_______________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
By and Among
RKDA, Inc.
CHC Sub, Inc.
Critical Home Care, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
and
▇▇▇▇▇ ▇▇▇▇▇▇
_______________________________________________________________________________
TABLE OF CONTENTS
ARTICLE I THE MERGER..............................................................................................1
1.1 The Merger.............................................................................................1
1.2 Effective Time.........................................................................................2
1.3 Effects of the Merger..................................................................................2
1.4 Articles of Incorporation and By-laws..................................................................2
1.5 Directors..............................................................................................2
1.6 Officers...............................................................................................2
1.7 Exchange and Conversion of the Capital Stock of the Company and Acquisition Subsidiary.................2
1.8 Exchange Procedure.....................................................................................3
ARTICLE II MERGER EXCHANGE AND RELATED MATTERS....................................................................3
2.1 The Merger Exchange....................................................................................3
2.2 Escrow of Parent Common Stock Received by Shareholders.................................................4
2.3 Escrow of Parent Company Stock Owned by Bensol.........................................................5
2.4 Parent Private Placement...............................................................................6
2.5 Additional Agreements Relative to Merger...............................................................7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY.........................................................7
3.1 Organization; Good Standing............................................................................7
3.2 Capitalization; Title to Shares........................................................................8
3.3 Company Subsidiaries...................................................................................8
3.4 Authority Relative to this Agreement...................................................................8
3.5 Consents and Approvals; No Violations..................................................................9
3.6 Absence of Undisclosed Liabilities.....................................................................9
3.7 Absence of Certain Changes or Events................................................................. 10
3.8 Corporate Minute Books; Bank Accounts.................................................................10
3.9 Taxes.................................................................................................10
3.10 Litigation............................................................................................10
3.11 Compliance with Laws..................................................................................10
3.12 Disclosure............................................................................................10
3.13 Arcadia Services, Inc.................................................................................10
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS....................................................11
4.1 Title.................................................................................................11
4.2 Authority Relative to this Agreement..................................................................11
4.3 Consents and Approvals; No Violations.................................................................11
4.4 Litigation............................................................................................12
4.5 Securities Law Matters................................................................................12
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION SUBSIDIARY....................................13
5.1 Organization; Good Standing...........................................................................13
5.2 Capitalization; Title to Shares.......................................................................13
5.3 Subsidiaries..........................................................................................14
5.4 Authority Relative to this Agreement..................................................................14
5.5 Consents and Approvals; No Violations.................................................................14
5.6 Financial Statements..................................................................................15
5.7 Absence of Undisclosed Liabilities....................................................................15
5.8 Absence of Certain Changes or Events..................................................................15
5.9 Contracts.............................................................................................17
5.10 Real Property.........................................................................................18
5.11 Machinery and Equipment...............................................................................19
5.12 Inventories...........................................................................................19
5.13 Accounts Receivable...................................................................................19
5.14 Intellectual Property Rights..........................................................................20
5.15 Licenses..............................................................................................20
5.16 Title to Assets.......................................................................................20
5.17 Corporate Minute Books; Bank Accounts.................................................................20
5.18 Taxes.................................................................................................21
5.19 Employees; Benefit Plans..............................................................................23
5.20 Insurance.............................................................................................25
5.21 Litigation............................................................................................25
5.22 Compliance with Laws..................................................................................26
5.23 Safety Standards......................................................................................26
5.24 Product Liability; Product Recalls....................................................................26
5.25 Warranties............................................................................................27
5.26 Dealer Network; Rebates and Refunds...................................................................27
5.27 Environmental Matters.................................................................................27
5.28 Disclosure............................................................................................29
ARTICLE VI CERTAIN AGREEMENTS AMONG THE PARTIES FOLLOWING THE CLOSING............................................29
6.1 Books and Records.....................................................................................29
6.2 Governance............................................................................................29
6.3 Release of Personal Guarantees........................................................................30
ARTICLE VII CLOSING..............................................................................................30
7.1 Closing Date..........................................................................................30
7.2 Deliveries by the Company and the Shareholders........................................................30
7.3 Deliveries by Parent and Acquisition Subsidiary.......................................................30
7.4 Further Assurances....................................................................................32
ARTICLE VIII SURVIVAL; INDEMNIFICATION...........................................................................32
8.1 Survival Past Closing.................................................................................32
8.2 Indemnification by the Shareholders...................................................................32
8.3 Indemnification by Parent and Company.................................................................33
8.4 Indemnification Procedures............................................................................33
8.5 Bensol Indemnification................................................................................34
ARTICLE IX FINDER'S FEES.........................................................................................35
ARTICLE X NOTICES................................................................................................35
ARTICLE XI MISCELLANEOUS.........................................................................................37
11.1 Expenses..............................................................................................37
11.2 Entire Agreement......................................................................................37
11.3 Amendments and Waivers................................................................................37
11.4 Successors and Assigns................................................................................37
11.5 Governing Law.........................................................................................37
11.6 Severability..........................................................................................38
11.7 No Third-Party Beneficiaries..........................................................................38
11.8 Attorneys' Fees.......................................................................................38
11.9 Remedies..............................................................................................38
11.10 Captions..............................................................................................38
11.11 Counterparts..........................................................................................38
11.12 Certain References....................................................................................38
11.13 Interpretation........................................................................................39
11.14 Consent to Jurisdiction...............................................................................39
11.15 Material Adverse Effect...............................................................................39
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into this 7th day of
May, 2004 (this "Agreement") by and among: Critical Home Care, Inc., a Nevada
corporation ("Parent"); CHC Sub, Inc., a Delaware corporation ("Acquisition
Subsidiary"); RKDA, Inc., a Michigan corporation (the "Company"); ▇▇▇▇ ▇.
▇▇▇▇▇▇▇, ▇▇ ("▇▇▇▇▇▇▇"); ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇") and ▇▇▇▇▇ ▇▇▇▇▇▇
("Bensol"). ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ are sometimes hereinafter referred to
individually as "Shareholder" and collectively as "Shareholders".
RECITALS
WHEREAS, the Company and Company Subsidiaries are engaged in the business
(the "Business") of home care, professional healthcare staffing services and
light individual staffing services.
WHEREAS, the Board of Directors of Company and Parent have determined that
it is in the best interests of their respective companies and shareholders to
merge the Acquisition Subsidiary with and into the Company, subject to the terms
and subject to the conditions set forth in this Agreement;
WHEREAS, the Shareholders own, of record and beneficially, all of the
issued and outstanding shares of Company's voting, no par value, common stock
(the "Company Common Stock"), and, subject to the terms and conditions of this
Agreement, the Shareholders have agreed, in their capacity as Shareholders, to
enter into this Agreement and consummate the transactions contemplated hereby;
and
WHEREAS, Bensol owns a substantial equity interest in Parent and, to induce
the Company and Shareholders to enter into this Agreement, Bensol has agreed to
relinquish ownership of some of the shares in Parent and to certain other
matters related to his employment with, and ownership of equity in, Parent.
AGREEMENT
NOW, THEREFORE, in consideration of the promises and the mutual agreements,
covenants, representations and warranties herein contained, the parties hereto
agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the Delaware General Corporation Law (the
"DGCL") and the Michigan Business Corporation Act (the "MBCA"), at the Effective
Time (as defined below) Acquisition Subsidiary will be merged with and into the
Company, Acquisition Subsidiary's separate corporate existence will cease, and
the Company will continue as the surviving company and as a wholly-owned
subsidiary of Parent (the "Merger").
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1.2 Effective Time. The parties shall prepare, execute and deliver articles
of merger, a certificate of merger and/or other appropriate documents necessary
to effectuate the Merger (in any such case, the "Articles of Merger") in
accordance with the relevant provisions of the DGCL and MBCA and file same with
the Secretaries of State of the State of Delaware and the State of Michigan. The
Merger shall become effective upon the filing of the Articles of Merger with the
Secretary of State of the State of Michigan or at such subsequent time or date
as Parent and the Company shall agree and specify in the Articles of Merger. The
time at which the Merger becomes effective is referred to in this Agreement as
the "Effective Time".
1.3 Effects of the Merger. At and after the Effective Time, the Company
shall succeed to and possess, without further act or deed, all of the estate,
rights, privileges, powers and franchises, both public and private, and all of
the property, real, personal, and mixed, of the Acquisition Subsidiary; all
debts due to the Acquisition Subsidiary shall be vested in the Company; all
claims, demands, property, rights, privileges, powers and franchises and every
other interest of the Acquisition Subsidiary shall be as effectively the
property of the Company as they were of the Acquisition Subsidiary. The parties
intend for the Merger to qualify as a tax-free reorganization under Section
368(a) of the Internal Revenue Code of 1986, as amended ("Code") and agree not
to knowingly take any action or enter into any transaction prior to or following
the Closing that results in the Merger not meeting the requirements of a
reorganization under Section 368(a) of the Code by final action of the IRS that
is not subject to appeal.
1.4 Articles of Incorporation and By-laws.
a. The Articles of Incorporation, as amended, of the Company, as in effect
immediately prior to the Effective Time, shall continue in full force and
effect without modification until thereafter changed or amended as provided
therein or by applicable law.
b. The By-laws of the Company, as in effect immediately prior to the Effective
Time, shall continue in full force and effect without modification until
thereafter changed or amended as provided therein or by applicable law.
1.5 Directors. The directors of the Company immediately prior to the
Effective Time shall continue as the directors of the Company until the earlier
of their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
1.6 Officers. The officers of the Company immediately prior to the
Effective Time shall continue as officers of the Company until the earlier of
their resignation or removal or until their respective successors are duly
elected and qualified, as the case may be.
1.7 Exchange and Conversion of the Capital Stock of the Company and
Acquisition Subsidiary. At the Effective Time, by virtue of the Merger and
without any action on the part of the holder of any shares of capital stock of
the Company, Parent or Acquisition Subsidiary:
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a. Shares of Acquisition Subsidiary. Each issued and outstanding share of
Acquisition Subsidiary shall be converted into and shall become one validly
issued, fully paid and nonassessable share of the Company.
b. Conversion of the Company Common Stock. All of the shares of the Company
Common Stock issued and outstanding immediately prior to the Effective Time
shall be exchanged for shares of voting common stock, $.001 par value, of
the Parent (the "Parent Common Stock") in the Merger Exchange described in
Section 2.1.
1.8 Exchange Procedure.
a. Exchange Procedure. At the Effective Time, all then outstanding shares of
Company Common Stock shall be exchanged for the Parent Common Stock as
described in Section 2.1. At Closing, each Shareholder shall surrender to
Company a certificate or certificates that immediately prior to Closing and
the Effective Time represented all such Shareholder's shares in the Company
(a "Certificate"). At the Effective Time, and upon surrender of a
Certificate to Parent for exchange, the Shareholder shall be entitled to
receive and shall receive in exchange therefor stock certificates of Parent
in the amount of Parent Common Stock described in and determined pursuant
to Sections 2.1.
b. No Further Ownership Rights in Company Common Stock. All Parent Common
Stock issued in exchange for, and upon the surrender of, a Certificate in
accordance with the terms of this Article I shall be deemed to have been
exchanged in full satisfaction of all rights of Shareholder pertaining to
the Certificate and to the shares of Company Common Stock formerly
represented by such Certificate.
ARTICLE II
MERGER EXCHANGE AND RELATED MATTERS
2.1 The Merger Exchange.
a. Determination of Merger Exchange. The total amount of Parent Common Stock
to be exchanged (the "Merger Exchange") for all of the shares of Company
Common Stock shall be Twenty One Million Three Hundred Thousand
(21,300,000) shares. The Parent Common Stock issued to Shareholders shall
be validly issued, fully paid, and non-assessable shares of Parent Common
Stock, and shall have the same rights as each and every other share of
authorized Parent Common Stock, including, without limitation, voting
rights and dividend rights. In addition to the Parent Common Stock received
pursuant to the Merger Exchange, the Shareholders shall receive warrants to
purchase on a cashless basis one million (1,000,000) shares of Parent
Company Stock exercisable for seven (7) years at $.50 per share
("Warrants"). The Warrants shall be evidenced by an agreement in the form
attached hereto as Exhibit 2.1a.
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b. Calculation of the Merger Exchange. On the Effective Date, each Shareholder
of the Company shall receive in exchange for all of the Company Common
Stock owned by each Shareholder the number of shares of Parent Common Stock
and Warrants set forth on Schedule 2.1b.
c. Securities Registration. The Parent Common Stock received pursuant to the
Merger Exchange shall not have been registered under applicable Federal or
State securities laws. Each Shareholder will receive Parent Common Stock in
a private placement exempt from registration under applicable provisions of
the Securities Act of 1933, as amended ("Securities Act"), and regulations
thereunder, and Nevada and Michigan securities laws. Accordingly, such
shares shall be "legended," will be restricted securities as defined in
Rule 144 under the Securities Act, and the recipient's resale of the Parent
Common Stock will be governed by, among other provisions, SEC Rule 144,
this Agreement and by Parent's Policy on Securities Trades by Company
Personnel (as applicable), a copy of which has been furnished to or has
been made available to Shareholders. A Shareholder shall not sell his or
her Parent Common Stock without registration for resale (as set forth
herein or otherwise) under the Securities Act and any applicable Blue Sky
laws, or unless an exemption from registration is available and the
Shareholder has provided to Parent an opinion of counsel satisfactory to
the Parent that such registration is not required in connection with any
such transaction. Parent agrees in good faith to use best efforts to file
and to cause to become effective (at the times provided in Exhibit 2.1c.)
registration statements under the Securities Act registering all Parent
Common Stock and Warrants then held by each of the Shareholders for public
re-sale, in accordance with the terms of Exhibit 2.1c. (the "Registration
Rights"). Each Shareholder shall cooperate in all respects with the
reasonable requests of Parent to effect such registration and shall comply
with the provisions of the Registration Rights applicable to Shareholders.
Parent shall likewise comply with the provisions of the Registration Rights
applicable to it. All Parent Common Stock and Warrants issued pursuant to
this Article II shall be registered for resale within six (6) months from
the Closing Date.
2.2 Escrow of Parent Common Stock Received by Shareholders. ▇▇▇▇▇▇▇ and
▇▇▇▇▇▇▇ agree to escrow a total of 10,000,000 shares of Parent Common Stock
received by them in connection with the Merger, on a pro rata basis ("Escrow
Shares"). The Escrow Shares shall be released from escrow upon the Company
meeting the following milestones:
a. Fiscal 2006 EBITDA. Fifty percent (50%) of the Escrow Shares will be
released within thirty (30) days following the completion of the audit for
the twelve (12) month period ending March 31, 2006 ("Fiscal 2006") if the
Company meets an "Adjusted EBITDA" of $9.7 Million for Fiscal 2006.
"Adjusted EBITDA" for purposes of this Section 2.2 shall be determined as
set forth in Schedule 2.2a.
b. Fiscal 2007 EBITDA. The remaining fifty percent (50%) of the Escrow Shares
will be released from escrow upon Company meeting Adjusted EBITDA of $12.5
Million for the twelve (12) month period ending March 31, 2007 ("Fiscal
2007").
4
c. Alternative Release of Escrow Shares. As an alternative to the release of
Escrow Shares set forth in the previous two Subsections, all Escrow Shares
shall be released in 2007, within thirty (30) days of completion of the
audit for Fiscal 2007, if Company obtains a combined Adjusted EBITDA for
Fiscal 2006 and Fiscal 2007 of $22.2 Million or greater.
d. Debt to EBITDA Ratio. For any of the Escrow Shares to be released pursuant
to Subsections 2.2a. or 2.2b., the Debt (as defined on Schedule 2.2d.) to
Adjusted EBITDA ratio for the Company must be 2.00 or less for Fiscal 2006,
and 2.00 or less for Fiscal 2007. For this purpose, Debt shall only include
the outstanding debt obligations owed by the Company (and its subsidiaries
on a consolidated basis) to Comerica Bank (or its successor).
e. Failure to Reach Adjusted EBITDA Numbers. If Company fails to reach the
Adjusted EBITDA numbers set forth in Subsections 2.2a. and 2.2b., then,
subject to Subsection 2.2f., the Shareholders will forfeit in 2007 the
applicable amount of Escrow Shares within sixty (60) days of completion of
the audit for Fiscal 2007, unless the provisions of Subsection 2.2c. apply.
f. Additional Means of Obtaining Escrow Shares. Notwithstanding anything in
this Agreement or otherwise to the contrary, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ will
receive, on a pro rata basis, 2,000,000 of the Escrow Shares if Parent's
Common Stock price on the NASD OTC Bulletin Board (or any other exchange)
at any time between the Closing Date and sixty (60) days after completion
of the audit for Fiscal 2007 is either (i) at least one dollar ($1.00) per
share for thirty (30) consecutive trading days; or (ii) the average closing
price for any forty-five (45) consecutive trading days is at least one
dollar ($1.00) per share. This provision shall apply even if the Adjusted
EBITDA targets and Debt to Adjusted EBITDA ratios discussed above are not
met in Fiscal 2006 and/or Fiscal 2007.
g. Rights with Respect to Escrow Shares while in Escrow. Notwithstanding
anything contained in this Agreement to the contrary, (i) all of the Escrow
Shares shall constitute issued and outstanding shares of Parent Common
Stock, (ii) the Shareholders shall be entitled to receive immediately (and
not paid into escrow) any dividends payable with respect to the Escrow
Shares in the same manner as if such Escrow Shares were not subject to this
Agreement and (iii) the Shareholders of the Escrow Shares (or their
authorized agent) shall have the right to vote the Escrow Shares on all
matters required by law to be submitted or are otherwise submitted to the
vote of the shareholders of the Parent in the same manner as if such Escrow
Shares were not subject to this Agreement.
2.3 Escrow of Parent Company Stock Owned by Bensol. Bensol agrees to escrow
a total of 2,000,000 shares of Parent Common Stock owned by him as of the
Closing ("Bensol Escrow Shares"). The Bensol Escrow Shares shall be released
from escrow upon the Parent meeting the following milestones:
a. Fiscal 2006 EBITDA. Fifty percent (50%) of the Bensol Escrow Shares will be
released within thirty (30) days following the completion of the audit for
the twelve (12) month period ending March 31, 2006 ("Fiscal 2006") if the
Parent meets an "EBITDA" of $9.7 Million for Fiscal 2006. "EBITDA" for
purposes of this Section 2.3 shall be determined as set forth in
Schedule 2.3a.
5
b. Fiscal 2007 EBITDA. The remaining fifty percent (50%) of the Bensol Escrow
Shares will be released from escrow upon Parent meeting EBITDA of $12.5
Million for the twelve (12) month period ending March 31, 2007 ("Fiscal
2007").
c. Alternative Release of Bensol Escrow Shares. As an alternative to the
release of Bensol Escrow Shares set forth in the previous two Subsections,
all of the Bensol Escrow Shares shall be released in 2007, within thirty
(30) days of completion of the audit for Fiscal 2007, if Parent obtains a
combined EBITDA for Fiscal 2006 and Fiscal 2007 of $22.2 Million or
greater.
d. Debt to EBITDA Ratio. For any of the Bensol Escrow Shares to be released
pursuant to Subsections 2.3a. or 2.3b., the Parent Debt (as defined on
Schedule 2.3d.) to EBITDA ratio for the Parent must be 2.00 or less for
Fiscal 2006, and 2.00 or less for Fiscal 2007. For this purpose, Debt shall
only include the outstanding debt obligations owed by Parent and each of
its subsidiaries (on a consolidated basis) to Comerica Bank.
e. Failure to Reach EBITDA Numbers. If Parent fails to reach the EBITDA
numbers set forth above in this Section 2.3, then, subject to Subsection
2.3f., Bensol will forfeit in 2007 the applicable amount of Bensol Escrow
Shares within sixty (60) days of completion of the audit for Fiscal 2007,
unless the provisions of Subsection 2.3c. apply.
f. Additional Means of Obtaining Bensol Escrow Shares. Notwithstanding
anything in this Agreement or otherwise to the contrary, Bensol will
receive 400,000 of the Bensol Escrow Shares if Parent's common stock price
on the NASD OTC Bulletin Board (or any other exchange) at any time between
the Closing Date and sixty (60) days after completion of the audit for
Fiscal 2007 is either (i) at least one dollar ($1.00) per share for thirty
(30) consecutive trading days; or (ii) the average closing price for any
forty-five (45) consecutive trading days is at least one dollar ($1.00) per
share. This provision shall apply even if the EBITDA targets and Debt to
EBITDA ratios discussed above are not met in Fiscal 2006 and/or Fiscal
2007.
g. Rights with Respect to Bensol Escrow Shares while in Escrow.
Notwithstanding anything contained in this Agreement to the contrary, (i)
all of the Bensol Escrow Shares shall constitute issued and outstanding
shares of Parent Common Stock, (ii) Bensol shall be entitled to receive
immediately (and not paid into escrow) any dividends payable with respect
to the Bensol Escrow Shares in the same manner as if such shares were not
subject to this Agreement; and (iii) Bensol (or his authorized agent) shall
have the right to vote the Bensol Escrow Shares on all matters required by
law to be submitted or are otherwise submitted to the vote of the
shareholders of the Company in the same manner as if such Escrowed Shares
were not subject to this Agreement, provided that, all of the Bensol Escrow
Shares shall be subject to the Voting Agreement (as hereinafter defined).
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2.4 Parent Private Placement. In connection with the transactions
contemplated herein, Parent has offered for sale up to $11 Million of its Parent
Common Stock in a private placement exempt from registration pursuant to
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Regulation D Offering"). The purchase price of the shares offered pursuant to
the Regulation D Offering shall be equal to $.25 per share. In addition, the
investors in the Regulation D Offering ("Regulation D Investors") shall receive
common stock purchase warrants equal to ten percent (10%) of the number of
shares of Parent Common Stock sold in the Regulation D Offering. The warrants
shall be exercisable for seven (7) years from the date of grant at $.50 per
share. The net proceeds of the Regulation D Offering shall be used to pay down
certain debt of the Parent and the Company.
2.5 Additional Agreements Relative to Merger.
a. Officers. Following the Effective Date, ▇▇▇▇▇▇▇ shall be appointed to the
positions of Chairman/CEO of Parent, ▇▇▇▇▇▇▇ shall be appointed to the
positions of President/CFO of Parent, and Bensol shall be appointed to the
position of Executive Vice President of Parent. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and Bensol
shall enter into employment agreements in the form attached hereto as
Exhibit 2.5a.
b. Listing of Parent. Upon execution of this Agreement, Parent shall continue
to maintain a listing of its securities with the NASD OTC Bulletin Board
and immediately upon execution hereof, Parent shall use its best efforts to
apply for a listing on the NASDAQ stock market or other national securities
exchange.
c. Parent Board of Directors. Following the Effective Date, the Board of
Directors of Parent shall consist of at least five (5) directors, of which
at least three (3) shall be nominees of ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇, and the
remaining two directors shall be those elected by the Parent's shareholders
at the May 5, 2004 Shareholder meeting. In order to effectuate the intent
of the parties, the Shareholders, Bensol and certain other shareholders of
Parent shall enter into the Voting Agreement in the form attached hereto as
Exhibit 2.5c. ("Voting Agreement").
d. Anti-Dilution and Pre-Emptive Rights. Except as otherwise provided herein,
Parent agrees that for a period of 3 years from and after the date hereof,
it shall not dilute the ownership percentages of ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ in
Parent and to the extent Parent desires or intends to issue additional
shares of Parent Common Stock or other securities, ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
shall have pre-emptive rights to acquire additional shares of Parent Common
Stock sufficient to maintain their percentage ownership interest in the
Parent. Notwithstanding the foregoing, ▇▇▇▇▇▇▇'▇ and ▇▇▇▇▇▇▇'▇ percentage
ownership interest may be diluted and ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ will not have
pre-emptive rights in connection with Parent's issuance of Parent Company
Stock pursuant to any stock options and/or warrants granted and outstanding
prior to the Closing Date or issued to the Regulation D Investors in
connection with the Regulation D Offering.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants, as of the Closing Date, as
follows, each of which representations and warranties shall be deemed to be
independently material and to have been relied upon by Parent and Acquisition
Subsidiary:
3.1 Organization; Good Standing. The Company is duly organized, validly
existing and in good standing under the laws of the State of Michigan, and
Company has full power and authority, corporate and other, to own and operate
its property (including the operation of leased property) and to carry on its
business, as it is now being conducted, and is duly qualified or licensed as a
foreign corporation to do business and is in good standing in each jurisdiction
in which the character of the property owned or the nature of the business
transacted by it makes such qualification or licensing necessary, except that if
the Company is not so qualified in any such jurisdiction, it can become
qualified without any Material Adverse Effect (as defined below). True and
complete copies of the Company's Articles of Incorporation and By-laws
(including all amendments thereto) have been delivered or made available to
Parent.
3.2 Capitalization; Title to Shares.
a. The Company's authorized capital stock consists solely of sixty thousand
(60,000) shares of Company Common Stock. As of the Closing Date, (i) one
thousand (1,000) shares of Company Common Stock are issued and outstanding,
and (ii) there are no Company Stock Options (as defined below) issued and
outstanding. All outstanding shares of Company Common Stock are validly
issued, fully paid and non-assessable. The Shareholders own, of record and
beneficially, all of the Company Common Stock.
b. Schedule 3.2b. is a true and complete list of the names and number of
shares of Company Common Stock owned by each of the Shareholders. Each
Shareholder owns of record and beneficially the number and percentage of
shares of Company Common Stock set forth next to such Shareholder's name,
as described in Schedule 3.2b.
c. There are no outstanding subscriptions, options, rights, warrants or other
commitments entitling any person to purchase or otherwise subscribe for or
acquire any shares of capital stock of the Company or any security
convertible into or exchangeable for shares of capital stock of the Company
(collectively, "Company Stock Options"), nor is there presently outstanding
any security convertible into or exchangeable for shares of capital stock
of the Company, nor has the Company or any Shareholder entered into any
agreement with respect to any of the foregoing. The Company has no
obligation to repurchase, redeem or otherwise acquire any shares of capital
stock of or other equity or voting interests in, the Company. There are no
irrevocable proxies and no voting agreements to which the Company or any
Shareholder is a party with respect to any shares of the capital stock or
other voting securities of the Company.
8
3.3 Company Subsidiaries. Following the closing of the Arcadia Acquisition
(as hereinafter defined), the Company will own 100% of the issued and
outstanding shares of capital stock of Arcadia Services, Inc. ("Arcadia"), free
and clear of any Liens (as hereinafter defined) save and except for Lien in
favor of Comerica Bank created by the Company's pledge of the shares of Arcadia
to secure the Company's bank obligations. Except for the Company's ownership of
Arcadia (and its indirect ownership of the subsidiaries of Arcadia), following
the closing of the Arcadia Acquisition, the Company will not have, nor has the
Company ever had, any subsidiaries and the Company does not own, nor has the
Company ever owned any capital stock of or other equity or voting interests in,
any corporation, partnership, limited liability company, joint venture,
association or other entity (or disregarded entity for purposes of the Code)
(domestic or non-domestic).
3.4 Authority Relative to this Agreement. The Company has the full legal
right, power and capacity and all authority and approval required by law to
enter into this Agreement and the documents and instruments to be executed and
delivered by it pursuant hereto and to perform fully its obligations hereunder
and thereunder. The execution, delivery and performance by the Company of this
Agreement and the documents and instruments to be executed and delivered by it
pursuant hereto have been duly authorized by all requisite corporate action
(including all action required of the Company's Board of Directors and the
Shareholders) and no other corporate proceedings on the part of the Company are
necessary to approve this Agreement or the documents and instruments to be
executed and delivered by it pursuant hereto, or to consummate the transactions
contemplated hereby or thereby. This Agreement and the documents and instruments
to be executed and delivered pursuant hereto are and will be duly executed and
delivered by the Company and are and will be the legal, valid and binding
obligations of the Company, enforceable against it in accordance with their
terms.
3.5 Consents and Approvals; No Violations.
a. Except as disclosed on Schedule 3.5, no filing or registration with and no
permit, authorization, consent or approval of, any public body or
authority, including courts of competent jurisdiction, domestic or foreign
("Governmental Entity"), is necessary for the consummation by the Company
of the transactions contemplated by this Agreement.
b. Neither the execution and delivery of this Agreement or the documents and
instruments to be executed and delivered pursuant hereto by the Company nor
the consummation by the Company of the transactions contemplated hereby or
thereby, nor compliance by the Company with any of the provisions hereof or
thereof, will (i) conflict with or result in any breach of any provision of
the Company's Articles of Incorporation, as amended, or By-laws,
(ii) result in a violation or breach of or constitute (with or without due
notice or lapse of time or both) a default or give rise to any right of
termination, cancellation or acceleration of or loss of a material benefit
under or result in the creation of any Lien (as defined herein) in or upon
any of the properties or assets of the Company under or give rise to any
increased, additional, accelerated or guaranteed rights or entitlements
under or require any consent, approval or notice under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, guarantee, agreement, lease or other instrument or obligation to
which the Company is a party or by which it or any of its properties or
assets may be bound, or (iii) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to the Company or any of its
properties or assets, except in the case of (ii) or (iii) for violations,
breaches or defaults which would not, individually or in the aggregate,
have a Material Adverse Effect and which would not prevent or materially
delay the consummation of the transactions contemplated hereby. For
purposes of this Agreement "Lien" means pledges, mortgages, security
interests, claims, charges and other encumbrances of any kind or nature
whatsoever.
9
3.6 Absence of Undisclosed Liabilities. Except for any liabilities or
obligations incurred in connection with the negotiation, documentation,
execution and delivery of (i) this Agreement and all of the ancillary agreements
and documents required hereunder and (ii) the Stock Purchase Agreement and all
ancillary agreements and documents executed in connection with the Arcadia
Acquisition, the Company has no liabilities or obligations that are required to
be recorded in accordance with GAAP.
3.7 Absence of Certain Changes or Events. Other than in connection with its
purchase of all of the stock of Arcadia Services, Inc. (the "Arcadia
Acquisition") pursuant to that certain Amended and Restated Stock Purchase
Agreement dated May 7, 2004 (the "Arcadia Stock Purchase Agreement") and related
banking and loan transactions, the Company has not conducted any material
business activities since March 15, 2004, the date of its incorporation.
3.8 Corporate Minute Books; Bank Accounts.
a. The minute books of the Company contain complete and accurate records of
all meetings which were required to be convened and other corporate actions
of its shareholders and directors and committees of directors (if any)
which were required to be taken pursuant to applicable law, the Company's
Articles of Incorporation or its By-laws. True and complete copies of the
minute books have been delivered or made available to Parent.
b. Company has furnished or made available to Parent a complete and correct
list of all bank accounts and safe deposit boxes of the Company and persons
authorized to sign or otherwise act with respect thereto as of the date
hereof and a complete and correct list of all persons holding a general or
special power of attorney granted by the Company or a Company Subsidiary.
3.9 Taxes. The Company was formed on March 15, 2004 and has not filed, nor
was it legally required to file, any tax returns.
10
3.10 Litigation. There is no legal action, suit, arbitration or legal or
administrative proceeding or investigation pending, or threatened, against the
Company that questions the validity of this Agreement or any other documents or
instruments to be executed and delivered by the Company pursuant hereto or the
right of the Company or of the Shareholders to enter into this Agreement or any
such other documents or instruments or to consummate the transactions
contemplated hereby or thereby.
3.11 Compliance with Laws. Except for violations, breaches, or defaults
which would not, individually or in the aggregate, have a Material Adverse
Effect, and to the knowledge of the Company, the Company has complied with, is
in compliance with and has not received notice of any violation of, any and all
applicable laws, rules, regulations and ordinances.
3.12 Disclosure. Except for violations, breaches, or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect, neither
this Agreement, nor any Schedule hereto, nor any certificate, or document
required to be delivered to Parent, by the Company contain any untrue statement
of a material fact or omits or will omit to state a material fact necessary to
make the statements therein, in light of the circumstances in which they are
made, not false or misleading.
3.13 Arcadia Services, Inc. Notwithstanding anything contained in this
Agreement to the contrary, Parent and Acquisition Subsidiary acknowledge that
the Company was formed as a shell corporation on March 15, 2004 for the sole
purpose of consummating the Arcadia Acquisition. Parent and Acquisition
Subsidiary agree that neither the Company nor the Shareholders are making, nor
have they made, any representations and warranties with respect to Arcadia or
any subsidiary of Arcadia including, without limitation, the assets,
liabilities, obligations, business or operations of Arcadia or any of the
Arcadia subsidiaries. Parent and Acquisition Subsidiary further agree that each
of the representations and warranties contained in this Article III is being
made with respect to only the Company without giving effect to the closing of
the Arcadia Acquisition.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each Shareholder, severally, not jointly, represents and warrants and
agrees, as of the date of this Agreement, as follows, each of which
representations, warranties and agreements shall be deemed to be independently
material and to have been relied upon by Parent and Acquisition Subsidiary:
4.1 Title.
a. Such Shareholder owns, of record and beneficially, the number of shares of
Company Common Stock as are set forth next to such Shareholder's name on
Schedule 2.1b., free and clear of all Liens and the consummation of the
transactions contemplated by this Agreement will not give rise to any Liens
thereon.
11
b. There are no rights or other commitments entitling any person to purchase
or acquire any shares of capital stock of the Company held by such
Shareholder or any security convertible into or exchangeable for shares of
capital stock of the Company held by such Shareholder, nor has such
Shareholder entered into any agreement with respect to any of the
foregoing. There are no irrevocable proxies and no voting agreements to
which such Shareholder is a party with respect to any shares of the capital
stock or other voting securities of the Company held by such Shareholder.
4.2 Authority Relative to this Agreement. Such Shareholder has the full
legal right, power and capacity and all authority and approval required by law
to enter into this Agreement and the documents and instruments to be executed
and delivered by him or her pursuant hereto and to perform fully such
Shareholder's obligations hereunder and thereunder. This Agreement and the
documents and instruments to be executed and delivered pursuant hereto are and
will be duly executed and delivered by such Shareholder and are and will be the
legal, valid and binding obligations of such Shareholder enforceable against
such Shareholder in accordance with their terms.
4.3 Consents and Approvals; No Violations.
a. Except as disclosed on Schedule 4.4, no filing or registration with and no
permit, authorization, consent or approval of, any Governmental Entity is
necessary for the consummation by such Shareholder of the transactions
contemplated by this Agreement.
b. Neither the execution and delivery of this Agreement or the documents and
instruments to be executed and delivered pursuant hereto by such
Shareholder, nor the consummation by such Shareholder of the transactions
contemplated hereby or thereby, nor compliance by such Shareholder with any
of the provisions hereof or thereof will, (i) conflict with or result in
any breach of any provision of the Company's Articles of Incorporation, as
amended, or By-laws or (ii) result in a violation or breach of or
constitute (with or without due notice or lapse of time or both) a default
or give rise to any right of termination, cancellation or acceleration of
or loss of a material benefit under or result in the creation of any Lien
or give rise to any increased, additional, accelerated or guaranteed rights
or entitlements under or require any consent, approval or notice under, any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement, lease or other instrument or
obligation to which such Shareholder is a party or by which such
Shareholder or any of its properties or assets may be bound or (iii)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to such Shareholder or any of its properties or assets.
4.4 Litigation. There is no legal action, suit, arbitration or other legal
or administrative proceeding or investigation before any Governmental Entity
pending or, to the knowledge of such Shareholder, threatened, to which such
Shareholder is a party that questions the validity of this Agreement or any
other documents or instruments to be executed and delivered by the Company or
such Shareholder pursuant hereto or the right of such Shareholder to enter into
this Agreement or any such other documents or instruments or to consummate the
transactions contemplated hereby. To the knowledge of such Shareholder, there is
no fact or facts existing which are reasonably expected to result in, nor is
there any basis for, any such action, suit, arbitration or other proceeding or
investigation. Such Shareholder is not a party to or subject to any order, writ,
injunction, decree, judgment or other restriction of any Governmental Entity
which is reasonably likely to prevent or materially delay such Shareholder's
ability to enter into this Agreement or any other documents or instruments to be
executed and delivered pursuant hereto or consummate the transactions
contemplated hereby or thereby.
12
4.5 Securities Law Matters. Each Shareholder acknowledges that investment
in the Parent Common Stock involves a high degree of risk and is suitable only
for sophisticated investors, and that they have been informed by Parent that the
Parent Common Stock is being offered in reliance upon an exemption from
registration provided by the Securities Act and an exemption from registration
under applicable Blue Sky laws. Shareholder is acquiring the Parent Common Stock
for his or her own investment and not with a view to the distribution or resale
thereof to anyone else. The Parent has disclosed to the Shareholder, that the
Parent Common Stock is a restricted security, as defined in Rule 144 under the
Securities Act, transferability is limited, and that the Shareholder may be
required to continue to bear the economic risk of this investment for an
indefinite period as the Parent Common Stock has not been registered under the
Securities Act or any Blue Sky laws and therefore cannot be offered or sold
until subsequently registered under such acts (as provided in Exhibit 2.1c. or
otherwise) or an exemption from such registration is available. Shareholder is
an "accredited investor" within the meaning of Regulation D under the Securities
Act and the Delaware and Michigan Blue Sky Laws, or otherwise has such knowledge
and experience in financial and business matters such that Shareholder, either
alone or with such Shareholder's purchaser representative (who is the
Shareholder Representative for purposes of the transactions contemplated in this
Agreement), is capable of evaluating the merits and risks of an investment in
Parent. Shareholder has had access to all public filings with the Securities and
Exchange Commission made by Parent, and has received the opportunity to ask
questions and receive answers regarding the merits and risks of investing in the
Parent Common Stock. On the date hereof, Shareholder does not own directly or
beneficially, either alone or with any group (as defined under Section 13(d) of
the Exchange Act) more than 1% of the issued and outstanding Parent Common
Stock. Each Shareholder agrees to each term and condition of the Registration
Rights provisions in Exhibit 2.1c.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT
AND ACQUISITION SUBSIDIARY
The Parent, on behalf of itself and each Parent Subsidiary (as hereinafter
defined), and Acquisition Subsidiary, hereby jointly and severally represent,
and warrant, as of the Closing Date, as follows, each of which representations
and warranties shall be deemed to be independently material and to have been
relied upon by the Company and the Shareholders:
5.1 Organization; Good Standing. Parent, Acquisition Subsidiary and each
Parent Subsidiary is duly organized, and validly existing under the laws of the
State of their incorporation, and has full power and authority, corporate and
other, to own and operate its property (including the operation of leased
property) and to carry on its business as it is now being conducted and is duly
qualified or licensed as a foreign corporation to do business and is in good
standing in each jurisdiction in which the character of the property owned or
the nature of the business transacted by it makes such qualification or
licensing necessary, except that if not so qualified in any such jurisdiction,
it can become qualified without any Material Adverse Effect. True and complete
copies of their respective formative documents (including all amendments
thereto), as in effect on the date hereof, have been delivered or made available
to Company and Shareholders.
13
5.2 Capitalization; Title to Shares.
a. Schedule 5.2a. contains a true and complete description of all classes of
the Parent's authorized capital stock ("Capital Stock"), the number of
shares of Capital Stock issued and outstanding, the relative rights of each
class of Capital Stock, the number of shares of Parent Common Stock
reserved for issuance under any Parent Stock Option Plan or any other
benefit plan, and the number shares of Parent Company Stock subject to
issued and outstanding stock options, warrants or other convertible
securities.
b. Except as set forth in Schedule 5.2(b) attached hereto, there are no other
outstanding subscriptions, options, rights, warrants or other commitments
entitling any person to purchase or otherwise subscribe for or acquire any
shares of Capital Stock of the Parent or any security convertible into or
exchangeable for shares of Capital Stock of the Parent, nor is there
presently outstanding any security convertible into or exchangeable for
shares of Capital Stock of the Parent, nor has the Parent entered into any
agreement with respect to any of the foregoing. The Parent has no
obligation to repurchase, redeem or otherwise acquire any shares of Capital
Stock of, or other equity or voting interests in the Parent. There are no
irrevocable proxies and no voting agreements to which the Parent is a party
with respect to any shares of the Capital Stock or other voting securities
of the Parent.
c. The Merger and the transactions contemplated by this Agreement will not
trigger any rights to the current Shareholders or Parent.
d. The Parent Common Stock to be received by the Shareholders in the Merger
Exchange shall be free and clear of all Liens and the consummation of the
transaction contemplated by this Agreement will not give rise to any Liens
therein.
e. Parent is not an "Issuing Corporation" within the definition of Section
78.3788 of the Nevada Revised Statutes and the Parent Company Stock issued
to the Shareholders in connection with the Merger Exchange is not subject
to any restrictions, constraints or limitations, voting or otherwise, set
forth in Sections 73.378 through 78.3793 of the Nevada Revised Statutes.
14
5.3 Subsidiaries. Schedule 5.3 lists the name and state of incorporation
for each subsidiary of Parent (the "Parent Subsidiaries"). Parent owns of record
and beneficially one hundred (100%) percent of the equity interests of each
Parent Subsidiary. Neither Parent nor any Parent Subsidiary owns, nor has Parent
or any Parent Subsidiary ever owned, directly or indirectly, any capital stock
of or other equity or voting interests in any other corporation, partnership,
limited liability company, joint venture, association or other entity, or
disregarded entity for purposes of the Code, domestic or non-domestic.
5.4 Authority Relative to this Agreement. Each of the Parent and
Acquisition Subsidiary has the full legal right, power and capacity to enter
into this Agreement and the documents and instruments to be executed and
delivered by it pursuant hereto and to perform fully its obligations hereunder
and thereunder. The execution, delivery and performance by Parent and
Acquisition Company of this Agreement and the documents and instruments to be
executed and delivered by it pursuant hereto including, without limitations, the
documents and agreements required to delivered by Parent at the Closing pursuant
to Article VII, have been duly authorized by all requisite Board of Directors
and shareholder action and no other corporate or shareholder proceedings or
actions shall be necessary to approve this Agreement or the documents and
instruments to be executed and delivered by it pursuant hereto, or to consummate
the transactions contemplated hereby or thereby, except for submission to the
Shareholders Parent for approval. This Agreement, and the ancillary agreements,
documents and instruments to be executed and delivered pursuant hereto are duly
executed and delivered by the Company, and are the legal, valid and binding
obligations of the Company and Acquisition Subsidiary, enforceable against each
of them in accordance with their terms.
5.5 Consents and Approvals; No Violations.
a. Except as disclosed on Schedule 5.5, no filing or registration with and no
permit, authorization, consent or approval of, any Governmental Entity, is
necessary for the consummation by the Company of the transactions
contemplated by this Agreement;
b. Neither the execution and delivery of this Agreement or the documents and
instruments to be executed and delivered pursuant hereto by the Parent and
Acquisition Subsidiary nor the consummation by the Parent and Acquisition
Subsidiary of the transactions contemplated hereby, nor compliance by them
with any of the provisions hereof or thereof, will (i) conflict with or
result in any breach of any provision of the Parent's or Acquisition
Subsidiary's Articles of Incorporation, as amended, or By-laws, as amended,
(ii) result in a violation or breach of or constitute (with or without due
notice or lapse of time or both) a default or give rise to any right of
termination, cancellation or acceleration of or loss of a material benefit
under or result in the creation of any Lien in or upon any of the
properties or assets of the Parent under or give rise to any increased,
additional, accelerated or guaranteed rights or entitlements under or
require any consent, approval or notice under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, contract,
guarantee, agreement, lease or other instrument or obligation to which the
Parent is a party or by which it or any of its properties or assets may be
bound or (iii) violate any order, writ, injunction, decree, statute, rule
or regulation applicable to the Parent or any of its properties or assets,
except in the case of (ii) or (iii) for violations, breaches or defaults
which would not, individually or in the aggregate, have a Material Adverse
Effect and which would not prevent or materially delay the consummation of
the transactions contemplated hereby.
15
5.6 Financial Statements. Parent has delivered or made available to Company
and Shareholders the audited consolidated financial statements of the Parent and
Parent Subsidiaries as of September 30, 2003 and 2002, respectively and the
related statements of income, shareholders' equity and cash flow for the fiscal
years then ended, together with the notes thereto (the "Parent Audited
Statements"), and (b) the internally prepared consolidated unaudited balance
sheet of the Parent and Parent Subsidiaries as of December 31, 2003 and the
related internally prepared unaudited statements of income, shareholders' equity
and cash flow for the period from October 1 through December 31, 2003 (the
"Parent Unaudited Statements"). All such statements (collectively, the "Parent
Financial Statements") have been prepared in conformity with GAAP applied on a
consistent basis throughout the periods involved and fairly present in all
material respects the consolidated financial position of the Parent and the
Parent Subsidiaries as of the dates indicated and the consolidated results of
the Parent's and the Parent's Subsidiaries' operations for the periods then
ended (subject, in the case of the Parent Unaudited Statements, to normal and
recurring year-end audit adjustments, none of which, individually or in the
aggregate, are expected to be material in the absence of footnotes otherwise
required under GAAP). The Parent Financial Statements reflect an accrual for
taxes (State and Federal) sufficient in all respects for each of the respective
periods then ending in the Parent Financial Statements.
5.7 Absence of Undisclosed Liabilities. Except as and to the extent
reflected or reserved against in the Parent Financial Statements, the Parent and
the Parent Subsidiaries had no other liabilities or obligations that are
required to be recorded in accordance with GAAP, as of the dates thereof, other
than (a) obligations of continued performance under the Parent's Agreements (as
defined below), and (b) commitments and arrangements incident to the normal
conduct of business, known or unknown, secured or unsecured (whether accrued,
absolute, contingent or otherwise). Since December 31, 2003, neither Parent nor
any Parent Subsidiary has incurred any liabilities other than (i) current
liabilities incurred in the ordinary course of business consistent with past
practice or (ii) in connection with the transactions contemplated hereby.
16
5.8 Absence of Certain Changes or Events. Since December 31, 2003, the
Parent and Parent Subsidiaries have each conducted its business only in the
ordinary course consistent with past practice and there has not occurred any
event or condition which has or may reasonably be expected to have a Material
Adverse Effect including, and without limiting the generality of the foregoing,
the Parent and Parent Subsidiaries have not (a) incurred any obligation or
liability, secured or unsecured (whether accrued, absolute, contingent or
otherwise), whether due or to become due, except current liabilities in the
ordinary course of business consistent with past practice or those reflected on
the Parent Unaudited Statements, (b) discharged or satisfied any Lien (except
for Permitted Liens) or paid any obligation or liability, except current
liabilities becoming due in the ordinary course of business consistent with past
practice, (c) mortgaged, pledged or subjected to a Lien (except for Permitted
Liens) any of the Parent's or any Parent's Subsidiary's properties or assets,
(d) sold, transferred, licensed or otherwise disposed of any of the Parent's or
any Parent's Subsidiary's properties or assets other than in the ordinary course
of business consistent with past practice, (e) increased the compensation
payable or to become payable by it to any of its directors, officers, salaried
employees or agents whose total compensation for services rendered after any
such increase is more than One Hundred Thousand ($100,000) Dollars, except as
provided by an agreement either written or oral, the terms of which Parent has
disclosed to or made available to Company and Shareholders, or made any bonus,
percentage of compensation or other like benefit accruing to or for the credit
of any such directors, officers, employees, consultants or agents of the Parent,
except in accordance with a Parent Benefit Plan (as defined below),
(f) terminated or received any notice of termination of any material contract,
license, lease, trademark, patent, patent application, copyright or trade name
protection or other agreement, (g) suffered any damage, destruction or loss
(whether or not covered by insurance) adversely affecting the Parent's or any
Parent's Subsidiary's properties or assets, (h) suffered any taking or seizure
of all or any part of the Parent's properties or assets by condemnation or
eminent domain, (i) experienced any material change in its relations with its
vendors, suppliers, lenders, dealers, distributors, customers, employees,
consultants or agents, (j) acquired any capital stock or other securities of any
corporation or any interest in any business enterprise or otherwise made any
loan or advance to or investment in any person, firm or corporation (other than
advances to employees in the ordinary course of business consistent with past
practice), (k) made any capital expenditures or capital additions exceeding
Twenty Thousand ($20,000) Dollars individually or One Hundred Thousand
($100,000) Dollars in the aggregate, (1) instituted, settled or agreed to settle
any litigation, action or proceeding before any court or governmental body
17
affecting its financial condition, its property or its business operations
involving a claim in excess of Ten Thousand ($10,000) Dollars, (m) made any
purchase commitment in excess of normal ordinary and usual requirements or made
any material change in its selling, pricing or personnel practices other than in
the ordinary course of business consistent with past practice, (n) made any
change in accounting principles or methods or in the manner of keeping books,
accounts and records of the Parent or any Parent Subsidiary which is, or may be,
inconsistent with the principles or methodology by which the Parent Financial
Statements have been prepared, (o) entered into any contract, agreement, lease
or other arrangement or transaction or taken any other action, except in the
ordinary course of business consistent with past practice, (p) except as set
forth in Schedule 5.8, changed the authorized Capital Stock, redeemed any
Capital Stock, or, other than pursuant to Parent's employee stock benefit plans,
issued, sold or otherwise disposed of any Capital Stock or any option to acquire
Capital Stock or any securities convertible into or exchangeable for Capital
Stock, or entered into any agreements creating funded indebtedness of the
Parent, (q) made any declaration, setting aside or payment of any dividend or
any other distribution (whether in cash, stock or property) in respect of its
capital stock, or (r) entered into any agreement or made any commitment to do
any of the things described in the preceding subsections (a) through (q) of this
Section 5.8. The foregoing shall not prohibit any of the following: (a) action
taken to amend the Articles of Incorporation of Parent to change the par value
of the Parent Common Stock from $.25 to $.001 per share and deny Parent
Shareholders automatic pre-emptive rights; (b) such action as may be authorized
by the Parent Board of Directors to provide contractual registration rights
providing for public resale of shares issued in connection with the transactions
contemplated herein and in connection with the Regulation D private offering
conducted by the Parent in connection herewith (the "Private Placement"); and
(c) action of Parent's Board of Directors to amend the By-Laws of Parent to
provide for the governance arrangements described in Section 8.3.
5.9 Contracts.
a. Schedule 5.9a. contains a complete and accurate list, and Parent has
delivered to Company and Shareholders, true and complete copies, of:
i. Each Contract (as hereinafter defined) that involves the furnishing or
performance of services, or the purchase, receipt, delivery, sale,
lease or transfer of goods, materials or products, by or to Parent or
any Parent Subsidiary, including, but not limited to, purchase orders;
ii. Each joint venture or partnership agreement or other Contract
involving any joint conduct or sharing of any business, venture or
enterprise, or a sharing of profits, losses, costs or liabilities by
Parent or any Parent Subsidiary with any other party;
iii. Each Contract containing covenants that in any way purport to restrict
the business activity of Parent or any Parent Subsidiary or limits the
freedom of Parent or any Parent Subsidiary, or any of Parent's or any
Parent Subsidiary's employees, agents or representatives, to engage in
any line of business or to compete with any other party;
iv. Each warranty, guaranty or other similar undertaking extended by the
Parent or any Parent Subsidiary for or with respect to any products or
services or otherwise providing any rights or benefits to any other
party;
v. Each Contract under which Parent or any Parent Subsidiary has
advanced, guaranteed, loaned, or borrowed any money or pledged any
assets;
vi. Each Contract with any employee, officer, director, shareholder, sales
representative, consultant, distributor, representative or agent of
Parent or any Parent Subsidiary;
vii. Each Contract providing for aggregate payments to or from Parent or
any Parent Subsidiary or involving an aggregate consideration or value
in excess of $25,000;
viii. Each Contract not entered into in the ordinary course of business;
ix. Each Contract having a term or period of performance in excess of one
(1) year;
x. Each proposed or actual amendment, supplement or modification (whether
oral or written) in respect of any of the foregoing; and
xi. Each Contract involving the issuance, sale or redemption of Parent
Capital Stock or the payment of money in lieu thereof.
18
For this purpose, the term "Contract" means any contract, agreement,
understanding, promise, guaranty, commitment or undertaking, written or oral, to
which Parent or any Parent Subsidiary is a party or beneficiary.
b. Each Contract is in full force and effect and the Merger will not give any
other party the right to terminate the Contract or accelerate the Parent's
or Parent Subsidiary's obligations under any such Contract.
c. Except for violations, breaches, or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect, neither Parent nor any
Parent Subsidiary is not and to the knowledge of the Parent, no other party
to any Contract is in default under any Contract.
5.10 Real Property.
a. Schedule 5.10a. contains a true and complete list of all real property
interests now owned or ever owned by the Parent or any Parent Subsidiary
(the "Parent Real Property"), and any contract for the purchase or sale of
real property to which the Parent or any Parent Subsidiary is a party or is
bound has been delivered or made available to Company and Shareholders. The
Parent or a Parent Subsidiary has good and marketable fee simple title to
the Parent Real Property. Each parcel of Parent Real Property and all
improvements, located thereon (i) complies in all material respects with
all covenants, conditions and restrictions of record affecting such
property, (ii) is not presently occupied or used by any party other than
its owner, and (iii) is not subject to any option to purchase or lease,
right of first refusal to purchase or lease, reversionary interest or other
instrument or Lien, whether recorded or unrecorded, which would prohibit or
require the consent or waiver of another party to the transactions
contemplated hereby or any subsequent sale or lease of the property. There
are no taxes currently levied against the Parent Real Property which are
due and payable and have not been paid. No party has provided goods or
services to or in connection with the Parent Real Property which will
result in any mechanic's, materialmens', supplier's or other Lien as a
result of the wrongful failure to pay for the same prior to Closing.
b. Schedule 5.10b. contains a true and complete list of all the real property
leases (the "Parent Leased Real Property"), subleases or licenses of real
property, whether written or oral, to which the Parent or any Parent
Subsidiary is or was a party or is or was bound. The Parent or Parent
Subsidiary has valid and enforceable leasehold interests in the Parent
Leased Real Property free and clear of all Liens. Each lease affords the
Parent or Parent Subsidiary peaceful and undisturbed possession of the
Parent Leased Real Property covered thereby and there exists no event of
default or event, occurrence, condition or act (including the transactions
contemplated by this Agreement) on the part of the Parent or, to the
knowledge of the Parent, on the part of the lessor thereunder which, with
the giving of notice, the lapse of time or the happening of any further
event or condition, would become a material default under such Parent
Leased Real Property, give rise to a right in the lessor to terminate the
lease or change any of the material terms thereof or render the lessee
liable to incur any expenditure under such lease. The monthly rental rates
payable by the Parent under each lease do not exceed the fair market
monthly rental rates charged by lessors for similarly situated properties
within the respective real estate market of such Parent Leased Real
Property.
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c. To the knowledge of the Parent, the Parent Real Property and Parent Leased
Real Property and improvements thereon may lawfully be used in connection
with the business of the Parent. Except for violations, breaches, or
defaults which would not, individually or in the aggregate, have a Material
Adverse Effect, the Parent Real Property and Parent Leased Real Property
and all improvements thereon are in compliance with all applicable laws,
rules, regulations and ordinances of all Governmental Entities including,
but not limited to, zoning, building, health, safety and Environmental Laws
and the Parent has not received any notices of violations with respect
thereto.
5.11 Machinery and Equipment. All machinery, equipment and other tangible
assets, including, but not limited to, computer equipment, of the Parent or
Parent Subsidiary utilized in the operation of its business are in good
operating condition and in a state of good repair sufficient for the conduct of
normal operations without the necessity of any known capital expenditure in
excess of Ten Thousand ($10,000) Dollars. The Parent's or Parent's Subsidiary's
assets and properties (including leased assets and properties, if any) are
adequate to enable the Parent and/or the Parent Subsidiary to conduct its
business as now being conducted. The Parent and/or Parent Subsidiaries do not
have any commitment or plan to make any capital expenditure in excess of Thirty
Thousand ($30,000) Dollars.
5.12 Inventories. The inventories of the Parent and Parent Subsidiaries
consist of raw materials, work in process and finished goods of a quality and
quantity usable or salable in the ordinary course of business, except for any
(a) slow moving or obsolete inventory or (b) inventory of below-standard
quality, all of which inventory is immaterial or has been written off or written
down to realizable value. The valuation at which the inventories of the Parent
are carried on the Parent Financial Statements reflects the normal inventory
valuation policy of the Parent (applied in accordance with GAAP) which states
that inventory at the lower of cost (first-in-first-out-method) or market and
the Parent's regular costing standards with respect to work in process and
finished goods inventory.
5.13 Accounts Receivable. All accounts receivable of the Parent and each
Parent Subsidiary result from and will result from bona fide sales made by the
Parent and each Parent Subsidiary in the ordinary course of business consistent
with past practice and have been collected or will be collectible in the
ordinary course after provision for doubtful accounts and other reserves
required by GAAP.
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5.14 Intellectual Property Rights. Except for violations, breaches, or
defaults which would not, individually or in the aggregate, have a Material
Adverse Effect, and to the knowledge of the Parent, (a) the Parent or Parent
Subsidiary owns or is validly licensed or otherwise has the right to use, all
Intellectual Property Rights used or held for use by the Parent or Parent
Subsidiary and all goodwill associated therewith in the same manner in which any
such Intellectual Property Right have been or is now being used, (b) the Parent
or Parent Subsidiary has not infringed upon, misappropriated or otherwise
violated any Intellectual Property Right or other proprietary information of any
other person, (c) there is no claim, demand or proceeding pending or threatened,
that pertains to or challenges the right of the Parent or Parent Subsidiary to
use any of the Intellectual Property Rights (including any claim that the Parent
or Parent Subsidiary must license or refrain from using any Intellectual
Property Rights or other proprietary information of any other person), (d) the
Parent or Parent Subsidiary has not granted any license or other right and has
no obligation to grant any other license or other right with respect thereto,
(e) no other person has infringed upon, misappropriated or otherwise violated
any Intellectual Property Right of the Parent or any Parent Subsidiary, (f) the
Parent or Parent Subsidiary is the licensee under fully paid, enforceable
licenses that govern its use of software in which any third party has
Intellectual Property Rights, (g) each of such licenses remains in full force
and effect, (h) the Parent or Parent Subsidiary has not breached any such
license, and (i) the Parent or Parent Subsidiary has paid all amounts that have
heretofore become due and payable in respect of such licenses.
5.15 Licenses. The Parent or Parent Subsidiaries possesses all patents,
franchises, permits, licenses, certificates and consents required from any
Governmental Entity or any other person necessary to enable the Parent and each
Parent Subsidiary to carry on its business as now conducted and to own and
operate its properties (including leased property) as now owned and operated,
except for those licenses that are not, individually or in the aggregate,
material to the operation of the business of the Parent. Each of the licenses
will remain in full force and effect following consummation of the transactions
contemplated by this Agreement.
5.16 Title to Assets. All of the Parent's and Parent Subsidiaries' assets
and properties and all assets and properties necessary or required in connection
with the operation of its business will, on the Closing Date, be owned by the
Parent or Parent Subsidiary, as applicable, free and clear of all Liens
whatsoever (except Permitted Liens as set forth on Schedule 5.16) and the
consummation of the transactions contemplated by this Agreement will not give
rise to any Lien on such assets or properties. There are not and on the Closing
Date there will not be, any outstanding agreements, options, commitments or
rights with, to or in any third party to acquire or use any of the Parent's or
Parent's Subsidiaries' assets or properties, as applicable.
5.17 Corporate Minute Books; Bank Accounts.
a. The minute books of the Parent and each Parent Subsidiary contain complete
and accurate records of all meetings which were required to be convened and
other corporate actions of its shareholders and directors and committees of
directors (if any) which were required to be taken, in each case pursuant
to applicable law, its Articles of Incorporation, as amended, and By-laws.
True and complete copies of the minute books have been delivered or made
available to Company.
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b. Parent has furnished or made available to Company and Shareholders a
complete and correct list of all bank accounts and safe deposit boxes of
Parent and each Parent Subsidiary and persons authorized to sign or
otherwise act with respect thereto as of the date hereof and a complete
list of all persons holding a general or special Power of Attorney granted
by Parent or a Parent Subsidiary.
5.18 Taxes.
a. Except for violations, breaches, or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect, and to the knowledge
of the Parent, the Parent and each Parent Subsidiary (i) has filed all
federal, state and local tax returns required by law in the legally
prescribed time (including extensions as set forth below) and manner and
such returns are true and complete in all material respects, (ii) has
timely paid, or made provision for timely payment of, all taxes shown as
due on such returns and all taxes otherwise due and the Parent Unaudited
Statements adequately provided in accordance with GAAP for all taxes
payable by the Parent or Parent Subsidiary (in addition to any reserve for
deferred taxes established to reflect timing differences between book and
tax income) for all taxable periods and portions thereof or, with respect
to the period in which the Closing occurs, such taxes (excluding those
taxes resulting from or attributable to the transactions contemplated by
this Agreement) will be accrued through the Closing Date, (iii) has made
all payments required by any governmental program of workers social
security or unemployment compensation, (iv) has withheld and, to the extent
due, paid over to the appropriate Governmental Entity all amounts required
by law to be withheld from the wages or salaries of employees, (v) is not
liable for any arrears of wages or any taxes or penalties for failure to
comply with any of the foregoing, (vi) has paid or will pay over to the
appropriate Governmental Entity all sales or use taxes referable to the
Parent's or Parent Subsidiary's operations due as of the Closing Date and
has made or will make provisions for payment of all such taxes accrued as
of such date, but not yet due, (vii) there are no claims pending or, to the
knowledge of the Parent, threatened against the Parent and/or any Parent
Subsidiary for past due taxes, (viii) the Parent has not requested any
extension of the time within which to file any tax return in respect of any
taxable year which has not since been filed except for an extension to file
its 2003 federal and state income tax returns, and (ix) no outstanding
waivers or comparable consents regarding the application of the statute of
limitations with respect to any taxes or tax returns has been given by or
on behalf of the Parent. True and complete copies of all Federal and State
income tax returns requested of the Parent have been delivered or made
available to Company and Shareholders.
b. Except for violations, breaches, or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect, and, to the knowledge
of the Parent, (i) no deficiencies for any taxes have been proposed,
asserted or assessed against the Parent that are not adequately reflected
in the Parent Financial Statements and no requests for waivers of the time
to assess any such taxes have been granted or are pending, (ii) there is no
audit, examination, deficiency or refund litigation pending with respect to
taxes and during the past three years no taxing authority has given written
notice of the intent to commence any such examination, audit or refund
litigation and which such examination, audit or refund litigation has not
yet ended, and (iii) none of the assets or properties of the Parent is
subject to any tax lien, other than any such liens for taxes which are not
due and payable, which may thereafter be paid without penalty or the
validity of which are being contested in good faith by appropriate
proceedings and for which adequate provisions are being maintained in
accordance with GAAP.
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c. No claim has been made in writing by a taxing authority in a jurisdiction
where the Parent does not file tax returns to the effect that the Parent is
or may be subject to taxation by that jurisdiction.
d. The Parent is and has been a member of an affiliated, consolidated,
combined or unitary group for tax purposes and has filed all of its tax
returns in a manner consistent therewith and in accordance with applicable
laws.
e. Neither the Parent nor a Parent Subsidiary is a party to any tax sharing
agreement or to any other agreement or arrangement, as a result of which
liability of the Parent to any taxing authority is determined or taken into
account with reference to the activities of any other person and the Parent
is not currently under any obligation to pay any amounts as a result of
having been a party to such an agreement or arrangement, regardless of
whether such tax is imposed on the Parent.
f. Except for violations, breaches, or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect, and to the knowledge
of the Parent, the Parent will not be required to include any item of
income, or exclude any item of deduction from, taxable income for any
taxable period (or portion thereof) ending after the Closing Date as a
result of any (i) change made prior to the Closing Date in method of
accounting for a taxable period ending on or prior to the Closing Date,
(ii) "closing agreement" as described in Section 7121 of the Code (or
corresponding or similar provision of stock, local or foreign income Tax
law) executed prior to the Closing Date, (iii) installment sale or open
transaction disposition made on or prior to the Closing Date, or (iv)
prepaid amount received on or prior to the Closing Date.
g. Neither Parent nor a Parent Subsidiary has, in the past 10 years,
(i) acquired assets from another corporation in a transaction in which the
Company's adjusted tax basis for the acquired assets was determined, in
whole or in part, by reference to the adjusted tax basis of the acquired
assets (or any other property) in the hands of the transferor or (ii)
acquired the stock of any corporation which is a qualified subchapter S
subsidiary under the Code.
h. As used in this Agreement, "taxes" shall include all (x) domestic and
foreign (whether national, federal, state, provincial, local or otherwise)
income, franchise, real and personal property, sales, excise, employment,
payroll, social security, value-added, ad valorem, transfer, withholding
and other taxes, including taxes based on or measured by gross receipts,
profits, sales, use or occupation, tariffs, levies, impositions,
assessments or governmental charges of any nature whatsoever, including any
interest, penalties or additions with respect to any of the foregoing and
(y) liability for the payment of any amounts as a result of being party to
any tax sharing agreement or as a result of any express or implied
obligation to indemnify any other person with respect to the payment of any
amounts of the types described in clause (x) or (y). As used in this
Agreement, "tax return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any
taxing authority or jurisdiction with respect to taxes, including
information returns, any documents with respect to or accompanying payments
of estimated taxes or with respect to or accompanying requests for the
extension of time in which to file any such report, return, document,
declaration or other information.
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5.19 Employees; Benefit Plans.
a. Employees. Parent has furnished or made available to Company and
Shareholders a true and complete list of the names and current salary rates
of all present directors, officers and salaried employees of the Parent or
Parent Subsidiary, together with a summary showing the salaries, bonuses,
additional compensation and other like benefits, if any, expected to be
paid or payable to such persons for the fiscal year ended September 30,
2004. All salaries, bonuses, additional compensation and other like
benefits, including vacation, of all past and present employees of the
Parent or any Parent Subsidiary shall be properly accrued and reserved in
accordance with GAAP. To the knowledge of the Parent, no officer or "Key
Employee" (which means, as used herein, any salaried employee whose annual
compensation is One Hundred Thousand ($100,000) Dollars or more) of the
Parent or any Parent Subsidiary presently intends to terminate his or her
employment with the Parent or any Parent Subsidiary nor does the Parent or
any Parent Subsidiary have any present intention to terminate the
employment of any officer or such Key Employee, whether as a result of the
consummation of the transactions contemplated hereby or otherwise. The
Parent and each Parent Subsidiary (i) has correctly categorized all
employees as either employees or independent contractors for federal tax
purposes and is in compliance in all material respects with all applicable
federal, state and local laws, rules and regulations (domestic and foreign)
respecting their employment, employment practices, labor, terms and
conditions of employment and wages and hours, in each case, with respect to
employees, (ii) is not liable for any payment to any trust or other fund or
to any governmental or administrative authority, with respect to
unemployment compensation benefits, social security or other benefits for
employees and (iii) has provided employees with the benefits to which they
are entitled pursuant to the terms of all Parent Benefit Plans (as defined
below).
b. Employment, Severance and Stay Bonus Agreements. Parent has furnished or
made available to Company and Shareholders a true and complete description
of (i) any contract with any present director, officer, employee or
consultant of the Parent or Parent Subsidiary, (ii) any employment,
termination, severance or stay bonus agreement, (iii) any agreement with
any director, officer, employee or consultant of the Parent or Parent
Subsidiary (A) the benefits of which are contingent or the terms of which
are materially altered, upon the occurrence of a transaction involving the
Parent 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 or service of such officer or employee, (iv) any agreement or
plan, including any stock option plan or stock purchase plan, any of the
benefits of which will be increased or the vesting or other realization of
the benefits of which will be accelerated, by the occurrence of the
transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of the transactions
contemplated by this Agreement, or (v) an obligation to make any "excess
parachute payment" as defined in Section 280G of the Code (without regard
to subsection (b)(4) thereof). Any amount that could be received (whether
in cash, property or vesting of property) as a result of the transaction
contemplated by this Agreement (or their termination of service incidental
to such transaction) by any officer, director, employee or independent
contractor of the Parent who is a "disqualified individual" (as defined in
Treasury Regulation Section 1.280G-1), under any employment arrangement or
Parent Benefit Plan (as defined below) would not be characterized as an
"excess parachute payment" as defined in Section 280G of the Code.
24
c. Benefit Plans. Parent has furnished or made available to Company and
Shareholders a true and complete list of all bonus, profit-sharing, stock
purchase, stock option, equity based, pension, retirement, health, welfare,
severance pay, change in control, employment or any other current or
deferred remuneration or compensation plan, arrangement or practice of any
kind and other fringe benefits, including, without limitation, all
"employee benefit plans" (as defined in Section 3(3) of ERISA), all
"employee welfare benefit plans" (as defined in Section 3(1) of ERISA) and
all "employee pension benefit plans" (as defined in Section 3(2) of ERISA)
(collectively, "Parent Benefit Plans") maintained or contributed to by the
Parent or any person or entity that, together with the Parent, is treated
as a single employer (a "Commonly Controlled Entity") under Section 414(b),
(c), (m) or (o) of the Code, for the benefit of any current or former
directors, officers, employees or consultants of the Parent. The Parent has
no other Benefit Plan currently in existence which is subject to the
requirements of ERISA. With respect to each Parent Benefit Plan:
i. The Parent has provided or made available to Company and Shareholders,
true and complete copies of (A) each Parent Benefit Plan (or, in the
case of any unwritten Parent Benefit Plans, descriptions thereof),
(B) the most recent annual report on Form 5500 required to be filed
with the IRS with respect to each Parent Benefit Plan (if any such
report was required), (C) the most recent summary plan description for
each Parent Benefit Plan for which such summary plan description is
required and (D) each trust agreement and group annuity contract
relating to any Parent Benefit Plan. Each Company Benefit Plan has
been administered in accordance with its terms. The Parent and all the
Parent Benefit Plans are in compliance in all material respects with
all applicable provisions of ERISA and the Code and all other
applicable law. The Parent has timely filed all required documents and
reports, including IRS Form 5500, for each such Parent Benefit Plan
with all applicable governmental authorities and has timely furnished
all required documents to the participants or beneficiaries of each
such Parent Benefit Plan. No individuals have been improperly excluded
from participating in any Parent Benefit Plan;
25
ii. Neither the Parent nor any Commonly Controlled Entity has ever
maintained, contributed to or been obligated to contribute to any
Parent Benefit Plan that is subject to Title IV of ERISA or
Section 412 of the Code;
iii. With respect to any Parent Benefit Plan that is an employee welfare
benefit plan, there are no understandings, agreements or undertakings,
written or oral, that would prevent any such plan (including any such
plan covering retirees or other former employees) from being amended
or terminated without liability to the Parent on or at any time after
the Effective Time;
iv. Each Parent Benefit Plan that is an "employee pension benefit plan"
within the meaning of Section 3(2) of ERISA and that is intended to be
qualified under Section 401(a) of the Code, has received a favorable
determination letter from the IRS and there are not any circumstances
which could result in revocation of any such favorable determination
letter. There is no pending or, to the knowledge of the Parent,
threatened litigation relating to any of the Parent Benefit Plans. The
Parent has not engaged in a transaction with respect to any Parent
Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, could subject the Parent to a tax or
penalty imposed by either Section 4975 of the Code or Section 502(i)
of ERISA;
v. All contributions made or required to be made under the terms of any
Parent Benefit Plan have been timely made or have been reflected on
the Parent Financial Statements;
vi. The Parent has no obligations for retiree health and life benefits
under any Parent Benefit Plan nor has the Parent ever represented,
promised or contracted (whether in oral or written form) to any
employee(s) that such employee(s) would be provided with retiree
health or life benefits.
d. Collective Bargaining Agreements. None of the Parent's or any Parent
Subsidiary's employees is covered by a collective bargaining agreement and
there is no union or other organization seeking or claiming to represent
any such employees. There is no labor dispute, strike, work stoppage or
lockout or, to the knowledge of the Parent, threat thereof, by or with
respect to any employee of the Parent or any Parent Subsidiary.
5.20 Insurance. Except for violations, breaches, or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect, and to
the knowledge of the Parent, (a) all insurance policies of Parent and each
Parent Subsidiary are adequate to insure the risks covered thereby, and
(b) neither the Parent nor any Parent Subsidiary is, nor will it be on the
Closing Date, in default in any respect under any such policy and such policies
shall be kept in full force and effect through the Closing Date.
26
5.21 Litigation. Except as set forth in the Parent Annual Report Form
10-KSB for September 2003 and its quarterly report on Form 10-QSB for December
31, 2003, to the knowledge of Parent, there is no legal action, suit,
arbitration, or legal or administrative proceeding or investigation pending or
threatened, against the Parent or any Parent Subsidiary that (a) affects the
Parent, or any Parent Subsidiary, or their respective businesses, properties or
assets, (b) questions the validity of this Agreement or any other documents or
instruments to be executed and delivered by the Parent or Acquisition Subsidiary
pursuant hereto or the right of the Parent or Acquisition Subsidiary to enter
into this Agreement or any such other documents or instruments or to consummate
the transactions contemplated hereby or thereby, (c) and which if adversely
determined, would be likely to have a Material Adverse Effect on the ability of
the Parent or Acquisition Subsidiary to perform their respective obligations
under this Agreement or any such other documents or instruments. Except for
violations, breaches, or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect, and to the knowledge of the Parent,
(a) there is no fact or facts existing which could be reasonably expected to
result in, nor is there any basis for, any other such action, suit, arbitration
or other proceeding or investigation, (b) the Parent Financial Statements
include an adequate reserve, determined in accordance with GAAP, for all
liability or potential liability resulting or arising from any such action,
suit, arbitration or other proceeding or investigation involving Parent or
Parent Subsidiary, and (c) the Parent or any Parent Subsidiary is not a party to
or subject to any order, writ, injunction, decree, judgment or other restriction
of any Governmental Entity which could be reasonably likely to prevent or
materially delay the Parent's or Acquisition Subsidiary's ability to enter into
this Agreement or any other documents or instruments to be executed and
delivered pursuant hereto or consummate the transactions contemplated hereby or
thereby.
5.22 Compliance with Laws. Except for violations, breaches, or defaults
which would not, individually or in the aggregate, have a Material Adverse
Effect, the Parent, the Parent and each Parent Subsidiary has complied with, is
in compliance with and has not received notice of any violation of, any and all
applicable laws, rules, regulations and ordinances regulating or relating to its
business, including but not limited to those relating to the Securities Act, the
Exchange Act, NASDAQ Market Rules or rules of any other applicable exchange, the
employment of labor (including workers who are not U.S. citizens), the
establishment and maintenance of working conditions for labor, employee safety,
environmental and conservation matters, the provision of services, the
manufacture, sale and distribution of any products, and the establishment and
maintenance of the Parent's and each Parent's Subsidiary's relationships with
suppliers and customers.
5.23 Safety Standards. Except for violations, breaches, or defaults which
would not, individually or in the aggregate, have a Material Adverse Effect, and
to the knowledge of the Parent, (a) the Parent and each Parent Subsidiary has
complied with all safety requirements applicable to it, including, but not
limited to, all standards imposed on the Parent and Parent Subsidiaries by
statute, rule or regulation of any Governmental Entity or industry association,
and (c) the Parent and Parent Subsidiaries have not received notice of any such
infractions or been required to undertake any remedial measures in response
thereto.
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5.24 Product Liability; Product Recalls.
a. Except for violations, breaches, or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect, and to the knowledge
of the Parent, all of the products that the Parent or a Parent Subsidiary
has manufactured and sold (i) have been merchantable, free from defects in
material and workmanship and suitable for the purpose for which they were
sold, (ii) have not been subject to any product recall or service bulletin
and there is no fact or facts existing which may reasonably be expected to
result in any such recall or service bulletin, (iii) there is no legal
action, suit, arbitration or other legal or administrative proceeding or
investigation before any Governmental Entity, pending or, to the knowledge
of the Parent, threatened, involving any product liability, product recall
or otherwise involving Parent or any Parent Subsidiary, and (iv) there is
no fact or facts existing which could be reasonably expected to result in,
nor is there any basis for, any such action, suit, arbitration or other
proceeding or investigation.
b. Except for violations, breaches, or defaults which would not, individually
or in the aggregate, have a Material Adverse Effect, and to the knowledge
of the Parent, (i) the Parent has insurance against loss or damage arising
out of product liability for products manufactured and/or sold by Parent or
any Parent Subsidiary, (ii) such insurance covers all incidents of loss
which have occurred prior to the date hereof or which may occur prior to
the Closing, (iii) there have been no incidents of damage claims paid by
the Parent or any Parent Subsidiary or by its insurance carrier in the two
(2) year period preceding the date of this Agreement and (iv) the Parent
Financial Statements include an adequate reserve (or shall otherwise
reflect an appropriate accrual), determined in accordance with GAAP, for
all liability or potential liability resulting or arising from any product
recall that has been initiated or breach of warranty claims that have been
asserted or that are reasonably likely to be initiated or asserted against
the Parent, in each case, as of the date of such Parent Financial
Statements.
5.25 Warranties. There are no oral or written warranties on the products or
services manufactured or sold by the Parent or any Parent Subsidiary, whether
express or implied, other than as made available to Company and Shareholders and
any implied warranties that may be imposed by operation of law.
5.26 Dealer Network; Rebates and Refunds.
a. The Parent has provided Company and Shareholders with a true and complete
list of the Parent's and each Parent Subsidiary's dealers. True and
complete copies of all dealer agreements have been delivered or made
available to Company and Shareholders. To the knowledge of the Parent,
there has been no material adverse change in the Parent's relationship with
its dealers.
b. The Parent has disclosed to Company and Shareholders (i) all significant
refunds, rebates, discounts and return policies or practices that the
Parent or any Parent Subsidiary has engaged in with respect to persons
supplying goods and services to the Parent or any Parent Subsidiary and
(ii) all annual programs relating to refunds, rebates, discounts and return
policies or practices that the Parent or any Parent Subsidiary has engaged
in with others in connection with its Business.
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5.27 Environmental Matters.
a. Permits and Authorizations. Except for violations, breaches, or defaults
which would not, individually or in the aggregate, have a Material Adverse
Effect, and to the knowledge of the Parent, the Parent and each Parent
Subsidiary possesses, and at all times has possessed, all Environmental
Permits necessary to conduct its business and related operations.
b. Compliance. Except for violations, breaches, or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect, and to
the knowledge of the Parent, (i) the Parent and each Parent Subsidiary is,
and at all time has been, in compliance with all applicable Environmental
Laws and all Environmental Permits, (ii) the Parent and each Parent
Subsidiary has not received any other (A) oral or written communication
from any Governmental Entity or other person that alleges that the Parent
or a Parent Subsidiary has violated or is liable under any Environmental
Law or Environmental Permit or (B) written request for information pursuant
to Section 104(e) of the U.S. Comprehensive Environmental Response,
Compensation and Liability Act or similar state statute concerning the
disposal of Hazardous Materials (as defined below), (iii) the Parent is
unaware of any other past events, conditions, circumstances, activities,
practices, incidents, actions or plans of the Parent or a Parent Subsidiary
which may cause noncompliance with applicable Environmental Laws and all
Environmental Permits or which may give rise to any liability for any
claim, action, suit, proceeding, hearing or investigation, based on or
related to the disposal, storage, handling, manufacture, processing,
distribution, use, treatment or transportation or the emission, discharge,
release or threatened release into the environment by the Parent or a
Parent Subsidiary of any Hazardous Materials, (iv) the Parent and each
Parent Subsidiary has reported, to the extent required by applicable
Environmental Laws, all past and present sites owned or operated by the
Parent or a Parent Subsidiary where Hazardous Materials have been treated,
stored, disposed of or otherwise handled, and (v) neither the Parent nor
any Parent Subsidiary has generated, treated, stored, processed,
distributed, used, transported, disposed of or otherwise handled Hazardous
Materials, except in compliance with all applicable Environmental Laws.
c. Environmental Claims. Except for violations, breaches, or defaults which
would not, individually or in the aggregate, have a Material Adverse
Effect, and to the knowledge of the Parent, (i) there are no other
Environmental Claims (as defined below) (A) pending or threatened against
the Parent or a Parent Subsidiary or (B) pending or threatened against any
person whose liability for any Environmental Claim the Parent or a Parent
Subsidiary has retained or assumed, either contractually or by operation of
law, (ii) neither the Parent nor a Parent Subsidiary has contractually
retained or assumed any liabilities or obligations that would be expected
to provide the basis for any Environmental Claim, (iii) there are not any,
nor have there been any, Environmental Claims pending or threatened against
the Parent or a Parent Subsidiary by any landlord or third party pursuant
to any of the Parent Real Property Leases, nor is there currently or has
there been previously, any basis therefor, and (iv) there is no other
on-site or off-site location to which the Parent or a Parent Subsidiary has
transported or disposed of Hazardous Materials or arranged for the
transportation or disposal of Hazardous Materials which is the subject of
any enforcement action or any other investigation by any Governmental
Entity which could lead to any claim against the Parent or a Parent
Subsidiary for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury, including, but not limited
to, any claim under any applicable Environmental Law and there is no
on-site or off-site location to which the Parent or a Parent Subsidiary has
transported or disposed of Hazardous Materials or arranged for the
transportation or disposal of Hazardous Materials which could become the
subject of any enforcement action by any Governmental Entity or any
Environmental Claim which could lead to any liability of the Parent or a
Parent Subsidiary for any clean-up cost, remedial work, damage to natural
resources, property damage or personal injury.
29
d. Releases. Except for violations, breaches, or defaults which would not,
individually or in the aggregate, have a Material Adverse Effect, and to
the knowledge of the Parent, there has been no Release (as defined below)
of any Hazardous Materials at, from, in, to, under or on any property
currently or previously owned or operated by the Parent or any Parent
Subsidiary, other than in compliance with applicable Environmental Laws or
the terms of any applicable permit (and no such property is contaminated by
any such substance) that could reasonably be expected to form the basis of
any Environmental Claim.
e. Recognized Environmental Conditions. Except for violations, breaches, or
defaults which would not, individually or in the aggregate, have a Material
Adverse Effect, and to the knowledge of the Parent, none of the following
exists at any property or facility now or at any time owned, leased or
operated by the Parent or any Parent Subsidiary: (i) under or above-ground
storage tanks, (ii) asbestos containing material in any form or condition,
(iii) materials or equipment containing polychlorinated biphenyls ("PCBs")
or (iv) landfills, surface impoundments or disposal areas or any Release of
any Hazardous Materials.
5.28 Disclosure. Except for violations, breaches, or defaults which would
not, individually or in the aggregate, have a Material Adverse Effect, neither
this Agreement, nor any Schedule hereto, nor any certificate, or document
required to be delivered to Company and Shareholders by Parent or Acquisition
Subsidiary, as of the date thereof, contains any untrue statement of a material
fact or omits or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
false or misleading.
ARTICLE VI
CERTAIN AGREEMENTS AMONG THE PARTIES FOLLOWING THE CLOSING
6.1 Books and Records. Following the Closing Date, Parent shall maintain
such books and records of the Company as have been delivered to it by the
Company and the Shareholders until the time for the taking of any federal tax
audit of the Company (for all fiscal years ending on the Closing Date, including
fiscal year 2003, and the fiscal year in which Closing occurs) shall have
expired and shall provide the Shareholders and their representatives reasonable
access thereto in order to enable the Shareholders to (a) prepare their tax
returns and (b) perform any other acts reasonably related to their former
interest in the Company.
30
6.2 Governance. The parties intend that the following governance
arrangements will be implemented following the Closing of the Merger:
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and a third nominee designated by ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
("Shareholder Nominee") shall be elected to serve as a Director of the
Parent's Board of Directors.
▇. ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ and Bensol will have the officer positions set forth in
their respective Employment Agreements. ▇▇▇▇▇▇▇ will also serve as Chairman
of the Board of Parent.
c. The Board of Directors of Parent then newly constituted after the Merger
would consist of: Elliott, Kuhnert, the Shareholder Nominee and two of the
board members elected at the Parent's shareholder meeting held on May 5,
2004.
6.3 Release of Personal Guarantees. Following the Closing, Parent shall use
its best efforts to obtain the release and termination of any and all personal
guarantees executed by ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ in connection with any bank debt
obtained by Parent, Company or any Parent Subsidiary.
ARTICLE VII
CLOSING
7.1 Closing Date. Upon the terms and subject to the conditions set forth in
this Agreement, the closing of the Merger (the "Closing") shall take place at
11:00 a.m., EST, on May 7, 2004, at the law offices of ▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇,
PLC, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other
time, date or place agreed to in writing by Parent and the Company. The date on
which the Closing actually occurs is referred to herein as the "Closing Date".
7.2 Deliveries by the Company and the Shareholders. At the Closing, the
Company and the Shareholders shall deliver to Parent and Acquisition Subsidiary:
a. The Certificates for the Company Common Stock;
b. The Articles of Merger duly executed by the Company;
c. The Employment Agreements, duly executed by Shareholders;
31
d. A duly executed Escrow Agreement for the Escrow Shares, in the form
attached hereto as Exhibit 7.2d.;
e. A legal opinion from ▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇, PLC, in the form attached
hereto as Exhibit 7.2e.
f. Resolutions of the Board of Directors of the Company and the Shareholders
approving the execution, delivery and performance by them of this Agreement
and all other agreements, documents and instruments to be executed and
delivered by Company and/or the Shareholders pursuant hereto, certified by
the Secretary of Company and dated as of the Closing Date; and
g. All other documents required pursuant to this Agreement, all in form and
substance satisfactory to counsel for Parent and Acquisition Subsidiary, as
well as any further documentation or instruments as Parent, Acquisition
Subsidiary or their counsel may reasonably require to effectuate the terms
of this Agreement.
7.3 Deliveries by Parent and Acquisition Subsidiary. At the Closing, Parent
and Acquisition Subsidiary shall deliver to the Shareholders:
a. Stock Certificates evidencing the Shareholders' ownership of the number of
shares of Parent Company Stock received in the Merger Exchange;
b. The Articles of Merger, duly executed by Acquisition Subsidiary;
c. Duly executed Employment Agreements for ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇;
d. Duly executed Stock Option Agreements in the form attached hereto as
Exhibit 7.3c.;
e. Duly executed agreements for the Warrants;
f. A Termination of Employment Agreement and Release duly executed by Parent
and Bensol in form and substance acceptable to Company and Shareholders;
g. A release from Vertical Capital Partners, LLC and Rockwell Capital
Partners, LLC, in form and substance acceptable to Company and
Shareholders;
h. A duly executed amendment to the Patchouge Lease reducing the rent payment
from $18,000 per month to $6,000 per month, plus $1,097 per month for
insurance, plus utilities;
i. A duly executed release from ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in form and substance
acceptable to Company and Shareholders;
j. A duly executed Consulting Agreement between Parent and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in
form and substance acceptable to Company and Shareholders;
32
k. A certificate executed by Parent's stock transfer agent certifying that
Parent does not have 100 or more shareholders that are residents of the
State of Nevada.
l. A legal opinion from Snow ▇▇▇▇▇▇ ▇▇▇▇▇▇ P.C., legal counsel for Parent, in
the form attached hereto as Exhibit 7.3l.;
m. Resolutions of the Board of Directors and shareholders of Parent and
Acquisition Subsidiary approving the execution, delivery and performance by
them of this Agreement and all other agreements, documents and instruments
to be executed and delivered by Parent and/or Acquisition Subsidiary
pursuant hereto, certified by the Secretary of Parent and Acquisition
Subsidiary and dated as of the Closing Date;
n. Waivers of preemptive rights duly executed by shareholders of Parent that
immediately prior to the Closing own at least 70% of the issued and
outstanding shares of Parent Company Stock;
o. A duly executed Voting Agreement required under Section 2.5;
p. A duly executed Escrow Agreement for the Bensol Escrow Shares in the form
attached hereto as Exhibit 7.3p.;
q. A duly executed Registration Rights Agreement; and
r. All other documents required pursuant to this Agreement, all in form and
substance satisfactory to counsel for the Company and the Shareholders, as
well as any further documentation or instruments as the Company, the
Shareholders or their counsel may reasonably request to effectuate the
terms of this Agreement.
7.4 Further Assurances. The Shareholders and Parent each agree that at any
time or from time to time after the Closing Date that upon request of the other
party or parties, the Shareholders or Parent, as the case may be, will execute,
acknowledge and deliver such other and further instruments and take such other
action or actions as the requesting party may reasonably request in order to
effectuate the terms of this Agreement and the documents and instruments
contemplated hereby.
ARTICLE VIII
SURVIVAL; INDEMNIFICATION
8.1 Survival Past Closing. The investigation or examination by Parent of
the business, properties or affairs of the Company or the Shareholders, or by
the Company or the Shareholders of the business, properties, or affairs of
Parent or Parent Subsidiaries, shall not affect the representations and
warranties contained in the Agreement. The respective representations and
warranties of the parties herein contained shall survive the Closing for a
period of three (3) years with the exception of the representations and
warranties of Parent and Parent Subsidiaries set forth in Section 5.2
("Capitalization; Title to Shares), Section 5.6 ("Financial Statements"),
Section 5.18 ("Taxes"), Section 5.22 ("Compliance with Laws"), and Section 5.24
("Product Liability") which shall survive the Closing for the applicable statute
of limitations, and the representations and warranties of Parent in Section 5.27
("Environmental Matters") shall survive the Closing indefinitely.
33
8.2 Indemnification by the Shareholders. Subject to the limitations, terms
and provisions of this Article VIII, the Shareholders severally, and not
jointly, shall indemnify, defend and hold Parent, Acquisition Subsidiary and the
Company and their respective officers, directors, employees, agents,
subsidiaries and affiliates, harmless from and against any and all liabilities,
losses, damages, claims, fines, penalties, costs and expenses, including,
without limitation, reasonable attorneys' and accounting fees (collectively,
"Losses") incurred by Parent, Acquisition Subsidiary, the Surviving Company or
any of their respective officers, directors, employees, agents, subsidiaries or
affiliates, arising out of or resulting from (i) any breach of any
representation or warranty made by the Company or the Shareholders contained in
this Agreement, and (ii) the nonperformance or breach of any material covenant,
agreement or obligation to be performed by the Company or the Shareholders under
this Agreement. The obligations of the Shareholders pursuant to this
Article VIII shall be several among the Shareholders, and not joint.
Notwithstanding the foregoing, if any claim for indemnification is asserted by
Parent or Company against the Shareholders, and the Parent and/or the Company is
covered by an insurance policy for such Losses, Parent and/or the Company shall
use their commercially reasonable efforts to seek indemnification under the
applicable insurance policy or policies; provided, however, the party seeking
indemnification shall not be obligated to commence any legal proceedings against
any insurance provider for indemnification hereunder. Parent and/or the Company
shall give the Shareholders notice of their intention to seek indemnification
for such Losses from applicable insurance policies. Notwithstanding anything
contained herein to the contrary, the indemnification rights under this
Article VIII are the sole remedies that the Parent and/or Company may seek or
assert against the Shareholders. Parent, on behalf of itself and each of the
Parent Subsidiaries, Acquisition Subsidiary and Company, acknowledge and agree
that neither the Company, nor the Shareholders, have made any representations or
warranties related to Arcadia (or any of its subsidiaries) and that they shall
not have any rights to indemnification against the Shareholders for any Losses
arising from or related to Arcadia or any of its subsidiaries.
8.3 Indemnification by Parent and Company. Parent, each Parent Subsidiary,
and Company, shall jointly and severally indemnify, defend and hold the
Shareholders and their respective affiliates harmless from and against any and
all Losses incurred by any of the Shareholders or their affiliates arising out
of or resulting from (i) any breach of any representation or warranty made by
Parent or Acquisition Subsidiary contained in this Agreement, (ii) any breach or
violation of the Securities Act or the Exchange Act, and (iii) the
nonperformance or breach of any material covenant, agreement or obligation to be
performed by Parent or Acquisition Subsidiary under this Agreement.
Notwithstanding anything contained herein to the contrary, the indemnification
rights under this Article VIII are the sole remedies that the Shareholders may
seek or assert against the Parent, Acquisition Subsidiary or Company.
34
8.4 Indemnification Procedures.
a. If Parent, Acquisition Subsidiary or the Company, on the one hand, or the
Shareholders, on the other hand (the "Indemnitee"), asserts a claim for
indemnity against the other party, (the "Indemnitor"), the Indemnitee shall
provide the Indemnitor with written notice of such claim, stating the
amount of the Losses, if known and method of computation thereof, all with
reasonable particularity and including documentary proof, if available and
containing a reference to the provisions of this Agreement in respect of
which such right of indemnification is claimed or arises; provided,
however, that failure to so notify the Indemnitor shall not relieve the
Indemnitor from any liability which it may have on account of the claim,
except to the extent the Indemnitor shall have been prejudiced by such
failure. Notwithstanding anything in this Agreement to the contrary, if the
parties are unable to resolve the claim within sixty (60) days, the parties
agree to submit to binding arbitration pursuant to the rules of the
American Arbitration Association, and such arbitration shall take place in
American Arbitration Association's Southfield office.
b. If an Indemnitee shall receive notice of any claim or proceeding initiated
by a third party which is or may be subject to indemnification (each, a
"Third Party Claim"), the Indemnitee shall promptly give the Indemnitor
written notice of such Third Party Claim; provided, however, that failure
to so notify the Indemnitor shall not relieve the Indemnitor from any
liability which it may have on account of the Third Party Claim, except to
the extent the Indemnitor shall have been prejudiced by such failure. In
such event the Indemnitee shall permit the Indemnitor, at its option, to
participate in the defense of such Third Party Claim by counsel of its own
choice and at its own expense. If, however, the Indemnitor acknowledges in
writing its obligation to indemnify the Indemnitee hereunder against all
Losses that may result from such Third Party Claim and the Indemnitee is
reasonably satisfied that the Indemnitor has sufficient funds available to
pay any Losses resulting from such Third Party Claim, then the Indemnitor
shall be entitled, at its option, to assume and control the defense of such
claim by counsel of its own choice and at its own expense, provided that
the Indemnitor and its counsel shall proceed with diligence and good faith
with respect thereto. Notwithstanding the foregoing, the Indemnitee shall
have the right to employ separate counsel in any Third Party Claim and the
fees and expenses of such counsel shall be at the expense of such
Indemnitor if (i) the Indemnitor has failed to promptly assume the defense
and employ counsel or (ii) the named parties to any such Third Party Claim
(including any impleaded parties) include such Indemnitee and any
Indemnitor and such Indemnitee shall have been advised by its counsel that
there is a conflict of interest between the Indemnitor and such Indemnitee
with respect to such Third Party Claim or with respect to any legal defense
which may be available; provided, however, that the Indemnitor shall not in
such event be responsible hereunder for the fees and expenses of more than
one firm of separate counsel in connection with any claim or proceeding.
c. In the event the Indemnitor exercises its right to undertake the defense of
any Third Party Claim, the Indemnitee shall cooperate with the Indemnitor
in such defense and make available to the Indemnitor witnesses, pertinent
records, materials and information in its possession or under its control
relating thereto as are reasonably requested by the Indemnitor. Similarly,
in the event the Indemnitee is, directly or indirectly, conducting the
defense against any Third Party Claim, the Indemnitor shall cooperate with
the Indemnitee in such defense and make available to the Indemnitee
witnesses, pertinent records, materials and information in its possession
35
or under its control relating thereto as are reasonably requested by the
Indemnitee. No Third Party Claim may be settled by the Indemnitor without
the written consent of the Indemnitee, which consent shall not be
unreasonably withheld or delayed; provided, however, that the Indemnitor
may settle such Third Party Claim without the consent of the Indemnitee so
long as the settlement (x) includes an unconditional release of the
Indemnitee, in form and substance reasonably satisfactory to the
Indemnitee, from the third party claimant, (y) does not impose any
liabilities or obligations on the Indemnitee and (z) with respect to any
non-monetary provision of any settlement of a claim in which Parent,
Acquisition Subsidiary or the Surviving Company is the Indemnitee, does not
impose conditions upon the Indemnitee which, in the Indemnitee's good faith
judgment, could have a material adverse effect on the business, operations,
assets, properties or prospects of the Indemnitee. No Third Party Claim
which is being defended in good faith by the Indemnitee alone or jointly
with the Indemnitor, shall be settled by the Indemnitee without the written
consent of the Indemnitor, which consent shall not be unreasonably
withheld; provided, however, that the Indemnitee may settle such claim
without the consent of the Indemnitor so long as the settlement
(x) includes an unconditional release of the Indemnitor, in form and
substance reasonably satisfactory to the Indemnitor, from the claim by the
Indemnitee and the third party claimant and (y) does not impose any
liabilities or obligations on the Indemnitor.
8.5 Bensol Indemnification. Bensol hereby agrees that in the event that the
Shareholders suffer any Losses as a result of a breach of any representation,
warranty or covenant made by Parent, Acquisition Subsidiary or any Parent
Subsidiary, then (i) the Parent shall first have the right to offset, on a
dollar for dollar basis, the amount of such Losses against $550,000 ("Setoff
Amount") of the amount due from Parent to Bensol evidenced by various promissory
notes ("Bensol Indebtedness"), and (ii) after the Setoff Amount has been used in
full, Bensol agrees to surrender back to the Company up to 600,000 shares of
Parent Common Stock. The right of offset shall apply whether or not the
Shareholders assert a claim for indemnification. Bensol further agrees that for
purposes of determining whether or not the Shareholders have suffered any
Losses, the Material Adverse Effect qualifier contained in certain of the
Parent's representations and warranties shall not apply with respect to such
representation and warranty and the amount of Losses suffered by the
Shareholders shall be determined as if such qualifier was not in the Agreement.
Following the Cloisng, Bensol agrees to convert $150,000 of the Bensol
Indebtedness into 600,000 shares of Parent Common Stock as part of and in
connection with the Reg D Offering.
ARTICLE IX
FINDER'S FEES
The Company and the Shareholders, on the one hand, and Parent and the
Acquisition Subsidiary, on the other hand, represent and warrant to each other
36
that they respectively have had no dealings with any finder, broker, financial
advisor or investment banker in connection with the transactions contemplated by
this Agreement, except that Parent has engaged ▇▇▇▇▇▇ Group Holdings, LLC to
evaluate the fairness of the Merger to the Parent and its shareholders. The
Shareholders will indemnify and hold Parent harmless from and against any and
all liabilities (including but not limited to reasonable attorneys' fees) to
which it or the Company may be subjected by reason of any compensation or
amounts due or to become due to any finder's, broker's, financial advisor's,
investment banker's or similar fee or commission with respect to the
transactions contemplated by this Agreement to the extent such fee is
attributable to any action undertaken by the Shareholders or the Company.
Parent, Acquisition Company and Parent Subsidiaries shall jointly and severally
indemnify and hold the Shareholders harmless from and against any and all
liabilities (including but not limited to reasonable attorneys' fees) to which
any of them may be subjected by reason of any finder's, broker's, financial
advisor's, investment banker's or similar fee or commission with respect to the
transactions contemplated by this Agreement to the extent such fee is
attributable to any action undertaken by Parent or any Parent Subsidiary.
ARTICLE X
NOTICES
Any notice required or permitted to be given by any party under this
Agreement shall be given in writing and shall be deemed effectively given
(i) upon personal delivery to the party to be notified, (ii) on the next
business day after delivery to a nationally recognized overnight courier
service, (iii) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day, or (iv) five days
after deposit with the United States Post Office, by registered or certified
mail, postage prepaid and addressed to the party to be notified at the address
or facsimile number indicated below for such party or at such other address as
such party may designate upon written notice to the other parties (except that
notice of change of address shall be deemed given upon receipt).
(a) In the case of Parent or Acquisition Subsidiary:
Critical Home Care, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇▇, CEO
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Snow ▇▇▇▇▇▇ ▇▇▇▇▇▇ P.C.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
37
(b) In the case of the Company:
RKDA, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇, PLC
Detroit Center
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: 313-961-0388
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
(c) In the case of the Shareholders:
RKDA, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇, PLC
Detroit Center
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Facsimile: 313-961-0388
Telephone: ▇▇▇-▇▇▇-▇▇▇▇
ARTICLE XI
MISCELLANEOUS
11.1 Expenses. Parent and Acquisition Subsidiary shall pay all costs and
expenses that they incur, and the Company shall pay all costs and expenses that
the Company and Shareholders (if any) incur, respectively, including, but not
limited to, legal, accounting, financial, advisory and investment banking fees
and expenses, with respect to the negotiation and execution of this Agreement
and any other documents or instruments to be executed and delivered pursuant
hereto and the performance of any covenants to be performed by such party and
satisfaction of any conditions to be satisfied by such party which are contained
herein or therein. The provisions of this Section 11.1 shall survive the
Closing.
38
11.2 Entire Agreement. This Agreement, together with the Schedules and
Exhibits, and the agreements, documents and instruments to be executed and
delivered pursuant hereto, constitute the entire understanding and agreement by
and among the parties hereto with respect to the subject matter hereof and
supersede all prior negotiations, agreements and understandings among such
parties with respect to the subject matter hereof.
11.3 Amendments and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only by an
instrument in writing and signed by the party against whom such amendment or
waiver is sought to be enforced. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a further
or continuing waiver of such breach or as a waiver of any other or subsequent
breach. No failure on the part of any party hereto, to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of such right, power or remedy
by any party hereto, preclude any other or further exercise thereof or the
exercise of any other right, power or remedy.
11.4 Successors and Assigns. Neither this Agreement nor any rights
hereunder may be assigned by any party without the prior written consent of the
other parties hereto. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and permitted
assigns.
11.5 Governing Law. This Agreement, including the validity hereof and the
rights and obligations of the parties hereunder and all amendments and
supplements hereof and all waivers and consents hereunder, shall be construed in
accordance with and governed by the domestic substantive laws of the State of
Michigan without giving effect to any choice of law or conflicts of law
provision or rule that would cause the application of the domestic substantive
laws of any other jurisdiction.
11.6 Severability. If any provision of this Agreement, as applied to any
part or to any circumstance, shall be adjudged by a court to be invalid or
unenforceable, the same shall in no way affect any other provision of this
Agreement, the application of such provision in any other circumstances or the
validity or enforceability of this Agreement.
11.7 No Third-Party Beneficiaries. Nothing in this Agreement, express or
implied, shall create or confer on any person other than the parties or their
respective successors and permitted assigns, any rights, remedies, obligations
or liabilities, except as expressly provided herein.
39
11.8 Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement or any other document or
instrument to be executed or delivered pursuant hereto, the prevailing party
shall be entitled to reasonable attorneys' fees, costs and disbursements in
addition to any other relief to which such party may be entitled.
11.9 Remedies. In case any one or more of the covenants and/or agreements
set forth in this Agreement shall have been breached by any party hereto, the
party or parties entitled to the benefit of such covenants or agreements may,
except as may otherwise be expressly provided in this Agreement, proceed to
protect and enforce their rights either by suit in equity and/or by action at
law, including, but not limited to, an action for damages as a result of any
such breach and/or an action for specific performance of any such covenant or
agreement contained in this Agreement. The rights, powers and remedies of the
parties under this Agreement are cumulative and not exclusive of any other
right, power or remedy which such parties may have under any other agreement or
law. No single or partial assertion or exercise of any right, power or remedy of
a party hereunder shall preclude any other or further assertion or exercise
thereof. From and after the Closing Date, the provisions contained in Article XI
herein shall be the sole and exclusive remedy for monetary damages arising out
of or resulting from the breach of any representations or warranties made
pursuant to Articles III, IV, V and VI of this Agreement, absent fraud or
intentional misrepresentations.
11.10 Captions. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement.
11.11 Counterparts. This Agreement may be executed by facsimile or
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same instrument.
11.12 Certain References. Whenever the context may require, any pronoun
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms and the singular form of nouns, pronouns and verbs shall include
the plural and vice versa. The terms "herein", "hereof" or "hereunder" or
similar terms as used in this Agreement refer to this entire Agreement and not
to the particular provision in which the term is used. Unless otherwise stated,
all references herein to Articles, Sections, subsections or other provisions are
references to Articles, Sections, subsections or other provisions of this
Agreement. All references to the term "business day" shall mean any day on which
banking institutions in Indiana are not required or permitted to be closed.
11.13 Interpretation. This Agreement shall be construed reasonably to carry
out its intent without presumption against or in favor of either party.
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11.14 Consent to Jurisdiction. Each party, for itself, its personal
representatives, legatees, heirs and assigns, hereby consents to the personal
jurisdiction of the courts of the County of Oakland, State of Michigan and of
the United States District Court for the Eastern District of Michigan, each as
may have competent jurisdiction, with respect to any dispute or controversy
arising under or in connection with this Agreement.
11.15 Material Adverse Effect. As used in this Agreement, the term
"Material Adverse Effect" means, (a) with respect to the Company or the
Shareholders, any breach of a representation or warranty hereunder or a covenant
to be performed by the Company or the Shareholders the effect of which is likely
to cause the Company after the Closing to pay or become liable to pay more than
One Hundred Thousand ($100,000) Dollars to remedy any single such event,
violation, breach, default or termination (as the case may be) or more than Two
Hundred Fifty Thousand ($250,000) Dollars in the aggregate for all such events,
violations, breaches, defaults or terminations (as the case may be), and (b)
with respect to Parent, any breach of a representation or warranty hereunder or
a covenant to be performed by the Parent or Parent Subsidiaries the effect of
which is likely to cause the Parent or the Company after the Merger or the
Parent Subsidiaries to pay or become liable to pay more than One Hundred
Thousand ($100,000) Dollars to remedy any single such event, violation, breach,
default or termination (as the case may be) or more than Two Hundred Fifty
Thousand ($250,000) Dollars in the aggregate for all such events, violations,
breaches, defaults or terminations (as the case may be).
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In witness whereof, the parties hereto have executed this Agreement as of
the date first above written.
PARENT: CRITICAL HOME CARE, INC.
/s/▇▇▇▇▇ ▇▇▇▇▇▇
By_______________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
ACQUISITION SUBSIDIARY: CHC SUB, INC.
/s/▇▇▇▇▇ ▇▇▇▇▇▇
By:______________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
COMPANY: RKDA, INC.
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇
By:______________________
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇
Title: President
/s/▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇
SHAREHOLDERS: _________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, ▇▇, Individually
/s/▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
_________________________
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Individually
/s/▇▇▇▇▇ ▇▇▇▇▇▇
BENSOL: _________________________
▇▇▇▇▇ ▇▇▇▇▇▇, Individually