Exhibit 99.7
AGREEMENT AND PLAN OF MERGER
by and among
DynTek, Inc.
ITI Acquisition Corp.,
Integration Technologies, Inc.,
the Shareholders of Integration Technologies, Inc.
and ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. as the Shareholder Representative
dated as of October 14, 2004
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement"), is made and entered
into as of October 14, 2004, by and among DynTek, Inc., a Delaware corporation
("Parent"), ITI Acquisition Corp., a California corporation and wholly owned
Subsidiary of Parent ("Merger Sub"), Integration Technologies, Inc., a
California corporation (the "Company"), the shareholders on the signature page
hereto (the "Shareholders") and ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., in his capacity as the
shareholder representative (the "Representative"). Certain other capitalized
terms used in this Agreement are defined in Exhibit A attached hereto.
RECITALS
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company believe it is in the best interest of each company and their respective
stockholders to consummate the business combination transaction provided for
herein in which Merger Sub would merge with and into the Company with the
Company as the surviving corporation (the "Merger");
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved this Agreement and the Merger, upon the terms and subject
to the conditions set forth in this Agreement in accordance with the Delaware
General Corporation Law ("DGCL"), the California General Corporation Law
("CGCL") and their respective charter documents; and
WHEREAS, each of Parent, Merger Sub and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the consummation thereof.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and the mutual promises,
representations, warranties, covenants and agreements herein contained, the
parties hereto, intending to be legally bound, hereby agree as follows:
ARTICLE 1
THE MERGER
1.1. The Merger. Upon the terms and subject to the conditions set forth in
this Agreement, and in accordance with the DGCL and the CGCL, Merger Sub shall
be merged with and into the Company at the Effective Time of the Merger (as
defined in Section 1.3). Following the Merger, the separate corporate existence
of Merger Sub shall cease, and the Company shall continue as the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights, properties, liabilities and obligations of Merger Sub in accordance
with the CGCL.
1.2. Closing. The closing of the Merger (the "Closing") shall take place
at the offices of ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇ at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at the date and time on which the
conditions to Closing set forth in Article 9 of this Agreement shall have been
satisfied or waived by the appropriate party or at such time as the parties
hereto agree. The date on which the Closing actually occurs and the transactions
contemplated hereby become effective is hereinafter referred to as the "Closing
Date." At the time of the Closing,
Parent, Merger Sub and the Company shall deliver the certificates and other
documents and instruments required to be delivered hereunder.
1.3. Effective Time of the Merger. At the Closing, the parties hereto
shall (a) cause an agreement of merger in substantially the form of Exhibit B
(the "California Agreement of Merger") to be executed and filed with the
Secretary of State of the State of California, as provided in Section 1103 of
the CGCL and (b) take all such other and further actions as may be required by
the CGCL or other applicable Law to make the Merger effective. The Merger shall
become effective as of the date and time of the filing of the California
Agreement of Merger. The date and time of such effectiveness are referred to
herein as the "Effective Time."
1.4. Effects of the Merger. Subject to the foregoing, the effects of the
Merger shall be as provided in the applicable provisions of the DGCL and the
CGCL.
1.5. Articles of Incorporation and Bylaws of the Surviving Corporation.
The Articles of Incorporation of Merger Sub as in effect immediately prior to
the Effective Time shall be the Articles of Incorporation of the Surviving
Corporation until thereafter changed or amended as provided therein or in
accordance with applicable Law. The Bylaws of Merger Sub as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation until thereafter changed or amended as provided therein or in
accordance with applicable law.
1.6. Directors and Officers. The directors and officers of Merger Sub
immediately prior to the Effective Time shall be the directors and officers of
the Surviving Corporation until their successors shall have been duly elected or
appointed and qualified in accordance with applicable Law or until their earlier
death, resignation or removal in accordance with the Surviving Corporation's
Articles of Incorporation and Bylaws.
ARTICLE 2
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF COMPANY AND MERGER SUB
2.1. Effect on Capital Stock. At the Effective Time, by virtue of the
Merger and without any action on the part of Parent, Merger Sub or the Company:
(a) Capital Stock of Merger Sub. Each issued and outstanding share
of capital stock of Merger Sub shall by virtue of the Merger and without any
action on the part of any holder thereof, be converted into one share of the
Company's common stock. Such newly issued shares shall thereafter constitute all
of the issued and outstanding capital stock of the Surviving Corporation.
(b) Conversion of the Company Stock. Subject to other provisions of
this Article 2:
(i) Each share of the Company Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger, be
converted automatically into the right to receive (A) an amount in cash equal to
the Per Share Cash Consideration; (B) a payment of the Per Share Collared Stock
Consideration, pursuant to Section 2.3; (C) a contingent cash payment, pursuant
to Section 2.4, equal to the Per Share EBITDA Earn-Out Consideration; and
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(D) a contingent cash payment, pursuant to Section 2.5, equal to the Per Share
Revenue Earn-Out Consideration.
(ii) The capitalization of the Company as of immediately prior
to the Effective Time shall be set forth on a Merger Consideration certificate
to be delivered by the Company to the Parent at Closing (the "Merger
Consideration Certificate"). Parent and the Surviving Corporation shall be
entitled to rely on the Merger Consideration Certificate in connection with
payment of the Merger Consideration pursuant to this Section 2.1.
(iii) Each share of Company Stock issued and outstanding
immediately prior to the Effective Time shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any such shares shall cease to have any rights
with respect thereto, except the right to receive, upon the surrender of any
such certificates, the Merger Consideration to be issued or paid in
consideration therefor upon the surrender of such certificate in accordance with
Sections 2.2, without interest.
(iv) Each share of Company Stock held by the Company as
treasury stock or held by Parent, Merger Sub or any Subsidiary or parent of
Parent, Merger Sub or the Company immediately prior to the Effective Time shall
be canceled, retired and cease to exist, and no consideration shall be delivered
with respect thereto.
2.2. Surrender and Payment.
(a) Immediately after the Effective Time, upon surrender by each
holder of record of a certificate or certificates (the "Certificates") for
cancellation to the Parent or to such agent or agents as may be appointed by
Parent, the holder of such Certificate shall be entitled to receive in exchange
therefor the Merger Consideration, and the Certificate so surrendered shall
forthwith be cancelled. Until so surrendered, each Certificate will be deemed
from and after the Effective Time, for all corporate purposes, to evidence the
right to receive the Merger Consideration.
(b) If any portion of the Merger Consideration is to be paid to a
Person other than the registered holder of the Shares represented by the
Certificates surrendered in exchange therefor, it shall be a condition to such
payment that the Certificates so surrendered shall be properly endorsed or
otherwise be in proper form for transfer and that the Person requesting such
payment shall pay to the Parent any transfer or other taxes required as a result
of such payment to a Person other than the registered holder of such Shares or
establish to the satisfaction of the Parent that such tax has been paid or is
not payable.
(c) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact, in form and substance acceptable
to the Parent, by the person claiming such Certificate to be lost, stolen or
destroyed, and complying with such other conditions as the Parent may reasonably
impose (including the execution of an indemnification undertaking or the posting
of an indemnity bond or other surety in favor of the Parent with respect to the
Certificate alleged to be lost, stolen or destroyed), the Parent will deliver to
such person the Merger Consideration payable in respect of each such
Certificate, without interest thereon.
2.3. Payment of Collared Stock Consideration After the Closing. On the
terms and subject to the conditions of this Section 2.3, holders of Shares shall
be entitled to receive an
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aggregate number of whole shares of Parent Common Stock, rounded down to the
nearest whole share, as computed in accordance with Section 2.3(a) (the
"Collared Stock Consideration").
(a) Collared Stock Consideration Amount. The aggregate number of
shares of Parent Common Stock payable as Collared Stock Consideration shall be
determined based on the average closing sale price per share (the "Share Price")
of Parent Common Stock reported on the Nasdaq SmallCap Market (the "Nasdaq") for
the thirty (30) trading days prior to (and not including) June 28, 2005. The
aggregate number of shares of Parent Common Stock payable as Collared Stock
Consideration shall be: (i) 2,140,000 shares if the Share Price is greater than
$1.00 but less than $1.50; (ii) that number of shares equal to $2,140,000
divided by the Share Price if the Share Price is less than $1.00, provided that
the maximum number of shares issuable pursuant to this clause (ii) shall be no
more than 4,280,000 shares; or (iii) that number of shares equal to $3,210,000
divided by the Share Price if the Share Price is greater than $1.50.
Notwithstanding the foregoing, if the total value of the Collared Stock
Consideration as determined pursuant to this Section 2.3(a) is less than
$2,140,000, then Parent shall pay the amount equal to the difference in cash
pursuant to Section 2.3(c) below.
(b) Cash Option. At the option of the Representative, up to fifty
percent (50%) of the Collared Stock Consideration as determined pursuant to
Section 2.3(a) above may be paid in cash, instead of shares of Parent Common
Stock. To exercise this option, the Representative shall provide written notice
to Parent on or before June 29, 2005.
(c) Payment of Collared Stock Consideration. Upon a final
determination of the Collared Stock Consideration pursuant to Section 2.3(a)
above, Parent shall instruct its transfer agent to issue shares of Parent Common
Stock, on or before June 30, 2005, representing such Collared Stock
Consideration to the holders of Shares; provided that each Shareholder delivers
to Parent an executed investment representation letter in a form reasonably
acceptable to Parent. If any portion of the Collared Stock Consideration is to
be paid in cash pursuant to Section 2.3(a) and/or Section 2.3(b) above, on the
same date that the shares of Parent Common Stock are issued pursuant to this
Section 2.3(c), Parent shall pay to the Representative for distribution to the
holders of Shares the cash payment portion of the Collared Stock Consideration.
The Collared Stock Consideration shall be allocated among the holders of the
Shares according to each such holder's proportionate ownership interest as set
forth on the Merger Consideration Certificate.
(d) Limit on Number of Shares of Parent Common Stock.
Notwithstanding the foregoing provisions of this Section 2.3, in no event will
Parent be required to issue shares of Parent Common Stock if such issuance would
require stockholder approval under applicable Nasdaq Marketplace Rules. In the
event the number of shares issuable as Collared Stock Consideration is so
limited, Parent will pay the difference to the Shareholders in cash.
2.4. Contingent EBITDA Earn-Out Consideration After the Closing. On the
terms and subject to the conditions of this Section 2.4, holders of Shares shall
be entitled to receive an aggregate cash payment of up to $1,500,000 (as
computed in accordance with Section 2.4(a), the "EBITDA Earn-Out Consideration")
in respect of such Shares following the Effective Time, if and to the extent
earned as provided in this Section 2.4.
(a) EBITDA Earn-Out Consideration Amount. The EBITDA Earn-Out
Consideration shall be equal to the lesser of (i) the amount that is determined
by multiplying the
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Company's EBITDA by the quotient that is equal to $1.50/$1.00, for the period
between July 1, 2004 through June 30, 2005 (the "Earn-Out Period") or (ii)
$1,500,000.
(i) Determination of EBITDA. Within thirty (30) days after the
end of the Earn-Out Period, Parent and its auditors shall conduct a review of
the financial statements of the Company as of the end of the Earn-Out Period and
shall prepare and deliver to the Representative a computation of EBITDA for the
Earn-Out Period (the "EBITDA Earn-Out Notice"). Parent and its auditors shall
make available to the Representative and his auditors all records and work
papers used in preparing EBITDA for the Earn-Out Period. If the Representative
disagrees with the computation of EBITDA, the Representative may, within thirty
(30) days after receipt of the EBITDA Earn-Out Notice, deliver a notice (an
"EBITDA Earn-Out Objection Notice") to Parent setting forth the Representative's
calculation of EBITDA for such Earn-Out Period. If the Representative does not
deliver an Earn-Out Objection Notice within such 30 day period, then EBITDA for
the Earn-Out Period shall be deemed finally determined to be as set forth in the
EBITDA Earn-Out Notice. Parent and the Representative shall use reasonable best
efforts to resolve any disagreements as to the computation of EBITDA for such
Earn-Out Period, but if they do not obtain a final resolution within 30 days
after Parent has received the Earn-Out Objection Notice, Parent and the
Representative shall jointly retain an independent accounting firm of recognized
national standing to resolve any remaining disagreements (the "Firm"). Parent
and the Representative shall direct the Firm to render a determination within 30
days after its retention and Parent, the Representative, and their respective
agents will cooperate with the Firm during its engagement. The Firm will
consider only those items and amounts in the calculation of EBITDA set forth in
the EBITDA Earn-Out Objection Notice which Parent and the Representative are
unable to resolve. Parent and the Representative shall each make written
submissions to the Firm promptly (and in any event within 30 days after the
Firm's engagement), which submissions shall contain such party's computation of
EBITDA for the Earn-Out Period and information, arguments, and support for such
party's position. The Firm shall review such submissions and base its
determination solely on them. In resolving any disputed item, the Firm may not
assign a value to any item greater than the greatest value for such item claimed
by either party or less than the smallest value for such item claimed by either
party. The Firm's determination will be based on the definition of EBITDA
included herein. The determination made by the Firm shall be binding and
conclusive on the parties hereto for all purposes under this Agreement. The
expenses of the Firm shall be shared equally such that half of the expenses are
paid by Parent and half of the expenses shall reduce the EBITDA Earn-Out
Consideration payable to the Shareholders; provided, however, Parent shall pay
for all of the expenses of the Firm if EBITDA as determined by Parent in the
EBITDA Earn-Out Notice is understated by more than ten percent (10%) of EBITDA
as determined by the Firm.
(ii) Payment Procedures. Parent shall deliver the aggregate
EBITDA Earn-Out Consideration, as adjusted per Section 2.4(a)(i) above, in cash
to the Representative for distribution to the holders of Shares in accordance
with Section 2.1(b) on or before July 30, 2005 unless otherwise subject to an
EBITDA Earn-Out Objection Notice.
2.5. Contingent Revenue Earn-Out Consideration After the Closing. On the
terms and subject to the conditions of this Section 2.5, holders of Shares shall
be entitled to receive an aggregate cash payment of up to $1,500,000 (as
computed in accordance with Section 2.5(a), the "Revenue Earn-Out
Consideration") in respect of such Shares following the Effective Time, if and
to the extent earned as provided in this Section 2.5.
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(a) Revenue Earn-Out Consideration Amount. The Revenue Earn-Out
Consideration shall be equal to the lesser of (i) the amount that is determined
by multiplying the Company's gross revenue for the Earn-Out Period (the
"Earn-Out Revenue") by the quotient that is equal to $1.00/$12.00 or (ii)
$1,500,000.
(b) Determination of Earn-Out Revenue. Within thirty (30) days after
the end of the Earn-Out Period, Parent shall prepare and deliver to the
Representative a statement to the Representative setting forth the Earn-Out
Revenue and identifying the aggregate Revenue Earn-Out Consideration, if any,
and such reasonable detail required to support the calculation of the Earn-Out
Revenue (the "Revenue Earn-Out Notice"). If the Representative disagrees with
the computation of the Earn-Out Revenue, the Representative may, within thirty
(30)days after receipt of the Revenue Earn-Out Notice, deliver a notice (a
"Revenue Earn-Out Objection Notice") to Parent setting forth the
Representative's calculation of the Earn-Out Revenue for such Earn-Out Period.
If the Representative does not deliver a Revenue Earn-Out Objection Notice
within such 30 day period, then the Earn-Out Revenue for the Earn-Out Period
shall be deemed finally determined to be as set forth in the Revenue Earn-Out
Notice. Parent and the Representative shall use reasonable best efforts to
resolve any disagreements as to the computation of the Earn-Out Revenue for such
Earn-Out Period, but if they do not obtain a final resolution within 30 days
after Parent has received the Revenue Earn-Out Objection Notice, Parent and the
Representative shall jointly retain the Firm. Parent and the Representative
shall direct the Firm to render a determination within 30 days after its
retention and Parent, the Representative, and their respective agents will
cooperate with the Firm during its engagement. The Firm will consider only those
items and amounts in the calculation of the Earn-Out Revenue set forth in the
Revenue Earn-Out Objection Notice which Parent and the Representative are unable
to resolve. Parent and the Representative shall each make written submissions to
the Firm promptly (and in any event within 30 days after the Firm's engagement),
which submissions shall contain such party's computation of the Earn-Out Revenue
for the Earn-Out Period and information, arguments, and support for such party's
position. The Firm shall review such submissions and base its determination
solely on them. In resolving any disputed item, the Firm may not assign a value
to any item greater than the greatest value for such item claimed by either
party or less than the smallest value for such item claimed by either party. The
Firm's determination will be based on the definition of the Earn-Out Revenue
included herein. The determination made by the Firm shall be binding and
conclusive on the parties hereto for all purposes under this Agreement. The
expenses of the Firm shall be shared equally such that half of the expenses are
paid by Parent and half of the expenses shall reduce the Revenue Earn-Out
Consideration payable to the Shareholders; provided, however, Parent shall pay
for all of the expenses of the Firm if the Earn-Out Revenue as determined by
Parent in the Revenue Earn-Out Notice is understated by more than ten percent
(10%) of Revenue as determined by the Firm.
(c) Payment of Revenue Earn-Out Consideration. Parent shall deliver
the aggregate Revenue Earn-Out Consideration, as adjusted pursuant to Section
2.5(b) above, in cash to the Representative for distribution to the holders of
Shares in accordance with Section 2.1(b) on or before July 30, 2005 unless
otherwise subject to an EBITDA Earn-Out Objection Notice.
2.6. Change in Control. The maximum amount of the consideration payable
pursuant to Sections 2.3, 2.4 and 2.5 shall be paid in full as soon as
practicable upon a Change in Control of Parent (i.e. $3,210,000, in the case of
the Collared Stock Consideration; $1,500,000, in the case of the EBITDA Earn-Out
Consideration and $1,500,000, in the case of the Revenue Earn-Out
Consideration). In such an event, the Share Price for the Collared Stock
Consideration shall be based on average closing price as reported on the Nasdaq
for the thirty (30) trading days prior to the earlier
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of (i) public announcement of a Change in Control transaction or (ii) two
trading days prior to consummation of a Change in Control transaction.
2.7. Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that any deeds, bills of
sale, assignments, assurances or any other actions or things are necessary or
desirable to vest, perfect or confirm of record or otherwise in the Surviving
Corporation its right, title or interest in, to or under any of the rights,
properties or assets of Merger Sub or the Company or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of Merger Sub and
the Company, all such deeds, bills of sale, assignments and assurances and to
take and do, in the name and on behalf of Merger Sub or the Company, all such
other actions and things as may be necessary or desirable to vest, perfect or
confirm any and all right, title and interest in, to and under such rights,
properties or assets in the Surviving Corporation or otherwise carry out the
transactions contemplated by this Agreement.
2.8. Withholding Taxes; Payments to Public Officials. Parent and Merger
Sub shall be entitled to deduct and withhold from any consideration payable or
otherwise deliverable to holders of Shares pursuant to this Agreement such
amounts as Parent and Merger Sub may be required to deduct or withhold therefrom
under the Code or under any provision of state, local or foreign Tax Law. To the
extent such amounts are so deducted or withheld, such amounts shall be treated
for all purposes under this Agreement as having been paid to the holders of
Shares to whom such amounts would otherwise have been paid. Neither Parent nor
Merger Sub shall be liable to holders of Shares for any cash amounts delivered
to any public official pursuant to any applicable abandoned property, escheat or
similar Law.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE
SHAREHOLDERS
The Company and the Shareholders, jointly and severally, represent and
warrant to Parent and Merger Sub that, except as set forth in the disclosure
schedules delivered by the Company to Parent and Merger Sub (the "Company
Disclosure Schedule") which have been provided to Parent prior to the date
hereof:
3.1. Corporate Existence and Power. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California, and has all corporate powers and authority and all governmental
licenses, authorizations, permits, consents and approvals required to own, lease
and operate its properties and to carry on its business as now conducted, except
for those licenses, authorizations, permits, consents and approvals the absence
of which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction where such
qualification is necessary, except for those jurisdictions where the failure to
be so qualified would not, individually or in the aggregate, have a Material
Adverse Effect on the Company. The Company has heretofore delivered to Parent
true and complete copies of the Company's Articles of Incorporation and Bylaws
as currently in effect.
3.2. Subsidiaries. The Company does not own, directly or indirectly, any
equity or other ownership interest in any corporation, partnership, joint
venture or other entity or enterprise.
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3.3. Corporate Authorization.
(a) The execution, delivery and performance by the Company of this
Agreement and the consummation of the transactions contemplated hereby are
within the Company's corporate powers and have been duly authorized by all
necessary corporate action, except for the required approval of the holders of
the Company's capital stock in connection with the consummation of the Merger.
This Agreement and the Merger have been duly authorized by all necessary
corporate action of the Company in accordance with the CGCL.
(b) The Company's Board of Directors, pursuant to any action by
written consent, has unanimously (i) determined that this Agreement and the
transactions contemplated hereby (including the Merger) are fair to, and in the
best interests of, its shareholders, and (ii) approved and adopted this
Agreement and the transactions contemplated hereby (including the Merger), which
approval satisfies in full any applicable requirements of the CGCL.
(c) This Agreement has been duly executed and delivered by the
Company. This Agreement constitutes, and the Transaction Documents to be
executed and delivered by the Company will constitute, legal, valid and binding
obligations of the Company, enforceable against the Company, as applicable, in
accordance with their respective terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws affecting the enforcement of creditors
rights generally or by general equitable principles.
3.4. Governmental Authorization. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby require no action by or in respect of, or
filing with, any governmental body, agency, official or authority, other than
(a) the filing of the California Agreement of Merger and other documents in
accordance with the CGCL, and (b) any other filings, approvals or authorizations
which, if not obtained, would not, individually or in the aggregate, have a
Material Adverse Effect on the Company or Materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement.
3.5. Non-Contravention. The execution, delivery and performance by the
Company of this Agreement and the consummation by the Company of the
transactions contemplated hereby do not and will not (i) contravene or conflict
with the Articles of Incorporation or Bylaws of the Company, (ii) assuming
compliance with the matters referred to in Section 3.4, contravene or conflict
with or constitute a violation of any provision of any Law, judgment,
injunction, order or decree binding upon or applicable to the Company, (iii)
require the consent or other action of any Person under, constitute a default
under, or give rise to any right of termination, cancellation or acceleration of
any right or obligation of the Company or to a loss of any benefit to which the
Company is entitled under any provision of any Material agreement or other
instrument binding upon the Company or any Material license, franchise, permit,
certificate, approval or other similar authorization affecting, or relating in
any way to, the assets or business of the Company, (iv) result in the creation
or imposition of any Material Lien on any asset of the Company, except, in the
case of clauses (ii) and (iii), for such matters as would not, individually or
in the aggregate, have a Material Adverse Effect on the Company or Materially
impair the ability of the Company to consummate the transactions contemplated by
this Agreement.
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3.6. Compliance with Law and Other Instruments.
(a) The Company holds all licenses, permits and authorizations
necessary for the lawful conduct of its business as now being conducted pursuant
to all applicable Laws of all governmental bodies, agencies and other
authorities having jurisdiction over the Company or any part of its operations,
and there are no violations or claimed violations by the Company, or action or
proceeding pending against the Company with respect to any such license, permit
or authorization or any such Law. Section 3.6 of the Company Disclosure Schedule
sets forth all such required licenses, permits and authorizations.
(b) The business of the Company has been and is being conducted in
compliance with all applicable Laws, except for violations or failures to so
comply that would not, individually or in the aggregate, have a Material Adverse
Effect on the Company. No investigation or review by any Regulatory Authority
with respect to the Company is pending or threatened in writing. The Company has
not received any written communication in the past two years from a Regulatory
Authority that alleges that the Company is not in compliance with any applicable
Law.
3.7. Capitalization.
(a) The authorized capital stock of the Company consists of 50,000
shares of common stock. As of the date of this Agreement, there are outstanding
44,210 shares of common stock.
(b) All outstanding shares of Company Stock have been duly
authorized and validly issued and are fully paid and nonassessable and free of
preemptive rights. Except as set forth in this Section 3.7, there are no
outstanding (i) shares of capital stock or other voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, or (iii) options,
restricted stock, stock appreciation rights, other stock based compensation
awards or other rights to acquire from the Company, or other obligation of the
Company to issue, any capital stock, voting securities or securities convertible
into or exchangeable for capital stock or voting securities of the Company.
There are no outstanding obligations of the Company to repurchase, redeem or
otherwise acquire any securities referred to in clauses (i), (ii) or (iii)
above.
(c) As of the date hereof, there are no outstanding bonds,
debentures, notes or other indebtedness of the Company having the right to vote
(or convertible into or exercisable for Company Stock having the right to vote)
on any matters on which shareholders of the Company may vote.
(d) All of the Company Stock was issued or granted in compliance
with all applicable federal and state securities laws.
(e) To the knowledge of the Company and the Shareholders, there are
no voting agreements or voting trusts between or among any Person or Persons
relating to the Company or the Company Stock. The Company is not obligated to
issue or repurchase any shares of Company Stock for any purpose, and no Person
has entered into any Contract (whether preemptive or contractual) for the
purchase, subscription or issuance of any unissued shares or other securities of
the Company, whether now or in the future.
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3.8. Company Financial Statements; Absence of Undisclosed Liabilities.
(a) Schedule 3.8(a) of the Company Disclosure Schedule contains the
Company's unaudited balance sheets as of December 31, 2002 and 2003 and the
related audited statements of income for the fiscal years then ended and the
Company's unaudited balance sheet as of September 30, 2004 and the related
unaudited statement of income for the period then ended (collectively, the
"Company Financial Statements"). The Company Financial Statements present fairly
the financial condition and results of operations of the Company as of the
respective dates and for the respective periods referred to in such financial
statements.
(b) The Company Financial Statements, including the notes thereto,
have been prepared in accordance with United States generally accepted
accounting principles ("GAAP") applied consistently throughout the periods
involved (except as disclosed therein). No financial statements of any Person
other than the Company are required to be included in the Company Financial
Statements.
(c) Except as set forth in the Company Financial Statements, the
Company does not have any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise), except for liabilities and
obligations incurred in the ordinary course of business and which, individually
or in the aggregate, could not reasonably be expected to have a Material Adverse
Effect on the Company.
3.9. Absence of Certain Changes. Since September 30, 2004, the business of
the Company has been conducted in the ordinary course consistent with past
practice and there has not been any:
(a) event, occurrence or development of a state of circumstances or
facts which would, individually or in the aggregate, have a Material Adverse
Effect on the Company (other than adverse effects arising from the execution and
performance of this Agreement, changes in general economic conditions or changes
applicable generally to the industry) or any event, occurrence or development
which would have a Material Adverse Effect on the ability of the Company to
consummate the Merger;
(b) declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company of any outstanding
shares of capital stock or other securities of, or other ownership interests in
the Company;
(c) split, combination, re-classification of any Company Stock or
any amendment of any term of any outstanding security of the Company;
(d) incurrence, assumption or guarantee by the Company of any
indebtedness for borrowed money other than in the ordinary course and in amounts
and on terms consistent with past practices;
(e) creation or other incurrence by the Company of any Lien on any
Asset other than in the ordinary course consistent with past practices;
10
(f) transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including the
acquisition or disposition of any assets) or any relinquishment by the Company
of any contract or other right, in either case, Material to the Company, other
than transactions and commitments in the ordinary course consistent with past
practices and those contemplated by this Agreement;
(g) change in any method of accounting, method of tax accounting or
accounting practice by the Company, except for any such change that is
consistent with GAAP or required by reason of a concurrent change in GAAP;
(h) (i) grant of any severance or termination pay to any current or
former director, officer or employee of the Company, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any current or former director, officer or
employee of the Company, (iii) increase in benefits payable under any existing
severance or termination pay policies or employment agreements, (iv) increase in
compensation, bonus or other benefits payable or otherwise made available to
current or former directors, officers or employees of the Company (other than in
the ordinary course of business for employees other than officers and
directors), (v) the declaration or payment of any bonuses or year-end payments
to any current or former directors, officers or employees of the Company, or
(vi) establishment, adoption, or amendment (except as required by applicable
Law), of any collective bargaining, bonus, profit sharing, thrift, pension,
retirement, deferred compensation, compensation, stock option, restricted stock
or other benefit plan or arrangement covering any current or former director,
officer or employee of the Company;
(i) labor dispute, other than routine individual grievances, or, to
the knowledge of the Company and the Shareholders, any activity or proceeding by
a labor union or representative thereof to organize any employees of the Company
or any lockouts, strikes, slowdowns, work stoppages or threats thereof by or
with respect to such employees;
(j) tax election or any settlement of tax liability, in either case
that is Material to the Company;
(k) asset acquisition or expenditure in excess of $50,000
individually or $250,000 in the aggregate;
(l) payment, prepayment or discharge of liability other than in the
ordinary course of business or any failure to pay any liability when due;
(m) write-offs or write-downs of any assets of the Company;
(n) creation, termination or amendment of, or waiver of any right
under, any Material Contract of the Company;
(o) damage, destruction or loss having, or reasonably expected to
have, a Material Adverse Effect on the Company;
(p) event that, if taken during the period from the date of this
Agreement through the Effective Time, would constitute a breach of Section 5.1
hereof; or
(q) agreement or commitment to do any of the foregoing.
11
3.10. Litigation. There is no action, suit, investigation, audit or
proceeding pending against, or to the knowledge of the Company and the
Shareholders threatened against or affecting, the Company, its officers or
directors or any of its properties before any court or arbitrator or any
governmental body, agency or official. No former shareholder, employee, officer
or director of the Company has any claim pending or to the knowledge of the
Company and the Shareholders threatened against the Company, its officers or
directors or any of its properties relating to sales of Company Stock by the
Company or any of the Company's current or former shareholders. Neither the
Company nor any of its officers and directors nor any of its properties are
subject to any order, writ, judgment, decree or injunction of any court or
arbitrator or any governmental body, agency or official. To the knowledge of the
Company and the Shareholders, there are no facts or circumstances that could
reasonably be expected to give rise to any actions set forth in this Section
3.10.
3.11. Taxes.
(a) Except as set forth in (or resulting from matters set forth in)
Section 3.11 of the Company Disclosure Schedule or as could not, individually or
in the aggregate, reasonably be expected to have a Material Adverse Effect on
the Company:
(i) the Company has prepared and timely filed with the
appropriate governmental agencies all franchise, income and all other Tax
returns and reports required to be filed on or before the Effective Time
(collectively the "Returns"), taking into account any extension of time to file
granted to or obtained on behalf of the Company;
(ii) all Taxes of the Company shown on such Returns or
otherwise known by the Company to be due or payable have been timely paid in
full to the proper authorities, other than such Taxes as are adequately reserved
for in accordance with GAAP;
(iii) all deficiencies resulting from Tax examinations of
income, sales and franchise and all other Returns filed by the Company in any
jurisdiction in which such Returns are required to be so filed have been paid
and no claim has been made by an authority in a jurisdiction where the Company
does not file Returns that it is or may be subject to taxation by that
jurisdiction;
(iv) no deficiency has been asserted or assessed against the
Company which has not been satisfied or otherwise resolved, and no examination
of the Company is pending or, to the knowledge of the Company and the
Shareholders, threatened for any Material amount of Tax by any taxing authority
and there is no dispute or claim concerning any Tax liability of the Company
either claimed by any authority in writing, or to the knowledge of the Company
and the Shareholders, reasonably expected to be claimed;
(v) no extension of the period for assessment or collection of
any Material Tax is currently in effect and no extension of time within which to
file any Material Return has been requested;
(vi) all Returns filed by the Company are correct and complete
in all respects or adequate reserves have been established with respect to any
additional Taxes that may be due (or may become due) as a result of such Returns
not being correct or complete;
(vii) to the knowledge of the Company and the Shareholders, no
Tax liens have been filed with respect to any Taxes;
12
(viii) the Company has not: (A) filed a consent under Code
Section 341(f) concerning collapsible corporations; (B) executed, become subject
to, or entered into any closing agreement pursuant to Section 7121 of the Code
or any similar or predecessor provision thereof under the Code or other Tax Law,
(C) received approval to make or agreed to a change in accounting method, or (D)
incurred or assumed any liability for the Taxes of any Person. The Company has
disclosed on its federal income Tax Returns all positions taken therein that
could give rise to a substantial understatement of federal income Tax within the
meaning of Section 6662 of the Code;
(ix) no Company asset is property that is required to be
treated as being owned by any other Person pursuant to the so-called "safe
harbor lease" provisions of former Section 168(f)(8) of the Code; the Company
has not agreed to make, nor are they required to make, any adjustment under
Section 481(a) of the Code by reason of a change in accounting method or
otherwise; the transaction contemplated herein is not subject to the Tax
withholding provisions of Code Section 3406, or of subchapter A of Chapter 3, of
the Code or of any other provision of Law; and the Company is not a party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income Tax purposes;
(x) the Company has not entered, nor does it plan to enter
into, any agreement, arrangement, plan or similar circumstance with any Person
that could result in a distribution, apportionment or reallocation under Section
482 of the Code or other similar provision of the Tax Law;
(xi) the Company has not made since January 1, 2001, and will
not make, any voluntary adjustment by reason of a change in its accounting
methods for any pre-Merger period;
(xii) the Company has made timely payments of the Taxes
required to be deducted and withheld in connection with amounts paid or owing to
any employee, independent contractor, creditor, shareholder, or other third
party;
(xiii) the Company is not a party to any Tax sharing or Tax
matters agreement;
(xiv) to the knowledge of the Company and the Shareholders,
the Company is not liable to suffer any recapture, clawback or withdrawal of any
relief or exemption from Tax howsoever arising (including the entering into and
the consummation of the Merger), and whether by virtue of any act or omission by
the Company or by any other Person or Persons;
(xv) to the knowledge of the Company and the Shareholders, the
Company is not liable to be assessed for or made accountable for any Tax for
which any other Person or Persons may be liable to be assessed or made
accountable whether by virtue of the entering into or the consummation of the
Merger or by virtue of any act or acts done by or which may be done by or any
circumstance or circumstances involving or which may involve any other Person or
Persons; and
(xvi) The Company has not been a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
(b) The Company is not a party to any agreement, contract, or
arrangement that would, as a result of the transactions contemplated hereby,
result, separately or in the aggregate, in
13
(i) the payment of any "excess parachute payments" within the meaning of Section
280G of the Code by reason of the Merger, (ii) the payment of any form of
reimbursement for any Tax incurred by any Person arising under Section 280G of
the Code, or (iii) the payment of any amounts not deductible by the Company, in
whole or in part, by reason of Section 162(m) of the Code.
3.12. The Company Employee Benefit Plans.
(a) Section 3.12(a) of the Company Disclosure Schedule sets forth a
list of all of the Company's employee benefit plans, as defined in Section 3(3)
of ERISA.
(b) Section 3.12(b) of the Company Disclosure Schedule sets forth a
true and complete list of all other profit-sharing, deferred compensation
(including a list of participants therein), bonus, stock option, stock purchase,
stock bonus, phantom stock, vacation pay, holiday pay, severance, dependent care
assistance, excess benefit, incentive compensation, salary continuation,
medical, life or other insurance, employment, severance, termination, golden
parachute, consulting, supplemental retirement plan or agreement, supplemental
unemployment and other employee benefit plans, programs, agreements or
arrangements, including all unwritten employee benefit plans, programs,
agreements and arrangements, if any, maintained or contributed to by the Company
for the benefit of the Company's Employees (or former employees) or independent
contractors and/or their beneficiaries. The plans identified in Sections 3.12(a)
and 3.12(b) are collectively referred to herein as "Benefit Plans." An
arrangement will not fail to be a Benefit Plan simply because it only covers one
individual, or because the Company's obligations under the plan arise by reason
of its being a "successor employer" under applicable Law.
(c) The Company has delivered or made available to Parent a true and
complete copy of each Benefit Plan and any related funding agreements (e.g.,
trust agreements or insurance contracts), including all amendments (and Section
3.12(b) of the Company Disclosure Schedule includes a description of any such
amendment that is not in writing).
(d) Except as set forth in Section 3.12(d) of the Company Disclosure
Schedule, the Company does not maintain or contribute to, nor has maintained or
contributed to, any Benefit Plan that is subject to Section 302 of ERISA or
Section 412 of the Code.
(e) No Benefit Plan is a "multi-employer plan," as defined in
Section 3(37) of ERISA, nor is a plan described in Section 4063(a) of ERISA.
(f) All costs of administering, and contributions required to be
made by the Company to, each Benefit Plan under the terms of that Benefit Plan,
ERISA, the Code or any other applicable Law have been timely made, and are fully
deductible. All amounts properly accrued to date as liabilities of the Company
under, or with respect to, each Benefit Plan (including administrative expenses
and incurred but not reported claims) for the current plan year of the Benefit
Plan have been recorded on the appropriate books, to the extent required by Law
or GAAP.
(g) Except as set forth in Section 3.12(g) of the Company Disclosure
Schedule, each Benefit Plan has been maintained and operated in accordance with,
and complies currently with, in all Material respects, all applicable Laws,
including but not limited to ERISA and the Code. Each Benefit Plan has been
operated in all Material respects in accordance with its terms.
14
(h) To the knowledge of the Company and the Shareholders, (i) no
prohibited transaction has occurred with respect to any of the Benefit Plans
which is not exempt under Section 4975 of the Code and Section 406 of ERISA, and
(ii) the Company has not engaged in any transaction with respect to any Benefit
Plan which could subject it to either a Material civil penalty assessed pursuant
to Section 409, 502(i) or 502(l) of ERISA, or a Material tax imposed pursuant to
Section 4975 or 4976 of the Code.
(i) Except as set forth in Section 3.12(i) of the Company Disclosure
Schedule, the Company does not maintain any plan that provides (or will provide)
medical or death benefits to one or more, current or future former employees
(including retirees) beyond their retirement or other termination of service,
other than benefits that are required to be provided pursuant to Section 4980B
of the Code or state Law continuation coverage or conversion rights.
(j) Except as set forth in Section 3.12(j) of the Company Disclosure
Schedule, there are no proceedings or lawsuits, pending or, to the knowledge of
the Company and the Shareholders, threatened, and, to the knowledge of the
Company and the Shareholders, are no investigations, either currently in
progress or expected to be instituted in the future, relating to any Benefit
Plan, by any administrative agency, whether local, state or federal or by any
fiduciary, participant or beneficiary of such plan.
(k) Except as set forth in Section 3.12(k) of the Company Disclosure
Schedule, none of the Benefit Plans or any other employment agreement or
arrangement entered into by the Company will entitle any current or former
employee to any benefits or other compensation that become payable solely as a
result of the consummation of this transaction.
(l) None of the Benefit Plans are subject to the tax on unrelated
business taxable income or unrelated debt financed income under Section 511 of
the Code.
(m) Except as set forth in Section 3.12(m) of the Company Disclosure
Schedule, to the knowledge of the Company and the Shareholders, no Benefit Plan
has any interest in any annuity contract or other investment or insurance
contract issued by an insurance company that is the subject of bankruptcy,
conservatorship, rehabilitation or similar proceeding.
(n) Section 3.12(n) of the Company Disclosure Schedule lists each
individual who (i) has elected to continue participating in a group health plan
of the Company pursuant to an election under COBRA, or (ii) has not made an
election under COBRA but who is still eligible to make such election.
3.13. Banking and Finders' Fees. There is no investment banker, broker,
finder or other intermediary, which has been retained by or is authorized to act
on behalf of the Company who might be entitled to any fee or commission in
connection with the transactions contemplated by this Agreement.
3.14. Environmental Compliance.
(a) The Company is in compliance with all Environmental Laws and all
Environmental Permits (except where non-compliance would not have a Material
Adverse Effect upon the Company).
15
(b) The Company has not received any written notice regarding any
violation of any Environmental Laws, or any Company Environmental Liabilities,
including any investigatory, remedial or corrective obligations, relating to the
Company or its facilities arising under Environmental Laws.
(c) Except as set forth in Section 3.14 of the Company Disclosure
Schedule:
(i) The Company has not caused, or is not causing or
threatening to cause any disposals or releases of any Hazardous Material on or
under any properties which it (A) leases, occupies or operates or (B) previously
owned, leased, occupied or operated and, to the knowledge of the Company and the
Shareholders, without inquiry, no such disposals or releases occurred prior to
the Company having taken title to, or possession or operation of, any of such
properties; and to the knowledge of the Company and the Shareholders, without
inquiry, no such disposals or releases are migrating or have migrated off of
such properties in subsurface soils, groundwater or surface waters after the
Company has taken title to, or possession or operation of any such properties
and, to the knowledge of the Company and the Shareholders, no such disposals or
releases are migrating or have migrated off of such properties in subsurface
soils, groundwater or surface water prior to such time;
(ii) The Company has not (A) arranged for the disposal or
treatment of Hazardous Material at any facility owned or operated by another
Person, or (B) accepted any Hazardous Material for transport to disposal or
treatment facilities or other sites selected by the Company from which
facilities or sites there has been a release or there is a release or threatened
release of a Hazardous Material; any facility identified in Section
3.14(c)(ii)(A) was duly licensed in accordance with Law and has not been listed
in connection with the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA) by the United States Environmental Protection Agency's
Comprehensive Environmental Response, Compensation, and Liability Information
System (CERCLIS) or National Priorities List (NPL) or any equivalent or like
listing of sites under state or local Law (whether for potential releases of
substances listed in CERCLA or other substances);
(iii) The Company does not have any reason to believe or
suspect that, and to the knowledge of the Company and the Shareholders, without
inquiry, there is no release or threatened release of, any Hazardous Material
originating from a property other than those leased or operated by the Company
has come to be (or may come to be) located on or under properties leased,
occupied or operated by the Company;
(iv) The Company has not ever installed, used, buried or
removed any surface impoundment or underground tank or vessel on properties
owned, leased, occupied or operated by the Company or any of the Company
Subsidiaries;
(v) The Company is and has been in compliance in all Material
respects with all federal, state, local or foreign Laws, permits, approvals and
authorizations relating to air, water, industrial hygiene and worker health and
safety, anti-pollution, hazardous or toxic wastes, materials or substances,
pollutants or contaminants, and to the knowledge of the Company and the
Shareholders, without inquiry, no condition exists on any of the real property
owned by or used in the business of the Company that would constitute a
violation of any such Law or that constitutes or threatens to constitute a
public or private nuisance; and
16
(vi) There has been no litigation, administrative proceedings
or investigations or any other actions, claims, demands notices of potential
responsibility or requests for information brought or, to the knowledge of the
Company and the Shareholders, threatened against the Company or any settlement
reached by it with any Person or Persons alleging the presence, disposal,
release or threatened release of any Hazardous Material on, from or under any of
such properties or as otherwise relating to potential environmental liabilities
or the actual or alleged injury to human health or the environment by reason of
the current conditions or operation of the Company facilities or past condition
and operations or activities of the Company facilities.
3.15. Collective Bargaining Arrangements. The Company is not a party to or
bound by any employee collective bargaining agreement, nor is the Company a
party to or affected by or, to the knowledge of the Company and the
Shareholders, threatened with, any dispute or controversy with a union or with
respect to unionization or collective bargaining involving the employees of the
Company.
3.16. Accounts Receivable; Deferred Revenue.
(a) The accounts receivable reflected in the balance sheet as of
September 30, 2004 of the Company Financial Statements are owned free and clear
by the Company and are based on the Company's reasonable judgment and its normal
credit review procedures, business practices and GAAP, and are fully collectible
in accordance with their terms in an amount not less than their aggregate book
value. "Aggregate book value," for this purpose, shall mean the recorded amounts
of such accounts receivable, less any recorded allowance for doubtful accounts,
trade allowances and return allowances, all as established in accordance with
GAAP consistently applied. Any such allowances for doubtful accounts, trade
allowances and return allowances are established in accordance with past
practices and are consistent with past collectibility results and returns. To
the knowledge of the Company and the Shareholders, there are no facts or
circumstances which may indicate that any recorded allowances are inadequate.
Except as set forth in Section 3.16(a) of the Company Disclosure Schedule, and
subject to adjustments mutually agreed upon by the parties, all accounts
receivable for customer collections and ▇▇▇▇▇▇▇▇ prior to the Closing Date have
been properly recorded on the Company's books and records on a timely basis and
in the month in which the Company's efforts and activities generating such
income were expended.
(b) The deferred revenue reflected in the balance sheet as of
September 30, 2004 of the Company Financial Statement is based on the Company's
reasonable judgment and business practices, as established in accordance with
GAAP consistently applied. Except as set forth in Section 3.16(b) of the Company
Disclosure Schedule, all deferred revenue relating to contracts executed prior
to the Closing Date has been properly recorded on the Company's books and
records on a timely basis and in the month in which the Company received the
cash payment.
3.17. Warranties. To the knowledge of the Company and the Shareholders,
there is no fact or event which has occurred at any time since January 1, 2001
which has formed or could reasonably be expected to form the basis of any claim
against the Company, whether or not covered by insurance, for breach of any
implied warranty.
3.18. Interests in Real Property. Section 3.18 of the Company Disclosure
Schedule is the complete and correct list and brief description of all real
property leased by the Company on the Closing Date. The Company does not own any
real property. All real property leases to which the Company is a party are
valid and in full force and effect and are valid and binding on the parties
17
thereto, assuming enforceability as to the parties other than the Company, and
the Company is not in Default of any Material provision thereof. All
improvements and fixtures made by or at the direction of the Company on real
properties leased by the Company conform in all Material respects to all
applicable health, fire, safety, environmental, zoning and building laws and
ordinances; and all materials, buildings, structures (or the space used by the
Company in such buildings or structures) and fixtures used by the Company in the
conduct of its business are in good operating condition and repair, ordinary
wear and tear excepted, and are sufficient for the type and magnitude of their
respective operations.
3.19. Personal Property. The Company has good and marketable title, free
and clear of all title defects, security interests, pledges, options, claims,
liens, encumbrances and restrictions of any nature whatsoever to all inventory
and receivables and to any item of machinery, equipment, or tangible personal
property reflected on the balance sheet as of September 30, 2004 of the Company
Financial Statements or used in the business by the Company (regardless of
whether reflected on the balance sheet as of September 30, 2004 of the Company
Financial Statements). All the machinery, equipment and other tangible personal
property used in the business by the Company is in good operating condition and
repair, normal wear and tear excepted. At the Closing Date, the Company will
possess all of the personal property wherever located required to conduct its
respective business as conducted prior to the Closing.
3.20. Employees, Directors and Officers. Section 3.20 of the Company
Disclosure Schedule comprises a complete and correct list of all of the present
employees, officers and directors of the Company (the "Employees"), including
the direct compensation (including wages, salaries and actual or anticipated
bonuses) to be paid in the current fiscal year to such Persons. Except as
disclosed in Section 3.20 of the Company Disclosure Schedule, no unpaid salary
or bonuses, other than for the immediately preceding pay period and other than
pursuant to the existing deferred compensation plans of the Company is now
payable to any of such officers, directors or employees.
3.21. Patents, Intellectual Property; Software.
(a) The Company owns or possesses legally enforceable rights to use,
all Intellectual Property Material to the operation of the business of the
Company as currently conducted, or to products or services currently under
development by the Company (collectively, "Material Intellectual Property"), and
has the right to use, license, sublicense or assign the same as contemplated in
the operation of the business as currently conducted without Material liability
to, or any requirement of consent from, any other Person or party. Such
Intellectual Property constitutes all Intellectual Property necessary for the
conduct of the business of the Company in the manner conducted immediately prior
to the Closing. All Material Intellectual Property is either owned by the
Company free and clear of all Liens or is used pursuant to a license agreement;
each such license agreement is valid and enforceable and in full force and
effect assuming enforceability as to the parties other than the Company; the
Company is not in Material Default thereunder; and to the knowledge of the
Company and the Shareholders, no corresponding licensor is in Material Default
thereunder. Neither the use, development, manufacture, marketing, licensing,
furnishing or intended use of any Products currently licensed, utilized, sold,
provided or furnished by the Company or currently under development by the
Company infringes or otherwise conflicts with any Intellectual Property or other
right of any Person; there is no pending or threatened (in writing) litigation,
adversarial proceeding, administrative action or other challenge or claim
relating to any Material Intellectual Property; there is no outstanding Order
relating to any Material Intellectual Property; to the knowledge of the Company
and the Shareholders, there is currently no infringement by any
18
Person of any Material Intellectual Property; and the Material Intellectual
Property owned, used or possessed by the Company is sufficient and adequate to
conduct the business of the Company to the full extent as such business is
currently conducted. To the knowledge of the Company and the Shareholders, the
Products do not include any Intellectual Property that is in the public domain.
(b) The Company has the right to use, pursuant to valid licenses,
all software development tools, library functions, compilers, and all other
Third Party Software that are used in the operation of the Company or to create,
modify, compile, operate or support any Software that is Material Intellectual
Property or is incorporated into any Product, except for any deficiencies that
would not have a Material Adverse Effect on the Company. Without limiting the
foregoing, no open source or public library Software, including any version of
Software licensed pursuant to any GNU public license, was used in the
development or modification of any Software that is Material Intellectual
Property or is incorporated into any Product.
(c) The Company has taken reasonable steps to protect, maintain and
safeguard the Material Intellectual Property, including any Material
Intellectual Property for which improper or unauthorized disclosure would impair
its value or validity Materially, and has executed and required such
nondisclosure agreements as are reasonably necessary to protect the
confidentiality of Material Intellectual Property and made filings and
registrations in connection with the foregoing reasonably required to safeguard
the Material Intellectual Property.
(d) The Company is the sole and exclusive owner of all Owned
Software that is required to conduct its business including, without limitation,
the products and services currently under development by the Company. Section
3.21(d)(i) of the Company Disclosure Schedule sets forth a true and complete
list of all Material Owned Software owned by the Company. Section 3.21(d)(ii) of
the Company Disclosure Schedule sets forth a true and complete list of all
Material Third Party Software used by the Company.
(e) The Company is the sole and exclusive owner of all Owned
Databases that are required to conduct its business including, without
limitation, the products and services currently under development by the
Company. Section 3.21(e)(i) of the Company Disclosure Schedule sets forth a true
and complete list of all Material Owned Databases of the Company. Section
3.21(e)(ii) of the Company Disclosure Schedule sets forth a true and complete
list of all Material Third Party Databases used by the Company.
(f) No Material confidential or trade secret information of the
Company has been provided to any Person except subject to written
confidentiality agreements, except for any such disclosure which has not
resulted and could not reasonably be expected to result in a Material Adverse
Effect on the Company.
(g) The Company has valid copyrights in all Material copyrightable
material necessary for the conduct of its business as being conducted on the
date hereof, whether or not registered with the U.S. copyright office, including
all copyrights in the Products containing Material copyrightable material.
Consummation of the transactions contemplated hereby will not alter or impair
the validity of any copyrights or copyright registrations.
(h) To the knowledge of the Company and the Shareholders, no
employee of the Company is in violation of any term of any employment contract,
patent disclosure agreement or any other contract or agreement relating to the
relationship of any such employee with the Company or
19
any other party because of the nature of the business conducted by, or proposed
to be conducted by the Company.
(i) The Company has secured valid written assignments from all
consultants and employees who contributed to the creation or development of
Intellectual Property of the Company of the rights to such contributions that
the Company does not own by operation of law.
(j) Section 3.21(j) of the Company Disclosure Schedule sets forth a
list of all issued and pending patents, all registered copyrights and all
applications therefor and all trademarks and service marks whether or not
registered currently used in the business conducted by the Company, including,
without limitation, products and services currently under development by the
Company.
(k) Except in the normal course of prosecution: (i) the Company has
not taken any action or failed to take any action that would result in the
abandonment, cancellation, forfeiture, relinquishment, invalidation or
unenforceability of any trademark, copyright, patent or any application for any
of the foregoing, (ii) all registered trademarks and all patents owned by the
Company, to the extent filed with the United States Patent and Trademark Office,
have been filed and obtained in accordance with all applicable legal
requirements and are currently in effect and in compliance with all applicable
legal requirements (including, in the case of registered trademarks, the timely
post-registration filing of affidavits of use and incontestability and renewal
applications), and without limiting the generality of any of the foregoing, the
Company has timely paid all filing, examination, issuance, post registration and
maintenance fees, annuities and the like associated with or required with
respect to any of the foregoing.
(l) No trademark or patent owned by the Company, and to the
knowledge of the Company and the Shareholders, no trademark or patent licensed
to the Company, has been or is now involved in any interference, reissue,
reexamination, opposition or cancellation proceeding and, to the Company's
knowledge and the Shareholders, no such action is or has been threatened with
respect to any such trademarks or patents.
3.22. Contracts.
(a) Except as set forth in Section 3.22(a) of the Company Disclosure
Schedule, the Company is not a party to any:
(i) Contract that involves performance of services or delivery
of goods or materials by or to the Company of an amount or value in excess of
$100,000;
(ii) Contract that was not entered into in the ordinary course
of business and that involves expenditures or receipts of the Company in excess
of $50,000;
(iii) lease, rental or occupancy agreement, license,
installment and conditional sale agreement, and other Contract affecting the
ownership of, leasing of, title to, use of, or any leasehold or other interest
in, any real or personal property;
(iv) licensing agreement or other Contract with respect or
relating to Material Intellectual Property;
20
(v) collective bargaining agreement and other Contract to or
with any labor union or other representative of a group of employees;
(vi) joint venture, partnership, and other Contract (however
named) involving a sharing of profits, losses, costs, or liabilities by the
Company with any other Person;
(vii) Contract containing covenants that in any way purport to
restrict in any material respect the business activity of the Company or any
current or future Affiliate of the Company or limit the freedom of the Company
or any current or future Affiliate of the Company to engage in any line of
business or to compete with any Person anywhere in the world;
(viii) Contract providing for payments to or by any Person
based on sales, purchases, or profits, other than direct payments for goods;
(ix) Contract between the Company, on the one hand, and any
Affiliate of the Company, on the other hand;
(x) Contract regarding indebtedness for borrowed money
(including guaranties of the obligations of others with respect thereto) or any
capitalized lease obligation or similar arrangement, or under which a Lien on
any tangible or intangible asset of the Company or any of their respective
capital stock or equity securities is imposed;
(xi) Contract under which the Company has advanced or loaned
money to any of its Employees other than advancement of expenses in the ordinary
course of business;
(xii) Contract covering the employment, compensation or
severance, of or otherwise relating to, any Employee;
(xiii) Contract for joint, collaborative or shared research,
development or research and development;
(xiv) Contract that obligates the Company to act as a
guarantor or surety, or to otherwise provide credit support for any Person,
irrespective of the amount involved or type of underlying liability or
obligation;
(xv) Contract that contains obligations of the Company to
indemnify third parties against any type of liability, whether known, unknown,
fixed, contingent or otherwise; and
(xvi) amendment, supplement and modification (whether oral or
written) in respect of any of the foregoing or any Contract, agreement or
commitment to enter into amend, supplement or modify any of the foregoing.
(b) The Company has allowed Parent to inspect, and to the extent
requested by Parent has delivered or caused to be delivered to Parent, a true
and correct copy of, each written Contract listed in Schedule 3.22(a) of the
Company Disclosure Schedule, and a written summary setting forth the terms and
conditions of each oral Contract referred to therein, in each case, as in effect
on, and as amended through the date hereof. With respect to each such Contract:
(i) the Company is not in breach or default, and, to the knowledge of the
Company and its Shareholders no event has occurred or circumstances exist which
(with or without notice or lapse of time or both) could reasonably be expected
to constitute a material breach or Default of, or permit termination,
21
modification or acceleration under, the Contract; (ii) no party has repudiated
any provision of the Contract; (iii) the Contract is legally valid and binding
and is enforceable in accordance with its terms against the Company and, to the
knowledge of the Company and the Shareholders, any other parties thereto, except
that (A) such enforcement may be subject to any bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other Laws, now or hereafter
in effect, relating to or limiting creditors' rights generally and (B) the
remedy of specific performance and injunctive and other forms of equitable
relief, may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought; and (iv) the Company has
not given to, or received from any other Person, any notice or other
communication regarding any actual or alleged violation or breach thereof or
default thereunder. The Contracts relating to the design, sale, manufacture or
provisions of the Products or services by the Company thereof have been entered
into in the ordinary course of business and have been entered into without the
commission of any action alone or in concert with any other Person or any
consideration having been paid or promised that is or would be in violation of
any Law.
3.23. Affiliate Transactions. There are no Material Contracts or other
Material transactions between the Company and any Affiliate of the Company.
3.24. Insurance and Banking Facilities. The Company has in full force and
effect all insurance and indemnity policies that are customary in coverage and
amount for a company of its size and industry. Section 3.24 of the Company
Disclosure Schedule comprises a complete and correct list of (i) all contracts
of insurance and indemnity of or relating to the Company (except insurance
related to employee benefits) in force at the date of this Agreement (including
name of insurer or indemnitor, agent, annual charge, coverage and expiration
date); (ii) the names and locations of all banks or depository organizations in
which the Company has accounts; and (iii) the names of all Persons authorized to
draw on such accounts. All premiums and other payments due with respect to all
contracts of insurance or indemnity in force at the date hereof have been or
will be paid, and the Company knows of no circumstance (including without
limitation the consummation of the transactions contemplated by this Agreement),
which has caused, or might cause, any such contract to be canceled or
terminated. There are no Material claims by the Company under any insurance
policies of the Company as to which coverage has been questioned, denied or
disputed by the underwriters of such policies.
3.25. Powers of Attorney and Suretyships. The Company does not have any
powers of attorney outstanding (other than a power of attorney issued in the
ordinary course of business with respect to tax matters or to customs agents and
customs brokers), and, except for obligations as an endorser of negotiable
instruments incurred in the ordinary course of business, the Company does not
have any obligations or liabilities (absolute or contingent) as guarantor,
surety, co-signer, endorser, co-maker, indemnitor or otherwise respecting the
obligation of any other Person.
3.26. Minutes and Stock Records. The Company has provided Parent with
complete and correct copies of the minute books and stock records of the
Company. Such items contain a complete and correct record in all Material
respects of all proceedings and actions taken at all meetings of, and all
actions taken by written consent by, the holders of capital stock of the Company
and its Board of Directors, and all original issuances and subsequent transfers
and repurchases of their respective capital stock.
3.27. Customers; Payors. Section 3.27 of the Company Disclosure Schedule
lists (i) the top 20 customers by ▇▇▇▇▇▇▇▇ for the Company (collectively, the
"Customers"), during twelve month
22
period ended June 30, 2004. The Company has received no oral or written notice
or other indication from any of the Customers or payors stating that such
Customer or payor intends to terminate its business relationship with the
Company, or Materially reduce the volume of business it does with the Company.
3.28. Transfer of SMB Business. The transfer of the SMB Business shall not
not (i) contravene or conflict with the Articles of Incorporation or Bylaws of
the Company, (ii) contravene or conflict with or constitute a violation of any
provision of any Law, judgment, injunction, order or decree binding upon or
applicable to the Company, (iii) require the consent or other action of any
Person under, constitute a default under, or give rise to any right of
termination, cancellation or acceleration of any right or obligation of the
Company or to a loss of any benefit to which the Company is entitled under any
provision of any Material agreement or other instrument binding upon the Company
or any Material license, franchise, permit, certificate, approval or other
similar authorization affecting, or relating in any way to, the assets or
business of the Company, (iv) result in the creation or imposition of any
Material Lien on any asset of the Company, except, in the case of clauses (ii)
and (iii), for such matters as would not, individually or in the aggregate, have
a Material Adverse Effect on the Company or Materially impair the ability of the
Company to consummate the transactions contemplated by this Agreement.
3.29. Full Disclosure. All of the representations and warranties made by
the Company in this Agreement, and all statements set forth in the certificates
delivered by the Company at the Closing pursuant to this Agreement, are true,
correct and complete in all Material respects and do not contain any untrue
statement of a Material fact or omit to state any Material fact necessary in
order to make such representations, warranties or statements, in light of the
circumstances under which they were made, misleading. The copies of all
documents furnished by the Company pursuant to the terms of this Agreement are
complete and accurate copies of the original documents.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub, jointly and severally, represent and warrant to the
Company that, except as set forth in Parent Disclosure Schedule:
4.1. Corporate Existence and Power. Each of Parent and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its incorporation. Each of Parent and Merger Sub has all
requisite corporate powers and authority and all governmental licenses,
authorizations, permits, consents and approvals required to carry on its
business as now conducted, except for those licenses, authorizations, permits,
consents and approvals the absence of which would not, individually or in the
aggregate, have a Material Adverse Effect on Parent. Parent is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where such qualification is necessary, except for those
jurisdictions where the failure to be so qualified would not, individually or in
the aggregate, have a Material Adverse Effect on Parent. Parent has heretofore
delivered to the Company true and complete copies of the Certificate of
Incorporation and Bylaws, as currently in effect, for each of Parent and Merger
Sub.
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4.2. Corporate Authorization.
(a) The execution, delivery and performance by each of Parent and
Merger Sub of this Agreement and the Transaction Documents and the consummation
of the transactions contemplated hereby and thereby are within the corporate
powers of each of Parent and Merger Sub, and have been duly authorized by all
necessary corporate action.
(b) The board of directors of each of Parent and Merger Sub, at a
meeting duly called and held, have each (i) determined that this Agreement and
the Transaction Documents and the transactions contemplated hereby and thereby
(including the Merger) are in the best interests of their respective
stockholders, and (ii) approved and adopted this Agreement and the Transaction
Documents and the transactions contemplated hereby and thereby (including the
Merger), which approval satisfies in full any applicable requirements of
Subchapter IX of the DGCL.
(c) This Agreement has been duly executed and delivered by Parent
and Merger Sub. This Agreement constitutes, and the Transaction Documents to be
executed and delivered will constitute legal, valid and binding obligations of
Parent and Merger Sub, enforceable against Parent and Merger Sub, as applicable,
in accordance with their respective terms, except to the extent that its
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other Laws affecting the enforcement of creditors
rights generally or by general equitable principles.
4.3. Consents and Approvals; No Violations. Assuming the truth and
accuracy of the Company's representations and warranties contained in Section
3.4, except for filings, permits, authorizations, consents and approvals as may
be required under, and other applicable requirements of, the 1933 Act, the 1934
Act, or the rules and regulations promulgated thereunder, or of any Regulatory
Authority pursuant thereto, state securities or blue sky Laws and the filing of
the Agreement of Merger with the Secretary of State of the State of California,
no filing with or notice to, and no permit, authorization, consent or approval
of, any Governmental Entity is necessary for the execution and delivery by
Parent or Merger Sub of this Agreement or the consummation by Parent or Merger
Sub of the transactions contemplated hereby, except where the failure to obtain
such permits, authorizations, consents or approvals or to make such filings or
give such notice would not have a Material Adverse Effect on the ability of
Parent or Merger Sub to consummate the Merger. Neither the execution, delivery
and performance of this Agreement by Parent or Merger Sub nor the consummation
by Parent or Merger Sub of the transactions contemplated hereby will (a)
conflict with or result in any breach of any provision of the respective
Certificate of Incorporation or Bylaws (or similar governing documents) of
Parent or Merger Sub, (b) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a Default under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent or Merger Sub is a party or by which any of them or any of their
respective properties or assets may be bound or (c) violate any order, writ,
injunction, decree or Law applicable to Parent or Merger Sub or any of Parent's
subsidiaries or any of their respective properties or assets, except in the case
of (b) or (c) for violations, breaches or defaults which would not have a
Material Adverse Effect on the ability of Parent or Merger Sub to consummate the
Merger.
4.4. No Prior Activities. Except for obligations incurred in connection
with its incorporation or the negotiation and consummation of this Agreement and
the transactions contemplated hereby, Merger Sub has neither incurred any
obligation or liability or engaged in any
24
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person or entity.
4.5. Financing. Parent has cash or cash equivalents, or has obtained
financing commitments in amounts sufficient to consummate the Merger in
accordance with the terms of this Agreement. Parent has no knowledge of any
facts or circumstances which would give it any reason to believe that such
financing will not be available.
4.6. Valid Issuance of Parent Common Stock. The shares of Parent Common
Stock to be issued pursuant to this Agreement will, when issued, be duly
authorized, validly issued, fully paid and non-assessable.
4.7. SEC Documents; Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
by Parent with the Securities and Exchange Commission since January 1, 2004 (the
"SEC Documents"). As of their respective filing dates, the SEC Documents
complied in all material respects with the requirements of the Securities
Exchange Act of 1934, as amended and the Securities Act of 1933, as amended, and
none of the Parent SEC Documents contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances in
which they were made, not misleading, except to the extent corrected by
subsequently filed Parent SEC Documents.
(b) The financial statements of Parent included in the Parent SEC
Documents were complete and correct in all material respects as of their
respective filing dates; complied as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto; were prepared in accordance with generally
accepted accounting principles applied on a consistent basis and fairly present
the consolidated financial condition and operating results of Parent at the
dates and during the periods indicated therein.
4.8. Litigation. There is no action, suit, investigation, audit or
proceeding pending against, or to the Knowledge of Parent threatened against or
affecting, Parent, its officers or directors or any of its properties before any
court or arbitrator or any governmental body, agency or official. No former
shareholder, employee, officer or director of Parent has any claim pending or to
the Knowledge of Parent threatened against Parent, its officers or directors or
any of its properties relating to sales Parent Stock by Parent. Neither Parent
nor any of its officers and directors nor any of its properties are subject to
any order, writ, judgment, decree or injunction of any court or arbitrator or
any governmental body, agency or official. To the Knowledge of Parent, there are
no facts or circumstances that could reasonably be expected to give rise to any
actions set forth in this Section 4.8.
4.9. Banking and Finders' Fees. There is and will be no investment banker,
broker, finder or other intermediary retained by or authorized to act on behalf
of Parent or any of the Parent Subsidiaries who might be entitled to any fee or
commission from Parent or any of the Parent Subsidiaries upon consummation of
the transactions contemplated by this Agreement.
25
ARTICLE 5
COVENANTS OF THE COMPANY
5.1. Conduct of the Company Business. Except as set forth in Section 5.1
of the Company Disclosure Schedule, prior to the Closing Date, except with the
prior written consent of Parent or as expressly contemplated by this Agreement,
the Company shall:
(a) conduct its business in substantially the same manner as
presently being conducted and refrain from entering into any transaction or
Contract other than in the ordinary course of business and consistent with past
practices; and, accept for accounting adjustments mutually agreed upon by the
parties, not make any change in its methods of management, marketing, accounting
(except as required by GAAP), or operations other than in the ordinary course of
business and consistent with past practices;
(b) obtain approval from Parent prior to undertaking any Material
new business opportunity outside the ordinary course of business;
(c) confer at the request of Parent with one or more designated
representatives of Parent to report Material operational matters and to report
the general status of ongoing business operations;
(d) notify Parent of any governmental complaints, investigations or
hearings (or communications indicating that the same may be contemplated),
adjudicatory proceedings or submissions involving any Material property or other
Material Assets;
(e) not (i) grant of any severance or termination pay to any current
or former director, officer or employee of the Company, (ii) enter into any
employment, deferred compensation or other similar agreement (or any amendment
to any such existing agreement) with any current or former director, officer or
employee of the Company except as contemplated herein, (iii) increase in
benefits payable under any existing severance or termination pay policies or
employment agreements, (iv) increase in compensation, bonus or other benefits
payable or otherwise made available to current or former directors, officers or
employees of the Company (other than in the ordinary course of business salary
increases for employees other than officers and directors), (v) declare or pay
of any bonuses or year-end payments to any current or former directors, officers
or employees of the Company, or (vi) establish, adopt, or amend (except as
required by applicable Law), any collective bargaining, bonus, profit sharing,
thrift, pension, retirement, deferred compensation, compensation, stock option,
restricted stock or other benefit plan or arrangement covering any current or
former director, officer or employee of the Company;
(f) except in the ordinary course of business and consistent with
past practices, not (i) create or incur any indebtedness (or, even if in the
ordinary course of business, not in excess of $50,000 in the aggregate), or (ii)
release or create any Liens of any nature whatsoever except for Permitted Liens;
(g) except in the ordinary course of business and, even if in the
ordinary course of business, then not in an amount to exceed $50,000
individually or $250,000 in the aggregate, not make or commit to make any
capital expenditure, or enter into any lease of capital equipment as lessee or
lessor;
26
(h) pay or discharge liabilities, when due, in the ordinary course
of business and consistent with past practices, subject to good faith disputes
with respect thereto;
(i) write-off or write-down any assets of the Company;
(j) not amend the Articles of Incorporation, Bylaws or other
governing instruments of the Company, except as contemplated by this Agreement;
(k) not make any changes in its accounting methods or practices or
revalue its Assets, except for (i) those changes required by GAAP, and (ii)
changes in its tax accounting methods or practices that may be necessitated by
changes in applicable Tax Laws;
(l) not issue, sell, pledge, encumber, authorize the issuance of,
enter into any Contract to issue, sell, pledge, encumber, or authorize the
issuance of, or otherwise permit to become outstanding, any additional shares of
the Company Stock, or any stock appreciation rights, or any option, warrant,
conversion, or other right to acquire any such stock, or any security
convertible into any such stock, or pay or declare or agree to pay or declare
any dividend or other distribution with respect to any the Company Stock;
(m) not make any loan or otherwise arrange for the extension of
credit to any Employee or increase the aggregate amount of any loan currently
outstanding to any Employee;
(n) not sell or otherwise dispose of any Material Asset or make any
Material commitment relating to its Assets other than in the ordinary course of
business or enter into or terminate any lease of real property other than in the
ordinary course of business;
(o) not purchase or redeem, or agree to purchase or redeem, any
security of the Company (including any share of Company Stock);
(p) not transfer or license to any Person or otherwise extend, amend
or modify any rights to the Intellectual Property of the Company, other than in
the ordinary course of business consistent with past practice;
(q) not (i) enter into any new Material Contract, other than in the
ordinary course of business consistent with past practices, or (ii) Materially
modify, amend or terminate any Material Contract to which the Company is a party
or waive, release, or assign any Material rights or claims thereunder, in any
such case in a manner Materially adverse to Parent;
(r) not take any actions that could reasonably be expected to result
in a Material Adverse Effect on the Company; or
(s) authorize any, or commit or agree to take any of, the foregoing
actions.
5.2. Shareholder Approval. The Company will, as promptly as practicable in
accordance with applicable Law and its Articles of Incorporation and Bylaws,
submit this Agreement, the Merger and related matters for the consideration and
approval by the Company's shareholders. In connection with soliciting
shareholder approval, the Company shall prepare and distribute to holders of
Shares a disclosure statement which summarizes the material terms and conditions
of the Merger, and this Agreement, which disclosure statement shall include the
unanimous recommendation of the Company's Board of Directors in favor of the
Merger. Such
27
approval by written consent or shareholder vote will be solicited, in compliance
with applicable Laws. If approval is obtained by written consent, the Company
shall give, in a timely manner (and shall provide Parent true and correct copies
of) all notices required to be given under Section 603 of the CGCL. The
information distributed to the holders of shares shall not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading.
5.3. Satisfaction of Conditions Precedent. During the term of this
Agreement, the Company will use its commercially reasonable best efforts to
satisfy or cause to be satisfied all the conditions precedent that are set forth
in Article 9, and the Company will use its commercially reasonable best efforts
to cause the Merger and the other transactions contemplated by this Agreement to
be consummated.
5.4. No Other Negotiations. As of the date of this Agreement, the Company
has not entered into any agreement or understanding with, and is not engaging in
any discussions with any third party concerning an Alternative Acquisition (as
defined below) including, without limitation, any agreement or understanding
that would require the Company to notify any third party of the terms of this
Agreement. From and after the date of this Agreement until the earlier of the
Effective Time or the termination of this Agreement in accordance with its
terms, the Company shall not, directly or indirectly, (a) initiate, solicit,
encourage, negotiate, accept or discuss any transaction or series of
transactions with any Person, other than Parent and its Affiliates involving any
recapitalization, restructuring, financing, merger, consolidation, sale, license
or encumbrance or other business combination transaction or extraordinary
corporate transaction of the Company which would or could reasonably be expected
to impede, interfere with, prevent or materially delay the Merger (any such
efforts by any such Person, including a firm proposal to make such an
acquisition, to be referred to as an "Alternative Acquisition"), (b) provide
information with respect to the Company to any Person, other than Parent and its
Affiliates, relating to a possible Alternative Acquisition by any Person, other
than Parent and its Affiliates, (c) enter into an agreement with any Person,
other than Parent and its Affiliates, providing for a possible Alternative
Acquisition, or (d) make or authorize any statement, recommendation or
solicitation in support of any possible Alternative Acquisition by any Person,
other than by Parent and its Affiliates.
If the Company receives any unsolicited offer, inquiry or proposal to
enter into discussions or negotiations relating to an Alternative Acquisition,
or that could reasonably be expected to lead to an Alternative Acquisition, or
any request for nonpublic information relating to the Company, the Company shall
promptly notify Parent thereof, including information as to the identity of the
party making any such offer, inquiry or proposal and the specific terms of such
offer, inquiry or proposal, as the case may be, and shall keep Parent promptly
informed of any developments with respect to same.
5.5. Access. The Company shall afford to Parent, and to the officers,
employees, accountants, counsel, financial advisors and other representatives of
Parent, reasonable access during normal business hours during the period prior
to the Effective Time or the termination of this Agreement to all of the
Company's properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall furnish promptly to Parent, (a) a copy of
each report, schedule, registration statement and other documents filed by it
during such period pursuant to the requirements of federal or state securities
laws and (b) all other information concerning its business, properties and
personnel as Parent or its representatives may reasonably request. Except to the
extent otherwise required by Law, Parent will hold any confidential information
obtained pursuant to this
28
Section 5.5 in accordance with the confidentiality provisions of the letter of
intent entered into between the Parent and the Company dated September 17, 2004
(the "Confidentiality Agreement").
5.6. Notification of Certain Matters. The Company shall give prompt notice
to Parent of (i) the occurrence or non-occurrence of any event the occurrence or
non-occurrence of which would cause any the Company representation or warranty
contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time and (ii) any failure of the Company to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 5.6 shall not limit or otherwise affect the remedies available hereunder
to Parent.
ARTICLE 6
COVENANTS OF PARENT
6.1. Obligations of Merger Sub. Parent shall take all action necessary to
cause Merger Sub to perform its obligations under this Agreement and to
consummate the Merger on the terms and conditions set forth in this Agreement.
6.2. Notification of Certain Matters. Parent shall give prompt notice to
the Company of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would cause any Parent representation or warranty
contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time and (ii) any failure of Parent to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any notice pursuant to this
Section 6.4 shall not limit or otherwise affect the remedies available hereunder
to the Company.
6.3. Transferred Employees. Parent shall offer to hire, as of the Closing
Date, subject in each case to completion of an employment application and
execution of any documents as may be lawfully required by Parent, the employees
set forth on Schedule 6.3 (the "Transferred Employees." The existing Parent
benefit plans will be offered to each Transferred Employee on the Closing Date
to the extent commensurate with the position and seniority of existing Parent
employees and the salary for each such Transferred Employee shall be no less
than the salary of such Transferred Employee paid by the Company as of the date
hereof.
6.4. Issuance of Options. Immediately after the Closing, Parent shall
issue and deliver to Company Employees who become employees of Parent and in the
respective amounts as determined in the sole discretion of Parent, 100,000 of
Parent Common Stock, which shares shall vest at the rate of one third per year
pursuant to a three year vesting schedule and shall be conditioned on continued
employment with Parent.
6.5. Payment of Shareholder Indebtedness. Immediately after the Closing,
Parent shall contribute cash equal to the Shareholder Indebtedness to the
Company and shall cause such contributed cash to be used to pay-off and retire
all of the Shareholder Indebtedness.
6.6. Satisfaction of Conditions Precedent. During the term of this
Agreement, Parent will use its commercially reasonable best efforts to satisfy
or cause to be satisfied all the conditions precedent that are set forth in
Article 9, and Parent will use its commercially reasonable best efforts to cause
the Merger and the other transactions contemplated by this Agreement to be
consummated.
29
6.7. Tax Matters.
(a) (a) Preparation and Filing of Company Tax Returns. The
Shareholders shall prepare and file (or cause the preparation and filing of) all
Tax Returns with respect to the Company required to be filed prior to the
Closing, and shall timely pay (or cause to be paid) all Taxes required to be
paid with respect to such returns. Parent shall prepare and file (or cause the
preparation and filing of) all other Tax Returns with respect to the Company,
provided however Parent shall permit the Shareholders (or their representative)
to review any Tax Returns filed by Parent relating to taxable periods prior to
the Closing Date, and Parent shall make such revisions to such Returns as are
reasonably requested by the Shareholders (or their representative).
(b) Contests. Whenever any Taxing authority asserts a claim, makes
an assessment or otherwise disputes the amount of Taxes for which the
Shareholders is or may be liable with respect to the Company or under this
Agreement, Parent shall inform the Shareholders within five (5) business days,
and the Shareholders shall have the right to control, at the Shareholder's
expense, any resulting proceedings and to determine whether and when to settle
any such claim, assessment or dispute to the extent such proceedings or
determinations affects the amount of Taxes for which such Shareholders may be
liable under this Agreement or otherwise; provided however that the Shareholders
shall not settle any such claim, assessment or dispute without the written
consent of Parent, which consent shall not be unreasonably withheld
(c) Tax Records. Parent shall, at its own expense, preserve and keep
records in its possession relating to the preparation of any Tax Returns for a
tax period of the Company ending on or before the Closing and such records as
may be reasonably required for the defense of any audit, examination,
administrative appeal or litigation of any such Tax Return for such tax period
until the expiration of the applicable statute of limitations of the respective
the tax period, which in no case will considered to be longer than six (6) years
from date of the filing of the relevant Tax Return. Parent shall make such
records available to the Shareholders, at the Shareholders' expense, as may be
reasonably required by the Shareholders.
(d) Cooperation. Parent, at the Shareholders' expense, shall
cooperate with, and make available to, the Shareholders such Tax data and other
information as may be reasonably required in connection with (i) the preparation
and filing of any Tax Return, election, consent or certification, or any similar
item, (ii) any determinations of liability or (iii) any audit, examination or
other proceeding with respect to Taxes ("Tax Data"). Such cooperation shall
include, without limitation, making employees and independent auditors or
accountants reasonably available on a mutually convenient basis for all
reasonable purposes, including, without limitation, to provide explanations and
background information and to permit the copying of books, records, schedules,
workpapers, notices, revenue agent reports, settlements or closing agreements
and other documents containing the Tax Data. Parent shall execute (or cause the
appropriate persons to execute) to execute, powers of attorney in favor of the
Shareholders as necessary or advisable to enable the Shareholders to exercise
their respective rights under this Section 6.7.
30
ARTICLE 7
COVENANTS OF PARENT AND THE COMPANY
7.1. Notices of Certain Events. The Company and Parent shall promptly
notify the other party of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency in connection with the transactions contemplated by this
Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to its knowledge, threatened against, relating to or involving or
otherwise affecting such party that, if pending on the date of this Agreement,
would have been required to be disclosed pursuant to Articles 3 or 4 or that
relate to the consummation of the transactions contemplated by this Agreement or
any other development that would cause a breach of any representation or
warranty made by a party hereunder to be untrue or inaccurate at or prior to the
Effective Time; and
(d) any failure by a party to comply with or satisfy any covenant,
condition or agreement or be complied with or satisfied by it under this
Agreement.
Delivery of notice pursuant to this Section 7.1 shall not limit or otherwise
affect remedies available to either party hereunder.
7.2. Public Announcements. Parent and the Company shall consult with each
other before issuing any press release or other public statement with respect to
this Agreement or the transactions contemplated herein, and except as may be
required by applicable Law as advised by counsel, will not issue any such press
release or make any such public statement with respect to this Agreement, the
Merger or any other transactions contemplated by this Agreement without the
prior written consent of the other party.
7.3. Transfer Taxes. Parent and the Company shall cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording,
registration and other fees, and any similar taxes which become payable in
connection with the transactions contemplated hereby that are required or
permitted to be filed on or before the Effective Time. Parent, Merger Sub and
the Company agree that the Company (prior to the Merger) and the Surviving
Corporation (following the Merger) will pay any real property, transfer or gains
tax, stamp tax, stock transfer tax, or other similar tax imposed on the Merger
or the surrender of the Shares pursuant to the Merger (collectively, "Transfer
Taxes"), excluding any Transfer Taxes as may result from the transfer of
beneficial interests in the Shares other than as a result of the Merger, and any
penalties or interest with respect to the Transfer Taxes. The Company agrees to
cooperate with Parent in the filing of any returns with respect to the Transfer
Taxes.
7.4. Reasonable Efforts. The parties further agree to use commercially
reasonable best efforts to take, or cause to be taken, all actions, and to do,
or cause to be done, and to assist and
31
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement, including (A) the obtaining of all other necessary actions or
nonactions, waivers, consents, licenses, permits, authorizations, orders and
approvals from governmental authorities and the making of all other necessary
registrations and filings, (B) the obtaining of all consents, approvals or
waivers from third parties related to or required in connection with the Merger
that are necessary to consummate the Merger and the transactions contemplated by
this Agreement or required to prevent a Material Adverse Effect on the Company
from occurring prior to or after the Effective Time, (C) the satisfaction of all
conditions precedent to the parties' obligations hereunder, and (D) the
execution and delivery of any additional instruments necessary to consummate the
transactions contemplated by, and to fully carry out the purposes of, this
Agreement. Notwithstanding the foregoing or any other provision of this
Agreement, nothing in this Section 7.4 shall limit a party's right to terminate
this Agreement pursuant to Section 10.1, so long as such party has up to then
complied with its obligations under this Section 7.4.
7.5. Fees and Expenses. All fees and expenses incurred by the Company in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the Company, whether or not the Merger is consummated. All fees and
expenses incurred by the Parent and Merger Sub in connection with this Agreement
and the transactions contemplated hereby shall be paid by the Parent. Fees and
expenses incurred by any party in connection with the transactions contemplated
by this Agreement shall include, without limitation, fees and expenses incurred
for legal, financial, accounting and other advisors.
7.6. Registration.
(a) "Piggy-Back" Registration.
(i) If at any time Parent shall determine to register any of
its Common Stock other than pursuant to (A) a registration relating solely to
the sale of securities to participants in a Parent employee benefits plan, (B) a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the shares of Parent Common Stock issued pursuant to
Section 2.3 above (such shares of Parent Common Stock, for purposes of this
Section 7.66 only, "Registrable Shares"), (C) a registration relating to
securities issued in connection with an acquisition by Parent, or (D) a
registration in which the only Parent Common Stock being registered is Parent
Common Stock issuable upon conversion of debt securities which are also being
registered), it shall send to the Representative written notice of such
determination and, if within twenty (20) days after receipt of such notice, the
Representative shall so request in writing, Parent shall use its commercially
reasonable best efforts to include in such registration all or any part of the
Registrable Shares that the Representative requests to be registered.
(ii) If such registration involves an underwritten public
offering and the managing underwriter determines in its sole discretion that
marketing factors require a limitation on the number of shares that may be
included in the registration, the number of shares to be included in such
registration shall be apportioned as follows: First, the Common Stock held by
officers and directors of Parent shall be excluded to the extent required by
such limitation. Second, the Registrable Shares requested to be registered by
the Representative shall be excluded to the extent required by such limitation.
Third, Parent Common Stock requested to be registered by selling stockholders
with registration rights other than under this Agreement shall be excluded to
the extent
32
required by such limitation. If the Representative disapproves of the terms of
such underwriting, he may elect to withdraw therefrom by written notice to
Parent and the underwriter.
(b) Registration on Form S-3. If the Registrable Shares are not
registered for resale pursuant to Section 7.6(a) above by December 31, 2005,
Parent agrees to file with the SEC a Registration Statement on Form S-3 (or any
successor short form registration involving a similar amount of disclosure; or
if then ineligible to use any such form, then any other available form of
registration statement) registering the resale of the Registrable Shares to be
made on a continuous basis pursuant to Rule 415 of the Securities Act. Parent
will use its commercially reasonable efforts to file such Registration Statement
with the SEC (subject to review of such Registration Statement by the
Representative pursuant to Section 7.6(c)) within thirty (30) days after receipt
of written request by the Representative to register such shares pursuant to
this Section 7.6(b) and to cause the Registration Statement to become effective
within ninety (90) days after the filing of the Registration Statement;
provided, however, that in the event that the Registration Statement receives
SEC review, Parent will use its commercially reasonable efforts to cause the
Registration Statement to become effective within one hundred twenty (120) days
after the filing of the Registration Statement. Once effective, the Registration
Statement shall remain continuously effective until the earlier of (i) two years
after the date on which the shares of Parent Common Stock issued pursuant to
Section 2.5 registered thereunder were delivered and (ii) such time as all of
the shares of Parent Common Stock issued pursuant to Section 2.5 registered
thereunder may be sold pursuant to Rule 144 promulgated under the Securities Act
without restriction on the number of such shares that may be sold. Upon written
notice to the Representative, Parent may, not more often than four times during
any Parent fiscal year, suspend use of a Registration Statement for a period of
up to thirty (30) days, provided, that no more than three such periods may occur
consecutively, unless, in the good faith judgment of the Board of Directors of
Parent, there is material nonpublic information the disclosure of which at that
point in time would have a Material Adverse Effect on Parent. Any sales of such
shares of Parent Common Stock pursuant to a Registration Statement shall be
subject to Parent's ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ policy and procedures, as applicable. The
Shareholders, through the Representative, shall have the right to cause Parent
to file a Registration Statement pursuant to this Section 7.6(b) on one occasion
only.
(c) Review by the Representative. The Representative covenants and
agrees that it shall use its commercially reasonable efforts to provide to
Parent on a timely basis such consents, representations and information from the
Shareholders as may reasonably be required by Parent in connection with the
preparation and filing of a Registration Statement or related prospectus or any
amendment or supplement thereto. Parent will, prior to filing a Registration
Statement or related prospectus or any amendment or supplement thereto, furnish
to the Representative copies of such Registration Statement and prospectus or
any amendment or supplement thereto as proposed to be filed, together with
exhibits thereto, which documents will be subject to review and approval by the
Representative (such approval not to be unreasonably withheld or delayed).
(d) Expenses. Parent shall pay all expenses of registration of any
shares of Parent Common Stock pursuant to Section 7.6(a) or Section 7.6(b),
except brokerage commissions, legal expenses, and such other expenses as may be
required by law to be paid by the Shareholders, which commissions and expenses
shall be paid by the party by which such expenses are incurred.
(e) Notification. Parent will promptly notify the Representative
upon the occurrence of any of the following events in respect of a Registration
Statement or related prospectus: (i) receipt of any request for additional
information by the SEC or any other federal or
33
state governmental authority during the period of effectiveness of the
Registration Statement or amendments or supplements to the Registration
Statement or any related prospectus; (ii) the issuance by the SEC or any other
federal or state governmental authority of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose; (iii) receipt of any notification with respect to the
suspension of the qualification or exemption from qualification of the
Registrable Shares registered pursuant to Sections 7.6(a) or 7.6(b) for sale in
any jurisdiction or the initiation of any proceeding for such purpose; (iv) the
happening of any event that makes any statement made in the Registration
Statement or related prospectus or any document incorporated or deemed to be
incorporated therein by reference untrue in any material respect or that
requires the making of any changes in the Registration Statement, related
prospectus or documents so that (or Parent otherwise becomes aware of any
statement included in the Registration Statement, related prospectus or
documents that is untrue in any material respect or that requires the making of
any changes in the Registration Statement, related prospectus or documents so
that), in the case of the Registration Statement, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and
that in the case of the related prospectus, it will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and (v) Parent's
reasonable determination that a post-effective amendment to the Registration
Statement would be appropriate (in which event Parent will promptly make
available to the Representative any such supplement or amendment to the
Registration Statement and, as applicable, the related prospectus).
(f) Indemnification. In the event that any Registrable Shares are
included in a Registration Statement under this Agreement:
(i) To the extent permitted by law, Parent will indemnify,
defend and hold harmless each Shareholder that holds such Registrable Shares,
and agents, employees, attorneys, accountants, underwriters (as defined in the
Securities Act) for such Shareholder or such underwriter and any person who
controls such Shareholder or such underwriter within the meaning of the
Securities Act or the Exchange Act (each, a "Shareholder Indemnified Person")
against any losses, claims, damages, expenses or liabilities (collectively, and
together with actions, proceedings or inquiries by any regulatory or
self-regulatory organization, whether commenced or threatened in respect
thereof, "Claims") to which any of them become subject under the Securities Act,
the Exchange Act or otherwise, insofar as such Claims arise out of or are based
upon any of the following statements, omissions or violations in a Registration
Statement filed pursuant to this Agreement, any post-effective amendment thereof
or any prospectus included therein: (a) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
post-effective amendment thereof or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, (b) any untrue statement or alleged untrue
statement of a material fact contained in the prospectus or any preliminary
prospectus (as it may be amended or supplemented) or the omission or alleged
omission to state therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the statements therein
were made, not misleading, or (c) any violation or alleged violation by Parent
of the Securities Act, the Exchange Act or any other law, including without
limitation any state securities law or any rule or regulation thereunder (the
matters in the foregoing clauses (a) through (c) being, collectively,
"Violations"). Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 7.6(f)(i) does not apply to
a Claim by a Shareholder Indemnified Person arising out of or based upon a
Violation that
34
occurs in reliance upon and in conformity with information furnished to Parent
by such Shareholder Indemnified Person expressly for use in the Registration
Statement or any such amendment thereof or supplement thereto; and (ii) does not
apply to amounts paid in settlement of any Claim if such settlement is made
without the prior written consent of Parent, which consent will not be
unreasonably withheld. This indemnity obligation will remain in full force and
effect regardless of any investigation made by or on behalf of a Shareholder
Indemnified Person and will survive the transfer of shares of Parent Common
Stock by the Shareholders under Section 7.6(g) of this Agreement.
(ii) In connection with any Registration Statement in which a
Shareholder is participating, each such Shareholder will indemnify and hold
harmless, to the same extent and in the same manner set forth in Section
7.6(f)(i) above, Parent, each of its directors, each of its officers who signs
the Registration Statement, each person, if any, who controls Parent within the
meaning of the Securities Act or the Exchange Act, and any other stockholder
selling securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder within the
meaning of the Securities Act or the Exchange Act (each a "Parent Indemnified
Person") against any Claim to which any of them may become subject under the
Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation, in each case to the extent (and only to the
extent) that such Violation occurs in reliance upon and in conformity with
information furnished to Parent by such Shareholder expressly for use in such
Registration Statement. However, the indemnity agreement contained in this
Section 7.6(f)(ii) does not apply to amounts paid in settlement of any Claim if
such settlement is effected without the prior written consent of such
Shareholder, which consent will not be unreasonably withheld, and no Shareholder
will be liable under this Agreement for the amount of any Claim that exceeds the
net proceeds actually received by such Shareholder as a result of the sale of
shares of Parent Common Stock pursuant to such Registration Statement. This
indemnity will remain in full force and effect regardless of any investigation
made by or on behalf of a Parent Indemnified Person and will survive the
transfer of the shares of Parent Common Stock by the Shareholders under Section
7.6(g) of this Agreement.
(iii) If any proceeding shall be brought or asserted against
any person entitled to indemnity under Sections 7.6(f)(i) or 7.6(f)(ii) hereof,
such indemnified party promptly shall notify the person from whom indemnity is
sought in writing, and the indemnifying party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the indemnified
party and the payment of all reasonable fees and expenses incurred in connection
with defense thereof; provided, however, that the failure of any indemnified
party to give such notice shall not relieve the indemnifying party of its
obligations or liabilities pursuant to this Agreement, except (and only) to the
extent that it shall be finally determined by a court of competent jurisdiction
(which determination is not subject to appeal or further review) that such
failure shall have proximately and materially adversely prejudiced the
indemnifying party.
(iv) An indemnified party shall have the right to employ
separate counsel in any such proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such indemnified party or indemnified parties unless: (i) the indemnifying party
has agreed in writing to pay such fees and expenses; (ii) the Indemnifying Party
shall have failed promptly to assume the defense of such proceeding and to
employ counsel reasonably satisfactory to such indemnified party in any such
proceeding; or (iii) the named parties to any such proceeding (including any
impleaded parties) include both such indemnified party and the indemnifying
party, and such indemnified party shall have been advised by counsel that a
conflict of
35
interest is likely to exist if the same counsel were to represent such
indemnified party and the indemnifying party (in which case, if such indemnified
party notifies the indemnifying party in writing that it elects to employ
separate counsel at the expense of the indemnifying party, the indemnifying
party shall not have the right to assume the defense thereof and such counsel
shall be at the reasonable expense of the indemnifying party; provided, however,
that in no event shall the indemnifying party be responsible for the fees and
expenses of more than one separate counsel). The indemnifying party shall not be
liable for any settlement of any such proceeding effected without its written
consent, which consent shall not be unreasonably withheld. No indemnifying party
shall, without the prior written consent of the indemnified party, effect any
settlement of any pending proceeding in respect of which any indemnified party
is a party, unless such settlement includes an unconditional release of such
indemnified party from all liability on Claims that are the subject matter of
such proceeding.
(g) Assignment of Registration Rights. The rights set forth in this
Section 7.6, may be assigned by the Shareholders to transferees or assignees of
all or any portion of the Registrable Shares, but only if (a) the Shareholder
agrees in writing with the transferee or assignee to assign such rights, and a
copy of such agreement is furnished to Parent within a reasonable time after
such assignment, (b) Parent is, within a reasonable time after such transfer or
assignment, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being transferred or assigned, (c) after such transfer
or assignment, the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and applicable state securities
laws, (d) at or before the time Parent received the written notice contemplated
by clause (b) of this sentence, the transferee or assignee agrees in writing
with Parent to be bound by all of the provisions contained herein, and (e) the
transferee is an "accredited investor" as that term is defined in Rule 501 of
Regulation D.
(h) Additional Requirements. Until termination of the Registration
Statement, Parent will use its commercially reasonable efforts to make and keep
public information available, as those terms are understood and defined in Rule
144 promulgated under the Securities Act and file on a timely basis with the SEC
all information that it may be required to file under either of Section 13 or
Section 15(d) of the Exchange Act and, so long as it is required to file such
information, use its commercially reasonable efforts to maintain the
availability of Rule 144 promulgated under the Securities Act (or any successor
exemptive rule hereinafter in effect) with respect to shares of Parent common
stock.
ARTICLE 8
INDEMNIFICATION
8.1. Indemnification of Parent and Merger Sub.
(a) Subject to the limitations contained in this Article 8, the
Company and the Shareholders shall severally, but not jointly, defend, indemnify
and hold harmless Parent and Merger Sub and their respective officers,
directors, stockholders, employees and agents from and against any and all
losses, claims, judgments, liabilities, demands, charges, suits, penalties,
costs or expenses, including court costs and reasonable attorneys' fees, in each
case net of insurance proceeds and tax benefits (to the extent quantifiable),
("Claims and Liabilities") with respect to or arising from (i) the breach of any
warranty or any inaccuracy of any representation made by the Company in this
36
Agreement, (ii) the breach of any covenant or agreement made by the Company in
this Agreement or (iii) the transfer of the SMB Business.
(b) In addition the obligations set forth in Section 8.1(a) above,
the Company and the Shareholders shall, severally and not jointly, defend,
indemnify and hold harmless Parent and Merger Sub and their respective officers,
directors, stockholders, employees and agents against any and all Claims and
Liabilities with respect to or arising from any claims for any right to receive
Merger Consideration made by any Person who is not a holder of Company Stock at
the Effective Time or is a holder of Company Stock and claiming a right to
Merger Consideration inconsistent with the Merger Consideration Certificate.
(c) Any indemnification payable with respect to Claims and
Liabilities asserted pursuant to this Section 8.1 shall be apportioned among the
Shareholders, on a pro rata basis based on their respective ownership interests
as set forth on the Merger Consideration Certificate. No indemnification shall
be payable with respect to Claims and Liabilities asserted pursuant to this
Section 8.1 to the extent the cumulative amount of all such Claims and
Liabilities exceeds $1,000,000 (the "Indemnification Cap"), and the liability of
any Shareholder under this Section 8.1 shall not exceed the Shareholder's
portion of the liability, on a pro rata basis based upon such Shareholder's
ownership interest as set forth on the Merger Consideration Certificate.
8.2. Indemnification of the Company. Parent shall defend, indemnify and
hold harmless the Company, and its officers, directors, shareholders, employees
and agents from and against any and all Claims and Liabilities with respect to
or arising from (i) breach of any warranty or any inaccuracy of any
representation made by Parent or Merger Sub, or (ii) breach of any covenant or
agreement made by Parent or Merger Sub in this Agreement. No indemnification
shall be payable with respect to Claims and Liabilities asserted pursuant to
this Section 8.2 to the extent the cumulative amount of all such Claims and
Liabilities exceeds the value of the Collared Stock Consideration paid in shares
of Parent Common Stock.
8.3. Claims Procedure. Promptly after the receipt by any indemnified party
(the "Indemnitee") of notice of the commencement of any action or proceeding
against such Indemnitee, such Indemnitee shall, if a claim with respect thereto
is or may be made against any indemnifying party (the "Indemnifying Party")
pursuant to this Article 8, give such Indemnifying Party written notice of the
commencement of such action or proceeding and give such Indemnifying Party a
copy of such claim and/or process and all legal pleadings in connection
therewith. The failure to give such notice shall not relieve any Indemnifying
Party of any of its indemnification obligations contained in this Article 8,
except where, and solely to the extent that, such failure actually and
Materially prejudices the rights of such Indemnifying Party. Such Indemnifying
Party shall have, upon request within thirty (30) days after receipt of such
notice, but not in any event after the settlement or compromise of such claim,
the right to defend, at its own expense and by its own counsel reasonably
acceptable to the Indemnitee, any such matter involving the asserted liability
of the Indemnitee; provided, however, that if the Indemnitee determines that
there is a reasonable probability that a claim may Materially and adversely
affect it, other than solely as a result of money payments required to be
reimbursed in full by such Indemnifying Party under this Article 8 or if a
conflict of interest exists between Indemnitee and the Indemnifying Party, the
Indemnitee shall have the right to defend, compromise or settle such claim or
suit; and, provided, further, that such settlement or compromise shall not,
unless consented to in writing by such Indemnifying Party, which shall not be
unreasonably withheld, be conclusive as to the liability of such Indemnifying
Party to the Indemnitee. In any event, the Indemnitee, such Indemnifying Party
and its counsel shall cooperate in
37
the defense against, or compromise of, any such asserted liability, and in cases
where the Indemnifying Party shall have assumed the defense, the Indemnitee
shall have the right to participate in the defense of such asserted liability at
the Indemnitee's own expense. In the event that such Indemnifying Party shall
decline to participate in or assume the defense of such action, prior to paying
or settling any claim against which such Indemnifying Party is, or may be,
obligated under this Article 8 to indemnify an Indemnitee, the Indemnitee shall
first supply such Indemnifying Party with a copy of a final court judgment or
decree holding the Indemnitee liable on such claim or, failing such judgment or
decree, the terms and conditions of the settlement or compromise of such claim.
An Indemnitee's failure to supply such final court judgment or decree or the
terms and conditions of a settlement or compromise to such Indemnifying Party
shall not relieve such Indemnifying Party of any of its indemnification
obligations contained in this Article 8, except where, and solely to the extent
that, such failure actually and Materially prejudices the rights of such
Indemnifying Party. If the Indemnifying Party is defending the claim as set
forth above, the Indemnifying Party shall have the right to settle the claim
only with the consent of the Indemnitee; provided, however, that if the
Indemnitee shall fail to consent to the settlement of such a claim by the
Indemnifying Party, which settlement (i) the claimant has indicated it will
accept, and (ii) includes an unconditional release of the Indemnitee and its
Affiliates by the claimant and imposes no Material restrictions on the future
activities of the Indemnitee and its affiliates, the Indemnifying Party shall
have no liability with respect to any payment required to be made to such
claimant in respect of such claim in excess of the proposed amount of
settlement. If the Indemnitee is defending the claim as set forth above, the
Indemnitee shall have the right to settle or compromise any claim against it
after consultation with, but without the prior approval of, any Indemnifying
Party, provided, however, that such settlement or compromise shall not, unless
consented to in writing by such Indemnifying Party, which shall not be
unreasonably withheld, be conclusive as to the liability of such Indemnifying
Party to the Indemnitee.
8.4. Exclusive Remedy. Each of the parties hereto acknowledges and agrees
that, from and after the Closing Date, its sole and exclusive monetary remedy
with respect to any and all claims relating to the subject matter of this
Agreement shall be pursuant to the indemnification provisions set forth in this
Article 8, except that nothing in this Agreement shall be deemed to constitute a
waiver of any injunctive or other equitable remedies or any tort claims of, or
causes of action arising from, intentionally fraudulent misrepresentation,
willful breach or deceit.
8.5. Representative.
(a) The Representative shall serve as the agent for and on behalf of
the Shareholders (in their capacities as such) to: (i) receive, assert,
negotiate, enter into settlements and compromises of, and comply with orders of
courts and awards of arbitrators with respect to, any Claims and Liabilities by
any Indemnitee, against any such Shareholder or by any such Shareholder against
any Indemnifying Party or any other dispute between Parent and any such
Shareholder, in each case relating to this Agreement or the transactions
contemplated hereby or thereby; and (ii) take all actions necessary or
appropriate in the judgment of the Representative for the accomplishment of the
foregoing, in each case without having to seek or obtain the consent of any
Person under any circumstance. Any and all Claims and Liabilities between or
among any Indemnitee, the Representative and/or any one or more Shareholders
relating to this Agreement or the transactions contemplated hereby shall (i) in
the case of any claim or dispute asserted by or against or involving any such
Shareholder (in its capacity as such) (other than any claim against or dispute
with the Representative), be asserted or otherwise addressed solely by the
Representative on behalf of such Shareholder (and not by such Shareholder acting
on its own behalf). The Person serving as the
38
Representative may be replaced from time to time by the holders of a majority in
interest of the shares held by the Shareholders upon not less than ten days'
prior written notice to Parent. No bond shall be required of the Representative,
and the Representative shall receive no compensation for his services. Notices
or communications to or from the Representative shall constitute notice to or
from each of the Shareholders.
(b) The Representative shall not be liable to any Shareholder for
any act done or omitted hereunder as the Representative while acting in good
faith. The Representative undertakes to perform such duties and only such duties
as are specifically set forth in this Agreement and no implied covenants or
obligations shall be read into this Agreement against the Representative. The
Shareholders shall, severally and not jointly, on a pro rata basis, indemnify
the Representative and hold him harmless against any loss, liability or expense
incurred without gross negligence, bad faith or willful misconduct on the part
of the Representative and arising out of or in connection with the acceptance or
administration of his duties hereunder, including without limitation the legal
costs and expenses of defending the Representative against any claim or
liability in connection with the performance of the Representative's duties.
(c) Notwithstanding anything herein to the contrary, the
Representative is not authorized to, and shall not, accept on behalf of any
holder of Company Stock any Merger Consideration to which such holder of Company
Stock is entitled under this Agreement and the Representative shall not in any
manner exercise, or seek to exercise, any voting power whatsoever with respect
to shares of capital stock of the Company or Parent now or hereafter owned of
record or beneficially by any holder of Company Stock unless the Representative
is expressly authorized to do so in writing signed by the holder of Company
Stock. In all matters relating to this Article 8, the Representative shall be
the only party entitled to assert the rights of the holders of Company Stock and
the Representative shall perform all of the obligations of the holders of
Company Stock hereunder. Representative shall promptly, and in any event within
five (5) business days, provide written notice to the affected of any action
taken on their behalf by the Representative pursuant to the authority delegated
to the Representative under this Section 8.5.
(d) The Representative shall have reasonable access to information
about the Company and the reasonable assistance of the Company's officers and
employees for purposes of performing its duties and exercising its rights
hereunder, provided that the Representative shall treat confidentially and not
disclose any nonpublic information from or about the Company to anyone (except
on a need to know basis to individuals who agree to treat such information
confidentially).
ARTICLE 9
CONDITIONS TO MERGER
9.1. Condition to Obligation of Each Party to Effect the Merger. The
respective obligations of Parent, Merger Sub and the Company to consummate the
transactions contemplated herein are subject to the satisfaction or waiver in
writing at or prior to the Effective Time of the following conditions.
(a) No Injunctions. No temporary restraining order, preliminary or
permanent injunction issued by any court of competent jurisdiction preventing
the consummation of the transactions contemplated herein shall be in effect;
provided, however, that each party shall have used its reasonable best efforts
to prevent the entry of such orders or injunctions and to appeal as
39
promptly as possible any such orders or injunctions and to appeal as promptly as
possible any such orders or injunctions that may be entered.
(b) Company Shareholder Approval. This Agreement and the Merger
shall have been approved and adopted by the requisite vote of the Company's
shareholders in accordance with the Company's Articles of Incorporation and the
CGCL.
(c) Regulatory Approvals. Parent shall have obtained all approvals
required by the SEC and the NASDAQ Marketplace Rules in connection with the
Merger, if any.
(d) Transfer of the SMB Business. The SMB Business shall have been
transferred to a new business entity and the employment of all employees of the
SMB Business shall have been terminated.
9.2. Additional Conditions to Obligations of Parent and Merger Sub. The
obligations of Parent and the Merger Sub to consummate the transactions
contemplated herein are also subject to the satisfaction or waiver in writing at
or prior to the Effective Time of the following conditions.
(a) Representations and Warranties. Each of the representations and
warranties of the Company in this Agreement and in any certificate or other
written document delivered to Parent pursuant hereto that is expressly qualified
by a reference to materiality shall be true in all respects as so qualified, and
each of the representations and warranties of the Company in this Agreement and
in any certificate or other written document delivered to Parent pursuant hereto
that is not so qualified shall be true and correct in all Material respects, on
and as of the Effective Time as though such representation or warranty had been
made on and as of such time (except that those representations and warranties
which address matters only as of a particular date shall remain true and correct
as of such date), and Parent and Merger Sub shall have received a certificate to
such effect signed by the President and the Chief Executive Officer of the
Company.
(b) Agreements and Covenants. The Company shall have Materially
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Effective
Time, and Parent shall have received a certificate to such effect signed by the
President and Chief Executive Officer of the Company.
(c) Certificate of Secretary. The Company shall have delivered to
Parent a certificate executed by the Secretary of the Company certifying: (i)
resolutions duly adopted by the Board of Directors and shareholders of the
Company authorizing this Agreement and the Merger; (ii) the Articles of
Incorporation and Bylaws of the Company as in effect immediately prior to the
Effective Time, including all amendments thereto; (iii) the Merger Consideration
Certificate; and (iv) the incumbency of the officers of the Company executing
this Agreement and all agreements and documents contemplated hereby.
(d) Consents Obtained. All consents, waivers, approvals,
authorizations or orders required to be obtained, and all filings required to be
made, by the Company for the authorization, execution and delivery of this
Agreement and the consummation by it of the transactions contemplated hereby
shall have been obtained and made by the Company including, without limitation,
those set forth on Schedule 9.2(d), except for such consents, waivers,
approvals, authorizations and orders, which if not listed in Schedule 9.2(d) and
not obtained, and such filings,
40
which if not listed in Schedule 9.2(d) and not made, would not be reasonably
likely to have a Material Adverse Effect on the Company or the Surviving
Corporation.
(e) Absence of Material Adverse Effect. Since the date of the this
Agreement, there shall not have been any Material Adverse Effect on the Company
that has not been cured as of the Final Date.
(f) Employment Agreements. Parent shall have entered into employment
agreements, in the form approved by Parent with ▇▇▇▇▇▇ ▇▇▇▇▇▇.
(g) Non-Competition Agreements. Parent shall have entered into
non-competition agreements, in the form approved by Parent, with each of ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇.
(h) Severance Agreements. Parent shall have entered into severance
agreements, in the form approved by Parent, with each of ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇▇.
(i) Resignation of Officers and Directors. Parent shall have
received letters of resignation from each of the officers and directors of the
Company immediately prior to the Effective Time, which resignations in each case
shall be effective as of the Effective Time.
(j) Termination of Employee Benefit Plans. If the Company maintains
or sponsors any Benefit Plans, the Company's Board of Directors shall have
adopted a resolution terminating each such Benefit Plan contingent upon the
Closing and effective at least one calendar day prior to the Effective Time.
(k) Closing of Financing. Parent shall have consummated a financing
through the sale of debt and/or equity securities with aggregate proceeds of at
least $2,500,000.
9.3. Additional Conditions to Obligations of the Company. The obligations
of the Company to consummate the transactions contemplated herein are also
subject to the satisfaction or waiver in writing at or prior to the Effective
Time of the following conditions.
(a) Representations and Warranties. Each of the representations and
warranties of Parent and Merger Sub in this Agreement and in any certificate or
other written document delivered to the Company pursuant hereto that is
expressly qualified by a reference to materiality shall be true in all respects
as so qualified, and each of the representations and warranties of Parent and
Merger Sub in this Agreement and in any certificate or other written document
delivered to the Company that is not so qualified shall be true and correct in
all material respects, on and as of the Effective Time as though such
representation or warranty had been made on and as of such time (except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date), and the Company
shall have received a certificate to such effect signed by the President and the
Chief Executive Officer of Parent.
(b) Agreements and Covenants. Parent and Merger Sub shall have
performed or complied with all agreements and covenants required by this
Agreement to be performed or complied with by them on or prior to the Closing
and the Company shall have received a certificate to such effect signed by the
President and the Chief Executive Officer of Parent.
41
(c) Guarantees. The personal guarantees of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇. and
▇▇▇▇ ▇▇▇▇▇▇▇▇ in respect of obligations of the Company shall have been released
and/or assumed by Parent.
(d) SMB Management Agreement. Parent shall have executed and
delivered an agreement for provision of certain management services by Parent
for the SMB Business in a form reasonably satisfactory to the Company.
ARTICLE 10
TERMINATION
10.1. Termination. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the Merger by the
shareholders of the Company:
(a) by mutual written agreement duly authorized by the Boards of
Directors of the Company and Parent;
(b) by Parent if the Company has breached any representation,
warranty, covenant or agreement of such other party set forth in this Agreement
and such breach has resulted or can reasonably be expected to result in the
failure to satisfy the conditions set forth in Section 9.2(a) and 9.2(b), in the
case of the Company, or in Section 9.3(a) and 9.3(b), in the case of Parent or
Merger Sub; provided, however, that, if such breach is reasonably capable of
being cured by the breaching party prior to the Final Date and the breaching
party is continuing to exercise its reasonable efforts to cure such breach, then
the other party may not terminate this Agreement under this Section 10.1(b) on
account of such breach until the 30th calendar day from the date on which the
breaching party received a written notice of such breach from the other party or
the Final Date, whichever is earlier;
(c) by either Parent or the Company if the required approval of the
shareholders of the Company shall not have been obtained prior to the Final
Date;
(d) by either Parent or the Company, if the Effective Time has not
occurred on or before the Final Date (as defined below), other than as a result
of a breach of this Agreement by the terminating party; or
(e) by either Parent or the Company, if a permanent injunction or
other order by any Federal or state court which would make illegal or otherwise
restrain or prohibit the consummation of the Merger shall have been issued and
shall have become final and nonappealable.
As used herein, the "Final Date" shall be November 1, 2004.
10.2. Notice of Termination. Any termination of this Agreement under
Section 10.1 above will be effective by the delivery of written notice of the
terminating party to the other party hereto.
10.3. Effect of Termination. In the case of any termination of this
Agreement as provided in this Section 10, this Agreement shall be of no further
force and effect (except as provided in Section 10.3) and nothing herein shall
relieve any party from liability for any breach of this Agreement. No
termination of this Agreement shall affect the obligations contained in the
42
Confidentiality Agreement which shall survive termination of this Agreement in
accordance with its terms.
ARTICLE 11
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS
All representations, warranties and covenants of the parties contained in
this Agreement will remain operative and in full force and effect, regardless of
any investigation made by or on behalf of the parties to this Agreement, until
the date that is the first anniversary of the Closing Date, whereupon such
representations, warranties and covenants will expire (except for covenants that
by their terms survive for a longer period).
ARTICLE 12
GENERAL PROVISIONS
12.1. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed facsimile if sent during normal
business hours of the recipient, if not, then on the next business day; (c) five
days after having been sent by registered or certified mail, return receipt
requested, postage prepaid; or (d) two days after deposit with a nationally
recognized overnight courier, specifying two day delivery, with written
verification of receipt. All communications shall be sent to the parties at the
following addresses or facsimile numbers specified below (or at such other
address or facsimile number for a party as shall be designated by ten days
advance written notice to the other parties hereto):
(a) If to Parent or Merger Sub:
DynTek, Inc.
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇.
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: Chief Financial Officer
Ph: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to (which shall not constitute notice):
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, Esq.
Ph: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
43
If to the Company:
Integration Technologies, Inc.
▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇.
Ph:
Fax:
with a copy to (which shall not constitute notice):
Manatt ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Ph: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
12.2. Amendment. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the parties upon the approval
of the Boards of Directors of each of the parties, whether before or after any
shareholder approval of the issuance of the Merger Consideration has been
obtained; provided, that after any such approval by the holders of Shares, there
shall be made no amendment that pursuant to the CGCL requires further approval
by such shareholders without the further approval of such shareholders.
12.3. Waiver. At any time prior to the Closing, any party hereto may with
respect to any other party hereto (a) extend the time for performance of any of
the obligations or other acts, (b) waive any inaccuracies in the representations
and warranties contained herein or in any document delivered pursuant hereto, or
(c) waive compliance with any of the agreements or conditions contained herein.
Any such extension or waiver shall be valid if set forth in an instrument in
writing signed by the party or parties to be bound thereby.
12.4. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other rights. Except as otherwise provided hereunder, all
rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
12.5. Headings. The headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.
12.6. Severability. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any rule of Law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being
44
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible, in a mutually acceptable manner, to the end that transactions
contemplated hereby are fulfilled to the extent possible.
12.7. Entire Agreement. This Agreement (including the Company Disclosure
Schedule and the Parent Disclosure Schedule together with the Transaction
Documents and the exhibits and schedules attached hereto and thereto and the
certificates referenced herein) and the Confidentiality Agreement constitute the
entire agreement and supersedes all prior agreements and undertakings both oral
and written, among the parties, or any of them, with respect to the subject
matter hereof and, except as otherwise expressly provided herein.
12.8. Assignment. No party may assign this Agreement or assign its
respective rights or delegate their duties (by operation of Law or otherwise),
without the prior written consent of the other party. This Agreement will be
binding upon, inure to the benefit of and be enforceable by the parties and
their respective successors and assigns.
12.9. Parties In Interest. This Agreement shall be binding upon and inure
solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other Person any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement, including, without limitation, by way of subrogation.
12.10. Governing Law. This Agreement will be governed by, and construed
and enforced in accordance with the laws of the State of California as applied
to contracts that are executed and performed in California, without regard to
the principles of conflicts of law thereof. Each party hereby irrevocably
submits to the exclusive jurisdiction of the state and federal courts sitting in
Orange County, California for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
12.11. Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. This Agreement shall
become effective when counterparts have been signed by each of the parties and
delivered by facsimile or other means to the other party. Any party who delivers
a signature page via facsimile agrees to later deliver an original counterpart
to all other parties.
12.12. Attorneys Fees. If any action or proceeding relating to this
Agreement, or the enforcement of any provision of this Agreement is brought by a
party hereto against any party hereto, the prevailing party shall be entitled to
recover reasonable attorneys' fees, costs and disbursements (in addition to any
other relief to which the prevailing party may be entitled).
12.13. Gender. For purposes of this Agreement, references to the masculine
gender shall include feminine and neuter genders and entities.
45
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be executed as of the date first written above by their respective
officers thereunto duly authorized.
DYNTEK, INC., a Delaware corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
ITI ACQUISITION CORP., a California
corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
INTEGRATION TECHNOLOGIES, INC., a
California corporation
By: ________________________________
Name: ______________________________
Title: _____________________________
REPRESENTATIVE
By: ________________________________
[_______________]
SHAREHOLDERS
____________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
SHAREHOLDERS (Continued)
____________________________________
▇▇▇▇ ▇▇▇▇▇▇▇▇
____________________________________
▇▇▇▇▇ ▇▇▇▇▇▇▇
____________________________________
▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇▇▇ TRUST UNDER DECLARATION
OF TRUST DATED 4/6/01, ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇., TRUSTEE
____________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇., TRUSTEE
[SIGNATURE PAGE TO AGREEMENT AND PLAN OF MERGER]
EXHIBIT A
CERTAIN DEFINITIONS
The following terms, as used in the Purchase Agreement, have the following
meanings:
"Affiliate" shall mean with respect to any Person, any individual,
corporation, partnership, firm, joint venture, limited liability company,
association, joint-stock company, trust, unincorporated organization or
Governmental Entity, or other Person directly or indirectly controlling,
controlled by or under common control with such Person, including all officers
and directors of such Person.
"Alternative Acquisition" shall have the meaning as set forth in Section
5.4 of the Agreement.
"Agreement" shall have the meaning as set forth in the Preamble.
"Assets" of a Person shall mean all of the assets, properties, businesses
and rights of such Person of every kind, nature, character and description,
whether real, personal or mixed, tangible or intangible, accrued or contingent,
or otherwise relating to or utilized in such Person's business, directly or
indirectly, in whole or in part, whether or not carried on the books and records
of such Person, and whether or not owned in the name of such Person or any
Affiliate of such Person and wherever located.
"Benefit Plans" shall have the meaning as set forth in Section 3.12(b) of
the Agreement.
"California Agreement of Merger" shall have the meaning as set forth in
Section 1.3 of the Agreement.
"Cash Consideration" shall mean $2,500,000, less the Shareholder
Indebtedness as of the Closing Date.
"Certificates" shall have the meaning as set forth in Section 2.2(a) of
the Agreement.
"Change in Control" shall mean (i) the acquisition, directly or
indirectly, in one transaction or a series of related transactions of the
beneficial ownership of securities of Parent possessing more than fifty percent
(50%) of the total combined voting power of all outstanding securities of
Parent; (ii) a merger or consolidation in which the holders of the outstanding
voting securities of Parent immediately prior to such merger hold, in the
aggregate, securities possessing less than fifty percent (50%) of the total
combined voting power of all outstanding voting securities of Parent or of the
acquiring entity immediately after such merger; or (iii) the sale, transfer or
other disposition (in one transaction or a series of related transactions) of
all or substantially all of the assets of Parent, except for a transaction in
which the holders of the outstanding voting securities of Parent immediately
prior to such transaction(s) receive as a distribution with respect to
securities of Parent, in the aggregate, securities possessing more than fifty
percent (50%) of the total combined voting power of all outstanding voting
securities of the acquiring entity immediately after such transaction(s).
"Claims" shall have the meaning as set forth in Section 7.6(f)(i) of the
Agreement.
A-1
"Claims and Liabilities" shall have the meaning as set forth in Section
8.1(a) of the Agreement.
"Closing" shall have the meaning as set forth in Section 1.2 of the
Agreement.
"Closing Date" shall have the meaning as set forth in Section 1.2 of the
Agreement.
"Code" means the Internal Revenue Code of 1986, as amended, and the rules
and regulations promulgated thereunder.
"Collared Stock Consideration" shall have the meaning as set forth in
Section 2.3 of the Agreement.
"Company" shall have the meaning as set forth in the Preamble.
"Company Disclosure Schedule" shall mean the written disclosure schedule
pursuant to Article 3 of the Agreement delivered on or prior to the date hereof
by the Company and the Shareholders to Parent that is arranged in the numbered
and lettered paragraphs corresponding to the numbered and lettered paragraphs
contained in the Agreement.
"Company Environmental Liabilities" mean any and all liabilities of or
relating to the Company, whether contingent or fixed, actual or potential, known
or unknown, which (i) arise under or relate to matters covered by Environmental
Laws and (ii) relate to actions occurring or conditions existing on or prior to
the Closing Date.
"Company Financial Statements" shall have the meaning as set forth in
Section 3.8(a) of the Agreement.
"Company Intellectual Property" means all Material Intellectual Property
other than Material Intellectual Property that is the subject of Third Party
Licenses.
"Company Stock" means the Common Stock of the Company.
"Confidentiality Agreement" shall have the meaning as set forth in Section
5.5 of the Agreement.
"Contract" means any written or oral agreement, arrangement, commitment,
contract, indenture, instrument, lease, obligation, plan, restriction,
understanding or undertaking of any kind or character, or other document to
which any Person is a party or by which such Person is bound or affecting such
Person's capital stock, Assets or business.
"Customers" shall have the meaning as set forth in Section 3.27 of the
Agreement.
"Databases" means and includes all compilations of data and all related
documentation and written narratives of all procedures used in connection with
the collection, processing and distribution of data contained therein, together
with information that describes the attributes of certain data and such data's
relationship to other data, including, without limitation, (A) whether the data
must be numerical, alphabetic, or alphanumeric, (B) range or type limitations of
the data, (C) one-to-one, one-to-many, or many-to-many relationships with other
data, (D) file layouts, and (E) data formats.
A-2
"Default" shall mean (i) any breach or violation of or default under any
Contract, Order or Permit, (ii) any occurrence of any event that with the
passage of time or the giving of notice or both would constitute a breach or
violation of or default under any Contract, Order or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the giving
of notice would give rise to a right to terminate or revoke, change the current
terms of, or renegotiate, or to accelerate, increase, or impose any Liability
under, any Contract, Order or Permit.
"DGCL" shall have the meaning as set forth in the Recitals of the
Agreement.
"Earn-Out Revenue" shall have the meaning as set forth in Section 2.5(a)
of the Agreement.
"Earn-Out Period" shall have the meaning as set forth in Section 2.4(a) of
the Agreement.
"EBITDA" means earnings before interest, taxes, depreciation and
amortization, all as determined in accordance with GAAP, on a basis consistent
with prior periods. For purposes of calculating the EBITDA Earn-Out
Consideration pursuant to Section 2.4 of the Agreement, the salaries and other
overhead expenses of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall be
excluded from the expense calculation.
"EBITDA Earn-Out Consideration" shall have the meaning as set forth in
Section 2.4 of the Agreement.
"EBITDA Earn-Out Notice" shall have the meaning as set forth in Section
2.4(a)(i) of the Agreement.
"EBITDA Earn-Out Objection Notice" shall have the meaning as set forth in
Section 2.4(a)(i) of the Agreement.
"Effective Time" shall have the meaning as set forth in Section 1.3 of the
Agreement.
"Employees" shall have the meaning as set forth in Section 3.20 of the
Agreement.
"Environmental Laws" mean any and all federal, state, local and foreign
statutes, laws, judicial decisions, regulations, ordinances, rules, judgments,
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions, relating to
human health, the environment or to emissions, discharges or releases of
pollutants, contaminants or other Hazardous Material or wastes into the
environment, including without limitation ambient air, surface water, ground
water or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants or other Hazardous Material or wastes or the clean-up
or other remediation thereof.
"Environmental Permits" means, with respect to any Person, all permits,
licenses, franchises, certificates, approvals and other similar authorizations
of governmental authorities relating to or required by Environmental Laws and
affecting, or relating in any way to, the business of such Person as currently
conducted.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
A-3
"Final Date" shall have the meaning as set forth in Section 10.1 of the
Agreement.
"Firm" shall have the meaning as set forth in Section 2.4(a)(i) of the
Agreement.
"GAAP" shall have the meaning as set forth in Section 3.8(b) of the
Agreement.
"Governmental Entity" shall mean any government or any agency, bureau,
board, directorate, commission, court, department, official, political
subdivision, tribunal, or other instrumentality of any government, whether
federal, state or local, domestic or foreign.
"Hazardous Material" means any toxic, radioactive, corrosive or otherwise
hazardous substance, including petroleum, its derivatives, by-products and other
hydrocarbons, or any substance having any constituent elements displaying any of
the foregoing characteristics, which in any event is regulated under any
Environmental Law.
"Indemnifying Party" shall have the meaning as set forth in Section 8.3 of
the Agreement.
"Indemnitee" shall have the meaning as set forth in Section 8.3 of the
Agreement.
"Intellectual Property" shall mean all rights, privileges and priorities
provided under applicable Law relating to intellectual property, whether
registered or unregistered, including without limitation all (i) (a) inventions,
discoveries, processes, formulae, designs, methods, techniques, procedures,
concepts, developments, technology, mask works, new and useful improvements
thereof and know-how relating thereto, whether or not patented or eligible for
patent protection; (b) copyrights and copyrightable works, including computer
applications, programs, Products, Software, databases and related items; (c)
trademarks, service marks, trade names, brand names, product names, corporate
names, logos and trade dress, the goodwill of any business symbolized thereby,
and all common-law rights relating thereto; and (d) trade secrets, proprietary
data and other confidential information; and (ii) all registrations,
applications, recordings, and licenses or other similar agreements related to
the foregoing.
"Law" shall mean any code, law, ordinance, regulation, reporting or
licensing requirement, rule, or statute applicable to a Person or its Assets,
liabilities or business, including those promulgated, interpreted or enforced by
any Regulatory Authority.
"Lien" means, with respect to any Asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect to such Asset.
"Material" and "Materially" for purposes of this Agreement shall be
determined in light of the facts and circumstances of the matter in question;
provided that any specific monetary amount stated in this Agreement shall
determine materiality in that instance.
"Material Adverse Effect" means, with respect to any Person, a Material
adverse effect on the condition (financial or otherwise), business, Assets,
liabilities or the operating results of such Person and its Subsidiaries taken
as a whole.
"Material Intellectual Property" shall have the meaning as set forth in
Section 3.21(a) of the Agreement.
"Merger" shall have the meaning as set forth in the Recitals.
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"Merger Consideration" shall consist of (i) the Cash Consideration, (ii)
the Collared Stock Consideration, (iii) the EBITDA Earn-Out Consideration and
(iv) the Revenue Earn-Out Consideration.
"Merger Consideration Certificate" shall have the meaning as set forth in
Section 2.1(b)(vii) of the Agreement.
"Merger Sub" shall have the meaning as set forth in the Preamble.
"Nasdaq" shall have the meaning as set forth in Section 2.3(a) of the
Agreement.
"NASD" means National Association of Securities Dealers, Inc.
"Order" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or writ
of any federal, state, local or foreign or other court, arbitrator, mediator,
tribunal, administrative agency or Regulatory Authority.
"Owned Databases" means all Databases other than Third Party Databases.
"Owned Software" means all Software other than Third Party Software.
"Parent" shall have the meaning as set forth in the Preamble.
"Parent Common Stock " means the common stock of Parent.
"Parent Disclosure Schedule" shall mean the written disclosure schedule
pursuant to Article 4 of the Agreement delivered on or prior to the date hereof
by Parent to the Company that is arranged in paragraphs corresponding to the
numbered and lettered paragraphs corresponding to the numbered and lettered
paragraphs contained in the Agreement.
"Parent Indemnified Person" shall have the meaning as set forth in Section
7.6(f)(ii) of the Agreement.
"Per Share Cash Consideration" shall mean the amount equal to the Cash
Consideration divided by the total issued and outstanding shares of the Company
Stock immediately prior to the Effective Time and as set forth on the Merger
Consideration Certificate.
"Per Share Collared Stock Consideration" shall mean the amount equal to
the Collared Stock Consideration payable pursuant to Section 2.3 divided by the
total issued and outstanding shares of the Company Stock immediately prior to
the Effective Time and as set forth on the Merger Consideration Certificate.
"Per Share EBITDA Earn-Out Consideration" shall mean the amount equal to
the EBITDA Earn-Out Consideration payable pursuant to Section 2.4 divided by the
total issued and outstanding shares of the Company Stock immediately prior to
the Effective Time and as set forth on the Merger Consideration Certificate.
"Per Share Revenue Earn-Out Consideration" shall mean the amount equal to
the Revenue Earn-Out Consideration payable pursuant to Section 2.5 divided by
the total issued and outstanding
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shares of the Company Stock immediately prior to the Effective Time and as set
forth on the Merger Consideration Certificate.
"Person" means an individual, a corporation, a partnership, an
association, a trust, a limited liability company or any other entity or
organization, including a government or political subdivision or any agency or
instrumentality thereof.
"Permit" shall mean any federal, state, local, or foreign governmental
approval, authorization, certificate, consent, easement, filing, franchise,
letter of good standing, license, notice, permit, qualification, registration or
right of or from any Governmental Entity (or any extension, modification,
amendment or waiver of any of these) to which any Person is a party or that is
or may be binding upon or inure to the benefit of any Person or its securities,
Assets or business, or any notice, statement, filing or other communication to
be filed with or delivered to any Governmental Entity.
"Permitted Liens" shall mean (a) Liens for taxes and assessments or
governmental charges or levies not at the time due or in respect of which the
validity thereof shall currently be contested in good faith by appropriate
proceedings; (b) Liens in respect of pledges or deposits under workers'
compensation laws or similar legislation, carriers', warehousemen's, mechanics',
laborers' and materialmen's and similar Liens, if the obligations secured by
such Liens are not then delinquent or are being contested in good faith by
appropriate proceedings; (c) Liens incidental to the conduct of the business of
the Company which were not incurred in connection with the borrowing of money or
the obtaining of advances or credits and which do not in the aggregate
Materially detract from the value of its property or Materially impair the use
thereof in the operation of its business and (d) Liens securing obligations that
are individually not in excess of $25,000.
"Products" means the Software products created, developed or owned by the
Company and all related products, including any Intellectual Property related
thereto.
"Registrable Shares" shall have the meaning as set forth in Section
7.6(a)(i) of the Agreement.
"Registration Statement" shall mean any registration statement filed with
the SEC pursuant to Section 7.6(a) or Section 7.6(b) of this Agreement.
"Regulatory Authorities" shall mean, collectively, the Federal Trade
Commission, the United States Department of Justice, and all foreign, federal,
state and local regulatory agencies and other Governmental Entities or bodies
having jurisdiction over the parties and their respective Assets, employees,
businesses and/or Subsidiaries, including the NASD and the Securities and
Exchange Commission.
"Representative" shall have the meaning as set forth in Section 2.3(b) of
the Agreement.
"Returns" shall have the meaning as set forth in Section 3.11(a)(i) of the
Agreement.
"Revenue Earn-Out Consideration" shall have the meaning as set forth in
the Preamble of the Agreement.
"Revenue Earn-Out Notice" shall have the meaning as set forth in Section
2.5(b) of the Agreement.
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"Revenue Earn-Out Objection Notice" shall have the meaning as set forth in
Section 2.5(b) of the Agreement.
"Share Price" shall have the meaning as set forth in Section 2.3(a) of the
Agreement.
"Shareholder Indemnified Person" shall have the meaning as set forth in
Section 7.6(f)(i) of the Agreement.
"Shareholder Indebtedness" shall mean that indebtedness of the Company to
certain shareholders as set forth on Schedule 3.22 to the Agreement, plus all
additional interest that may accrue on such indebtedness up to and including the
day immediately prior to the Closing Date.
"Shares" shall mean the issued and outstanding shares of Company Stock
immediately prior to the Effective Time, other than (i) shares of Company Stock
held by the Company and (ii) shares of Company Stock held by Parent, Merger Sub
or any other Subsidiary or parent of Parent or Merger Sub, if any.
"SMB Business" shall mean that portion of the Company's business that
excludes the mid-market enterprise business. A schedule of assets, contracts,
employees and any other elements of the SMB Business is detailed on Exhibit C
attached hereto.
"Software" means and includes all computer programs, whether in source
code, object code or other form (including without limitation any embedded in or
otherwise constituting part of a computer hardware device), algorithms, edit
controls, methodologies, applications, flow charts and any and all systems
documentation (including, but not limited to, data entry and data processing
procedures, report generation and quality control procedures), logic and designs
for all programs, and file layouts and written narratives of all procedures used
in the coding or maintenance of the foregoing.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of capital stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Surviving Corporation" shall have the meaning as set forth in Section 1.1
of the Agreement.
"Tax" or "Taxes" shall mean all United States federal, state, provincial,
local or foreign taxes and any other applicable duties, levies, fees, charges
and assessments that are in the nature of a tax, including income, gross
receipts, property, sales, use, license, excise, franchise, ad valorem,
value-added, transfer, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Section 59A of the Code), customs, capital
stock, real property, personal property, alternative or add-on minimum,
estimated, social security payments, and health taxes and any deductibles
relating to wages, salaries and benefits and payments to subcontractors,
together with all interest, penalties and additions imposed with respect to such
amounts.
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"Tax Data" shall have the meaning as set forth in Section 6.7(d) of the
Agreement.
"Third Party Databases" means Databases licensed or leased to the Company
or any of its Subsidiaries by third parties.
"Third Party Licenses" means all licenses and other agreements with third
parties relating to any Intellectual Property or products that the Company is
licensed or otherwise authorized by such third parties to use, market,
distribute or incorporate into products marketed and distributed by the Company.
"Third Party Technology" means all Intellectual Property and products
owned by third parties and licensed pursuant to Third Party Licenses.
"Third Party Software" means Software licensed or leased to the Company or
its Subsidiaries by third parties, including commonly available "shrink wrap"
software copyrighted by third parties.
"Transaction Documents" means the Agreement, the Confidentiality Agreement
and any other document executed and delivered pursuant hereto together with any
exhibits or schedules to such documents.
"Transfer Taxes" shall have the meaning as set forth in Section 7.3 of the
Agreement.
"Violations" shall have the meaning as set forth in Section 7.6(f)(i) of
the Agreement.
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EXHIBIT B
CALIFORNIA AGREEMENT OF MERGER
Exhibit B
EXHIBIT C
SMB BUSINESS
Exhibit C