that would have otherwise been issued, each former
Company Shareholder that would have been entitled to receive a fractional
Initial Share shall, on proper surrender of such person's Certificates, receive
such whole number of Initial Shares as is equal to the precise number of Initial
Shares to which such Company Shareholder would be entitled, rounded up or down
to the nearest whole number (with a fractional interest equal to .5 rounded
upward to the nearest whole number); provided that each such Company Shareholder
shall receive at least one Initial Share.
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1.8 Options and Warrants.
(a) As of the Effective Time, all options to purchase Class B Shares
issued by the Company ("Old Options"), whether vested or unvested, shall be
canceled and exchanged for options to purchase shares of Buyer Common Stock
("New Options") but only to the extent the holder of such options had elected in
writing prior to the Effective Time to exchange the Old Options for the New
Options in accordance herewith. Immediately after the Effective Time, the holder
of an Old Option so electing will be entitled to exchange his or her Old Option
for a New Option in the Buyer. The New Option shall constitute an option to
acquire such number of shares of Buyer Common Stock as is equal to the number of
Class B Shares subject to the unexercised portion of the Old Option multiplied
by the Common Conversion Ratio (with any fraction resulting from such
multiplication to be rounded down to the nearest whole number). The exercise
price per share of each New Option shall be equal to $1.00. The New Options
shall be granted under Buyer's 2004 Stock Option Plan and that plan's terms,
exercisability, vesting schedule, and status as an "incentive stock option"
under Section 422 of the Code, if applicable.
(b) As soon as practicable after the Effective Time, the Buyer or
the Surviving Corporation shall take appropriate actions to collect the Old
Options and the agreements evidencing the Old Options, which shall be deemed to
be canceled and shall entitle the holder to exchange the Old Options for New
Options in the Buyer.
(c) Immediately after the Effective Time, each holder of an Old
Option not electing to receive a New Option as provided in Section 1.8(a) above
will be entitled to exchange his or her Old Option for an option to purchase
shares of the Acquisition Subsidiary's Class B Non-Voting Common Stock
("Non-Electing Options"). The Non-Electing Options shall constitute an option to
acquire such number of shares of the Acquisition Subsidiary's Class B Non-Voting
Common Stock as is equal to the number of Class B Shares subject to the
unexercised portion of the Old Option. The exercise price per share of the
Non-Electing Option will be equal to the exercise price of the Old Option and
its terms, exercisability and vesting schedule shall remain unchanged.
(d) The Buyer shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Buyer Common Stock for delivery
upon exercise of the New Options to be exchanged for Old Options in accordance
with this Section 1.8.
(e) The Company shall cause the termination, as of the Effective
Time, of any and all outstanding warrants to purchase capital stock of the
Company (the "Warrants") which remain unexercised.
1.9 Escrow. On the Closing Date, the Buyer shall deliver to the Escrow
Agent a certificate (issued in the name of the Escrow Agent or its nominee)
representing the Escrow Shares, as described in Section 1.5, for the purpose of
securing the indemnification obligations of the Indemnifying Stockholders set
forth in this Agreement. The Escrow Shares shall be held by the Escrow Agent
under the Escrow Agreement, in substantially the form set forth in Exhibit E
attached hereto, pursuant to the terms thereof. The Escrow Shares shall be held
as a trust fund and shall not be subject to any lien, attachment, trustee
process or any other judicial process of any creditor of any party, and shall be
held and disbursed solely for the purposes and in accordance with the terms of
the Escrow Agreement.
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1.10 Articles of Incorporation and Bylaws.
(a) The Certificate of Incorporation of the Acquisition Subsidiary
in effect immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation until duly amended or repealed.
(b) The Bylaws of the Acquisition Subsidiary in effect immediately
prior to the Effective Time shall be the Bylaws of the Surviving Corporation
until duly amended or repealed.
1.11 No Further Rights. From and after the Effective Time, no Company
Shares shall be deemed to be outstanding, and holders of Certificates shall
cease to have any rights with respect thereto, except as provided herein or by
law.
1.12 Closing of Transfer Books. At the Effective Time, the stock transfer
books of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Buyer or the Surviving Corporation, they shall be cancelled and exchanged
for Initial Shares in accordance with Section 1.5, subject to Section 1.9 and to
applicable law in the case of Dissenting Shares.
1.13 Post-Closing Adjustment. In the event that, during the period
commencing from the Closing Date and ending on the second anniversary of the
Closing Date, the Company (or its controlling shareholders immediately prior to
the Merger (the "Controlling Company Shareholders") incurs any Loss with respect
to, in connection with, or arising from any Buyer Liabilities, then promptly
following the filing by the Buyer with the SEC of a quarterly report relating to
the most recent completed quarter for which such determination has been made,
the Buyer shall issue to the Company Shareholders and/or their designees such
number of Company Shares of as would result from dividing (x) the whole dollar
amount representing such Losses by (y) the Common Conversion Ratio. The limit on
the aggregate number of Company Shares issuable under this Section 1.13 shall be
2,000,000. As used in this Section 1.13: (a) "Loss" shall mean any and all costs
and expenses, including reasonable attorneys' fees, court costs, reasonable
accountants' fees, and damages and losses, net of any insurance proceeds
actually received by the party suffering the Loss with respect thereto; (b)
"Claims" shall include, but are not limited to, any claim, notice, suit, action,
investigation, other proceedings (whether actual or threatened); and (c) "Buyer
Liabilities" shall mean all Claims against and liabilities, obligations or
indebtedness of any nature whatsoever of Mimi & Coco, whenever accruing, and the
Buyer, accruing on or before the Closing Date (whether primary, secondary,
direct, indirect, liquidated, unliquidated or contingent, matured or unmatured),
including, but not limited to (i) any breach by the Buyer or the Acquisition
Subsidiary of any of their respective representations or warranties set forth in
Article III herein, (ii) any litigation threatened, pending or for which a basis
exists, that has resulted or may result in the entry of judgment in damages or
otherwise against the Buyer or any Subsidiary; (iii) any and all outstanding
debts owed by the Buyer or any Subsidiary; (iv) any and all internal or employee
related disputes, arbitrations or administrative proceedings threatened, pending
or otherwise outstanding, (v) any and all liens, foreclosures, settlements, or
other threatened, pending or otherwise outstanding financial, legal or similar
obligations of the Buyer or any Subsidiary, as such Liabilities are determined
by the Buyer's independent auditors, on a quarterly basis, including all
Liabilities for any taxes incurred by the Buyer attributable to the Split-Off,
and (vi) all fees and expenses incurred in connection with effecting the
adjustments contemplated by this Section 1.12
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1.14 Exemption From Registration. Buyer and the Company intend that the
shares of Buyer Common Stock to be issued pursuant to Section 1.5 hereof or upon
exercise of options exchanged pursuant to Section 1.8 hereof in each case in
connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act by reason of section 4(2) of the
Securities Act and/or Rule 506 of Regulation D promulgated by the SEC
thereunder.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Buyer that the statements
contained in this Article II are true and correct, except as set forth in the
disclosure schedule provided by the Company to the Buyer on the date hereof and
accepted in writing by the Buyer (the "Disclosure Schedule"). The Disclosure
Schedule shall be arranged in paragraphs corresponding to the numbered and
lettered paragraphs contained in this Article II, and except to the extent that
it is clear from the context thereof that such disclosure also applies to any
other paragraph, the disclosures in any paragraph of the Disclosure Schedule
shall qualify only the corresponding paragraph in this Article II. For purposes
of this Article II, the phrase "to the knowledge of the Company" or any phrase
of similar import shall be deemed to refer to the actual knowledge of the
executive officers of the Company, as well as any other knowledge which such
executive officers would have possessed had they made reasonable inquiry with
respect to the matter in question.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation duly organized, validly existing and in corporate and tax good
standing under the laws of the State of California. The Company is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing, individually or in the
aggregate, has not had and would not reasonably be expected to have a Company
Material Adverse Effect (as defined below). The Company has all requisite
corporate power and authority to carry on the businesses in which it is engaged
and to own and use the properties owned and used by it. The Company has
furnished or made available to the Buyer complete and accurate copies of its
Articles of Incorporation and Bylaws. The Company is not in default under or in
violation of any provision of its Articles of Incorporation, as amended to date,
or its Bylaws, as amended to date. For purposes of this Agreement, "Company
Material Adverse Effect" means a material adverse effect on the assets,
business, condition (financial or otherwise), results of operations or future
prospects of the Company.
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2.2 Capitalization. The authorized capital stock of the Company consists
of (a) 1,000,000 shares of common stock, no par value ("Company Shares"), of
which, 600,000 shares are designated voting Class A common stock and 400,000
shares are designated as non-voting Class B common stock. As of the date of this
Agreement, 56,820 shares of voting Class A common stock were issued and
outstanding, no shares of non-voting Class B common stock were issued and
outstanding and no shares of Class A common stock or Class B common stock were
held in the treasury of the Company. Section 2.2 of the Disclosure Schedule sets
forth a complete and accurate list of (i) all shareholders of the Company,
indicating the number and class of Company Shares held by each shareholder, (ii)
all outstanding Options and Warrants, indicating (A) the holder thereof, (B) the
number and class of Company Shares subject to each Option and Warrant, (C) the
exercise price, date of grant, vesting schedule and expiration date for each
Option or Warrant, and (D) any terms regarding the acceleration of vesting, and
(iii) all stock option plans and other stock or equity-related plans of the
Company. All of the issued and outstanding Company Shares are, and all Company
Shares that may be issued upon exercise of Options or Warrants will be (upon
issuance in accordance with their terms), duly authorized, validly issued, fully
paid, nonassessable and free of all preemptive rights. Other than the Options
and Warrants listed in Section 2.2 of the Disclosure Schedule, there are no
outstanding or authorized options, warrants, rights, agreements or commitments
to which the Company is a party or which are binding upon the Company providing
for the issuance or redemption of any of its capital stock. There are no
outstanding or authorized stock appreciation, phantom stock or similar rights
with respect to the Company. There are no agreements to which the Company is a
party or by which it is bound with respect to the voting (including without
limitation voting trusts or proxies), registration under the Securities Act, or
sale or transfer (including without limitation agreements relating to
pre-emptive rights, rights of first refusal, co-sale rights or "drag-along"
rights) of any securities of the Company. To the knowledge of the Company, there
are no agreements among other parties, to which the Company is not a party and
by which it is not bound, with respect to the voting (including without
limitation voting trusts or proxies) or sale or transfer (including without
limitation agreements relating to rights of first refusal, co-sale rights or
"drag-along" rights) of any securities of the Company. All of the issued and
outstanding Company Shares were issued in compliance with applicable federal and
state securities laws.
2.3 Authorization of Transaction. The Company has all requisite power and
authority to execute and deliver this Agreement and to perform its obligations
hereunder. The execution and delivery by the Company of this Agreement and,
subject to the adoption of this Agreement and the approval of the Merger by a
majority of the votes represented by the outstanding Company Shares entitled to
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vote on this Agreement and the Merger (the "Requisite Company Shareholder
Approval"), the consummation by the Company of the transactions contemplated
hereby have been duly and validly authorized by all necessary corporate action
on the part of the Company. Without limiting the generality of the foregoing,
the Board of Directors of the Company (i) determined that the Merger is fair and
in the best interests of the Company and its shareholders, (ii) adopted this
Agreement in accordance with the provisions of the California Corporations Code,
and (iii) directed that this Agreement and the Merger be submitted to the
shareholders of the Company for their adoption and approval and resolved to
recommend that the shareholders of Company vote in favor of the adoption of this
Agreement and the approval of the Merger. This Agreement has been duly and
validly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in accordance
with its terms.
2.4 Noncontravention. Subject to the filing of the Certificate of Merger
as required by the California General Corporation Law and Delaware General
Corporation Law, neither the execution and delivery by the Company of this
Agreement, nor the consummation by the Company of the transactions contemplated
hereby, will (a) conflict with or violate any provision of the Articles of
Incorporation or Bylaws of the Company, as amended to date, Bylaws or other
organizational document of any Subsidiary (as defined below), (b) require on the
part of the Company or any Subsidiary any filing with, or any permit,
authorization, consent or approval of, any court, arbitrational tribunal,
administrative agency or commission or other governmental or regulatory
authority or agency (a "Governmental Entity"), (c) conflict with, result in a
breach of, constitute (with or without due notice or lapse of time or both) a
default under, result in the acceleration of obligations under, create in any
party the right to terminate, modify or cancel, or require any notice, consent
or waiver under, any contract or instrument to which the Company or any
Subsidiary is a party or by which the Company or any Subsidiary is bound or to
which any of their assets is subject, except for (i) any conflict, breach,
default, acceleration, termination, modification or cancellation which,
individually or in the aggregate, would not have a Company Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby or (ii) any notice, consent or waiver the absence of which,
individually or in the aggregate, would not have a Company Material Adverse
Effect and would not adversely affect the consummation of the transactions
contemplated hereby, (d) result in the imposition of any Security Interest (as
defined below) upon any assets of the Company or any Subsidiary or (e) violate
any order, writ, injunction, decree, statute, rule or regulation applicable to
the Company, any Subsidiary or any of their properties or assets. For purposes
of this Agreement: "Security Interest" means any mortgage, pledge, security
interest, encumbrance, charge or other lien (whether arising by contract or by
operation of law), other than (i) mechanic's, materialmen's, and similar liens,
(ii) liens arising under worker's compensation, unemployment insurance, social
security, retirement, and similar legislation, and (iii) liens on goods in
transit incurred pursuant to documentary letters of credit, in each case arising
in the Ordinary Course of Business (as defined below) of the Company and not
material to the Company; and "Ordinary Course of Business" means the ordinary
course of the Company's business, consistent with past custom and practice
(including with respect to frequency and amount).
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2.5 Subsidiaries.
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the name
of each corporation, partnership, joint venture or other entity in which the
Company has, directly or indirectly, an equity interest representing 50% or more
of the capital stock thereof or other equity interests therein (individually, a
"Subsidiary" and, collectively, the "Subsidiaries"); (ii) the number and type of
outstanding equity securities of each Subsidiary and a list of the holders
thereof; (iii) the jurisdiction of organization of each Subsidiary; (iv) the
names of the officers and directors of each Subsidiary; and (v) the
jurisdictions in which each Subsidiary is qualified or holds licenses to do
business as a foreign corporation or other entity.
(b) Each Subsidiary is a corporation duly organized, validly
existing and in corporate and tax good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Company Material Adverse Effect. Each
Subsidiary has all requisite power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Company has delivered or made available to the Buyer complete and accurate
copies of the charter, Bylaws or other organizational documents of each
Subsidiary. No Subsidiary is in default under or in violation of any provision
of its charter, Bylaws or other organizational documents. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. All
shares of each Subsidiary that are held of record or owned beneficially by
either the Company or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any capital stock of
any Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. There are no voting trusts,
proxies or other agreements or understandings with respect to the voting of any
capital stock of any Subsidiary.
(c) The Company does not control directly or indirectly or have any
direct or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
association which is not a Subsidiary.
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2.6 Financial Statements. The Company has provided or made available to
the Buyer (a) the audited balance sheet of the Company at December 31, 2003, and
the related statements of operations and cash flows for the twelve months then
ended (collectively, the "Company Year-End Financial Statements") and (b) the
unaudited balance sheet of the Company (the "Company Interim Balance Sheet") at
September 30, 2004 (the "Company Interim Balance Sheet Date") and the related
statements of operations and cash flows for the nine months then ended
(collectively, the "Company Interim Financial Statements," and with the Year-End
Financial Statements, the "Company Financial Statements"). The Company Financial
Statements have been prepared in accordance with United States generally
accepted accounting principles ("GAAP") applied on a consistent basis throughout
the periods covered thereby, fairly present the financial condition, results of
operations and cash flows of the Company and the Subsidiaries as of the
respective dates thereof and for the periods referred to therein and are
consistent with the books and records of the Company and the Subsidiaries;
provided, however, that the Company Financial Statements referred to in clause
(b) above are subject to normal recurring year-end adjustments (which will not
be material) and do not include footnotes.
2.7 Absence of Certain Changes. Since the Company Interim Balance Sheet
Date, (a) there has occurred no event or development which, individually or in
the aggregate, has had, or could reasonably be expected to have in the future, a
Company Material Adverse Effect, and (b) neither the Company nor any Subsidiary
has taken any of the actions set forth in paragraphs (a) through (o) of Section
4.4.
2.8 Undisclosed Liabilities. None of the Company and its Subsidiaries has
any liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities shown on the balance sheet referred to in clause (b) of Section 2.6,
(b) liabilities which have arisen since the Company Interim Balance Sheet Date
in the Ordinary Course of Business and (c) contractual and other liabilities
incurred in the Ordinary Course of Business which are not required by GAAP to be
reflected on a balance sheet.
2.9 Tax Matters.
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales,
use, transfer, withholding, employment, unemployment
insurance, social security, business license, business
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organization, environmental, workers compensation, payroll,
profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of
America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines,
penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any
contest or dispute thereof.
(ii) "Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Each of the Company and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file, and all such Tax Returns
were complete and accurate in all material respects. Neither the Company nor any
Subsidiary is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary Tax
Returns, other than a group of which only the Company and the Subsidiaries are
or were members. Each of the Company and the Subsidiaries has paid on a timely
basis all Taxes that were due and payable. The unpaid Taxes of the Company and
the Subsidiaries for tax periods through the Company Interim Balance Sheet Date
do not exceed the accruals and reserves for Taxes (excluding accruals and
reserves for deferred Taxes established to reflect timing differences between
book and Tax income) set forth on the Company Interim Balance Sheet. Neither the
Company nor any Subsidiary has any actual or potential liability for any Tax
obligation of any taxpayer (including without limitation any affiliated group of
corporations or other entities that included the Company or any Subsidiary
during a prior period) other than the Company and the Subsidiaries. All Taxes
that the Company or any Subsidiary is or was required by law to withhold or
collect have been duly withheld or collected and, to the extent required, have
been paid to the proper Governmental Entity.
(c) The Company has delivered or made available to the Buyer
complete and accurate copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Company or any Subsidiary since December 31, 2001. The federal income Tax
Returns of the Company and each Subsidiary have been audited by the Internal
Revenue Service or are closed by the applicable statute of limitations for all
taxable years through the taxable year specified in Section 2.9(c) of the
Disclosure Schedule. No examination or audit of any Tax Return of the Company or
any Subsidiary by any Governmental Entity is currently in progress or, to the
knowledge of the Company, threatened or contemplated. Neither the Company nor
any Subsidiary has been informed by any jurisdiction that the jurisdiction
believes that the Company or Subsidiary was required to file any Tax Return that
was not filed. Neither the Company nor any Subsidiary has waived any statute of
limitations with respect to Taxes or agreed to an extension of time with respect
to a Tax assessment or deficiency.
(d) Neither the Company nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Company or the Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real property holding
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corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Company and
its Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Company or any Subsidiary: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Company nor any Subsidiary has undergone a change in
its method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481 of the Code.
(g) No state or federal "net operating loss" of the Company
determined as of the Closing Date is subject to limitation on its use pursuant
to Section 382 of the Code or comparable provisions of state law as a result of
any "ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of any state law occurring prior to the Closing Date.
2.10 Assets. Each of the Company and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
No asset of the Company or any Subsidiary (tangible or intangible) is subject to
any Security Interest.
2.11 Owned Real Property. Neither the Company nor any Subsidiary owns any
real property.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists
all real property leased or subleased to or by the Company or any Subsidiary and
lists the term of such lease, any extension and expansion options, and the rent
payable thereunder. The Company has delivered or made available to the Buyer
complete and accurate copies of the leases and subleases listed in Section 2.12
of the Disclosure Schedule. With respect to each lease and sublease listed in
Section 2.12 of the Disclosure Schedule:
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(a) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect;
(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
(c) neither the Company nor any Subsidiary nor, to the knowledge of
the Company, any other party, is in breach or violation of, or default under,
any such lease or sublease, and no event has occurred, is pending or, to the
knowledge of the Company, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Company
or any Subsidiary or, to the knowledge of the Company, any other party under
such lease or sublease;
(d) neither the Company nor any Subsidiary has assigned,
transferred, conveyed, mortgaged, deeded in trust or encumbered any interest in
the leasehold or subleasehold; and
(e) the Company is not aware of any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
lease, except for recorded easements, covenants and other restrictions which do
not materially impair the current uses or the occupancy by the Company or a
Subsidiary of the property subject thereto.
2.13 Intellectual Property.
Each of the Company and the Subsidiaries owns or has the right to use all
Intellectual Property (as defined below) necessary (i) to use, manufacture,
market and distribute the products manufactured, marketed, sold or licensed, and
to provide the services provided, by the Company or the Subsidiaries to other
parties (together, the "Customer Deliverables") and (ii) to operate the internal
systems of the Company or the Subsidiaries that are material to its business or
operations, including, without limitation, computer hardware systems, software
applications and embedded systems (the "Internal Systems"; the Intellectual
Property owned by or licensed to the Company or the Subsidiaries and
incorporated in or underlying the Customer Deliverables or the Internal Systems
is referred to herein as the "Company Intellectual Property"). Each item of
Company Intellectual Property will be owned or available for use by the
Surviving Corporation immediately following the Closing on substantially
identical terms and conditions as it was immediately prior to the Closing. The
Company or the appropriate Subsidiary has taken all reasonable measures to
protect the proprietary nature of each item of Company Intellectual Property. To
the knowledge of the Company, (a) no other person or entity has any rights to
any of the Company Intellectual Property owned by the Company or a Subsidiary
except pursuant to agreements or licenses entered into by the Company and such
person in the ordinary course, and (b) no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual Property. For
purposes of this Agreement, "Intellectual Property" means all (i) patents and
patent applications, (ii) copyrights and registrations thereof, (iii) computer
software, data and documentation, (iv) trade secrets and confidential business
information, whether patentable or unpatentable and whether or not reduced to
practice, know-how, manufacturing and production processes and techniques,
research and development information, copyrightable works, financial, marketing
and business data, pricing and cost information, business and marketing plans
and customer and supplier lists and information, (v) trademarks, service marks,
trade names, domain names and applications and registrations therefor and (vi)
other proprietary rights relating to any of the foregoing.
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2.14 Contracts.
(a) Section 2.14 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Company or any Subsidiary is a party
as of the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties providing for lease payments
in excess of $25,000 per annum or having a remaining term longer than 12 months;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt of services (A)
which calls for performance over a period of more than one year, (B) which
involves more than the sum of $25,000, or (C) in which the Company or any
Subsidiary has granted manufacturing rights, "most favored nation" pricing
provisions or exclusive marketing or distribution rights relating to any
products or territory or has agreed to purchase a minimum quantity of goods or
services or has agreed to purchase goods or services exclusively from a certain
party;
(iii) any agreement establishing a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may create, incur,
assume or guarantee) indebtedness (including capitalized lease obligations)
involving more than $25,000 or under which it has imposed (or may impose) a
Security Interest on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director or
stockholder of the Company or any affiliate (an "Affiliate"), as defined in Rule
12b-2 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), thereof;
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(viii) any agreement under which the consequences of a default
or termination would reasonably be expected to have a Company Material Adverse
Effect;
(ix) any agreement which contains any provisions requiring the
Company or any Subsidiary to indemnify any other party thereto (excluding
indemnities contained in agreements for the purchase, sale or license of
products entered into in the Ordinary Course of Business); and
(x) any other agreement (or group of related agreements)
either involving more than $25,000 or not entered into in the Ordinary Course of
Business.
(b) The Company has delivered or made available to the Buyer a
complete and accurate copy of each agreement listed in Section 2.14 of the
Disclosure Schedule. With respect to each agreement so listed: (i) the agreement
is legal, valid, binding and enforceable and in full force and effect; (ii) the
agreement will continue to be legal, valid, binding and enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing; and (iii) neither the
Company nor any Subsidiary nor, to the knowledge of the Company, any other
party, is in breach or violation of, or default under, any such agreement, and
no event has occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Company or any Subsidiary or, to the
knowledge of the Company, any other party under such contract.
2.15 Accounts Receivable. All accounts receivable of the Company and the
Subsidiaries reflected on the Most Recent Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are current and collectible (within
90 days after the date on which it first became due and payable), net of the
applicable reserve for bad debts on the Most Recent Balance Sheet. All accounts
receivable reflected in the financial or accounting records of the Company that
have arisen since the Company Interim Balance Sheet Date are valid receivables
subject to no setoffs or counterclaims and are collectible (within 90 days after
the date on which it first became due and payable), net of a reserve for bad
debts in an amount proportionate to the reserve shown on the Most Recent Balance
Sheet.
2.16 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Company or any Subsidiary.
2.17 Insurance. Section 2.17 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Company or any Subsidiary is a party. Such insurance policies are of the type
and in amounts customarily carried by organizations conducting businesses or
owning assets similar to those of the Company and the Subsidiaries. There is no
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material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy. All premiums
due and payable under all such policies have been paid, neither the Company nor
any Subsidiary may be liable for retroactive premiums or similar payments, and
the Company and the Subsidiaries are otherwise in compliance in all material
respects with the terms of such policies. The Company has no knowledge of any
threatened termination of, or material premium increase with respect to, any
such policy. Each such policy will continue to be enforceable and in full force
and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing.
2.18 Litigation. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation before any Governmental
Entity or before any arbitrator (a "Legal Proceeding") which is pending or has
been threatened in writing against the Company or any Subsidiary which (a) seeks
either damages in excess of $25,000 or equitable relief or (b) if determined
adversely to the Company or such Subsidiary, could have, individually or in the
aggregate, a Company Material Adverse Effect.
2.19 Warranties. No service sold or delivered by the Company or any
Subsidiary is subject to any guaranty, warranty, right of credit or other
indemnity other than the applicable standard terms and conditions of sale of the
Company or the appropriate Subsidiary, which are set forth in Section 2.19 of
the Disclosure Schedule. Section 2.19 of the Disclosure Schedule sets forth the
aggregate expenses incurred by the Company and the Subsidiaries in fulfilling
their obligations under their guaranty, warranty, and indemnity provisions
during each of the fiscal years and the interim period covered by the Financial
Statements; and the Company does not know of any reason why such expenses should
significantly increase as a percentage of sales in the future.
2.20 Employees.
(a) Section 2.20 of the Disclosure Schedule contains a list of all
employees of the Company and each Subsidiary whose annual rate of compensation
exceeds $75,000 per year, along with the position and the annual rate of
compensation of each such person. Each current or past employee of the Company
or any Subsidiary has entered into a confidentiality/ assignment of inventions
agreement with the Company or such Subsidiary, a copy or form of which has
previously been delivered to the Buyer. Section 2.20 of the Disclosure Schedule
contains a list of all employees of the Company or any Subsidiary who are a
party to a non-competition agreement with the Company or any Subsidiary; copies
of such agreements have previously been delivered to the Buyer. To the knowledge
of the Company, no key employee or group of employees has any plans to terminate
employment with the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Company has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Company or any
Subsidiary. To the knowledge of the Company there are no circumstances or facts
which could individually or collectively give rise to a suit based in
discrimination of any kind.
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2.21 Employee Benefits.
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), any "employee welfare
benefit plan" (as defined in Section 3(1) of ERISA), and any other written or
oral plan, agreement or arrangement involving direct or indirect compensation,
including without limitation insurance coverage, severance benefits, disability
benefits, deferred compensation, bonuses, stock options, stock purchase, phantom
stock, stock appreciation or other forms of incentive compensation or
post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of corporations (as
defined in Section 414(b) of the Code), (2) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (3) an
affiliated service group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which includes or included
the Company or a Subsidiary.
(b) Section 2.21(b) of the Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans maintained, or contributed to,
by the Company, any Subsidiary or any ERISA Affiliate. Complete and accurate
copies of (i) all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans, (iii) all
related trust agreements, insurance contracts and summary plan descriptions, and
(iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all
funded plans) all plan financial statements for the last five plan years for
each Employee Benefit Plan, have been delivered or made available to the Buyer.
Each Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Company, the Subsidiaries and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions thereto.
The Company, each Subsidiary, each ERISA Affiliate and each Employee Benefit
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
without limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the
Code and Sections 601 through 608 and Section 701 et seq. of ERISA). All filings
and reports as to each Employee Benefit Plan required to have been submitted to
the Internal Revenue Service or to the United States Department of Labor have
been duly submitted.
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(c) To the knowledge of the Company, there are no Legal Proceedings
(except claims for benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified domestic relations
orders) against or involving any Employee Benefit Plan or asserting any rights
or claims to benefits under any Employee Benefit Plan that could give rise to
any material liability.
(d) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Closing
Date.
(e) Neither the Company, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(f) At no time has the Company, any Subsidiary or any ERISA
Affiliate been obligated to contribute to any "multiemployer plan" (as defined
in Section 4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Company or any Subsidiary (or to any beneficiary of any such employee),
including but not limited to retiree health coverage and deferred compensation,
but excluding continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Employee Benefit Plan which is
funded are reported at their fair market value on the books and records of such
Employee Benefit Plan.
(h) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Company, any Subsidiary
or any ERISA Affiliate that would subject the Company, any Subsidiary or any
ERISA Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
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(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Company at any time without liability to the Company as a
result thereof and no Employee Benefit Plan, plan documentation or agreement,
summary plan description or other written communication distributed generally to
employees by its terms prohibits the Company from amending or terminating any
such Employee Benefit Plan.
(k) Section 2.21(k) of the Disclosure Schedule discloses each: (i)
agreement with any shareholder, director, executive officer or other key
employee of the Company or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Company or any Subsidiary of the nature of any of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company or any Subsidiary that may be
subject to the tax imposed by Section 4999 of the Code or included in the
determination of such person's "parachute payment" under Section 280G of the
Code; and (iii) agreement or plan binding the Company or any Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness and
disability expenses are accounted for on the Most Recent Balance Sheet and are
adequate and properly reflect the expenses associated therewith in accordance
with generally accepted accounting principles.
2.22 Environmental Matters.
(a) Each of the Company and the Subsidiaries has complied with all
applicable Environmental Laws (as defined below), except for violations of
Environmental Laws that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
There is no pending or, to the knowledge of the Company, threatened civil or
criminal litigation, written notice of violation, formal administrative
proceeding, or investigation, inquiry or information request by any Governmental
Entity, relating to any Environmental Law involving the Company or any
Subsidiary, except for litigation, notices of violations, formal administrative
proceedings or investigations, inquiries or information requests that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. For purposes of this
Agreement, "Environmental Law" means any federal, state or local law, statute,
rule or regulation or the common law relating to the environment or occupational
health and safety, including without limitation any statute, regulation,
administrative decision or order pertaining to (i) treatment, storage, disposal,
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generation and transportation of industrial, toxic or hazardous materials or
substances or solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or threatened release
into the environment of industrial, toxic or hazardous materials or substances,
or solid or hazardous waste, including without limitation emissions, discharges,
injections, spills, escapes or dumping of pollutants, contaminants or chemicals;
(v) the protection of wild life, marine life and wetlands, including without
limitation all endangered and threatened species; (vi) storage tanks, vessels,
containers, abandoned or discarded barrels, and other closed receptacles; (vii)
health and safety of employees and other persons; and (viii) manufacturing,
processing, using, distributing, treating, storing, disposing, transporting or
handling of materials regulated under any law as pollutants, contaminants, toxic
or hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms "release" and "environment" shall have
the meaning set forth in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended ("CERCLA").
(b) Set forth in Section 2.22(b) of the Disclosure Schedule is a
list of all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company or a Subsidiary (whether
conducted by or on behalf of the Company or a Subsidiary or a third party, and
whether done at the initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which were issued or conducted during
the past five years and which the Company has possession of or access to. A
complete and accurate copy of each such document has been provided to the Buyer.
(c) To the knowledge of the Company there is no material
environmental liability with respect to any solid or hazardous waste transporter
or treatment, storage or disposal facility that has been used by the Company or
any Subsidiary.
2.23 Legal Compliance. Each of the Company and the Subsidiaries, and the
conduct and operations of their respective businesses, are in compliance with
each applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse Effect.
2.24 Customers and Suppliers. Section 2.24 of the Disclosure Schedule sets
forth a list of each customer that accounted for more than 5% of the
consolidated revenues of the Company during the last full fiscal year or the
interim period through the Company Interim Balance Sheet Date and the amount of
revenues accounted for by such customer during such period. No such customer has
notified the Company in writing within the past year that it will stop buying
services from the Company or any Subsidiary.
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2.25 Permits. Section 2.25 of the Disclosure Schedule sets forth a list of
all permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) ("Permits") issued to or held by the Company or any Subsidiary.
Such listed Permits are the only Permits that are required for the Company and
the Subsidiaries to conduct their respective businesses as presently conducted
except for those the absence of which, individually or in the aggregate, have
not had and would not reasonably be expected to have a Company Material Adverse
Effect. Each such Permit is in full force and effect and, to the knowledge of
the Company, no suspension or cancellation of such Permit is threatened and
there is no basis for believing that such Permit will not be renewable upon
expiration. Each such Permit will continue in full force and effect immediately
following the Closing.
2.26 Certain Business Relationships With Affiliates. No Affiliate of the
Company or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Company or any Subsidiary, (b)
has any claim or cause of action against the Company or any Subsidiary, or (c)
owes any money to, or is owed any money by, the Company or any Subsidiary.
Section 2.26 of the Disclosure Schedule describes any transactions involving the
receipt or payment in excess of $25,000 in any fiscal year between the Company
or a Subsidiary and any Affiliate thereof which have occurred or existed since
the beginning of the time period covered by the Financial Statements, other than
employment agreements.
2.27 Brokers' Fees. Neither the Company nor any Subsidiary has any
liability or obligation to pay any fees or commissions to any broker, finder or
agent with respect to the transactions contemplated by this Agreement.
2.28 Books and Records. The minute books and other similar records of the
Company and each Subsidiary contain complete and accurate records of all actions
taken at any meetings of the Company's or such Subsidiary's shareholders, Board
of Directors or any committee thereof and of all written consents executed in
lieu of the holding of any such meeting. The books and records of the Company
and each Subsidiary accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of the
Company or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices.
2.29 Disclosure. No representation or warranty by the Company contained in
this Agreement, and no statement contained in the Disclosure Schedule or any
other document, certificate or other instrument delivered or to be delivered by
or on behalf of the Company pursuant to this Agreement, contains or will contain
any untrue statement of a material fact or omits or will omit to state any
material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not misleading.
The Company has disclosed to the Buyer all material information relating to the
business of the Company or any Subsidiary or the transactions contemplated by
this Agreement.
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2.30 Board Actions. The Company's Board of Directors (a) has unanimously
determined that the Merger is fair and in the best interests of the Company
shareholders and is on terms that are fair to such Company shareholders and has
recommended the Merger to the Company shareholders, and (b) shall submit the
Merger and this Agreement to the vote and approval of the Company shareholders
or the approval of the Company shareholders by written consent.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE BUYER
AND THE ACQUISITION SUBSIDIARY
Each of the Buyer and the Acquisition Subsidiary represents and warrants
to the Company as follows:
3.1 Organization, Qualification and Corporate Power. The Buyer is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and the Acquisition Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. The Buyer is duly qualified to conduct business and is in corporate
and tax good standing under the laws of each jurisdiction in which the nature of
its businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified or in good standing
would not have a Buyer Material Adverse Effect (as defined below). The Buyer has
all requisite corporate power and authority to carry on the businesses in which
it is engaged and to own and use the properties owned and used by it. The Buyer
has furnished or made available to the Company complete and accurate copies of
its Certificate of Incorporation and Bylaws. For purposes of this Agreement,
"Buyer Material Adverse Effect" means a material adverse effect on the assets,
business, condition (financial or otherwise), results of operations or future
prospects of the Buyer and its subsidiaries, taken as a whole.
3.2 Capitalization. The authorized capital stock of the Buyer consists of
(a) 200,000,000 shares of Buyer Common Stock, of which 38,301,171 shares were
issued and outstanding as of the date of this Agreement, and (b) 25,000,000
shares of Preferred Stock, $.001 par value per share, of which no shares are
issued or outstanding. The Buyer Common Stock is presently eligible for
quotation on the NASD Over-the-Counter Bulletin Board. All of the issued and
outstanding shares of Buyer Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of all preemptive rights. All of the Merger
Shares and all shares of Buyer Common Stock issued pursuant to the Subscription
Agreement will be, when issued in accordance with this Agreement or the
Subscription Agreement, duly authorized, validly issued, fully paid,
nonassessable and free of all preemptive rights.
3.3 Authorization of Transaction. Each of the Buyer and the Acquisition
Subsidiary has all requisite power and authority to execute and deliver this
Agreement and (in the case of the Buyer) the Escrow Agreement and to perform its
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obligations hereunder and thereunder. The execution and delivery by the Buyer
and the Acquisition Subsidiary of this Agreement and (in the case of the Buyer)
the Subscription Agreement and the Split-Off Agreement, and the agreements
contemplated hereby and thereby (collectively, the "Transaction Documentation")
and subject to the adoption of this Agreement and the approval of the Merger by
a majority of the votes represented by the outstanding Buyer Common Stock
entitled to vote on this Agreement and the Merger (the "Requisite Buyer
Stockholder Approval") the consummation by the Buyer and the Acquisition
Subsidiary of the transactions contemplated hereby and thereby have been duly
and validly authorized by all necessary corporate action on the part of the
Buyer and Acquisition Subsidiary, respectively. This Agreement has been duly and
validly executed and delivered by the Buyer and the Acquisition Subsidiary and
constitutes a valid and binding obligation of the Buyer and the Acquisition
Subsidiary, enforceable against them in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable
requirements of the Securities Act and any applicable state securities laws, the
Exchange Act and the filing of the Certificate of Merger as required by the
California Corporations Code and the Delaware General Corporation Law, neither
the execution and delivery by the Buyer or the Acquisition Subsidiary of this
Agreement or the Transaction Documentation , nor the consummation by the Buyer
or the Acquisition Subsidiary of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of the Certificate of
Incorporation or Bylaws of the Buyer or the Acquisition Subsidiary, (b) require
on the part of the Buyer or the Acquisition Subsidiary any filing with, or
permit, authorization, consent or approval of, any Governmental Entity, (c)
conflict with, result in breach of, constitute (with or without due notice or
lapse of time or both) a default under, result in the acceleration of
obligations under, create in any party any right to terminate, modify or cancel,
or require any notice, consent or waiver under, any contract or instrument to
which the Buyer or the Acquisition Subsidiary is a party or by which either is
bound or to which any of their assets are subject, except for (i) any conflict,
breach, default, acceleration, termination, modification or cancellation which
would not adversely affect the consummation of the transactions contemplated
hereby or (ii) any notice, consent or waiver the absence of which would not
adversely affect the consummation of the transactions contemplated hereby, or
(d) violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Buyer or the Acquisition Subsidiary or any of their properties
or assets.
3.5 Subsidiaries.
(a) Section 3.5 of the Disclosure Schedule sets forth: (i) the name
of each corporation, partnership, joint venture or other entity in which the
Buyer has, directly or indirectly, an equity interest representing 50% or more
of the capital stock thereof or other equity interests therein (individually, a
"Subsidiary" and, collectively, the "Subsidiaries"); (ii) the number and type of
outstanding equity securities of each Subsidiary and a list of the holders
thereof; (iii) the jurisdiction of organization of each Subsidiary; (iv) the
names of the officers and directors of each Subsidiary; and (v) the
jurisdictions in which each Subsidiary is qualified or holds licenses to do
business as a foreign corporation or other entity.
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(b) Each Subsidiary is a corporation duly organized, validly
existing and in corporate and tax good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary is duly qualified to conduct
business and is in corporate and tax good standing under the laws of each
jurisdiction in which the nature of its businesses or the ownership or leasing
of its properties requires such qualification, except where the failure to be so
qualified or in good standing, individually or in the aggregate, has not had and
would not reasonably be expected to have a Buyer Material Adverse Effect. Each
Subsidiary has all requisite power and authority to carry on the businesses in
which it is engaged and to own and use the properties owned and used by it. The
Buyer has delivered or made available to the Company complete and accurate
copies of the charter, Bylaws or other organizational documents of each
Subsidiary. No Subsidiary is in default under or in violation of any provision
of its charter, Bylaws or other organizational documents. All of the issued and
outstanding shares of capital stock of each Subsidiary are duly authorized,
validly issued, fully paid, nonassessable and free of preemptive rights. All
shares of each Subsidiary that are held of record or owned beneficially by
either the Buyer or any Subsidiary are held or owned free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Buyer or any Subsidiary is a party or which are binding on any of them providing
for the issuance, disposition or acquisition of any capital stock of any
Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. There are no voting trusts,
proxies or other agreements or understandings with respect to the voting of any
capital stock of any Subsidiary.
(c) The Buyer does not control directly or indirectly or have any
direct or indirect equity participation or similar interest in any corporation,
partnership, limited liability company, joint venture, trust or other business
association which is not a Subsidiary.
(d) At all times from December 14, 2000 through the date of this
Agreement, the business and operations of the Buyer have been conducted
exclusively through Mimi & Coco.
3.6 Exchange Act Reports. The Buyer has furnished or made available to the
Company complete and accurate copies, as amended or supplemented, of its (a)
Quarterly Report on Form 10-QSB for the quarter ended September 30, 2004, as
filed with the Securities and Exchange Commission (the "SEC"), and (b) all other
reports filed by the Buyer under Section 13 or subsections (a) or (c) of Section
14 of the Exchange Act with the SEC since July 31, 2002 (such reports are
collectively referred to herein as the "Buyer Reports"). The Buyer Reports
constitute all of the documents required to be filed by the Buyer under Section
13 or subsections (a) or (c) of Section 14 of the Exchange Act with the SEC from
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July 31, 2002 through the date of this Agreement. The Buyer Reports complied in
all material respects with the requirements of the Exchange Act and the rules
and regulations thereunder when filed. As of their respective dates, the Buyer
Reports did not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. No order suspending the effectiveness of the Buyer's
registration statement on Form SB-2 has been issued by the SEC and to the
Buyer's knowledge, no proceedings for that purpose have been initiated or
threatened by the SEC.
3.7 Compliance with Laws. Each of the Buyer and its Subsidiaries:
(a) and the conduct and operations of their respective businesses,
are in compliance with each applicable law (including rules and regulations
thereunder) of any federal, state, local or foreign government, or any
Governmental Entity, except for any violations or defaults that, individually or
in the aggregate, have not had and would not reasonably be expected to have a
Buyer Material Adverse Effect;
(b) has complied with all federal and state securities laws and
regulations, including being current in all of its reporting obligations under
such federal and state securities laws and regulations;
(c) has not, and the past and present officers, directors and
Affiliates of the Buyer have not, been the subject of, nor does any officer or
director of the Buyer have any reason to believe that Buyer or any of its
officers, directors or Affiliates will be the subject of, any civil or criminal
proceeding or investigation by any federal or state agency alleging a violation
of securities laws;
(d) has not been the subject of any voluntary or involuntary
bankruptcy proceeding, nor has it been a party to any material litigation;
(e) has not, and the past and present officers, directors and
Affiliates have not, been the subject of, nor does any officer or director of
the Buyer have any reason to believe that the Buyer or any of its officers,
directors or affiliates will be the subject of, any civil, criminal or
administrative investigation or proceeding brought by any federal or state
agency having regulatory authority over such entity or person;
(f) does not and will not on the Closing, have any liabilities,
contingent or otherwise, including but not limited to notes payable and accounts
payable, and is not a party to any executory agreements; and
(g) is not a "blank check company" as such term is defined by Rule
419 of the Securities Act.
3.8 Financial Statements. The Buyer has provided or made available to the
Company the unaudited and consolidated balance sheet (the "Buyer Interim Balance
Sheet") as of and for each of the nine months ended September 30, 2004 (the
"Buyer Interim Balance Sheet Date") and related statements of operations and
cash flows (collectively, the "Buyer Interim Financial Statements"). The audited
financial statements and unaudited interim financial statements of the Buyer
included in the Buyer Reports and the Buyer Interim Financial Statements
(collectively, the "Buyer Financial Statements") (i) complied as to form in all
material respects with applicable accounting requirements and, as appropriate,
the published rules and regulations of the SEC with respect thereto when filed,
(ii) were prepared in accordance with GAAP applied on a consistent basis
throughout the periods covered thereby (except as may be indicated therein or in
the notes thereto, and in the case of quarterly financial statements, as
permitted by Form 10-QSB under the Exchange Act), (iii) fairly present the
consolidated financial condition, results of operations and cash flows of the
Buyer as of the respective dates thereof and for the periods referred to
therein, and (iv) are consistent with the books and records of the Buyer.
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3.9 Absence of Certain Changes. Since the Buyer Interim Balance Sheet
Date, there has occurred no event or development which, individually or in the
aggregate, has had, or could reasonably be expected to have in the future, a
Buyer Material Adverse Effect.
3.10 Litigation. Except as disclosed in the Buyer Reports, as of the date
of this Agreement, there is no Legal Proceeding which is pending or, to the
Buyer's knowledge, threatened against the Buyer or any subsidiary of the Buyer
which, if determined adversely to the Buyer or such subsidiary, could have,
individually or in the aggregate, a Buyer Material Adverse Effect or which in
any manner challenges or seeks to prevent, enjoin, alter or delay the
transactions contemplated by this Agreement.
3.11 Undisclosed Liabilities. None of the Buyer and its Subsidiaries has
any liability (whether known or unknown, whether absolute or contingent, whether
liquidated or unliquidated and whether due or to become due), except for (a)
liabilities shown on the Buyer Interim Balance Sheet, (b) liabilities which have
arisen since the Buyer Interim Balance Sheet Date in the Ordinary Course of
Business and (c) contractual and other liabilities incurred in the Ordinary
Course of Business which are not required by GAAP to be reflected on a balance
sheet.
3.12 Tax Matters.
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Taxes" means all taxes, charges, fees, levies or other
similar assessments or liabilities, including without
limitation income, gross receipts, ad valorem, premium,
value-added, excise, real property, personal property, sales,
use, transfer, withholding, employment, unemployment
insurance, social security, business license, business
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organization, environmental, workers compensation, payroll,
profits, license, lease, service, service use, severance,
stamp, occupation, windfall profits, customs, duties,
franchise and other taxes imposed by the United States of
America or any state, local or foreign government, or any
agency thereof, or other political subdivision of the United
States or any such government, and any interest, fines,
penalties, assessments or additions to tax resulting from,
attributable to or incurred in connection with any tax or any
contest or dispute thereof.
(ii) Tax Returns" means all reports, returns, declarations,
statements or other information required to be supplied to a
taxing authority in connection with Taxes.
(b) Each of the Buyer and the Subsidiaries has filed on a timely
basis all Tax Returns that it was required to file, and all such Tax Returns
were complete and accurate in all material respects. Neither the Buyer nor any
Subsidiary is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary Tax
Returns, other than a group of which only the Buyer and the Subsidiaries are or
were members. Each of the Buyer and the Subsidiaries has paid on a timely basis
all Taxes that were due and payable. The unpaid Taxes of the Buyer and the
Subsidiaries for tax periods through the Buyer Interim Balance Sheet Date do not
exceed the accruals and reserves for Taxes (excluding accruals and reserves for
deferred Taxes established to reflect timing differences between book and Tax
income) set forth on the Buyer Interim Balance Sheet. Neither the Buyer nor any
Subsidiary has any actual or potential liability for any Tax obligation of any
taxpayer (including without limitation any affiliated group of corporations or
other entities that included the Buyer or any Subsidiary during a prior period)
other than the Buyer and the Subsidiaries. All Taxes that the Buyer or any
Subsidiary is or was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Entity.
(c) The Buyer has delivered or made available to the Company
complete and accurate copies of all federal income Tax Returns, examination
reports and statements of deficiencies assessed against or agreed to by the
Buyer or any Subsidiary since December 31, 2001. The federal income Tax Returns
of the Buyer and each Subsidiary have been audited by the Internal Revenue
Service or are closed by the applicable statute of limitations for all taxable
years through the taxable year specified in Section 3.12(c) of the Disclosure
Schedule. No examination or audit of any Tax Return of the Buyer or any
Subsidiary by any Governmental Entity is currently in progress or, to the
knowledge of the Buyer, threatened or contemplated. Neither the Buyer nor any
Subsidiary has been informed by any jurisdiction that the jurisdiction believes
that the Buyer or Subsidiary was required to file any Tax Return that was not
filed. Neither the Buyer nor any Subsidiary has waived any statute of
limitations with respect to Taxes or agreed to an extension of time with respect
to a Tax assessment or deficiency.
(d) Neither the Buyer nor any Subsidiary: (i) is a "consenting
corporation" within the meaning of Section 341(f) of the Code, and none of the
assets of the Buyer or the Subsidiaries are subject to an election under Section
341(f) of the Code; (ii) has been a United States real property holding
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corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(l)(A)(ii) of the Code; (iii) has
made any payments, is obligated to make any payments, or is a party to any
agreement that could obligate it to make any payments that may be treated as an
"excess parachute payment" under Section 280G of the Code; (iv) has any actual
or potential liability for any Taxes of any person (other than the Buyer and its
Subsidiaries) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; or (v) is or has been required to make a
basis reduction pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury
Regulation Section 1.337(d)-2(b).
(e) None of the assets of the Buyer or any Subsidiary: (i) is
property that is required to be treated as being owned by any other person
pursuant to the provisions of former Section 168(f)(8) of the Code; (ii) is
"tax-exempt use property" within the meaning of Section 168(h) of the Code; or
(iii) directly or indirectly secures any debt the interest on which is tax
exempt under Section 103(a) of the Code.
(f) Neither the Buyer nor any Subsidiary has undergone a change in
its method of accounting resulting in an adjustment to its taxable income
pursuant to Section 481 of the Code.
(g) No state or federal "net operating loss" of the Buyer determined
as of the Closing Date is subject to limitation on its use pursuant to Section
382 of the Code or comparable provisions of state law as a result of any
"ownership change" within the meaning of Section 382(g) of the Code or
comparable provisions of any state law occurring prior to the Closing Date.
3.13 Assets. Each of the Buyer and the Subsidiaries owns or leases all
tangible assets necessary for the conduct of its businesses as presently
conducted and as presently proposed to be conducted. Each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is used.
No asset of the Buyer or any Subsidiary (tangible or intangible) is subject to
any Security Interest.
3.14 Owned Real Property. Neither the Buyer nor any Subsidiary owns any
real property.
3.15 Real Property Leases. Section 3.15 of the Disclosure Schedule lists
all real property leased or subleased to or by the Buyer or any Subsidiary and
lists the term of such lease, any extension and expansion options, and the rent
payable thereunder. The Buyer has delivered or made available to the Company
complete and accurate copies of the leases and subleases listed in Section 3.15
of the Disclosure Schedule. With respect to each lease and sublease listed in
Section 3.15 of the Disclosure Schedule:
(a) the lease or sublease is legal, valid, binding, enforceable and
in full force and effect;
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(b) the lease or sublease will continue to be legal, valid, binding,
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
(c) neither the Buyer nor any Subsidiary nor, to the knowledge of
the Buyer, any other party, is in breach or violation of, or default under, any
such lease or sublease, and no event has occurred, is pending or, to the
knowledge of the Buyer, is threatened, which, after the giving of notice, with
lapse of time, or otherwise, would constitute a breach or default by the Buyer
or any Subsidiary or, to the knowledge of the Buyer, any other party under such
lease or sublease;
(d) neither the Buyer nor any Subsidiary has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest in the leasehold
or subleasehold; and
(e) the Buyer is not aware of any Security Interest, easement, covenant or
other restriction applicable to the real property subject to such lease, except
for recorded easements, covenants and other restrictions which do not materially
impair the current uses or the occupancy by the Buyer or a Subsidiary of the
property subject thereto.
3.16 Intellectual Property.
(a) Each of the Buyer and the Subsidiaries owns or has the right to
use all Intellectual Property necessary (i) to use, manufacture, market and
distribute the products manufactured, marketed, sold or licensed, and to provide
the services provided, by the Buyer or the Subsidiaries to other parties
(together, the "Buyer Customer Deliverables") and (ii) to operate the internal
systems of the Buyer or the Subsidiaries that are material to its business or
operations, including, without limitation, computer hardware systems, software
applications and embedded systems (the "Buyer Internal Systems"; the
Intellectual Property owned by or licensed to the Buyer or the Subsidiaries and
incorporated in or underlying the Buyer Customer Deliverables or the Internal
Systems is referred to herein as the "Buyer Intellectual Property"). The Buyer
or the appropriate Subsidiary has taken all reasonable measures to protect the
proprietary nature of each item of Buyer Intellectual Property. To the knowledge
of the Buyer, (a) no other person or entity has any rights to any of the Buyer
Intellectual Property owned by the Buyer or a Subsidiary (except pursuant to
agreements or licenses specified in Section 3.16(c) of the Disclosure Schedule),
and (b) no other person or entity is infringing, violating or misappropriating
any of the Buyer Intellectual Property. All of the Buyer Intellectual Property
is owned by Mimi & Coco.
(b) None of the Buyer Customer Deliverables, or the marketing,
distribution, provision or use thereof, infringes or violates, or constitutes a
misappropriation of, any Intellectual Property rights of any person or entity.
To the knowledge of the Buyer, none of the Internal Systems, or the use thereof,
infringes or violates, or constitutes a misappropriation of, any Intellectual
Property rights of any person or entity. Section 3.16(b) of the Disclosure
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Schedule lists any complaint, claim or notice, or written threat thereof,
received by the Buyer or any Subsidiary alleging any such infringement,
violation or misappropriation; and the Buyer has provided or made available to
the Company complete and accurate copies of all written documentation in the
possession of the Buyer or any Subsidiary relating to any such complaint, claim,
notice or threat. The Buyer has provided or made available to the Company
complete and accurate copies of all written documentation in the Buyer's
possession relating to claims or disputes known to the Buyer concerning any
Buyer Intellectual Property.
(c) Section 3.16(c) of the Disclosure Schedule identifies each
license or other agreement (or type of license or other agreement) pursuant to
which the Buyer or a Subsidiary has licensed, distributed or otherwise granted
any rights to any third party with respect to, any Buyer Intellectual Property.
(d) Section 3.16(d) of the Disclosure Schedule identifies each item
of Buyer Intellectual Property that is owned by a party other than the Buyer or
a Subsidiary, and the license or agreement pursuant to which the Buyer or a
Subsidiary uses it (excluding off-the-shelf software programs licensed by the
Buyer pursuant to "shrink wrap" licenses).
3.17 Contracts.
(a) Section 3.17 of the Disclosure Schedule lists the following
agreements (written or oral) to which the Buyer or any Subsidiary is a party as
of the date of this Agreement:
(i) any agreement (or group of related agreements) for the
lease of personal property from or to third parties;
(ii) any agreement (or group of related agreements) for the
purchase or sale of products or for the furnishing or receipt
of services (A) which calls for performance over a period of
more than one year, (B) which involves more than the sum of
$5,000, or (C) in which the Buyer or any Subsidiary has
granted manufacturing rights, "most favored nation" pricing
provisions or exclusive marketing or distribution rights
relating to any products or territory or has agreed to
purchase a minimum quantity of goods or services or has agreed
to purchase goods or services exclusively from a certain
party;
(iii) any agreement establishing a partnership or joint
venture;
(iv) any agreement (or group of related agreements) under
which it has created, incurred, assumed or guaranteed (or may
create, incur, assume or guarantee) indebtedness (including
capitalized lease obligations) involving more than $5,000 or
under which it has imposed (or may impose) a Security Interest
on any of its assets, tangible or intangible;
(v) any agreement concerning confidentiality or
noncompetition;
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(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director or
stockholder of the Buyer or any Affiliate thereof;
(viii) any agreement under which the consequences of a default
or termination would reasonably be expected to have a Buyer
Material Adverse Effect;
(ix) any agreement which contains any provisions requiring the
Buyer or any Subsidiary to indemnify any other party thereto
(excluding indemnities contained in agreements for the
purchase, sale or license of products entered into in the
Ordinary Course of Business); and
(x) any other agreement (or group of related agreements)
either involving more than $5,000 or not entered into in the
Ordinary Course of Business.
(b) The Buyer has delivered or made available to the Company a
complete and accurate copy of each agreement listed in Section 3.16 or Section
3.17 of the Disclosure Schedule. With respect to each agreement so listed: (i)
the agreement is legal, valid, binding and enforceable and in full force and
effect; (ii) the agreement will continue to be legal, valid, binding and
enforceable and in full force and effect immediately following the Closing in
accordance with the terms thereof as in effect immediately prior to the Closing;
and (iii) neither the Buyer nor any Subsidiary nor, to the knowledge of the
Buyer, any other party, is in breach or violation of, or default under, any such
agreement, and no event has occurred, is pending or, to the knowledge of the
Buyer, is threatened, which, after the giving of notice, with lapse of time, or
otherwise, would constitute a breach or default by the Buyer or any Subsidiary
or, to the knowledge of the Buyer, any other party under such contract.
3.18 Accounts Receivable. All accounts receivable of the Buyer and the
Subsidiaries reflected on the Buyer Interim Balance Sheet are valid receivables
subject to no setoffs or counterclaims and are current and collectible (within
90 days after the date on which it first became due and payable), net of the
applicable reserve for bad debts on the Buyer Interim Balance Sheet. All
accounts receivable reflected in the financial or accounting records of the
Buyer that have arisen since the Buyer Interim Balance Sheet Date are valid
receivables subject to no setoffs or counterclaims and are collectible (within
90 days after the date on which it first became due and payable), net of a
reserve for bad debts in an amount proportionate to the reserve shown on the
Buyer Interim Balance Sheet Date.
3.19 Powers of Attorney. There are no outstanding powers of attorney
executed on behalf of the Buyer or any Subsidiary.
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3.20 Insurance. Section 3.20 of the Disclosure Schedule lists each
insurance policy (including fire, theft, casualty, general liability, workers
compensation, business interruption, environmental, product liability and
automobile insurance policies and bond and surety arrangements) to which the
Buyer or any Subsidiary is a party. Such insurance policies are of the type and
in amounts customarily carried by organizations conducting businesses or owning
assets similar to those of the Buyer and the Subsidiaries. There is no material
claim pending under any such policy as to which coverage has been questioned,
denied or disputed by the underwriter of such policy. All premiums due and
payable under all such policies have been paid, neither the Buyer nor any
Subsidiary may be liable for retroactive premiums or similar payments, and the
Buyer and the Subsidiaries are otherwise in compliance in all material respects
with the terms of such policies. The Buyer has no knowledge of any threatened
termination of, or material premium increase with respect to, any such policy.
Each such policy will continue to be enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing.
3.21 Warranties. No service sold or delivered by the Buyer or any
Subsidiary is subject to any guaranty, warranty, right of credit or other
indemnity other than the applicable standard terms and conditions of sale of the
Buyer or the appropriate Subsidiary, which are set forth in Section 3.21 of the
Disclosure Schedule. Section 3.21 of the Disclosure Schedule sets forth the
aggregate expenses incurred by the Buyer and the Subsidiaries in fulfilling
their obligations under their guaranty, warranty, and indemnity provisions
during each of the fiscal years and the interim period covered by the Buyer
Financial Statements; and the Buyer does not know of any reason why such
expenses should significantly increase as a percentage of sales in the future.
3.22 Employees.
(a) Section 3.22 of the Disclosure Schedule contains a list of all
employees of the Buyer and each Subsidiary whose annual rate of compensation
exceeds $50,000 per year, along with the position and the annual rate of
compensation of each such person. Each current or past employee of the Buyer or
any Subsidiary has entered into a confidentiality/assignment of inventions
agreement with the Buyer or such Subsidiary, a copy or form of which has
previously been delivered to the Company. Section 3.22 of the Disclosure
Schedule contains a list of all employees of the Buyer or any Subsidiary who are
a party to a non-competition agreement with the Buyer or any Subsidiary; copies
of such agreements have previously been delivered to the Company. To the
knowledge of the Buyer, no key employee or group of employees has any plans to
terminate employment with the Buyer or any Subsidiary.
(b) Neither the Buyer nor any Subsidiary is a party to or bound by
any collective bargaining agreement, nor has any of them experienced any
strikes, grievances, claims of unfair labor practices or other collective
bargaining disputes. The Buyer has no knowledge of any organizational effort
made or threatened, either currently or within the past two years, by or on
behalf of any labor union with respect to employees of the Buyer or any
Subsidiary.
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3.23 Employee Benefits.
(a) For purposes of this Agreement, the following terms shall have
the following meanings:
(i) "Employee Benefit Plan" means any "employee pension
benefit plan" (as defined in Section 3(2) of ERISA), any
"employee welfare benefit plan" (as defined in Section 3(1) of
ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation,
including without limitation insurance coverage, severance
benefits, disability benefits, deferred compensation, bonuses,
stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or
post-retirement compensation.
(ii) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(iii) "ERISA Affiliate" means any entity which is, or at any
applicable time was, a member of (1) a controlled group of
corporations (as defined in Section 414(b) of the Code), (2) a
group of trades or businesses under common control (as defined
in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the
regulations under Section 414(o) of the Code), any of which
includes or included the Company or a Subsidiary.
(b) Section 3.23(b) of the Disclosure Schedule contains a complete
and accurate list of all Employee Benefit Plans maintained, or contributed to,
by the Buyer, any Subsidiary or any ERISA Affiliate. Complete and accurate
copies of (i) all Employee Benefit Plans which have been reduced to writing,
(ii) written summaries of all unwritten Employee Benefit Plans, (iii) all
related trust agreements, insurance contracts and summary plan descriptions, and
(iv) all annual reports filed on IRS Form 5500, 5500C or 5500R and (for all
funded plans) all plan financial statements for the last five plan years for
each Employee Benefit Plan, have been delivered or made available to the Buyer.
Each Employee Benefit Plan has been administered in all material respects in
accordance with its terms and each of the Buyer, the Subsidiaries and the ERISA
Affiliates has in all material respects met its obligations with respect to such
Employee Benefit Plan and has made all required contributions thereto. The
Buyer, each Subsidiary, each ERISA Affiliate and each Employee Benefit Plan are
in compliance in all material respects with the currently applicable provisions
of ERISA and the Code and the regulations thereunder (including without
limitation Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and
Sections 601 through 608 and Section 701 et seq. of ERISA). All filings and
reports as to each Employee Benefit Plan required to have been submitted to the
Internal Revenue Service or to the United States Department of Labor have been
duly submitted.
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(c) To the knowledge of the Buyer, there are no Legal Proceedings
(except claims for benefits payable in the normal operation of the Employee
Benefit Plans and proceedings with respect to qualified domestic relations
orders) against or involving any Employee Benefit Plan or asserting any rights
or claims to benefits under any Employee Benefit Plan that could give rise to
any material liability.
(d) All the Employee Benefit Plans that are intended to be qualified
under Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code, no
such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is required to
satisfy Section 401(k)(3) or Section 401(m)(2) of the Code has been tested for
compliance with, and satisfies the requirements of, Section 401(k)(3) and
Section 401(m)(2) of the Code for each plan year ending prior to the Closing
Date.
(e) Neither the Buyer, any Subsidiary, nor any ERISA Affiliate has
ever maintained an Employee Benefit Plan subject to Section 412 of the Code or
Title IV of ERISA.
(f) At no time has the Buyer, any Subsidiary or any ERISA Affiliate
been obligated to contribute to any "multiemployer plan" (as defined in Section
4001(a)(3) of ERISA).
(g) There are no unfunded obligations under any Employee Benefit
Plan providing benefits after termination of employment to any employee of the
Buyer or any Subsidiary (or to any beneficiary of any such employee), including
but not limited to retiree health coverage and deferred compensation, but
excluding continuation of health coverage required to be continued under Section
4980B of the Code or other applicable law and insurance conversion privileges
under state law. The assets of each Employee Benefit Plan which is funded are
reported at their fair market value on the books and records of such Employee
Benefit Plan.
(h) No act or omission has occurred and no condition exists with
respect to any Employee Benefit Plan maintained by the Buyer, any Subsidiary or
any ERISA Affiliate that would subject the Buyer, any Subsidiary or any ERISA
Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i) No Employee Benefit Plan is funded by, associated with or
related to a "voluntary employee's beneficiary association" within the meaning
of Section 501(c)(9) of the Code.
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(j) Each Employee Benefit Plan is amendable and terminable
unilaterally by the Buyer at any time without liability to the Buyer as a result
thereof and no Employee Benefit Plan, plan documentation or agreement, summary
plan description or other written communication distributed generally to
employees by its terms prohibits the Buyer from amending or terminating any such
Employee Benefit Plan.
(k) Section 3.23(k) of the Disclosure Schedule discloses each: (i)
agreement with any stockholder, director, executive officer or other key
employee of the Buyer or any Subsidiary (A) the benefits of which are
contingent, or the terms of which are materially altered, upon the occurrence of
a transaction involving the Buyer or any Subsidiary of the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Buyer or any Subsidiary that may be subject
to the tax imposed by Section 4999 of the Code or included in the determination
of such person's "parachute payment" under Section 280G of the Code; and (iii)
agreement or plan binding the Buyer or any Subsidiary, including without
limitation any stock option plan, stock appreciation right plan, restricted
stock plan, stock purchase plan, severance benefit plan or Employee Benefit
Plan, any of the benefits of which will be increased, or the vesting of the
benefits of which will be accelerated, by the occurrence of any of the
transactions contemplated by this Agreement or the value of any of the benefits
of which will be calculated on the basis of any of the transactions contemplated
by this Agreement. The accruals for vacation, sickness and disability expenses
are accounted for on the Most Recent Balance Sheet and are adequate and properly
reflect the expenses associated therewith in accordance with generally accepted
accounting principles.
3.24 Environmental Matters.
(a) Each of the Buyer and the Subsidiaries has complied with all
applicable Environmental Laws, except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Buyer Material Adverse Effect. There is no pending or, to the
knowledge of the Buyer, threatened civil or criminal litigation, written notice
of violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Buyer or any Subsidiary, except for litigation, notices of
violations, formal administrative proceedings or investigations, inquiries or
information requests that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Buyer Material Adverse Effect.
(b) Set forth in Section 3.24(b) of the Disclosure Schedule is a
list of all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Buyer or a Subsidiary (whether conducted
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by or on behalf of the Buyer or a Subsidiary or a third party, and whether done
at the initiative of the Buyer or a Subsidiary or directed by a Governmental
Entity or other third party) which were issued or conducted during the past five
years and which the Buyer has possession of or access to. A complete and
accurate copy of each such document has been provided to the Buyer.
(c) The Buyer is not aware of any material environmental liability
of any solid or hazardous waste transporter or treatment, storage or disposal
facility that has been used by the Buyer or any Subsidiary.
3.25 Permits. Section 3.25 of the Disclosure Schedule sets forth a list of
all permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) ("Buyer Permits") issued to or held by the Buyer or any
Subsidiary. Such listed Permits are the only Buyer Permits that are required for
the Buyer and the Subsidiaries to conduct their respective businesses as
presently conducted except for those the absence of which, individually or in
the aggregate, have not had and would not reasonably be expected to have a Buyer
Material Adverse Effect. Each such Buyer Permit is in full force and effect and,
to the knowledge of the Buyer, no suspension or cancellation of such Buyer
Permit is threatened and there is no basis for believing that such Buyer Permit
will not be renewable upon expiration. Each such Buyer Permit will continue in
full force and effect immediately following the Closing.
3.26 Certain Business Relationships With Affiliates. No Affiliate of the
Buyer or of any Subsidiary (a) owns any property or right, tangible or
intangible, which is used in the business of the Buyer or any Subsidiary, (b)
has any claim or cause of action against the Buyer or any Subsidiary, or (c)
owes any money to, or is owed any money by, the Buyer or any Subsidiary. Section
3.26 of the Disclosure Schedule describes any transactions involving the receipt
or payment in excess of $5,000 in any fiscal year between the Buyer or a
Subsidiary and any Affiliate thereof which have occurred or existed since the
beginning of the time period covered by the Buyer Financial Statements, other
than employment agreements.
3.27 Tax-Free Reorganization.
(a) The Buyer (i) is not an "investment company" as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present plan or
intention to liquidate the Surviving Corporation or to merge the Surviving
Corporation with or into any other corporation or entity, or to sell or
otherwise dispose of the stock of the Surviving Corporation which Buyer will
acquire in the Merger, or to cause the Surviving Corporation to sell or
otherwise dispose of its assets, all except in the ordinary course of business
or if such liquidation, merger, disposition is described in Section 368(a)(2)(C)
or Treasury Regulation Section 1.368-2(d)(4) or Section 1368-2(k); (iii) has no
present plan or intention, following the Merger, to issue any additional shares
of stock of the Surviving Corporation or to create any new class of stock of the
Surviving Corporation.
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(b) The Acquisition Subsidiary is a wholly-owned subsidiary of the
Buyer, formed solely for the purpose of engaging in the Merger, and will carry
on no business prior to the Merger.
(c) Immediately prior to the Merger, the Buyer will be in control of
Acquisition Subsidiary within the meaning of Section 368(c) of the Code. (d)
Immediately following the Merger, the Surviving Corporation will hold at least
90% of the fair market value of the net assets and at least 70% of the fair
market value of the gross assets held by the Acquisition Subsidiary immediately
prior to the Merger (for purposes of this representation, amounts used by the
Acquisition Subsidiary to pay reorganization expenses, if any, will be included
as assets of the Acquisition Subsidiary held immediately prior to the Merger).
(e) The Buyer has no present plan or intention to reacquire any of
the Merger Shares.
(f) The Acquisition Subsidiary will have no liabilities assumed by
the Surviving Corporation and will not transfer to the Surviving Corporation any
assets subject to liabilities in the Merger.
(g) Following the Merger, the Surviving Corporation will continue
the Company's historic business or use a significant portion of the Company's
historic business assets in a business as required by Section 368 of the Code
and the Treasury Regulations promulgated thereunder.
3.28 Split-Off. At the Effective Time, the Buyer will have discontinued
all of its business operations by closing the transactions contemplated by the
Split-Off Agreement. Upon the closing of the transactions contemplated by the
Split-Off Agreement, the Buyer will have no material liabilities, contingent or
otherwise in any way related to such business operations.
3.29 Brokers' Fees. Neither the Buyer nor the Acquisition Subsidiary has
any liability or obligation to pay any fees or commissions to any broker, finder
or agent with respect to the transactions contemplated by this Agreement.
3.30 Disclosure. No representation or warranty by the Buyer contained in
this Agreement or in any of the Transaction Documentation, and no statement
contained in the any document, certificate or other instrument delivered or to
be delivered by or on behalf of the Buyer pursuant to this Agreement or therein,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact necessary, in light of the circumstances
under which it was or will be made, in order to make the statements herein or
therein not misleading.
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3.31 Interested Party Transactions. Except for the Split-Off Agreement, to
the knowledge of the Buyer, no officer, director or stockholder of Buyer or any
"affiliate" (as such term is defined in Rule 12b-2 under the Exchange Act) or
"associate" (as such term is defined in Rule 405 under the Securities Act) of
any such person has had, either directly or indirectly, (a) an interest in any
person that (i) furnishes or sells services or products that are furnished or
sold or are proposed to be furnished or sold by Buyer or any Subsidiary or (ii)
purchases from or sells or furnishes to Buyer or any Subsidiary any goods or
services, or (b) a beneficial interest in any contract or agreement to which
Buyer or any Subsidiary is a party or by which it may be bound or affected.
Neither Buyer or any Subsidiary has extended or maintained credit, arranged for
the extension of credit, or renewed an extension of credit, in the form of a
personal loan to or for any director or executive officer (or equivalent
thereof) of the Buyer or any Subsidiary.
3.32 Duty to Make Inquiry. To the extent that any of the representations
or warranties in this Section 3 are qualified by "knowledge" or "belief," Buyer
represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
3.33 Accountants. Sherb & Co., LLP and Rogoff & Company, P.C each is and
has been throughout the periods covered by such financial statements (a) a
registered public accounting firm (as defined in Section 2(a)(12) of the
Sarbanes-Oxley Act of 2002, (b) "independent" with respect to Parent within the
meaning of Regulation S-X and (c) in compliance with subsections (g) through (l)
of Section 10A of the Exchange Act and the related rules of the Commission and
the Public Company Accounting Oversight Board. Schedule 3.33 lists all non-audit
services performed by each of Sherb & Co., LLP and Rogoff & Company, P.C for
Buyer and/or any of Subsidiary since January 1, 2001. None of the reports of
Sherb & Co., LLP or Rogoff & Company, P.C on the financial statements of Buyer
for either of the past two fiscal years contained an adverse opinion or a
disclaimer of opinion, or was qualified as to uncertainty, audit scope, or
accounting principles. During Buyer's two most recent fiscal years and the
subsequent interim periods, there were no disagreements with either of Sherb &
Co., LLP or Rogoff & Company, P.C on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedures. None
of the reportable events listed in Item 304(a)(1)(iv) of Regulation S-B occurred
with respect to either of Sherb & Co., LLP or Rogoff & Company, P.C.
3.34 Minute Books. The minute books, if any, of Buyer and each Subsidiary
contain, in all material respects, a complete and accurate summary of all
meetings of directors and stockholders or actions by written resolutions since
the time of organization of each such corporation through the date of this
Agreement, and reflect all transactions referred to in such minutes and
resolutions accurately, except for omissions which are not material. Buyer has
provided true and complete copies of all such minute books, if any, to the
Company's representatives.
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3.35 Board Action. The Buyer's Board of Directors (a) has unanimously
determined that the Merger is advisable and in the best interests of the Buyer's
stockholders and is on terms that are fair to such Buyer stockholders and has
recommended the Merger to the Buyer stockholders, and (b) shall submit the
Merger and this Agreement to the vote and approval of the Buyer stockholders or
the approval of the Buyer stockholders by written consent.
ARTICLE IV
COVENANTS
4.1 Closing Efforts. Each of the Parties shall use its best efforts, to
the extent commercially reasonable ("Reasonable Best Efforts"), to take all
actions and to do all things necessary, proper or advisable to consummate the
transactions contemplated by this Agreement, including without limitation using
its Reasonable Best Efforts to ensure that (i) its representations and
warranties remain true and correct in all material respects through the Closing
Date and (ii) the conditions to the obligations of the other Parties to
consummate the Merger are satisfied.
4.2 Governmental and Third-Party Notices and Consents.
(a) Each Party shall use its Reasonable Best Efforts to obtain, at
its expense, all waivers, permits, consents, approvals or other authorizations
from Governmental Entities, and to effect all registrations, filings and notices
with or to Governmental Entities, as may be required for such Party to
consummate the transactions contemplated by this Agreement and to otherwise
comply with all applicable laws and regulations in connection with the
consummation of the transactions contemplated by this Agreement.
(b) The Company shall use its Reasonable Best Efforts to obtain, at
its expense, all such waivers, consents or approvals from third parties, and to
give all such notices to third parties, as are required to be listed in Section
2.4 of the Disclosure Schedule.
4.3 Current Report.
(a) As soon as reasonably practicable after the execution of this
Agreement, the Company shall prepare, with the cooperation of Buyer, a current
report on Form 8-K relating to this Agreement and the transactions contemplated
hereby (the "Current Report"). Each of the Company and Buyer shall use its
reasonable efforts to cause the Current Report to be filed with the SEC within 4
business days of the Closing Date and to otherwise comply with all requirements
of applicable federal and state securities laws.
4.4 Operation of Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in compliance with all applicable laws and
regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material respect. Without limiting
the generality of the foregoing, prior to the Effective Time, the Company shall
not (and shall cause each Subsidiary not to), without the written consent of the
Buyer:
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(a) issue or sell, or redeem or repurchase, any stock or other
securities of the Company or any rights, warrants or options to acquire any such
stock or other securities (except pursuant to the conversion or exercise of
convertible securities or Options or Warrants outstanding on the date hereof),
or amend any of the terms of (including without limitation the vesting of) any
such convertible securities or Options or Warrants;
(b) split, combine or reclassify any shares of its capital stock;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its capital stock;
(c) create, incur or assume any indebtedness (including obligations
in respect of capital leases); assume, guarantee, endorse or otherwise become
liable or responsible (whether directly, contingently or otherwise) for the
obligations of any other person or entity; or make any loans, advances or
capital contributions to, or investments in, any other person or entity;
(d) enter into, adopt or amend any Employee Benefit Plan or any
employment or severance agreement or arrangement or (except for normal increases
in the Ordinary Course of Business for employees who are not Affiliates)
increase in any manner the compensation or fringe benefits of, or materially
modify the employment terms of, its directors, officers or employees, generally
or individually, or pay any bonus or other benefit to its directors, officers or
employees;
(e) acquire, sell, lease, license or dispose of any assets or
property (including without limitation any shares or other equity interests in
or securities of any Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(f) mortgage or pledge any of its property or assets or subject any
such property or assets to any Security Interest;
(g) discharge or satisfy any Security Interest or pay any obligation
or liability other than in the Ordinary Course of Business;
(h) amend its charter, by-laws or other organizational documents;
(i) change in any material respect its accounting methods,
principles or practices, except insofar as may be required by a generally
applicable change in GAAP;
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(j) enter into, amend, terminate, take or omit to take any action
that would constitute a violation of or default under, or waive any rights
under, any material contract or agreement;
(k) institute or settle any Legal Proceeding;
(l) take any action or fail to take any action permitted by this
Agreement with the knowledge that such action or failure to take action would
result in (i) any of the representations and warranties of the Company set forth
in this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied;
(m) take any action that would jeopardize the treatment of the
Merger as a "pooling of interests" for accounting purposes; or
(n) agree in writing or otherwise to take any of the foregoing
actions.
4.5 Access to Information.
(a) The Company shall (and shall cause each Subsidiary to) permit
representatives of the Buyer to have full access (at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Company and the Subsidiaries) to all premises, properties, financial and
accounting records, contracts, other records and documents, and personnel, of or
pertaining to the Company and each Subsidiary.
(b) Each of the Buyer and the Acquisition Subsidiary (i) shall treat
and hold as confidential any Confidential Information (as defined below), (ii)
shall not use any of the Confidential Information except in connection with this
Agreement, and (iii) if this Agreement is terminated for any reason whatsoever,
shall return to the Company all tangible embodiments (and all copies) thereof
which are in its possession. For purposes of this Agreement, "Confidential
Information" means any confidential or proprietary information of the Company or
any Subsidiary that is furnished in writing to the Buyer or the Acquisition
Subsidiary by the Company or any Subsidiary in connection with this Agreement
and is labeled confidential or proprietary; provided, however, that it shall not
include any information (A) which, at the time of disclosure, is available
publicly, (B) which, after disclosure, becomes available publicly through no
fault of the Buyer or the Acquisition Subsidiary, (C) which the Buyer or the
Acquisition Subsidiary knew or to which the Buyer or the Acquisition Subsidiary
had access prior to disclosure or (D) which the Buyer or the Acquisition
Subsidiary rightfully obtains from a source other than the Company or a
Subsidiary.
4.6 Expenses. The costs and expenses (including legal fees and expenses of
Buyer and the Company) incurred in connection with this Agreement and the
transactions contemplated hereby shall be payable at Closing from the proceeds
of the Private Placement Offering.
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4.7 Indemnification.
(a) The Buyer shall not, for a period of three years after the
Effective Time, take any action to alter or impair any exculpatory or
indemnification provisions now existing in the Articles of Incorporation or
Bylaws of the Company for the benefit of any individual who served as a director
or officer of the Company at any time prior to the Effective Time, except for
any changes which may be required to conform with changes in applicable law and
any changes which do not affect the application of such provisions to acts or
omissions of such individuals prior to the Effective Time.
(b) From and after the Effective Time, the Buyer agrees that it
will, and will cause the Surviving Corporation to, indemnify and hold harmless
each present and former director and officer of the Company (the "Indemnified
Executives") against any costs or expenses (including attorneys' fees),
judgments, fines, losses, claims, damages, liabilities or amounts paid in
settlement incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent permitted under Delaware law (and the Buyer and the
Surviving Corporation shall also advance expenses as incurred to the fullest
extent permitted under Delaware law, provided the Indemnified Executive to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such Indemnified Executive is not entitled to
indemnification).
4.8 Listing of Merger Shares. The Buyer shall take whatever steps are
necessary to cause the Merger Shares to be eligible for quotation on the NASD's
OTC Bulletin Board.
ARTICLE V
CONDITIONS TO CONSUMMATION OF MERGER
5.1 Conditions to Each Party's Obligations. The respective obligations of
each Party to consummate the Merger are subject to the satisfaction of the
following conditions:
(a) this Agreement and the Merger shall have received the Requisite
Company Shareholder Approval and the Requisite Buyer Stockholder Approval;
(b) the completion of the offer and sale of the Private Placement
Offering;
(c) satisfactory completion by Buyer and Company of all necessary
legal due diligence; and
(d) Steve Lazuka, the current President of the Company ("CEO") shall
have executed an employment agreement satisfactory to the CEO and the Company
related to his employment by the Surviving Corporation as chief executive
officer.
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5.2 Conditions to Obligations of the Buyer and the Acquisition Subsidiary.
The obligation of each of the Buyer and the Acquisition Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Buyer) of the
following additional conditions:
(a) the number of Dissenting Shares shall not exceed 10% of the
number of outstanding Company Shares as of the Effective Time;
(b) the Company and the Subsidiaries shall have obtained (and shall
have provided copies thereof to the Buyer) all of the waivers, permits,
consents, approvals or other authorizations, and effected all of the
registrations, filings and notices, referred to in Section 4.2 which are
required on the part of the Company or the Subsidiaries, except for any the
failure of which to obtain or effect would not, individually or in the
aggregate, have a Company Material Adverse Effect or a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement;
(c) the representations and warranties of the Company set forth in
this Agreement shall be true and correct as of the date of this Agreement and
shall be true and correct as of the Effective Time as though made as of the
Effective Time, except to the extent that the inaccuracy of any such
representation or warranty is the result of events or circumstances occurring
subsequent to the date of this Agreement and any such inaccuracies, individually
or in the aggregate, would not have a Company Material Adverse Effect or a
material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement (it being agreed that any
materiality qualifications in particular representations and warranties shall be
disregarded in determining whether any such inaccuracies would have a Company
Material Adverse Effect for purposes of this Section 5.2(c));
(d) the Company shall have performed or complied in all material
respects with its agreements and covenants required to be performed or complied
with under this Agreement as of or prior to the Effective Time;
(e) no Legal Proceeding shall be pending wherein an unfavorable
judgment, order, decree, stipulation or injunction would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation or (iii) have, individually or in the aggregate, a
Company Material Adverse Effect, and no such judgment, order, decree,
stipulation or injunction shall be in effect;
(f) the Company shall have delivered to the Buyer and the
Acquisition Subsidiary a certificate (the "Company Certificate") to the effect
that each of the conditions specified in clauses (a) and (c) of Section 5.1 and
clauses (a) through (e) (insofar as clause (e) relates to Legal Proceedings
involving the Company or a Subsidiary) of this Section 5.2 is satisfied in all
respects;
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(g) the Buyer shall have received from McGuireWoods LLP, counsel to
the Company, an opinion with respect to the matters set forth in Exhibit G
attached hereto, addressed to the Buyer and dated as of the Closing Date;
(h) each of the individuals who will be officers and directors of
the Buyer immediately following the Closing and those Company Shareholders who
will immediately following the Closing own more than 5% of the outstanding
number of shares of Buyer Common Stock will enter into a lock-up agreement with
the Buyer substantially in the form of Exhibit F attached hereto (the "Lock-up
Agreement"); and
(i) The Buyer shall have received, in a form satisfactory to Buyer,
written documentation evidencing the full payment of certain promissory notes
entered into by the Company as follows: (1) promissory note, dated December 6,
2004, between the Company and Steve Lazuka in the amount of $390,500, (2)
promissory note, dated December 6, 2004, between the Company and Steve Lazuka in
the amount of $366,867, (3) promissory note, dated December 6, 2004, between the
Company and Michael Lazuka in the amount of $22,500, and (4) promissory note,
dated December 6, 2004, between the Company and Michael Lazuka in the amount of
$1,543.
5.3 Conditions to Obligations of the Company. The obligation of the
Company to consummate the Merger is subject to the satisfaction of the following
additional conditions:
(a) the Buyer shall have effected all of the registrations, filings
and notices referred to in Section 4.2 which are required on the part of the
Buyer;
(b) the representations and warranties of the Buyer and the
Acquisition Subsidiary set forth in the first sentence of Section 3.1 and
Section 3.3 and any representations and warranties of the Buyer and the
Acquisition Subsidiary set forth in this Agreement that are qualified as to
materiality shall be true and correct, and the representations and warranties of
the Buyer and the Acquisition Subsidiary set forth in this Agreement that are
not so qualified (other than those set forth in Section 3.1 and Section 3.3)
shall be true and correct in all material respects, in each case as of the date
of this Agreement and as of the Effective Time as though made as of the
Effective Time, except to the extent such representations and warranties are
specifically made as of a particular date (in which case such representations
and warranties shall be true and correct as of such date);
(c) each of the Buyer and the Acquisition Subsidiary shall have
performed or complied with its agreements and covenants required to be performed
or complied with under this Agreement as of or prior to the Effective Time;
(d) no Legal Proceeding shall be pending wherein an unfavorable
judgment, order, decree, stipulation or injunction would (i) prevent
consummation of any of the transactions contemplated by this Agreement, (ii)
cause any of the transactions contemplated by this Agreement to be rescinded
following consummation or (iii) have, individually or in the aggregate, a Buyer
Material Adverse Effect, and no such judgment, order, decree, stipulation or
injunction shall be in effect;
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(e) the Buyer shall have delivered to the Company a certificate (the
"Buyer Certificate") to the effect that each of the conditions specified in
clauses (a) through (e) (insofar as clause (e) relates to Legal Proceedings
involving the Buyer) of this Section 5.3 is satisfied in all respects;
(f) the Company shall have received from counsel to the Buyer and
the Acquisition Subsidiary an opinion with respect to the matters set forth in
Exhibit H attached hereto, addressed to the Company and dated as of the Closing
Date;
(g) the Buyer, Mimi & Coco, and the Cavallo Family shall have
completed the Split-Off and the transactions contemplated by the Split-Off
Agreement in accordance with its terms;
(h) the Buyer shall have declared and issued a divided on its shares
of Common Stock such that the total number of shares of Buyer Common Stock
issued and outstanding immediately prior to the Effective Time shall equal
38,301,171 and the number of shares of Buyer Common Stock issued and outstanding
immediately following the Effective Time shall equal 55,801,171 including, (i)
the shares of Buyer Common Stock owned by the Cavallo Family to be redeemed
pursuant to the consummation of the Split-Off and cancelled at the Effective
Time, but excluding (ii) the shares of Buyer Common Stock to be issued to
accredited investors in the Private Placement Offering;
(i) the Company shall have received a certificate of Buyer's
transfer agent and registrar certifying that as of the closing Date there are
38,301,171 shares of Common Stock issued and outstanding including, the shares
of Buyer Common Stock owned by the Cavallo Family to be redeemed pursuant to the
consummation of the Split-Off and cancelled at the Effective Time, but excluding
the shares of Buyer Common Stock to be issued to accredited investors in the
Private Placement Offering;
(j) the Company shall have received, in a form satisfactory to the
Company, written documentation evidencing satisfaction and full payment of (i)
Promissory Note between the Buyer and Sonic Investments, Ltd. dated June 25,
2003 in the amount of $40,337.20; (ii) Promissory Note between the Buyer and
Viking Investment Group II, Inc. dated November 19, 2003 in the amount of
$28,216.58 and dated January 30, 2004 in the amount of $3,000.
ARTICLE VI
INDEMNIFICATION
6.1 Indemnification by the Company Shareholders. The Indemnifying
Shareholders receiving the Merger Shares pursuant to Section 1.5 shall indemnify
the Buyer in respect of, and hold it harmless against, any and all debts,
obligations and other liabilities (whether absolute, accrued, contingent, fixed
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or otherwise, or whether known or unknown, or due or to become due or
otherwise), monetary damages, fines, fees, penalties, interest obligations,
deficiencies, losses and expenses (including without limitation amounts paid in
settlement, interest, court costs, costs of investigators, fees and expenses of
attorneys, accountants, financial advisors and other experts, and other expenses
of litigation) ("Damages") incurred or suffered by the Surviving Corporation or
the Buyer or any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to perform
any covenant or agreement of the Company contained in this Agreement or the
Company Certificate;
(b) any failure of any Company Shareholder to have good, valid and
marketable title to the issued and outstanding Company Shares issued in the name
of such Company Shareholder, free and clear of all Security Interests; or
(c) any claim by a shareholder or former shareholder of the Company,
or any other person or entity, seeking to assert, or based upon: (i) ownership
or rights to ownership of any shares of stock of the Company; (ii) any rights of
a shareholder (other than the right to receive the Merger Shares pursuant to
this Agreement or appraisal rights under the applicable provisions of the
California General Corporation Law), including any option, preemptive rights or
rights to notice or to vote; (iii) any rights under the Articles of
Incorporation or Bylaws of the Company; or (iv) any claim that his, her or its
shares were wrongfully repurchased by the Company.
6.2 Indemnification by the Buyer. The Buyer shall indemnify the
Indemnifying Shareholders in respect of, and hold them harmless against, any and
all Damages incurred or suffered by the Indemnifying Shareholders resulting
from, relating to or constituting any misrepresentation, breach of warranty or
failure to perform any covenant or agreement of the Buyer or the Acquisition
Subsidiary contained in this Agreement or the Buyer Certificate. The
post-Closing adjustment mechanism set forth in Section 1.13 is intended to
secure the indemnification obligations of the Buyer under this Agreement and
shall be the exclusive means for the Indemnifying Shareholders to collect any
Damages for which it is entitled to indemnification under this Article VI.
6.3 Indemnification Claims by the Buyer.
(a) In the event the Buyer is entitled, or seeks to assert rights,
to indemnification under this Section 6.1, Buyer shall give written notification
to the Indemnifying Shareholders of the commencement of any suit or proceeding
relating to a third party claim for which indemnification pursuant to this
Article VI may be sought. Such notification shall be given within 20 business
days after receipt by the Buyer of notice of such suit or proceeding, and shall
describe in reasonable detail (to the extent known by the Buyer) the facts
constituting the basis for such suit or proceeding and the amount of the claimed
damages; provided, however, that no delay on the part of the Buyer in notifying
the Indemnifying Shareholders shall relieve the Indemnifying Shareholders of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Shareholders may, upon written
notice thereof to the Buyer, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Buyer; provided that (i)
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the Indemnifying Shareholders may only assume control of such defense if (A) it
acknowledges in writing to the Buyer that any damages, fines, costs or other
liabilities that may be assessed against the Buyer in connection with such suit
or proceeding constitute Damages for which the Buyer shall be indemnified
pursuant to this Article VI and (B) the ad damnum is less than or equal to the
amount of Damages for which the Indemnifying Shareholders is liable under this
Article VI and (ii) the Indemnifying Shareholders may not assume control of the
defense of a suit or proceeding involving criminal liability or in which
equitable relief is sought against the Buyer. If the Indemnifying Shareholders
do not so assume control of such defense, the Buyer shall control such defense.
The party not controlling such defense (the "Non-controlling Party") may
participate therein at its own expense; provided that if the Indemnifying
Shareholders assume control of such defense and the Buyer reasonably concludes
that the Indemnifying Shareholders and the Buyer have conflicting interests or
different defenses available with respect to such suit or proceeding, the
reasonable fees and expenses of counsel to the Buyer shall be considered
"Damages" for purposes of this Agreement. The party controlling such defense
(the "Controlling Party") shall keep the Non-controlling Party advised of the
status of such suit or proceeding and the defense thereof and shall consider in
good faith recommendations made by the Non-controlling Party with respect
thereto. The Non-controlling Party shall furnish the Controlling Party with such
information as it may have with respect to such suit or proceeding (including
copies of any summons, complaint or other pleading which may have been served on
such party and any written claim, demand, invoice, billing or other document
evidencing or asserting the same) and shall otherwise cooperate with and assist
the Controlling Party in the defense of such suit or proceeding. The
Indemnifying Shareholders shall not agree to any settlement of, or the entry of
any judgment arising from, any such suit or proceeding without the prior written
consent of the Buyer, which shall not be unreasonably withheld or delayed;
provided that the consent of the Buyer shall not be required if the Indemnifying
Shareholders agree in writing to pay any amounts payable pursuant to such
settlement or judgment and such settlement or judgment includes a complete
release of the Buyer from further liability and has no other adverse effect on
the Buyer. The Buyer shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnifying Shareholders, which shall not be unreasonably
withheld or delayed.
(b) In order to seek indemnification under this Article VI, Buyer
shall give written notification (a "Claim Notice") to the Indemnifying
Shareholders which contains (i) a description and the amount (the "Claimed
Amount") of any Damages incurred or reasonably expected to be incurred by the
Buyer, (ii) a statement that the Buyer is entitled to indemnification under this
Article VI for such Damages and a reasonable explanation of the basis therefor,
and (iii) a demand for payment (in the manner provided in paragraph (c) below)
in the amount of such Damages. The Indemnifying Shareholders shall deliver a
copy of the Claim Notice to the Escrow Agent.
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(c) Within 20 days after delivery of a Claim Notice, the
Indemnifying Shareholders shall deliver to the Buyer a written response (the
"Response") in which the Indemnifying Shareholders shall: (i) agree that the
Buyer is entitled to receive all of the Claimed Amount (in which case the
Indemnifying Shareholders and the Buyer shall deliver to the Escrow Agent,
within three days following the delivery of the Response, a written notice
executed by both parties instructing the Escrow Agent to distribute to the Buyer
such number of Escrow Shares as have an aggregate Value (as defined below) equal
to the Claimed Amount), (ii) agree that the Buyer is entitled to receive part,
but not all, of the Claimed Amount (the "Agreed Amount") (in which case the
Indemnifying Shareholders and the Buyer shall deliver to the Escrow Agent,
within three days following the delivery of the Response, a written notice
executed by both parties instructing the Escrow Agent to distribute to the Buyer
such number of Escrow Shares as have an aggregate Value (as defined below) equal
to the Agreed Amount) or (iii) dispute that the Buyer is entitled to receive any
of the Claimed Amount. If the Indemnifying Shareholders in the Response disputes
its liability for all or part of the Claimed Amount, the Indemnifying
Shareholders and the Buyer shall follow the procedures set forth in Section
6.3(d) for the resolution of such dispute (a "Dispute"). For purposes of this
Article VI, the "Value" of any Escrow Shares delivered in satisfaction of an
indemnity claim shall be $1.00 per Escrow Share (subject to equitable adjustment
in the event of any stock split, stock dividend, reverse stock split or similar
event affecting the Buyer Common Stock since the Closing Date), multiplied by
the number of such Escrow Shares.
(d) During the 60-day period following the delivery of a Response
that reflects a Dispute, the Indemnifying Shareholders and the Buyer shall use
good faith efforts to resolve the Dispute. If the Dispute is not resolved within
such 60-day period, the Indemnifying Shareholders and the Buyer shall discuss in
good faith the submission of the Dispute to a mutually acceptable alternative
dispute resolution procedure (which may be non-binding or binding upon the
parties, as they agree in advance) (the "ADR Procedure"). In the event the
Indemnifying Shareholders and the Buyer agree upon an ADR Procedure, such
parties shall, in consultation with the chosen dispute resolution service (the
"ADR Service"), promptly agree upon a format and timetable for the ADR
Procedure, agree upon the rules applicable to the ADR Procedure, and promptly
undertake the ADR Procedure. The provisions of this Section 6.3(d) shall not
obligate the Indemnifying Shareholders and the Buyer to pursue an ADR Procedure
or prevent either such party from pursuing the Dispute in a court of competent
jurisdiction; provided that, if the Indemnifying Shareholders and the Buyer
agree to pursue an ADR Procedure, neither the Indemnifying Shareholders nor the
Buyer may commence litigation or seek other remedies with respect to the Dispute
prior to the completion of such ADR Procedure. Any ADR Procedure undertaken by
the Indemnifying Shareholders and the Buyer shall be considered a compromise
negotiation for purposes of federal and state rules of evidence, and all
statements, offers, opinions and disclosures (whether written or oral) made in
the course of the ADR Procedure by or on behalf of the Indemnifying
Shareholders, the Buyer or the ADR Service shall be treated as confidential and,
where appropriate, as privileged work product. Such statements, offers, opinions
and disclosures shall not be discoverable or admissible for any purposes in any
litigation or other proceeding relating to the Dispute (provided that this
sentence shall not be construed to exclude from discovery or admission any
matter that is otherwise discoverable or admissible). The fees and expenses of
any ADR Service used by the Indemnifying Shareholders and the Buyer shall be
shared equally by the Indemnifying Shareholders and the Buyer. The Buyer and the
Indemnifying Shareholders shall deliver to the Escrow Agent, promptly following
the resolution of the Dispute (whether by mutual agreement, pursuant to an ADR
Procedure, as a result of a judicial decision or otherwise), a written notice
executed by both parties instructing the Escrow Agent as to what (if any)
portion of the Escrow Shares shall be distributed to the Buyer (which notice
shall be consistent with the terms of the resolution of the Dispute).
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(e) Notwithstanding the other provisions of this Section 6.3, if a
third party asserts (other than by means of a lawsuit) that the Buyer is liable
to such third party for a monetary or other obligation which may constitute or
result in Damages for which such Buyer may be entitled to indemnification
pursuant to this Article VI, and the Buyer reasonably determines that it has a
valid business reason to fulfill such obligation, then (i) Buyer shall be
entitled to satisfy such obligation, without prior notice to or consent from the
Indemnifying Shareholders, (ii) Buyer may subsequently make a claim for
indemnification in accordance with the provisions of this Article VI, and (iii)
Buyer shall be reimbursed, in accordance with the provisions of this Article VI,
for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Shareholders to
dispute the Buyer's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
(f) For purposes of this Section 6.3 and the last two sentences of
Section 6.4, any references to the Indemnifying Shareholders (except provisions
relating to an obligation to make or a right to receive any payments provided
for in Section 6.3 or Section 6.4) shall be deemed to refer to the
Indemnification Representatives. The Indemnification Representatives shall have
full power and authority on behalf of each Indemnifying Stockholder to take any
and all actions on behalf of, execute any and all instruments on behalf of, and
execute or waive any and all rights of, the Indemnifying Shareholders under this
Article VI. The Indemnification Representatives shall have no liability to any
Indemnifying Stockholder for any action taken or omitted on behalf of the
Indemnifying Shareholders pursuant to this Article VI.
6.4 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Company Certificate or the Buyer
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of Buyer or the Indemnifying Shareholders and (b) shall expire
on the date two years following the Closing Date. If Buyer delivers to an
Indemnifying Shareholders, before expiration of a representation or warranty,
either a Claim Notice based upon a breach of such representation or warranty, or
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a notice that, as a result a legal proceeding instituted by or written claim
made by a third party, the Buyer reasonably expects to incur Damages as a result
of a breach of such representation or warranty (an "Expected Claim Notice"),
then such representation or warranty shall survive until, but only for purposes
of, the resolution of the matter covered by such notice. If the legal proceeding
or written claim with respect to which an Expected Claim Notice has been given
is definitively withdrawn or resolved in favor of the Buyer, the Buyer shall
promptly so notify the Indemnifying Shareholders; and if the Buyer has delivered
a copy of the Expected Claim Notice to the Escrow Agent and Escrow Shares have
been retained in escrow after the Termination Date (as defined in the Escrow
Agreement) with respect to such Expected Claim Notice, the Indemnifying
Shareholders and the Buyer shall promptly deliver to the Escrow Agent a written
notice executed by both parties instructing the Escrow Agent to distribute such
retained Escrow Shares to the Indemnifying Shareholders in accordance with the
terms of the Escrow Agreement.
6.5 Limitations on Buyer's Claims for Indemnification.
(a) Notwithstanding anything to the contrary herein, the Buyer shall
not be entitled to recover, or be indemnified for, Damages arising out of a
misrepresentation or breach of warranty set forth in Article II unless and until
the aggregate of all such Damages paid or payable by the Indemnifying
Shareholders collectively exceeds $250,000 (the "Damages Threshold") and then,
if such aggregate threshold is reached, the Buyer shall only be entitled to
recover for Damages in excess of such respective threshold; and in no event
shall any Indemnifying Stockholder be liable under this Article VI for an
aggregate amount, whether paid in cash or in shares of Buyer Common Stock,
greater than the product of the number of Merger Shares received by such
Indemnifying Stockholder, pursuant to Section 1.5 above, multiplied by the
Value. For purposes of the preceding sentence, each Merger Share delivered by a
party in payment of his or its obligations under this Article VI shall be valued
at the Value.
(b) The Escrow Agreement is intended to secure the indemnification
obligations of the Indemnifying Shareholders under this Agreement and shall be
the exclusive means for the Buyer to collect any Damages for which it is
entitled to indemnification under this Article VI.
(c) Except with respect to claims based on fraud, after the Closing,
the rights of the Indemnified Parties under this Article VI and the Escrow
Agreement shall be the exclusive remedy of the Indemnified Parties with respect
to claims resulting from or relating to any misrepresentation, breach of
warranty or failure to perform any covenant or agreement contained in this
Agreement.
(d) No Indemnifying Stockholder shall have any right of contribution
against the Company or the Surviving Corporation with respect to any breach by
the Company of any of its representations, warranties, covenants or agreements.
The amount of Damages recoverable by Buyer under this Article VI with respect to
an indemnity claim shall be reduced by (i) any proceeds received by Buyer with
respect to the Damages to which such indemnity claim relates, from an insurance
carrier and (ii) the amount of any tax savings actually realized by Buyer, for
the tax year in which such Damages are incurred, which are clearly attributable
to the Damages to which such indemnity claim relates (net of any increased tax
liability which may result from the receipt of the indemnity payment or any
insurance proceeds relating to such Damages).
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ARTICLE VII
DEFINITIONS
For purposes of this Agreement, each of the following defined terms is
defined in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.14(a)(vii)
Agreed Amount 6.3(c)
Buyer Introduction
Buyer Certificate 5.3(e)
Buyer Common Stock 1.5(a)
Buyer Material Adverse Effect 3.1
Buyer Reports 3.6
CERCLA 2.22(a)
Certificates 1.7
Certificate of Merger 1.1
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Closing 1.2
Closing Date 1.2
Code Introduction
Common Conversion Ratio 1.5(b)
Company Introduction
Company Certificate 5.2(f)
Company Intellectual Property 2.13
Company Material Adverse Effect 2.1
Company Shares 1.5(b)
Company Shareholder 1.3(d)
Confidential Information 4.5(b)
Controlling Party 6.3(a)
Customer Deliverables 2.13
Damages 6.1
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Disclosure Schedule Article II
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.21(a)(i)
Environmental Law 2.22(a)
ERISA 2.21(a)(ii)
ERISA Affiliate 2.21(a)(iii)
Escrow Agreement 1.3(h)
Escrow Agent 1.3(h)
Escrow Shares 1.5(b)
Expected Claim Notice 6.4
Exchange Act 2.14(a)(vii)
Financial Statements 2.6
GAAP 2.6
Governmental Entity 2.4
Indemnification Representatives 1.3(h)
Indemnifying Shareholders 1.5(b)
Initial Shares 1.5(b)
Intellectual Property 2.13
Internal Systems 2.13
Legal Proceeding 2.18
Merger Introduction
Merger Shares 1.5(b)
Most Recent Balance Sheet 2.15
Company Interim Balance Sheet Date 2.6
Non-controlling Party 6.3(a)
Options 1.8(a)
Ordinary Course of Business 2.4
Parties Introduction
Permits 2.25
Reasonable Best Efforts 4.1
Response 6.3(c)
Requisite Company Shareholder Approval 2.3
Requisite Buyer Stockholder Approval 3.3
SEC 3.6
Securities Act 1.14
Security Interest 2.4
Subsidiary 2.5(a)
Surviving Corporation 1.1
Taxes 2.9(a)(i)
Tax Returns 2.9(a)(ii)
Acquisition Subsidiary Introduction
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Value 6.3(c)
Warrants 1.8(e)
ARTICLE VIII
MISCELLANEOUS
8.1 Press Releases and Announcements. No Party shall issue any press
release or public announcement relating to the subject matter of this Agreement
without the prior written approval of the other Parties; provided, however, that
any Party may make any public disclosure it believes in good faith is required
by applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the disclosure).
8.2 No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their respective
successors and permitted assigns; provided, however, that (a) the provisions in
Article I concerning issuance of the Merger Shares, Article VI concerning
indemnification and Article VII concerning registration rights are intended for
the benefit of the Company Shareholders and (b) the provisions in Section 4.9
concerning indemnification are intended for the benefit of the individuals
specified therein and their successors and assigns.
8.3 Entire Agreement. This Agreement (including the documents referred to
herein) constitutes the entire agreement among the Parties and supersedes any
prior understandings, agreements or representations by or among the Parties,
written or oral, with respect to the subject matter hereof.
8.4 Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. No Party may assign either this Agreement or any of its
rights, interests or obligations hereunder without the prior written approval of
the other Parties; provided that the Acquisition Subsidiary may assign its
rights, interests and obligations hereunder to an Affiliate of the Buyer.
8.5 Counterparts and Facsimile Signature. This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original but all
of which together shall constitute one and the same instrument. This Agreement
may be executed by facsimile signature.
8.6 Headings. The section headings contained in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
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8.7 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing. Any notice, request, demand, claim
or other communication hereunder shall be deemed duly delivered four business
days after it is sent by registered or certified mail, return receipt requested,
postage prepaid, or one business day after it is sent for next business day
delivery via a reputable nationwide overnight courier service, in each case to
the intended recipient as set forth below:
If to the Company: Copy to:
----------------- -------
Trafficlogic, Inc. McGuireWoods LLP
4086 Del Rey Avenue 1345 Avenue of the Americas
Marina Del Rey, CA 90292 New York, NY 10105
Attn: Steven Lazuka Attn: Louis W. Zehil, Esq.
If to the Buyer or Copy to:
------------------- -------
the Acquisition Subsidiary:
--------------------------
Gottbetter & Partners, LLP
MAC Worldwide, Inc. 488 Madison Avenue, 12th Floor
1640 Terrace Way New York, NY 10022
Walnut Creek, CA 94596 Attn: Adam Gottbetter, Esq.
Attn: Anthony Cavallo
Any Party may give any notice, request, demand, claim or other
communication hereunder using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail or
electronic mail), but no such notice, request, demand, claim or other
communication shall be deemed to have been duly given unless and until it
actually is received by the party for whom it is intended. Any Party may change
the address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the other Parties notice
in the manner herein set forth.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of New York without giving effect
to any choice or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of laws of any
jurisdictions other than those of the State of New York.
8.9 Amendments and Waivers. The Parties may mutually amend any provision
of this Agreement at any time prior to the Effective Time; provided, however,
that any amendment effected subsequent to the Requisite Buyer Stockholder
Approval shall be subject to any restrictions contained in the Delaware General
Corporation Law. No amendment of any provision of this Agreement shall be valid
unless the same shall be in writing and signed by all of the Parties. No waiver
of any right or remedy hereunder shall be valid unless the same shall be in
writing and signed by the Party giving such waiver. No waiver by any Party with
respect to any default, misrepresentation or breach of warranty or covenant
hereunder shall be deemed to extend to any prior or subsequent default,
misrepresentation or breach of warranty or covenant hereunder or affect in any
way any rights arising by virtue of any prior or subsequent such occurrence.
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8.10 Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction. If the final judgment of a court of
competent jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
8.11 Submission to Jurisdiction. Each of the Parties (a) submits to the
jurisdiction of any state or federal court sitting in New York, New York in any
action or proceeding arising out of or relating to this Agreement, (b) agrees
that all claims in respect of such action or proceeding may be heard and
determined in any such court, and (c) agrees not to bring any action or
proceeding arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect thereto. Any
Party may make service on another Party by sending or delivering a copy of the
process to the Party to be served at the address and in the manner provided for
the giving of notices in Section 9.7. Nothing in this Section 9.11, however,
shall affect the right of any Party to serve legal process in any other manner
permitted by law.
8.12 Construction.
(a) The language used in this Agreement shall be deemed to be the
language chosen by the Parties to express their mutual intent, and no rule of
strict construction shall be applied against any Party.
(b) Any reference to any federal, state, local or foreign statute or
law shall be deemed also to refer to all rules and regulations promulgated
thereunder, unless the context requires otherwise.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
date first above written.
BUYER
MAC WORLDWIDE, INC.
By: /s/ Anthony Cavallo
---------------------------------
Name: Anthony Cavallo
-------------------------------
Title: Chief Financial Officer, Secretary, Director
-------------------------------
ACQUISITION SUBSIDIARY
TRAFFICLOGIC ACQUISITION CORP.
By: /s/ Anthony Cavallo
---------------------------------
Name: Anthony Cavallo
-------------------------------
Title: Vice President and Secretary
-------------------------------
COMPANY
TRAFFICLOGIC, INC.
By: /s/ Steve Lazuka
---------------------------------
Name: Steve Lazuka
Title: President
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