AGREEMENT AND PLAN OF REORGANIZATION
CNE GROUP, INC.,
CNE ACQUISITION CORP. I,
(A WHOLLY OWNED SUBSIDIARY OF CNE GROUP, INC.)
GEORGE W. BENOIT
ANTHONY S. CONIGLIARO
SRC TECHNOLOGIES, INC.
and
the Affiliated Stockholders of SRC TECHNOLOGIES, INC.
DATED AS OF
April 22, 2003
*AGREEMENT AND PLAN OF REORGANIZATION
TABLE OF CONTENTS
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[FINAL DOC TO BE REPAGINATED.]
ARTICLE I
RECITALS; DEFINITIONS
SECTION 1.1 Recitals 1
SECTION 1.2 Definitions 1
SECTION 1.3 Rules of Construction 1
ARTICLE II
THE MERGER
SECTION 2.1 The Merger 2
SECTION 2.2 Effective Time 2
SECTION 2.3 Closing 2
SECTION 2.4 Effects of the Merger 2
SECTION 2.5 Certificate of Incorporation and Bylaws 2
SECTION 2.6 Directors 2
SECTION 2.7 Conversion of
CNE, Merger Sub and SRC Securities 3
SECTION 2.8 Exchange Procedures 3
SECTION 2.9 No Further Ownership Rights in
SRC Common Stock 4
SECTION 2.10 Stock Transfer Books 4
SECTION 2.11 Approval of Merger and Declination of
Appraisal Rights 4
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SRC,
THE AFFILIATED SRC STOCKHOLDERS AND LARRY REID
SECTION 3.1 Corporate Organization 4
SECTION 3.2 Qualification 4
SECTION 3.3 Authorization 5
SECTION 3.4 Approvals 5
SECTION 3.5 Absence of Conflicts 5
SECTION 3.6 Subsidiaries; Equity Investments 6
SECTION 3.7 Capitalization 6
SECTION 3.8 Financial Statements 6
SECTION 3.9 Undisclosed Liabilities 7
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SECTION 3.10 Licenses
SECTION 3.11 Tax Matters 7
SECTION 3.12 Litigation 7
SECTION 3.13 Compliance with Law 8
SECTION 3.14 Employee Benefit Plans and Policies 8
SECTION 3.15 Labor Matters 8
SECTION 3.16 Insurance 8
SECTION 3.17 Affiliate Interests 9
SECTION 3.18 Hazardous Materials 9
SECTION 3.19 Intellectual Property 9
SECTION 3.20 Disclosure 9
SECTION 3.21 Certain Agreements 10
SECTION 3.22 Absence of Changes 10
SECTION 3.23 Contracts and Commitments 10
SECTION 3.24 Title to Property
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES OF THE AFFILIATED SRC
STOCKHOLDERS AND REID
SECTION 4.1 Authorization of Agreement 11
SECTION 4.2 Investment Intent 12
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF CNE MERGER SUB, GEORGE W.
BENOIT AND ANTHONY S. CONIGLIARO
SECTION 5.1 Corporate Organization 13
SECTION 5.2 Authorization 13
SECTION 5.3 Approvals 13
SECTION 5.4 Capitalization 14
SECTION 5.5 Absence of Conflicts 14
SECTION 5.6 Authorization For CNE Securities 14
SECTION 5.7 SEC Documents 15
SECTION 5.8 Merger Sub 15
SECTION 5.9 Undisclosed Liabilities 15
SECTION 5.10 Certain Agreements. 15
SECTION 5.11 Absence of Changes 16
SECTION 5.12 Litigation 16
SECTION 5.13 Tax Matters 16
SECTION 5.14 Compliance with Law 17
SECTION 5.15 Affiliate Interest 17
SECTION 5.16 Hazardous Material 17
SECTION 5.17 Intellectual Property 17
SECTION 5.18 Disclosure 18
SECTION 5.19 Listing 18
SECTION 5.20 Permits 18
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SECTION 5.21 Employee Benefit Plans and Policies 18
SECTION 5.22 Labor Matters 18
SECTION 5.23 Insurance 18
SECTION 5.24 Qualifications 19
SECTION 5.25 Subsidiaries 19
SECTION 5.26 Contracts and Commitments 19
ARTICLE VI
COVENANTS OF SRC, THE AFFILIATED
SRC STOCKHOLDERS AND REID
SECTION 6.1 Acquisition Proposals 19
SECTION 6.2 Access 20
SECTION 6.3 Conduct of Business by SRC
Pending the Merger 20
SECTION 6.4 Confidentiality 21
SECTION 6.5 Press Releases 21
SECTION 6.6 Consents 21
SECTION 6.7. Agreement to Defend 22
SECTION 6.8 Intellectual Property Matters 22
SECTION 6.9 Notification of Certain Matters 25
ARTICLE VII
COVENANTS OF CNE, BENOIT AND CONIGLIARO
SECTION 7.1 Confidentiality 22
SECTION 7.2 Press Releases 22
SECTION 7.3 Conduct of Business by CNE
Pending the Merger 22
SECTION 7.4 Consents 24
SECTION 7.5 Agreement to Defend 24
SECTION 7.6 Delivery of Certificates and Warrants 24
SECTION 7.7 Access 24
SECTION 7.8 Intellectual Property Matters 25
SECTION 7.9 Acquisition Proposals 25
SECTION 7.10 Notification of Certain Matters 25
SECTION 7.11 Restructuring of 12% Convertible
Debentures 25
ARTICLE VIII
CONDITIONS
SECTION 8.1 Conditions Precedent to Obligation
of Each Party to Effect the Merger 25
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SECTION 8.2 Additional Conditions Precedent to
Obligations of CNE 26
SECTION 8.3 Additional Conditions Precedent to
Obligations of SRC,
The Affiliated SRC Stockholders and Reid 26
ARTICLE IX
INDEMNIFICATION
SECTION 9.1 Agreement by SRC, the
The Affiliated SRC Stockholders and Reid
to Indemnify 28
SECTION 9.2 Agreement by CNE, Benoit and Conigliaro
to Indemnify 30
SECTION 9.3 Conditions of Indemnification 31
SECTION 9.4 Applicability 31
ARTICLE X
MISCELLANEOUS
SECTION 10.1 Termination 32
SECTION 10.2 Effect of Termination 32
SECTION 10.3 Brokers; Expenses 33
SECTION 10.4 Restrictions on Transfer of CNE Securities 33
SECTION 10.5 Waiver and Amendment 33
SECTION 10.6 Public Statements 34
SECTION 10.7 Assignment 34
SECTION 10.8 Notices 34
SECTION 10.9 Governing Law 35
SECTION 10.10 Severability 35
SECTION 10.11 Counterparts 35
SECTION 10.12 Headings 35
SECTION 10.13 Entire Agreement; Third Party Beneficiaries 35
Schedules
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Schedule 3.1(a) - List of SRC Subsidiaries
Schedule 3.1(b) - Corporate Organization
Schedule 3.2 - Qualification
Schedule 3.5 - List of Conflicts
Schedule 3.7(a) - List of Holders of SRC Common Stock
Schedule 3.7(b) - Capitalization
Schedule 3.8 - Financial Statements
Schedule 3.10 - Licenses
Schedule 3.11(a) - Tax Matters
Schedule 3.11b) - Tax Matters
Schedule 3.11(c) - Tax Matters
Schedule 3.12(a) - Litigation
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Schedule 3.12(b) - Litigation
Schedule 3.13 - Compliance with the Law
Schedule 3.14 - Employee Benefit Plans and Policies
Schedule 3.16 - Insurance
Schedule 3.17 - Affiliate Interests
Schedule 3.18 - Hazardous Material
Schedule 3.19 - Intellectual Property
Schedule 3.21 - Certain Agreements
Schedule 3.22 - Absence of Changes
Schedule 3.23 - Contracts and Commitments
Schedule 3.24 - Title to Property
Schedule 5.1(a) - List of CNE Subsidiaries
Schedule 5.1(b) - Corporate Organization
Schedule 5.4(a) - Capitalization
Schedule 5.4(b) - Capitalization
Schedule 5.9 - Undisclosed Liabilities
Schedule 5.11 - Absence of Changes
Schedule 5.12(b) - Litigation
Schedule 5.13(a) - Tax Matters
Schedule 5.13(b) - Tax Matters
Schedule 5.13(c) - Tax Matters
Schedule 5.14 - Compliance with the Law
Schedule 5.15 - Affiliate Interests
Schedule 5.16(c) - Hazardous Material
Schedule 5.17 - Intellectual Property
Schedule 5.21 - Employee Benefit Plans and Policies
Schedule 5.23 - Insurance
Schedule 5.24 - Qualifications
Schedule 5.26 - Contracts and Commitments
Annex:
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Annex A - Schedule of Defined Terms
Exhibits
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Exhibit A. Affiliated SRC Stockholders
Exhibit B. Section 607.1320 of Title XXXVI, Chapter 607 of the 2002 Florida
Statutes.
Exhibit C. C Preferred Stock Certificate of Designations
Exhibit D. E Preferred Stock Certificate of Designations
Exhibit E. Form of C Warrant
Exhibit F. Schedule of Non-Affiliated SRC Stockholders
Exhibit G. A Preferred Stock Certificate of Designations
Exhibit H. Form of A Warrant
Exhibit I. Schedule of SRC B Preferred Stockholders
Exhibit J. B Preferred Stock Certificate of Designations
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this "Agreement"), dated as of the
22nd day of April 2003, is among CNE GROUP, INC., a Delaware corporation
("CNE"), CNE ACQUISITION CORP. I, a Florida corporation and a wholly owned
subsidiary of CNE ("Merger Sub"), each with an office at 200 West 57th Street,
Suite 1103, New York, New York 10019, SRC TECHNOLOGIES, INC., a Florida
corporation, ("SRC"), with an office at 3733 NW 16th Street, Lauderhill, FL
33311, and the persons listed on the signature pages hereof under the caption
"Affiliated SRC Stockholders" and Exhibit A hereto which also sets forth their
respective addresses and the number of shares of SRC Common Stock owned by each
of them (hereinafter defined as the "Affiliated SRC Stockholders").
RECITALS:
WHEREAS, the parties to this Agreement have determined it is in their best
long-term interests to effect a business combination pursuant to which SRC will
merge with and into Merger Sub on the terms and subject to the conditions set
forth herein (the "Merger");
WHEREAS, the respective Boards of Directors of CNE, Merger Sub and SRC have
approved this Agreement and the Merger pursuant to the terms and conditions
herein set forth;
WHEREAS, the Affiliated SRC Stockholders own an aggregate of 6,650,000 shares of
SRC common stock, par value $0.001 (the "SRC Common Stock"), which represents
71.9% of the outstanding SRC Common Stock and each Affiliated SRC Stockholder
will agree, subject to the terms and conditions of this Agreement, to vote his
or her shares of SRC Common Stock to approve the Merger;
WHEREAS, for federal income tax purposes, it is intended that the Merger shall
qualify to the extent possible as a reorganization described in Section 368(a)
(II) (D) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, the parties hereto desire to set forth certain representations,
warranties and covenants made by each to the other as an inducement to the
consummation of the Merger;
NOW, THEREFORE, in consideration of the above premises and the mutual promises
set forth in this Agreement, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows.
ARTICLE I
RECITALS; DEFINITIONS
Section 1.1 Recitals. The recitals are hereby incorporated herein and made a
part hereof.
Section 1.2. Definitions. Certain capitalized and other terms used in this
Agreement are defined in Annex A hereto and are used herein with
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the meanings ascribed to them therein.
Section 1.3. Rules of Construction. Unless the context otherwise requires, as
used in this Agreement, (a) a term has the meaning ascribed to it; (b) an
accounting term not otherwise defined has the meaning ascribed to it in
accordance with GAAP; (c) "or" is not exclusive; (d) "including" means
"including, without limitation;" (e) words in the singular include the plural;
(f) words in the plural include the singular; (g) words applicable to one gender
shall be construed to apply to each gender; (h) the terms "hereof," "herein,"
"hereby," "hereto" and derivative or similar words refer to this entire
Agreement; (i) the terms "Article" or "Section" shall refer to the specified
Article or Section of this Agreement; and (j) section and paragraph headings in
this Agreement are for convenience only and shall not affect the construction of
this Agreement.
ARTICLE II
THE MERGER
Section 2.1. The Merger. At the Effective Time (as hereinafter defined) and upon
the terms and subject to the conditions of this Agreement and in accordance with
the Florida General Corporation Law (the "FGCL"), SRC shall be merged with and
into Merger Sub. Following the Merger, Merger Sub shall continue as the
surviving corporation (the "Surviving Corporation") and the separate corporate
existence of SRC shall cease.
Section 2.2 Effective Time. As soon as practicable after the Closing, the
parties hereto will file with the Secretary of State of the State of Florida, a
certificate of merger in such form as required by, and executed in accordance
with, the relevant provisions of the corporation law of such state. The
effective time of the filing of the certificate of merger with the Secretary of
State of the State of Florida is the "Effective Time."
Section 2.3 Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of CNE within seven
(7) business days after all the conditions set forth in Article VIII hereof are
satisfied or waived but in no event later than April 30, 2003. The date on which
the Closing occurs is herein referred to as the "Closing Date."
Section 2.4 Effects of the Merger. The Merger shall have the effects set forth
in the FGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges, powers
and franchises of SRC and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of SRC and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 2.5 Certificate of Incorporation and Bylaws. The Certificate of
Incorporation of Merger Sub in effect at the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation until amended in
accordance with applicable Law. The bylaws of Merger Sub in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable Law.
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Section 2.6 Directors. The directors of Merger Sub at the Effective Time shall
be the directors of the Surviving Corporation, to hold office in accordance with
the Certificate of Incorporation and bylaws of the Surviving Corporation until
their successors are duly elected or appointed and qualified or until their
earlier death, resignation or removal.
Section 2.7 Conversion of CNE, Merger Sub and SRC Securities.
(a) At the Effective Time, each outstanding share of the common stock,
$0.001 par value per share, of Merger Sub shall, by virtue of the Merger
and without any action on the part of CNE, Merger Sub or SRC, be converted
into one fully paid and non-assessable share of common stock of the
Surviving Corporation;
(b) At the Effective Time, or thereafter as otherwise provided by the FGCL:
(i) each share of SRC Common Stock issued and outstanding
immediately prior to the Effective Time that shall be owned by an
Affiliated SRC Stockholder shall, by virtue of the Merger and without
any action on the part of CNE, Merger Sub, SRC or any holder thereof,
be converted into and be exchangeable for the right to receive 0.732
newly issued fully paid and non-assessable non-voting shares of Class
C Preferred Stock, par value $0.00001 per share, of CNE (the "C
Preferred Stock") and warrants (the "C Warrants" together with the C
Preferred Stock, the A Preferred Stock and A Warrants, both as defined
in Paragraph 2.7(b)(ii) below, the CNE Common Stock to be issued to
the Non-Affiliated SRC Stockholders as provided in Paragraph
2.7(b)(ii) below, and the B Preferred Stock as defined in Paragraph
2.7(b)(iii) below sometimes hereinafter referred to as the "CNE
Securities") to purchase shares of CNE common stock, par value
$0.00001 per share, (the "CNE Common Stock") at a ratio (the "C
Preferred Exchange Ratio") of 0.732 shares of C Preferred Shares and
.732 C Warrants for each share of SRC Common Stock. An aggregate of
Four Million, Eight Hundred and Sixty Seven Thousand, Nine Hundred and
Thirty Eight (4,867,937)) shares of C Preferred Stock (hereinafter
sometimes referred to as the "Purchase Price") shall be issued
pursuant to this Paragraph 2.7(b)(i). At CNE's option, CNE may redeem
all, or any part, of the C Preferred Stock commencing sixty (60)
months after the date of issuance for a period of six (6) months
thereafter (the "Initial C Redemption Period"), for (A) cash as
provided in the Certificate of Designations of Rights and Preferences
reflecting the voting powers, designations, preferences and relative
participating, optional or other special rights of the C Preferred
Stock (the "C Preferred Stock Certificate of Designations" which is
appended hereto a Exhibit C), (B) Four Million, Eight Hundred and
Sixty Seven Thousand, Nine Hundred and Thirty Eight (4,867,937) shares
of CNE Common Stock, or (C) shares of CNE'S Class E 8% Cumulative
Preferred Stock (the "E Preferred Stock") having an aggregate stated
value of Seven Million, One Hundred and Fifty Two Thousand Five
Hundred and Ninety Seven ($7,152,597) Dollars, quarterly dividend
payments and, under certain circumstances as provided in the E
Preferred Stock Certificate of Designations, be granted certain voting
rights. A copy of the E Preferred Stock Certificate of Designations is
appended hereto a Exhibit D. If CNE shall fail to redeem the C
Preferred Stock during the Initial C Redemption Period, the C
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Preferred Stock shall thereafter bear a twelve percent (12%)
cumulative dividend, payable quarterly in cash, and, under certain
circumstances as provided in the C Preferred Stock Certificate of
Designations, be granted certain voting rights. In the event CNE shall
liquidate, the holders of the C and E Preferred Stock will share in
any assets remaining after payment to the holders of any other then
outstanding preferred stock on a pari passu basis with the holders of
the CNE Common Stock as if the C Preferred Stock had been redeemed for
CNE Common Stock as provided herein. The C Warrants will be
exercisable in cash for an aggregate of Four Million, Eight Hundred
and Sixty Seven Thousand, Nine Hundred and thirty Seven (4,867,937)
shares of CNE Common Stock at the higher of the average closing price
of CNE Common Stock on the AMEX for the ten (10) trading days
preceding the Closing or One ($1.00) Dollar per share. They will
expire ten (10) years after issuance and will be non-detachable from
the C Preferred Stock and non-exercisable for sixty six (66) months
after issuance. A copy of the C Warrant is appended hereto a Exhibit
E.
(ii) each share of SRC Common Stock issued and outstanding
immediately prior to the Effective Time that shall be owned by a
holder of SRC Common Stock who is not an Affiliated SRC Stockholder
(collectively the "Non-Affiliated SRC Stockholders") and shall have
voted in favor of the Merger or shall not have exercised his or her
right of appraisal as provided by Section 607.1320 of Title XXXVI,
Chapter 607 of the FGCL (an "Approving SRC Stockholder" together with
the Affiliated Stockholders and the "Approving SRC B Preferred
Stockholders" as defined in Paragraph 2.7(b)(iii) below, hereinafter
referred to as the "SRC Stock Holders") shall, by virtue of the Merger
and without any action on the part of CNE, Merger Sub, SRC or any
holder thereof, be converted into and be exchangeable for the right to
receive newly issued fully paid and non-assessable shares of CNE
Common Stock, newly issued fully paid and non-assessable non-voting
shares of CNE Class A Preferred Stock, par value $0.00001 per share
(the "A Preferred Stock) and warrants (the "A Warrants") to purchase
CNE Common Stock as set forth in the Schedule of Nonaffiliated SRC
Stockholders appended hereto as Exhibit F, subject to such holder
providing CNE with reasonably acceptable investment representations
and related documentation. An aggregate of Eight Hundred Ninety Nine
Thousand Nine Hundred and Seventy Six (899,976) shares of CNE Common
Stock and One Million, Six Hundred and Ninety Seven, Nine Hundred and
Sixty One (1,697,961) shares of A Preferred Stock and a like number of
A Warrants shall be issued pursuant to this Paragraph 2.7(b)(ii). The
aggregate stated value of the A Preferred Stock shall be One Million,
Six Hundred and Ninety Seven, Nine Hundred and Sixty One ($1,697,961))
Dollars (the "A stated Value"). The A Preferred Stock shall have an
aggregate liquidating preference value equal to the A Stated Value,
which shall be senior to all other CNE equity. At CNE's option, CNE
may redeem all, but not any part, of the A Preferred Stock commencing
sixty (60) months after the date of issuance for a period of six (6)
months thereafter (the "Initial A Redemption Period"), for (A) cash as
provided in the Certificate of Designations of Rights and Preferences
reflecting the voting powers, designations, preferences and relative
participating, optional or other special rights of the A Preferred
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Stock (the "A Preferred Stock Certificate of Designations" which is
appended hereto a Exhibit G), (B) One Million, Six Hundred and Ninety
Seven, Nine Hundred and Thirty Seven (1,697,937) shares of CNE Common
Stock, or (C) shares of E Preferred Stock having an aggregate stated
value of Two Million, Four Hundred and Ninety Five Thousand, Four
Hundred and Forty Eight ($2,495,448) Dollars. If CNE shall fail to
redeem the A Preferred Stock during the Initial A Redemption Period,
the A Preferred Stock shall thereafter bear a twelve percent (12%)
cumulative dividend, payable quarterly in cash, and under certain
circumstances as provided in the A Preferred Stock Certificate of
Designations, be granted certain voting rights. The A Warrants will be
exercisable in cash for an aggregate of One Million, Six Hundred and
Ninety Seven, Nine Hundred and Sixty One (1,697,961) shares of CNE
Common Stock at the higher of the average closing price of CNE Common
Stock on the AMEX for the ten (10) trading days preceding the Closing
or One ($1.00) Dollar per share. They will expire ten (10) years after
issuance and will be non-detachable from the A Preferred Stock and
non-exercisable for sixty six (66) months after issuance. A copy of
the A Warrant is appended hereto a Exhibit D. A; and
(iii) each share of SRC Series B Preferred Stock issued and
outstanding immediately prior to the Effective Time that shall be
owned by a holder of SRC Series B Preferred Stock (collectively the
"SRC B Preferred Stockholders") and shall have voted in favor of the
Merger or shall not have exercised his or her right of appraisal as
provided by Section 607.1320 of Title XXXVI, Chapter 607 of the FGCL
(an "Approving SRC B Preferred Stockholder") shall, by virtue of the
Merger and without any action on the part of CNE, Merger Sub, SRC or
any holder thereof, be converted into and be exchangeable for the
right to receive newly issued fully paid and non-assessable shares of
CNE Class B Preferred Stock, (par value One Hundred ($100.00) Dollar
per share (the "B Preferred Stock) as set forth in the Schedule of SRC
B Preferred Stockholders appended hereto as Exhibit I, subject to such
holder providing CNE with reasonably acceptable investment
representations and related documentation. An aggregate of Four
Hundred and Forty (4,400) shares of CNE B Preferred Stock shall be
issued pursuant to this Paragraph 2.7(b)(iii). The aggregate stated
value of the B Preferred Stock shall be Four Hundred and Forty
Thousand ($440,000) Dollars (the "B stated Value"). The B Preferred
Stock shall have an aggregate liquidating preference value equal to
the B Stated Value, which shall be senior to all other CNE equity
except for the A Preferred Stock. A Copy of the C Preferred Stock
Certificate of Designations is appended hereto as Exhibit J.
(iv) each Non-Affiliated SRC stockholder and/or SRC B Preferred
Stockholder who shall have voted against the Merger and shall have
exercised his or her right of appraisal as provided by Section
607.1320 of the FGCL shall thereafter have such rights as he or she
may be granted pursuant to Section 607.1302 of the FGCL.
(c) At the Effective Time, all options, warrants, convertible notes and
other rights, entitling the holders thereof to purchase or otherwise acquire any
shares of SRC Common Stock (collectively, "Instruments") shall be canceled,
retired and cease to exist at and as of the Effective Time. A complete list of
the Instruments is set forth on Schedule 3.7(c).
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Section 2.8 Exchange Procedures.
(a) The Surviving Corporation will act as exchange agent in connection with
the Merger.
(b) At the Closing the SRC Stock Holders shall deliver to the Surviving
Corporation, acting as transfer agent, their certificates representing SRC
Common Stock in exchange for receiving the CNE Securities. CNE shall make
available for exchange in accordance with this Section 2.8 certificates
representing the CNE Securities issuable pursuant to Section 2.7(b)(i), (ii)and
(iii). Upon surrender of the certificates formerly representing shares of SRC
Common Stock owned by each SRC Stock Holder (the "Certificates"), such SRC Stock
Holder shall be entitled to and, except as otherwise provided in the next
succeeding sentence, shall receive in exchange therefor CNE Securities
representing, in the aggregate, the number of shares of A, B and C Preferred
Stock and fractional shares thereof and A and C Warrants and/or shares of CNE
Common Stock or fractional shares thereof, as the case may be, that he or she
has the right to receive pursuant to Section 2.7 (after taking into account all
SRC Common and/or B Preferred Stock then held by such SRC Stock Holder).
Anything to the contrary not withstanding, the Affiliated SRC Stockholders agree
that at the Closing an aggregate of One Million (1,000,000) shares of the C
Preferred Stock and a like number of C Warrants issuable to them in exchange for
their shares of SRC Common Stock as provided herein, shall be delivered to
Lawrence D. Greenberg, Esq., as escrow agent, to be held in escrow pursuant to
the terms of the escrow agreement (the "Escrow Agreement"), dated as of the date
hereof, which is being executed by all parties hereto and is appended hereto as
Exhibit I.
Section 2.9 No Further Ownership Rights in SRC Common or B Preferred Stock. All
CNE Securities issued upon conversion of SRC Common Stock in accordance with the
terms of this Article II shall be deemed to have been issued in full
satisfaction of all rights pertaining to SRC Common and B Preferred Stock.
Section 2.10 Stock Transfer Books. The stock transfer books of SRC shall be
closed immediately upon the Effective Time and there shall be no further
registration of transfers of SRC Common Stock thereafter on the records of SRC.
On or after the Effective Time, any Certificates presented to the Surviving
Corporation or CNE for any reason shall be converted into CNE Securities with
respect to SRC Common Stock formerly represented thereby at the applicable
Exchange Ratio.
Section 2.11 Approval of Merger and Declination of Appraisal Rights. This
executed Agreement shall constitute agreement and acknowledgment of each
Affiliated SRC Stockholder to (a) vote his or her shares of SRC Common Stock to
approve the Merger and (b) decline any appraisal rights under Sections 607.1302
and 6071320 FGCL. By executing this Agreement, each Affiliated SRC Stockholder
acknowledges receipt of written notice of appraisal rights and a copy of
Sections 607.1302 and 607.1320 of FGCL at least ten (10) days prior to the date
of executing this Agreement. Sections 607.1302 and 607.1320 of the FGCL are
attached hereto as Exhibit B.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
SRC, THE AFFILIATED SRC STOCKHOLDERS AND LARRY REID
SRC, the Affiliated SRC Stockholders and Larry Reid ("Reid"), jointly and
severally, hereby represent and warrant to CNE and Merger Sub as follows:
Section 3.1 Corporate Organization. SRC and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the state of its organization with all requisite corporate power and
authority to own or lease its properties and conduct its business as now owned,
leased or conducted and SRC has the requisite power to execute, deliver and
perform this Agreement and each instrument, document or agreement required
hereby to be executed and delivered by it at, or prior to, the Closing. Schedule
3.1(a) sets forth a list of the subsidiaries of SRC, all of which are wholly
owned by it free and clear of all liens and encumbrances except as set forth in
Schedule 3.1(a). True and complete copies of the certificate of incorporation
and bylaws (or other organizational documents) of SRC and each of its
subsidiaries are included in Schedule 3.1(b). The minute books of SRC and each
of its subsidiaries made available to CNE are complete and accurately reflect
all action taken prior to the date of this Agreement by the board of directors
of SRC and each of its subsidiaries, as the case may be, and the stockholders
thereof in their capacities as such.
Section 3.2 Qualification. SRC and each of its subsidiaries is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now conducted or the
character of the property owned or leased by it makes such qualification
necessary and failure to so qualify could have a Material Adverse Effect on the
financial condition, results of operations, business or properties of SRC, its
subsidiaries or the Surviving Corporation. Schedule 3.2 sets forth a list of the
jurisdictions in which SRC and each of its subsidiaries is qualified to do
business, if any.
Section 3.3 Authorization. The execution and delivery by SRC of this Agreement,
the performance of its obligations pursuant hereto and the execution, delivery
and performance of each instrument, document or agreement required hereby to be
executed and delivered by it at, or prior to, the Closing have been duly and
validly authorized by all requisite corporate action on the part of SRC and no
other corporate proceedings on its part are necessary to authorize this
Agreement or any other instrument, document or agreement required hereby to be
executed by SRC at, or prior to, the Closing. The Board of Directors of SRC has
voted to recommend approval of the Merger to the stockholders of SRC and such
determination remains in effect. This Agreement has been, and each instrument,
document or agreement required hereby to be executed and delivered by SRC at, or
prior to, the Closing will then be, duly executed and delivered by it, and this
Agreement constitutes, and, to the extent it purports to obligate SRC, each such
instrument, document or agreement will constitute (assuming due authorization,
execution and delivery by each other party thereto), the legal, valid and
binding obligation of SRC, enforceable against it in accordance with its terms,
except to the extent that enforcement thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance or other similar
laws now or hereafter in effect relating to creditors' rights generally and to
general principles of equity.
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Section 3.4 Approvals. Except for the applicable filings with the Secretary of
State of the State of Florida relating to the Merger , to the knowledge of SRC,
the Affiliated SRC Stockholders and Reid, no filing or registration with, and no
consent, approval, authorization, permit, certificate or order of any Court or
Governmental Authority is required by any applicable Law or by any applicable
Order or any applicable rule or regulation of any Court or Governmental
Authority to permit SRC, the Affiliated SRC Stockholders or Reid to execute,
deliver, perform or consummate the transactions contemplated by this Agreement
or any instrument required hereby to be executed and delivered by it at the
Closing.
Section 3.5 Absence of Conflicts. Except to the extent set forth in Schedule
3.5, neither the execution and delivery by SRC, the Affiliated SRC Stockholders
or Reid of this Agreement or any instrument, document or agreement required
hereby to be executed and delivered by any of them at, or prior to, the Closing,
nor the performance by SRC, the Affiliated SRC Stockholders Reid of their
respective obligations under this Agreement or any such instrument, document or
agreement will (assuming receipt of all consents, approvals, authorizations,
permits, certificates and orders disclosed as required in Section 3.4) to the
knowledge of the SRC, any of the Affiliated SRC Stockholders or Reid (a) violate
or breach the terms of or cause a default under (i) any applicable Law, (ii) any
applicable Order or any applicable rule or regulation of any Court or
Governmental Authority, (iii) any applicable permits received from any
Governmental Authority or Court, (iv) the articles of incorporation or bylaws or
other organizational documents of SRC or any of its subsidiaries, or (v) any
contract or agreement to which SRC, any of its subsidiaries, any of the
Affiliated SRC Stockholders or Reid is a party or by which any of them, or, in
the case of SRC and its subsidiaries, any of its properties, is bound, or (b)
result in the creation or imposition of any Lien on any of the properties or
assets of SRC, any of its subsidiaries or the Surviving Corporation, or (c)
result in the cancellation, forfeiture, revocation, suspension or adverse
modification of any existing consent, approval, authorization, license, permit,
certificate or order of any Court or Governmental Authority, or (d) with the
passage of time or the giving of notice or the taking of any action of any third
party have any of the effects set forth in clauses (a), (b) or (c) of this
Section.
Section 3.6 Subsidiaries; Equity Investments. Except as set forth in Schedule
3.1(a), SRC has not controlled, directly or indirectly, or had any direct or
indirect equity participation in, any Person during the five-year period
preceding the date hereof.
Section 3.7 Capitalization.
(a) Schedule 3.7(a) sets forth with respect to SRC and each of its
----------------
subsidiaries its authorized and outstanding Common Stock and Preferred Stock
(the "SRC Capital Stock"). Each outstanding share of the Common Stock of SRC and
each of its subsidiaries has been duly authorized, is validly issued, fully paid
and non-assessable and was not issued in violation of any preemptive rights of
any stockholder. Set forth in Schedule 3.7(a) are the names, social security or
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IRS identification numbers and addresses (as reflected in the corporate records
of SRC) of each record holder of the Common Stock of SRC, together with the
number of shares held by each such Person.
(b) Except as disclosed in Schedule 3.7(b) or as may be issued in
connection with SRC's agreement to acquire Denbridge Digital, Ltd. and a certain
related patent (the "Denbridge Agreements"), there is not outstanding any
capital stock or other security, including, without limitation, any option,
warrant or right, entitling the holder thereof to purchase or otherwise acquire
any shares of the Common Stock of SRC or any of its subsidiaries, and there are
no contracts, agreements, commitments or arrangements obligating SRC, any of its
subsidiaries or the Surviving Corporation (i) to issue, sell, pledge, dispose of
or encumber any shares of, or any options, warrants or rights of any kind to
acquire, or any securities that are convertible into or exercisable or
exchangeable for, any shares of, any class of capital stock of SRC, any of its
subsidiaries or the Surviving Corporation, or (ii) to redeem, purchase or
acquire or offer to acquire any shares of, or any outstanding option, warrant or
right to acquire, or any securities that are convertible into or exercisable or
exchangeable for, any shares of, any class of capital stock of SRC, any of its
subsidiaries or the Surviving Corporation.
Section 3.8 Financial Statements. Appended hereto as Schedule 3.8 are and
complete copies of the audited consolidated financial statements of SRC
consisting of (i) an audited consolidated balance sheet (the "SRC 2002 Balance
Sheet") of SRC as of December 31, 2002 (the "SRC 2002 Balance Sheet Date") (and
the related audited consolidated statements of income, changes in stockholders'
equity and cash flows for the year then ended (including the notes thereto)
(collectively with the SRC 2002 Balance Sheet, the "SRC 2002 Financial
Statements") and (ii) an audited consolidated balance sheet of SRC as of
December 31, 2001 (the "SRC 2001 Balance Sheet") and the related audited
consolidated statements of income, changes in stockholders' equity and cash
flows for the year then ended (including the notes thereto) (collectively with
the SRC 2001 Balance Sheet, the "SRC 2001 Financial Statements" and together
with the SRC 2002 Financial Statements, the "SRC Financial Statements"). The SRC
Financial Statements present fairly the financial position of SRC and the
results of its operations and changes in financial position as of the dates and
for the periods indicated therein in conformity with GAAP. The SRC Financial
Statements do not omit to state any liabilities, absolute or contingent,
required to be stated therein in accordance with GAAP. All accounts receivable
of SRC reflected in the SRC Financial Statements and as incurred since the SRC
2002 Balance Sheet Date, represent sales made in the ordinary course of
business, are collectible (net of any reserves for doubtful accounts shown in
the SRC 2002 Financial Statements) in the ordinary course of business and,
except as set forth in Schedule 3.8, are not in dispute or subject to
counterclaim, set-off or re-negotiation.
Section 3.9. Undisclosed Liabilities. Except as and to the extent of the amounts
specifically reflected or accrued for in the SRC Financial Statements, to the
knowledge of SRC, the Affiliated SRC Stockholders and Reid, neither SRC nor any
of its subsidiaries have any material liabilities or obligations of any nature
whether absolute, accrued, contingent or otherwise, and whether due or to become
due. The reserves reflected in the SRC 2002 Balance Sheet are adequate,
appropriate and reasonable in accordance with GAAP.
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Section 3.10 Licenses. SRC and each of its subsidiaries has obtained all
licenses, certificates of authority, permits, authorizations, orders and
approvals of, and has made all registrations or filings with, all Governmental
Authorities as required in connection with the conduct of its business other
than licenses, certificates, permits, authorizations, orders, approvals,
registrations or filings which if not obtained or made would not have Material
Adverse Effect on SRC, any of its subsidiaries, or their respective business or
financial conditions (collectively , the "Licenses"). Schedule 3.10 sets forth a
true and complete list of the Licenses of SRC and its subsidiaries (including
the jurisdictions in which they possess Licenses or other approvals to conduct
their respective businesses) together with a description of the nature thereof.
Neither SRC nor any of its subsidiaries is transacting any business in any
jurisdiction in which it is not authorized or permitted to transact such
business. All Licenses are valid and in full force and effect. No such License
is the subject of a proceeding for suspension or revocation or similar
proceedings, and to the knowledge of SRC, the Affiliated SRC Stockholders and
Reid no such proceeding is threatened.
Section 3.11 Tax Matters.
(a) Except as set forth in Schedule 3.11(a) (and except for filings and
payments of assessments the failure of which to file or pay will not have a
Material Adverse Effect on SRC, any of its subsidiaries or the Surviving
Corporation) to the knowledge of SRC, the Affiliated SRC Stockholders and Reid:
(i) all Tax Returns which are required to be filed on or before the Closing Date
by or with respect to SRC and each of its subsidiaries have been or will be duly
and timely filed, (ii) all items of income, gain, loss, deduction and credit or
other items required to be included in each such Tax Return have been or will be
so included and all information provided in each such Tax Return is true,
correct and complete, (iii) all Taxes which have become or will become due with
respect to the period covered by each such Tax Return have been or will be
timely paid in full, (iv) all withholding Tax requirements imposed on or with
respect to SRC and each of its subsidiaries have been or will be satisfied in
full, (v) no penalty, interest or other charge is or will become due with
respect to the late filing of any such Tax Return or late payment of any such
Tax; and (vii) all positions taken in the Tax Returns have been taken with no
less than a "more likely than not" expectation correctness.
(b) There is no claim against SRC or any of its subsidiaries for any Taxes,
and no assessment, deficiency or adjustment has been asserted or, to the
knowledge of SRC, the Affiliated SRC Stockholders and Reid, proposed with
respect to any Tax Return of or with respect to SRC or any of its subsidiaries,
other than those disclosed (and to which are attached true and complete copies
of all audit or similar reports) in Schedule 3.11(b).
(c) Except as set forth in Schedule 3.11(c), there is not in force any
extension of time with respect to the due date for the filing of any Tax Return
of or with respect to SRC or any of its subsidiaries, or any waiver or agreement
for any extension of time for the assessment or payment of any Tax of or with
respect to SRC or any of its subsidiaries.
(d) The total amounts set up as liabilities for current and deferred Taxes
in the SRC Financial Statements are sufficient to cover the payment of all
Taxes, whether or not assessed or disputed, which are, or are hereafter found to
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be, or to have been, due by or with respect to SRC or any of its subsidiaries,
as the case may be, up to and through the periods covered thereby.
Section 3.12 Litigation.
(a) Except as set forth in Schedule 3.12(a), there are no actions at law,
suits in equity, investigations, proceedings or claims pending or, to the
knowledge of SRC, the Affiliated SRC Stockholders and Reid, threatened against
or affecting SRC or any of its subsidiaries before or by any Court or
Governmental Authority.
(b) Except as contemplated by this Agreement and except to the extent set
forth in Schedule 3.12(b), SRC and each of its subsidiaries has performed all
obligations required to be performed by it to date and is not in default under,
and to the knowledge of SRC, the Affiliated SRC Stockholders and Reid, no event
has occurred which, with the lapse of time or action by a third party, could
result in a material default under any contract or other agreement to which SRC
or any of its subsidiaries is a party or by which it or any of its properties is
bound or under any applicable Order of any Court or Governmental Authority.
Section 3.13 Compliance with Law. Except as set forth in Schedule 3.13, to the
knowledge of SRC, the Affiliated SRC Stockholders and Reid, SRC and each of its
subsidiaries are in material compliance with all applicable statutes and other
applicable Laws and all applicable rules and regulations of all federal, state,
foreign and local governmental agencies and authorities.
Section 3.14 Employee Benefit Plans and Policies.
Except as set forth in Schedule 3.14, neither nor SRC nor any of its
subsidiaries maintains or has an obligation to contribute to, and has at no time
since the effective date of ERISA maintained or had an obligation to contribute
to, any "employee pension benefit plan" as defined in Section 3(2) of ERISA with
regard to any employee, past or present, and neither SRC nor any of its
subsidiaries is and has at any time since the effective date of the
Multiemployer Pension Plan Amendment Act of 1980 been a party to, or during such
period made any contribution to, any "Multiemployer Plan" as defined in Section
3(37) of ERISA (collectively the "Plans") with regard to any employee, past or
present.
Section 3.15 Labor Matters. Neither SRC nor any of its subsidiaries is a party
to any collective bargaining agreement, and to the knowledge SRC, the Affiliated
SRC Stockholders and Reid, SRC and each of its subsidiaries is in compliance in
all material respects with all federal, state or other applicable laws
respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practices.
Section 3.16 Insurance. Schedule 3.16 sets forth a list of all policies of
insurance currently in effect relating to the business or operations of SRC and
each of its subsidiaries. Such insurance policies are in full force and effect.
SRC and each of its subsidiaries are currently insured, and since the inception
of operations by SRC and each of its subsidiaries, as the case may be, has been
insured, against such risks as companies engaged in the same or substantially
similar business would, in accordance with good business practice, customarily
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be insured. SRC and each of its subsidiaries, as the case may be, have given in
a timely manner to its insurers all notices required to be given under such
insurance policies with respect to all claims and actions covered by insurance,
and, except as set forth in Schedule 3.16, no insurer has denied coverage of any
such claims or actions or reserved its rights in respect of or rejected any of
such claims. Neither SRC nor any of its subsidiaries has received any notice or
other communication from any such insurer canceling or materially amending any
of such insurance policies, and no such cancellation is pending or threatened.
The execution of this Agreement and the consummation of the transactions
contemplated hereby will not cause such insurance policies to lapse, terminate
or be canceled and will not result in any party thereto having the right to
terminate or cancel such insurance policies.
Section 3.17 Affiliate Interests. Except as set forth in Schedule 3.17, no
employee, officer, director or stockholder or former employee, officer, director
or stockholder of SRC or any of its subsidiaries has any interest in any
property, tangible or intangible, including, without limitation, patents, trade
secrets, other confidential business information, trademarks, service marks or
trade names, used in or pertaining to the business of SRC or any of its
subsidiaries, except for the normal rights of employees and stockholders.
Section 3.18 Hazardous Materials.
(a) To the knowledge of SRC, the Affiliated SRC Stockholders and Reid, SRC
and each of its subsidiaries are in compliance in all material respects with the
provisions of all federal, state and local environmental, health and safety
laws, codes and ordinances and all rules and regulations promulgated thereunder
(together "Environmental Laws"), and SRC and each of its subsidiaries have all
necessary government permits, licenses, certificates and approvals in relation
thereto.
(b) Neither SRC nor any of its subsidiaries has received any complaint,
order, directive, claim, citation or notice of, and neither SRC, the Affiliated
SRC Stockholders nor Reid know of any fact(s) that might constitute a
violation(s) of any Environmental Laws.
(c) Except in accordance with a valid governmental permit, license,
certificate or approval listed in Schedule 3.18, to the knowledge of SRC, the
Affiliated SRC Stockholders and Reid, there has been no emission, spill, release
or discharge of Hazardous Material in or at the place of business of SRC or the
place of business of any of its subsidiaries, or of any toxic or hazardous
substances or wastes into or upon (i) the air; (ii) soils or any improvements
located thereon; (iii) the water (including adjacent water and underground
water); or (iv) any sewer, septic system or waste treatment, storage or disposal
system for which SRC any of its subsidiaries or the Surviving Corporation could
be held liable.
Section 3.19 Intellectual Property. Except as set forth in Schedule 3.19, SRC
and each of its subsidiaries owns, or is licensed or otherwise has the right to
use all Intellectual Property that is necessary for the conduct of the business
and operations of SRC and each of its subsidiaries, as the case may be, as
currently conducted. To the knowledge of SRC, the Affiliated SRC Stockholders
and Reid, (a) the use of the Intellectual Property by SRC and each of its
subsidiaries, as the case may be, does not infringe on the rights of any Person,
and (b) no Person is infringing on any right of SRC or any of its subsidiaries,
as the case may be, with respect to any Intellectual Property. No claims that
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SRC or any of its subsidiaries is infringing or otherwise adversely affecting
the rights of any Person with regard to any Intellectual Property are pending
or, to the knowledge of SRC, the Affiliated SRC Stockholders and Reid,
threatened. All of the Intellectual Property that is owned by SRC and each of
its subsidiaries is owned free and clear of all encumbrances and was not
misappropriated from any Person. All of the Intellectual Property that is
licensed by SRC and each of its subsidiaries is licensed pursuant to valid and
existing license agreements. The consummation of the transactions contemplated
by this Agreement will not result in the loss of any Intellectual Property by
SRC, any of its subsidiaries or the Surviving Corporation.
Section 3.20 Disclosure. To the best of their knowledge, SRC, the Affiliated SRC
Stockholders and Reid have disclosed in writing, or pursuant to this Agreement
and the Schedules attached hereto, all facts material to the business, assets,
prospects and condition (financial or otherwise) of SRC and each of its
subsidiaries. To the best of their knowledge, no representation or warranty to
CNE by SRC, any of the Affiliated SRC Stockholders or Reid contained in this
Agreement, and no statement contained in the Schedules attached hereto, no
certificate, list or other writing furnished to CNE by SRC, any of the
Affiliated SRC Stockholders or Reid pursuant to the provisions hereof or in
connection with the transactions contemplated hereby, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements herein or therein not misleading. Each statement
contained in this Agreement, the Schedules attached hereto, and any certificate,
list, document or other writing delivered pursuant hereto or in connection with
the transactions contemplated hereby shall be deemed a representation and
warranty of SRC and each of the Affiliated SRC Stockholders and Reid for all
purposes of this Agreement.
Section 3.21 Certain Agreements. Except as set forth in Schedule 3.21, neither
SRC nor any of its subsidiaries nor any of their respective officers or
directors, is a party to, or bound by, any contract, agreement or organizational
document which purports to restrict, by virtue of a non-competition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against SRC any of its subsidiaries or the
Surviving Corporation, or any of their respective officers or directors, the
scope of the business or operations of SRC, any of its subsidiaries or the
Surviving Corporation, or any of their respective officers or directors,
geographically or otherwise.
Section 3.22 Absence of Changes. Except as disclosed in Schedule 3.22 or as
contemplated by this Agreement, since the date of the SRC 2002 Balance Sheet,
there has not been: (a) any transaction, commitment, dispute or other event or
condition (financial or otherwise) of any character (whether or not in the
ordinary course of business) individually or in the aggregate having, or likely
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to have, or which, with or without notice or lapse of time or both, would have,
a Material Adverse Effect on SRC or any of its subsidiaries; (b) any damage,
destruction or loss, whether or not covered by insurance, which, insofar as
reasonably can be foreseen, in the future would have a Material Adverse Effect
on SRC or any of its subsidiaries; (c) any entry into any commitment or
transaction material to SRC or any of its subsidiaries (including, without
limitation, any borrowing or sale of assets) except in the ordinary course of
business consistent with past practice, or (d) any declaration, setting aside or
payment of any dividend or other distribution (whether in cash, stock or
property) with respect to the capital stock of SRC or any of its subsidiaries.
Since date of the SRC 2002 Balance Sheet neither SRC, the Affiliated SRC
Stockholders nor Reid are aware of any fact or facts that, with or without
notice or lapse of time or both, would, individually or in the aggregate, result
in a Material Adverse Effect on SRC or any of its subsidiaries.
Section 3.23 Contracts and Commitments. Schedule 3.23 includes (a) a list of all
written and oral contracts to which SRC or any of its subsidiaries is a party or
by which its property is bound that involve consideration or other expenditure
in excess of $10,000 or performance over a period of more than six (6) months or
that is otherwise material to its business or operations ("Material Contracts");
(b) a list of all real or personal property leases to which SRC or any of its
subsidiaries is a party involving consideration or other expenditure in excess
of $10,000 over the term of the lease ("Material Leases"); (c) a list of all
guarantees of, or agreements to indemnify or be contingently liable for, the
payment or performance by any Person to which SRC or any of its subsidiaries is
a party ("Guarantees") and (d) a list of all contracts or other formal or
informal understandings between SRC or any of its subsidiaries and any of its
respective officers, directors, employees, agents, stockholders or affiliates
("Related Party Agreements"). True and complete copies of each Material
Contract, Material Lease, Guarantee and Related Party Agreement, to the extent
they are in written form, have been furnished to CNE. Except as may be set forth
in Schedule 3,23, each Material Contract is in full forces and effect, valid and
binding in accordance with its terms and no notice of any breach or violation
thereof has been given to SRC, the Affiliated Stockholders or Reid.
Section 3.24 Title to Property. Except as set forth on Schedule 3.24, SRC has
good and marketable title to all the real property and good and valid title to
all other property included in the SRC Financial Statements other than property
disposed of in the ordinary course of business after the date of the SRC 2002
Balance Sheet. Except as set forth in Schedule 3.24, SRC's properties are not
subject to any mortgage, encumbrance or lien of any kind except minor
encumbrances, which do not materially interfere with the use of the property in
the conduct of SRC's business.
ARTICLE IV
ADDITIONAL REPRESENTATIONS AND WARRANTIES
OF THE AFFILIATED SRC STOCKHOLDERS AND REID
Each Affiliated SRC Stockholder and Reid hereby, severally but not jointly,
represents and warrants to CNE that:
Section 4.1 Authorization of Agreement. He or she has full legal right, power,
capacity and authority to execute, deliver and perform his or her obligations
pursuant to this Agreement and to execute, deliver and perform his or her
obligations under each instrument, document or agreement required hereby to be
executed and delivered by such Stockholder at, or prior to, the Closing. The
execution of this Agreement by SRC represents the consent by 100 percent of the
Affiliated SRC Stockholders and Reid to the terms and provisions of this
Agreement and the transactions contemplated herein. This executed Agreement
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shall also constitute such Affiliated SRC Stockholders' and Reid's written
waiver of all applicable notice requirements. The date set forth beneath such
Affiliated SRC Stockholder's and Reid's signature is the actual date of
execution and delivery of this Agreement by such Affiliated SRC Stockholder and
Reid to SRC and CNE. This executed Agreement shall be filed in SRC's minute
books as evidence of such Stockholder's and Reid's action.
Section 4.2 Investment Intent. With respect to his or her acquisition of the CNE
Securities, he or she represents and warrants to CNE that he or she: (a) will
acquire the CNE Securities pursuant to the Merger solely for his or her account,
for investment purposes only and with no current intention or plan to
distribute, sell or otherwise dispose of any of the CNE Securities or CNE Common
Stock issuable upon exercise of the D Warrants in connection with any
distribution except in full compliance with all applicable securities laws; (b)
is not a party to any agreement or other arrangement for the disposition of any
securities of CNE; (c) is an "accredited investor" as defined in Securities Act
Rule 501(a); (d) (i) is able to bear the economic risk of an investment in the
CNE Securities acquired pursuant to this Agreement, (ii) can afford to sustain a
total loss of that investment, (iii) has such knowledge and experience in
financial and business matters, and such past participation in investments, that
he or she is capable of evaluating the merits and risks of the proposed
investment in the CNE Securities, (iv) has received and reviewed the SEC
Documents as defined below in Section 5.7, (v) has had an adequate opportunity
to ask questions of and receive answers from the officers of CNE concerning any
and all matters relating to the transactions contemplated hereby, including the
background and experience of the current officers and directors of CNE, the
plans for the operation of the business of CNE, and the business, operation and
financial condition of CNE, and (vi) has asked all questions of the nature
described in the preceding clause (iv), and all those questions have been
answered to his or her satisfaction; (e) acknowledges that the securities to be
delivered to him or her pursuant to the Merger and upon exercise of the D
Warrants have not been and will not be registered under the Securities Act or
qualified under applicable blue sky laws and therefore may not be resold by him
or her without compliance with the registration requirements of the Securities
Act or an exemption therefrom and that the certificates he or she will receive
will bear a legend substantially in the form set forth in Section 10.4 of this
Agreement and stop transfer instructions; (f) acknowledges that, if a
corporation or other business entity, it was not formed for the specific purpose
of acquiring the CNE Securities; and (g) without limiting any of the foregoing,
agrees not to dispose of any portion of the CNE Securities or the shares of CNE
Common Stock issuable upon exercise of the D Warrants unless a registration
statement under the Securities Act is in effect as to the applicable securities
and the disposition is made in accordance with that registration statement, or
such deposition is made in accordance with an exemption from the registration
requirements under the Securities Act and applicable state securities laws.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF CNE, MERGER SUB, GEORGE W. BENOIT AND ANTHONY S. CONIGLIARO
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CNE, the Merger Sub, George W. Benoit ("Benoit") and Anthony S. Conigliaro
("Conigliaro") hereby represent and warrant, jointly and severally, to SRC, the
Affiliated SRC Stockholders and Reid that:
Section 5.1 Corporate Organization. CNE, each of its subsidiaries and Merger Sub
is each a corporation duly organized, validly existing and in good standing
under the laws of the State of it organization with all requisite corporate
power and authority to own or lease its properties and conduct its business as
now owned, leased or conducted and CNE and Merger Sub each has all requisite
corporate power and authority to execute, deliver and perform this Agreement and
each instrument, document or agreement required hereby to be executed and
delivered by it at, or prior to, the Closing. Schedule 5.1(a) sets forth a list
of CNE's subsidiaries, including CareerEngine Network, Inc. ("CEN"), all of
which are wholly owned by CNE free and clear of all liens and encumbrances
except as set forth in Schedule 5.1(a). True and complete copies of the articles
of incorporation and bylaws (or other organizational documents) of CNE and
Merger Sub are included in Schedule 5.1(b). The minute books of CNE, each of its
subsidiaries and Merger Sub previously made available to SRC are complete and
accurately reflect all action taken prior to the date of this Agreement by its
respective board of directors and stockholders in their capacities as such.
Section 5.2 Authorization. The execution and delivery by CNE and Merger Sub of
this Agreement, the performance by CNE and Merger Sub of their respective
obligations pursuant to this Agreement, and the execution, delivery and
performance of each instrument required hereby to be executed and delivered at
the Closing have been duly and validly authorized by all requisite corporate
action on the part of CNE and Merger Sub, as the case may be, and no approval by
the Stockholders of CNE is required. This Agreement has been, and each
instrument, document or agreement required hereby to be executed and delivered
by CNE and Merger Sub at, or prior to, the Closing will then be, duly executed
and delivered, as the case may be. This Agreement constitutes, and, to the
extent it purports to obligate CNE and Merger Sub to each such instrument,
document or agreement will constitute (assuming due authorization, execution and
delivery by each other party thereto), the legal, valid and binding obligation
of CNE and Merger Sub, as the case may be, enforceable against it in accordance
with its terms, except to the extent that enforcement thereof may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to creditors' rights
generally and to general principles of equity.
Section 5.3 Approvals. Except for filings with the Secretary of State of the
State of Florida relating to the Merger, to the knowledge of CNE, no filing or
registration with, and no consent, approval, authorization, permit, certificate
or order of any Court or Government Authority is required by any applicable Law
or by any applicable Order or any applicable rule or regulation of any Court or
Governmental Authority to permit CNE or Merger Sub, as the case may be, to
execute, deliver or consummate the transactions contemplated by this Agreement
or any instrument required hereby to be executed and delivered by either of them
at or prior to the Closing.
Section 5.4 Capitalization. Schedule 5.4 (a) sets forth with respect to CNE its
authorized and outstanding capital stock, which includes, without limitation,
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common, preferred, options, warrants, derivatives, including but not limited to
debt convertible into CNE Common Stock, and any other rights a CNE security
holder has to shares of CNE Common Stock (collectively, the "CNE Capital
Stock"). Each outstanding share of the CNE Capital Stock has been duly
authorized, is validly issued, fully paid and non-assessable and was not issued
in violation of any preemptive rights of any stockholder or any federal or state
securities laws.
(a) Except as disclosed in Schedule 5.4 (a), there is not outstanding any
capital stock or other security, including, without limitation, any preferred
stock, option, warrant, right, or convertible debt entitling the holder thereof
to purchase or otherwise acquire any shares of CNE Capital Stock.
(b) Except as disclosed in Schedule 5.4(b), there are no contracts,
agreements, commitments or arrangements obligating CNE to (i) issue, sell,
pledge, dispose of or encumber any shares of, or any options, warrants or rights
of any kind to acquire, or any securities that are convertible into or
exercisable or exchangeable for, any shares of, any class of CNE Capital Stock
or (ii) redeem, purchase or acquire or offer to acquire any shares of, or any
outstanding option, warrant or right to acquire, or any securities that are
convertible into or exercisable or exchangeable for, any shares of, any class of
capital stock of CNE.
Section 5.5 Absence of Conflicts. Neither the execution and delivery by CNE or
Merger Sub, as the case may be, of this Agreement or any instrument required
hereby to be executed by it at or prior to the Closing nor the performance by
CNE or Merger Sub, as the case may be, of its obligations under this Agreement
or any such instrument will to the knowledge of CNE or Merger Sub, as the case
may be, (a) violate or breach the terms of or cause a default under (i) any
applicable Law, (ii) any applicable Order or any applicable rule or regulation
of any Court or Governmental Authority, (iii) the organizational documents of
CNE or Merger Sub, or (iv) any contract or agreement to which CNE or Merger Sub
is a party or by which it or any of its property is bound; or (b) result in the
creation or imposition of any Liens on any of the properties or assets of CNE,
any of its subsidiaries or Merger Sub; or (c) result in the cancellation,
forfeiture, revocation, suspension or adverse modification of any existing
consent, approval, authorization, license, permit certificate or order of any
Court or Governmental Authority; or (d) with the passage of time or the giving
of notice or the taking of any action by any third party have any of the effects
set forth in clauses (a), (b) or (c) of this Section, except, with respect to
clauses (a), (b), (c) or (d) of this Section, where such matter would not have a
Material Adverse Effect on the business, assets, prospects or condition
(financial or otherwise) of CNE and its subsidiaries, taken as a whole.
Section 5.6 Authorization For CNE Securities. All of the shares of A, B C
Preferred Stock issuable pursuant to the Merger will be duly authorized and
will, when issued, be validly issued, fully paid and non-assessable and not
issued in violation of the preemptive rights of any stockholder of CNE. All of
the A and C Warrants, when issued, will constitute the valid and legally binding
obligation of CNE in accordance with their terms.
Section 5.7 SEC Documents. CNE has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the Commission
pursuant to the Securities Act and the Exchange Act (the "SEC Documents"), and
during the twelve (12) calendar months prior to the Effective Time all such SEC
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Documents have been filed in a timely manner. The SEC Documents have complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
Commission promulgated thereunder applicable to the SEC Documents, and none of
the SEC Documents, at the time they were filed with the Commission, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. As of their respective dates, the financial statements of CNE
included in the SEC Documents complied as to form in all material respects with
applicable accounting requirements and the published rules and regulations of
the Commission with respect thereto. Such financial statements have been
prepared in accordance with GAAP, consistently applied, during the periods
involved (except (a) as may be otherwise indicated in such financial statements
or the notes thereto, or (b) in the case of unaudited interim statements, to the
extent they may exclude footnotes or may be condensed or summary statements) and
fairly present in all material respects the financial condition of CNE as of the
respective dates thereof and the results of its operations and cash flows for
the respective periods then ended (subject, in the case of unaudited statements,
to normal year-end audit adjustments). CNE has not received notification from
the Commission, the AMEX and/or any federal or state securities bureaus that any
investigation (informal or formal), inquiry or claim is pending, threatened or
in process against CNE and/or relating to any of CNE's securities.
Section 5.8 Merger Sub. Merger Sub is a corporation duly incorporated under the
laws of the State of Florida, is validly existing and in good standing under
such laws and is a wholly-owned subsidiary of CNE. Merger Sub has no assets,
liabilities or obligations and has engaged in no business except as contemplated
by this Agreement.
Section 5.9 Undisclosed Liabilities. Except as and to the extent of the amounts
specifically reflected or accounted for in the SEC Documents or as set forth in
Schedule 5.9, to its knowledge CNE has no material liabilities or obligations of
any nature, whether absolute, accrued, contingent or otherwise, and whether due
or to become due. The reserves reflected in the SEC Documents are adequate,
appropriate and reasonable in accordance with GAAP.
Section 5.10 Certain Agreements. Except as set forth in the SEC Documents,
neither CNE nor any of its subsidiaries nor any of its respective officers or
directors, is a party to, or bound by, any contract, agreement or organizational
document which purports to restrict, by virtue of a non-competition, territorial
exclusivity or other provision covering such subject matter purportedly
enforceable by a third party against CNE, any of it subsidiaries or any of its
respective officers or directors, the scope of the business or operations of
CNE, any of it subsidiaries or any of its respective officers or directors,
geographically or otherwise.
Section 5.11 Absence of Changes. Except as set forth in Schedule 5.11, to the
knowledge of CNE there has not been, since September 30, 2002, any material
adverse change with respect to the business, assets, results of operations, and
prospects or condition (financial or otherwise) of CNE. Except as set forth in
Schedule 5.11, since September 30, 2002, neither CNE nor any of its subsidiaries
has engaged in any transaction or conduct of any kind that would be proscribed
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by Section 7.3 herein subsequent to the execution and delivery of this Agreement
and up to the Closing Date.
Section 5.12 Litigation.
(a) Except as set forth in SEC Documents, there are no actions at law,
suits in equity, investigations, proceedings or claims pending or, to the
knowledge of CNE threatened against or specifically affecting CNE before or by
any Court or Governmental Authority.
(b) Except as contemplated by this Agreement and except to the extent set
forth in Schedule 5.12(b), CNE and each of its subsidiaries has performed all
obligations required to be performed by it to date and is not in default under,
and, to the knowledge of CNE, no event has occurred which, with the lapse of
time or action by a third party could result in a material default under any
contract or other agreement to which CNE or any of its subsidiaries is a party
or by which it or any of its properties is bound or under any applicable Order
of any Court or Governmental Authority.
Section 5.13 Tax Matters.
(a) Except as set forth in Schedule 5.13(a) (and except for filings and
payments of assessments the failure of which to file or pay will not materially
adversely affect CNE), to the knowledge of the CNE (i) all Tax Returns which are
required to be filed on or before the Closing Date by or with respect to CNE
have been or will be duly and timely filed, (ii) all items of income, gain,
loss, deduction and credit or other items required to be included in each such
Tax Return have been or will be so included and all information provided in each
such Tax Return is true, correct and complete, (iii) all Taxes which have become
or will become due with respect to the period covered by each such Tax Return
have been or will be timely paid in full, (iv) all withholding Tax requirements
imposed on or with respect to CNE have been or will be satisfied in full, and
(v) no penalty, interest or other charge is or will become due with respect to
the late filing of any such Tax Return or late payment of any such Tax.
(b) There is no claim against CNE for any Taxes, and no assessment,
deficiency or adjustment has been asserted or, to the knowledge of CNE, Benoit
or Conigliaro proposed with respect to any Tax Return of or with respect to CNE,
other than those disclosed (and to which are attached true and complete copies
of all audit or similar reports) in Schedule 5.13(b).
(c) Except as set forth in Schedule 5.13(c), there is not in force any
extension of time with respect to the due date for the filing of any Tax Return
of or with respect to CNE, or any waiver or agreement for any extension of time
for the assessment or payment of any Tax of or with respect to CNE. The total
amounts set up as liabilities for current and deferred Taxes in the Interim
Balance Sheet are sufficient to cover the payment of all Taxes, whether or not
assessed or disputed, which are, or are hereafter found to be, or to have been,
due by or with respect to CNE up to and through the periods covered thereby.
Section 5.14 Compliance with Law. Except as set forth in Schedule 5.14, to its
knowledge CNE is in material compliance with all applicable statutes and other
applicable Laws and all applicable rules and regulations of all federal, state,
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foreign and local governmental agencies and authorities.
Section 5.15 Affiliate Interests. Except as set forth in Schedule 5.15, no
employee, officer or director, or former employee, officer or director, of CNE
has any interest in any property, tangible or intangible, including, without
limitation, patents, trade secrets, other confidential business information,
trademarks, service marks or trade names, used in or pertaining to the business
of CNE, except for the normal rights of employees and stockholders.
Section 5.16 Hazardous Materials.
(a) CNE and each of its subsidiaries to CNE's knowledge is in compliance in
all material respects with the provisions of all federal, state and local
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder (together "Environmental Laws"), and CNE and
each of its subsidiaries has all necessary government permits, licenses,
certificates and approvals in relation thereto.
(b) Neither CNE nor any of its subsidiaries has received any complaint,
order, directive, claim, citation or notice of, and CNE does not know of any
fact(s) that might constitute a violation(s) of any Environmental Laws.
(c) Except in accordance with a valid governmental permit, license,
certificate or approval listed in Schedule 5.16(c), to CNE's knowledge, there
has been no emission, spill, release or discharge of Hazardous Material at CNE's
place of business or any toxic or hazardous substances or wastes into or upon
(i) the air; (ii) soils or any improvements located thereon; (iii) the water
(including adjacent water and underground water); or (iv) any sewer, septic
system or waste treatment, storage or disposal system for which CNE or any of
its subsidiaries will be held liable.
Section 5.17 Intellectual Property. Except as set forth in Schedule 5.17, CNE
and each of its subsidiaries owns, or is licensed or otherwise has the right to
use all Intellectual Property that are necessary for the conduct of the business
and operations of CNE and each of its subsidiaries as currently conducted. To
the knowledge of the CNE, (a) the use of the Intellectual Property by CNE and
each of its subsidiaries does not infringe on the rights of any Person, and (b)
no Person is infringing on any right of CNE or any of its subsidiaries with
respect to any Intellectual Property. No claims are pending or, to the knowledge
of the CNE, threatened that CNE or any of its subsidiaries is infringing or
otherwise adversely affecting the rights of any Person with regard to any
Intellectual Property. All of the Intellectual Property that is owned by CNE and
each of its subsidiaries is owned free and clear of all encumbrances and was not
misappropriated from any Person. All of the Intellectual Property that is
licensed by CNE and each of its subsidiaries is licensed pursuant to valid and
existing license agreements. The consummation of the transactions contemplated
by this Agreement will not result in the loss of any Intellectual Property of
CNE or any of its subsidiaries.
Section 5.18 Disclosure. To the best of their knowledge CNE, Benoit and
Conigliaro have disclosed in writing, or pursuant to this Agreement and the
Schedules attached hereto, all facts material to the business, assets, prospects
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and condition (financial or otherwise) of CNE. To the best of their knowledge no
representation or warranty to SRC, the Affiliated SRC Stockholders or Reid by
CNE, Benoit or Conigliaro contained in this Agreement, and no statement
contained in the Schedules attached hereto, any certificate, list or other
writing furnished to SRC, the Affiliated SRC Stockholders and Reid by CNE
pursuant to the provisions hereof or in connection with the transactions
contemplated hereby, contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements herein or
therein not misleading. Each statement contained in this Agreement, the
Schedules attached hereto, and any certificate, list, document or other writing
delivered pursuant hereto or in connection with the transactions contemplated
hereby shall be deemed a representation and warranty of CNE for all purposes of
this Agreement.
Section 5.19 Listing. CNE's Common Stock is accepted for trading on the AMEX
(the "Principal Market").
Section 5.20 Permits. CNE does not own and is not required to own or hold
franchises, licenses, permits, consents, approvals and authorizations of
Governmental Authorities or Courts necessary for the conduct of its business.
Section 5.21 Employee Benefit Plans and Policies. Except as set forth in
Schedule 5.21, neither CNE nor any of its subsidiaries maintains or has an
obligation to contribute to, and has at no time since the effective date of
ERISA maintained or had an obligation to contribute to, any "employee pension
benefit plan" as defined in Section 3(2) of ERISA with regard to any employee,
past or present, and neither CNE nor any of its subsidiaries is or has at any
time since the effective date of the Multiemployer Pension Plan Amendment Act of
1980 been a party to, or during such period made any contribution to, any
"Multiemployer Plan" as defined in Section 3(37) of ERISA with regard to any
employee, past or present.
Section 5.22 Labor Matters.
(a) Neither CNE nor any of its subsidiaries is a party to any collective
bargaining agreement.
(b) To the knowledge of CNE it and each of its subsidiaries is in
compliance in all material respects with all federal, state or other applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours, and has not and is not engaged in any unfair
labor practices.
Section 5.23 Insurance. Schedule 5.23 sets forth a list of all policies of
insurance currently in effect relating to the business or operations of CNE
(true and complete copies of which have been furnished to SRC). Such insurance
policies are in full force and effect. CNE is currently insured, and since the
inception of operations by CNE has been insured, against such risks as companies
engaged in the same or substantially similar business would, in accordance with
good business practice, customarily be insured. CNE has given in a timely manner
to its insurers all notices required to be given under such insurance policies
with respect to all claims and actions covered by insurance, and, except as set
forth in Schedule 5.23, no insurer has denied coverage of any such claims or
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actions or reserved its rights in respect of or rejected any of such claims.
Neither CNE nor any of its subsidiaries has received any notice or other
communication from any such insurer canceling or materially amending any of such
insurance policies, and no such cancellation is pending or threatened. The
execution of this Agreement and the consummation of the transactions
contemplated hereby will not cause such insurance policies to lapse, terminate
or be canceled and will not result in any party thereto having the right to
terminate or cancel such insurance policies.
Section 5.24 Qualifications. CNE and each of its subsidiaries is duly qualified
to do business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business as now conducted or the
character of the property owned or leased by it makes such qualification
necessary and failure to so qualify could have a Material Adverse Effect on the
financial condition, results of operations, business or properties of CNE or its
subsidiaries, as the case may be. Schedule 5.24 sets forth a list of the
jurisdictions in which CNE and each of its subsidiaries is qualified to do
business, if any.
Section 5.25 Subsidiaries; Equity Investments. Except as set forth in Schedule
5.1(a), CNE has not controlled directly or indirectly, or had any direct or
indirect equity participation in, any Person during the five-year period
preceding the date hereof.
Section 5.26 Contracts and Commitments. Schedule 5.26 includes (a) a list of all
written and oral contracts to which CNE is a party or by which its property is
bound that involve consideration or other expenditure in excess of $10,000 or
performance over a period of more than six months or that is otherwise material
to the business or operations of CNE ("Material Contracts"); (b) a list of all
real or personal property leases to which CNE is a party involving consideration
or other expenditure in excess of $10,000 over the term of the lease ("Material
Leases"); (c) a list of all guarantees of, or agreements to indemnify or be
contingently liable for, the payment or performance by any Person to which CNE
is a party ("Guarantees") and (d) a list of all contracts or other formal or
informal understandings between CNE and each of its subsidiaries and any of its
respective officers, directors, employees, agents or stockholders or their
affiliates ("Related Party Agreements"). True and complete copies of each
written CNE Material Contract, Material Lease, Guarantee and Related Party
Agreement have been furnished to SRC, the Affiliated SRC Stockholders and Reid.
ARTICLE VI
COVENANTS OF SRC, THE AFFILIATED SRC STOCKHOLDERS AND REID
Section 6.1 Acquisition Proposals. Prior to the Closing Date, neither SRC nor
any of its subsidiaries, nor any of their respective officers, directors,
employees or agents nor any of the Affiliated SRC Stockholders or Reid shall
agree to, solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or discussions
concerning, any acquisition, business combination or purchase of all or a
substantial portion of the assets of, or a substantial equity interest in SRC or
any of its subsidiaries, other than the transactions contemplated by this
Agreement. SRC shall notify CNE of any unsolicited offer.
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Section 6.2 Access. SRC shall, and shall cause its subsidiaries to afford CNE's
officers, employees, counsel, accountants and other authorized representatives
reasonable access, during normal business hours throughout the period prior to
the Closing Date, to all of their respective properties, books, contracts,
commitments and records and, during such period, shall furnish promptly any
information concerning their respective businesses, properties and personnel as
CNE may reasonably request; provided, however, that no investigation pursuant to
this section or otherwise shall affect or be deemed to modify any representation
or warranty made by SRC, any Affiliated SRC Stockholder or Reid pursuant to this
Agreement.
Section 6.3 Conduct of Business by SRC Pending the Merger. SRC, each Affiliated
SRC Stockholder and Reid covenant and agree that, from the date of this
Agreement until the Closing Date, unless CNE shall otherwise agree in writing or
as otherwise expressly contemplated by this Agreement or the Denbridge
Agreements:
(a) The business of SRC and each of its subsidiaries shall be conducted,
and none of them shall take any action except, in the ordinary course of
business and consistent with past practice.
(b) SRC agrees that neither it nor any of its subsidiaries will: (i) issue,
sell, pledge, dispose of or encumber, (A) any capital stock (or securities
convertible into capital stock) or (B) any assets (other than in the ordinary
course of business and consistent with past practice and not relating to the
borrowing of money); (ii) amend or propose to amend the articles of
incorporation or bylaws (or other organizational documents); (iii) split,
combine or reclassify any outstanding capital stock, or declare, set aside or
pay any dividend payable in stock, property or otherwise with respect to the
capital stock whether now or hereafter outstanding; (iv) redeem, purchase or
acquire or offer to acquire any of its capital stock; (v) create, incur, assume,
guarantee or otherwise become liable or obligated with respect to any
indebtedness for borrowed money other than the ordinary course of business; or
(vi) except in the ordinary course of business and consistent with past
practice, enter into any contract, agreement, commitment or arrangement with
respect to any of the matters set forth in this Section 6.3(b);
(c) SRC shall use its best efforts to (i) preserve intact its business
organization and the business organization of each of its subsidiaries, (ii)
perform or cause to be performed all of its obligations and the obligations of
each of its subsidiaries in or under any of such leases, agreements and
contracts to which it is a party or to which its assets are subject, except for
such obligations as it in good faith may dispute, (iii) keep available the
services of its current officers and key employees and the current officers and
key employees of each of its subsidiaries, (iv) preserve the goodwill of those
having business relationships with it and each of its subsidiaries, (v) maintain
and keep its and each of its subsidiaries properties in as good a repair and
condition as currently exist, except for deterioration due to ordinary wear and
tear, (vi) maintain in full force and effect insurance comparable in amount and
scope of coverage to that currently maintained by it and each of its
subsidiaries, (vii) collect its and each of its subsidiaries accounts
receivable, and (viii) preserve in full force and effect all leases, operating
agreements, easements, rights-of-way, permits, licenses, contracts and other
agreements which relate to its and each of its subsidiaries assets (other than
those expiring by their terms which are not renewable);
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(d) Neither SRC, the Affiliated SRC Stockholders nor Reid shall take any
action that would, or that reasonably could be expected to, result in any of the
representations and warranties set forth in this Agreement becoming untrue or
any of the conditions to the Merger set forth in Article VIII not being
satisfied;
(e) Neither SRC nor any of its subsidiaries shall (i) amend or terminate
any Plan except as may be required by applicable Law, (ii) increase or
accelerate the payment or vesting of the amounts payable under any Plan, or
(iii) adopt or enter into any personnel policy, stock option plan, collective
bargaining agreement, bonus plan or arrangement, incentive award plan or
arrangement, vacation policy, severance pay plan, policy or agreement, deferred
compensation agreement or arrangement, executive compensation or supplemental
income arrangement, consulting agreement, employment agreement or any other
employee benefit plan, agreement, arrangement, program, practice or
understanding (other than the Plans); and
(f) Neither SRC, the Affiliated SRC Stockholders nor Reid shall enter into
any agreement or incur any obligation, the terms of which would be violated by
the consummation of the transactions contemplated by this Agreement.
Section 6.4 Confidentiality. SRC shall cause its respective officers, directors,
employees, representatives and/or consultants to, and each Affiliated SRC
Stockholder and Reid shall, hold in confidence, and not disclose to any Person
for any reason whatsoever, any non-public information received by them or their
representatives in connection with the transactions contemplated hereby,
including, but not limited to, all terms, conditions and agreements related to
this transaction and all concepts (including multiples and methodology) used in
negotiation of the Purchase Price, except (a) as required by Law; (b) for
disclosure to officers, directors, employees and representatives of SRC as
necessary in connection with the transactions contemplated hereby; and (c) for
information which becomes publicly available other than through the actions of a
party to this Agreement. In the event the Merger is not consummated, SRC , the
Affiliated SRC Stockholders and Reid will return all non-public documents and
other material obtained from CNE or its representatives in connection with the
transactions contemplated hereby or certify to CNE that all such information has
been destroyed.
Section 6.5 Press Releases. Except as may be required by applicable law, any
pubic announcements or press releases to be issued by SRC with respect to the
transactions contemplated hereunder shall require the CNE's prior written
consent, which consent shall not be unreasonably withheld.
Section 6.6 Consents. Subject to the terms and conditions of this Agreement,
SRC, the Affiliated SRC Stockholders and Reid shall each (i) obtain all
consents, waivers, approvals authorizations and orders required in connection
with the authorization, execution and delivery of this Agreement and the
consummation of the Merger; and (ii) take, or cause to be taken, all appropriate
action, and do, or cause to be done, all things necessary or proper to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement.
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Section 6.7 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any Governmental Authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, whether before or after the Effective Time, SRC, the
Affiliated SRC Stockholders and Reid shall each cooperate and use reasonable
efforts to defend against such claim, action, suit, investigation or other
proceeding and respond thereto.
Section 6.8 Intellectual Property Matters. SRC, the Affiliated SRC Stockholders
and Reid shall use their best efforts to preserve SRC's ownership rights and the
ownership rights of each of SRC's subsidiaries, as the case may be, to the
Intellectual Property free and clear of any Liens and shall use their best
efforts to assert, contest and prosecute any infringement of any issued foreign
or domestic patent, trademark, service mark, trade name or copyright that forms
a part of the Intellectual Property or any misappropriation or disclosure of any
trade secret, confidential information or know-how that forms a part of the
Intellectual Property.
Section 6.9 Notification of Certain Matters. SRC, the Affiliated SRC
Stockholders and Reid shall each give prompt notice to CNE, orally and in
accordance with Section 10.8 hereof, of: (a) the occurrence, or failure to
occur, of any event which occurrence or failure would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Effective Time, (b) any
failure of SRC or any officer, director, employee or agent thereof, any
Affiliated SRC Stockholder or Reid to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder, or (c)
any litigation, or any claim or controversy or contingent liability of which
SRC, any Affiliated SRC Stockholder or Reid has knowledge of that might
reasonably be expected to become the subject of litigation, against SRC or any
of its subsidiaries or affecting any of its assets, in each case in an amount in
controversy in excess of $10,000, or that is seeking to prohibit or restrict the
transactions contemplated hereby.
ARTICLE VII
COVENANTS OF CNE BENOIT AND CONIGLIARO
Section 7.1 Confidentiality. CNE, Benoit and Conigliaro agree, and CNE agrees to
cause its officers, directors, employees, representatives and consultants, to
hold in confidence all, and not to disclose to any Person for any reason
whatsoever, any non-public information received by it or its representatives in
connection with the transactions contemplated hereby except (a) as required by
Law; (b) for disclosure to officers, directors, employees and representatives of
CNE as necessary in connection with the transactions contemplated hereby or as
necessary to the operation of CNE's business; and (c) for information which
becomes publicly available other than through the actions of CNE. In the event
the Merger is not consummated, CNE will return all non-public documents and
other material obtained from SRC, the Affiliated SRC Stockholders and Reid or
their respective representatives in connection with the transactions
contemplated hereby or certify to the Company that all such information has been
destroyed.
Section 7.2 Press Releases. Except as may be required by applicable law, any
pubic announcements or press releases to be issued by CNE with respect to the
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transactions contemplated hereunder shall require the SRC's prior written
consent, which consent shall not be unreasonably withheld.
Section 7.3 Conduct of Business by CNE Pending the Merger. CNE, Benoit and
Conigliaro covenant and agrees that, from the date of this Agreement until the
Closing Date, unless SRC shall otherwise agree in writing, which agreement shall
be timely and not unreasonably withheld, or as otherwise expressly contemplated
by this Agreement:
(a) The business of CNE, CEN, CareerEngine, Inc. ("CE") and Randolph,
Hudson & Co., Inc. ("RH"), both wholly owned subsidiaries of CEN, shall be
conducted only in, and CNE shall not take any action except in, the ordinary
course of business and consistent with past practice.
(b) Neither CNE, CEN, CE nor RH shall, directly or indirectly, do any of
the following: (i) issue, sell, pledge, dispose of or encumber, (A) any capital
stock (or securities convertible into capital stock) of its capital stock or (B)
any of its assets (other than in the ordinary course of business and consistent
with past practice and not relating to the borrowing of money); (ii) amend or
propose to amend its articles of incorporation or bylaws (or other
organizational documents); (iii) split, combine or reclassify any of its
outstanding capital stock, or declare, set aside or pay any dividend payable in
stock, property or otherwise with respect to its capital stock whether now or
hereafter outstanding; (iv) redeem, purchase or acquire or offer to acquire any
of its capital stock; (v) create, incur, assume, guarantee or otherwise become
liable or obligated with respect to any indebtedness for borrowed money except
in the ordinary course of business; or (vi) except in the ordinary course of
business and consistent with past practice, enter into any contract, agreement,
commitment or arrangement with respect to any of the matters set forth in this
Section 7.3(b);
(c) Each of CNE, CEN, CE and RH shall use its best efforts to (i) preserve
intact its business organization and the agreements to which it is a party or to
which its assets are subject, except for such obligations as CNE, CEN, CE or RH
in good faith may dispute, (ii) perform or cause to be performed all of its
obligations in or under any of such leases, agreements and contracts, (iii)
preserve the goodwill of those having business relationships with it, (iv)
maintain and keep its properties in as good a repair and condition as currently
exists, except for deterioration due to ordinary wear and tear, (v) maintain in
full force and effect insurance comparable in amount and scope of coverage to
that currently maintained by it, (vi) collect its accounts receivable, and (vii)
preserve in full force and effect all leases, operating agreements, easements,
rights-of-way, permits, licenses, contracts and other agreements which relate to
its assets (other than those expiring by their terms which are not renewable);
(d) Neither CNE, CEN, CE nor RH shall increase the salary, benefits, stock
options, bonus or other compensation of any of its officers, directors or
employees other than in the ordinary course of business and consistent with past
practice;
(e) Neither CNE, CEN, CE nor RH shall take any action that would, or that
reasonably could be expected to, result in any of the representations and
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warranties set forth in this Agreement becoming untrue or any of the conditions
to the Merger set forth in Article IX not being satisfied;
(f) Neither CNE, CEN, CE nor RH shall (i) increase or accelerate the
payment or vesting of the amounts payable under any Plan, or (ii) adopt or enter
into any personnel policy, stock option plan, collective bargaining agreement,
bonus plan or arrangement, incentive award plan or arrangement, vacation policy,
severance pay plan, policy or agreement, deferred compensation agreement or
arrangement, executive compensation or supplemental income arrangement,
consulting agreement, employment agreement or any other employee benefit plan,
agreement, arrangement, program, practice or understanding (other than the
Plans);
(g) Neither CNE, CEN, CE nor RH shall enter into any agreement or incur any
obligation, the terms of which would be violated by the consummation of the
transactions contemplated by this Agreement; and
(h) CNE shall maintain the listing of its Common Stock on the Principal
Market. CNE shall not take any action, which would be reasonably expected to
result in the delisting or suspension of its securities on the Principal Market
(excluding suspensions of not more than one trading day resulting from business
announcements by CNE). CNE shall promptly provide to SRC copies of any notices
it receives from the Principal Market regarding the continued eligibility of the
CNE Common Stock for trading on the Principal Market. Anything to the contrary
not withstanding, except as otherwise restricted in subsections (g) and (h)
above, CNE shall not be precluded from terminating or otherwise disposing of or
reorganizing CE if it deems that such action is in the best interests of CE.
Section 7.4 Consents. Subject to the terms and conditions of this Agreement, CNE
shall (a) obtain all consents, waivers, approvals, authorizations and orders
required in connection with the authorization, execution and delivery of this
Agreement and the consummation of the Merger; and (b) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement.
Section 7.5 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any Governmental Authority or other Person
or other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, whether before or after the Effective Time, CNE agrees to
cooperate and use reasonable efforts to defend against any such claim, action,
suit, investigation or other proceeding and respond thereto.
Section 7.6 Delivery of Certificates and Warrants. As soon as practicable after
the Closing Date, CNE will deliver to each SRC Stockholder the CNE A, B and C
Preferred Stock certificates, the CNE Common Stock certificates and the A and C
Warrants, as the case may be, contemplated by Article II of this Agreement.
Section 7.7 Access. CNE shall afford the SRC's officers, employees, counsel,
accountants and other authorized representatives reasonable access, during
normal business hours throughout the period prior to the Closing Date, to all
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its properties, books, contracts, commitments and records and, during such
period, CNE shall furnish promptly to SRC any information concerning its
business, properties and personnel as SRC may reasonably request; provided,
however, that no investigation pursuant to this Section or otherwise shall
affect or be deemed to modify any representation or warranty made by CNE
pursuant to this Agreement.
Section 7.8 Intellectual Property Matters. CNE shall use its best efforts to
preserve its ownership rights to the Intellectual Property free and clear of any
Liens and shall use its best efforts to assert, contest and prosecute any
infringement of any issued foreign or domestic patent, trademark, service mark,
trade name or copyright that forms a part of the Intellectual Property or any
misappropriation or disclosure of any trade secret, confidential information or
know-how that forms a part of the Intellectual Property.
Section 7.9 Acquisition Proposals. Prior to the Closing Date, except as provided
in Section 7.3, neither CNE, nor any of its officers, directors, employees or
agents nor any party to this Agreement shall agree to, solicit or encourage
inquiries or proposals with respect to, furnish any information relating to, or
participate in any negotiations or discussions concerning, any acquisition,
business combination or purchase of all or a substantial portion of the assets
of, or a substantial equity interest in, CNE, any of its subsidiaries or Merger
Sub, other than the transactions contemplated by this Agreement. CNE or Merger
Sub shall notify SRC of any unsolicited offer.
Section 7.10 Notification of Certain Matters. CNE shall give prompt notice to
SRC, orally and in accordance with Section 10.8 hereof, of: (a) the occurrence,
or failure to occur, of any event which occurrence or failure would be likely to
cause any representation or warranty contained in this Agreement to be untrue or
inaccurate at any time from the date hereof to the Effective Time, (b) any
failure of CNE, or any of its officer, director, employee or agent thereof, or
any party to this Agreement to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, or (c) any
litigation, or any claim or controversy or contingent liability of which CNE has
knowledge of that might reasonably be expected to become the subject of
litigation, against CNE or any of its active subsidiaries or affecting any of
its assets, in each case in an amount in controversy in excess of $10,000, or
that is seeking to prohibit or restrict the transactions contemplated hereby.
Section 7.11 Restructuring of 12% Convertible Debentures. CNE shall use its best
efforts to restructure the currently outstanding 12% Convertible Debentures (the
"Debentures") of CEN into CNE's Class F Preferred Stock (the "F Preferred
Stock"), which shall be non-voting, junior to all CNE Preferred Stock existing
after the consummation of the Merger and, commencing no sooner than eighty seven
(87) months after issuance, will be redeemable, at CNE's option, for (i) an
aggregate of no more than One Million, Two Hundred Thousand (1,200,000) shares
of CNE Common Stock, or (ii) cash in the aggregate amount of Two Million Four
Hundred Thousand ($2,400,000) Dollars. In the event CNE shall liquidate, the
holders of the F Preferred Stock will share in any assets remaining after
payment to the holders of any other then outstanding preferred stock on a pari
passu basis with the holders of the CNE Common Stock as if the F Preferred Stock
had been redeemed for CNE Common Stock as provided herein. The warrants,
exercisable at $4.00 and $6.00 per share, to purchase an aggregate of One
Million, Two Hundred Thousand (1,200,000) shares of CEN common stock issued in
conjunction with the issuance of the Debentures, will become convertible after
the Closing into a like number of shares of CNE Common Stock, but the expiration
dates of these warrants will be extended three (3) years and the exercise prices
will be reduced to Three ($3.00) Dollars and Five ($5.00) Dollars per share,
respectively. The Debenture holders will be granted Five (5) year warrants to
purchase an aggregate One Million, Two Hundred Thousand (1,200,000) shares of
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CNE Common Stock at Fifty ($0.50) Cents per share. These warrants will be
callable by CNE if the market price of CNE shares equals or exceeds $2.00 per
share for a specified period of time and the warrant holders will be granted
certain "piggy-back" registration rights with respect to the underlying shares.
Section 7.12 CNE Capitalization after Closing. After the Closing, the aggregate
number of shares of CNE Common Stock to be retained by the current CNE
stockholders, when added to the shares of CNE Common Stock for which the F
Preferred Stock may be redeemed, will be Six Million, Seven Hundred and Ninety
Thousand, Nine Hundred and Forty Four (6,790,944) shares.
ARTICLE VIII
CONDITIONS
Section 8.1 Conditions Precedent to Obligation of Each Party to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) No Order shall have been entered and remain in effect in any action or
proceeding before any Court or Governmental Authority that would prevent or make
illegal the consummation of the Merger;
(b) There shall have been obtained any and all permits, approvals and
consents of securities or "blue sky" commissions of each jurisdiction and of any
other Governmental Authority that reasonably may be deemed to be necessary so
that the consummation of the Merger and the transactions contemplated thereby
will be in material compliance with all applicable Laws;
(c) Receipt of all applicable material third party approval of the Merger
and the transactions contemplated thereby;
(d) No pending or threatened material litigation concerning: (i) CNE or
SRC; (ii) the acquisition of their respective securities; or (iii) their
continued operation after Closing, which would have a Material Adverse Effect on
their business; and
(e) There shall have occurred no adverse event, including, but not limited
to, fire or other casualty, which materially affects CNE or SRC.
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(f) The directors of CNE shall have approved a stock option plan for CNE
key employees, reasonably acceptable to SRC, pursuant to which, 3,000,000 shares
of CNE Common Stock shall be reserved for issuance.
Section 8.2 Additional Conditions Precedent to Obligations of CNE. The
obligation of CNE to effect the Merger is also subject to the fulfillment at or
prior to the Closing Date of the following conditions:
(a) The representations and warranties of SRC, the Affiliated SRC
Stockholders and Reid contained in this Agreement shall be true and correct in
all material respects as of the date when made and in all material respects as
of the Closing Date as though such representations and warranties had been made
at and as of the Closing Date; all of the terms, covenants and conditions of
this Agreement to be complied with and performed by SRC, the Affiliated SRC
Stockholders and Reid on or before the Closing Date shall have been duly
complied with and performed in all material respects, and a certificate to the
foregoing effect dated the Closing Date and signed by the Chief Executive
Officer of SRC shall have been delivered to CNE, and a copy of the resolutions
of SRC's Board of Directors, certified by the Secretary of SRC as of the Closing
Date, approving the terms of this Agreement and all transactions contemplated
hereby shall have been delivered to CNE;
(b) CNE shall have accepted and approved the completed Schedules and shall
have been satisfied, in its sole discretion, with the results of its legal,
financial, accounting and business due diligence.;
(c) Since the date of this Agreement, no material adverse change in the
business, condition (financial or otherwise), assets, operations or prospects of
SRC and its subsidiaries, taken as a whole, shall have occurred, and SRC shall
not have suffered any damage, destruction or loss (whether or not covered by
insurance) which would have a Material Adverse Effect on the properties or
business of SRC and its subsidiaries, taken as a whole, and CNE shall have
received a certificate signed by the Chief Executive Officer of SRC dated the
Closing Date to such effect;
(d) SRC shall be merged into Merger Sub.
(e) CNE shall have received the favorable opinion of John Osberger,
Esquire, counsel to SRC, the Affiliated SRC Stockholders and Reid, dated the
Closing Date, addressed to CNE, in form and substance reasonably satisfactory to
counsel to CNE, with respect to SRC and each of its subsidiaries except for
subparagraph (iv) below, which refers only to SRC, that:
(i) it (A) has been duly organized and is a validly existing
corporation in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership
or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite
power and authority (corporate and other) and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
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officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the Agreement
and the Exhibits and Schedules attached thereto (collectively for the
purposes of the opinion (the "Agreement"); and to the best of
counsel's knowledge;
(ii) To the best of such counsel's knowledge, it does not own,
directly or indirectly, an interest in any corporation, partnership,
joint venture, trust or other business entity except as set forth in
the Agreement;
(iii) it has a duly authorized, issued and outstanding capitalization
as set forth in this Agreement and except as set forth therein, to the
best of such counsel's knowledge it is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue
any capital stock, rights, warrants, options or other securities,
except for this Agreement and as described herein. All of its issued
and outstanding securities have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have
no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any
holders of any of its securities or any similar contractual right
granted by it;
(iv) SRC has full legal right, power and authority to enter into this
Agreement and to consummate the transactions provided for herein; and
SRC has duly authorized, executed and delivered this Agreement. This
Agreement, assuming due authorization, execution and delivery by each
other party hereto, constitutes SRC's legal, valid and binding
agreement, enforceable against SRC in accordance with its terms
(except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any
action, legal or equitable, and except as obligations to indemnify or
contribute to losses may be limited by applicable law).
(v) To the best of such counsel's knowledge, neither the execution nor
delivery of this Agreement, SRC's performance hereunder and
thereunder, SRC's consummation of the transactions contemplated herein
and therein, or the conduct of its business as described in this
Agreement, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions
of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or
intangible) of SRC pursuant to the terms of the certificate of its
incorporation or bylaws;
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(vi) To the best of such counsel's knowledge no consent, approval,
authorization or order of, and no filing with, any arbitrator, court,
regulatory body, administrative agency, government agency or other
body, domestic or foreign (other than such as may be set forth in this
Agreement, as to which no opinion need be rendered), is required in
connection with its performance of this Agreement and the transactions
contemplated hereby and thereby;
(vii) To the best of such counsel's knowledge it has good and
marketable title to, or valid and enforceable leasehold estates in,
all items of real and personal property as set forth in this Agreement
to be owned or leased by it, in each case free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever, other than
those referred to in this Agreement and liens for taxes not yet due
and payable;
(viii) except as set forth in this Agreement, it is not, to the best
of such counsel's knowledge, in breach of, or in default under, any
term or provision of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, shareholders' agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which it is a party or by which it is or may be bound or
to which its property or assets (tangible or intangible) are or may be
subject; and it is not in violation of any term or provision of (A)
its certificate of incorporation or by-laws, (B) any authorization,
approval, order, license, certificate, franchise or permit of any
governmental or regulatory official or body, or (C) any judgment,
decree, order, statute, rule or regulation to which it is subject;
(ix) To the best of such counsel's knowledge it has the requisite
licenses or other rights necessary to conduct its business. Such
licenses are in full force and effect and, to such counsel's
knowledge, there is no action, pending or threatened, with respect to
the efficacy of such licenses;
(x) To the best of such counsel's knowledge its minute books contain a
complete summary of all of its meetings and actions of its directors
and shareholders since the time of its incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects.
In rendering such opinion, such counsel may rely (a) as to matters involving the
application of laws other than the laws of the United States and jurisdictions
in which they are admitted, to the extent such counsel deems proper and to the
extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to CNE's counsel) of other counsel
reasonably acceptable to CNE's counsel, familiar with the applicable laws; and
(b) as to matters of fact, to the extent counsel deems proper, on certificates
and written statements of responsible officers of such counsel's client and
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certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of such counsel's client, provided that copies of any such
statements or certificates shall be delivered to CNE's counsel, if requested.
Such opinion shall state that CNE's counsel is entitled to rely thereon.
(f) Michael Gutowski and Reid shall have entered into employment agreements
with the Surviving Corporation acceptable to CNE.
Section 8.3 Additional Conditions Precedent to Obligations of SRC, the
Affiliated SRC Stockholders and Reid. The obligation of SRC, the Affiliated SRC
Stockholders and Reid to effect the Merger is also subject to the fulfillment at
or prior to the Closing Date of the following conditions:
(a) The representations and warranties of CNE contained in this Agreement
shall be true and correct in all respects as of the date when made and in all
material respects as of the Closing Date as though such representations and
warranties had been made at and as of the Closing Date, all the terms, covenants
and conditions of this Agreement to be complied with and performed by CNE on or
before the Closing Date shall have been duly complied with and performed in all
material respects; and a certificate to the foregoing effect dated the Closing
Date and signed by a senior corporate officer of CNE shall have been delivered
to SRC, the Affiliated SRC Stockholders and Reid and a copy of the resolutions
of CNE's Board of Directors, certified by its Secretary as of the Closing date,
approving the terms of this Agreement and all transactions contemplated hereby
shall be delivered to SRC, the Affiliated SRC Stockholders and Reid;
(b) SRC, the Affiliated SRC Stockholders and Reid shall have accepted and
approved the completed Schedules and shall have been satisfied, in their sole
discretion, with the results of their legal, financial, accounting and business
due diligence.;
(c) Since the date of this Agreement, no material adverse change in the
business, condition (financial or otherwise), assets, operations or prospects of
CNE and its subsidiaries, taken as a whole, shall have occurred, and CNE shall
not have suffered any damage, destruction or loss (whether or not covered by
insurance) which has a Material Adverse Effect on the properties or business of
CNE and its subsidiaries, taken as a whole, and SRC, the Affiliated SRC
Stockholders and Reid shall have received a certificate signed by the Chief
Executive Officer of CNE dated the Closing Date to such effect;
(d) The CNE Common Stock shall be listed on the Principal Market and shall
not have received any notice of delisting as of the Closing Date;
(e) CNE has organized Merger Sub, as a Florida corporation, which is
organized in a manner that will permit it to merge with SRC pursuant to the
terms of this Agreement.
(f) At Closing, prior to (i) the consummation of the Transaction and the
financing described in Paragraph 8.3(h) below, and (ii) the restructuring of the
Debentures as provided in Section 7.11 above, and excluding all treasury shares,
CNE shall have no more than 5,590,944 shares of CNE Common Stock issued and
outstanding on a fully-diluted basis excluding the shares into which the
Debentures may be converted.
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(g) The execution and delivery by CNE and Merger Sub of this Agreement, the
performance by CNE and Merger Sub of their respective obligations pursuant to
this Agreement, and the execution, delivery and performance of each instrument
required hereby to be executed and delivered by CNE or Merger Sub at the Closing
have been duly and validly authorized by all requisite corporate action on the
part of CNE or Merger Sub, as the case may be, and no approval by the
stockholders of CNE is required, or, if required, shall have been obtained, or
dissenters or appraisal rights are triggered pursuant to section 607.1320 of the
FGCL.
(h) CNE shall have obtained financing in the aggregate amount of no less
than Seven Hundred and Fifty Thousand ($750,000) Dollars on terms and conditions
no less favorable than the following:
Subordinated Notes due one (1) year after the date of issuance with interest at
an annual rate of ten (10%) percent payable quarterly in cash plus five (5) year
cashless warrants to purchase an aggregate Five Million, Two Hundred and Seven
Thousand, Five Hundred and Fifty (5,207,550) shares of CNE Common Stock at Fifty
($0.50) Cents per share if financing of One Million, Two Hundred and Fifty
Thousand ($1,250,000) Dollars is obtained with a pro rata reduction in the
number of such warrants to the extent that the financing is less than that
amount. The warrants will retain an 18.75% percent non-dilutive interest in CNE
(reduced pro rata as provided in the preceding sentence) until CNE shall have
consummated a financing in the aggregate amount of Three Million ($3,000,000)
Dollars (the "Additional Financing"). Anything to the contrary not withstanding,
CNE must repay the Notes to the extent of no less than one hundred (100%)
percent of the proceeds it receives from any Additional Financing. The due date
of the Notes may be extended for an additional year if CNE issues warrants to
acquire five (5%) percent of the CNE Common Stock outstanding upon exercise of
the warrants to be non-dilutive until the Additional Financing is consummated.
(i) SRC, the Affiliated SRC Stockholders and Reid shall have received the
favorable opinion of Barry Feiner, Esq., counsel to CNE, dated the Closing Date,
with respect to CNE addressed to SRC, the Affiliated SRC Stockholders and Reid,
in form and substance reasonably satisfactory to counsel to the SRC
Stockholders, to the effect that:
(i) it (A) has been duly organized and is a validly existing
corporation in good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership
or leasing of any properties or the character of its operations
requires such qualification or licensing, and (C) has all requisite
power and authority (corporate and other) and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or regulatory
officials and bodies (including, without limitation, those having
jurisdiction over environmental or similar matters), to own or lease
its properties and conduct its business as described in the Agreement
and the Exhibits and Schedules attached thereto (collectively for the
purposes of the opinion (the "Agreement");
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(ii) to the best of counsel's knowledge, it does not own, directly or
indirectly, an interest in any corporation, partnership, joint
venture, trust or other business entity except as set forth in the
Agreement;
(iii) it has a duly authorized, issued and outstanding capitalization
as set forth in this Agreement and except as set forth therein, to the
best of counsel's knowledge, it is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue
any capital stock, rights, warrants, options or other securities,
except for this Agreement and as described herein. All of its issued
and outstanding securities have been duly authorized and validly
issued and are fully paid and non-assessable; the holders thereof have
no rights of rescission with respect thereto and are not subject to
personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any
holders of any of its securities or any similar contractual right
granted by it. The CNE Securities to be issued by CNE hereunder and
the CNE Common Stock to be issued upon exercise of the C Warrants are
not and will not be subject to any preemptive or other similar rights
of any stockholder, have been duly authorized and, when issued, paid
for and delivered in accordance with the terms hereof and thereof,
will be validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in this Agreement; the holders
thereof will not be subject to any liability solely as such holders;
all corporate action required to be taken for the authorization, issue
and sale of the CNE Securities and CNE Common Stock has been duly and
validly taken; and the certificates representing these securities are
and will be in due and proper form. The C Warrants constitute valid
and binding obligations of CNE to issue and sell, upon exercise
thereof and payment therefor, the number and type of securities of CNE
called for thereby. Upon the issuance and delivery pursuant to this
Agreement and the C Warrants of the securities to be issued and sold
by CNE hereunder and thereunder, the Affiliated SRC Stockholders and
Reid will acquire good and marketable title to such securities, free
and clear of any lien, charge, claim, encumbrance, pledge, security
interest, defect or other restriction or equity of any kind
whatsoever. No transfer tax is payable by or on behalf of the
Affiliated SRC Stockholders or Reid in connection with the issuance by
CNE of the CNE Securities;
(iv) it has full legal right, power and authority to enter into this
Agreement and to consummate the transactions provided for herein; and
it has duly authorized, executed and delivered this Agreement. This
Agreement, assuming due authorization, execution and delivery by each
other party hereto, constitutes its legal, valid and binding
agreement, enforceable against it in accordance with its terms (except
as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general
application relating to or affecting the enforcement of creditors'
rights and the application of equitable principles in any action,
legal or equitable, and except as obligations to indemnify or
contribute to losses may be limited by applicable law);
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(v) to the best of such counsel's knowledge, neither the execution nor
delivery of this Agreement, CNE's performance hereunder and
thereunder, CNE's consummation of the transactions contemplated herein
and therein, or the conduct of its business as described in this
Agreement, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions
of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or equity of
any kind whatsoever upon, any property or assets (tangible or
intangible) of CNE pursuant to the terms of the certificate of its
incorporation or bylaws;
(vi) to the best of counsel's knowledge, no consent, approval,
authorization or order of, and no filing with, any arbitrator, court,
regulatory body, administrative agency, government agency or other
body, domestic or foreign (other than such as may be set forth in this
Agreement, as to which no opinion need be rendered), is required in
connection with its performance of this Agreement and the transactions
contemplated hereby and thereby;
(vii) to the best of counsel's knowledge, it has good and marketable
title to, or valid and enforceable leasehold estates in, all items of
real and personal property as set forth in this Agreement to be owned
or leased by it, in each case free and clear of all liens, charges,
claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than those
referred to in this Agreement and liens for taxes not yet due and
payable;
(viii) except as set forth in this Agreement, it is not, to the best
of such counsel's knowledge, in breach of, or in default under, any
term or provision of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, shareholders' agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which it is a party or by which it is or may be bound or
to which its property or assets (tangible or intangible) are or may be
subject; and it is not in violation of any term or provision of (A)
its certificate of incorporation or by-laws, (B) any authorization,
approval, order, license, certificate, franchise or permit of any
governmental or regulatory official or body, or (C) any judgment,
decree, order, statute, rule or regulation to which it is subject;
(ix) to the best of counsel's knowledge, its minute books contain a
complete summary of all of its meetings and actions of its directors
and shareholders since the time of its incorporation and reflect all
transactions referred to in such minutes accurately in all material
respects.
In rendering such opinion, such counsel may rely (a) as to matters involving the
application of laws other than the laws of the United States and jurisdictions
in which they are admitted, to the extent such counsel deems proper and to the
extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to the other parties' counsel) of
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other counsel reasonably acceptable to the other parties' counsel, familiar with
the applicable laws; and (b) as to matters of fact, to the extent they deem
proper, on certificates and written statements of responsible officers of such
counsel's client and certificates or other written statements of officers of
departments of jurisdictions having custody of documents respecting the
corporate existence or good standing of such counsel's client, provided that
copies of any such statements or certificates shall be delivered to the other
parties' counsel, if requested. Such opinion shall state that the other parties'
counsel is entitled to rely thereon.
ARTICLE IX
INDEMNIFICATION
Section 9.1 Agreement by SRC, the Affiliated SRC Stockholders and Reid to
Indemnify. SRC, the Affiliated SRC Stockholders and Reid agree to indemnify,
defend and hold CNE and each of its directors, officers, employees, agents and
attorneys (collectively the "CNE Indemnitees") harmless (subject to the
limitations set forth in Section 9.1(d) below) from and against the aggregate of
all SRC Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "SRC Indemnifiable Damages" means, the
aggregate of all actual expenses, losses, costs, deficiencies, liabilities and
damages (including, without limitation, related counsel and paralegal fees and
expenses) incurred or suffered by the CNE Indemnitees, resulting from (i) any
untruth or inaccuracy in or any breach of, a representation or warranty made by
SRC, any Affiliated SRC Stockholder or Reid as defined in this Agreement in or
pursuant to this Agreement, (ii) any breach of the covenants or agreements made
by SRC, any affiliated SRC Stockholder or Reid in or pursuant to this Agreement,
(iii) any inaccuracy in any certificate delivered by SRC, any affiliated SRC
Stockholder or Reid pursuant to this Agreement, or (iv) any claim which
involves, affects or relates to any assets, properties or operations of SRC or
the conduct of the business, of SRC prior to the Closing Date.
(b) Each of the representations and warranties made by SRC, any Affiliated
SRC Stockholder or Reid pursuant hereto shall survive for a period of one (1)
year after the Closing Date, except (i) that the representations and warranties
contained in Sections 3.10, and 3.17 shall survive until all applicable statutes
of limitations have expired and (ii) the representations and warranties
contained in Sections 3.1, 3.2, 3.3, 3.6, 3.7, 3.8, 4.1 and 4.2 shall not
expire, but shall continue indefinitely. No claim for the recovery of the SRC
Indemnifiable Damages may be asserted by CNE against SRC, the Affiliated SRC
Stockholders or Reid after such representations and warranties have expired;
provided, however, that claims for the SRC Indemnifiable Damages first asserted
within the applicable period shall not thereafter be barred. Notwithstanding any
knowledge of facts determined or determinable by CNE by investigation, the CNE
Indemnitees shall have the right to fully rely on the representations,
warranties, covenants and agreements of SRC, the Affiliated SRC Stockholders and
Reid contained in this Agreement or in any other documents or papers delivered
in connection herewith. Each representation, warranty, covenant and agreement of
SRC, the Affiliated SRC Stockholders and Reid contained in this Agreement is
independent of each other representation, warranty, covenant and agreement;
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(c) In the event that a CNE Indemnitee believes he is entitled to a claim
for any SRC Indemnifiable Damages hereunder, he shall promptly give written
notice to SRC, the Affiliated SRC Stockholders and Reid pursuant to Section
910.8 of this Agreement of such claim, the amount or the estimated amount of
such claim and the basis for such claim. If SRC and/or the Affiliated SRC
Stockholders and/or Reid do not pay the amount of the claim for the SRC
Indemnifiable Damages to the CNE Indemnitee within ten (10) days, then the CNE
Indemnitee may exercise his or her rights under Sections 9.1 and 9.3 and/or take
any action or exercise any remedy available to him or her by appropriate legal
proceedings to collect the SRC Indemnifiable Damages.
(d) Notwithstanding anything to the contrary contained in this Section 9.1,
the liability of SRC, any Affiliated SRC Stockholder or Reid for the SRC
Indemnifiable Damages shall be limited as follows:
(i) A CNE Indemnitee shall have no claim for the SRC Indemnifiable Damages
unless and until all SRC Indemnifiable Damages incurred by such CNE Indemnitee
exceed an aggregate of $25,000 (the "Basket Amount"), in which event SRC, the
Affiliated SRC Stockholders and Reid shall be liable for all such SRC
Indemnifiable Damages including the Basket Amount.
(ii) The total amount of SRC Indemnifiable Damages for which SRC, the
Affiliated SRC Stockholders and Reid shall be liable to the CNE Indemnitees
shall not exceed the Purchase Price.
Section 9.2 Agreement by CNE, Benoit and Conigliaro to Indemnify. CNE, Benoit
and Conigliaro agrees to indemnify, defend and hold the SRC and each of its
directors, officers, employees, agents and attorneys, each Affiliated SRC
Stockholder and Reid (collectively the "SRC Indemnitees") harmless from and
against the aggregate of all CNE Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "CNE Indemnifiable Damages" means, the
aggregate of all actual expenses, losses, costs, deficiencies, liabilities and
damages (including, without limitation, related counsel and paralegal fees and
expenses) incurred or suffered by the Company, resulting from (i) any untruth or
inaccuracy in or any breach of, a representation or warranty made by CNE as
defined in this Agreement in or pursuant to this Agreement, (ii) any breach of
the covenants or agreements made by CNE in or pursuant to this Agreement, (iii)
any inaccuracy in any certificate delivered by CNE pursuant to this Agreement,
or (iv) any claim which involves, affects or relates to any assets, properties
or operations of CNE or the conduct of the business, of CNE prior to the Closing
Date.
(b) Each of the representations and warranties made by CNE in this
Agreement or pursuant hereto shall survive for a period of one year after the
Closing Date except (i) that the representations and warranties contained in
Sections 5.13 and 5.16 survive until all applicable statutes of limitations have
expired, and (ii) the representations and warranties contained in Sections 5.1,
5.2, 5.4, and 5.25 shall not expire, but shall continue indefinitely. No claim
for the recovery of CNE Indemnifiable Damages may be asserted by the Company
against CNE after such representations and warranties have expired; provided,
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however, that claims for CNE Indemnifiable Damages first asserted within the
applicable period shall not thereafter be barred. Notwithstanding any knowledge
of facts determined or determinable by the MLA Indemnitees by investigation, the
SRC Indemnitees shall have the right to fully rely on the representations,
warranties, covenants and agreements of CNE contained in this Agreement or in
any other documents or papers delivered in connection herewith. Each
representation, warranty, covenant and agreement of CNE contained in this
Agreement is independent of each other representation, warranty, covenant and
agreement;
(c) In the event that a SRC Indemnitee believes he or she is entitled to a
claim for any CNE Indemnifiable Damages hereunder, he or she shall promptly give
written notice to CNE pursuant to Section 10.8 of this Agreement of such claim
and the amount or the estimated amount of such claim, and the basis for such
claim. If CNE does not pay the amount of the claim for the CNE Indemnifiable
Damages within ten (10) days, then such the SRC Indemnitee may exercise his or
her rights under Sections 9.2 and 9.3 and/or take any action or exercise any
remedy available to him or her by appropriate legal proceedings to collect the
CNE Indemnifiable Damages;
(d) Notwithstanding anything to the contrary contained in this Section 9.
2, CNE's, Benoit's and Conigliaro's liability for the CNE Indemnifiable Damages
shall be limited as follows:
(i) A SRC Indemnitee shall have no claim for the CNE Indemnifiable
Damages unless and until all CNE Indemnifiable Damages incurred by such SRC
Indemnitee exceed an aggregate of the Basket Amount of $25,000, in which
event CNE shall be liable for all CNE Indemnifiable Damages including the
Basket Amount;
(ii) The total amount of CNE Indemnifiable Damages for which CNE,
Benoit and Conigliaro shall be liable shall not exceed the value of the
Purchase Price based on the closing bid price of the common stock
underlying the C Preferred Shares on the Closing Date.
Section 9.3 Conditions of Indemnification. The obligations and liabilities of
the parties hereto hereunder with respect to their respective indemnities
pursuant to this Article IX resulting from any claim or other assertion of
liabilities by third parties (hereinafter called collectively "Claims"), shall
be subject to the following terms and conditions:
(a) The party seeking indemnification (the "Indemnified Party") must give
the other party or parties, as the case may be (the "Indemnifying Party"),
notice of any such Claim within ten business days after the Indemnified Party
receives notice thereof (provided that failure to give notice within such ten
day period does not relieve the Indemnifying Party of his obligations to
indemnify the Indemnified Party hereunder, except to the extent that such
Indemnifying Party is harmed by the failure of the Indemnified Party to provide
timely notice);
(b) The Indemnifying Party shall have the right to undertake, by counsel or
other representatives of its own choosing, the defense of such Claim;
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(c) If the Indemnifying Party shall elect not to undertake such defense, or
within a reasonable time after notice of any such Claim from the Indemnified
Party shall fail to defend, the Indemnified Party (upon further written notice
to the Indemnifying Party) shall have the right to undertake the defense,
compromise or settlement of such Claim, by counsel or other representatives of
its own choosing, on behalf of and for the account and risk of the Indemnifying
Party (subject to the right of the Indemnifying Party to assume defense of such
Claim at any time prior to settlement, compromise or final determination
thereof); and
(d) Anything in this Section 9.3 to the contrary notwithstanding, (A) the
Indemnified Party shall have the right, at its own cost and expense, to have its
own counsel to protect its own interests and participate in the defense,
compromise or settlement of the Claim, (B) the Indemnifying Party shall not,
without the Indemnified Party's written consent, settle or compromise any Claim
or consent to entry of any judgment which does not include as an unconditional
term thereof the giving by the claimant or the plaintiff to the Indemnified
Party of a release from all liability in respect of such Claim, and (C) the
Indemnified Party, by counsel or other representatives of its own choosing and
at its sole cost and expense, shall have the right to consult with the
Indemnifying Party and its counsel or other representatives concerning such
Claim, and the Indemnifying Party and the Indemnified Party and their respective
counsel shall cooperate with respect to such Claim.
Section 9.4 Applicability. THE PROVISIONS OF THIS ARTICLE IX SHALL APPLY
NOTWITHSTANDING THE SOLE, JOINT OR CONCURRENT NEGLIGENCE, STRICT LIABILITY OR
OTHER FAULT OF THE INDEMNIFIED PARTY. IF BOTH THE INDEMNIFIED PARTY AND THE
INDEMNIFYING PARTY ARE NEGLIGENT OR OTHERWISE AT FAULT OR STRICTLY LIABLE
WITHOUT FAULT, THE CONTRACTUAL OBLIGATIONS OF INDEMNIFICATION UNDER THIS ARTICLE
IX SHALL CONTINUE, BUT THE INDEMNIFYING PARTY SHALL INDEMNIFY THE INDEMNIFIED
PARTY ONLY FOR THE PERCENTAGE OF RESPONSIBILITY FOR THE DAMAGE OR INJURIES
ATTRIBUTABLE TO THE INDEMNIFYING PARTY.
ARTICLE X
MISCELLANEOUS
10.1 Termination. This Agreement may be terminated and the Merger and the other
transactions contemplated herein may be abandoned at any time prior to the
Closing:
(a) by mutual consent of CNE and SRC;
(b) by either CNE or SRC if the Merger has not been effected on or before
April 30, 2003 unless the Merger has not been effected by such date because of
the terminating party's failure to comply with its obligations under this
Agreement;
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(c) by either CNE or SRC if a final, unappealable order to restrain, enjoin
or otherwise prevent, or awarding substantial damages in connection with, a
consummation of the Merger or the other transactions contemplated hereby shall
have been entered;
(d) by CNE if (i) since the date of this Agreement there has been a
material adverse change in the business operations or financial condition of SRC
or (ii) there has been a material breach of any representation, warranty,
covenant or other agreement set forth in this Agreement by SRC and/or any
Affiliated SRC Stockholder and/or Reid, which breach has not been cured within
ten (10) Business Days following receipt by the breaching party of notice of
such breach (unless such breach cannot be cured within such time, reasonable
efforts have begun to cure such breach prior to the tenth Business Day and such
breach is then cured within thirty (30) days after notice);
(e) by SRC: (i) if since the date hereof there has been a material adverse
change in the business operations or financial condition of CNE; or (ii) if
there has been a material breach of any representation, warranty, covenant or
other agreement set forth in this Agreement by CNE, Benoit or Conigliaro which
breach has not been cured within ten (10) Business Days following receipt by CNE
of notice of such breach (unless such breach cannot be cured within such time,
reasonable efforts have begun to cure such breach prior to the tenth Business
Day and such breach is then cured within thirty (30) Business Days after
notice).
Section 10.2 Effect of Termination. In the event of any termination of this
Agreement pursuant to Section 10.1, the parties hereto shall have no obligation
or liability to each other except that the provisions of Sections 6.4, 6.7, 7.1,
7.5, 10.2 and 10.3 survive any such termination.
Section 10.3 Broker; Expenses. CNE on the one hand and SRC, the Affiliated SRC
Stockholders and Reid on the other hand each represent and warrant to the other
that there is no broker or finder involved in the transactions contemplated
hereby. Regardless of whether the Merger is consummated, all costs and expenses
in connection with this Agreement and the transactions contemplated hereby
incurred by CNE shall be paid by CNE and all such costs and expenses incurred by
SRC, the Affiliated SRC Stockholders and Reid shall be paid by them.
Section 10.4 Restrictions on Transfer of CNE Securities. Each Affiliated SRC
Stockholder and Reid (i) acknowledges that the CNE Securities and any CNE
securities that may be issued upon redemption and/or exercise of the CNE
Securities have not and will not be registered under the Securities Act and,
therefore, may not be resold without compliance with the Securities Act and (ii)
covenants that none of such securities will be offered, sold, assigned, pledged,
hypothecated, transferred or otherwise disposed of except after full compliance
with all the applicable provisions of the Securities Act and the rules and
regulations of the Commission and applicable state securities laws and
regulations. All certificates evidencing the CNE Securities issued pursuant to
this Agreement or upon any redemption and/or exercise of the CNE Securities will
bear a legend in substantially the form below:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT PURPOSES AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
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1933, OR ANY APPLICABLE STATE SECURITIES LAWS, AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL SUCH SECURITIES
ARE REGISTERED UNDER SUCH ACT, AND SUCH STATE LAWS, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY'S COUNSEL IS OBTAINED TO THE EFFECT THAT SUCH
REGISTRATION IS NOT REQUIRED."
In addition, these certificates will bear any legend required by the securities
or blue sky laws of the state in which the Affiliated SRC Stockholder or Reid,
as the case may be, receiving such securities resides.
Section 10.5 Waiver and Amendment. The party entitled to the benefits thereof
may waive any provision of this Agreement at any time. This Agreement may not be
amended or supplemented at any time, except by an instrument in writing signed
on behalf of each party hereto. The waiver by any party hereto of any condition
or of a breach of another provision of this Agreement shall not operate or be
construed as a waiver of any other condition or subsequent breach. The waiver by
any party hereto of any of the conditions precedent to its obligations under
this Agreement shall not preclude it from seeking redress for breach of this
Agreement other than with respect to the condition so waived.
Section 10.6 Public Statements. SRC and CNE agree to consult with each other
prior to issuing any press release or otherwise making any public statement with
respect to the transactions contemplated hereby, and shall not issue any such
press release or make any such public statement prior to such consultation,
except as may be required by Law. Anything to the contrary not withstanding,
neither SRC, the Affiliated SRC Stockholders nor Reid shall issue a press
release without the prior written approval of CNE, which consent can be withheld
within CNE's absolute discretion.
Section 10.7 Assignment. CNE, SRC, the Affiliated SRC Stockholders and Reid each
agree that they will not assign this Agreement. Furthermore, no other party to
this Agreement may assign this Agreement without the prior written consent of
the non-assigning parties.
Section 10.8 Notices. All notices, requests, demands, claims and other
communications which are required to be or may be given under this Agreement
shall be in writing and shall be deemed to have been duly given if (i) delivered
in person or by courier, (ii) sent by telecopy or facsimile transmission, answer
back requested, or (iii) mailed, by registered or certified mail, postage
prepaid, return receipt requested, to the parties hereto at the following
addresses:
if to SRC or any Affiliated SRC Stockholder:
Michael Gutowski, President
SRC Technologies, Inc.
3733 NW 16th Street
Lauderhill, FL 33311
with a copies to:
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Larry Reid, CFO
SRC Technologies, Inc.
3733 NW 16th Street
Lauderhill, FL 33311
And
Lawrence D. Greenberg, Esq.
Manager of Legal Affairs
SRC Technologies, Inc.
3733 NW 16th Street
Lauderhill, FL 33311
if to CNE or Merger Sub:
200 West 57th Street
Suite 1103
New York, New York 10019
Attention: George W. Benoit, President
with copies to:
Barry Feiner, Esq.
170 Falcon Court
Manhasset, New York 11030
and
Richard Reichler, Esq.
25 Lisa Court
Syosset, New York 11791
if to George W. Benoit and Anthony S. Conigliaro
200 West 57th Street
Suite 1103
New York, New York 10019
with copies to:
Barry Feiner, Esq.
170 Falcon Court
Manhasset, New York 11030
and
Richard Reichler, Esq.
25 Lisa Court
Syosset, New York 11791
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or to such other address as any party shall have furnished to the other by
notice given in accordance with this Section 11.. Such notices shall be
effective, (i) if delivered in person or by courier, upon actual receipt by the
intended recipient, (ii) if sent by telecopy or facsimile transmission, when the
answer back is received, or (iii) if mailed, upon the earlier of five (5) days
after deposit in the mail and the date of delivery as shown by the return
receipt therefor.
Section 10.9 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of New York, excluding any choice of law rules that may
direct the application of the laws of another jurisdiction.
Section 10.10 Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the remainder of the terms, provision, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated unless such an interpretation
would materially alter the rights and privileges of any party hereto or
materially alter the terms of the transactions contemplated hereby.
Section 10.11 Counterparts. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which together shall constitute one
and the same agreement.
Section 10.12 Headings. The Section headings herein are for convenience only and
shall not affect the construction hereof.
Section 10.13 Entire Agreement; Third Party Beneficiaries. This Agreement,
including the Annexes, Exhibits and the Schedules hereto, constitutes the entire
agreement and supersedes all other prior agreements and understandings, both
oral and written, among the parties or any of them, with respect to the subject
matter hereof (except as contemplated otherwise by this Agreement) and neither
this Agreement nor any document delivered in connection with this, confers upon
any Person not a party hereto any rights or remedies hereunder.
[signature page follows]
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IN WITNESS WHEREOF, CNE Group, Inc. and SRC Technologies, Inc. have caused
this Agreement to be executed on their behalf by their respective officers
thereunto duly authorized, and Benoit, Conigliaro, the Affiliated SRC
Stockholders and Reid have caused this Agreement to be executed all as of the
date first above written.
CNE GROUP, INC.
By:
---------------------------------
Name: George W. Benoit
Title: President
CNE ACQUISITION CORP.
By:
---------------------------------
Name:
Title:
- ---------------------------------------
George W. Benoit
- ---------------------------------------
Anthony S. Conigliaro
SRC TECHNOLOGIES, INC.
By:
----------------------------------
Name:
Title:
AFFILIATED SRC STOCKHOLDERS:
Signature: /s/ Michael Guttowski
-----------------------------
Print Name: Michael Guttowski
Date: April 22, 2003
Signature: /s/ Carol Guttowski
-----------------------------
Print Name: Carol Guttowski
Date: April 22, 2003
-----------------------------
Larry Reid
Date: April 22, 2003
ANNEX A
SCHEDULE OF DEFINED TERMS
The following terms when used in the Agreement shall have the meanings set forth
below unless the context shall otherwise require:
"A Preferred Stock" has the meaning set forth in Section 2.7(b)(ii).
"A Warrant" has the meaning set forth in Section 2.7(b)(ii).
"Affiliate" means, with respect to any specified Person, any other Person who
directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person.
"Affiliated SRC Stockholders" means the holders of SRC Common Stock whose names
are set forth on Exhibit A.
"Agreement" means the Agreement and Plan of Reorganization made and entered into
as of April 22, 2003, by and among CNE, Merger Sub, George W. Benoit, Anthony S.
Conigliaro, SRC, the Affiliated SRC Stockholders and Larry Reid, including any
amendments thereto and each Annex (including this Annex A), Exhibit and schedule
thereto (including the Schedules).
"AMEX" means the American Stock Exchange.
"Business Day" means any day other than a day on which banks in the State of New
York are authorized or obligated to be closed.
"C Preferred Stock" has the meaning set forth in Section 2.7(b)(i).
"C Warrant" has the meaning set forth in Section 2.7(b)(i).
"CE" means CareerEngine, Inc., a wholly-owned subsidiary of CEN.
"CEN" means CareerEngine Network, Inc., a wholly-owned subsidiary of CNE.
"Closing" means a meeting, which shall be held in accordance with Section 2.3,
of representatives of the parties to the Agreement at which, among other things,
all documents deemed necessary by the parties to the Agreement to evidence the
fulfillment or waiver of all conditions precedent to the consummation of the
transactions contemplated by the Agreement are executed and delivered.
"Closing Date" means the date of the Closing as determined pursuant to Section
2.3.
"CNE" means CNE Group, Inc., and all its successors from time to time.
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"CNE Capital Stock" means the authorized, issued and outstanding common and
preferred stock of CNE, as set forth in Section 5.4.
"CNE Indemnifiable Damages" has the meaning set forth in Section 9.2
"CNE Securities" has the meaning set forth in Section 2.7(b)(i).
"Code" means the Internal Revenue Code of 1986, as amended, and the rules and
regulations promulgated thereunder.
"Commission" means the Securities and Exchange Commission..
"Control" (including the terms "controlled," "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a Person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise.
"Court" means any court or arbitration tribunal of the United States, any
foreign country or any domestic or foreign state, and any political subdivision
thereof.
"Denbridge Agreements" has the meaning set forth in Section 3.7(b).
"Effective Time" has the meaning set forth in Section 2.2.
"Environmental Laws" means all federal, state, regional or local statutes, laws,
rules, regulations, codes, orders, plans, injunctions, decrees, rulings, and
changes or ordinances or judicial or administrative interpretations thereof, as
in effect on the Closing Date, any of which govern or relate to pollution,
protection of the environment, public health and safety, air emissions, water
discharges, hazardous or toxic substances, solid or hazardous waste or
occupational health and safety, as any of these terms are in such statutes,
laws, rules, regulations, codes, orders, plans, injunctions, decrees, rulings
and changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation, RCRA, CERCLA, the Hazardous Materials
Transportation Act, the Toxic Substances Control Act, the Clean Air Act, the
Clean Water Act, FIFRA, EPCRA and OSHA.
"ERISA" means the Employee Retirement Income Security Act of 1974, as amended,
and the Regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934 and the Rules and
Regulations promulgated thereunder.
"FGCL" means Section 607.1320 of Title XXXVI, Chapter 607 of the 2002 Florida
Statutes as currently enacted and as may be amended from time to time.
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"GAAP" means accounting principles generally accepted in the United States as in
effect from time to time consistently applied by a specified Person.
"Governmental Authority" means any governmental agency or authority (other than
a Court) of the United States, any foreign country, or any domestic or foreign
state, and any political subdivision thereof, and shall include any
multinational authority having governmental or quasi-governmental powers.
"Guarantees" has the meaning set forth in Sections 3.23 and 5.26, as the case
may be.
"Hazardous Material" means any toxic or hazardous substance, material, or waste,
and any other contaminant, pollutant or constituent thereof, whether liquid,
solid, semi-solid, sludge and/or gaseous, including, without limitation,
chemicals, compounds, metals, by-products, pesticides, asbestos containing
materials, petroleum or petroleum products, and polychlorinated biphenyls, the
presence of which requires remediation under any Environmental, Health and
Safety Laws in effect on the Closing Date, including, without limitation, the
United States Department of Transportation Table (49 CFR 172, 101) or by the
Environmental Protection Agency as hazardous substances (40 CFR Part 302) and
any amendments thereto; the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendment and
Reauthorization Act of 1986, 42 U.S.C. ss. 9601, et seq. (hereinafter
collectively "CERCLA"); the Solid Waste Disposal Act, as amended by the Resource
Conversation and Recovery Act of 1976 and subsequent Hazardous and Solid Waste
Amendments of 1984, 42 U.S.C. ss. 6901 et seq. (hereinafter, collectively
"RCRA"); the Hazardous Materials Transportation Act, as amended, 49 U.S.C. ss.
1801, et seq.; the Clean Water Act, as amended, 33 U.S.C. ss. 1311, et seq.; the
Clean Air Act, as amended (42 U.S.C. ss. 7401-7642); Toxic Substances Control
Act, as amended, 15 U.S.C. ss. 2601 et seq.; the Federal Insecticide, Fungicide,
and Rodenticide Act as amended, 7 U.S.C. ss. 136-136y ("FIFRA"); the Emergency
Planning and Community Right-to-Know Act of 1986 as amended, 42 U.S.C. ss.
11001, et seq. (Title III of SARA) ("EPCRA"); the Occupational Safety and Health
Act of 1970, as amended, 29 U.S.C. ss. 651, et seq. ("OSHA"); any similar state
statute or regulations implementing such statutes, laws, ordinances, codes,
rules, regulations, orders, rulings, or decrees, or which has been or shall be
determined or interpreted at any time by any Governmental Authority or Court to
be a hazardous or toxic substance regulated under any other statute, law,
regulation, order, code, rule, order, or decree.
"Indemnified Party" has the meaning set forth in Section 9.3.
"Indemnifying Party" has the meaning set forth in Section 9.3.
"Instruments" has the meaning set forth in Section 2.7(c).
"Intellectual Property" means all patents, trademarks, copyrights and other
proprietary rights.
"IRS" means the Internal Revenue Service.
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"Knowledge" means the actual knowledge of the subject party, or any director or
executive office of such party, as such knowledge has been or reasonably should
have been obtained in the normal conduct of business.
"Law" means all laws, statutes, ordinances, rules and regulations of the United
States, any foreign country, or any domestic or foreign state, and any political
subdivision or agency thereof, including all decisions of Courts having the
effect of law in each such jurisdiction.
"Licenses" means all licenses, certificates, permits, approvals and
registrations.
"Lien" means any mortgage, pledge, security interest, adverse claim,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing), any conditional sale or other title retention agreement, any
lease in the nature thereof or the filing of or agreement to give any financing
statement under the Law of any jurisdiction.
"Material Adverse Effect" means, with respect to a Person, a material adverse
effect on the properties, assets, liabilities, financial condition, business or
operating earnings of such Person and its Subsidiaries, taken as a whole, or an
effect which is reasonably likely to prevent or materially delay or materially
impair the ability of such Person to consummate the transactions contemplated by
this Agreement.
"Material Contracts" has the meaning set forth in Sections 3.23 and 5.26, as the
case may be.
"Material Leases" has the meaning set forth in Sections 3.23 and 5.26, as the
case may be.
"Merger" has the meaning set forth in the Recitals.
"Non-Affiliated SRC Stockholders" means all holders of SRC Common Stock who are
not Affiliated SRC Stockholders.
"Order" means any judgment, order or decree of any federal, foreign, state or
local Court or Governmental Authority.
"Person" means an individual, partnership, limited liability company,
corporation, joint stock company, trust, estate, joint venture, association or
unincorporated organization, or any other form of business or professional
entity, but shall not include a Court or Governmental Authority.
"Plans" has the meaning set forth in Section 3.14.
"Principal Market" has the meaning set forth in Section 5.19.
"Purchase Price" has the meaning set forth in Section 2.7(b)(i)
"Related Party Agreements" has the meaning set forth in Sections 3.23 and 5.26,
as the case may be.
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"Reports" means, with respect to a specified Person, all reports, registrations,
filings and other documents and instruments required to be filed by the
specified Person with any Governmental Authority.
"RH" means Randolph, Hudson & Co., Inc., a wholly owned subsidiary of CEN.
"SEC Documents" has the meaning set forth in Section 5.7.
"Securities Act" means the Securities Act of 1933 and the Rules and Regulations
promulgated thereunder.
"SRC" means SRC Technologies, Inc., a Florida corporation, and all its
predecessor entities and its successors from time to time.
"SRC Capital Stock" has the meaning set forth in Section 3.7.
"SRC Indemnifiable Damages" has the meaning set forth in Section 9.1.
"SRC Stockholders" has the meaning set forth in Section 2.7(b)(ii).
A "Subsidiary" of a specified Person is any corporation, partnership, limited
liability company, joint venture or other legal entity of which the specified
Person (either alone or through or together with any other subsidiary) owns,
directly or indirectly, 50% or more of the stock or other equity or partnership
interests the holders of which are generally entitled to vote for the election
of the board of directors or other governing body of such corporation or other
legal entity or of which the specified Person controls the management.
"Surviving Corporation" has the meaning set forth in Section 2.1.
"Tax Returns" means all returns, reports and filings relating to Taxes.
"Taxes" means all taxes, charges, imposts, tariffs, fees, levies or other
similar assessments or liabilities, including income taxes, ad valorem taxes,
excise taxes, withholding taxes, stamp taxes or other taxes of or with respect
to gross receipts, premiums, real property, personal property, windfall profits,
sales, use, transfers, licensing, employment, payroll and franchises imposed by
or under any Law; and such terms shall include any interest, fines, penalties,
assessments or additions to tax resulting from, attributable to or incurred in
connection with any such tax or any contest or dispute thereof.
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