Exhibit 2.1
ACQUISITION AGREEMENT AND PLAN OF MERGER
by and among
IBF FUND LIQUIDATING LLC,
U.S. ▇▇▇▇▇, INC.,
USM ACQUISITION SUB, INC.,
and
SUNSET BRANDS, INC.
Dated as of February 18, 2005
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ACQUISITION AGREEMENT AND PLAN OF MERGER
This ACQUISITION AGREEMENT AND PLAN OF MERGER, is dated as of
February 18, 2005, by and among IBF Fund Liquidating, LLC, a Delaware limited
liability company ("IBF"), U.S. ▇▇▇▇▇, Inc., a Delaware corporation (the
"Company") (IBF and the Company hereinafter collectively, referred to as the
"Seller"), USM Acquisition Sub, Inc., a Delaware corporation ("Merger Sub") and
Sunset Brands, Inc., a Nevada corporation (the "Purchaser"). Capitalized terms
not otherwise defined are defined in Article VIII hereof.
ARTICLE I.
The Merger
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Section 1.1 THE MERGER. At the Effective Time (as defined in Section
1.2) and subject to and upon the terms and conditions of this Agreement, and the
applicable provisions of the Delaware General Corporation Law ("Delaware Law"),
Merger Sub shall be merged with and into the Company, the separate corporate
existence of Merger Sub shall cease and the Company shall continue as the
surviving corporation (the "Merger"). The Company as the surviving corporation
after the Merger is hereinafter sometimes referred to as the "Surviving
Corporation."
Section 1.2 CLOSING EFFECTIVE TIME. The closing of the transactions
contemplated hereby (the "Closing") shall take place on the later of (i) April
15, 2005 and (ii) no later than five (5) business days after the satisfaction or
waiver of each of the conditions set forth in Article VI hereof or at such other
time as the parties hereto may agree (the "Closing Date"). The Closing shall
take place at the offices of Jeffer, Mangels, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLP, 1900 Avenue
of the Stars, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other
location as the parties hereto agree. In connection with the Closing, the
parties hereto shall cause the Merger to be consummated by filing a certificate
of merger, together with any other required documents and certificates
(collectively, the "Merger Certificate"), with the Secretary of State of the
State of Delaware, in accordance with the relevant provisions of Delaware Law
(the time of such filing with the Secretary of State of Delaware being the
"Effective Time").
Section 1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Merger Certificate and
the applicable provisions of Delaware Law. Without limiting the generality of
the foregoing, and subject thereto, at the Effective Time, all the property,
rights, privileges, powers and franchises of the Company and Merger Sub shall
vest in the Surviving Corporation, and all debts, liabilities and duties of the
Company and Merger Sub shall become the debts, liabilities and duties of the
Surviving Corporation.
Section 1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
a. CERTIFICATE OF INCORPORATION. At the Effective
Time, the Certificate of Incorporation of the Company shall automatically, by
virtue of the Merger, be amended and restated to read exactly as the Certificate
of Incorporation of Merger Sub as in effect immediately prior to the Effective
Time except that the name of the Surviving Corporation shall
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be "U.S. ▇▇▇▇▇, Inc.", until thereafter amended as provided by Delaware Law and
such Certificate of Incorporation.
b. BYLAWS. The Bylaws of Merger Sub, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended.
Section 1.5 DIRECTORS AND OFFICERS. At the Effective Time, the
directors of Merger Sub, as in effect immediately prior to the Effective Time,
shall be the directors of the Surviving Corporation, until their respective
successors are duly elected or appointed and qualified. The officers of the
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
officers of the Surviving Corporation, until their respective successors are
duly elected or appointed and qualified.
Section 1.6 TRANSACTION CONSIDERATION.
a. REPAYMENT OF COMPANY DEBT. Simultaneously with the
Closing and after giving effect to the cancellation of any Excess Seller Debt as
defined below, Purchaser shall pay or shall cause the Company to repay in full
(i) all of the Bank Obligations (as defined in Section 5.7 of this Agreement),
and (ii) all of the Seller Debt (as defined in Article VIII of this Agreement)
(collectively, the "Company Debt"); provided, however, that in no event shall
the aggregate amount of Company Debt to be repaid by Purchaser exceed
$17,000,000.
b. MERGER CONSIDERATION. Subject to the provisions of
Sections 1.9 and 1.18 below, the aggregate consideration (the "Merger
Consideration") payable as a result of the Merger to all holders of the
Company's outstanding capital stock (the "Shareholders") in accordance with the
Distribution Percentages as contemplated by Section 1.12 below shall be as
follows:
(i) CASH. Cash consideration, if any (the
"Cash"), in the aggregate amount equal to (1) Seventeen Million Dollars
($17,000,000) less (2) the aggregate amount of Company Debt repaid at Closing
(not to exceed $17,000,000); and
(ii) SERIES B PREFERRED STOCK AND WARRANTS.
Subject to the provisions of Section 1.8 of this Agreement, the number of Units
(as defined below) having an aggregate value equal to Three Million Dollars
($3,000,000). For purposes of this Agreement, the term "Units" shall mean shares
of Series B Preferred Stock of Purchaser ("Series B Preferred") and related
Warrants to purchase Sunset Common ("Warrants") that are offered and sold by
Purchaser to third-party financing sources prior to or simultaneously with the
Closing (the "Series B Financing"). For purposes of this Agreement, (1) the
Units issued to the Selling Parties as part of the Merger Consideration (the
"Merger Units") shall be valued at the price at which the Units are sold
pursuant to the Series B Financing, (2) the rights, preferences and privileges
of the Series B Preferred issued as part of the Merger Consideration (the
"Merger Shares") shall be as set forth in a Designation of Rights, Preferences
and Privileges or similar document filed by Purchaser with the Nevada Secretary
of State prior to the Effective Time (the "Certificate of Designation"), and (3)
subject to the provisions of Section 1.19 below, the Warrants issued as part of
the Merger Units (the "Merger Warrants") shall be in the same form as those
issued pursuant to the Series B Financing. Notwithstanding anything to the
contrary set
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forth above, in no event shall the aggregate liquidation preference of the
Merger Shares be less than $3,000,000 and, in the event the aggregate
liquidation preference and, if applicable, redemption price, of the Merger
Shares at Closing is less than $3,000,000, the number of Merger Shares shall be
increased so that the aggregate liquidation preference and, if applicable,
redemption price, of the Merger Shares at Closing equals $3,000,000. The parties
hereto agree that the aggregate value of the Merger Units shall be $3,000,000.
Except as may be required by applicable law, such value shall be binding on all
parties for all purposes and the parties hereto agree to prepare and file all
tax returns in a manner consistent therewith.
c. CANCELLATION OF EXCESS SELLER DEBT.
Notwithstanding anything to the contrary contained in this Agreement, at the
Closing IBF agrees that it shall cancel (and/or cause its direct or indirect
subsidiaries or affiliates, as applicable, to cancel) and release and discharge
the Company (and any guarantor or co-obligor) with respect to Seller Debt in an
amount equal to the amount by which the aggregate Company Debt immediately prior
to Closing exceeds $17,000,000 (such cancelled Seller Debt, if any, being
referred to herein as the "Excess Seller Debt").
Section 1.7. DEPOSIT. No later than five (5) Business Days after this
Agreement is fully executed by the Parties, the Purchaser shall deliver to
Continental Stock Transfer & Trust Company or such other entity as shall be
mutually agreed by Purchaser and the Shareholder Representative (the "Escrow
Agent") (i) Five Hundred Thousand Dollars ($500,000) in cash (the "Deposit
Cash"), and (ii) 500,000 shares of Sunset Common (as defined below) in the name
of the Company (the "Deposit Shares" and, collectively with the Deposit Cash,
the "Deposit"). The Deposit, together with the interest thereon but less any
applicable escrow fees and expenses to which Escrow Agent is entitled pursuant
to the Escrow Agreement, shall constitute the "▇▇▇▇▇▇▇ Money" and shall be held
by the Escrow Agent pursuant to the Escrow Agreement but separate and apart from
the Escrow Account described in Section 1.10 of this Agreement. Subject to and
in accordance with the terms of the Escrow Agreement, at the Closing, the
Deposit, together with any accrued interest thereon and less any applicable
escrow fees and expenses to which Escrow Agent is entitled pursuant to the
Escrow Agreement, shall be held and disbursed in accordance with Sections 1.8
and 1.9 d. of this Agreement. Except as the Parties may otherwise agree in
writing, in the event this Agreement is terminated prior to Closing in
accordance with the provisions of Article IX of this Agreement, the ▇▇▇▇▇▇▇
Money shall be dispersed in accordance with Section 9.2 e. of this Agreement.
Section 1.8 HOLDBACK. At the Closing, (a) the Deposit Shares shall be
released to Purchaser for cancellation (b) an aggregate of One Million Three
Hundred Thousand Dollars ($1,300,000) in cash, inclusive of the Deposit Cash,
shall be retained in the Escrow Account (the "Holdback Cash"), and (c) Purchaser
shall deposit into the Escrow Account Merger Units (the "Holdback Units" and
collectively, with the Holdback Cash, the "Holdback") having an aggregate value
equal to One Million Two Hundred Thousand Dollars ($1,200,000), with such
Holdback to be held for the satisfaction of any Purchaser Claim (as hereinafter
defined) and the Working Capital Adjustment, if any. The Holdback Units shall be
issued in the names of the Selling Parties in accordance with the Distribution
Percentages (as defined below). Upon determination of the Final Working Capital
Adjustment, the Escrow Agent shall disburse to the Purchaser and/or the Selling
Parties Holdback Cash and/or Holdback Units in accordance with
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the provisions of Section 1.9 below. The remaining Holdback after payment of the
Final Working Capital Adjustment (the "Indemnity Holdback"), shall be held and
disbursed in accordance with the provisions of Section 1.10 below. For the
purposes of this Agreement, the cash and securities held by the Escrow Agent in
the Escrow Account shall be valued as follows: (i) all Holdback Units held by
the Escrow Agent in the Escrow Account shall be valued at the price per Unit at
which they were sold pursuant to the Series B Financing (e.g. $1,200,000 at the
time of deposit with the Escrow Agent); (ii) all shares of Sunset Common issued
upon the conversion of Merger Shares or Merger Warrants comprising the Holdback
Units shall be valued at the face value of the Merger Shares so converted or the
exercise price of the Merger Warrants so converted; and (iii) all cash
(including interest earned thereon) received upon the sale of any Sunset Common
or as a result of the payment of any dividends by Purchaser on any Holdback
Units in the Escrow Account shall be valued at its face amount.
Section 1.9 WORKING CAPITAL ADJUSTMENT.
a. WORKING CAPITAL ADJUSTMENT. The total Merger
Consideration shall be adjusted upwards or downwards dollar for dollar, by the
amount (the "Working Capital Adjustment"), if any, that the Working Capital as
of the Closing Date is greater or less than a deficit of Seven Hundred Fifty
Thousand Dollars ($750,000) (representing the Company's Working Capital as of
October 31, 2004 as reflected on the Company's Interim Financial Statements);
provided, however, that (i) any upward adjustment in the total Merger
Consideration shall be limited to Five Hundred Thousand Dollars ($500,000), and
(ii) if Working Capital as of the date of the Interim Financial Statements is
reduced as a result of adjustments made in connection with the preparation of
the 2004 Audited Financials, the Working Capital Adjustment shall be calculated
based on such reduced October 31, 2004 Working Capital amount.
b. CALCULATION OF ESTIMATED WORKING CAPITAL
ADJUSTMENT. At least two (2) business days prior to the Closing Date, the
Company shall deliver to the Purchaser an estimated balance sheet prepared in
good faith in accordance with GAAP consistently applied, along with a
calculation of Working Capital as of the Closing Date and the estimated Working
Capital Adjustment (the "Estimated Working Capital Adjustment") along with a
written confirmation from IBF and the Company as to the amount of Bank
Obligations and Seller Debt, respectively, to be outstanding immediately prior
to Closing. At Closing, a copy of the calculation of the Estimated Working
Capital Adjustment shall be delivered to the Escrow Agent and the Merger
Consideration payable shall be adjusted as follows:
(i) to the extent that the Estimated Working
Capital Adjustment is negative (e.g. Working Capital decreases from October 31,
2004), the Merger Consideration payable at Closing shall be reduced by the
amount of the Estimated Working Capital Adjustment. Any such reduction in the
Merger Consideration shall be applied as follows: (1) first, from the Cash, if
any, payable pursuant to Section 1.6 b.(i) above, and then (2) to the extent the
total Estimated Working Capital Adjustment is greater than the Cash, by a
reduction in the number of Holdback Units delivered to the Escrow Agent at
Closing having a value equal to the amount by which the Estimated Working
Capital Adjustment exceeds that Cash but not to exceed $500,000, and then (3) to
the extent that the Estimated Working Capital Adjustment is greater than the
Cash amount plus $500,000, the excess shall be deducted from the
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amount of Seller Debt required to be repaid by Purchaser at Closing in
accordance with Section 1.6 a. (with a corresponding increase in the amount of
Excess Seller Debt and without a corresponding increase in the Cash to be paid
at Closing); or
(ii) to the extent that the Estimated
Working Capital Adjustment is positive (e.g. Working Capital increases from
October 31, 2004), the Purchaser shall issue additional Merger Units (the
"Additional Units") having an aggregate face value equal to the amount, if any,
by which the Estimated Working Capital Adjustment exceeds $100,000, but not to
exceed $500,000 in aggregate face value, and shall deliver such Additional Units
to the Escrow Agent to be held as part of the Holdback.
c. CALCULATION OF FINAL WORKING CAPITAL ADJUSTMENT.
On or before thirty (30) days after the Closing Date, the Purchaser shall
deliver to the Shareholder Representative a balance sheet, dated as of the
Closing Date, prepared in accordance with GAAP consistently applied along with a
calculation of the Working Capital as of the Closing Date and the Working
Capital Adjustment (the "Proposed Working Capital Adjustment"). Within twenty
(20) Business Days of the Shareholder Representative's receipt of such Proposed
Working Capital Adjustment, the Shareholder Representative may, on behalf of the
Selling Parties, give written notice to the Purchaser that it disputes such
proposed closing balance sheet and/or the Proposed Working Capital Adjustment
and the reasons therefor (the "Balance Sheet Dispute Notice"); provided,
however, that if Shareholder Representative does not deliver a Balance Sheet
Dispute Notice by such date, the Selling Parties will be deemed to have accepted
such proposed closing balance sheet and the Proposed Working Capital Adjustment.
Upon timely delivery of the Balance Sheet Dispute Notice, the Purchaser and the
Shareholder Representative agree to confer with regard to the matter and an
appropriate adjustment to the proposed closing balance sheet and the Proposed
Working Capital Adjustment shall be made to the extent agreed upon by Purchaser
and the Shareholder Representative. If within thirty (30) days after delivery of
a Balance Sheet Dispute Notice, Purchaser and the Shareholder Representative are
unable to resolve the matter, either of them may thereafter notify in writing
the Independent Accountant, who shall adjudicate those issues still in dispute
with respect to the proposed closing balance sheet and calculation of the
Working Capital Adjustment and whose decision on the matter shall be binding on
the parties. The fees and expenses of the Independent Accountant with respect to
this matter shall be allocated by the Independent Accountant in accordance with
its view of the merits of the parties' positions in such dispute and, absent
such a determination, shall be split evenly between the Selling Parties and the
Purchaser. The closing balance sheet agreed upon by the Shareholder
Representative and the Purchaser (or deemed accepted by the Selling Parties)
under this subsection, as adjusted, if necessary based on a decision by the
Independent Accountant hereunder, is referred to herein as the "Closing Balance
Sheet" and the final calculation of the Working Capital Adjustment reflected on
such Closing Balance Sheet shall be referred to as the "Final Working Capital
Adjustment." The Shareholder Representative and the Purchaser agree to cause a
copy of the Closing Balance Sheet and a calculation of the Final Working Capital
Adjustment to be delivered to the Escrow Agent promptly following finalization
thereof; provided, however, that in the event the Independent Accountant makes a
determination of the Final Working Capital Adjustment and the Closing Balance
Sheet in accordance with the provisions of this Section 1.9 c., the Escrow Agent
shall be entitled to rely
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upon a submission of the Closing Balance Sheet and Final Working Capital
Adjustment by the Independent Accountant in lieu of receipt from the Purchaser
and Shareholder Representative.
d. PAYMENT OF WORKING CAPITAL ADJUSTMENT. To the
extent that the Final Working Capital Adjustment calculated pursuant to Section
1.9 c. above differs from the Estimated Working Capital Adjustment, the
difference (the "Post-Closing Adjustment") shall be paid as follows:
(i) to the extent that the Post-Closing
Adjustment is negative (e.g. the Working Capital reflected on the Closing
Balance Sheet is less than the Working Capital reflected in the calculation of
the Estimated Working Capital Adjustment), within five (5) Business Days
following receipt of the Closing Balance Sheet and Final Working Capital
Adjustment, the Escrow Agent shall cause the following to be released to the
Purchaser: (1) Additional Units, if any, having an aggregate face value
(determined in a manner consistent with clause (i) of Section 1.8 above) equal
to the amount of the Post-Closing Adjustment, with any remaining Additional
Units being released to the Selling Parties in the same relative proportion as
the Merger Consideration delivered to them at Closing, (2) to the extent that
the negative Post-Closing Adjustment is greater than the face value of any
Additional Units, Holdback Cash in an amount equal to the amount by which the
Post-Closing Adjustment exceeds the face value of the Additional Units, with all
but $300,000 of any remaining Holdback Cash (after payment of the Post-Closing
Adjustment) being released to the Selling Parties in the same relative
proportion as the Merger Consideration delivered to them at Closing, and (3) to
the extent the Post-Closing Adjustment is greater than the face value of any
Additional Units plus the Holdback Cash, Holdback Units having an aggregate face
value (determined in a manner consistent with clause (i) of Section 1.8 above)
equal to the amount by which the Post-Closing Adjustment exceeds the face value
of any Additional Units plus the Holdback Cash; or
(ii) to the extent that the Post-Closing
Adjustment is positive (e.g. the Working Capital reflected on the Closing
Balance Sheet is greater than the Working Capital reflected in the calculation
of the Estimated Working Capital Adjustment), within five (5) Business Days
following receipt of the Final Working Capital Adjustment (1) the Escrow Agent
shall cause any Additional Units to be released to the Selling Parties in the
same relative proportion as the Merger Consideration delivered to them at
Closing, (2) the Escrow Agent shall cause all but $300,000 of the Holdback Cash
to be released to the Selling Parties in the same relative proportion as the
Merger Consideration delivered to them at Closing, and (3) the Purchaser shall
issue and deliver to the Selling Parties (in the same relative proportion as the
Merger Consideration delivered to them at Closing), an aggregate number of
additional Merger Units having a value (determined in a manner consistent with
clause (i) of Section 1.8 above) equal to the amount of the Post-Closing
Adjustment; provided, however, that (A) in no event shall the Final Working
Capital Adjustment, if positive, be greater than $500,000, (B) if the Estimated
Working Capital Adjustment is positive but less than $100,000, additional Merger
Units shall be issued having a face value in the amount, if any, by which the
Final Working Capital Adjustment exceeds $100,000, and (C) if the Estimated
Working Capital Adjustment is negative, additional Merger Units shall be issued
having a face value equal to (x) the dollar amount of the Estimated Working
Capital Adjustment, plus (y) the amount by which the Final Working Capital
Adjustment, if positive, exceeds $100,000.
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Section 1.10 ESCROW. At the Closing, Purchaser shall deliver to the
Escrow Agent, the Holdback Cash and warrant and stock certificates evidencing
the Holdback Units. The parties agree that Purchaser may, and may instruct its
transfer agent to, place stop transfer orders on the Holdback Units for so long
as they are subject to the escrow contemplated by this Agreement. The portion of
the Holdback Units deposited with the Escrow Agent by or on behalf of each of
the Selling Parties shall be determined on a pro rata basis in proportion to
each such Selling Party's Distribution Percentage as reflected in Exhibit A to
this Agreement, as such Exhibit may be updated by the Company prior to Closing.
The terms by which the Escrow Agent shall hold and distribute the Holdback Units
shall be set forth in an escrow agreement (the "Escrow Agreement") among Escrow
Agent, the Shareholder Representative as representative of the Selling Parties,
and the Purchaser. The Escrow Agreement shall be executed and delivered by the
parties thereto prior to or concurrently with delivery of the Deposit to the
Escrow Agent. The Escrow Agreement shall be in a customary form reasonably
acceptable to the parties thereto and shall provide as follows:
a. PURPOSE OF ESCROW. The Holdback Cash and Holdback
Units (and any Escrow Income) shall be held by the Escrow Agent in an escrow
account (the "Escrow Account") in order to secure (i) payment of any Working
Capital Adjustment pursuant to Section 1.9 above, and (ii) payment of the
indemnification obligations of the Selling Parties pursuant to ARTICLE VII of
this Agreement.
b. ESCROW INCOME. Any interest or other earnings
generated with respect to the Holdback Cash or Holdback Units, including any
dividends or other distributions (subject to any deduction of applicable Taxes
at source or any bank or other charges properly charged to the Escrow Account)
(the "Escrow Income") shall accrue to and form part of the Escrow Account and be
released on a pro rata basis simultaneously with, and to the same persons or
entities as, the Holdback Cash and Holdback Units.
c. DURATION OF ESCROW. Subject to (i) earlier release
in connection with the payment of any Final Working Capital Adjustment in
accordance with Section 1.9 above, and (ii) the provisions of Sections 1.10 d.,
e. and f. below, the Holdback Cash and Holdback Units comprising the Indemnity
Holdback shall be retained until the second Business Day following the twelve
(12) month anniversary of the Closing Date (the "Release Date").
d. RELEASE FROM ESCROW.
(i) RELEASE FOR INDEMNIFICATION CLAIMS. The
Escrow Agent shall make distributions from the Escrow Account in satisfaction of
the requirements of Article VII of this Agreement as follows:
(1) At any time, or from time to
time, before the Release Date, Purchaser may deliver a Notice of Claim to the
Shareholder Representative and the Escrow Agent providing the information
required under Section 7.2 hereof and requesting a disbursement of Holdback Cash
and Holdback Units having a fair market value (calculated in the manner
described in Section 1.8 of this Agreement) equal to the amount of the Purchaser
Claim from the Escrow Account.
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(2) The Shareholder Representative
shall have the opportunity to respond to the Notice of Claim as provided in
Section 7.2 of this Agreement. The Shareholder Representative, acting alone and
without any requirement that it act jointly or in conjunction with any of the
Selling Parties, will have authority and power to act on behalf of each of the
Selling Parties under the Escrow Agreement. If Purchaser and the Shareholder
Representative agree as to the liability for such Purchaser Claim and the amount
or any portion thereof, Purchaser and the Shareholder Representative shall
provide to the Escrow Agent a jointly executed written notice instructing the
Escrow Agent to release to the Purchaser Holdback Cash and the number of
Holdback Units having a combined value (calculated in the manner described in
Section 1.8 above) equal to the amount of the liability for such Purchaser Claim
or the undisputed portion thereof ("Joint Instructions").
(3) Subject to the provisions of
Section 1.10 d.(4) below, if the Shareholder Representative and Purchaser do not
deliver Joint Instructions to the Escrow Agent then the Escrow Agent shall not
disburse the Holdback Cash or the Holdback Units requested pursuant to the
Notice of Claim but instead shall retain the amount of Holdback Cash and
Holdback Units having an aggregate fair market value (calculated in the manner
described in Section 1.8 above) equal to the amount of the Purchaser Claim
described in the Notice of Claim (the "Disputed Amount") until the earlier of
receipt by the Escrow Agent of (i) Joint Instructions instructing the Escrow
Agent to release Holdback Cash and Holdback Units to the Selling Parties and/or
the Purchaser in satisfaction of the Purchaser Claim asserted in the Notice of
Claim and specifying the amount of Holdback Cash and number of Holdback Units to
be released to the Selling Parties and the amount and number to be released to
Purchaser in satisfaction of the Purchaser Claim, or (ii) receipt by Escrow
Agent of a final, non-appealable award of any court or arbitrator having
jurisdiction over the matter specifying the amount of Holdback Cash and Holdback
Units to be released to Purchaser in satisfaction of the Purchaser Claim
specified in the Notice of Claim or specifying that Purchaser has no right to
such Holdback Cash and Holdback Units (a "Final Award"). Upon the Escrow Agent's
receipt of the Joint Instructions or the Final Award, the Escrow Agent shall
disburse the Holdback Cash and Holdback Units (and any related Escrow Income),
or a portion thereof, under the terms of the Joint Instructions or Final Award.
Any release of Holdback Cash and Holdback Units in satisfaction of any Purchaser
Claim shall be made proportionately to the amount of Holdback Cash and Holdback
Units then in the Escrow Account (e.g. solely by way of example, if there was
$300,000 of Holdback Cash and $1,200,000 of Holdback Units, 20% of the Purchaser
Claim would be paid in Holdback Cash and 80% of the Purchaser Claim would be
paid in Holdback Units).
(4) Notwithstanding anything to the
contrary contained in this Agreement, in the event that the Shareholder
Representative fails to deliver written notice of its objection to a Notice of
Claim to the Purchaser and Escrow Agent within the time periods specified in
Section 7.2 of this Agreement, the Selling Parties shall be deemed to have
accepted and agreed to the Purchaser Claims described in the Notice of Claim and
Purchaser may deliver to the Escrow Agent (and Escrow Agent may rely on)
instructions regarding the disbursement of Holdback Cash and a number of
Holdback Units having a fair market value (calculated in the manner described in
Section 1.8 of this Agreement) equal to the amount of the Purchaser Claim
described in the Notice of Claim, without obtaining the signature or other
authorization of the Shareholder Representative or the Selling Parties.
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(ii) RELEASE FOR WORKING CAPITAL ADJUSTMENT.
In the event of any Post-Closing Adjustment, the Escrow Agent shall make
distributions from the Escrow Account in accordance with the provisions of
Section 1.9 d. of this Agreement.
e. DISTRIBUTION UPON RELEASE DATE. On the Release
Date, the Escrow Agent shall automatically, upon written request by the
Shareholder Representative and with no written notice from Purchaser, distribute
to the Shareholder Representative, for the benefit of the Selling Parties, all
of the Holdback Cash and Holdback Units remaining in the Escrow Account, less
any Disputed Amounts and the amount of all other Purchaser Claims not yet
resolved pursuant to the provisions of this Section 1.10.
f. SUBSEQUENT DISTRIBUTION(S). If the Escrow Agent is
required to retain any portion of the Holdback Cash or Holdback Units after the
Release Date in accordance with Section 1.10 e. above, then the duration of the
Escrow shall be extended and, from time to time, upon receipt of Joint
Instructions or a Final Award with respect to any Purchaser Claims that were not
resolved on or prior to the Release Date, the Escrow Agent shall distribute to
Purchaser such portion of the Holdback Cash and Holdback Units, if any, that is
necessary to satisfy the Purchaser Claims in accordance with such Joint
Instructions or Final Award, and thereafter distribute any remaining Holdback
Cash and Holdback Units to the Shareholder Representative.
g. INDEMNIFICATION OF ESCROW AGENT. Purchaser, the
Company, the Surviving Corporation and each of the Selling Parties (by virtue of
their approval of the Merger and/or their acceptance of Merger Consideration)
agrees to indemnify, defend and hold the Escrow Agent harmless from and against
any claims, causes of actions, suits or similar proceedings (including
reasonable attorneys fees and costs of investigation) arising out of or relating
to Escrow Agent's actions as Escrow Agent; provided, however, that no
indemnification shall be required with respect to any actions determined by a
court or arbitrator of competent jurisdiction to be grossly negligent or taken
in bad faith. The Escrow Agreement shall contain provisions consistent with the
foregoing.
h. DISPOSITION OF HOLDBACK. The Escrow Agent may not
exchange any Holdback Cash or Holdback Units or shares of Sunset Common held by
it for cash or any other security; provided however, upon receipt of written
instruction from the record owner of the Holdback Units in question, the Escrow
Agent shall allow the conversion of the Merger Shares underlying the Holdback
Units into Sunset Common or the sale of any shares Sunset Common in accordance
with the terms of this Agreement and applicable state and federal securities
laws (after receipt of an opinion of counsel to Purchaser that such sale is
permitted under such laws); provided that all shares of Sunset Common issued
upon any such exchange and the net proceeds (after broker's commissions) from
the sale of any Sunset Common are deposited in the Escrow Account and held
and/or distributed in accordance with the terms of the Escrow Agreement.
i. PRIORITY OF DISTRIBUTION AND RETENTION. Any Claim
required to be paid pursuant to a Final Award or Joint Instructions hereunder
shall be paid first out of any Holdback Cash with any remainder being paid out
of Holdback Units. To the extent that any of the Holdback is required to be
retained in the Escrow Account subsequent to the Release Date,
9
the Holdback Cash shall be retained first with any additional required retention
being in the form of Holdback Units.
Section 1.11 DELIVERY OF MERGER CONSIDERATION. At the Effective Time
and subject to any adjustments made at Closing pursuant to Sections 1.9 and 1.18
of this Agreement, the Merger Consideration shall be distributed by Purchaser as
follows:
a. Subject to and in accordance with the provisions
of Section 1.13 below (including, without limitation, the provisions regarding
surrender and exchange of stock certificates), any Cash portion of the Merger
Consideration (less any Holdback Cash) will be delivered to the Selling Parties
at Closing;
b. The Holdback Units and Holdback Cash shall be
delivered to the Escrow Agent in accordance with the provisions of Section 1.10
of this Agreement; and
c. Subject to and in accordance with the provisions
of Section 1.13 below (including, without limitation, the provisions regarding
surrender and exchange of stock certificates), the Merger Units remaining after
deduction of the Holdback Units will be delivered to the Selling Parties at
Closing.
Section 1.12 CONVERSION OF SECURITIES. At the Effective Time, by virtue
of the Merger and without any action on the part of the Purchaser, Merger Sub,
the Company or the holders of any of the Company's securities, options or
warrants, the following shall occur:
a. CONVERSION OF COMPANY SHARES; DISTRIBUTION OF
MERGER CONSIDERATION TO THE SELLING PARTIES. Each share of each class of the
Company's capital stock (collectively, the "Company Shares"), other than shares,
if any, held by persons who have not voted such shares for approval of the
Merger and have perfected dissenters' rights in accordance with Delaware Law
("Dissenting Shares") shall be converted into and exchanged for the right to
receive the Merger Consideration to be distributed pursuant to Sections 1.11 a.
and c. above, in the percentages set forth on Exhibit A attached hereto and made
a part hereof (the "Distribution Percentages"). Seller covenants and agrees that
it will provide an updated and final Exhibit A no later than five (5) Business
Days prior to the Closing that reflects the Distribution Percentages that will
apply at the Closing. All Company Shares that are owned by the Company as
treasury stock immediately prior to the Effective Time shall be canceled and
extinguished without any conversion thereof.
b. CONVERSION OF MERGER SUB SHARES. Each issued and
outstanding share of common stock of Merger Sub shall be converted into and
thereafter represent the corresponding number of shares of common stock of the
Surviving Corporation so that all issued and outstanding shares of common stock
of the Surviving Corporation are owned by Purchaser immediately following the
Closing.
c. CANCELLATION OF COMPANY OPTIONS. Prior to the
Effective Time and as a condition precedent to Purchaser's obligation to close
the Merger and as a condition precedent to any distribution of any portion of
the Merger Consideration, the Company shall have received from each Option
Holder written confirmation, in a form reasonably acceptable to Purchaser, that
such Option Holder's Company Options will be cancelled, without exercise, upon
10
consummation of the Merger (each an "Option Termination Agreement"); provided,
however, that no Option Termination Agreement shall be required with respect to
any Company Options (i) which provide that such Company Options shall terminate
if not exercised within a specified period (the "Exercise Period") following
delivery of written notice by the Company of a merger of the type contemplated
by this Agreement (the "Option Notice"), and (ii) with respect to which the
Option Notice has been given and the Exercise Period has expired prior to the
Closing Date ("Excluded Options"). The Company agrees to provide the Option
Notice to holders of all applicable Company Options promptly following the date
of this Agreement so that the Exercise Period expires before the Expiration Date
and Seller agrees to use their respective commercially reasonable efforts to
obtain the Option Termination Agreements from the Option Holders with respect to
all Company Options other than the Excluded Options.
d. DISSENTERS' RIGHTS. Any Dissenting Shares shall
not be converted into the right to receive Merger Consideration but shall
instead be converted into the right to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to Delaware
Law. The Company agrees that, except with the prior written consent of the
Purchaser, or as required under Delaware Law, it will not voluntarily make any
payment with respect to, or settle or offer to settle, any such purchase demand.
Each holder of Dissenting Shares ("Dissenting Shareholder") who, pursuant to the
provisions of Delaware Law, becomes entitled to payment of the fair value for
shares of the Company's capital stock shall receive payment therefor (but only
after the value therefor shall have been agreed upon or finally determined
pursuant to such provisions) in accordance with Delaware Law. If, after the
Effective Time, any Dissenting Shares shall lose their status as Dissenting
Shares, the Purchaser shall deliver, upon surrender by such shareholder of a
certificate or certificates representing shares of the Company's capital stock,
the amount of Merger Consideration to which such shareholder would otherwise be
entitled under this Section 1.12.
e. NO FRACTIONAL SHARES. No fractional Warrants or
fractional shares of Series B Preferred will be issued to Selling Parties in
connection with the Merger. The number of Warrants and shares of Series B
Preferred issuable to a Selling Party who would otherwise be entitled to a
fraction thereof (after aggregating all fractional shares to be received by such
Selling Party) shall be rounded down to the next lowest whole number.
Section 1.13 SURRENDER AND EXCHANGE OF CERTIFICATES.
a. [Intentionally omitted]
b. EXCHANGE PROCEDURES AT CLOSING. At the Closing,
the Selling Parties shall deliver to Purchaser certificate or certificates (the
"Certificates") (or an indemnity of lost certificate(s) in accordance with
Section 1.15 below) which immediately prior to the Effective Time represented
outstanding shares of the Company's capital stock which shares were converted
into the right to receive Merger Consideration. Each Certificate shall be duly
endorsed for transfer and shall be accompanied by all other documents reasonably
required by Purchaser to effect the transfer of the Certificate (and underlying
shares) to Purchaser for cancellation. At the Closing, the Purchaser shall
deliver to each Selling Party who has so delivered such Certificates and such
other documents (and who shall otherwise be eligible to receive Merger
Consideration under this Agreement) the Merger Consideration with respect to
11
the shares represented by such Certificates; provided, however, that, to the
extent that any Selling Party is not present at Closing, the Purchaser may make
delivery to the Shareholder Representative as representative of such Selling
Party.
c. EXCHANGE PROCEDURES SUBSEQUENT TO CLOSING. To the
extent that any Selling Party fails to deliver at Closing Certificates (or an
indemnity of lost certificate(s) in accordance with Section 1.15 below), until
surrendered to Purchaser, any such Certificate will be deemed from and after the
Effective Time, for all corporate purposes, to represent only the right to
receive, upon surrender, the Merger Consideration issuable in exchange for the
Company Shares represented by such Certificate in accordance with the provisions
of this Agreement.
d. DISSENTING SHARES. The provisions of this Section
1.13 shall also apply to Dissenting Shares that lose their status as such,
except that the obligations of the Purchaser under this Section 1.13 shall
commence on the date of loss of such status and the holder of such shares shall
be entitled to receive in exchange for such shares the amount of Merger
Consideration payable pursuant to this Agreement.
e. WITHHOLDING RIGHTS. To the extent that any portion
of the Merger Consideration is paid in cash, Purchaser shall be entitled to
deduct and withhold from such Merger Consideration such amounts as Purchaser is
required to deduct and withhold with respect to the making of such payment under
the Code, or any provision of state, local or foreign tax law.
f. NO LIABILITY. Neither Purchaser, Merger Sub nor
the Surviving Corporation, nor any of their respective directors, officers,
employees or agents, shall be liable to any Selling Party for Merger
Consideration (or dividends or distributions with respect thereto) delivered to
a public official pursuant to any applicable abandoned property, escheat or
similar law.
Section 1.14 NO FURTHER OWNERSHIP RIGHTS IN THE COMPANY SHARES. On the
Business Day immediately preceding the Effective Time, the stock transfer books
of the Company shall be closed, and thereafter there shall be no further
registration of transfers on the stock transfer books of the Company of Company
Shares that were outstanding immediately prior to such time. If, after such
time, Certificates are presented to the Purchaser or Surviving Corporation for
any reason, they shall be canceled and exchanged as provided in this Article I.
Section 1.15 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificates shall have been lost, stolen or destroyed, Purchaser shall issue in
exchange therefor, upon the making of an affidavit of that fact by the holder
thereof, such Merger Consideration as the holder thereof may be entitled to
receive pursuant to the terms of this Agreement; provided, however that
Purchaser or the Surviving Corporation may, in their respective sole discretion
and as a condition precedent to the issuance thereof, require the owner of such
lost, stolen or destroyed Certificates to deliver an agreement of
indemnification in form and substance reasonably satisfactory to Purchaser and
Surviving Corporation.
Section 1.16 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any
time after the Effective Time, any further action is necessary or desirable to
carry out the purposes of this
12
Agreement and to vest the Surviving Corporation with full right, title and
possession to all assets, property, rights, privileges, powers and franchises of
the Company, the officers and directors of the Company and the Surviving
Corporation are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is not inconsistent with this Agreement.
Section 1.17 SHAREHOLDER REPRESENTATIVE. The Selling Parties, by virtue
of their execution and delivery of this Agreement or, with respect to Selling
Parties that are not signatories to this Agreement, by virtue of approval of
this Agreement and the Merger by the Shareholders in accordance with the
requirements of Delaware Law and by their acceptance of any Merger Consideration
due to them, will be deemed to have irrevocably constituted and appointed,
effective as of the date of this Agreement, IBF (together with its permitted
successors, the "Shareholder Representative"), as their true and lawful agent
and attorney-in-fact, and the Shareholder Representative, by its execution of
this Agreement shall be deemed to have accepted such appointment, to enter into
any agreement in connection with the transactions contemplated by this Agreement
or the Escrow Agreement, to exercise all or any of the powers, authority and
discretion conferred on it under any such agreement, to act as proxy for each
Selling Party in connection with any shareholder approvals required in
connection with the transactions contemplated by this Agreement, to waive or
modify any terms and conditions of any such agreement (other than payment of the
Merger Consideration due at Closing), to give and receive notices on their
behalf, and to be their exclusive representative with respect to any matter,
suit, claim, action or proceeding arising with respect to any transaction
contemplated by any such agreement, including, without limitation, the
assertion, prosecution, defense, settlement or compromise of and claim, action
or proceeding for which any Shareholder, Purchaser, or the Merger Sub may be
entitled to indemnification and the Shareholder Representative agrees to act as,
and to undertake the duties and responsibilities of, such agent and
attorney-in-fact. This power of attorney is coupled with an interest and is
irrevocable. The Shareholder Representative shall not be liable for any action
taken or not taken by him in his capacity as Shareholder Representative either
(i) with the consent of stockholders who, as of the date of this Agreement, own
a majority in number of the outstanding shares of Company voting stock
(considered on an as converted basis), or (ii) in the absence of its own willful
misconduct. If the Shareholder Representative shall be unable or unwilling to
serve in such capacity, its successor shall be named by those persons holding a
majority of the shares of Company voting stock outstanding immediately prior to
the Effective Time who shall serve and exercise the powers of Shareholder
Representative hereunder. Solely with respect to any actions taken by the
Shareholder Representative in its capacity as such, the Shareholder
Representative shall have no liability to Purchaser, the Company or any of their
respective affiliates except for claims based upon fraud or bad faith actions by
the Shareholder Representative.
Section 1.18 PURCHASE PRICE ADJUSTMENT FOR EBITDA SHORTFALL.
Notwithstanding anything to the contrary contained in this Agreement, in the
event that 2004 Audited EBITDA is below $2,044,000, the Merger Consideration
shall be reduced by (i) the amount by which the 2004 Audited EBITDA is below
$2,044,000, multiplied by (ii) ten (the "EBITDA Adjustment"). Any reduction in
the Merger Consideration resulting from an EBITDA Adjustment shall be
accomplished through a proportionate reduction in the Cash and Merger Units
(e.g. 85% of the EBIDTA Adjustment will be made through a reduction in the Cash
and 15% of the EBITDA Adjustment being made through a reduction in the number of
Merger Units having a value
13
(calculated in accordance with Section 1.8 of this Agreement) equal to 15% of
the EBITDA Adjustment).
Section 1.19 INVESTOR RIGHTS AGREEMENT. The Merger Shares and Merger
Warrants shall be subject to the restrictions on transfer, repurchase provisions
and other terms and conditions of the Investor Rights Agreement attached hereto
as Exhibit B (the "Investor Rights Agreement").
ARTICLE II.
Representations and Warranties of the Seller
--------------------------------------------
Except as set forth in the written disclosure schedule dated
as of the date hereof prepared by the Company, signed by the chief executive
officer and/or President of the Company and delivered to Purchaser
simultaneously with the execution hereof (the "Seller's Disclosure Schedule"),
IBF and the Company jointly and severally represent and warrant to Purchaser and
Merger Sub that all of the statements contained in this Article II are true and
correct as of the date of this Agreement (or, if made as of a specified date, as
of such date). Each exception set forth in the Seller's Disclosure Schedule and
each other response to this Agreement set forth in the Seller's Disclosure
Schedule is identified by reference to, or has been grouped under a heading
referring to, a specific individual section of this Agreement and relates only
to such section except to the extent that one portion of the Seller's Disclosure
Schedule specifically refers to another portion thereof, identifying such other
portion by section reference or similar specific cross-reference.
Section 2.1 STATUS AND AUTHORITY. IBF is a limited liability company
organized and validly existing under the laws of the State of Delaware and has
the power to own (a) the shares of capital stock of the Company set forth on the
Seller's Disclosure Schedule as owned by IBF and (b) the Seller Debt. IBF has
the power and authority to execute and deliver this Agreement and to perform its
obligations hereunder, and the execution, delivery and performance of this
Agreement have been duly authorized by its sole Manager, which constitutes all
necessary action on the part of IBF for such authorization.
Section 2.2 NO CONFLICTS, ETC.
a. Except as otherwise set forth in this Agreement or
in the Seller's Disclosure Schedule, the execution, delivery and performance of
this Agreement by the Company and IBF will not result in (i) any conflict with
the operating agreement of IBF or the charter documents or by-laws of the
Company, (ii) any breach or violation of or default under any statute,
regulation, judgment, order or any mortgage, agreement, deed of trust, indenture
or any other instrument to which the IBF or the Company is a party or by which
either of them or any of their respective properties or assets are bound, or
(iii) the creation or imposition of any lien, charge or encumbrance on the
assets of the Company.
b. Except as otherwise set forth in this Agreement or
in the Seller's Disclosure Schedule, (i) no consent, approval or authorization
of or filing with any third party or
14
governmental authority is required on the part of either Seller in connection
with the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby, except governmental or regulatory filings,
consents or approvals, which, if not made or obtained would not, individually or
in the aggregate, have a Material Adverse Effect on the Company, either
individually or collectively (collectively, the "Required Approvals"), provided,
that as a condition to closing of the Merger and the other transactions
contemplated by this Agreement, the Court Approval shall be required.
Section 2.3 CORPORATE STATUS OF THE COMPANY; APPROVAL. The Company is a
corporation incorporated, validly existing and in good standing under the laws
of the State of Delaware, with full corporate power and authority to conduct its
business and to own or lease its properties, as now conducted, owned or leased.
The Company has heretofore delivered to the Purchaser complete and correct
copies of its certificate of incorporation and bylaws as currently in effect.
The Company is duly qualified to do business in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect on the Company.
The Company has no subsidiaries or equity interests in any other corporation or
other entity. The Company has the corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder, and the
execution, delivery and performance of this Agreement have been duly authorized
by its board of directors which board approval along with the requisite approval
of the Shareholders in accordance with the terms of the Certificate of
Incorporation of the Company and applicable provisions of Delaware Law,
constitutes all necessary corporate action on the part of the Company for such
authorization. Section 2.3 of the Seller's Disclosure Schedule sets forth a
description of all approvals required of each class and series of common stock
and preferred stock of the Company in connection with the Merger.
Section 2.4 THE COMPANY SHARES AND COMPANY OPTIONS. The number of
authorized, issued and outstanding shares of each class of capital stock of the
Company is set forth in the Seller's Disclosure Schedule, which Schedule also
sets forth a complete and accurate list of the record owners of the Company
Shares and the amount of each class of Company Shares owned by them. All Company
Shares set forth on the Seller's Disclosure Schedule as owned by IBF are owned
by IBF, free and clear of all liens, charges or encumbrances, other than
restrictions on transfer imposed by applicable securities laws, none of which
would prohibit or prevent the consummation of the Merger in accordance with the
terms of this Agreement. All the outstanding shares of the Company's capital
stock have been duly authorized and validly issued and are fully paid and
non-assessable. Exhibit A to this Agreement contains a complete and accurate
summary of the portion of the Merger Consideration that is due to each class or
series of Company Shares as a result of the Merger assuming the Effective Date
was the date of this Agreement. Except as set forth in the Seller's Disclosure
Schedule, there are no outstanding options, warrants, conversion or other rights
or other agreements of any kind (other than this Agreement) for (i) the purchase
or acquisition from, or the sale or issuance by, the Company of any shares of
capital stock of the Company (collectively, "Company Options"), and no
authorization therefor has been given, or (ii) the purchase or acquisition from,
or the sale or issuance by, IBF of any shares of capital stock of the Company.
Seller's Disclosure Schedule lists each outstanding Company Option, the name of
the Option Holder, the number of shares subject to such Company Option, the
exercise price and vesting schedule applicable to such Company Option, and
whether such Company Option is an Excluded Option (along with specific
15
reference to the provisions of the Company Option that results in it being
considered an Excluded Option).
Section 2.5 FINANCIAL STATEMENTS. There have been delivered to the
Purchaser the Company's Financial Statements. Except as otherwise set forth in
the Seller's Disclosure Schedule, the Company's Financial Statements are
complete and correct in all material respects and present fairly for the periods
covered therein, the financial condition, results of operations and changes in
financial position of the Company, as of the dates and for the periods
indicated, subject in the case of the Company's Interim Financial Statements to
year-end adjustments, and have been prepared in accordance with GAAP, except as
noted therein. No event has occurred since the preparation of the Company's
Financial Statements which would require a restatement of the Company's
Financial Statements under GAAP other than by reason of a change in GAAP. Except
as noted in any reports contained in the applicable Company's Financial
Statement or in the Seller's Disclosure Schedule, the Company's Financial
Statements were rendered without qualification or exception and were not subject
to any contingency.
Section 2.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except for liabilities
specifically reflected or reserved against in the Company's Financial
Statements, or reflected in the Seller's Disclosure Schedule, the Company has no
liabilities or obligations contingent or otherwise which in the aggregate are
material to the Company, except for liabilities incurred in the ordinary course
of the Company's Business since the date of the Company's Interim Financial
Statements, none of which are (i) individually or in the aggregate, reasonably
expected to have an Material Adverse Effect on the Company's Business, or (ii)
in excess of $15,000 individually or $150,000 in the aggregate. Seller's
Disclosure Schedule contains a listing of all Bank Obligations and all Seller
Debt outstanding as of December 31, 2004.
Section 2.7 PROPERTIES, ETC. The Seller's Disclosure Schedule lists all
items of real property owned or leased by the Company. Except as otherwise set
forth in the Seller's Disclosure Schedule, the Company has (a) good and valid
title to the real property listed in the Seller's Disclosure Schedule as owned
by it, (b) valid and subsisting leasehold estates in the real property listed in
the Seller's Disclosure Schedule as leased by it, and (c) good and valid title
to all of its tangible personal property reflected in the statement of net
tangible assets in the Company's Interim Financial Statements dated October 31,
2004 (except for properties disposed of since such date in the ordinary course
of the Company's Business), in each case subject to no mortgage, lien, charge,
security interest, easement or encumbrance, except (i) mortgages, liens,
charges, easements and other encumbrances specifically identified in the
Seller's Disclosure Schedule, (ii) liens for taxes and assessments not due and
payable, or which are being contested in good faith by appropriate proceedings,
and (iii) statutory liens arising in the ordinary course of the Company's
Business and which are not the result of any actual or claimed breach or failure
to perform by the Company.
With respect to each item of real property leased or subleased by the
Company, except as set forth in the Seller's Disclosure Schedules: (a) the
Company is in compliance in all material respects with such leases or sublease;
(b) each lease or sublease is in full force and effect in accordance with its
terms; (c) the Company has accepted complete possession of all of the leased or
subleased properties, is the actual occupant in possession thereof and has not
sublet or assigned or otherwise transferred all or any portion of the Company's
leasehold interest in any of
16
such properties; (d) all improvements to be constructed on or in such properties
by the Company or the landlord thereof have been completed to the reasonable
satisfaction of the Company or, to Seller's knowledge, the landlord, as the case
may be, and have been accepted by the Company and any tenant construction
allowances have been paid in full; (e) all material duties of an inducement
nature required of the landlord under any lease or sublease have been fulfilled;
(f) to the Seller's knowledge, all of the landlords' obligations which have
accrued prior to the date hereof have been performed in all material respects;
(g) there exists no breach or default, nor state of facts nor condition which,
with notice, the passage of time, or both, would result in a breach or default
on the part of the Company or, to Seller's knowledge, any landlord to such
properties; and (h) to Seller's knowledge, no material claim, controversy,
dispute, quarrel or disagreement exists between the Company and any landlord.
Except as set forth in the Seller's Disclosure Schedules, to Seller's
knowledge, there are no physical or structural defects or conditions in or of
any of item of real property owned or leased by the Company or any improvements
thereon that (i) materially interfere with the Company's use of, or conduct of
the Company's Business at, such property or (ii) under any lease or sublease,
would require that the Company expend more than $10,000 to repair in the
aggregate.
Section 2.8 EMPLOYEES. Seller's Disclosure Schedule lists: (i) the
names and titles of all current employees of the Company, whether such employees
are full or part time employees or temporary employees with each of their hourly
rates or target salaries (including amounts subject to performance criteria) and
the current annual salary payable to each such employee as of the date of this
Agreement, (ii) the aggregate amount of such remuneration for each such employee
for 2003 and 2004 and (iii) the names and former titles of all former employees
of the Company whose employment terminated since December 31, 2002, the date of
such termination, where such employee was employed and the reason for such
termination. Except as set forth in Seller's Disclosure Schedule, the Company
has not agreed (whether orally or in writing) to any increase in the
compensation or benefits payable to, or otherwise materially modified the terms
of employment of, any employee from those in effect as of October 31, 2004.
Except as set forth in Seller's Disclosure Schedule, all employees of the
Company are "at will" under oral agreement. Except as set forth on Seller's
Disclosure Schedules, there are no employment agreements, arrangements or
understandings by which the Company is bound. The Company is not bound by any
union or collective bargaining agreement or other agreement, written or oral,
with any trade or labor union, employees' association or similar organization
nor is the Company subject to any pending or, to the knowledge of the Company,
threatened labor dispute or organization activity. Except as set forth on
Seller's Disclosure Schedules, there are no pending claims or actions which have
been asserted or instituted with respect to workers compensation or asserting
employment discrimination, disability, wage and hour, wrongful discharge,
harassment, breach of contract, defamation, invasion of privacy, unemployment
compensation, employee safety or other similar claims under which the Company
may have liability, contingent or otherwise. There are no present or, to
Seller's knowledge, threatened actions, work stoppages or other labor
difficulties relating to the Company. Except as set forth on Seller's Disclosure
Schedules, no unfair labor practice, wrongful termination, or race, sex, age,
disability or other discrimination, complaint is pending, nor, to Seller's
knowledge, is any such complaint threatened, nor, to Seller's knowledge, are
there any facts or circumstances which would form a basis for such complaint,
against the Company before the National Labor Relations Board, Equal
17
Employment Opportunity Commission or any other governmental authority, and no
grievance is pending, nor, to Seller's knowledge, is any grievance threatened,
nor, to Seller's knowledge, are there any facts or circumstances which anyone
would claim would form a basis for a grievance, against the Company.
Section 2.9 EMPLOYEE BENEFIT PLANS. Seller's Disclosure Schedule lists
each of the Company's employee pension, profit sharing, deferred compensation,
severance, cafeteria, stock option, stock purchase, incentive, golden parachute,
bonus, group or individual medical and health benefits, welfare, insurance or
other employee benefit plan, program or arrangement (the "Plans") regardless of
whether such plan is described in the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), which is maintained by IBF or the Company on behalf
of the employees of the Company. Complete and correct copies of all such Plans
have been made available to the Purchaser for its review. There is no Plan, nor
has any Seller Party at any time maintained, administered, contributed or been
required to contribute to any "employee pension benefit plan" as defined in
ERISA, which is subject to the minimum funding requirements of Section 412 of
the Code or Section 302 of ERISA, or the provisions of Title IV of ERISA. None
of the Plans is a "defined benefit plan" within the meaning of Section 3(35) of
ERISA, or a "multiemployer pension plan" within the meaning of Section 3(37) of
ERISA. Each Plan and any related trust agreement, annuity contract or other
funding instrument which is intended to be qualified and tax-exempt under the
provisions of the Code is so qualified and has been so qualified during the
period from its adoption to date. Each Plan, any related trust agreement,
annuity contract or other funding instrument complies in all material respects
and has been maintained in material compliance with its terms and, both as to
form and in operation, with the requirements prescribed by any and all statutes,
orders, rules and regulations which are applicable to such plans, including but
not limited to ERISA and the Code. Neither the Seller, nor any of the Selling
Parties have any obligation to make any payment to or with respect to any former
employee pursuant to any retiree medical benefit or other Plan. Except as
disclosed in Seller's Disclosure Schedule, neither the Seller nor any of the
Seller Parties would have any obligation to make any severance or other payments
to any employee if such employee was terminated prior to, at or after the
Closing. Except as set forth in Seller's Disclosure Schedule, no benefit,
payment or other entitlement under any Plan, or under any agreement relating to
the employment of employees of the Company, will be established or become
accelerated, vested, payable or funded by reason of the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
Except as set forth on Seller's Disclosure Schedule, there are no Actions
pending, or to the knowledge of the Seller, threatened with respect to any Plan,
other than claims for the payment of benefits in the ordinary course of
operation of such Plan.
Section 2.10 INDEPENDENT CONTRACTORS. Seller's Disclosure Schedule: (i)
lists the names and titles of all current independent contractors, including,
but not limited to, sales representatives and distributors ("Independent
Contractors") which have entered into contracts with the Company, (ii) a list of
such contracts with each Independent Contractor, and (iii) lists the aggregate
compensation and commissions paid to each Independent Contractor in the fiscal
year ended December 31, 2004 and a brief summary of the compensation
arrangements for such Independent Contractor for 2005; provided, however, that a
description of compensation shall not be required if the Independent Contractor
may be terminated by the Company without penalty, severance or similar payment
upon no more than 30 days written notice by the
18
Company. Except as set forth on Seller's Disclosure Schedule, there are no other
contracts or obligations by which the Company is bound with respect to any
Independent Contractors. Except as set forth on Seller's Disclosure Schedule,
there are no pending claims or Actions which have been instituted by or relating
to an Independent Contract under which the Company may have liability,
contingent or otherwise. To Seller's knowledge, there are no threatened claims
or Actions relating to the Company and an Independent Contractor.
Section 2.11 CONTRACTS. The Seller's Disclosure Schedule lists all
agreements, contracts and commitments of the following types to which the
Company is a party or by which the Company, or any of its properties is bound as
of the date hereof (other than real property leases and labor or
employment-related agreements, which are disclosed pursuant to Sections 2.7 and
2.9, respectively, of Seller's Disclosure Schedule): (a) joint venture and
partnership agreements, (b) mortgages, indentures, loan or credit agreements,
security agreements and other agreements and instruments relating to the
borrowing of money or extension of credit, and (c) other agreements, contracts
and commitments which in any case require payment by the Company after the date
hereof of more than $15,000 individually or $150,000 in the aggregate. Complete
and correct copies of all such agreements have been delivered to the Purchaser
for review.
Section 2.12 INSURANCE. The Seller's Disclosure Schedule lists (i) all
insurance policies owned by the Company and, except as indicated therein, all
premiums have been paid on such policies, no notice of termination or threatened
termination of any of such policies has been received by the Company and such
policies are in full force and effect; true and correct copies of such policies
have been delivered to the Purchaser for its review and (ii) all claims that
have been asserted under such policies since January 1, 2001 and the status of
such claims.
Section 2.13 GOVERNMENTAL AUTHORIZATIONS; COMPLIANCE WITH LAW. Except
as otherwise set forth in the Seller's Disclosure Schedule, the Company holds
all licenses, permits and other governmental authorizations material to the
Company's Business as presently conducted and the Company is not in violation of
any statute, rule, regulation, judgment, order, decree, Permit, concession,
franchise, or other governmental authorization or approval applicable to it or
to any of its material properties, except for violations which, individually or
in the aggregate, would not have a Material Adverse Effect on the Company.
Section 2.14 LITIGATION; COMPLIANCE WITH LAWS. Except as otherwise set
forth in the Seller's Disclosure Schedule, there are no judicial or
administrative actions, proceedings or investigations pending or threatened in
writing, before any federal, state, local or foreign court or governmental
authority, agency or body, and there is no judgment, decree, award or order
outstanding against the Company, the Company's Business or the assets of Company
which question the validity of this Agreement or any action taken or to be taken
by the Seller in connection herewith. The Company is not in violation of, nor
has it violated in any material respect, (i) any Law applicable to the Company's
Business, the assets of the Company or the Company's operations, including,
without limitation, all foreign, federal, state and local energy, public
utility, zoning, building code, health, employee safety, labor, wages,
collective bargaining, securities, OSHA laws and Environmental Laws, or (ii) any
judgment, decree, order, writ, injunction or similar action of any governmental
authority applicable to the Company's Business or operations. All governmental
approvals necessary for the conduct of the Company's Business have been duly
obtained and are in full force and effect, except where the failure of the
19
Company to possess such approvals would not have a Material Adverse Effect.
There are no proceedings pending or, to the knowledge of the Seller, threatened,
that could reasonably be expected to result in, and, to Seller's knowledge,
there are no facts or circumstances existing which would be a basis for, the
revocation, cancellation or suspension of any such governmental approval, and
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby will not result in, or provide the basis
for, any such revocation, cancellation or suspension.
Section 2.15 CONDITION OF TANGIBLE PERSONAL PROPERTY. Except as set
forth on the Seller's Disclosure Schedule, each item of the Company's tangible
personal property reasonably required for the continued operation of the
Company's Business on a basis consistent with the past practices of the
Company's Business immediately prior to the Closing is in good operating
condition or repair adequate for its present use, reasonable wear and tear and
routine or scheduled maintenance excepted.
Section 2.16 INTELLECTUAL PROPERTY. Seller's Disclosure Schedule
contains a complete and accurate list and description of (i) all patent
applications, issued patents, trademark applications, trademark registrations
(including any trademark registrations in foreign jurisdictions outside of the
United States), copyright applications, and copyright registrations by or on
behalf of the Company; (ii) all licenses or agreements, written or not, of
Intellectual Property to the Company which are material to the Company's
Business other than commercial software and other off-the-shelf software
products or other third-party commercial products that are generally available
for retail purchase (the "Commercial IP"); (iii) all licenses and other
agreements, written or not, from the Company to any third party which are
material to the Company's Business and which grant any rights or interests in
Intellectual Property; and (iv) to the Company's knowledge, any and all pending
Actions related to the Intellectual Property (other than Actions relating to
Commercial IP to which the Company is not a party. Except as set forth on
Seller's Disclosure Schedule, the Seller represents and warrants to Purchaser
that:
a. The Company owns or has the right to use all of
the Intellectual Property necessary for or used in the conduct of the Company's
Business as now conducted free of any restrictions (other than pursuant to
license agreements listed in Seller's Disclosure Schedule and standard licenses
of Commercial IP), and without known conflict with the rights of others;
b. The Company has not previously assigned,
transferred, conveyed, or otherwise materially encumbered any right, title or
interest in the Intellectual Property currently used in the Company's Business,
and has not granted any third party any material covenant not to ▇▇▇ for any
such use of the Intellectual Property;
c. To the Seller's knowledge, no third party
violates, infringes, or otherwise conflicts or interferes with any Intellectual
Property or proprietary right of the Company that is material to the Company's
Business;
d. Seller is not aware of any facts which would
materially and adversely impact the validity and/or enforceability of the
Intellectual Property owned or licensed by the Company;
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e. Since January 1, 2003, Seller has not received any
demand, claim, notice or inquiry from any person in respect of the Intellectual
Property which challenges, threatens to challenge or inquires as to whether
there is any basis to challenge, the validity of, the rights of the Company in,
or the right of the Company to use, any such Intellectual Property, and Seller
knows of no basis for any such challenge;
f. To Seller's knowledge, neither the Intellectual
Property nor the disclosing, copying, making, using, or selling of such
Intellectual Property, or products or services embodying such Intellectual
Property, violates, infringes, or otherwise conflicts or interferes with any
copyright, trade secret, trademark, service ▇▇▇▇, patent or any other
intellectual property or proprietary right of any third party;
g. Since January 1, 2003, the Company (i) has
received no written claim by any person or entity alleging that the Intellectual
Property, or the disclosing, copying, making, using, or selling of such
Intellectual Property, or products or services embodying such Intellectual
Property, violates, infringes, or otherwise conflicts or interferes with any
copyright, trade secret, trademark, service ▇▇▇▇, patent or any other
intellectual property or proprietary right of any third party, and (ii) to
Seller's knowledge, no such claim has been threatened and there is no basis for
any such claim. The Company is not subject to any judicial decree, order,
judgment, stipulation, or agreement with a third party restricting in any manner
the ownership, use, sale, or licensing of the Intellectual Property or any
products or service utilizing the Intellectual Property (other than pursuant to
license agreements listed in Seller's Disclosure Schedule and standard licenses
of Commercial IP).
Section 2.17 TAXES. Except as set forth on Seller's Disclosure
Schedule, the Company has timely filed, subject to appropriate extensions, and
prior to the Closing will timely file all requisite returns relating to any
Taxes, that, if unpaid, might result in a lien upon any of the Company's assets
or a claim against Purchaser, as required and when due for all taxable periods
in accordance with provisions of law pertaining thereto, and each such tax
return is or will be complete and accurate in all material respects. There are
no claims or assessments pending with respect to any tax return for any alleged
Tax deficiency relating to the Company's Business or the Company, and no Tax
issue has been raised by any taxing authority or representative thereof with
respect to any tax return relating to the Company's Business or the Company.
Seller has furnished, or will furnish prior to the Closing, to Purchaser copies
of all tax returns for each of the Company's three most recent tax years, to the
extent such tax returns have been filed. Seller has not given or been requested
to give waivers or extensions of any statute of limitations relating to the
payment of Taxes for which the Company may be liable. All Taxes due and payable
by the Company have been timely paid in full. The Company has withheld or
collected all taxes required to have been withheld or collected and paid by the
Company on its behalf in connection with amounts paid or owing to any employees
or other Person, and such withheld Taxes have either been duly paid to the
proper governmental authority or set aside in accounts for such purpose. No
Seller has engaged any third party to render tax advice ("Tax Advisor") whereby
Seller paid to such Tax Advisor a minimum of $250,000 and whereby such Tax
Advisor has limited the ability of the Seller to disclose the Tax Advisor's tax
strategies. There are no tax allocation or tax sharing agreements between the
Company, on the one hand, and the Seller and any affiliate of the Seller, on the
other hand.
21
Section 2.18 ENVIRONMENTAL MATTERS. Except as set forth on Seller's
Disclosure Schedule, no conditions currently exist or have existed on any real
property currently owned or leased by the Company (the "Facilities") or, to
Seller's knowledge, previously owned or leased at any time by the Company
("Historical Facilities"), that violated or currently violate any Environmental
Law, where such violation will or is likely to result in the Surviving
Corporation incurring any costs or expenses for damages, fines or clean-up costs
as a result of actions or proceedings by any federal, state or local
environmental protection agency or department or by any third party. Except as
set forth on Seller's Disclosure Schedule:
a. the Company is conducting the Company's Business
in material compliance with all applicable Environmental Laws, except for such
instances of noncompliance which would not, either alone or in the aggregate,
adversely affect the financial condition or operations of the Company's Business
by the Surviving Company after Closing;
b. except as set forth on Seller's Disclosure
Schedule, there are no Hazardous Materials present on the Facilities as a result
of the Company's operations or, to the Seller's knowledge, as a result of any
other person or entity's operations or, to Seller's knowledge, the Historical
Facilities, except for Hazardous Materials used in the ordinary course of the
Company's Business which are stored in appropriate containers and for which
Permits have been obtained and are in effect or are present in a manner or in
quantities which do not require issuance of permits under the Environmental
Laws; and
c. there are no Actions pending or, to the knowledge
of the Seller, threatened against the Company that involve, or relate to,
environmental conditions, environmental noncompliance or the release, use or
disposal of any Hazardous Materials at any Facility or, to the knowledge of
Seller, any Historical Facility. The Company has not received any notice of any
violation of any Environmental Law relating to any Facility or Historical
Facility.
Section 2.19 ACCOUNTS RECEIVABLE AND INVENTORY.
a. Seller's Disclosure Schedule sets forth a true and
complete list of all accounts receivable and the aging thereof as of December
31, 2004. All accounts receivable of the Company (i) represent sales actually
made in the ordinary course of the Company's Business, (ii) are not subject to
any valid set-off or counterclaim other than for return policies and approved
promotional expenses to which the Company is subject in the ordinary course of
the Company's Business consistent with past practice, (iii) do not represent
obligations for goods sold on consignment, and (iv) are not the subject of any
Actions brought by or on behalf of the Company or any other party or to the
Company's knowledge disputed in any material respect. To the knowledge of
Seller, all accounts receivable of the Company reflected on the Financial
Statements are fully collectible in the ordinary course of the Company's
Business, after deducting the allowance for doubtful accounts and approved
promotional expenses as may be reflected in the Financial Statements. None of
the receivables are due from any Selling Party or affiliates of the Company.
b. All of the inventories of the Company, including
all related packaging and labeling, consist of a quality and quantity of raw
materials and finished products
22
and saleable in the ordinary course of the Company's Business consistent with
past practice, at normal selling prices, and not subject to write off except for
obsolete or defective materials and excess stock items that are reserved for
(including reservation for costs of disposal, if any) on the Interim Financial
Statements. Seller's Disclosure Schedule lists the dollar value of all
inventories not located at Company leased facilities. None of the inventories
represent consignment inventories.
Section 2.20 PRODUCT WARRANTY AND LIABILITY.
a. Except as set forth in the Seller's Disclosure
Schedule, each product manufactured, sold, or delivered by the Company were,
when sold, fit for the ordinary purpose for which they were intended to be used
or conformed in all material respects to product specifications or any promises
made in connection with its sale and has been in conformity with all applicable
contractual commitments and in compliance with all legal requirements, and the
Company has no liability (and, to the Seller's knowledge, there is no basis for
any present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand against any of them giving rise to any liability)
for replacement thereof or other damages in connection therewith, subject only
to product returns made by customers in the ordinary course of the Company's
Business consistent with past practices, and reserves for product warranty
claims set forth on the face of the Financial Statements as adjusted for the
passage of time through the Closing Date in accordance with the past custom and
practice. Other than product returns made in the ordinary course of the
Company's Business consistent with past practices and consumer complaints
received in the ordinary course of the Company's Business and historical
experience and except as set forth in the Seller's Disclosure Schedule, no
written products warranty or similar written claims have been made against the
Company since January 1, 2000. No product manufactured, sold, leased, or
delivered by Company is subject to any guaranty, warranty, or other indemnity
beyond those required or implied by applicable law, if any, the applicable
standard terms and conditions of sale and the Company's policy with respect to
returns. A description of the Company's standard product warranties or standard
terms and conditions of sale are attached as part of Seller's Discloser
Schedule. Seller's Disclosure Schedule identifies all material disputes with
customers regarding products produced or sold by the Company since December 31,
2002.
b. Except as set forth in the Seller's Disclosure
Schedule, since January 1, 2001, the Company has not been the subject of any
product liability claims or toxic tort claims (and, to the Company's knowledge,
there is no basis for any product liability claims or toxic tort claims) arising
out of any injury to individuals or property as a result of the design,
manufacture, sale, distribution, ownership, possession, labeling, advertisement,
or use of any product, except for individual claims for damages involving less
than $10,000. The Company manufactures, or has manufactured for it, all Products
in compliance with all laws and maintains, directly or through contract
manufacturers, procedures and controls which assure that all new product
development is in compliance with all laws in all material respects and not
injurious to health and safety of persons and the environment. The products do
not, and, to Seller's knowledge, have never, contained any Hazardous Materials.
Section 2.21 PERMITS. Seller's Disclosure Schedule lists of all Permits
possessed by the Company. The Company currently has, and at all times since
December 31, 2002 had, all
23
Permits necessary or required under applicable law for the conduct of the
Company's Business except where the failure to have such Permits did not and
would not have a Material Adverse Effect on the Company. All such Permits, to
the extent required for the Company's current Business are in full force and
effect, all such Permits are transferable to the Surviving Corporation by virtue
of the Merger and, to Seller's knowledge, no suspension or cancellation of any
of them is being threatened.
Section 2.22 CUSTOMERS AND SUPPLIERS. Seller has delivered to Purchaser
a complete list of all current customers and suppliers of the Company. No
supplier of the Company and no person presently a customer, agent, independent
contractor, licensor or licensee of the Company, has notified the Company of any
intention to cancel or otherwise terminate its business relationship with the
Company.
Section 2.23 ABSENCE OF CHANGES. Since October 31, 2004, except as
otherwise set forth in this Agreement or reflected in the Seller's Disclosure
Schedule or the Company's Financial Statements, the Company's Business has been
conducted in substantially the same manner in which it previously has been
conducted, and the Company has not:
a. purchased or redeemed any shares of its capital
stock or declared or made any dividend or other distribution in respect of its
capital stock;
b. incurred any material liabilities or obligations,
except current liabilities and obligations incurred in the ordinary course of
the Company's Business and advances from affiliates consistent with past
practice;
c. mortgaged, pledged or subjected to any lien or
security interest any of its properties or assets, except for liens incurred in
the ordinary course of the Company's Business;
d. increased the compensation of any officer or
employee, except as consistent with past practice or custom;
e. disposed or agreed to dispose of any of its
properties or assets, except in the ordinary course of the Company's Business;
f. cancelled or forgiven any material debts or
claims;
g. entered into any transaction other than in the
ordinary course of the Company's Business;
h. suffered any Material Adverse Change; or
i. repaid any Company Debt other than in the ordinary
course of business or prepaid any Company Debt prior to the due date for any
such payment.
Section 2.24 BROKERS. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried out without the
intervention of any person acting on behalf of the Seller or the Company in such
manner as to give rise to any valid claim against the
24
Purchaser or the Seller for any brokerage or finder's commission, fee or similar
compensation, except for GLC Securities Corp., whose fees in respect hereof (the
"Broker Fees") shall be paid by IBF.
Section 2.25 DISCLOSURE. The representations and warranties of the
Seller contained herein, or in any document, exhibit, statement, certificate or
schedule furnished by or on behalf of the Seller Parties to Purchaser as
required by this Agreement, do not contain and will not contain any untrue
statement of a material fact and do not omit and will not omit to state any
material fact necessary in order to make the statements herein or therein, in
light of the circumstances under which they were made, not misleading.
ARTICLE III.
Representations and Warranties of the Selling Parties
Each of the Selling Parties, by virtue of their acceptance of all or
any portion of the Merger Consideration or their approval of the Merger as a
Shareholder, hereby severally, but not jointly, represent to the Purchaser, as
follows:
Section 3.1 [Intentionally omitted]
Section 3.2 INVESTMENT INTENT. Each Selling Party is acquiring the
Securities for such Selling Party's own account for investment purposes only and
not with a view to or for distributing or reselling such Securities, or any part
thereof or interest therein, without prejudice, however, to such Selling Party's
right, subject to the provisions of this Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities in compliance with
applicable federal and state securities laws.
Section 3.3 EXPERIENCE OF SELLING PARTIES. Each of the Selling Parties,
either alone or together with their representatives, has such knowledge,
sophistication and experience in business and financial matters so as to be
capable of evaluating the merits and risks of an investment in the Securities to
be acquired by it hereunder, and has so evaluated the merits and risks of such
investment.
Section 3.4 ABILITY OF SELLING PARTIES TO BEAR RISK OF INVESTMENT. Each
of the Selling Parties is able to bear the economic risk of an investment in the
Securities to be acquired by it hereunder and, at the present time, is able to
afford a complete loss of such investment.
Section 3.5 ACCESS TO INFORMATION. Each of the Selling Parties
acknowledge that it has been afforded (i) the opportunity to ask such questions
as it has deemed necessary of, and to receive answers from, representatives of
the Purchaser concerning the merits and risks of investing in the securities of
the Purchaser comprising part of the Merger Consideration (the "Securities");
(ii) access to information about the Company and the Purchaser and their
respective financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment in
the Securities; and (iii) the opportunity to obtain such additional information
which the Company and the Purchaser possesses or can acquire without
unreasonable effort or expense that is necessary to make an informed investment
decision with respect to the investment and to verify the accuracy and
completeness of the information that it has received about the Company and the
Purchaser.
25
Section 3.6 RELIANCE. Each of the Selling Parties understands and
acknowledges that (i) the Securities being offered and sold to it hereunder are
being offered and sold without registration under the Securities Act of 1933, as
amended (the "Securities Act") in a private placement that is exempt from the
registration provisions of the Securities Act under Section 4(2) of the
Securities Act and (ii) the availability of such exemption depends in part on,
and that the Purchaser and Merger Sub will rely upon the accuracy and
truthfulness of, the foregoing representations and such Selling Parties hereby
consents to such reliance.
Section 3.7 LEGEND. Each of the Selling Parties acknowledge that the
Securities will bear a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN OFFERED AND SOLD IN
RELIANCE ON AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). ACCORDINGLY, SUCH SECURITIES
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT AND HAVE BEEN ACQUIRED BY THE
PURCHASER FOR INVESTMENT PURPOSES. SAID SECURITIES MAY NOT BE SOLD OR
TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OTHER THAN IN PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT, THE AVAILABILITY OF WHICH MUST BE
ESTABLISHED TO THE SATISFACTION OF THE ISSUER THROUGH A PRIOR OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER THE
SECURITIES ACT."
In addition, the Securities will bear such legends as are required under Nevada
law or are otherwise reasonably required by the Purchaser in order to evidence
the restrictions on transfer, redemption provisions and other such provisions of
the Investor Rights Agreement.
ARTICLE IV.
Representations and Warranties of the Purchaser
Except as set forth in (i) the Purchaser SEC Documents (as
defined below); provided, however, that disclosure in a Purchaser SEC Document
will not constitute disclosure herein with respect to the representations and
warranties set forth in Section 4.5, or (ii) the written disclosure schedule
dated as of the date hereof prepared by Purchaser and Merger Sub and signed by
the chief executive officer of Purchaser and Merger Sub and delivered to the
Shareholder Representative and the Company simultaneously with the execution
hereof (the "Purchaser's Disclosure Schedule"), Purchaser and Merger Sub hereby
jointly and severally represent and warrant to Seller that all of the statements
contained in this Article IV are true and correct as of the date of this
Agreement (or, if made as of a specified date, as of such date). Each exception
set forth in the Purchaser's Disclosure Schedule and each other response to this
Agreement set forth in the Purchaser's Disclosure Schedule is identified by
reference to, or has been grouped under a heading referring to, a specific
individual section of this Agreement and relates only to such section except to
the extent that one portion of the Purchaser's Disclosure
26
Schedule specifically refers to another portion thereof, identifying such other
portion by section reference or similar specific cross-reference.
Section 4.1 CORPORATE STATUS AND AUTHORITY. Each of the Purchaser and
Merger Sub is a corporation duly incorporated and validly existing in good
standing under the laws of the state of Nevada and Delaware, respectively, with
the corporate power and authority to conduct its business, to own or lease its
properties as now conducted, owned or leased, to execute and deliver this
Agreement and to perform its obligations hereunder. Each of the Purchaser and
Merger Sub has heretofore delivered to the Seller complete and correct copies of
its charter and by-laws (or other similar documents) as currently in effect.
Each of Purchaser and Merger Sub has the corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement have been duly authorized
by each of the Purchaser's and Merger Sub's Board of Directors, which, subject
to the approval by the affirmative vote of the shareholders of Purchaser and
Merger Sub, to the extent required by applicable law, constitutes all necessary
corporate action on the part of the Purchaser and Merger Sub for such
authorization.
Section 4.2 NO CONFLICTS
a. Except as otherwise set forth in this Agreement or
in the Purchaser's Disclosure Schedule, the execution, delivery and performance
of this Agreement by the Purchaser and Merger Sub will not result in (i) any
conflict with the Certificate of Incorporation or By-Laws of the Purchaser or
Merger Sub, (ii) any breach or violation of or default under any statute,
regulation, judgment, order or decree or any mortgage, agreement, deed of trust,
indenture or any other instrument by which the Purchaser or Merger Sub or any of
their respective properties or assets are bound, or (iii) the creation or
imposition of any lien, charge, pledge or encumbrance thereon.
b. Except for (i) the filing of periodic and current
reports with the Securities and Exchange Commission pursuant to the requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and (ii)
any filings required to be made in connection with the issuance of the Merger
Units with state securities regulators, no consent, approval or authorization of
or filing with any governmental authority is required on the part of the
Purchaser or Merger Sub in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby.
Section 4.3 LITIGATION; COMPLIANCE WITH LAWS. There are no judicial or
administrative actions, proceedings or investigations pending or, to the best
knowledge of the Purchaser, threatened before any federal, state, local or
foreign court or governmental authority, agency or body, and there is no
judgment, decree, award or order outstanding against Purchaser, Merger Sub,
their respective businesses or their respective assets which question the
validity of this Agreement or any action taken or to be taken by the Purchaser
or Merger Sub in connection herewith. Except as otherwise set forth in the
Purchaser's Disclosure Schedule or the Purchaser SEC Filings, neither the
Purchaser nor Merger Sub is in violation of, nor has it violated, (i) any Law
applicable to the Purchaser's business, Merger Sub's business, the assets of the
Purchaser or Merger Sub or the Purchaser's or Merger Sub's operations,
including, without limitation, all foreign, federal, state and local energy,
public utility, zoning, building code, health, employee
27
safety, labor, wages, collective bargaining, securities, OSHA laws and
Environmental Laws, or (ii) any judgment, decree, order, writ, injunction or
similar action of any governmental authority applicable to the Purchaser or
Merger Sub. All governmental approvals necessary for the conduct of the business
of Purchaser and Merger Sub have been duly obtained and are in full force and
effect. There are no proceedings pending or, to the knowledge of the Purchaser,
threatened, that might result in, and there are no facts or circumstances
existing which would be a basis for, the revocation, cancellation or suspension
of any such governmental approval, and the execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
will not result in, or provide the basis for, any such revocation, cancellation
or suspension.
Section 4.4 CAPITALIZATION OF PURCHASER AND MERGER SUB; MERGER
CONSIDERATION. Upon issuance and delivery thereof upon completion of the Merger
and in accordance with terms of this Agreement and the Certificate of
Designation (i) the Merger Shares shall be duly authorized and issued,
fully-paid and nonassessable shares of Series B Preferred of Purchaser, and (ii)
the shares of Sunset Common issued upon conversion of the Merger Shares will be
duly authorized and issued, fully-paid and nonassessable shares of Sunset
Common. Upon issuance and delivery thereof upon completion of the Merger and in
accordance with the terms of this Agreement and the form of warrant agreement
evidencing the Merger Warrants, (1) the Merger Warrants will be duly authorized
and issued, and (2) upon payment therefor in accordance with the terms of the
Merger Warrants, the shares of Sunset Common issued upon conversion of the
Merger Warrants will be duly authorized and issued, fully-paid and
non-assessable shares of Sunset Common.
Section 4.5 PURCHASER SEC FILINGS. Since October 1, 2004, Purchaser has
filed with the Securities and Exchange Commission all required registration
statements, reports, schedules, forms, statements, proxy or information
statements and other documents required of it pursuant to the Exchange Act (the
"Purchaser SEC Documents"). As of their respective dates, the Purchaser SEC
Documents complied as to form or, with respect to those not yet filed, will
comply as to form, in all material respects with the requirements of the
Exchange Act.
Section 4.6 BROKERS. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried out without the
intervention of any person acting on behalf of the Purchaser or Merger Sub in
such manner as to give rise to any valid claim against the Purchaser, the
Shareholders or the Company for any brokerage or finder's commission, fee or
similar compensation.
Section 4.7 ADDITIONAL REPRESENTATIONS AND WARRANTIES. To the extent
that Purchaser makes any written representations or warranties regarding
Purchaser or its subsidiaries in connection with the closing of any Series B
Financing completed at or prior to the Closing, (the "Series B
Representations"), at Closing, Purchaser shall be deemed to have made the Series
B Representations to Seller at Closing pursuant to (and subject to the
limitations on indemnification contained in) this Agreement.
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ARTICLE V.
Certain Covenants
-----------------
Section 5.1 OBLIGATIONS OF THE PARTIES. The parties shall apply for and
diligently prosecute all applications for, and shall use their reasonable best
efforts promptly to obtain, such approvals, consents or forbearances from such
governmental authorities and third parties as shall be necessary to permit the
consummation of the transactions contemplated by this Agreement, and shall use
their reasonable best efforts to bring about the satisfaction as soon as
practicable of all the conditions contained in Article V and VI and to effect
the consummation of the transactions contemplated by this Agreement.
Section 5.2 OBLIGATIONS OF THE SELLER.
a. CONDUCT OF BUSINESS, ETC. From the date of this
Agreement until the Closing (the "Interim Period"), except as permitted by this
Agreement or as otherwise consented to by the Purchaser in writing, which
consent shall not be unreasonably withheld, the Company shall, and IBF shall use
its best efforts to cause the Company to:
(i) carry on the Company's Business only in
the ordinary course, consistent with past practices and, to the extent
consistent with the Company's Business, use reasonable efforts to preserve
intact its present business organization and to preserve its relationships with
customers, suppliers and others having business dealings with it;
(ii) maintain its books of account and
records in its usual, regular and ordinary manner, consistent with its past
practice; and
(iii) not declare or pay any dividends or
make any other distributions (whether in cash, stock or property) in respect of
its capital stock, nor make any payments (whether of interest or principal) with
respect to the Seller Debt, nor repurchase or otherwise acquire, directly or
indirectly, any shares of its capital stock (except from former employees,
directors or consultants in accordance with agreements providing for the
repurchase of shares in connection with any termination of service).
b. NO MATERIAL ADVERSE CHANGE. Except as contemplated
by this Agreement from the date hereof to the Closing, Company shall not:
(i) pay or agree to pay any bonus or other
extraordinary compensation to officers, directors or employees of the Company
(each a "Company Bonus" and collectively, the "Company Bonuses") other than (1)
bonuses pursuant to contracts or arrangements existing as of December 31, 2004
and which payments are reflected and booked as compensation expense in the 2004
Audited Financials ("Accrued Bonuses"), or (2) bonuses or other extraordinary
compensation to be paid by IBF at Closing which will not result in an expense or
taxable income to the Company on its financial statements for the period in
question;
(ii) [Intentionally omitted];
29
(iii) incur any obligations or liabilities
other than in the ordinary course consistent with past practices which in the
aggregate are in excess of $50,000;
(iv) other than in the ordinary course
consistent with past practices, permit or allow any of its properties or assets
to be mortgaged, pledged or subject to any Encumbrance, except liens for current
taxes not yet due;
(v) enter into any contract, other than (1)
customer, distributor or supplier agreements entered into in the ordinary course
of the Company's Business consistent with past practices, (2) contracts entered
into in the ordinary course of the Company's Business consistent with past
practices providing for payments by or to the Company in the aggregate of less
than USD$50,000, and (3) any employment agreements with the Key Managers in a
form acceptable to the Purchaser;
(vi) cause or experienced the acceleration,
termination, modification, or cancellation of any contract providing for
payments by or to the Company in the aggregate of USD$50,000, or received notice
that any other Person intends to accelerate, terminate, modify or cancel any
material contract or agreement other than Bank Obligations which will be paid
off in full at Closing and with respect to which no foreclosure or other
proceedings against the assets of the Company shall have commenced;
(vii) make or commit to any capital
expenditure (or series of related capital expenditures) for additions to
property, plant or equipment except for expenditures made in the ordinary course
of the Company's Business and involving no more than USD$25,000 individually or
USD$50,000 in the aggregate;
(viii) other than in the ordinary course of
the Company's Business consistent with past practices, make any capital
investment in, loan to or acquisition of the securities, equity interests or
assets of, any other Person;
(ix) incur any indebtedness for borrowed
money other than borrowings under the Company's existing credit line(s) with any
of the Banks which are to be repaid pursuant to Section 1.6 a. and which, in any
event, shall not exceed $500,000 of additional borrowings at any time;
(x) delay or postpone the payment of
accounts payable or other liabilities outside the ordinary course of the
Company's Business consistent with past practices;
(xi) release, compromise or cancel any debts
owed to it or claims against others other than settlement of accounts with
customers and suppliers in the ordinary course of the Company's Business
consistent with past practices;
(xii) grant any increase in compensation of
employees (including, without limitation, any increase pursuant to any bonus,
pension, profit-sharing, retirement or other plan or commitment), except in the
ordinary course of the Company's Business consistent with past practice or grant
any increase in any such compensation payable or to become payable to any
officer;
30
(xiii) instituted any employee welfare,
equity compensation plan, profit-sharing, retirement or similar plan or
arrangement with, any of the officers, directors or employees of the Company;
(xiv) change in any material respect its
accounting methods, principles or practices;
(xv) merge with or into, consolidated with,
or sell a material part of its assets to, any other Person;
(xvi) increase or decrease the amount of the
Company's inventory except in the ordinary course and consistent with past
practices;
(xvii) dispose of or permitt to lapse any
Intellectual Property owned or utilized in any material respect by the Company
in the operation of the Company's Business or any Intellectual Property
registration or application or license used or intended for use by the Company;
(xviii) except as specifically described in
the Seller's Disclosure Schedule, commence any Action other than collection
actions, infringement claims or other claims made in the ordinary course of the
Company's Business consistent with past practices; or
(xix) take any action which would violate
items (i) through (xviii). c. Access and Information. The Company shall give to
the Purchaser and its representatives full access at all reasonable times to the
properties, books and records of the Company and furnish such information and
documents in its possession relating to the Company as the Purchaser may
reasonably request. All such information and documents obtained by the Purchaser
pursuant to this Section shall be subject to the terms of the Confidentiality
Agreement. During the Interim Period, Purchaser will have the right to conduct,
during normal business hours, such due diligence, inspections and investigations
as it may reasonably require with respect to the Company's Business during
normal business hours, including any of the Company's assets, the insurance
policies, claims relating to the Company's Business and all operational,
environmental (including environmental testing), legal, regulatory and financial
matters relating to the Company's Business. During such time, IBF will cause the
Company to permit Purchaser and its respective representatives to have
reasonable access to and inspect all of the foregoing and shall have reasonable
access, to the extent permitted by applicable law, to the personnel and work
history related to management and other key employees of the Company as
Purchaser may reasonably request.
d. SHAREHOLDER VOTE. IBF and the Company shall take
all action necessary to act by written consent, or cause the Company to call a
special meeting of the stockholders of the Company entitled to vote, to approve
the Merger and the other transactions contemplated hereby, as promptly as
practicable after the date hereof.
Section 5.3 EXCLUSIVITY. From the date of this Agreement until the
first to occur of: (i) Closing, or (ii) the termination of this Agreement for
reasons other than Purchaser's termination
31
pursuant to Section 9.1 b. or c. of this Agreement (the "Exclusivity Period"),
neither the Seller nor any of their respective officers, employees, directors,
managers or other authorized representative or affiliates shall directly or
indirectly: (1) solicit, initiate, discuss or encourage any Prohibited
Transaction with any person or entity other than Purchaser, (2) engage in
negotiations or discussions concerning a Prohibited Transaction, or (3) except
as required by law, provide access to the facilities or records, any public or
other non-public information concerning the Company or Seller's interest in the
Company to any person or entity other than to (A) Purchaser or its
representatives, or (B) in the case of access to information regarding the
Company or IBF, to the bankruptcy court in connection with any bankruptcy
proceeding involving IBF, or (3) agree to, approve, recommend or otherwise
endorse or support any Prohibited Transaction or similar transaction other than
the ones contemplated by this Agreement. Furthermore, the Sellers agree to
immediately cease any and all existing activities, discussions or negotiations
with any persons or entities other than Purchaser conducted heretofore with
respect to any Prohibited Transaction.
Section 5.4 AUDITS. Each of the Purchaser and Selling Parties shall
promptly notify the other in writing within ten days from its receipt of notice
of (i) any pending or threatened federal, state, local or foreign tax audits or
assessments of the Company, so long as any taxable periods ending on or prior to
the Closing Date remain open, and (ii) any pending or threatened federal, state,
local or foreign tax audits or assessments of the Purchaser or the Seller which
may affect the Tax liabilities of the Company, in each case for taxable periods
ending on or prior to the Closing Date. In the event of any Tax audit or
administrative or court proceeding relating to taxable periods ending on or
prior to the Closing Date, the Surviving Corporation may represent itself and
employ accountants and counsel of its choice at the expense of IBF. IBF shall
have the right to consult with the Surviving Corporation during such proceedings
at its own expense. The Purchaser agrees that it shall, at its own expense,
cooperate fully, and cause the Surviving Corporation to cooperate fully in the
defense against or compromise of any claim in any said proceeding. Anything to
the contrary contained elsewhere herein notwithstanding, in the event that any
state or Federal income Taxes, penalties, interest or other charges are payable
by the Surviving Corporation for any taxable periods ending on or prior to the
Closing Date, the Surviving Corporation shall be entitled to indemnification for
such amounts as if such amounts were an undisputed Purchaser Claim in accordance
with the provisions of Article VII hereof.
Section 5.5 PUBLICITY. All press releases, filings and other publicity
concerning the transactions contemplated hereby will be subject to review and
approval by the Company, IBF and the Purchaser, such approval not to be
unreasonably withheld. Such approval shall not be required if the person issuing
such publicity reasonably believes it to be necessary for compliance with law.
Section 5.6 REPAYMENT OF THE SELLER'S DEBT. IBF agrees that in
consideration of its receipt of the Merger Consideration provided for herein,
the Company's obligations with respect to the Excess Seller Debt shall be fully
satisfied and shall provide the Surviving Corporation with a discharge and
release with respect thereto in form and substance acceptable to the Surviving
Corporation and the Purchaser.
Section 5.7 REPAYMENT OF CREDIT FACILITY. At the Closing and subject to
the aggregate limitation on Company Debt to be repaid by Purchaser contained in
Section 1.6 a. of this
32
Agreement, Purchaser shall pay or cause to be paid to Boston Private Bank (or
any successors in interest) and each other person or entity (other than IBF) to
which the Company has outstanding indebtedness for borrowed money (collectively,
the "Banks") such amounts as are necessary for the repayment and retirement of
all outstanding indebtedness and other financial obligations of the Company to
the Banks under any line of credit, loan agreement, promissory note or similar
financial instrument or obligation (the "Loan Documents"). The Company and IBF
shall take such other actions as may be necessary to accomplish the foregoing
and provide for the termination of Loan Documents and all agreements and
arrangements related thereto, including any security, collateral or similar
agreements (collectively, the "Related Agreements"), including, but not limited
to, a release of the Surviving Corporation and any liens upon any assets or
shares of capital stock of the Company, in each case effective at the Effective
Time. As a condition to the Purchaser's obligations, the Company shall arrange
for the Purchaser to be provided with such releases and other documents and
instruments reasonably requested by the Purchaser, or its counsel, to evidence
that the Surviving Corporation will be completely and unconditionally released
of any and all obligations under the Loan Documents and the Related Agreements
on or prior to the Effective Time (collectively, the "Bank Obligations").
Section 5.8 2004 AUDITED FINANCIALS; MONTHLY FINANCIALS. The Company,
at its sole expense, shall prepare and deliver to the Purchaser no later than
five Business Days following the date of this Agreement, the 2004 Audited
Financials. In addition, within fifteen (15) Business Days after the end of each
calendar month, the Company shall deliver to Purchaser an unaudited balance
sheet and summary results of operations for the such calendar month (the
"Monthly Financials") which shall be prepared in accordance with the Company's
internal accounting standards and procedures consistent with the standards and
procedures used in preparation of the Company Interim Financial Statements.
Section 5.9 [Intentionally omitted]
Section 5.10 COURT APPROVAL, BREAK-UP FEE. IBF shall use its best
commercially reasonable efforts to obtain the Court Approval as soon as
practicable but in no event later than April 1, 2005 (the "Court Deadline"). In
the event that the Court Approval is not obtained by the Court Deadline, this
Agreement is thereafter terminated (other than solely by reason of the
Purchaser's breach thereof), and on or before August 31, 2005, either one or
both of the Seller or the Selling Parties enters into a binding agreement with
respect to any Prohibited Transaction, which Prohibited Transaction is later
consummated; then IBF shall pay the Purchaser Five Hundred Thousand Dollars
($500,000) (the "Break-Up Fee") in accordance with the provisions of Section 9.2
d. of this Agreement.
Section 5.11 COLLECTION OF ACCOUNTS RECEIVABLE. The Surviving
Corporation and Purchaser shall use their reasonable good faith efforts to
collect the accounts receivable of the Company that are reflected on the Closing
Balance Sheet in the ordinary course of business (except to the extent that the
Company has reserved such accounts as uncollectible).
Section 5.12 PAYMENT OF BROKER FEES. At or simultaneously with the
Closing, IBF shall (i) pay the Broker Fees or cause such Broker Fees to be paid
out of the Merger Consideration, and (ii) shall obtain written confirmation from
GLC Securities Corp. of receipt and satisfaction of any and all Broker Fees or
other compensation to which it and its affiliates are
33
entitled to receive in connection with and/or as a result of the transactions
contemplated by this Agreement.
Section 5.13 MARKETING EXPENDITURES. Promptly following the date of
this Agreement, the Company shall (i) retain an advertising agency reasonably
acceptable to the Company and the Purchaser (the "Agency") for advertising and
marketing services on terms reasonably acceptable to Purchaser, and (ii) commit
to spend at least $56,000 for advertising and marketing services to be provided
by the Agency; provided, however, that, notwithstanding anything to the contrary
contained in this Agreement, such amount shall be considered expensed for
purposes of calculation of the Working Capital Adjustment without regard to
GAAP, and (iii) provide and pay for ongoing pre-Closing advertising and
marketing expenditures in a commercially reasonable fashion based upon the
recommendations of the Agency and the review and approval by the Key Managers
and Purchaser; provided, however, that notwithstanding anything to the contrary
set forth in this Agreement, the amount of such expenditures shall be treated in
accordance with GAAP for purposes of the Working Capital Adjustment.
Section 5.14 NO DUPLICATION OF EXPENSES. Notwithstanding anything to
the contrary set forth in this Agreement, in no event shall there be a Working
Capital Adjustment made with respect to any amounts paid or payable by IBF
pursuant to Section 2.24, 5.12 or 10.5.
ARTICLE VI.
Conditions Precedent
--------------------
Section 6.1 PREAMBLE. The respective obligations set forth herein of
the Seller, Merger Sub and the Purchaser to consummate the Merger and the
transactions to be consummated at the Closing hereunder shall be subject to the
fulfillment, on or before the Closing Date, of the conditions precedent and
covenants set forth herein; provided that a party shall be precluded from
asserting that a condition hereinafter set forth in this Article VI has not been
satisfied by reason of any matter, fact, failure or circumstance (a) reflected
in the Seller's Disclosure Schedule or the Purchaser's Disclosure Schedule
delivered on the date of this Agreement, or (b) arising as a result of the
objecting party's failure to comply with its obligations under this Agreement.
Section 6.2 CONDITIONS TO OBLIGATIONS OF THE PARTIES.
a. Shareholder Approval. This Agreement and the
Merger shall have been approved and adopted by the requisite vote of the
Shareholders and, to the extent required, the shareholders of Purchaser.
b. No Injunctions or Restraints; Illegality. No
temporary restraining order, preliminary or permanent injunction, writ, or other
order issued by a court of competent jurisdiction or other legal or regulatory
restraint or prohibition preventing or imposing conditions on the consummation
of the Merger or the other transactions contemplated by this Agreement shall be
in effect (other than conditions imposed by the Bankruptcy Court on IBF or the
Company which are not unduly burdensome on Purchaser, the Company or IBF), nor
shall any
34
Action or proceeding seeking any of the foregoing be pending; nor shall there be
any action taken, or any statute, rule, regulation or order enacted, entered,
enforced or deemed applicable to the Merger or the other transactions
contemplated by this Agreement, which makes consummation of the Merger or the
other transactions contemplated by this Agreement illegal. If an injunction or
other order shall have been issued, each party shall use its reasonable efforts
to have such injunction or other order lifted.
c. COURT APPROVAL. The Selling Parties shall have
obtained the Court Approval on or before April 1, 2005 (which date may be
extended in the sole and absolute discretion of Purchaser), and shall be in a
form and substance reasonably satisfactory to counsel for Seller and Purchaser.
d. REPAYMENT OF THE COMPANY DEBT. Simultaneously with
the Closing, the Company Debt shall have been repaid or cancelled in accordance
with the provisions of Section 1.6 a. and Sections 5.6 and 5.7 of this
Agreement.
e. [Intentionally omitted]
f. [Intentionally omitted]
Section 6.3 CONDITIONS TO OBLIGATIONS OF THE SELLING PARTIES AND THE
COMPANY.
a. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
AND MERGER SUB; COMPLIANCE WITH COVENANTS. The representations and warranties of
Purchaser and Merger Sub in Article IV shall be true and correct when made and
at and as of the Closing with the same effect as though made at and as of such
time, with such exceptions as are not in the aggregate material. Each of the
Purchaser and Merger Sub shall have duly performed and complied in all material
respects with all agreements contained herein required to be performed or
complied with by it at or before the Closing.
b. OFFICER'S CERTIFICATE. Each of the Purchaser and
Merger Sub shall have delivered to the Seller a certificate, dated the Closing
Date and signed by its Chief Executive Officer, President and/or Chief Financial
Officer, as to the fulfillment of the conditions set forth in Section 6.3 a.
c. FILING OF CERTIFICATE OF DESIGNATION. Purchaser
shall have filed the Certificate of Designation with the Nevada Secretary of
State.
d. OPINION OF COUNSEL. Seller shall have received an
opinion of counsel to Purchaser, in a form reasonably acceptable to it (and
subject to customary qualifications and limitations), as to (i) the valid
existence and good standing of Purchaser and Merger Sub, (ii) the corporate
power and authority of Purchaser and Merger Sub to execute and deliver this
Agreement and to consummate the transactions contemplated by this Agreement and
perform their respective obligations hereunder, (iii) the valid approval of the
Merger and related transactions by Purchaser, Merger Sub and, to the extent
required, their respective shareholders, (iv) the valid issuance of the Merger
Shares and Merger Warrants by Purchaser and the authorization for issuance of
shares of Sunset Common issuable upon conversion of the Merger
35
Shares and Merger Warrants, and (iv) to the knowledge of such counsel, the
absence of litigation or governmental proceedings that would restrict or
prohibit the consummation of the Merger and related transactions.
e. INVESTOR RIGHTS AGREEMENT. The Purchaser shall
have executed and delivered the Investor Rights Agreement.
Section 6.4 CONDITIONS TO OBLIGATIONS OF THE PURCHASER AND MERGER SUB.
a. REPRESENTATIONS AND WARRANTIES OF THE SELLER;
COMPLIANCE WITH COVENANTS. The representations and warranties in Article II and
Article III shall be true and correct when made and at and as of the Closing
with the same effect as though made at and as of such time, with such exceptions
as are not in the aggregate material. Each of the Selling Parties (including
IBF) and the Company shall have duly performed and complied in all material
respects with all agreements contained herein required to be performed or
complied with by it at or before the Closing including, without limit, those
contained in Section 5.2 of this Agreement.
b. RECEIPT OF THE OPTION TERMINATION AGREEMENTS.
Purchaser shall have received Option Termination Agreements which have been
executed by holders of Company Options other than the Excluded Options.
c. RECEIPT OF 2004 AUDITED FINANCIALS AND MONTHLY
FINANCIALS. Purchaser shall have received (i) the 2004 Audited Financials within
five (5) Business Days following the date of this Agreement and the 2004 Audited
Financials shall not reflect any Material Adverse Change in the financial
condition or results of operations of the Company from the Company's Interim
Financial Statements, and (ii) the Monthly Financials for all monthly periods
from January 1, 2005 through the Closing Date and such Monthly Financials shall
not reflect any Material Adverse Change in the financial condition or results of
operations of the Company from the 2004 Audited Financials or the Company's
Interim Financials.
d. NO MATERIAL ADVERSE CHANGE. There shall have been
no Material Adverse Change in the Company, the Company's Business or financial
condition since the date of the Interim Financial Statements.
e. REQUIRED APPROVALS. Seller shall have obtained all
Required Approvals.
f. NO SEVERANCE OR CHANGE OF CONTROL PAYMENTS. Absent
termination of such employees or consultants by the Surviving Corporation
following the Closing, there shall be no obligation of the Company to pay any
severance, bonus or other payments to employees or consultants as a result of
Merger and other transactions contemplated by this Agreement.
g. OPINION OF COUNSEL. Purchaser shall have received
an opinion of counsel to IBF, in a form reasonably acceptable to it (and subject
to customary qualifications and limitations), as to (i) the valid existence and
good standing of the Company and IBF, (ii) the corporate power and authority of
the Company and IBF to execute and deliver this Agreement and to consummate the
transactions contemplated by this Agreement and perform their
36
respective obligations thereunder, (iii) the valid approval of the Merger and
related transactions by the Shareholders, and (iv) to the knowledge of such
counsel, the absence of litigation or governmental proceedings that would
restrict or prohibit the consummation of the Merger and related transactions.
h. [Intentionally omitted]
i. PAYMENT OF COMPANY BONUSES. Prior to or
simultaneously with the Closing, (i) all Company Bonuses other than the Accrued
Bonuses shall have been paid by IBF, or (ii) the Purchaser shall have received
written acknowledgments (in a form reasonably acceptable to Purchaser) from the
persons otherwise entitled to receive the Company Bonuses that the Company's
obligation to pay any Company Bonuses other than the Accrued Bonuses shall have
been waived or terminated without payment thereof by the Company;
j. [Intentionally omitted]
k. CANCELLATION OF EXCESS SELLER DEBT. The Excess
Seller Debt shall have been cancelled and Purchaser shall have received written
acknowledgment of the holders of such Excess Seller Debt, in a form reasonably
acceptable to Purchaser, that such Excess Seller Debt, if any, has been
cancelled and any security interest or other liens on assets or capital stock of
the Company relating thereto shall have been or will be released simultaneously
with or promptly following the Closing.
l. OFFICER'S CERTIFICATE. Each of IBF and the Company
shall have delivered to the Purchaser a certificate, dated the Closing Date and
signed by its Manager, in the case of IBF, and by its Chief Executive Officer,
President and/or Chief Financial Officer, in the case of the Company, as to the
fulfillment of each of the conditions set forth in Sections 6.4 a. through f.,
and Section 6.2 c.
m. INVESTOR RIGHTS AGREEMENT. Each of the Selling
Parties shall have executed and delivered to the Purchaser a counterpart to the
Investor Rights Agreement.
n. MINIMUM CASH AT CLOSING. The Company shall have at
least $100,000 of cash (excluding any restricted cash) at Closing.
ARTICLE VII.
Indemnification
---------------
Section 7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Subject to the
provisions of Section 7.3 below, (x) all representations and warranties of the
Company, IBF, the Selling Parties (including IBF) and Purchaser contained herein
(including, without limitation, the Series B Representations) or in any
document, certificate or other instrument required to be delivered hereunder in
connection with the transactions contemplated hereby and (y) all Purchaser
Claims relating to any breach or nonfulfillment by Seller or the Selling
Parties, or any noncompliance by Seller or the Selling Parties with, any
covenant, agreement or obligation contained herein or in
37
any certificate or other document delivered pursuant to this Agreement or
relating to the Dissenter Claims, shall survive the Closing for the period
ending on the first Business Day following the twelve (12) month anniversary of
the Closing Date (the "Survival Date"); provided, however, that (i) the
representations and warranties of the Company and the Selling Parties relating
to the Reserved Claims shall not expire and shall survive the Survival Date
until such Reserved Claim is finally determined and, if applicable, paid, and
(ii) any covenant, agreement or obligation of Seller or the Selling Parties
which contemplates performance subsequent to the Survival Date shall survive
such Survival Date. No claim for indemnification for breach of a representation,
warranty, covenant, agreement or obligation may be commenced after the period of
survival of such representation, warranty, covenant, agreement or obligation.
Section 7.2 NOTICE OF CLAIMS. If Purchaser is of the opinion that any
Purchaser Claim (as defined below) has occurred, Purchaser shall so notify the
Shareholder Representative (with a copy to the Escrow Agent), and each such
notice shall be in writing and shall describe with reasonable specificity the
nature and amount of such asserted Purchaser Claim. If the Shareholder
Representative is of the opinion that any Selling Party Claim (as defined below)
has occurred, the Shareholder Representative shall so notify Purchaser, and each
such notice shall be in writing and shall describe with reasonable specificity
the nature and amount of such asserted Selling Party Claim. Any such notice of
any Purchaser Claim or Selling Party Claim is referred to in this Agreement as a
"Notice of Claim". The Party receiving the Notice of Claim shall be deemed to
have accepted the Claims described in the Notice of Claim unless the receiving
party shall have, within thirty (30) days following the date of receipt of the
Notice of Claim, delivered to the Party who sent the Notice of Claim (with a
copy to the Escrow Agent with respect to any objections to the Purchaser's
Notice of Claims) written notice objecting to all or any portion of Claims
described in the Notice of Claim and explaining, with reasonable specificity,
the reasons why the receiving Party believes it does not have the any liability
to the delivering Party for all or a portion of the Claims specified in the
Notice of Claim.
Section 7.3 TERMINATION OF RIGHTS HEREUNDER. Notwithstanding any other
provision hereof (but subject to the provisions of Section 7.1 above), no Claim
may be made or lawsuit instituted under the provisions of this Article VII,
except for Reserved Claims (as defined below), after the Survival Date.
"Reserved Claims" shall mean any Purchaser Claims or Selling Party Claims which
have been asserted, in accordance with this Article VII, within the applicable
periods set forth herein.
Section 7.4 INDEMNIFICATION OF PURCHASER AND MERGER SUB. By their
approval of this Agreement and the Merger and by their acceptance of any Merger
Consideration, each of the Selling Parties agrees, subject to the terms and
conditions set forth herein, to jointly and severally indemnify and hold
harmless each of Purchaser, Merger Sub, the Surviving Corporation, each of their
respective subsidiaries and affiliates and each of their and their subsidiaries'
and affiliates' respective directors, officers, agents and employees (each an
indemnified party) at all times from and after the Closing from and against all
Damages (as defined below) that results from (i) the breach or inaccuracy of any
representation or warranty of the Seller or the Selling Parties set forth in the
Agreement or in any certificate or other document delivered pursuant to this
Agreement with respect to which a claim for indemnification is brought by an
indemnified party within the applicable survival period described in this
Article VII, (ii) any breach or nonfulfillment by Seller or the Selling Parties,
or any noncompliance by
38
Seller or the Selling Parties with, any covenant, agreement, or obligation
contained herein or in any certificate or other document delivered pursuant to
this Agreement, or (iii) resulting from the assertion of any rights by
Dissenting Shareholders (the "Dissenter Claims"), except to the extent waived in
writing by Purchaser, regardless of whether an action, suit or proceeding can or
has been made against the Purchaser, Merger Sub or Surviving Corporation, and
any and all actions, suits and proceedings resulting from any of the foregoing
(hereinafter called a "Purchaser Claim" or "Purchaser Claims").
Section 7.5 INDEMNIFICATION BY PURCHASER. Purchaser agrees, subject to
the terms and conditions set forth herein, to indemnify, defend, protect, and
hold harmless the Selling Parties from and after the Closing from and against
all Damages (i) that result from the breach or inaccuracy of any representation
or warranty of Purchaser or Merger Sub set forth in the Agreement or in any
certificate or other document delivered pursuant to this Agreement with respect
to which a claim for indemnification is brought by an indemnified party within
the applicable survival period described in this Article VII, or (ii) any breach
or nonfulfillment by Purchaser, or any noncompliance by Purchaser with, any
covenant, agreement, or obligation contained herein or in any certificate or
other document delivered pursuant to this Agreement except to the extent waived
in writing by the Shareholder Representative, and any and all actions, suits and
proceedings resulting from any of the foregoing (hereinafter called a "Selling
Party Claim" or "Selling Party Claims"). Purchaser Claims and Selling Party
Claims are sometimes collectively referred to herein as "Claims".
Section 7.6 MATTERS INVOLVING THIRD PARTIES.
a. In the event any claim is made, suit is brought or
other proceeding is instituted against Purchaser or the Surviving Corporation,
or any of their present, past or future respective directors, officers,
subsidiaries or affiliates which involves or appears reasonably likely to
involve a Purchaser Claim for which indemnification may be sought against the
Selling Parties hereunder, Purchaser will, promptly (and in any event within
fifteen (15) Business Days) after receipt of notice of any such claim, suit or
proceeding, notify the Shareholder Representative of the commencement thereof.
The failure to so notify the Shareholder Representative of the commencement of
any such claim, suit or proceeding will relieve the Selling Parties from
liability only to the extent that such failure adversely affects the ability of
the Shareholder Representative to defend their interests in such claim, action
or proceeding. Purchaser's notice to the Shareholder Representative of the
commencement of a claim, suit or proceeding shall be followed by a statement of
Purchaser's position, together with the reasons therefor, with respect to the
condition set forth in clause (iv) of this Section 7.6 a. within fifteen (15)
Business Days of the delivery of such initial notice to the Shareholder
Representative regarding such claim, suit or proceeding. The Shareholder
Representative (at the expense of the Selling Parties) shall have the right and
shall be given the opportunity to assume and control the defense of such claim,
suit or proceeding with counsel of their choice reasonably satisfactory to
Purchaser so long as (i) the Shareholder Representative notifies the indemnified
party in writing within 30 days after the indemnified party has given notice of
such claim that the Selling Parties will indemnify the indemnified party from
and against the entirety of any damages the indemnified party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by such
claim, (ii) the Shareholder Representative provides the indemnified party with
evidence reasonably acceptable to the indemnified party that the Selling Parties
will have the financial
39
resources to defend against such claim and fulfill their indemnification
obligations hereunder, (iii) such claim involves only money damages and does not
seek an injunction or other equitable relief, (iv) settlement of, or an adverse
judgment with respect to, such claim is not, in the reasonable judgment of
Purchaser, likely to establish a precedential custom or practice materially
adverse to the continuing business interests of the indemnified party and the
indemnified party conducts the defense of such claim actively and diligently,
and (v) the Shareholder Representative conducts the defense of such claim
actively and diligently; provided, however, that Purchaser and its counsel (at
Purchaser's expense) may participate in (but not control the conduct of) all
matters pertaining to the defense or settlement of such claim, suit or
proceeding at Purchaser's expense. Whether or not the Shareholder Representative
elects to assume such defense, Purchaser shall not, except at its own cost, make
any settlement with respect to any such claim, suit or proceeding without the
prior written consent of the Shareholder Representative which shall not be
unreasonably withheld, conditioned or delayed. If Purchaser elects to assume the
defense of a claim, the Shareholder Representative and its counsel (at the
Selling Parties' expense) may participate in (but not control the conduct of)
all matters pertaining to the defense or settlement of such claim, suit or
proceeding. Purchaser's consent to the settlement of any such claim, suit or
proceeding by the Shareholder Representative shall be required and shall not be
unreasonably withheld or delayed, but such consent shall not be required if (or
to the extent that) such settlement only requires the payment of a monetary
amount and includes a full release of claims against Purchaser and does not
include a statement as to or admission of fault, culpability or failure to act
by or on behalf of Purchaser. Notwithstanding anything to the contrary set forth
herein, IBF shall (at its sole cost and expense) assume and control the defense
of any Dissenter Claim with counsel of its choice; provided, however, that IBF
shall not settle any Dissenter Claim which requires the payment by the Company
of any consideration to a Dissenting Shareholder (other than the Merger
Consideration) unless specific provision shall have been made in such settlement
for IBF to be solely responsible for any such payment.
b. In the event any of the conditions in Section 7.6
a. above is or becomes unsatisfied, or if the Shareholder Representative has
elected not to conduct the defense of the claim (i) the indemnified party may
defend against, and consent to the entry of any judgment or enter into any
settlement with respect to, such claim in any manner it may deem appropriate;
provided, however, that Purchaser shall not, except at its own cost, make any
settlement with respect to any such claim, suit or proceeding without the prior
written consent of the Shareholder Representative (which consent shall not be
unreasonably withheld, conditioned or delayed) if such settlement would entitle
the indemnified party to be paid monetary damages by the Selling Parties or if
such settlement would contain any covenant or restriction that would prohibit or
restrict the operation of the Selling Parties' respective business or the
business of any affiliate of such Selling Parties, (ii) the Selling Parties will
reimburse the indemnified party promptly and periodically for the costs of
defending against such claim (including attorneys' fees and expenses), and (iii)
the Selling Parties will remain responsible for any damages the indemnified
party may suffer resulting from, arising out of, relating to, in the nature of,
or caused by such claim to the fullest extent provided in this Article VII.
c. In the event any claim is made, suit is brought or
other proceeding is instituted against a Shareholder, which involves or appears
reasonably likely to involve a Selling Party Claim for which indemnification may
be sought against Purchaser hereunder, the Shareholder Representative will,
promptly (and in any event within fifteen (15) Business Days)
40
after receipt of notice of any such claim, suit or proceeding by a Shareholder,
notify Purchaser of the commencement thereof. The failure to so notify Purchaser
of the commencement of any such claim, suit or proceeding will relieve Purchaser
from liability only to the extent that such failure adversely affects the
ability of Purchaser to defend its interests in such claim, action or
proceeding. The Shareholder Representative's notice to the Purchaser of the
commencement of a claim, suit or proceeding shall be followed by a statement of
the Shareholder Representative's position, together with the reasons therefor,
with respect to the condition set forth in clause (iv) of this Section 7.6 c.
within fifteen (15) Business Days of the delivery of the initial notice to the
Purchaser regarding such claim, suit or proceeding. Purchaser (at Purchaser's
expense) shall have the right and shall be given the opportunity, to assume and
control the defense of such claim, suit or proceeding with counsel of its choice
reasonably satisfactory to the Shareholder Representative so long as (i)
Purchaser notifies the indemnified party in writing within 30 days after the
indemnified party has given notice of such claim that Purchaser will indemnify
the indemnified party from and against the entirety of any damages the
indemnified party may suffer resulting from, arising out of, relating to, in the
nature of, or caused by such claim, (ii) the Purchaser provides the indemnified
party with evidence reasonably acceptable to the indemnified party that the
Purchaser will have the financial resources to defend against such claim and
fulfill its indemnification obligations hereunder, (iii) such claim involves
only money damages and does not seek an injunction or other equitable relief,
(iv) settlement of, or an adverse judgment with respect to, such claim is not,
in the reasonable judgment of the Shareholder Representative, likely to
establish a precedential custom or practice materially adverse to the continuing
business interests of the indemnified party and the indemnified party conducts
the defense of such claim actively and diligently, and (v) Purchaser conducts
the defense of such claim actively and diligently; provided, however that the
Shareholder Representative, on behalf of the Selling Parties, and its counsel
(at the Selling Parties' expense) may participate in but not control the conduct
of, all matters pertaining to the defense or settlement of such claim, suit or
proceeding at the Selling Parties' expense. Whether or not Purchaser elects to
assume such defense, the Shareholder Representative, on behalf of the Selling
Parties, shall not, except at its own cost, make any settlement with respect to
any such claim, suit or proceeding without the prior written consent of
Purchaser (which consent shall not be unreasonably withheld, conditioned or
delayed). If the Shareholder Representative elects to assume the defense of a
claim, the Purchaser and its counsel (at Purchaser's expense) ay participate in
(but not control the conduct of) all maters pertaining to the defense or
settlement of such claim, suit or proceeding. The Shareholder Representative's
consent to the settlement of any such claim, suit or proceeding by Purchaser
shall be required and shall not be unreasonably withheld or delayed, but such
consent shall not be required if (or to the extent that) such settlement only
requires the payment of a monetary amount and includes a full release of claims
against the Selling Parties and does not include a statement as to or admission
of fault, culpability or failure to act by or on behalf of any Shareholder.
d. In the event any of the conditions in Section 7.6
c. above is or becomes unsatisfied, or if Purchaser has elected not to conduct
the defense of the claim (i) the indemnified party may defend against, and
consent to the entry of any judgment or enter into any settlement with respect
to, such claim in any manner it may deem appropriate; provided, however, that
the indemnified party shall not, except at its own cost, make any settlement
with respect to any such claim, suit or proceeding without the prior written
consent of the Purchaser (which consent shall not be unreasonably withheld,
conditioned or delayed) if such settlement
41
would entitle the indemnified party to be paid monetary damages by Purchaser or
if such settlement would contain any covenant or restriction that would prohibit
or restrict the operation of Purchaser's business or the business of any
affiliate of Purchaser, (ii) the Purchaser will reimburse the indemnified party
promptly and periodically for the costs of defending against such claim
(including attorneys' fees and expenses), and (iii) the Purchaser will remain
responsible for any damages the indemnified party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by such claim to the
fullest extent provided in this Article VII.
Section 7.7 DEFINITION OF DAMAGES. For purposes of this Article VII,
the term "Damages" shall mean the amount of any loss, claim, demand, damage,
deficiency, assessment, judgment, remediation, cost or expense (including
reasonable attorneys', consultants' and experts' fees and expenses) actually
incurred, less the sum of any amount recovered under an insurance policy carried
by the party or parties seeking indemnification. In the event the indemnifying
party pays a claim and the indemnified party subsequently receives insurance
proceeds with respect to such claim, the indemnified party shall pay the
indemnifying party such insurance proceeds up to the amount actually paid by the
indemnifying party. The indemnified party shall be required to use its
commercially reasonable efforts to seek and obtain such insurance proceeds as
quickly as practicable.
Section 7.8 LIMITATIONS. Notwithstanding any other provisions of the
Article VII:
a. LIMITATION ON PURCHASER'S INDEMNIFICATION RIGHTS.
The Purchaser's rights to indemnification under this Article VII shall be
limited as follows:
(i) The amount of any Damages incurred by
the Purchaser shall be reduced by the net amount the Purchaser or the Surviving
Corporation actually recovers (after deducting all attorneys' fees, expenses,
and other costs of recovery) from any insurer or other party liable for such
Damages, and the Purchaser shall use reasonable efforts to effect any such
recovery;
(ii) The Purchaser shall be entitled to
indemnification for a breach of any of the representations and warranties
contained in Article II above, only to the extent that the aggregate amount of
such Damages exceeds $150,000 and only for Damages in excess of such amount,
subject to a maximum liability of the Selling Parties under this Article VII
equal to the Indemnity Holdback (the "Indemnification Cap"); provided, however,
that that any Damages shall be satisfied first out of the Holdback Cash, then
out of the Holdback Units and then out of any other property held in the Escrow
Account;
(iii) The limitations set forth in this
Section 7.8 shall not apply to Purchaser Claims which are Dissenter Claims; and
(iv) To the extent that there is a Working
Capital Adjustment made at Closing in favor of Purchaser with respect to matters
that would otherwise constitute a breach of representations and warranties under
Section 2.19 or 2.23 of this Agreement, the Damages with respect to any such
breach shall be limited to the portion of the Damages in excess of the amount of
the Working Capital Adjustment received by Purchaser.
42
b. LIMITATION ON SELLING PARTIES INDEMNIFICATION
RIGHTS. The Selling Parties' rights to indemnification under this Article VII
shall be limited as follows:
(i) The amount of any Damages incurred by
the Selling Parties shall be reduced by the net amount the Selling Parties
actually recover (after deducting all attorneys' fees, expenses, and other costs
of recovery) from any insurer or other party liable for such loss, liability or
damage, and the Selling Parties shall use reasonable efforts to effect any such
recovery; and
(ii) The Selling Parties shall be entitled
to indemnification only to the extent that the aggregate amount of such Damages
exceeds $150,000 and only for Damages in excess of such amount, subject to a
maximum liability of the Purchaser under this Article VII equal to $3,000,000.
Section 7.9 EXCLUSIVITY. From and after the Closing Date and except for
injunctive relief or other equitable proceedings, including without limitation,
claims with respect to the breach of any covenant, agreement or obligation of
Seller or the Selling Parties which contemplates performance subsequent to the
Survival Date, the indemnification provided by this Article VII shall be the
exclusive remedy of the Selling Parties, the Purchaser, Merger Sub, the
Surviving Corporation and the Company for any claims arising out of this
Agreement.
ARTICLE VIII.
Definitions
-----------
As used herein, the following terms have the following
meanings:
ACTIONS: Any action, suit, litigation, arbitration, proceeding
or hearing conducted or heard by or before, or otherwise involving, any court or
other governmental or regulatory agency or authority or any arbitrator or
arbitration panel.
BUSINESS DAY: Monday through Friday of each calendar week but
excluding federal holidays and California and New York bank holidays.
CODE: The Internal Revenue Code of 1986, as amended, and all
rules and regulations promulgated thereunder.
COMPANY'S BUSINESS: The business, activities, interests,
assets and properties of the Company as of the applicable date.
COMPANY'S FINANCIAL STATEMENTS: The financial statements of
the Company as of December 31, 2003 and for the year then ended, including a
consolidated balance sheet, a consolidated statement of income, a consolidated
statement of changes in shareholders' equity and a consolidated statement of
cash flows, together with the notes to such financial statements; and the
Company's Interim Financial Statements.
43
COMPANY'S INTERIM FINANCIAL STATEMENTS: The financial
statements of the Company as of October 31, 2004 and for the ten (10) months
then ended including a consolidated balance sheet, a consolidated statement of
income, a consolidated statement of changes in shareholders' equity and a
consolidated statement of cash flows.
CONFIDENTIALITY AGREEMENT: Collectively, the Agreements dated
September 27, 2004 and November 17, 2004, between the Purchaser and the Company,
relating to disclosure and treatment of confidential information.
COURT APPROVAL: The entry of a final non-appealable order of
the United States Bankruptcy Court for the Southern District of New York
approving of the execution and delivery of this Agreement on behalf of the
Seller and of the transactions contemplated hereby in form and substance
acceptable to the Parties.
EBITDA: Shall mean for a given entity and for a given period,
the consolidated net income (or net loss) of such entity and its subsidiaries
for such period, plus any interest expense, income taxes, depreciation,
amortization, and extraordinary expenses or losses deducted in determining the
same, and minus any interest income or extraordinary income included in
determining the same, all computed in accordance with GAAP.
ENVIRONMENTAL LAWS: Any federal, state or local laws, rules or
regulations relating to pollution or protection of the environment (including
ambient air, surface water, ground water, land surface or subsurface strata),
including but not limited to any law or regulation relating to emissions,
discharges or releases of chemicals, pollutants, contaminants, wastes, toxic
substances, petroleum and petroleum products or otherwise relating to the
manufacture, processing, distribution, importation, use, treatment, storage,
disposal, transport or handling of chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum and petroleum products.
GAAP: Generally accepted accounting principles, consistently
applied.
HAZARDOUS MATERIALS: Materials that meet the following
criteria: (i) any solid, liquid, gas, or combination thereof, including but not
limited to asbestos or asbestos-containing materials, vinyl chloride or
chlorofluorocarbons, that may impair the natural environment, injure or damage
property or plant or animal life, harm or impair the health of any individual,
or endanger individual safety, public health and safety, or employee health,
which is (ii) regulated by or the subject of any Environmental Law.
INDEPENDENT ACCOUNTANT: a "big 4" or regional accounting firm
selected by Purchaser and reasonably acceptable to the Shareholder
Representative that has not provided any services to Purchaser (or its
subsidiaries, including the Company) or IBF in the twelve (12) months preceding
its engagement.
INTELLECTUAL PROPERTY: shall mean all material intellectual
property in which the Company has any right, title, or interest (including a
licensed right) and which is being used, exploited, or commercialized by the
Company in the conduct of the Company's Business, including but not limited to
all patents, trademarks, service marks copyrights, whether registered
44
or unregistered, foreign or domestic, and all proprietary or trade secret
information of the Company.
KEY MANAGERS: shall mean ▇▇▇▇▇▇▇ Verde and ▇▇▇▇▇▇▇ ▇▇▇▇▇.
LAW: shall mean any foreign, federal, state or local law,
rule, ordinance, ruling or regulations.
MATERIAL ADVERSE CHANGE OR MATERIAL ADVERSE EFFECT: When used
with reference to any entity means any fact, event, change, violation,
inaccuracy, circumstance or effect that is or is reasonably likely to be,
individually or in the aggregate, materially adverse to the business, financial
condition, properties, assets, or results of operations of such entity and its
subsidiaries, taken as a whole. Notwithstanding anything to the contrary
contained in this paragraph, none of the following shall be deemed, singly or in
the aggregate, to constitute a Material Adverse Effect or Material Adverse
Change: (a) any adverse change, effect, event, violation, inaccuracy,
circumstance, state of facts or development resulting from or relating to
(directly or indirectly) any of the following: (i) out-of-pocket fees and
expenses (including legal, accounting, investment banking and other fees and
expenses) incurred in connection with the transactions contemplated by this
Agreement; (ii) compliance by Company with the terms of, or the taking of any
action required or contemplated by, this Agreement; or (iii) any change in
accounting requirements or principles or any change in applicable laws, rules or
regulations or the interpretation thereof.
OPTION HOLDERS: shall mean the holders of any Company Options.
PARTIES: The parties to this Agreement, consisting of the
Company, Purchaser, Merger Sub and IBF.
PERMITS: Any permit, registration, qualification or
authorization granted or issued by a federal, state, local or foreign
governmental authority.
PROHIBITED TRANSACTION. A transaction regarding the sale,
transfer or disposition of the business of the Company, the sale of any material
amount of equity securities of the Company (other than pursuant to employee
stock incentive plans) by the Company or the Shareholders, or the sale, transfer
or disposition of any of the Company's assets, outside of the ordinary course of
the Company's Business, the merger, consolidation or reorganization of the
Company or the Seller, the result of which is that the shareholders of either of
such entities immediately prior to the execution of such agreement do not
constitute a majority of the shareholders of either such entities immediately
following the consummation of such transaction.
SELLER DEBT. The aggregate indebtedness of the Company to IBF
and its direct or indirect subsidiaries and affiliates (other than the Company),
and their respective successors, assigns or transferees, pursuant to all notes,
credit facilities, loan agreements or arrangements of any kind between the
Company, as debtor, and the IBF or its direct or indirect subsidiaries and
affiliates (other than the Company), as lender or creditor, including any
indebtedness originally in favor of IBF and/or its direct or indirect
subsidiaries and affiliates that was subsequently transferred or assigned to any
other person or entity.
45
SELLING PARTIES: The Shareholders of the Company as of the
Closing Date, other than holders of Dissenting Shares, that are entitled to
receive any portion of the Merger Consideration; provided, however, that to the
extent that, at or following the Closing, IBF elects to transfer and assign any
portion of the Merger Consideration it receives to either or both of the Key
Managers, the Key Managers will not be considered Selling Parties solely as a
result of such transfer or assignment.
SUNSET COMMON. The common stock, par value $.001 per share, of
Sunset Brands, Inc.
TAXES: All income taxes, franchise taxes, withholding taxes,
unemployment insurance, social security, sales and use taxes, excise taxes,
acquisition taxes, real and personal property taxes, stamp taxes, transfer taxes
and workers' compensation taxes, together with all interest and penalties
payable with respect thereto.
2004 AUDITED EBITDA: The EBIDTA of the Company as reported in
the 2004 Audited Financials less the dollar amount of any Company Bonuses (other
than Accrued Bonuses) not paid by IBF at Closing or terminated and waived at or
prior to Closing by the persons entitled to receive such Company Bonuses.
2004 AUDITED FINANCIALS. The audited balance sheet, statement
of operations and cash flow statement of the Company, as of and for year ended
December 31, 2004, along with the notes thereto and the report of the Company's
independent certified accountant.
WORKING CAPITAL. The Company's current assets less its current
liabilities calculated in accordance with GAAP consistently applied; provided,
however, that under no circumstances shall any liabilities relating to the
Broker Fees or any fees or expenses (including, without limitation, the fees and
expenses of attorneys' and accountants to the Seller) required to be paid by
persons or entities other than the Company pursuant to the terms of this
Agreement be included in any calculation of Working Capital.
ARTICLE IX.
TERMINATION OF AGREEMENT
------------------------
Section 9.1 RIGHT TO TERMINATE AGREEMENT. This Agreement may be
terminated prior to the Closing:
a. by mutual agreement of the Seller and Purchaser;
b. by any non-breaching Party hereto if a material
breach of any material provision of this Agreement has been committed by the
other party and such breach has not been waived or cured by the non-breaching
Parties within twenty (20) Business Days following written notice thereof from
the non-breaching party;
46
c. by Purchaser at any time after April 15, 2005 (the
"Expiration Date") in the event that the conditions to be satisfied by the
Selling Parties set forth in Section 6.2 or any of the conditions set forth in
Section 6.4 have not been satisfied or waived by the Purchaser, unless such
failure is as a direct result of the Purchaser's actions or failure to act;
d. by Seller at any time after the Expiration Date in
the event that the conditions to be satisfied by the Purchaser set forth in
Sections 6.2 or any of the conditions set forth in Section 6.3 have not been
satisfied or waived by the Seller, unless such failure is as a direct result of
the Seller or any Selling Parties' actions or failure to act;
e. by Seller if Purchaser fails to timely deliver the
Deposit to the Escrow Agent in accordance with the requirements of Section 1.7
of this Agreement; or
f. by Seller if (i) all the conditions to be
satisfied by the Selling Parties set forth in Section 6.2 and the conditions set
forth in Section 6.4 have been satisfied, and (ii) Purchaser does not have cash
or other financing commitments (which financing commitments may be contingent
upon Closing in accordance with the terms of this Agreement) by the Expiration
Date.
Section 9.2 EFFECT OF TERMINATION. Upon the termination of this
Agreement pursuant to Section 9.1:
a. Purchaser, on the one hand, and Seller, on the
other hand, shall promptly cause to be returned to the other all documents and
information obtained in connection with this Agreement and the proposed
transactions contemplated hereby (including documents and information obtained
in connection with Purchaser's or Seller's, as the case may be, investigation of
the other. Unless such termination is pursuant to Section 9.1 f. hereof,
Purchaser shall be entitled to the delivery of the ▇▇▇▇▇▇▇ Money from the Escrow
Agent upon its demand therefor;
b. unless the termination is a result of a material
breach by either party hereto or their obligations hereunder (other than
termination resulting from a breach of Purchaser's obligations to make the
Deposit pursuant to Section 1.7 of this Agreement), neither party shall have any
obligation or liability to the other party hereunder (except for obligations of
IBF pursuant to Section 5.10 hereof and the obligations of the Purchaser
pursuant to Section 9.2 f.);
c. if this Agreement is terminated by Purchaser
because of any material breach of any covenant or obligation contained in this
Agreement by the Seller or any Selling Parties or because one or more of the
conditions to the Purchaser's obligations under this Agreement is not satisfied
as a result of the Seller's or Selling Parties' failure to comply with its
obligations under this Agreement, the Purchaser's right to pursue all legal
remedies will survive such termination unimpaired; and
d. Notwithstanding anything to the contrary contained
elsewhere herein, in the event that this Agreement is terminated and the
conditions to payment of the Break-Up Fee specified in Section 5.10 of this
Agreement are satisfied, then, the Purchaser may in its sole discretion elect to
receive in cash from IBF as liquidated damages, in addition to any
47
rights or remedies it may have pursuant to Section 9.2 b. above, the Break-Up
Fee. Such Break-Up Fee shall be payable in cash on the earlier of (i)
immediately prior to the closing of any Prohibited Transaction, or (ii) no later
than five (5) Business Days after receipt by the Seller of Purchaser's demand
therefore including reasonable documentation of its out of pocket fees and
expenses.
e. So long as all of the conditions to Purchaser's
obligation to close pursuant to Sections 6.2 and 6.4 have been satisfied, in the
event this Agreement is terminated by the Seller pursuant to Section 9.1 f.
above, then the Company shall be entitled to receive the ▇▇▇▇▇▇▇ Money from the
Escrow Agent.
THE PARTIES AGREE THAT THE AMOUNT OF ACTUAL DAMAGES WHICH THE
COMPANY WOULD SUFFER AS A RESULT OF PURCHASER'S FAILURE TO
PERFORM AND SELLER'S TERMINATION OF THE AGREEMENT AS SPECIFIED
IN SECTION 9.2 E. OF THIS AGREEMENT WOULD BE EXTREMELY
DIFFICULT TO DETERMINE AND HAVE AGREED THAT THE AMOUNT OF THE
▇▇▇▇▇▇▇ MONEY IS A REASONABLE ESTIMATE OF THE COMPANY'S
DAMAGES AND IS INTENDED TO CONSTITUTE A FIXED AMOUNT OF
LIQUIDATED DAMAGES IN LIEU OF OTHER REMEDIES AVAILABLE TO THE
SELLER AND IS NOT INTENDED TO CONSTITUTE A PENALTY. UPON THE
FULL AND COMPLETE PAYMENT OF THE ▇▇▇▇▇▇▇ MONEY TO THE COMPANY,
PURCHASER WILL BE DISCHARGED FROM ANY FURTHER OBLIGATIONS AND
LIABILITIES UNDER THIS AGREEMENT.
PURCHASER'S INITIALS ____ SELLER'S INITIALS ____
f. In the event this Agreement is terminated by the
Seller pursuant to Section 9.1 f. and the Company is entitled to receive the
▇▇▇▇▇▇▇ Money pursuant to Section 9.2 e., the Company (and any person(s) or
entit(ies) to whom the Deposit Shares are thereafter transferred; the Company
and such transferees are hereinafter referred to collectively as the "Holders"
and each, individually, as a "Holder") shall thereafter have the right from time
to time in their sole discretion to sell, by delivery of a written notice (the
"Put Notice") to Purchaser, and Purchaser shall be required to buy, the number
of Deposit Shares owned by the Holder(s) delivering the Put Notice and specified
in the Put Notice (such Deposit Shares to be purchased hereunder being referred
to collectively as the "Put Securities") at a price per share equal to $1.00.
The closing of any purchase of Put Securities by Purchaser from the Holders
pursuant to this Section 9.2 f. shall take place at the principal office of the
Company on such date as the Holders shall specify in the Put Notice. At such
closing, the applicable Holders shall deliver to Purchaser, against payment by
Purchaser of the purchase price for the Put Securities in cash (by delivery of a
certified check or check payable to each Holder in the amount to which such
Holder is entitled pursuant to this Section 9.2 f.), certificates and/or other
instruments representing, together with stock or other appropriate powers duly
endorsed with respect to, the Put Securities. All of the foregoing deliveries
will be deemed to be made simultaneously and none shall be deemed completed
until all have been completed.
48
ARTICLE X.
General Provisions
Section 10.1 MODIFICATION; WAIVER. This Agreement may be modified only
by a written instrument executed by the parties herein. Any of the terms and
conditions of this Agreement may be waived in writing at any time on or prior to
the Closing Date by the party entitled to the benefits thereof.
Section 10.2 ENTIRE AGREEMENT. This Agreement supersedes all other
prior agreements, understandings, representations and warranties, oral or
written, between the parties hereto in respect of the subject matter hereof,
except that this Agreement does not supersede the Confidentiality Agreement, the
terms and conditions of which the parties hereto expressly reaffirm.
Section 10.3 [Intentionally omitted]
Section 10.4 [Intentionally omitted]
Section 10.5 EXPENSES. Whether or not the transactions contemplated
herein shall be consummated, each party shall pay its own expenses incident to
the preparation and performance of this Agreement, provided, that IBF shall pay
the amount of the Company's fees, costs and expenses incurred in connection with
the transactions contemplated hereby in excess of $20,000.
Section 10.6 FURTHER ACTIONS. Each party shall execute and deliver such
certificates, agreements and other documents and take such other actions as may
reasonably be requested by the other party in order to consummate or implement
the transactions contemplated hereby.
Section 10.7 POST-CLOSING ACCESS. In connection with any matter
relating to any period prior to, or any period ending on, the Closing, the
Purchaser shall, upon the request and at the expense of the Seller, permit the
Seller and its representatives full access at all reasonable times to the books
and records of the Company and the Subsidiaries which shall have been
transferred to the Purchaser and the Purchaser shall execute (and shall cause
the Company to execute) such documents as the Seller may reasonably request to
enable the Seller to file any required reports or tax returns relating to the
Company. The Purchaser shall not dispose of such books and records during the
seven-year period beginning with the Closing Date without the Seller's consent,
which shall not be unreasonably withheld. Following the expiration of such
seven-year period, the Purchaser may dispose of such books and records at any
time upon giving 60 days prior written notice to the Seller, unless the Seller
agrees to take possession of such books and records within 60 days at no expense
to the Purchaser.
Section 10.8 NOTICES. All notices, requests, demands, and other
communications hereunder shall be in writing and shall be deemed to have been
duly given if delivered personally or mailed, registered mail, first-class
postage paid, return receipt requested, or any other delivery service with proof
of delivery or sent via facsimile (with confirmation of receipt) to the parties
at the following address (or at such other address for a part as shall be
specified by like notice);
if to the Seller:
49
IBF Fund Liquidating LLC
c/o ▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.
---------- Manager
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇ ▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
---------
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company:
U.S. ▇▇▇▇▇, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
▇▇▇▇▇ ▇▇▇▇ & ▇'▇▇▇▇▇▇▇▇, P.C.
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
Fax: (▇▇▇)▇▇▇-▇▇▇▇
if to the Purchaser, Merger Sub or the Surviving Corporation:
Sunset Brands, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to:
Jeffer, Mangels, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP
1900 Avenue of the Stars, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, Esq.
50
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Section 10.9 ASSIGNMENT. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns, but shall not be assignable, by operation of law or
otherwise, by any party hereto without the prior written consent of each of the
other parties.
Section 10.10 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall constitute one and the same instrument.
Section 10.11 HEADINGS. The article and section headings in this
Agreement are for convenience of reference only and shall not be deemed to alter
or affect the meaning or interpretation of any provision hereof.
Section 10.12 SEVERABILITY. If any provisions of this Agreement, or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be integrated so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
Section 10.13 GOVERNING LAW; EXCLUSIVE JURISDICTION; WAIVER OF JURY
TRIAL. This Agreement shall be construed, performed and enforced in accordance
with the laws of the State of Delaware. EACH OF THE PARTIES HERETO IRREVOCABLY
AND UNCONDITIONALLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW,
THE RIGHT TO TRIAL BY JURY IN ANY LEGAL OR EQUITABLE ACTION, SUIT OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED
HEREBY OR THE SUBJECT MATTER OF ANY OF THE FOREGOING.
51
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
U.S. ▇▇▇▇▇, INC., a Delaware corporation
By /s/ ▇▇▇▇▇▇▇ VERDE
------------------------------------
Name: ▇▇▇▇▇▇▇ Verde
Title: President
SUNSET BRANDS, INC., a Nevada
corporation
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: President and CEO
USM ACQUISITION SUB, INC., a
Delaware corporation
By /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
IBF FUND LIQUIDATING LLC,
individually and as Shareholder
Representative
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
Title: Manager
52
EXHIBIT A
ALLOCATION OF MERGER CONSIDERATION
----------------------------------
----------------------------------------- ----------------------- ---------------------- ----------------
NAME AND ADDRESS OF SELLING PARTY NUMBER AND CLASS OF NUMBER OF OPTIONS DISTRIBUTION
COMPANY SHARES OWNED PERCENTAGE
----------------------------------------- ----------------------- ---------------------- ----------------
See Section 2.4 of None 100%
IBF Fund Liquidating LLC the Seller's
c/o ▇▇▇▇ ▇▇▇▇▇▇▇ LLP Disclosure Schedule
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.,
---------
Manager
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
----------------------------------------- ----------------------- ---------------------- ----------------
TOTAL: 100%
----------------------------------------- ----------------------- ---------------------- ----------------
53
EXHIBIT B
Form Investor Rights Agreement
54