EXHIBIT 2.2
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), is made this 29th
day of May, 2003, by and among The TAG Group, Inc., a Delaware corporation (the
"ACQUIROR"); TAG Acquisition Corp., a Florida corporation and wholly owned
subsidiary of the Acquiror (the "SUBSIDIARY"); Convey Systems, Inc., a Delaware
corporation (the "ACQUIREE"); River Cities Capital Fund II Limited Partnership
("RIVER CITIES"), Convergys Corporation ("Convergys"), and HV Equity
Investments, LLC ("HV") (River Cities, Convergys, and HV being referred to
collectively herein as the "PRINCIPAL STOCKHOLDERS").
RECITALS
A. The Principal Stockholders are the holders of record of shares of
the Acquiree's Series B convertible preferred stock (the "SERIES B STOCK")
representing in the aggregate 58.43% of Acquiree's issued and outstanding
equity.
B. River Cities is a holder of record of (i) shares of Series B Stock,
(ii) warrants to purchase Series B Stock issued in connection with the Notes
described below (the "WARRANTS") and (iii) 10% Senior Secured Convertible Notes
(collectively, the "NOTES").
C. The Subsidiary is a direct wholly-owned subsidiary of the Acquiror.
D. The Acquiror is a privately held Delaware corporation; however,
prior to the Closing (as defined below), the Acquiror intends to merge Acquiror
(the "PUBLIC MERGER") with and into a company (the "PUBLIC COMPANY") with a
class of securities registered under the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"). Thus, the Acquiror will ultimately be a fully
reporting company with a class of securities registered under the Exchange Act.
E. Subsequent to the Public Merger, the Acquiree intends to merge with
and into the Subsidiary, which will be the surviving corporation, and pursuant
to which the Principal Stockholders and ▇▇▇▇▇ ▇. ▇▇▇▇▇, as the only other holder
of Series B Stock (the Principal Stockholders and ▇▇▇▇▇ ▇. ▇▇▇▇▇, the "Series B
Stockholders") will exchange their securities for preferred stock of the
Acquiror which will be convertible into shares of common stock of the Acquiror
(the "ACQUIROR COMMON STOCK") and the remaining equity of Acquiree will be
canceled (the "MERGER").
F. The parties intend for the Merger to qualify as a tax-free exchange
pursuant to Section 368 of the Internal Revenue Code of 1986, as amended;
however, neither party is seeking tax counsel or legal or accounting opinions or
Internal Revenue Service determination as to whether the transaction qualifies.
AGREEMENT
In consideration of the mutual promises contained and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties to this Agreement agree as follows:
ARTICLE I
BASIC TRANSACTION
1.1 THE MERGER. Subject to the terms and conditions herein below set forth, the
applicable provisions of the Florida Business Corporation Act ("FBCA") and the
Delaware General Corporation Law ("DGCL") and the Certificate of Merger in a
form satisfactory to the parties, on the Closing Date (as defined in Section 1.6
hereof), the Acquiree shall be merged with and into the Subsidiary and, in
connection therewith:
(a) except to the extent provided or permitted by the applicable
law, the separate existence of the Acquiree shall cease and
terminate;
(b) the Subsidiary, as the surviving corporation, which shall,
effective with the Merger, change its name to Convey Systems,
Inc., shall continue its corporate existence under the laws of
the State of Florida and shall possess all of the rights,
privileges, immunities, powers, franchises and authority (both
public and private) of, and be subject to all of the
restrictions, disabilities, obligations and duties of, the
Acquiree;
(c) all of the assets and property of the Acquiree of every kind,
nature and description (real, personal, and intellectual and
mixed and both tangible and intangible) and every interest
therein, wheresoever located, including, without limitation,
all debts or other obligations belonging or due to the
Acquiree, all claims and all causes of action, shall be, and
be deemed to be, vested, absolutely and unconditionally, in
the Subsidiary (to the same extent, degree and manner as
previously vested in the Acquiree); and
(d) all debts and obligations of the Acquiree, all rights of
creditors of the Acquiree and all liens or security interests
encumbering any of the property of the Acquiree shall be
vested in the Subsidiary and shall remain in full force and
effect without modification or impairment and shall be, and be
deemed to be, enforceable against the Subsidiary and its
assets and properties with the same full force and effect as
if such debts, obligations, liens or security interests had
been originally incurred or created by the Subsidiary in its
own name and for its own behalf. Without limiting the
generality of the foregoing, the Subsidiary specifically
assumes all continuing obligations for which the Acquiree
would otherwise have to indemnify its officers and directors,
to the fullest extent currently provided in the Subsidiary's
Certificate of Incorporation, By-Laws and pursuant to the
DGCL, with respect to any and all claims arising out of
actions taken or omitted by such officers and directors prior
to the Closing Date.
1.2 EXCHANGE OF SECURITIES. On the terms and subject to the conditions set forth
in this Agreement, on the Closing Date, all of the issued and outstanding
securities of the Acquiree (including common stock, all classes of preferred
stock, warrants and convertible securities) (the "ACQUIREE SECURITIES") on such
date shall be exchanged for the right to receive 180,741 shares of preferred
stock of the Acquiror (the "SHARES") which will be convertible into an aggregate
of 2,250,000 shares of Acquiror Common Stock (post-Reverse Stock Split described
in Section
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7.2(e) below). Pursuant to instructions from Acquiree and based on the relative
rights, preferences and designations of Acquiree's securities, the Shares shall
be issued to the securityholders of the Acquiree (the "ACQUIREE
SECURITYHOLDERS") in the following manner: (a) the Notes shall convert into the
right to receive 58,247.28 Shares, (b) the Warrants shall convert into the right
to receive 78,615.43 Shares, (c) the shares of Series B Stock shall convert into
the right to receive 43,878 Shares in the aggregate, and (d) no other class or
series of the Acquiree Securities shall be entitled to receive any Shares.
Schedule 1.2 sets forth the names of each Acquiree Securityholder, the number
and class of the Acquiree Securities owned by each and the number of Shares(and
the number of shares of Acquiror Common Stock into which such Shares shall be
converted) to which the Acquiree Securityholder shall be entitled based on the
relative rights, preferences and designations of Acquiree's securities. The
Shares shall be appropriately adjusted to take into account any stock split,
stock dividend, reverse stock split, recapitalization, or similar change in the
Acquiror Common Stock or the Shares that may occur between the date of this
Agreement and the Closing Date.
1.3 FILING OF CERTIFICATE OF MERGER; EFFECTIVE TIME. In connection with the
Closing, the parties hereto shall cause the Merger to be consummated by filing
the Certificate of Merger with the Secretary of State of the States of Delaware
and Florida in accordance with the relevant provisions of the DGCL and FBCA. The
Merger shall become effective at the time (the "EFFECTIVE TIME") and date on
which the Certificate of Merger has been duly filed with the Secretary of State
of Florida or such time and date as agreed upon by the Parties and specified in
the Certificate of Merger.
1.4 CONSTITUTIONAL DOCUMENTS, DIRECTORS AND OFFICERS. On and as of the Closing
Date:
(a) The Articles of Incorporation of the Subsidiary on such date
in full force and effect shall be the Articles of
Incorporation of the Subsidiary, as the surviving corporation,
until the same shall be altered, amended, modified, terminated
or rescinded in the manner provided by the FBCA, which rights
of alteration, amendment, modification, termination and/or
rescission are hereby expressly reserved by the Subsidiary;
(b) The By-Laws of the Subsidiary on such date in full force and
effect shall be the By-Laws of the Subsidiary, as the
surviving corporation, until the same shall be altered,
amended, modified, terminated or rescinded in the manner
provided in the Articles of Incorporation of the Subsidiary
and/or the FBCA, which rights of alteration, amendment,
modification, termination and/or rescission are hereby
expressly reserved by the Subsidiary; and
(c) The officers and directors of the Subsidiary shall be
appointed and elected by the Acquiror, who shall serve as
provided in the By-Laws of the Subsidiary. Notwithstanding the
foregoing, the parties hereto hereby agree that, within thirty
(30) days after the Closing Date, ▇▇▇▇ ▇▇▇▇▇▇ shall be
appointed and elected as an executive officer of the
Subsidiary to serve at the pleasure of the Board of Directors.
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1.5 OPERATION AS WHOLLY-OWNED SUBSIDIARY. After giving effect to the transaction
contemplated hereby, the Subsidiary will be a wholly-owned subsidiary of
Acquiror operating under the name Convey Systems, Inc. or such other name
selected by the stockholders and management of the Subsidiary.
1.6 CLOSING AND PARTIES. The closing contemplated by this Agreement ("CLOSING")
shall be held at a mutually agreed upon time and place on or before August 31,
2003, or on another date to be agreed to in writing by the parties (the "CLOSING
DATE"). The Closing may be accomplished by wire, express mail, overnight
courier, conference telephone call or as otherwise agreed to by the respective
parties or their duly authorized representatives.
1.7 CLOSING EVENTS.
(a) Acquiror Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article VI, the Acquiror shall deliver to the
Acquiree at Closing all the following:
(i) Certificates of good standing from the Secretary of State
of the State of Delware and Florida, issued as of a date within ten
(10) days prior to the Closing Date, certifying that Acquiror and the
Subsidiary, respectively, are in good standing as corporations in their
state of incorporation;
(ii) Incumbency and specimen signature certificates dated the
Closing Date with respect to the officers of Acquiror and the
Subsidiary executing this Agreement and any other document delivered
pursuant hereto on behalf of Acquiror or the Subsidiary;
(iii) Copies of the resolutions or consents of Acquiror's and
the Subsidiary's board of directors and, if applicable, stockholder
minutes or consents authorizing the execution and performance of this
Agreement and the contemplated transactions, certified by the secretary
or an assistant secretary of Acquiror and the Subsidiary, as the case
may be, as of the Closing Date;
(iv) Copy of the Certificate of Designations, Rights and
Preferences for the Acquiror's Series A Convertible Preferred Stock
approved by the Acquiror's board of directors, in form and substance
reasonably acceptable by Acquiree and the Principal Stockholders.
(v) The certificate contemplated by Section 5.1, duly executed
by the chief executive officer of Acquiror;
(vi) The certificate contemplated by Section 5.2, dated the
Closing Date, signed by the chief executive officer of Acquiror;
(vii) The certificate contemplated by Section 5.6, dated the
Closing Date, duly executed by an authorized officer of the Public
Company;
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(viii) Certificates representing, in the aggregate, 180,741
Shares registered in the names of the Acquiree Securityholders listed
on Schedule 1.2 attached hereto and in the amounts set forth across
from their names;
(ix) A true, accurate and complete list of all securityholders
of Acquiror together with the type and number of securities owned by
each such securityholder; and
(x) The Escrow Agreement (as defined in Section 6.9) duly
executed by Acquiror.
In addition to the above deliveries, the Acquiror shall take all steps
and actions as the Acquiree may reasonably request or as may otherwise be
reasonably necessary to consummate the transactions contemplated hereby.
(b) Acquiree Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article V, the Acquiree shall deliver to
Acquiror at Closing all the following:
(i) A certificate of good standing from the Secretary of State
of the State of Delaware, issued as of a date within ten (10) days
prior to the Closing Date certifying that the Acquiree is in good
standing as a corporation in the State of Delaware;
(ii) Incumbency and specimen signature certificates dated the
Closing Date with respect to the officers of the Acquiree executing
this Agreement and any other document delivered pursuant hereto on
behalf of the Acquiree;
(iii) Copies of resolutions or consents of the board of
directors and the stockholders of the Acquiree authorizing the
execution and performance of this Agreement and the contemplated
transactions, certified by the secretary or an assistant secretary of
the Acquiree as of the Closing Date;
(iv) The certificate contemplated by Section 6.2, executed by
an authorized officer of the Acquiree;
(v) The certificate contemplated by Section 6.3, dated the
Closing Date, signed by an authorized officer of the Acquiree;
(vi) A holdback agreement executed by each of the Principal
Stockholders, agreeing to refrain from transferring, directly or
indirectly, any interest in such Shares (or the shares of Acquiror
Common Stock into which the Shares are convertible) to any person for a
period of twelve (12) months following the Closing;
(vii) The original securities held by each of the Acquiree
Securityholders (including the Notes and the Warrants), which are being
exchanged for the shares as contemplated by this Agreement, for
cancellation;
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(viii) Audited financial statements for the years ended
December 31, 2001 and 2002 as contemplated by Section 6.6;
(ix) The Escrow Agreement (as defined in Section 6.9) duly
executed by each of the Principal Stockholders;
(x) An agreement terminating the Registration Rights Agreement
(as defined in Section 6.10); and
(xi) An agreement terminating the Stockholder Agreement (as
defined in Section 6.11).
In addition to the above deliveries, the Acquiree shall take all steps
and actions as the Acquiror or Acquiror, as the case may be, may reasonably
request or as may otherwise be reasonably necessary to consummate the
transactions contemplated hereby.
1.8 APPRAISAL RIGHTS. On or before the Closing Date, the Acquiree shall send
notice to all holders of equity in the Acquiree apprising them of (a) the Merger
and all transactions related thereto and (b) their appraisal rights. Any
Acquiree Securities held by persons who have not voted such shares for approval
of the merger and with respect to which such person shall be entitled to
exercise appraisal rights in accordance with the DGCL (the "DISSENTING SHARES")
shall not be converted into the right to receive Shares 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 the DGCL. The Acquiror
agrees that, except with the prior written consent of the Acquiree, or as
required under the DGCL, 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 who, pursuant to the provisions of the DGCL, becomes entitled
to payment of the fair value for the Acquiree Securities shall receive payment
therefore (but only after the value therefore shall have been agreed upon or
finally determined pursuant to such provisions). If, after the Effective Time,
any Dissenting Shares shall lose their status as Dissenting Shares, the Acquiror
shall, issue and deliver, upon surrender by such stockholder of the certificate
of certificates representing the Acquiree Securities, the number of Shares to
which such stockholder would otherwise be entitled under this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
As an inducement to, and to obtain the reliance of the Acquiree, the
Acquiror represents and warrants as follows:
2.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Acquiror is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Acquiror has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as now conducted. The Acquiror is duly
qualified or licensed as a foreign corporation and is in good standing in all
jurisdictions where the nature of its business or property makes such
qualification or licensing necessary except where the failure to do so would not
have a material adverse effect
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(financial or otherwise) (a "MATERIAL ADVERSE EFFECT") on the business,
property, prospects, assets or liabilities of the Acquiror. The Acquiror has
made available to the Acquiree copies of its Certificate of Incorporation and
Bylaws. Said copies are true, correct and complete and contain all amendments
through the date of Closing.
2.2 CORPORATE POWER. The Acquiror has, or will have at the date of Closing, all
requisite legal and corporate power to execute and deliver this Agreement, and
the other transactions contemplated by the terms of this Agreement, and to carry
out and perform its obligations under the terms of this Agreement.
2.3 CAPITALIZATION. The authorized capital stock of the Acquiror consists of:
1,000 shares of common stock, par value $0.01 per share, of which 700 shares are
issued and outstanding. All issued and outstanding shares have been duly
authorized and validly issued, and are fully paid and nonassessable. All
outstanding securities of the Acquiror were issued in compliance with applicable
federal and state securities laws. Except as contemplated by this Agreement,
there are no preemptive rights, options or warrants or other conversion
privileges or rights now outstanding to purchase or acquire any of the capital
stock of the Acquiror and no shares of the Acquiror's capital stock are reserved
for issuance. The Acquiror is not obligated to repurchase any shares of its
capital stock or any other securities. To the Acquiror's Knowledge (as defined
below), there is no agreement or understanding between any holders of in excess
of five percent (5%) of the Acquiror's outstanding securities (collectively, the
"ACQUIROR 5% STOCKHOLDERS") that affects or relates to the voting or giving of
written consents with respect to any security or the voting by a director of the
Acquiror, and, to the Acquiror's Knowledge, there is no agreement or
understanding between any Persons (as such term is defined below) that affects
or relates to the voting or giving of written consents with respect to any
security or the voting by a director of the Acquiror. Notwithstanding the
foregoing, prior to Closing, Acquiror must effect the Public Merger and,
subsequent to Closing, Acquiror must effect the Reverse Stock Split described in
Section 7.2(e) below. Thus, immediately upon completion of the Reverse Stock
Split and conversion of the Shares, Acquiror's capitalization (not taking into
account any securities issued in connection with any amounts invested or
fundraising done after the date hereof) will be as set forth on Schedule 7.2(e)
attached hereto. "KNOWLEDGE" means the actual knowledge of the President, the
Chief Operating Officer or any other officer. "PERSON" means any individual,
corporation, partnership, firm, joint venture, limited liability company,
limited liability partnership, association, joint stock company, trust, estate,
incorporated or unincorporated organization or other entity.
2.4 SUBSIDIARIES. Except for the Subsidiary, the Acquiror does not currently own
or control, directly or indirectly, any interest in any other corporation,
partnership, limited liability company, association or other business entity.
The Acquiror is not a participant in any joint venture or similar arrangement.
2.5 AUTHORIZATION. All corporate action on the part of the Acquiror, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Acquiror; the consummation by the
Acquiror of the other transactions contemplated hereunder, and the performance
of all of the Acquiror's obligations under this Agreement, have been taken or
will be taken prior to the Closing. This Agreement, when executed and delivered
by the Acquiror, shall constitute valid and binding obligations of the Acquiror
enforceable against the Acquiror in accordance with their respective terms,
subject to:
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(a) laws of general application relating to bankruptcy, insolvency, and the
relief of debtors or (b) general equitable principles.
2.6 LITIGATION. There are no actions, suits, proceedings or investigations
pending or, to the Acquiror's Knowledge, threatened against, the Acquiror or its
properties (nor, to the Acquiror's Knowledge, against any of the officers or
directors of the Acquiror) before any court, arbitrator or governmental agency
which, in the case of actions, suits, proceedings or investigations pending or
threatened against officers or directors of the Acquiror, either in any case or
in the aggregate, is reasonably likely to result in any Material Adverse Effect
to the Acquiror or in any material impairment of the right or ability of the
Acquiror to carry on its business as now conducted or as proposed to be
conducted, or in any material liability on the part of the Acquiror, and none of
which questions the validity of this Agreement, the right of the Acquiror to
enter into this Agreement or consummate the transactions contemplated hereby or
thereby, or any action taken or to be taken in connection herewith or therewith.
The Acquiror is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. There is no action, suit, proceeding or investigation by the
Acquiror currently pending or which the Acquiror intends to initiate. Neither
the Acquiror, nor to the Acquiror's Knowledge, any officer, key employee or
Acquiror 5% Stockholder, in his capacity as such, is in default with respect to
any order, writ, injunction, decree, ruling or decision of any court,
commission, board or any other government agency, which might, either
individually or in the aggregate, result in any Material Adverse Effect to the
Acquiror.
2.7 EMPLOYEES. The Acquiror has no employees. The Acquiror does not have any
employee benefit plans.
2.8 AGREEMENTS; ACTION.
(a) Except for (i) those agreements described on Schedule 2.8
attached hereto and (ii) agreements explicitly contemplated by this
Agreement, there are no agreements, understandings, instruments,
contracts, judgments, orders, writs, decrees or proposed transactions
to which the Acquiror is a party or by which it is bound that involve:
(x) obligations (contingent or otherwise) of, or payments to, the
Acquiror or (y) any contract, agreement, commitment, arrangement or
understanding relating to any joint venture, partnership or sharing of
profits or losses with any Person. The Acquiror is not a guarantor or
indemnitor of any indebtedness of any other Person.
(b) The Acquiror has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any
class or series of its capital stock or (ii) incurred any indebtedness
for money borrowed or incurred any other liabilities individually in
excess of $25,000 or in excess of $50,000 in the aggregate, except as
provided herein.
(c) Except for the transactions contemplated herein, the
Acquiror has not engaged in the past three months in any discussion (i)
with any representative of any corporation regarding the merger of the
Acquiror with or into any such corporation, (ii) with any
representative of any corporation, partnership, association or other
business entity or any individual regarding the sale, conveyance or
disposition of all or
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substantially all of the assets of the Acquiror or a transaction or
series of related transactions in which more than fifty percent (50%)
of the voting power of the Acquiror would be disposed of, or (iii)
regarding any other form of liquidation, dissolution or winding up of
the Acquiror.
2.9 TAX RETURNS AND PAYMENTS. The Acquiror has not filed any tax returns, forms
or reports. The Acquiror has no liability for unpaid taxes other than taxes
arising in the ordinary course of business. There is no claim for taxes that is
a lien against the property of the Acquiror other than a lien for taxes not yet
due and payable. The Acquiror has not been notified of any tax audit by any
taxing authority.
2.10 INTELLECTUAL PROPERTY. The Acquiror does not own or use any Intellectual
Property (as defined in Section 3.12 hereof).
2.11 REGISTRATION RIGHTS. The Acquiror has not granted or agreed to grant to any
person or entity any rights (including piggyback registration rights) to have
any securities of the Acquiror registered with the SEC or any other governmental
authority.
2.12 ANTI-DILUTION AND OTHER SHARES. No stockholder of the Acquiror or other
person or entity has any preemptive right of subscription or purchase or
contractual right of first refusal or similar right with respect to any issuance
of securities by the Acquiror. The consummation of the Merger will not result in
the issuance of any additional shares of equity in the Acquiror or the
triggering of other anti-dilution or similar rights contained in any options,
warrants, debentures or other securities or agreements of the Acquiror.
2.13 REAL PROPERTY. The Acquiror does not own, lease, sublease, or otherwise
have an interest in real property.
2.14 BALANCE SHEET AND EVENTS SUBSEQUENT TO BALANCE SHEET DATE. The unaudited
balance sheet of the Acquiror as of April 30, 2003 as set forth on Schedule 2.14
and as provided to the Acquiree (the "ACQUIROR BALANCE SHEET") presents fairly
the financial condition of the Acquiror as of such date, is correct and complete
in all material respects as of such date, and is consistent with the books and
records of the Acquiror. Since April 30, 2003, the Acquiror has conducted its
business in the ordinary course of business and there has not occurred (i) any
change, event or condition (whether or not covered by insurance) that has
resulted in, or would result in, a Material Adverse Effect on the Acquiror; (ii)
any acquisition, sale or transfer of any asset material to the ongoing business
of the Acquiror other than in the ordinary course of business; (iii) any
material change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Acquiror, or any
revaluation by the Acquiror of any of its assets; (iv) any declaration, setting
aside, or payment of a dividend or other distribution with respect to the
Acquiror capital stock, or any direct or indirect redemption, purchase or other
acquisition by the Acquiror of any of its shares of the Acquiror capital stock;
(v) any contract entered into by the Acquiror or any of its Subsidiaries, other
than in the ordinary course of business, or any amendment or termination of, or
default under, any contract to which the Acquiror is a party or by which it is
bound, which individually or in the aggregate would have a Material Adverse
Effect on the Acquiror; (vi) any amendment or change to the Acquiror Certificate
of Incorporation or bylaws of the Acquiror; or (vii) any negotiation or
agreement by
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the Acquiror to do any of the things described in the preceding clauses (i)
through (vi) (other than negotiations with the Acquiree).
2.15 COMPLIANCE WITH INSTRUMENTS AND LAWS; NONE BURDENSOME. The Acquiror is not
in material violation of, or default under, any term of its Certificate of
Incorporation or Bylaws, each as amended and in effect on and as of the date of
this Agreement and the date of Closing, or in material violation of, or default
under, any law or regulation, or any term or provision of any mortgage, deed of
trust or other contract, agreement or instrument to which the Acquiror is a
party, which violation or default has had or could reasonably be expected to
have a Material Adverse Effect on the Acquiror. The execution, delivery and
performance by the Acquiror of, and the compliance by the Acquiror with, this
Agreement, and the consummation of the transactions contemplated hereby, have
not resulted and will not result in any material violation or breach of, or
conflict with, or constitute a material default under any such instruments or
laws, or, except as contemplated by this Agreement, result in the creation of,
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Acquiror or nonrenewal of any permit, license, authorization or
approval applicable to the Acquiror, its business or operations or any of its
assets or properties.
2.16 LIABILITIES. To the Knowledge of the Acquiror, the Acquiror has no material
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise), other than those liabilities and obligations set forth on the
Acquiror Balance Sheet and those liabilities and obligations incurred in the
ordinary course of business.
2.17 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon the Acquiror which has had in the past
or would have in the future the effect of prohibiting or impairing (i) any
current business practice of the Acquiror or any future business practice in
which the Subsidiary may engage, (ii) any acquisition of property by the
Acquiror or the Subsidiary in the future or (iii) the conduct of business by (A)
the Acquiror as currently conducted by the Acquiror or (B) the Subsidiary as may
be conducted by the Subsidiary in the future.
2.18 DISCLOSURE. The Acquiror has provided the Acquiree with all the information
which the Acquiree has requested for deciding whether to consummate the
transaction contemplated by this Agreement and all information which the
Acquiror believes is reasonably necessary to enable the Acquiree to make such
decision. No representation or warranty of the Acquiror contained in this
Agreement and the exhibits attached hereto or, any certificate furnished or to
be furnished to the Acquiree at the Closing or other written information
furnished to the Acquiree or their counsel in connection with the transactions
contemplated by this Agreement contains any untrue statement of a material fact
or omits to state a material fact necessary in order to make the statements
contained herein or therein not misleading in light of the circumstances under
which they were made.
2.19 ISSUANCE OF SHARES. As of the Closing Date, except as set forth in this
Agreement and in the Escrow Agreement (as defined in Section 6.9) all of the
Shares to be delivered to Acquiree Securityholders will be free and clear of all
taxes, liens, encumbrances, charges or assessments of any kind and shall not be
subject to preemptive rights, tag-along rights, or similar rights of any of the
stockholders of the Acquiror. As of the Closing Date, such Shares will be
legally and validly issued in material compliance with all applicable U.S.
federal and state
10
securities laws, and will be, when issued, fully paid and nonassessable shares
of Acquiror Common Stock.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF ACQUIREE
As an inducement to, and to obtain the reliance of the Acquiror, the
Acquiree represents and warrant as follows:
3.1 ORGANIZATION AND STANDING; ARTICLES AND BYLAWS. The Acquiree is a
corporation duly organized and validly existing under, and by virtue of, the
laws of the State of Delaware and is in good standing under such laws. The
Acquiree has the requisite corporate power to own and operate its properties and
assets, and to carry on its business as now conducted and as proposed to be
conducted. The Acquiree is duly qualified or licensed as a foreign corporation
and is in good standing in all jurisdictions where the nature of its business or
property makes such qualification or licensing necessary except where the
failure to do so would not have a Material Adverse Effect on the Acquiree. The
Acquiree has made available to the Acquiror copies of its Certificate of
Incorporation and Bylaws. Said copies are true, correct and complete and contain
all amendments through the date of Closing.
3.2 CORPORATE POWER. The Acquiree has, or will have at the date of Closing, all
requisite legal and corporate power to execute and deliver this Agreement and to
consummate the other transactions contemplated by the terms of this Agreement,
and to carry out and perform its obligations under the terms of this Agreement.
3.3 CAPITALIZATION. The authorized capital stock of the Acquiree consists of:
(a) 25,000,000 shares of common stock, par value $0.001 per share, of which
3,578,441.49 shares are issued and outstanding; and (b) 16,100,000 shares of
preferred stock, par value $0.001 per share (the "ACQUIREE PREFERRED STOCK"), of
which (i) 1,100,000 of the authorized shares of Acquiree Preferred Stock are
designated Series A Preferred Stock, of which 1,004,441.69 shares are issued and
outstanding, and (ii) 15,000,000 of the authorized shares of Acquiree Preferred
Stock are designated Series B Preferred Stock, of which 11,249,230.25 shares are
issued and outstanding. Set forth on Schedule 1.2 is a true and complete list of
the Acquiree Securities. All issued and outstanding securities have been duly
authorized and validly issued, and are fully paid and nonassessable. All
outstanding securities of the Acquiree were issued in compliance with applicable
federal and state securities laws. Except as described on Schedule 1.2 and
Schedule 3.13, there are no preemptive rights, options or warrants or other
conversion privileges or rights now outstanding to purchase or acquire any of
the capital stock of the Acquiree and no shares of the Acquiree's capital stock
are reserved for issuance. Except as described in the Acquiree's Certificate of
Incorporation, the Acquiree is not obligated to repurchase any shares of its
capital stock or any other securities. Except as described in the Stockholder
Agreement, to the Acquiree's Knowledge, there is no agreement or understanding
between any holders of in excess of five percent (5%) of the Acquiree's
outstanding securities (collectively, the "ACQUIREE 5% STOCKHOLDERS") that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Acquiree, and, to the Acquiree's
Knowledge, there is no agreement or understanding between any Persons that
affects or relates to the voting or giving of written consents with respect to
any security or the voting by a director of the Acquiree. 11
11
3.4 SUBSIDIARIES. The Acquiree does not currently own or control, directly or
indirectly, any interest in any other corporation, partnership, limited
liability company, association or other business entity. The Acquiree is not a
participant in any joint venture or similar arrangement.
3.5 AUTHORIZATION. All corporate action on the part of the Acquiree, its
directors and stockholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Acquiree; the consummation by the
Acquiree of the other transactions contemplated hereunder or thereunder, and the
performance of all of the Acquiree's obligations under this Agreement, have been
taken or will be taken prior to the Closing. This Agreement, when executed and
delivered by the Acquiree, shall constitute valid and binding obligations of the
Acquiree enforceable against the Acquiree in accordance with their respective
terms, subject to: (a) laws of general application relating to bankruptcy,
insolvency, and the relief of debtors or (b) general equitable principles.
3.6 COMPLIANCE WITH INSTRUMENTS AND LAWS; NONE BURDENSOME. The Acquiree is not
in material violation of, or default under, any term of its Certificate of
Incorporation or Bylaws, each as amended and in effect on and as of the date of
this Agreement and the date of Closing, or in material violation of, or default
under, any law or regulation, or any term or provision of any mortgage, deed of
trust or other contract, agreement or instrument to which the Acquiree is a
party, which violation or default has had or could reasonably be expected to
have a Material Adverse Effect on the Acquiree. The execution, delivery and
performance by the Acquiree of, and the compliance by the Acquiree with, this
Agreement, and the consummation of the transactions contemplated hereby, have
not resulted and will not result in any material violation or breach of, or
conflict with, or constitute a material default under any such instruments or
laws, or, except as contemplated by this Agreement, result in the creation of,
any mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Acquiree or nonrenewal of any permit, license, authorization or
approval applicable to the Acquiree, its business or operations or any of its
assets or properties.
3.7 LITIGATION. There are no actions, suits, proceedings or investigations
pending or, to the Acquiree's Knowledge, threatened against, the Acquiree or its
properties (nor, to the Acquiree's Knowledge against any of the officers or
directors of the Acquiree) before any court, arbitrator or governmental agency
which, in the case of actions, suits, proceedings or investigations pending or
threatened against officers or directors of the Acquiree, either in any case or
in the aggregate, is reasonably likely to result in any Material Adverse Effect
to the Acquiree or in any material impairment of the right or ability of the
Acquiree to carry on its business as now conducted or as proposed to be
conducted, or in any material liability on the part of the Acquiree, and none of
which questions the validity of this Agreement, the right of the Acquiree to
enter into this Agreement or consummate the transactions contemplated hereby or
thereby, or any action taken or to be taken in connection herewith or therewith.
The Acquiree is not a party or subject to the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality. Except as described on Schedule 3.7, there is no action, suit,
proceeding or investigation by the Acquiree currently pending or which the
Acquiree intends to initiate. Neither the Acquiree, nor to the Acquiree's
Knowledge, any officer, key employee or Acquiree 5% Stockholder, in his capacity
as such, is in default with respect to any order, writ, injunction, decree,
ruling or decision of any court, commission, board or any other
12
government agency which might, either individually or in the aggregate, result
in any Material Adverse Effect to the Acquiree.
3.8 EMPLOYEES AND CONSULTANTS. Schedule 3.8 attached hereto contains a complete
list of all employees of Acquiree as of the date hereof, along with the annual
compensation paid to each such employee. Except as described on Schedule 3.8
attached hereto, the Acquiree has no employment contracts with any of its
employees or consulting agreements with any consultants. Except as described on
Schedule 3.8 attached hereto, the Acquiree has no employee benefit plans,
including any deferred compensation agreement, bonus plan, incentive plan,
profit sharing plan, retirement agreement, other employee compensation agreement
or consulting agreement now in force. The Acquiree does not have the present
intention to terminate the employment of any key employee.
3.9 NO CONFLICT OF INTEREST. The Acquiree is not indebted in excess of $5,000,
directly or indirectly, to any of its employees, officers or directors or to
their respective spouses or children, other than in connection with expenses or
advances of expenses incurred in the ordinary course of business or relocation
expenses of employees, officers and directors, and other than in connection with
advances to the Acquiree made by certain stockholders which advances are
accurately reflected on Schedule 3.15. To the Acquiree's Knowledge, none of said
employees, officers or directors, or any member of their immediate families, is
directly or indirectly indebted to the Acquiree (other than in connection with
purchases of the Acquiree's stock) or has any direct or indirect ownership
interest in any firm or corporation with which the Acquiree is affiliated or
with which the Acquiree has a business relationship or any firm or corporation
which competes with the Acquiree, nor is the Acquiree contemplating such
indebtedness as of the date of this Agreement, except that employees, officers
and directors of the Acquiree may own stock in publicly traded companies (not in
excess of 1% of the outstanding capital stock thereof) which may compete with
the Acquiree. To the Acquiree's Knowledge, no employee, Acquiree 5% Stockholder,
officer or director, or any member of their immediate families, is, directly or
indirectly, interested in any material contract with the Acquiree, nor does any
such person own, directly or indirectly, in whole or in part, any material
tangible or intangible property that the Acquiree uses or contemplates using in
the conduct of its business. The Acquiree is not a guarantor or indemnitor of
any indebtedness of any other Person.
3.10 AGREEMENTS; ACTION.
(a) Except for (i) those agreements described on Schedule 3.10
attached hereto and (ii) agreements explicitly contemplated by this
Agreement, there are no agreements, understandings, instruments,
contracts, judgments, orders, writs, decrees or proposed transactions
to which the Acquiree is a party or by which it is bound that involve:
(x) obligations (contingent or otherwise) of, or payments to, the
Acquiree in excess of $50,000 or (y) any contract, agreement,
commitment, arrangement or understanding relating to any joint venture,
partnership or sharing of profits or losses with any Person. The
Acquiree is not a guarantor or indemnitor of any indebtedness of any
other person.
(b) The Acquiree has not (i) declared or paid any dividends,
or authorized or made any distribution upon or with respect to any
class or series of its capital stock or (ii) incurred any indebtedness
for money borrowed or incurred any other liabilities
13
individually in excess of $25,000 or in excess of $50,000 in the
aggregate, except in connection with the issuance of the Notes.
(c) Except as described on Schedule 3.10, the Acquiree has not
engaged in the past three months in any discussion (i) with any
representative of any corporation regarding the merger of the Acquiree
with or into any such corporation, (ii) with any representative of any
corporation, partnership, association or other business entity or any
individual regarding the sale, conveyance or disposition of all or
substantially all of the assets of the Acquiree or a transaction or
series of related transactions in which more than fifty percent (50%)
of the voting power of the Acquiree would be disposed of, or (iii)
regarding any other form of liquidation, dissolution or winding up of
the Acquiree.
(d) Copies of all contracts, agreements or instruments
appearing on Schedule 3.10 (hereinafter collectively referred to as the
"CONTRACTS") have been delivered to counsel to the Acquiror. Except as
described on Schedule 3.10, the Acquiree has fulfilled and performed in
all material respects its obligations under each of the Contracts
required to be performed prior to the date hereof, and the Acquiree is
not in, or to the Knowledge of the Acquiree, alleged to be in, material
breach or default under, nor is there to the Knowledge of the Acquiree,
alleged to be any basis for termination of any of the Contracts or any
loss of right thereunder and, to the Knowledge of the Acquiree, no
other party to any of the Contracts has materially breached or
defaulted thereunder. Except as described on Schedule 3.10, to the
Knowledge of the Acquiree, no event has occurred and no condition or
state of facts exists which, with the passage of time or the giving of
notice or both, would constitute such a loss of right, material default
or breach by the Acquiree or by any such other party.
3.11 TAX RETURNS AND PAYMENTS. The Acquiree has properly completed and timely
filed all tax returns, forms or reports required to be filed by it and has paid
all taxes shown thereon to be due, other than any taxes for which adequate
reserves under GAAP have been recorded in the Acquiree Financial Statements (as
defined in Section 3.17 hereof). The Acquiree has paid all tax-related penalty
fees and assessments required to be paid pursuant to such returns or any
assessments received. All such returns are complete and accurate. Acquiree has
provided adequate accruals in accordance with GAAP in the Acquiree Financial
Statements for any taxes that have not been paid, whether or not shown as being
due on any tax returns. The Acquiree has no liability for unpaid taxes arising
after the most recent fiscal period end other than taxes arising in the ordinary
course of business. There is no claim for taxes that is a lien against the
property of the Acquiree other than a lien for taxes not yet due and payable.
The Acquiree has not been notified of any tax audit by any taxing authority.
3.12 INTELLECTUAL PROPERTY. For purposes of this Agreement "INTELLECTUAL
PROPERTY" shall mean any: (1) patent, patent application, trademark (whether
registered or unregistered), trademark application, trade name, fictitious
business name, service ▇▇▇▇ (whether registered or unregistered), service ▇▇▇▇
application, copyright (whether registered or unregistered), copyright
application, mask work, mask work application, trade secret, know-how, customer
list, franchise, system, computer software, computer program, source codes,
invention, design, blueprint, engineering drawing, proprietary product,
technology, proprietary right or other intellectual property right or intangible
asset; or (2) right to use or exploit any of the foregoing. Schedule 3.12
attached hereto describes all of the Acquiree's Intellectual Property. The
Acquiree has full
14
legal and beneficial ownership of, or the right to use, all its Intellectual
Property. The use of the Acquiree's Intellectual Property will not conflict with
or infringe upon any right, title or interest of any other person. To the
Knowledge of the Acquiree, no other person is infringing in any material respect
on any part of the Acquiree's Intellectual Property. Except as described on
Schedule 3.12 attached hereto, no one has a copy of the Acquiree's computer
software, computer programs or source codes, nor is the Acquiree required to
provide anyone with such information. No claim is pending or, to the Acquiree's
Knowledge, threatened against the Acquiree to the effect that any Intellectual
Property owned or licensed by the Acquiree is invalid or unenforceable by the
Acquiree.
3.13 ANTI-DILUTION AND ADDITIONAL SHARES. Except as described on Schedule 3.13
attached, no stockholder of the Acquiree or other person or entity has any
preemptive right of subscription or purchase or contractual right of first
refusal or similar right with respect to any issuance of securities by the
Acquiree. The consummation of the Merger will not result in the issuance of any
additional shares of the Acquiree Securities or the triggering of other
anti-dilution or similar rights contained in any options, warrants, debentures
or other securities or agreements of the Acquiree.
3.14 REAL PROPERTY. Except as described in Schedule 3.14, the Acquiree does not
own, lease, sublease, or otherwise have an interest in real property.
3.15 NOTES AND ACCOUNTS PAYABLE. Attached hereto as Schedule 3.15 is a complete
schedule of all notes and accounts payable of the Acquiree as of May 13, 2003.
All notes and accounts payable of the Acquiree are reflected properly on its
books and records and are valid payables for which the Acquiree received valid
consideration.
3.16 NOTES AND ACCOUNTS RECEIVABLE. Attached hereto as Schedule 3.16 is a
complete schedule of all notes and accounts receivable of the Acquiree as of May
13, 2003. All notes and accounts receivable of the Acquiree are reflected
properly on its books and records, are valid receivables subject to no setoffs
or counterclaims, are current and collectible, subject only to the reserve for
bad debts set forth on the face of the balance sheet for the Acquiree's most
recent fiscal month end (rather than in any notes thereto) as adjusted for
operations and transactions through the Closing Date in accordance with the past
custom and practice of the Acquiree.
3.17 FINANCIAL STATEMENTS. The financial statements of the Acquiree described on
Schedule 3.17 and as provided to the Acquiror (the "ACQUIREE FINANCIAL
STATEMENTS") are complete and correct in all material respects as of their
respective dates, present fairly the financial condition of the Acquiree as of
the indicated dates and the results of operations of the Acquiree for the
indicated periods, are correct and complete in all material respects as of their
respective dates, and are consistent with the books and records of the Acquiree,
except that the unaudited interim financial statements were or are subject to
normal and recurring year-end adjustments which were not, or are not expected to
be, material in amount.
3.18 REGISTRATION RIGHTS. Except as described on Schedule 3.18 attached hereto,
the Acquiree has not granted or agreed to grant to any person or entity any
rights (including piggyback registration rights) to have any securities of the
Acquiree registered with the SEC or any other governmental authority.
15
3.19 EVENTS SUBSEQUENT TO MOST RECENT FISCAL PERIOD END. Since the most recent
fiscal period end, the Acquiree has conducted its business in the ordinary
course of business and there has not occurred (i) any change, event or condition
(whether or not covered by insurance) that has resulted in, or would result in,
a Material Adverse Effect on the Acquiree; (ii) any acquisition, sale or
transfer of any asset material to the ongoing business of the Acquiree other
than in the ordinary course of business; (iii) any change in accounting methods
or practices (including any change in depreciation or amortization policies or
rates) by the Acquiree, except as required by concurrent changes in GAAP or any
revaluation by the Acquiree of any of its assets, except as required by GAAP;
(iv) any declaration, setting aside, or payment of a dividend or other
distribution with respect to the Acquiree capital stock, or any direct or
indirect redemption, purchase or other acquisition by the Acquiree of any of its
shares of the Acquiree capital stock; (v) any contract entered into by the
Acquiree or any of its Subsidiaries, other than in the ordinary course of
business, or any amendment or termination of, or default under, any contract to
which the Acquiree is a party or by which it is bound, which individually or in
the aggregate would have a Material Adverse Effect on the Acquiree; (vi) any
amendment or change to the Acquiree Certificate of Incorporation or bylaws of
the Acquiree; (vii) any increase in of the compensation or benefits payable or
to become payable by the Acquiree to any of its directors, officers or
employees; (viii) any change in the interest rate, risk management and hedging
policies, procedures or practices of the Acquiree, or any failure to comply with
such policies, procedures and practices, or (ix) any negotiation or agreement by
the Acquiree to do any of the things described in the preceding clauses (i)
through (viii) (other than negotiations with the Acquiror).
3.20 UNDISCLOSED LIABILITIES. The Acquiree has no obligations or liabilities
(contingent or otherwise) except obligations and liabilities (i) that are fully
accrued or provided for in all material respects in the consolidated balance
sheet of the Acquiree as of December 31, 2002 (the "BALANCE SHEET") in
accordance with GAAP, or disclosed in the notes therein in accordance with GAAP
or (ii) that were incurred after the Most Recent Fiscal Period End in the
ordinary course of business (none of which results from, arises out of, relates
to, is in the nature of, or was caused by any breach of contract, breach of
warranty, tort, infringement, or violation of law).
3.21 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree binding upon the Acquiree which has had or would
have the effect of prohibiting or impairing any current business practice of the
Acquiree, any acquisition of property by the Acquiree or the conduct of business
by the Acquiree as currently conducted by the Acquiree.
3.22 NO CONFLICT WITH OTHER INSTRUMENTS. The execution of this Agreement and the
consummation of the transactions contemplated by this Agreement will not result
in the breach of any term or provision of, or constitute an event of default
under, any mortgage, deed or trust, or other contract, agreement, or instrument
to which Acquiree is a party.
3.23 DISCLOSURE. The Acquiree has provided the Acquiror with all the information
which the Acquiror has requested for deciding whether to consummate the
transaction contemplated by this Agreement and all information which the
Acquiree believes is reasonably necessary to enable the Acquiror to make such
decision. No representation or warranty of the Acquiree contained in this
Agreement and the schedules attached hereto or, any certificate
16
furnished or to be furnished to Acquiror at the Closing or other written
information furnished to the Acquiror or its counsel or in connection with the
transactions contemplated by this Agreement contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PRINCIPAL STOCKHOLDERS
As an inducement to, and to obtain the reliance of the Acquiror, each
of the Principal Stockholders, severally and not jointly, represents and
warrants as follows:
4.1 TITLE; AUTHORITY; ENFORCEABILITY.
(a) Such Principal Stockholder has the full power and
authority to exchange, assign and transfer its Acquiree Securities
proposed to be exchanged hereunder and to acquire the Shares and, when
the same are accepted for exchange, the Acquiror will acquire good and
unencumbered title to such Acquiree Securities, free and clear of all
Liens or Encumbrances created by such Principal Stockholder. Such
Principal Stockholder acknowledges that the number of the Acquiree
Securities held by him, her or it identified in Schedule 1.2 is correct
and reflects all of the securities of the Acquiree held by such
stockholder.
(b) Such Principal Stockholder has duly executed and delivered
this Agreement. This Agreement constitutes, assuming the due execution
by the Acquiror and the Acquiree, the legal, valid and binding
obligation of such Principal Stockholder, enforceable against such
Principal Stockholder in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity
or at law).
(c) Such Principal Stockholder will, upon request, execute and
deliver any additional documents deemed by the Acquiror to be
reasonably necessary to more fully evidence the exchange, assignment
and transfer of the Acquiree Securities contemplated hereby.
4.2 NO CONFLICTS; CONSENTS. The execution, delivery and performance by such
Principal Stockholder of this Agreement will not conflict with, constitute a
breach of, or default under, or violate any provision of any agreement,
indenture, mortgage, or other instrument to which such Principal Stockholder is
a party or by which such Principal Stockholder is or may be bound or to which
any of such Principal Stockholder's property or assets is subject, or any
statute, law, rule, regulation, ruling, judgment, injunction, order or decree
applicable to such Principal Stockholder or to any property or assets of such
Principal Stockholder. No consent, authorization or order of, or filing or
registration with, any governmental authority or other person is required to be
obtained or made by such Principal Stockholder for the execution, delivery and
performance by such Principal Stockholder of this Agreement or the consummation
of the transactions contemplated hereby.
17
4.3 PRINCIPAL STOCKHOLDER ACKNOWLEDGEMENTS.
(a) Such Principal Stockholder understands that the issuance
of the Shares to such Principal Stockholder is intended to be exempt
from registration under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), pursuant to Regulation D and Section 4(2) thereof.
Accordingly, such Principal Stockholder acknowledges that the Shares to
be issued and delivered to such Principal Stockholder in accordance
with the terms and subject to the conditions of this Agreement have not
been and will not be registered under the Securities Act or any state
securities laws and may not be sold or otherwise transferred without
compliance with the Securities Act and any applicable state securities
laws. Such Principal Stockholder further represents, warrants and
covenants that (i) the Shares are being acquired solely for his/her own
account only, for investment purposes only, and not with a view to the
distribution or public offering thereof, nor with any intention of
selling the same immediately or at any particular future time and (ii)
none of the Shares will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full
compliance with the Securities Act and any applicable state securities
laws and will contain a restrictive legend to such effect.
(b) Such Principal Stockholder has sufficient knowledge and
experience in financial and business matters so as to be capable of
evaluating the merits and risks of its investment in the Shares and
such Principal Stockholder is capable of bearing the economic risks of
such investment.
(c) Such Principal Stockholder is an "accredited investor," as
such term is defined in Regulation D under the Securities Act.
(d) Such Principal Stockholder has had the opportunity to ask
questions of, and receive answers from, representatives of the Acquiror
concerning the Acquiror and the terms and conditions of this
transaction, as well as to obtain any information requested by such
Principal Stockholder. Any questions raised by such Principal
Stockholder concerning the transactions contemplated by this Agreement
have been answered to the satisfaction of such Principal Stockholder.
Such Principal Stockholder's decision to enter into the transactions
contemplated hereby is based in part on the answers to such questions
as such Principal Stockholder has raised concerning the transaction and
on such Principal Stockholder's own evaluation of the risks and merits
of the purchase and the Acquiror's proposed business activities.
(e) Such Principal Stockholder understands that no
governmental authority has made any finding or determination as to the
merit for investment of, nor have any such agencies or governmental
authorities made any recommendation or endorsement with respect to, the
Shares.
(f) Such Principal Stockholder understands that it is his, her
or its responsibility to obtain its own legal and financial advisors
(including tax advisors) with respect to this Agreement and the
transactions contemplated hereby, and that ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇,
LLP is representing only the Acquiree in connection with this Agreement
and not any individual Principal Stockholder.
18
ARTICLE V
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIREE
The obligations of the Acquiree under this Agreement are subject to the
following conditions:
5.1 ACCURACY OF REPRESENTATIONS. The representations and warranties made by the
Acquiror in this Agreement and all information attached hereto as schedules and
exhibits were true when made and shall be true at the Closing Date with the same
force and effect as if such representations and warranties were made at and as
of the Closing Date (except for changes therein permitted by this Agreement).
The Acquiror shall have performed or complied with all covenants and conditions
required by this Agreement to be performed or complied with by the Acquiror
prior to the Closing. The Acquiree shall be furnished with a certificate signed
by duly authorized officers of Acquiror and dated the Closing Date to the
foregoing effect in a form mutually acceptable to the Acquiree and Acquiror.
5.2 OFFICER'S CERTIFICATE. The Acquiree shall be furnished with a certificate
dated the Closing Date and signed by the duly authorized officers of Acquiror
and the Subsidiary to the effect that no litigation or proceeding or, to the
best of such officers' Knowledge, investigation or inquiry is pending or
threatened which might result in an action to enjoin or prevent the consummation
of the transactions contemplated by this Agreement. Furthermore, based on
certificates of good standing, representations of government agencies, and
Acquiror's and the Subsidiary's own documents and information, the certificate
shall represent that:
(a) This Agreement has been duly approved by the Acquiror's
and the Subsidiary's board of directors and stockholders, if required, and has
been duly executed and delivered in the name and on behalf of the Acquiror and
the Subsidiary by their duly authorized officers pursuant to, and in compliance
with, authority granted by the board of directors of the Acquiror and the
Subsidiary pursuant to a unanimous consent;
(b) Except as contemplated by this Agreement, there have been
no changes in or to the Acquiror, or the Subsidiary during the one (1) year
period preceding and including the Closing Date that would reasonably be
expected to have a Material Adverse Effect on Acquiror or the Subsidiary;
(c) All conditions required by this Agreement have been met,
satisfied, or performed by the Acquiror, or the Subsidiary, as appropriate;
(d) All authorizations, consents, approvals, registrations,
and/or filings with any governmental body, agency, or court required in
connection with the execution and delivery of the documents by the Acquiror, or
the Subsidiary have been obtained and are in full force and effect or, if not
required to have been obtained, will be in full force and effect by such time as
may be required; and
(e) There is no material action, suit, proceeding, inquiry, or
investigation at law or in equity by any public board or body pending or, to the
Knowledge of Acquiror or the
19
Subsidiary, threatened against Acquiror or the Subsidiary, wherein an
unfavorable decision, ruling, or finding could have a Material Adverse Effect on
Acquiror or the Subsidiary or the acquisition and reorganization contemplated
herein, or any material agreement or instrument by which Acquiror or the
Subsidiary is bound or in any way contests the existence of Acquiror or the
Subsidiary.
5.3 REORGANIZATION. The Public Merger shall have been consummated prior to the
Closing.
5.4 NO MATERIAL ADVERSE EFFECT. During the one (1) year period preceding and
including the Closing Date, except as contemplated by this Agreement, there
shall not have occurred any event that would reasonably be expected to have a
Material Adverse Effect on the Acquiror, or the Subsidiary, nor shall any event
have occurred which, with the lapse of time or the giving of notice, may cause
or create any event that would reasonably be expected to have a Material Adverse
Effect on the Acquiror or the Subsidiary.
5.5 GOOD STANDING. The Acquiree shall have received a certificate of good
standing from the appropriate authority, dated as of the date within ten (10)
days prior to the Closing Date, certifying that (a) Acquiror is in good standing
as a corporation in the State of Delaware and (b) the Subsidiary is in good
standing as a corporation in the State of Delaware.
5.6 PUBLIC COMPANY CERTIFICATE. The Acquiree shall be furnished with a
certificate (the "PUBLIC COMPANY CERTIFICATE") dated the Closing Date and signed
by a duly authorized officer of the Public Company certifying that (i) all the
representations and warranties set forth in Section 2 hereof, except for Section
2.3, are true, accurate and complete at and as of the Closing Date as they apply
to, and as if they were made by, the Public Company as of such date, with such
adjustments and modifications to the language contained in such representations
and warranties as are appropriate and reasonable under the circumstances, (ii)
the Public Company has performed or complied with all covenants and conditions
required by this Agreement to be performed or complied with by the Public
Company, (iii) the Public Company has not conducted any business activities
whatsoever during the five (5) year period preceding the Closing Date and (iv)
set forth as Schedule A to the Public Company Certificate is a true, accurate
and complete list of all securityholders of the Public Company together with the
type and number of securities owned by each such securityholder.
5.7 FUNDING. The Acquiror shall have fulfilled its funding obligations pursuant
to Section 7.9.
5.8 OTHER ITEMS. The Acquiree shall have received such other documents,
certificates, or instruments relating to the transactions contemplated hereby as
the Acquiree may reasonably request.
ARTICLE VI
CONDITIONS PRECEDENT TO OBLIGATIONS OF ACQUIROR
The obligations of the Acquiror under this Agreement are subject to the
following conditions:
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6.1 STOCKHOLDER APPROVAL. The Acquiree shall call and hold a meeting of its
stockholders, or obtain the written consent of a majority of its stockholders
(calculated on an as-converted basis), to approve the transactions contemplated
by this Agreement. The Acquiree shall have obtained the consent to the Merger of
at least 62% of the Acquiree Securityholders entitled to vote thereon.
6.2 ACCURACY OF REPRESENTATIONS OF THE ACQUIREE. The representations and
warranties made by the Acquiree in this Agreement and all information provided
hereto as schedules and exhibits were true when made and shall be true at the
Closing Date with the same force and affect as if such representations and
warranties were made at and as of the Closing Date (except for changes therein
permitted by this Agreement). The Acquiree shall have performed or complied with
all covenants and conditions required by this Agreement to be performed or
complied with by the Acquiree prior to or at the Closing. Acquiror shall be
furnished with a certificate signed by a duly authorized officer of the
Acquiree, and dated the Closing Date, to the foregoing effect in a form mutually
acceptable to the Acquiror and Acquiree.
6.3 OFFICER'S CERTIFICATES. Acquiror shall have been furnished with a
certificate dated the Closing Date and signed by the duly authorized officers of
the Acquiree to the effect that no litigation, proceeding, investigation or
inquiry is pending or, to the Knowledge of the Acquiree, threatened, which might
result in an action to enjoin or prevent the consummation of the transactions
contemplated by this Agreement. Furthermore, based on certificates of good
standing, representations of government agencies, and the Acquiree's own
documents, the certificate shall represent, to the Knowledge of the officer,
that:
(a) This Agreement has been duly approved by the Acquiree's
board of directors and stockholders and has been duly executed and
delivered in the name and on behalf of the Acquiree by its duly
authorized officers pursuant to, and in compliance with, authority
granted by the board of directors of the Acquiree pursuant to a
unanimous consent of board of directors and a majority vote of its
stockholders.
(b) There have been no changes in or to the Acquiree during
the one (1) year period preceding and including the Closing Date that
would reasonably be expected to have a Material Adverse Effect on the
Acquiree.
(c) All conditions required by this Agreement have been met,
satisfied, or performed by the Acquiree;
(d) All authorizations, consents, approvals, registrations,
and/or filing with any governmental body, agency, or court required in
connection with the execution and delivery of the documents by the
Acquiree have been obtained and are in full force and effect or, if not
required to have been obtained will be in full force and effect by such
time as may be required; and
(e) There is no material action, suit, proceeding, inquiry, or
investigation at law or in equity by any public board or body pending
or, to the Knowledge of the Acquiree, threatened against the Acquiree,
wherein an unfavorable decision, ruling, or finding could have a
Material Adverse Effect on the Acquiree or the acquisition and
21
reorganization contemplated herein, or any material agreement or
instrument by which the Acquiree is bound or would in any way contest
the existence of the Acquiree.
6.4 NO MATERIAL ADVERSE EFFECT. During the one (1) year period preceding and
including the Closing Date, there shall not have occurred any event that would
reasonably be expected to have a Material Adverse Effect on the Acquiree, nor
shall any event have occurred which, with the lapse of time or the giving of
notice, may cause or create any event that would reasonably be expected to have
a Material Adverse Effect on the Acquiree.
6.5 GOOD STANDING. Acquiror shall have received a certificate of good standing
from the appropriate authority, dated as of a date within ten (10) days prior to
the Closing Date, certifying that the Acquiree is in good standing as a
corporation in the State of Delaware.
6.6 FINANCIAL STATEMENTS. The Acquiror shall have received the Acquiree
Financial Statements for the years ended December 31, 2001 and 2002, such
financial statements to have been audited, prepared in accordance with GAAP
applied on a consistent basis throughout the periods covered thereby and in
compliance with the Exchange Act and the Rules and Regulations of the SEC
promulgated thereunder and to contain no exceptions or qualifications except a
going concern opinion. The audited Financial Statements shall be substantially
similar to the Financial Statements provided pursuant to Section 3.17 and
attached hereto, with such changes as normally arise as a result of an audit
process and review, and shall be acceptable to Acquiror, in its reasonable
discretion.
6.7 HOLDBACK AGREEMENT. Simultaneously with Closing, the Acquiree shall deliver
a holdback agreement executed by each of the Principal Stockholders , in form
and substance acceptable to Acquiror and its legal counsel, agreeing to refrain
from transferring, directly or indirectly, any interest in such shares to any
person for a period of twelve (12) months following the Closing.
6.8 DISSENTING SHARES. None of the Acquiree Securityholders shall have perfected
any appraisal rights as of the Closing Date.
6.9 ESCROW AGREEMENT. Each of the Principal Stockholders shall have executed an
Escrow Agreement in form and substance acceptable to Acquiror and the Principal
Stockholders (the "ESCROW AGREEMENT") pursuant to which each of the Principal
Stockholders agrees to pledge the Shares received by such Principal Stockholder
(and the shares of Acquiror Common Stock into which the Shares are convertible),
to secure the Principal Stockholders' obligations under Section 7.6 of this
Agreement.
6.10 REGISTRATION RIGHTS AGREEMENT. The Amended and Restated Registration Rights
Agreement (the "REGISTRATION RIGHTS AGREEMENT"), dated as of May 30, 2000, by
and among the Acquiree and the Acquiree's Preferred Holders (as such term is
defined in the Registration Rights Agreement) shall be terminated on or before
the Closing Date.
6.11 STOCKHOLDER AGREEMENT. The Stockholder Agreement (the "STOCKHOLDER
AGREEMENT"), dated as of May 30, 2000, by and among Acquiree and certain
Acquiree Securityholders shall be terminated on or before the Closing Date.
22
6.12 [Intentionally Omitted.]
6.13 OTHER ITEMS. The Acquiror shall have received such further documents
certificates, or instruments relating to the transactions contemplated hereby as
the Acquiror or the Public Company, as the case may be, may reasonably request.
ARTICLE VII
SPECIAL COVENANTS
7.1 ACTIVITIES OF THE ACQUIREE. From the date of this Agreement until the
Closing Date, the Acquiree covenants and agrees to:
(a) Carry on its business in substantially the same manner as
it has heretofore;
(b) Maintain in full force and effect insurance comparable in
amount and in scope of coverage to that now maintained by it;
(c) Perform in all material respects all of its obligations
under material contracts, leases, and instruments relating to or
affecting its assets, properties, and business;
(d) Use its best efforts to maintain and preserve its business
organization intact, to retain its key employees, and to maintain its
relationships with its material suppliers and customers;
(e) Duly and timely file for all taxable periods ending on or
prior to the Closing Date all federal, state, county, and local tax
returns required to be filed by or on behalf of such entity or for
which such entity may be held responsible and shall pay, or cause to
pay, all taxes required to be shown as due and payable on such returns,
as well as all installments of tax due and payable during the period
commencing on the date of this Agreement and ending on the Closing
Date;
(f) Fully comply with and perform in all material respects all
obligations and duties imposed on it by all federal and state laws and
all rules, regulations, and orders imposed by federal or state
governmental authorities;
(g) Obtain the approval of Acquiror prior to executing any
agreement, contract or memorandum of understanding; and
(h) Provide Acquiror with any and all information regarding
funds invested in Acquiree after April 10, 2003 but prior to Closing,
including documentation memorializing such investment and detailed
description of the use of proceeds.
7.2 ACTIVITIES OF THE ACQUIROR AND THE SUBSIDIARY. From and after the
Closing Date, each of the Acquiror (acting at that time as the Public Company)
and the Subsidiary (as the surviving corporation) covenants and agrees to:
23
(a) Establish an employee option pool pursuant to which
employees of the Subsidiary will be entitled receive options to
purchase shares of Acquiror;
(b) Establish a transition plan pursuant to provide some
compensation to those employees of the Acquiree who will not continue
with the Subsidiary post-Merger; and
(c) Use its best efforts to conclude funding to Acquiror or
the Subsidiary within 120 days after Closing (the "PRIVATE PLACEMENT"),
such Private Placement to be in the principal amount of at least
$1,500,000 for shares of preferred stock (the "PREFERRED STOCK")
convertible into not more than 1,500,000 shares of Acquiror Common
Stock or on such other similar terms as Acquiror shall reasonably
negotiate. In the event the Private Placement is not consummated within
120 days after Closing (the "PRIVATE PLACEMENT PERIOD"), the Acquiree
Securityholders that received Shares shall have the right but not the
obligation, within the 120-day period following the Private Placement
Period, and only with the unanimous consent of all the Acquiree
Securityholders who received Shares, to "undo" the Merger by
surrendering all their Shares of Acquiror Common Stock in exchange for
securities representing all the equity in the Subsidiary.
(d) Issue shares of convertible preferred stock to those
investors who shall have invested in the Acquiree after the date of the
term sheet, dated April 10, 2003, by and between the Acquiree and the
Acquiror, but prior to Closing, the terms and conditions of such
convertible preferred stock to be the same as the terms and conditions
of the Preferred Stock issued in connection with the Private Placement;
provided that Acquiree has provided Acquiror with the information
described in Section 7.1(h) herein, prior to Closing.
(e) File with the SEC an Information Statement amending the
Acquiror's Articles of Incorporation to, among other things, effect a
1-for-80.32955 reverse stock split (the "Reverse Stock Split") such
that, upon effectiveness and simultaneous conversion of the Acquiror's
Preferred Stock, Acquiror's capitalization (not taking into account any
securities issued in connection with any amounts invested or
fundraising done after the date hereof) will be as described on
Schedule 7.2(e) attached hereto.
7.3 ACCESS TO PROPERTIES AND RECORDS. Until the Closing Date, the Acquiree and
the Acquiror will afford to the other party's officers and authorized
representatives full access to the properties, books, and records of the other
party in order that each party may have full opportunity to make such reasonable
investigation as it shall desire to make of the affairs of the Acquiree or the
Acquiror and will furnish the other party with such additional financial and
other information as to the business and properties of the Acquiree or the
Acquiror as each party shall from time to time reasonably request.
7.4 INDEMNIFICATION BY THE ACQUIREE. The Acquiree will indemnify and hold
harmless the Acquiror and its directors and officers, and each person, if any,
who controls the Acquiror within the meaning of the Securities Act, from and
against any and all losses, claims, damages, expenses, liabilities, or actions
to which any of them may become subject under applicable law (including the
Securities Act and the Exchange Act) and will reimburse them for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any claims or actions, whether or not resulting in liability, insofar
as such losses,
24
claims, damages, expenses, liabilities, or actions arise out of or are based
upon any untrue statement or alleged untrue statement of material fact contained
in any application or statement filed with a governmental body or arising out of
or are based upon the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary in order to make the statements
therein not misleading, but only insofar as any such statement or omission was
made in reliance upon and in conformity with information furnished in writing by
the Acquiree expressly for use therein. The indemnity agreement contained in
this Section 7.4 shall remain operative and in full force and effect, regardless
of any investigation made by or on behalf of the Acquiror and shall survive the
consummation of the transactions contemplated by this Agreement for a period of
two years from the Closing Date. This indemnity agreement does not cover any
acts of the Acquiror, its management, employees, or agents, prior to the date of
this Agreement.
7.5 INDEMNIFICATION BY THE ACQUIROR. The Acquiror will indemnify and hold
harmless the Acquiree, the Principal Stockholders, the Acquiree's directors and
officers, and each person, if any, who controls the Acquiree within the meaning
of the Securities Act, from and against any and all losses, claims, damages,
expenses, liabilities, or actions to which any of them may become subject under
applicable law (including the Securities Act and the Exchange Act) and will
reimburse them for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any claims or actions, whether or not
resulting in liability, insofar as such losses, claims, damages, expenses,
liabilities, or actions arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in any application or
statement filed by the Acquiror with a governmental body or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein, or necessary in order to make the statements
therein not misleading. The indemnity agreement contained in this Section 7.5
shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Acquiree and shall survive the
consummation of the transactions contemplated by this Agreement for a period of
two years from the Closing Date.
7.6 INDEMNIFICATION BY PRINCIPAL STOCKHOLDERS. Each of the Principal
Stockholders, jointly and severally, will indemnify and hold harmless the
Acquiror and its directors and officers and each Person, if any, who controls
the Acquiror within the meaning of the Securities Act, from and against any and
all losses, claims, damages, expenses, liabilities, or actions to which any of
them may become subject and will reimburse them for any legal or other expenses
reasonably incurred by them in connection with investigating, defending or
settling such claims or actions, whether or not resulting in liabilities,
insofar as such losses, claims, damages, expenses, liabilities or actions result
from or are based upon: (i) the exercise by any Acquiree Securityholder (whether
or not such security holder is entitled to or is not entitled to the Shares) of
their appraisal rights, (ii) any other action, proceeding or claim made by
Acquiree Securityholders with respect to the Merger or (iii) any action,
proceeding or claim relating to amounts owed by Acquiree under that certain
Sublease Agreement dated April 1, 1998 between Acquiree and Sunrise HealthCare
Corporation, a New Mexico corporation ; provided, however, that, in the event a
settlement is reached in connection with any proceeding described above, such
settlement is approved in advance by the holders of a majority of the shares of
Acquiror Common Stock held in escrow pursuant to Section 7.7, such approval not
to be unreasonably withheld. The indemnity agreement contained in this Section
7.6 shall remain operative and in full force and effect, regardless of any
investigation made by or on behalf of the Acquiror and
25
shall survive the consummation of the transactions contemplated by this
Agreement for a period of two years from the Closing Date. The Acquiror shall
not be entitled to indemnification hereunder unless and until the aggregate
amount of all claims for which such party may be entitled to indemnification
hereunder equals or exceeds Fifteen Thousand Dollars ($15,000). The Acquiror's
sole recourse against a Principal Stockholder under this Section 7.6 shall be to
proceed against the Shares pledged to the Acquiror pursuant to the Escrow
Agreement. No Principal Stockholder shall be required to pay to the Acquiror
cash or any other remuneration beyond the pledged Shares in satisfaction of the
obligations contained in this Section 7.6.
7.7 INDEMNIFICATION PLEDGE AND OFFSETS. Each of the Principal Stockholders shall
deposit with ▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A. (the "ESCROW AGENT"), eighty percent
(80%) of the Acquiror Common Stock received by such Principal Stockholder along
with blank stock powers executed and signature guaranteed by a member of the
Medallion Program. Such Shares shall be pledged and held in escrow for a period
of two years (the term of the indemnity agreement) pursuant to the Escrow
Agreement; provided, however, that on the first anniversary of the Closing Date,
the Escrow Agreeement shall provide that the Escrow Agent shall release a number
of Shares such that only fifty percent (50%) of the Acquiror Common Stock
received by such Principal Stockholders shall be held in Escrow. The Escrow
Agreement shall provide that the Acquiror shall be entitled to offset any
amounts due to it by reason of any indemnification claim under Section 7.6
against the value of the shares held in escrow in accordance with the terms of
the Escrow Agreement.
7.8 THE ACQUISITION OFACQUIROR COMMON STOCK. The Acquiror and the Acquiree
understand and agree that the consummation of this Agreement including the
issuance of the Shares to the Acquiree Securityholders in consideration of this
Agreement, as contemplated hereby, constitutes the offer and sale of securities
under the Securities Act and applicable state statutes. The Acquiror and the
Acquiree agree that such transactions shall be consummated in reliance on
exemptions from the registration and prospectus delivery requirements of such
statutes that depend, among other items, on the circumstances under which such
securities are acquired.
(a) In connection with the transaction contemplated by this
Agreement, the Acquiree and the Acquiror shall each file, with the
assistance of the other and their respective legal counsel, such
notices, applications, reports, or other instruments as may be deemed
by them to be necessary or appropriate in an effort to document
reliance on such exemptions, and the appropriate regulatory authority
in the states where the Acquiree Securityholders reside unless an
exemption requiring no filing is available in such jurisdictions, all
to the extent and in the manner as may be deemed by such parties to be
appropriate.
(b) In order to more fully document reliance on the exemptions
as provided herein, the Acquiree, the Principal Stockholders and the
Acquiror shall execute and deliver to the other, at or prior to the
Closing, such further letters of representation, acknowledgment,
suitability, or the like as the Acquiror or the Acquiree and their
respective counsel may reasonably request in connection with reliance
on exemptions from registration under such securities laws.
26
7.9 FUNDING OBLIGATION. The Acquiror covenants and agrees to fund all reasonable
working capital obligations (including all capital requirements and expenses) of
the Acquiree from the date of this Agreement to the Closing Date and of the
Subsidiary on and subsequent to the Closing Date; provided, however, that:
(i) for all working capital obligations exceeding $1,000
individually (whether or not the amount is actually paid or an
account payable is incurred), the Acquiree or the Subsidiary,
as the case may be, shall provide the Acquiror with (A)
reasonable documentation describing the nature of the
obligation and the use of proceeds associated therewith at
least five (5) business days prior to the date funding is
required and (B) a receipt, invoice or other appropriate
evidence of the transaction within ten (10) business days
after the date of such transaction; and
(ii) from the date of this Agreement through to the Closing Date,
▇▇▇▇▇ ▇▇▇▇▇▇ shall approve any and all contracts being
negotiated by Acquiree;
(iii) from the date hereof and through the date of Closing, ▇▇▇▇▇
▇▇▇▇▇▇ shall be provided with full and complete access to any
and all documentation, information and personnel; and
(iv) such working capital obligations shall not exceed $500,000 in
the aggregate.
ARTICLE VIII
MISCELLANEOUS
8.1 BROKERS. Except as provided herein, the Acquiror and the Acquiree agree that
there were no finders or brokers involved in bringing the parties together or
who were instrumental in the negotiation, execution, or consummation of this
Agreement. Further, the Acquiror and the Acquiree each agree to indemnify the
other against any claim by any third person for any commission, brokerage, or
finder's fee or other payment with respect to this Agreement or the transactions
contemplated hereby based on any alleged agreement or understanding between such
party and such third person, whether express or implied, from the actions of
such party. The covenants set forth in this section shall survive the Closing
Date and the consummation of the transactions herein contemplated.
8.2 NO REPRESENTATION REGARDING TAX TREATMENT. No representation or warranty is
being made by any party to any other regarding the treatment of this transaction
for federal or state income taxation. Each party has relied exclusively on its
own legal, accounting, and other tax adviser regarding the treatment of this
transaction for federal and state income taxes and on no representation,
warranty, or assurance from any other party or such other party's legal,
accounting, or other adviser.
8.3 GOVERNING LAW. This Agreement and all acts and transactions pursuant hereto
sand the rights and obligations of the parties hereto shall be governed,
construed and interpreted in accordance with the laws of the State of Florida,
without giving effect to the principles of conflicts of laws.
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8.4 NOTICES. Any notices or other communications required or permitted hereunder
shall be sufficiently given if sent by facsimile or telecopy transmission
confirmed by registered or certified mail, postage prepaid, to such addresses as
shall be furnished in writing by any party in the manner for giving notices,
hereunder, and any such notice or communication shall be deemed to have been
given as of the date so delivered or sent by facsimile or telecopy transmission,
or one day after the date so sent by overnight courier. For purposes of giving
notice, the addresses of the parties shall be:
If to the Acquiror or
the Subsidiary to: The TAG Group, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇, ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.A.
Bank of America Building, Third Floor
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇. ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Acquiree to: Convey Systems, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esquire
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
If to the Principal
Stockholders: River Cities Capital Fund II
Limited Partnership
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
8.5 ATTORNEYS' FEES. In the event that any party institutes any action or suit
to enforce this Agreement or to secure relief from any default hereunder or
breach hereof, the breaching party or parties shall reimburse the nonbreaching
party or parties for all costs, including reasonable attorneys' fees, incurred
in connection therewith and in enforcing or collecting any judgment rendered
therein.
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8.6 EXHIBITS AND SCHEDULES. Whenever in any section of this Agreement reference
is made to information set forth in the exhibits or schedules provided by the
Acquiror or the Acquiree such reference is to information specifically set forth
in such exhibits or schedules.
8.7 ENTIRE AGREEMENT. This Agreement (including the exhibits and schedules
hereto, the documents and instruments delivered by the parties hereto and any
other documents executed and delivered and/or to be executed and delivered
pursuant to the provisions of this Agreement as herein provided) represent the
entire agreement between the parties relating to the subject matter hereof. All
previous agreements between the parties, whether written or oral, have been
merged into this Agreement. This Agreement and the Excrow Agreement fully and
completely express the agreement of the parties relating to the subject matter
hereof. There are no other courses of dealing, understandings, agreements,
representations, or warranties, written or oral, except set forth herein.
8.8 SURVIVAL, TERMINATION. The representations, warranties, and covenants of the
respective parties shall survive the Closing Date and the consummation of the
transactions herein contemplated for a period of two years from the Closing
Date, unless otherwise provided herein.
8.9 COUNTERPARTS; FACSIMILE. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original and all of which taken
together shall be but a single instrument. Facsimile signatures shall constitute
original signatures, and shall be followed by delivery of original signatures.
8.10 AMENDMENT OR WAIVER. Every right and remedy provided herein shall be
cumulative with every other right and remedy, whether conferred herein, at law,
or in equity, and such remedies may be enforced concurrently, and no waiver by
any party of the performance of any obligation by the other shall be construed
as a waiver of the same or any other default then, theretofore, or thereafter
occurring or existing. This Agreement may only be altered, amended, modified,
terminated or rescinded by a writing signed by all parties hereto. Any term or
condition of this Agreement may be waived or the time for performance thereof
may be extended by a writing signed by the party or parties for whose benefit
the provision is intended.
8.11 PARTIAL INVALIDITY. If any term, covenant or condition in this Agreement,
or the application thereof to any person or circumstance, shall be invalid or
unenforceable, the remainder of this Agreement or the application of such term,
covenant or condition to persons or circumstances, other than those as to which
it is held invalid, shall be unaffected thereby and each term, covenant or
condition of this Agreement shall be enforced to fullest extent permitted by
law.
8.12 HEADINGS. Headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.
8.13 FURTHER ASSURANCES. At any time and from time to time, after the effective
Date, each party will execute such additional instruments and take such action
as may be reasonably requested by the other party to confirm or perfect title to
any property transferred hereunder or otherwise to catty our the intent and
purposes of this Agreement.
29
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers, hereunto duly authorized, as of the date
first above written.
THE TAG GROUP, INC. CONVEY SYSTEMS, INC.,
a Delaware corporation a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇ By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------- -------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇ Name: ▇▇▇▇ ▇▇▇▇▇▇
Title: President Title: Chief Executive Officer
TAG ACQUISITION CORP.,
a Florida corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
PRINCIPAL STOCKHOLDERS:
CONVERGYS CORPORATION HV EQUITY INVESTMENTS
By: /s/ ▇▇▇▇▇▇▇ Lantinback By: /s/ ▇▇▇▇▇▇▇▇ ▇▇▇▇
------------------------------- --------------------------
Name: ▇▇▇▇▇▇▇ Lantinback Name: ▇▇▇▇▇▇▇▇ ▇▇▇▇
Title: VP Corporate Development Title: Managing Partner
RIVER CITIES CAPITAL FUND II
LIMITED PARTNERSHIP
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
▇▇▇▇▇ Inc.
General Partner
30
DISCLOSURE SCHEDULES PURSUANT
TO THAT CERTAIN MERGER AGREEMENT
DATED AS OF MAY 29, 2003
These Disclosure Schedules are qualified in their entirety by reference
to the specific provision of the Merger Agreement to which they are attached and
are not intended to, and shall not be construed as constituting, representations
or warranties of any person except and to the extent expressly provided in the
Merger Agreement. Any matter disclosed in one section of the Disclosure Schedule
is deemed disclosed for all purposes of the Disclosure Schedule to the extent
the Merger Agreement requires such disclosure. Headings have been inserted in
these Disclosure Schedules for reference only and do not amend the descriptions
of the disclosed items set forth in the Merger Agreement. Unless otherwise
defined in these Disclosure Schedules, capitalized terms not otherwise defined
herein have the meanings assigned to such terms in the Merger Agreement.
31
SCHEDULE 1.2
ACQUIREE SECURITYHOLDERS
[SEE ATTACHED]
32
SCHEDULE 2.8
AGREEMENTS AND INDEBTEDNESS OF ACQUIROR
Agreements
o Memorandum of Understanding, dated as February 14, 2003, by and between
the Acquiror and Distinctive Technologies, Inc.
o Strategic Partnership Agreement, dated as of March 7, 2003, by and
between the Acquiror and BirdDog Systems, Inc.
o Mutual Non-Disclosure Agreement, dated as of March 3, 2003, by and
between the Acquiror and BirdDog Systems, Inc.
33
SCHEDULE 2.14
ACQUIROR BALANCE SHEET
[SEE ATTACHED]
34
SCHEDULE 3.7
LITIGATION
The Acquiree filed a complaint against Virtual Back Office, LLC ("VBO")
on December 23, 2002 seeking damages in the amount of $27,000 plus monthly
service charges, interest and legal expenses for payments that are due and owing
by VBO to the Acquiree for services rendered by the Acquiree. This complaint was
initially filed in North Carolina, and then re-filed in New Jersey, VBO's state
of residence. This complaint is still pending.
35
SCHEDULE 3.8
EMPLOYEES AND CONSULTANTS OF ACQUIREE
Employees
---------
Name: Annual Compensation:
---- -------------------
▇▇▇▇▇ ▇.▇▇▇▇▇▇ $120,000
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $65,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ $100,000
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $80,000
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $110,000
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ $55,000
Independent Contractors
-----------------------
o Consulting Services Agreement, dated as of January 28, 2002, by and
between the Acquiree and ▇▇▇▇▇ ▇▇▇▇▇.
o Information System Professional Services Agreement, dated as of January
4, 1999, by and between the Acquiree and ▇▇▇▇▇▇ ▇. ▇▇▇.
o Letter Agreement, dated as of October 17, 2002, by and between the
Acquiree and ▇▇▇▇▇▇▇ ▇ ▇▇▇▇.
Employee Benefit Plans
----------------------
Convey Systems, Inc. 401(k) Plan.
Blue Cross and Blue Shield Group Health Plan.
Convey Systems, Inc. Section 125 Plan.
The ▇▇▇▇▇▇▇▇▇.▇▇▇, Inc. 2000 Omnibus Stock Option and Award Plan.
36
SCHEDULE 3.10
AGREEMENTS OF ACQUIREE
(c) Transaction Discussions
The Acquiree has engaged in preliminary discussions with ▇▇▇▇▇.▇▇▇ regarding a
potential business combination transaction. No definitive agreements were
reached with ▇▇▇▇▇.▇▇▇, and the Acquiree is no longer engaged in such
discussions.
(d) Agreements
o Convey Systems, Inc. Senior Secured Convertible Note and Loan and
Security Agreement, dated as of August 16, 2002 (the "NOTE AGREEMENT"),
regarding the Acquiree's obligation to River Cities in the principal
amount of $700,000.
o Master Lease Agreement, dated as of January 23, 2001, by and between
the Acquiree and Cisco Systems, regarding certain capital lease
obligations.
o Four (4) Lease Agreements by and between the Acquiree and Dell
Financial.
o Sub Lease Agreement, dated as of August 2, 2001, by and between the
Acquiree and Lante Corporation, regarding the lease of the Acquiree's
premises.
o Lease Agreement, by and between the Acquiree and Xerox, regarding the
lease of a copier to the Acquiree.
o See also, Schedule 3.12.
37
SCHEDULE 3.12
INTELLECTUAL PROPERTY OF ACQUIREE
Intellectual Property
---------------------
VIP Companion for Internet Explorer
VIP Companion for Netscape VIP Companion Script Interface
VIP Companion Extension Interface
Active Companion
URL List Server
CRM Gateway
CRM Server
PRO Interface
Browser Agent
FCM Conference Server
Microsoft Office Suite
Quickbooks
Software bundled with certain of the Acquiree's products:
o Wise Solutions
o Bennet-tech Information Systems
o Iocomp Software
▇ ▇▇▇▇▇ Software
Source Code Escrow
------------------
The Acquiree has escrowed certain of its source code in favor of
▇▇▇▇▇.▇▇▇, Global Mentoring and the Online Computer Library Center pursuant to
certain contracts with such companies. The source code copies are held by
Innovsafe pursuant to an agreement with Innovsafe.
38
SCHEDULE 3.13
ANTI-DILUTION OR PREEMPTIVE RIGHTS AND ADDITIONAL SHARES
--------------------------------------------------------
The holders of the Acquiree's common stock, Series A convertible
preferred stock and Series B convertible preferred stock have (i) preemptive
rights to purchase additional securities offered by the Acquiree, (ii) rights of
first refusal with respect to attempted transfers of stock by other stockholders
and (iii) rights of co-sale to participate in any transfers of stock that are
not purchased pursuant to the rights of first refusal.
The holders of the Acquiree's Series B convertible preferred stock have
antidilution rights with respect to any issuances of securities by the Acquiree
at a price per share lower than the initial price per share of the Series B
convertible preferred stock.
The consummation of the Merger will result in the occurrence of (i) a
"Change of Control," as such term is defined in the Note Agreement, pursuant to
which River Cities has the right to declare all unpaid principal and interest on
the Notes immediately due and payable and (ii) a "Change of Control
Transaction," as such term is defined in the Warrant to Purchase Capital Stock,
issued by the Acquiree to River Cities, pursuant to which River Cities has the
right to exercise the Warrant for the number of shares calculated in the
Warrant.
39
SCHEDULE 3.14
REAL PROPERTY
-------------
The Company leases its premises pursuant to that certain Sub Lease
Agreement, dated as of August 2, 2001, by and between the Acquiree and Lante
Corporation.
40
SCHEDULE 3.15
NOTES AND ACCOUNTS PAYABLE
--------------------------
The Notes
---------
o Aggregate principal amount of $700,000 as of May 13, 2003. o Accrued
Interest of $25,105.75 as of May 13, 2003.
Payroll Tax Liability
---------------------
o $5,776
401 (k) Liability
-----------------
o $819
Capitalized Leases
------------------
o $6,601
ACCOUNTS PAYABLE
----------------
- See Attached "Vendor Balance Summary," current as of May 13, 2003
41
SCHEDULE 3.16
NOTES AND ACCOUNTS RECEIVABLE
ACCOUNTS RECEIVABLE
-------------------
- See Attached "Customer Balance Summary," current as of May 13, 2003
42
SCHEDULE 3.17
ACQUIREE FINANCIAL STATEMENTS
[SEE ATTACHED]
43
SCHEDULE 3.18
ACQUIREE REGISTRATION RIGHTS
The holders of the Acquiree's Series A convertible preferred stock and
Series B convertible preferred stock have registration rights with respect to
their shares pursuant to the Registration Rights Agreement. The termination of
the Registration Rights Agreement is a condition to Closing.
44
SCHEDULE 7.2(E)
CAPITALIZATION POST-REVERSE STOCK SPLIT
GROUP NO. OF SHARES
-----
Public Company Stockholders 2,000,000
TAG Stockholders 6,000,000
Acquiree Stockholders 2,250,000
45