AGREEMENT AND PLAN OF MERGER
BY AND AMONG
INCENTRA SOLUTIONS, INC.
INCENTRA MERGER CORP.
STAR SOLUTIONS OF DELAWARE, INC.
AND ALFRED CURMI
DATED AS OF FEBRUARY 18, 2005
TABLE OF CONTENTS
PAGE
ARTICLE I THE MERGER.................................................................................3
SECTION 1.1 The Merger........................................................................3
SECTION 1.2 Closing...........................................................................4
SECTION 1.3 Effective Time....................................................................4
SECTION 1.4 Effects of the Merger.............................................................4
SECTION 1.5 Certificate of Incorporation and By-laws of the Surviving Corporation.............4
SECTION 1.6 Directors and Officers............................................................4
ARTICLE II MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES....................5
SECTION 2.1 Merger Consideration..............................................................5
SECTION 2.2 Fractional Shares.................................................................6
SECTION 2.3 Exchange of Certificates..........................................................6
SECTION 2.4 Certain Adjustments...............................................................7
SECTION 2.5 Shares of Dissenting Shareholders.................................................7
SECTION 2.6 Tax-Free Reorganization...........................................................8
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................8
SECTION 3.1 Organization, Standing and Corporate Power........................................8
SECTION 3.2 Subsidiaries......................................................................8
SECTION 3.3 Capital Structure.................................................................8
SECTION 3.4 Authority; Noncontravention.......................................................9
SECTION 3.5 Financial Statements; Undisclosed Liabilities....................................10
SECTION 3.6 Material Contracts...............................................................12
SECTION 3.7 Permits; Compliance with Applicable Laws.........................................12
SECTION 3.8 Absence of Litigation............................................................13
SECTION 3.9 Tax Matters......................................................................13
SECTION 3.10 Labor Matters....................................................................17
SECTION 3.11 Environmental Matters............................................................18
SECTION 3.12 Intellectual Property............................................................19
SECTION 3.13 Insurance Matters................................................................21
SECTION 3.14 Transactions with Affiliates.....................................................21
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SECTION 3.15 Voting Requirements..............................................................21
SECTION 3.16 Brokers..........................................................................21
SECTION 3.17 Real Property....................................................................21
SECTION 3.18 Tangible Personal Property.......................................................22
SECTION 3.19 Investment Company...............................................................22
SECTION 3.20 Board Approval...................................................................22
SECTION 3.21 Books and Records................................................................22
SECTION 3.22 Status of Company Capital Stock Being Transferred................................23
SECTION 3.23 Investment in Parent Common Stock................................................23
SECTION 3.24 Disclosure.......................................................................24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT..................................................24
SECTION 4.1 Organization, Standing and Corporate Power.......................................24
SECTION 4.2 Capital Structure................................................................24
SECTION 4.3 Authority; Noncontravention......................................................25
SECTION 4.4 Parent Documents.................................................................27
SECTION 4.5 Permits; Compliance with Applicable Laws.........................................28
SECTION 4.6 Absence of Litigation............................................................28
SECTION 4.7 Voting Requirements..............................................................28
SECTION 4.8 Brokers..........................................................................28
SECTION 4.9 Board Approval...................................................................29
SECTION 4.10 Books and Records................................................................29
SECTION 4.11 Sarbanes Oxley Act Compliance....................................................29
SECTION 4.12 Financial Projections............................................................29
SECTION 4.13 Disclosure.......................................................................29
SECTION 4.14 Continuity of Business. .........................................................29
SECTION 4.15 Funds Available..................................................................30
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS.................................................30
SECTION 5.1 Conduct of Business by the Company...............................................30
SECTION 5.2 Advice of Changes................................................................31
SECTION 5.3 No Solicitation by the Company...................................................31
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SECTION 5.4 Conduct of Business by Parent....................................................32
SECTION 5.5 Transition.......................................................................32
ARTICLE VI ADDITIONAL AGREEMENTS.....................................................................32
SECTION 6.1 Access to Information; Confidentiality...........................................32
SECTION 6.2 Commercially Reasonable Efforts..................................................34
SECTION 6.3 Fees and Expenses................................................................34
SECTION 6.4 Public Announcements.............................................................34
SECTION 6.5 Regulation D.....................................................................35
SECTION 6.6 Company Tax Returns..............................................................35
SECTION 6.7 Post-Closing Access..............................................................35
ARTICLE VII CONDITIONS PRECEDENT......................................................................35
SECTION 7.1 Conditions to Each Party's Obligation to Effect the Merger.......................35
SECTION 7.2 Conditions to Obligations of Parent..............................................36
SECTION 7.3 Conditions to Obligations of the Company and the Stockholder.....................37
SECTION 7.4 Frustration of Closing Conditions................................................38
ARTICLE VIII INDEMNIFICATION; ARBITRATION..............................................................38
SECTION 8.1 Indemnification..................................................................38
SECTION 8.2 Arbitration......................................................................41
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER.........................................................42
SECTION 9.1 Termination......................................................................42
SECTION 9.2 Effect of Termination............................................................43
SECTION 9.3 Amendment........................................................................43
SECTION 9.4 Extension; Waiver................................................................43
ARTICLE X GENERAL PROVISIONS........................................................................44
SECTION 10.1 Survival of Representations, Warranties and Agreements...........................44
SECTION 10.2 Notices..........................................................................44
SECTION 10.3 Definitions......................................................................45
SECTION 10.4 Interpretation...................................................................46
SECTION 10.5 Counterparts.....................................................................46
SECTION 10.6 Entire Agreement; No Third-Party Beneficiaries...................................46
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SECTION 10.7 Governing Law....................................................................46
SECTION 10.8 Assignment.......................................................................46
SECTION 10.9 Headings.........................................................................46
SECTION 10.10 Severability.....................................................................46
SECTION 10.11 Enforcement......................................................................47
SECTION 10.12 Further Assurances...............................................................47
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EXHIBITS
EXHIBIT A - SURVIVING CORPORATION CERTIFICATE OF INCORPORATION
EXHIBIT B - FORM OF PROMISSORY NOTE
EXHIBIT C - FORM OF EMPLOYMENT AGREEMENT
EXHIBIT D - FORM OF CONSULTING AGREEMENT
EXHIBIT E - FORM OF REGISTRATION RIGHTS AGREEMENT
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INDEX OF DEFINED TERMS
DEFINED TERMS SECTION
- ------------- -------
Adjustment Event Section 2.4
Affiliate Section 10.3(a)
Agreement Preamble
Cash Consideration Section 2.1(c)
Certificate of Merger Section 1.3
Closing Section 1.2
Closing Date Section 1.2
Code Section 2.6
Company Preamble
Company Acquisition Proposal Section 5.3(a)
Company Certificate of Incorporation Section 3.1(b)
Company Common Stock Recitals
Company Disclosure Schedule Article III
Company Financial Statements Section 3.5(a)
Company IP Agreements Section 3.13(g)
Company Material Contracts Section 3.6(b)
Company Permitted Liens Section 3.18(b)
Company Stock Certificates Section 2.2
Company Stockholders Section 2.3
Confidential Information Section 6.1(b)
Confidentiality Dispute Section 8.2
Consulting Agreement Section 7.2(f)
Curmi Preamble
DGCL Preamble
Dispute Section 8.2
Dissenting Shares Section 2.5
Effective Time Section 1.3
Employee Plans Section 3.10(a)
Employment Agreements Section 7.2(e)
Environmental Laws Section 3.12(d)(i)
Environmental Permits Section 3.12(d)(ii)
ERISA Section 3.10(a)
ERISA Affiliate Section 3.10(a)
Excluded Assets Section 3.5(g)
Fiduciary Section 3.10(e)
GAAP Section 3.5(a)
Government Entities Section 3.4(c)
Governmental Entity Section 3.4(c)
Hazardous Substances Section 3.12(d)(iii)
Indemnified Person Section 8.1(e)
Intellectual Property Section 3.13(a)
IRS Section 3.10(g)
Knowledge Section 10.3(c)
Liens Section 3.4(d)
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DEFINED TERMS SECTION
- ------------- -------
Material adverse change Section 10.3(c)
Material adverse effect Section 10.3(c)
Merger Recitals
Merger Consideration Section 2.1(c)
Merger Sub Preamble
Merger Sub Common Stock Section 4.2(d)
Multi-Employer Plans Section 3.10(d)
NVGCL Recitals
Parent Preamble
Parent Common Stock Section 2.1(b)(ii)
Parent Disclosure Schedule Article IV
Parent Employee Stock Options Section 4.2(a)
Parent Indemnified Parties Section 8.1(a)
Parent Preferred Stock Section 4.2(a)
Parent Representatives Section 6.1(a)
Parent SEC Documents Section 4.4(a)
Parent Shares Section 2.1(b(ii)
Parent Stock Plans Section 4.2(a)
Permits Section 3.7(a)
Person Section 10.3(e)
Projections Section 4.12
Promissory Note Section 2.1(b)(iii)
Parent Organizational Documents Section 4.1(b)
Registration Rights Agreement Section 7.3(g)
Release Section 3.12(d)(iv)
Requisite Regulatory Approvals Section 7.1(b)
Restraints Section 7.1(c)
Sarbanes Oxley Act Section 4.11
SEC Section 4.4(a)
Secretary Section 1.3
Securities Act Section 3.24(a)
Seller Indemnified Parties Section 8.1(b)
Seller Losses Section 8.1(b)
Software Section 3.13(a)
Stockholder Preamble
Surviving Corporation Section 1.1
Tangible Personal Property Section 3.19
Tax Section 3.9(h)(i)
Tax Return Section 3.9(h)(ii)
Taxes Section 3.9(h)(i)
Third Party Claim Section 8.1.(e)
Third Party Rights Section 3.13(d)
Transaction Documents Section 10.3(h)
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of February
18, 2005, by and among INCENTRA SOLUTIONS, INC., a Nevada corporation
("Parent"), INCENTRA MERGER CORP., a Delaware corporation and wholly owned
subsidiary of Parent ("Merger Sub"), STAR SOLUTIONS OF DELAWARE, INC., a
Delaware corporation, as successor by merger to Star Solutions, LLC, a
California limited liability company (the "Company"), and ALFRED CURMI (referred
to herein as "Curmi" or "Stockholder").
RECITALS
WHEREAS, each of Parent, Merger Sub and the Company desire Parent to
consummate a business combination with the Company in a transaction whereby,
upon the terms and subject to the conditions set forth in this Agreement, the
Company will merge with and into Merger Sub (the "MERGER"), each outstanding
share of Common Stock, $.01 par value per share, of the Company ("COMPANY COMMON
STOCK") (other than shares cancelled and retired pursuant to Section 2.1(d) and
Dissenting Shares (as defined herein), will be converted into the right to
receive the Merger Consideration, and Merger Sub will be the surviving
corporation in the Merger;
WHEREAS, the Board of Directors of the Company unanimously has
determined and resolved that the Merger and all of the transactions contemplated
by this Agreement are in the best interest of the holders of Company Common
Stock and that the Merger is fair and advisable, and has approved this Agreement
in accordance with the Delaware General Corporation Law, as amended (the
"DGCL"), and has further resolved unanimously to recommend to all holders of
Company Common Stock that they authorize, approve and adopt this Agreement and
the transactions contemplated hereby; and
WHEREAS, the Board of Directors of Parent unanimously has determined
and resolved that the Merger and all of the transactions contemplated by this
Agreement are in the best interest of Parent and the holders of Parent Common
Stock and has adopted this Agreement in accordance with the Nevada General
Corporation Law, as amended (the "NVGCL") and Parent, as sole shareholder of
Merger Sub, has adopted this Agreement in accordance with the DGCL.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto intending to be legally bound do hereby agree
as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
set forth in this Agreement and in accordance with the DGCL, at the Effective
Time, the Company shall be merged with and into Merger Sub and Merger Sub shall
be the surviving corporation in the Merger (the "Surviving Corporation") and, as
such, Merger Sub shall continue its corporate
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existence as a direct, wholly owned subsidiary of Parent under the laws of the
State of Delaware, and the separate corporate existence of the Company thereupon
shall cease.
SECTION 1.2 CLOSING. Subject to the satisfaction or, to the extent
permitted by applicable law, waiver of the conditions to consummation of the
Merger contained in Article VII hereof, the closing of the Merger (the
"Closing") shall take place at 8:00 a.m., Denver, CO time, on a date to be
specified by the parties (the "Closing Date"), which date shall not be later
than the third business day next following the satisfaction or, to the extent
permitted by applicable law, waiver of the conditions set forth in Article VII
(other than those conditions that by their nature are to be satisfied at the
Closing, but subject to the fulfillment or, to the extent permitted by
applicable law, waiver of those conditions), unless another time or date is
agreed to by the parties hereto. The Closing will be held at the offices of
Parent, located at 1140 Pearl Street, Boulder, CO 80302 or at such other
location as is agreed to by the parties hereto.
SECTION 1.3 EFFECTIVE TIME. Upon the terms and subject to the
conditions set forth in this Agreement, at the Closing the parties shall cause
the Merger to be consummated by filing with the Secretary of State of the State
of Delaware (the "SECRETARY") a certificate of merger in form and substance
acceptable to the parties hereto (the "CERTIFICATE OF MERGER") duly executed and
so filed in accordance with the DGCL and shall make all other filings and
recordings required under the DGCL to effectuate the Merger and the transactions
contemplated by this Agreement. The Merger shall become effective at such time
as the Certificate of Merger is duly filed with the Secretary, or at such
subsequent date or time as Parent and the Company mutually shall agree and
specify in the Certificate of Merger (the time the Merger becomes so effective
being hereinafter referred to as the "EFFECTIVE TIME"). The parties shall
cooperate with each other and take all commercially reasonable action to
pre-position and/or pre-clear the Certificate of Merger with the Secretary of
State of Delaware so that the Certificate of Merger is accepted and becomes
effective on the Closing Date.
SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the DGCL.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BY-LAWS OF THE SURVIVING
CORPORATION. The certificate of incorporation of the Surviving Corporation shall
be amended and restated to read as set forth in EXHIBIT A attached hereto and as
so amended shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended or restated as provided therein or by
applicable law. The by-laws of Merger Sub in effect immediately prior to the
Effective Time shall be the by-laws of the Surviving Corporation until
thereafter amended or restated as provided therein or by applicable law.
SECTION 1.6 DIRECTORS AND OFFICERS. The directors of Merger Sub at the
Effective Time shall, from and after the Effective Time, be and become the
directors of the Surviving Corporation until their successors shall have been
duly elected and qualified or until their earlier death, resignation or removal
in accordance with the certificate of incorporation and by-laws of the Surviving
Corporation and the DGCL; provided that the board of directors of the Merger Sub
shall be comprised of two (2) directors, consisting of Thomas P. Sweeney III and
Paul McKnight. The officers of Merger Sub at the Effective Time shall, from and
after the Effective Time, be and become the officers of the Surviving
Corporation until their successors shall have
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been duly appointed and qualified or until their earlier death, resignation or
removal in accordance with the certificate of incorporation and the by-laws of
the Surviving Corporation.
ARTICLE II
MERGER CONSIDERATION; EFFECT ON CAPITAL STOCK; EXCHANGE OF CERTIFICATES
SECTION 2.1 MERGER CONSIDERATION. At the Effective Time, by virtue of
the Merger and without any action on the part of Parent, Merger Sub, the Company
or the holders of any of the following securities:
(a) The Company Common Stock held by Kathryn Frank shall be
converted into the right to receive cash in the amount of Seventy Eight Thousand
Dollars ($78,000.00), and
(b) The Company Common Stock held by Curmi, shall be converted
into the right for he and/or his designees to receive:
(i) cash in the amount of One Million Four Hundred
Twenty Two Thousand Dollars ($1,422,000.00);
(ii) Twelve Million Six Hundred Seventeen Thousand
Five Hundred Fifty Five (12,617,555) shares (collectively, the
"Parent Shares") of Parent's unregistered common stock, par
value $.001 per share ("Parent Common Stock"); and
(iii) an unsecured convertible promissory note, in
substantially the form attached hereto as Exhibit B, with
appropriate insertions, in the original principal amount of
Two Million Five Hundred Thousand Dollars ($2,500,000.00)(the
"Promissory Note"). The principal and accrued interest under
the Promissory Note shall be convertible at the option of the
holder into shares of Parent Common Stock, all as more
particularly described in the Promissory Note. The Parent
Shares issued hereunder and the shares of Parent Common Stock
issued upon conversion of the Promissory Note shall be
eligible for registration under the Registration Rights
Agreement.
(c) For purposes of this Agreement, the payment pursuant to
Section 2.1(a) and 2.1(b)(i) shall collectively be referred to as the "Cash
Consideration", and the term "Merger Consideration" shall mean, collectively,
the Parent Shares, the Cash Consideration and the Promissory Note. At the
Closing, Parent shall (i) pay the Cash Consideration described in Section 2.1(a)
to Kathryn Frank and the Cash Consideration described in Section 2.1(b)(i) to
the Stockholder by wire transfer of immediately available U.S. federal funds to
such accounts as the Stockholder may direct by written notice delivered to
Parent or Parent's counsel; (ii) issue and deliver a stock certificate or
certificates representing the Parent Shares to the Stockholder; and (iii)
execute and deliver the Promissory Note to the Stockholder.
(d) Each share of Company Common Stock then issued and held in
the Company's treasury, if any, and each share of Company Common Stock then
owned by Parent,
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Merger Sub or any other wholly owned subsidiary of Parent, if any, shall be
canceled and retired and shall cease to exist, and no consideration shall be
delivered in exchange therefor.
SECTION 2.2 FRACTIONAL SHARES. No certificates representing fractional
shares of Parent Common Stock shall be issued upon the surrender for exchange of
certificates representing Company capital stock ("Company Stock Certificates"),
no dividend or distribution by Parent shall relate to such fractional share
interests, and such fractional share interests shall not entitle the owner
thereof to vote or to any rights as a shareholder of Parent. Further, no holder
of a Company Stock Certificate who otherwise would have been entitled to receive
in the Merger a fractional share interest in exchange for such Company Stock
Certificate shall have the right to receive cash payment in lieu thereof. In
lieu of any such fractional shares or cash payment, (x) any such fractional
share interest greater than or equal to one-half of a share (0.5) shall be
rounded up to the next whole share number, and (y) any such fractional share
less than one-half of a share (0.5) shall be rounded down to the preceding whole
share number and the certificates representing shares of Parent Common Stock to
be issued in the Merger shall reflect such adjustments.
SECTION 2.3 EXCHANGE OF CERTIFICATES.
(a) At the Closing, the Stockholder, together with any other
stockholder of the Company (collectively, the "Company Stockholders") shall
surrender to the Parent all Company Stock Certificates in proper form for
cancellation, and upon such surrender shall be entitled to receive in exchange
therefor his or her respective Merger Consideration, including a certificate (or
certificates) representing such whole number of shares of Parent Common Stock as
such holder is entitled to receive pursuant to Article II in such denominations
and registered in such names as such holder may request. The shares represented
by the Company Stock Certificate so surrendered shall forthwith be cancelled.
Without limiting the generality of the foregoing (and notwithstanding any other
provisions of this Agreement), no interest shall be paid or accrued in respect
of any of the Merger Consideration payable to holders of Company Common Stock in
accordance with this Article II. Until surrendered in accordance with this
Section 2.3, each Company Stock Certificate shall be deemed at all times from
and after the Effective Time to represent only the right to receive upon such
surrender the Merger Consideration.
(b) If any Company Stock Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Stock Certificate to be lost, stolen or destroyed and, if
required by the Surviving Corporation, the posting by such person of a bond, in
such reasonable amount as the Surviving Corporation may direct, as indemnity
against any claim that may be made against it with respect to such Company Stock
Certificate, Parent shall issue in exchange for such lost, stolen or destroyed
Company Stock Certificate, the applicable Merger Consideration to which such
person is entitled pursuant to the provisions of this Article II.
(c) Notwithstanding any other provisions of this Agreement, no
dividends or other distributions declared or made after the Effective Time in
respect of shares of Parent Common Stock having a record date after the
Effective Time shall be paid to the holder of any unsurrendered Company Stock
Certificate until the holder shall surrender such Company Stock Certificate as
provided in this Section 2.3. Subject to applicable law, following surrender of
any
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such Company Stock Certificate, there shall be paid to the holder of the
certificates representing whole shares of Parent Common Stock issued in exchange
therefore, in each case without any interest thereon, (i) at the time of such
surrender, the amount of dividends or other distributions, if any, having a
record date after the Effective Time theretofore payable with respect to such
whole shares of Parent Common Stock and not paid, less the amount of all
required withholding Taxes in respect thereof, and (ii) at the appropriate
payment date subsequent to surrender, the amount of dividends or other
distributions having a record date after the Effective Time but prior to the
date of such surrender and having a payment date subsequent to the date of such
surrender and payable with respect to such whole shares of Parent Common Stock,
less the amount of all required withholding Taxes in respect thereof.
(d) All shares of Parent Common Stock issued upon surrender of
Company Stock Certificates in accordance with this Article II shall be deemed to
have been issued and paid in full satisfaction of all rights pertaining to such
shares of Company Common Stock represented thereby and, as of the Effective
Time, the stock transfer books and records of the Company shall be closed and
there shall be no further registration of transfers on the stock transfer books
and records of the Company of shares of Company Common Stock outstanding
immediately prior to the Effective Time. If, after the Effective Time, Company
Stock Certificates are properly presented to the Surviving Corporation for any
reason (but otherwise in accordance with this Article II), they shall be
cancelled and exchanged for the Merger Consideration as provided in this Section
2.3.
SECTION 2.4 CERTAIN ADJUSTMENTS. If, after the date hereof and prior to
the Effective Time and to the extent permitted by this Agreement, the
outstanding shares of Parent Common Stock or Company Common Stock shall be
changed into a different number, class or series of shares by reason of any
reclassification, recapitalization or combination, forward stock split, reverse
stock split, stock dividend or rights issued in respect of such stock, or any
similar event shall occur (any such action, an "ADJUSTMENT EVENT"), the Merger
Consideration shall be adjusted correspondingly to provide to the holders of
Company Common Stock the right to receive shares of Parent Common Stock having
the same economic value as contemplated by this Agreement immediately prior to
such Adjustment Event and Parent's payment obligations likewise shall be
correspondingly adjusted such that it shall be required to pay and deliver not
more than the aggregate Merger Consideration contemplated by this Agreement.
Notwithstanding the foregoing provision, the aggregate amount of the Cash
Consideration and the original principal amount of the Promissory Note shall not
change under any circumstances.
SECTION 2.5 SHARES OF DISSENTING SHAREHOLDERS. Notwithstanding anything
in this Agreement to the contrary, any shares of Company Common Stock that are
outstanding as of the Effective Time and that are held by a shareholder who has
properly exercised his appraisal rights under Section 262 of the DGCL (the
"DISSENTING Shares") shall not be converted into the right to receive the Merger
Consideration; PROVIDED, HOWEVER, if any such holder shall have failed to
perfect or shall have effectively withdrawn or lost his right to dissent from
the Merger under the DGCL and to receive such consideration as may be determined
to be due with respect to such Dissenting Shares pursuant to and subject to the
requirements of the DGCL, each share of such holder's Company Common Stock
thereupon shall be deemed to have been converted into and to have become, as of
the Effective Time, the right to receive, without any interest thereon, the
Merger Consideration in accordance with Article II. The Company shall give
Parent prompt
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written notice of (i) all demands for appraisal or payment for shares of Company
Common Stock received by the Company prior to the Effective Time in accordance
with the DGCL, and (ii) any settlement or offer to settle any such demands.
SECTION 2.6 TAX-FREE REORGANIZATION. The Merger is intended to qualify
as a reorganization described in Section 368(a)(2)(D) of the Internal Revenue
Code of 1986, as amended (the "Code"), and the parties hereto agree not to take
any action which could result in the Merger failing to so qualify. The parties
hereto further agree to report the Merger for all purposes as a reorganization
under Section 368 of the Code, and that this Agreement is intended to be a "plan
of reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of
the United States Treasury Regulations.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the Disclosure Schedule delivered by the Company
to Parent prior to the execution of this Agreement which hereby is incorporated
by reference in and constitutes an integral part of this Agreement (the "COMPANY
DISCLOSURE SCHEDULE"), the Company and the Stockholder hereby represent and
warrant to Parent as follows:
SECTION 3.1 ORGANIZATION, STANDING AND CORPORATE POWER.
(a) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the state of its organization
and has the requisite corporate power and authority to carry on its business as
presently being conducted. Except as set forth in Section 3.1(c) of the Company
Disclosure Schedule, the Company is duly qualified or licensed to conduct
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership, leasing or operation of its properties makes such
qualification or licensing necessary, except for those jurisdictions where the
failure to be so qualified or licensed or to be in good standing individually or
in the aggregate would not reasonably be expected to have a material adverse
effect on the Company.
(b) The Company has delivered or made available to Parent
prior to the execution of this Agreement complete and correct copies of the
certificate of incorporation (the "COMPANY CERTIFICATE OF INCORPORATION") and
by-laws of the Company, each as in effect at the date of this Agreement.
SECTION 3.2 SUBSIDIARIES. The Company does not have any subsidiaries.
SECTION 3.3 CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of One Thousand (1,000) shares of Company Common Stock, $.01
par value. As of the date hereof:
(a) (i) One Thousand (1,000) shares of Company Common Stock
are issued and outstanding; and (ii) no shares of Company Common Stock are held
by the Company in its treasury.
Page 8
(b) Except as set forth on Section 3.3(b) of the Company
Disclosure Schedule, all outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and nonassessable and
are not subject to preemptive rights created by statute, the Company Certificate
of Incorporation or any agreement to which the Company is a party or by which
the Company may be bound. Except as set forth in this Section, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, and (iii) except
pursuant to this Agreement, no options or other rights to acquire from the
Company, and no obligation of the Company to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock of
the Company.
SECTION 3.4 AUTHORITY; NONCONTRAVENTION.
(a) The Company and the Stockholder have the power and
authority to execute, deliver and perform this Agreement and the other
agreements to be executed and delivered by them in connection herewith and to
consummate the transactions contemplated hereby and thereby. All acts and
proceedings required to be taken by or on the part of the Company and/or the
Stockholder and to authorize the Company to execute, deliver and perform this
Agreement and the other agreements to be executed and delivered by the Company
in connection herewith and to consummate the transactions contemplated hereby
and thereby have been duly and validly taken or will be taken on or prior to the
Closing. This Agreement constitutes a valid and binding agreement, and the other
agreements to be executed and delivered by the Company in connection herewith
when so executed and delivered will constitute valid and binding agreements, of
the Company.
(b) Except as set forth in Section 3.4(b) of the Company
Disclosure Schedule, the execution and delivery of this Agreement does not, and
the consummation of the transactions contemplated hereby will not, conflict with
or result in a violation of, or default (with or without notice or lapse of
time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any material obligation under (i) any provision of the Company
Certificate of Incorporation, (ii) any material loan or credit agreement, note,
mortgage, indenture, lease or other material agreement to which the Company or
the Stockholder is a party or (iii) any material instrument, permit, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Company or its properties or assets.
(c) Except for any registrations, notices or filings which may
be required under the federal or state securities laws and registrations,
notices or filings with the office of the Secretary of State of Delaware and the
office of the Secretary of State of California in connection with the Merger,
the execution, delivery and performance by the Company of this Agreement and the
consummation of the purchase and sale of the Merger require no consent,
approval, order or authorization of, action by or in respect of, or registration
or filing with, any governmental body, court, agency, commission, official or
authority (each, a "GOVERNMENTAL ENTITY", collectively "GOVERNMENTAL ENTITIES."
(d) The execution and delivery of this Agreement and the
consummation of the Merger will not result in the creation of any pledges,
claims, liens, charges, encumbrances,
Page 9
adverse claims, mortgages and security interests of any kind or nature
whatsoever (collectively, "LIENS") upon any asset of the Company.
(e) Except as set forth in Section 3.4(e) of the Company
Disclosure Schedule, no consent, approval, waiver or other action by any person
(other than the Governmental Entities referred to in (c) above) under any
Company Material Contract is required or necessary for, or made necessary by
reason of, the execution, delivery and performance of this Agreement by the
Company or the consummation of the Merger.
SECTION 3.5 FINANCIAL STATEMENTS; UNDISCLOSED LIABILITIES.
(a) The Company has furnished to the Parent true, correct and
complete copies of: (i) balance sheets of the Company's predecessor limited
liability company, Star Solutions, LLC, as of December 31, 2001, December 31,
2002 and December 31, 2003 compiled by Star Solutions, LLC; (ii) income
statements of Star Solutions, LLC for the fiscal years ended December 31, 2001,
December 31, 2002 and December 31, 2003 compiled by the Company; (iii) a balance
sheet, income statement, statement of cash flow and statement of members' equity
of Star Solutions, LLC for the fiscal year ended December 31, 2004 prepared in
accordance with generally accepted accounting principles ("GAAP") and audited by
the Company's independent accountants (except as set forth in Section 3.5(a) of
the Company Disclosure Schedule); and (iv) an income statement and statement of
cash flows for the Company for the period from January 1, 2005 through and
including February 17, 2005, a balance sheet, schedule of open orders and a
statement of stockholders' equity of the Company as of February 17, 2005
(collectively, the "Company Financial Statements"). The Company Financial
Statements have been prepared by the Company on the basis of the books and
records maintained by the Company in the ordinary course of business in a manner
consistently used and applied throughout the periods involved and the accounting
practices and procedures have been applied consistently for interim periods
after the periods of the Company Financial Statements. The Company Financial
Statements fairly present in all material respects the financial condition of
the Company and the Company's predecessor limited liability company as at the
respective dates thereof.
(b) Except for liabilities (i) set forth in Section 3.5(b) of
the Company Disclosure Schedule, (ii) reflected in the Company Financial
Statements or described in any notes thereto (or for which neither accrual nor
footnote disclosure is required pursuant to GAAP), or (iii) incurred in the
ordinary course of business, consistent with past practice or in connection with
this Agreement or the transactions contemplated hereby, the Company has no
material liabilities of any nature. The Company is not in default in respect of
any terms or conditions of any indebtedness.
(c) Other than changes in the usual and ordinary conduct of
business since December 31, 2004, there have been no material adverse changes in
the financial condition of the Company. Specifically, but, not by way of
limitation, since its balance sheet of December 31, 2004, the Company has not:
(i) Issued or sold any stock, bond, or other Company
securities;
Page 10
(ii) Except for current liabilities and obligations
incurred in the ordinary course of business, incurred any
material obligation or liability, absolute or contingent;
(iii) Except for current liabilities shown on the
balance sheet and current liabilities incurred since that date
in the ordinary course of business, discharged or satisfied
any material lien or encumbrance, or paid any material
liability, absolute or contingent;
(iv) Mortgaged, pledged or subjected to lien or any
other encumbrance, any of its material assets, tangible or
intangible, other than pursuant to any Company Permitted
Liens;
(v) Except in the ordinary course of business, sold
or transferred any of its material tangible assets or canceled
any material debts or claims;
(vi) Sold, assigned, or transferred any patents,
formulas, trademarks, trade names, copyrights, licenses, or
other material intangible assets;
(vii) Suffered any extraordinary losses, been
subjected to any strikes or other labor disturbances, or
waived any rights of any substantial value; or
(viii) Except for transactions contemplated by this
Agreement, entered into any material transaction other than in
the ordinary course of business.
(d) Subject to any changes that may have occurred in the
ordinary and usual course of business, the material assets of the Company at the
Closing Date will be substantially those owned by it and shown on the Company
Financial Statements.
(e) Except to the extent that an allowance for uncollectible
accounts has been established on its books and is reflected in the Company
Financial Statements and except as set forth in Section 3.5(e) of the Company
Disclosure Schedule, all accounts receivable and notes receivable of the Company
are current and, to the Company's knowledge, collectible; provided however, that
Parent acknowledges and agrees that approximately $50,000 of the Company's
accounts receivable have not been collectible on an annual basis, and a similar
portion of the Company's outstanding accounts receivable may become
uncollectible over the next twelve (12) months. Such accounts receivable of the
Company have arisen in the ordinary course of business in arms-length
transactions for goods actually sold and services actually performed or to be
performed.
(f) All inventory to be transferred to Buyer pursuant to this
Agreement is in saleable condition.
(g) Prior to the Closing Date, the Company shall assign and
transfer to Alfred Curmi and/or any other person designated by Alfred Curmi all
of the Company's right, title and interest in and to the assets described in
Section 3.5(g) of the Company Disclosure Schedule (collectively, the "Excluded
Assets"). Parent acknowledges and agrees that none of the Excluded Assets, nor
the rights, title or interests of the Company therein, shall be deemed to
constitute a
Page 11
part of the Company or its assets, and that such assets will not be owned or
retained by the Company at the Closing. Parent acknowledges and agrees that the
Company may transfer or distribute the Excluded Assets at any time and from time
to time prior to the Closing, and no such transfer or distribution shall be
deemed to violate or breach any provision under this Agreement or any other
Transaction Document.
(h) For purposes of this Section 3.5, material in regards to
any obligation, debt, asset or the like shall mean having a value in excess of
Twenty-Five Thousand Dollars ($25,000.00).
SECTION 3.6 MATERIAL CONTRACTS.
(a) Each Company Material Contract is valid and binding on and
enforceable against the Company and each other party thereto and is in full
force and effect. Except as set forth in Section 3.6(a) of the Company
Disclosure Schedule, the Company is not in breach or default under any Company
Material Contract. Except as set forth in Section 3.6(a) of the Company
Disclosure Schedule, the Company does not know of, and has not received notice
of, any violation or default under (nor, to the knowledge of the Company, does
there exist any condition which with the passage of time or the giving of notice
or both would result in such a violation or default under) any Company Material
Contract by any other party thereto. Prior to the date hereof, the Company has
made available to Parent true and complete copies of all Company Material
Contracts.
(b) As used in this Agreement, "Company Material Contracts"
shall mean any contract, license agreement, commitment, lease, or restriction of
any kind to which the Company is a party or by which the Company is bound or to
which any of the Company's assets are subject which involve payments to or from
the Company of at least $75,000.
SECTION 3.7 PERMITS; COMPLIANCE WITH APPLICABLE LAWS.
(a) Except as set forth in Section 3.1(a) of the Company
Disclosure Schedule, to the Company's knowledge, the Company owns and/or
possesses all material permits, licenses, variances, authorizations, exemptions,
orders, registrations and approvals of all Governmental Entities which are
required for the operation of the business of the Company (the "Permits") as
presently conducted. To the Company's knowledge, the Company is in compliance in
all material respects with the terms of its Permits. All of its Permits are in
full force and effect and no suspension, modification or revocation of any of
them is pending or, to the Company's knowledge, threatened nor, to the Company's
knowledge, do grounds exist for any such action.
(b) To the Company's knowledge, the Company is in compliance
in all material respects with all applicable statutes, laws, regulations,
ordinances, rules, writs, judgments, orders, decrees and arbitration awards of
each Governmental Entity applicable to the Company.
(c) Except for filings with respect to Taxes, which are the
subject of Section 3.9 and not covered by this Section 3.7(c), to the Company's
knowledge, the Company has timely filed all regulatory reports, schedules,
forms, registrations and other documents, together with any amendments required
to be made with respect thereto, that they were required to file with each
Governmental Entity, and have timely paid all fees and assessments, if any, due
and
Page 12
payable in connection therewith, except where the failure to make such payments
and filings individually or in the aggregate would not have a material adverse
effect on the Company.
SECTION 3.8 ABSENCE OF LITIGATION. Section 3.8 of the Company
Disclosure Schedule contains a true and current summary description of each
pending and, to the Company's knowledge, threatened litigation, action, suit,
case, proceeding, investigation or arbitration against the Company. Except as
set forth in Section 3.8 of the Company Disclosure Schedule, no action, inquiry,
demand, charge or investigation by any Governmental Entity and no litigation,
action, suit, case, proceeding, investigation or arbitration by any person or
Governmental Entity, in each case with respect to the Company or any of its
properties or Permits, is pending or, to the knowledge of the Company,
threatened.
SECTION 3.9 TAX MATTERS.
(a) The Company and Star Solutions, LLC have (i) filed with
the appropriate Governmental Entities all United States federal and state income
and other material Tax Returns required to be filed by them on or before the
date of this Agreement (giving effect to all extensions) and such Tax Returns
are true, correct and complete in all material respects; (ii) except as set
forth in the Company Disclosure Schedule, paid in full all United States federal
income and other material Taxes required to have been paid by them; and (iii)
made adequate provision for all accrued Taxes not yet due. To the Company's
knowledge, the accruals and provisions for Taxes reflected in the Company
Financial Statements for the year ended December 31, 2004, are adequate in
accordance with GAAP for all Taxes accrued or accruable through the date of such
statements.
(b) As of the date of this Agreement, no Federal, state, local
or foreign audits or other administrative proceedings or court proceedings are
presently pending with regard to any Taxes or Tax Returns of the Company, and
except as set forth in the Company Disclosure Schedule, the Company has not
received a written notice of any material pending or proposed claims, audits or
proceedings with respect to Taxes.
(c) No deficiency or proposed adjustment which has not been
settled or otherwise resolved for any amount of Tax has been proposed, asserted,
or assessed in writing by any Governmental Entity against, or , with respect to,
the Company. There is no action, suit or audit now in progress, pending or, to
the knowledge of the Company , threatened against or with respect to the Company
with respect to any material Tax.
(d) The Company has not been included in any "consolidated,"
"unitary" or "combined" Tax Return (other than Tax Returns which include only
the Company) provided for under the laws of the United States, any foreign
jurisdiction or any state or locality with respect to Taxes for any taxable
year.
(e) No claim has been made in writing by any Governmental
Entities in a jurisdiction where the Company does not file Tax Returns that the
Company is, or may be, subject to taxation by that jurisdiction.
(f) The Company has made available to Parent correct and
complete copies of (i) all of its material Tax Returns filed within the past
three (3) years, (ii) except as set forth in
Page 13
Section 3.9(f) of the Company Disclosure Schedule, all audit reports, letter
rulings, technical advice memoranda and similar documents issued by a
Governmental Entity within the past three (3) years relating to the Federal,
state, local or foreign Taxes due from or with respect to the Company, and (iii)
any closing letters or agreements entered into by the Company with any
Governmental Entities within the past three (3) years with respect to Taxes.
(g) The Company has not received any notice of deficiency or
assessment from any Governmental Entity for any amount of Tax that has not been
fully settled or satisfied, and to the knowledge of the Company, no such
deficiency or assessment is proposed.
(h) For purposes of this Agreement:
(i) "Tax" or "Taxes" shall mean all federal, state,
county, local, foreign and other taxes of any kind whatsoever
(including, without limitation, income, profits, premium,
excise, sales, use, occupancy, gross receipts, franchise, ad
valorem, severance, capital levy, production, transfer,
license, stamp, environmental, withholding, employment,
unemployment compensation, payroll related and property taxes,
import duties and other governmental charges and assessments),
whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or
interest, and penalties with respect thereto, and including
expenses associated with contesting any proposed adjustment
related to any of the foregoing.
(ii) "Tax Return" shall mean any return, information
report or filing with respect to Taxes, including any
schedules attached thereto and including any amendments
thereof.
SECTION 3.10 EMPLOYEE BENEFIT PLANS.
(a) Section 3.10 of the Company Disclosure Schedule contains a
true and complete list of all pension, stock option, stock purchase, benefit,
welfare, profit-sharing, retirement, disability, vacation, severance,
hospitalization, insurance, incentive, deferred compensation and other similar
fringe or employee benefit plans, funds, programs or arrangements, whether
written or oral, in each of the foregoing cases which (i) covers, is maintained
for the benefit of, or relates to any or all current or former employees of the
Company and any other entity ("ERISA AFFILIATE") related to the Company under
Section 414(b), (c), (m) and (o) of the Code and (ii) is not a "multiemployer
plan" as defined in Section 3(37) or Section 4001(a)(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") or Section 414 of
the Code (the "EMPLOYEE PLANS"). Section 3.10(a) of the Company Disclosure
Schedule identifies and includes but is not limited to, each of the Employee
Plans that is subject to Section 302 or Title IV of ERISA or Section 412 of the
Code. Neither the Company, nor any ERISA Affiliate of the Company has any
commitment or formal plan, whether or not legally binding, to create any
additional employee benefit plan or modify or change any existing Employee Plan
other than as may be required by the express terms of such Employee Plan or
applicable law.
Page 14
(b) With respect to each Employee Plan that has been qualified
or is intended to be qualified under the Code or that is an "Employee Benefit
Plan" within the meaning of Section 3.3 of ERISA, such Employee Plan has been
duly approved and adopted by all necessary and appropriate action of the Board
of Directors of the Company (or a duly constituted committee thereof).
(c) Except as set forth in Section 3.10(c) of the Company
Disclosure Schedule, with respect to the Employee Plans, all required
contributions for all periods ending before the Closing Date have been or will
be paid in full by the Closing Date. Subject only to normal retrospective
adjustments in the ordinary course, all required insurance premiums have been or
will be paid in full with regard to such Employee Plans for policy years or
other applicable policy periods ending on or before the Closing Date by the
Closing Date. As of the date hereof, none of the Employee Plans has unfunded
benefit liabilities, as defined in Section 4001(a)(16) of ERISA.
(d) The Company has no "multi-employer plans," as defined in
Section 3(37) or Section 4001(a)(3) of ERISA or Section 414 ("MULTI-EMPLOYER
PLANS"), and never has had any such plans.
(e) With respect to each Employee Plan, (i) to the Company's
knowledge, no prohibited transactions as defined in Section 406 of ERISA or
Section 4975 of the Code have occurred or are expected to occur as a result of
the Merger or the transactions contemplated by this Agreement, (ii) no action,
suit, grievance, arbitration or other type of litigation, or claim with respect
to the assets of any Employee Plan (other than routine claims for benefits made
in the ordinary course of plan administration for which plan administrative
review procedures have not been exhausted) is pending or, to the knowledge of
the Company , threatened against the Company, any ERISA Affiliate or any
fiduciary, as such term is defined in Section 3(21) of ERISA ("Fiduciary"),
including, but not limited to, any action, suit, grievance, arbitration or other
type of litigation, or claim regarding conduct that allegedly interferes with
the attainment of rights under any Employee Plan. To the knowledge of the
Company , neither the Company, nor its directors, officers, employees nor any
Fiduciary has any liability for failure to comply with ERISA or the Code for any
action or failure to act in connection with the administration or investment of
such plan. None of the Employee Plans is subject to any pending investigations
or to the knowledge of the Company threatened investigations from any
Governmental Agencies who enforce applicable laws under ERISA and the Code.
(f) To the Company's knowledge, each of the Employee Plans is,
and has been, operated in accordance with its terms and each of the Employee
Plans, and administration thereof, is, and has been, in all material respects in
compliance with the requirements of any and all applicable statutes, orders or
governmental rules or regulations currently in effect, including, but not
limited to, ERISA and the Code. To the Company's knowledge, all required reports
and descriptions of the Employee Plans (including but not limited to Form 5500
Annual Reports, Form 1024 Application for Recognition of Exemption Under Section
501(a), Summary Annual Reports and Summary Plan Descriptions) have been timely
filed and distributed as required by ERISA and the Code. To the Company's
knowledge, any notices required by ERISA or the Code or any other state or
federal law or any ruling or regulation of any state or federal
Page 15
administrative agency with respect to the Employee Plans, including but not
limited to any notices required by Section 4980B of the Code, have been
appropriately given.
(g) Except as set forth in Section 3.10(g) of the Company
Disclosure Schedule, the Internal Revenue Service (the "IRS") has issued a
favorable determination letter or opinion letter with respect to each Employee
Plan intended to be "qualified" within the meaning of Section 401(a) of the Code
that has not been revoked and, to the knowledge of the Company, no circumstances
exist that could adversely affect the qualified status of any such plan and the
exemption under Section 501(a) of the Code of the trust maintained thereunder.
Except as set forth in Section 3.10(g) of the Company Disclosure Schedule, each
Employee Plan intended to satisfy the requirements of Section 125, 501(c)(9) or
501(c)(17) of the Code has , to the Company's knowledge, satisfied such
requirements in all material respects
(h) With respect to each Employee Plan to which the Company or
any ERISA Affiliate made, or was required to make, contributions on behalf of
any employee during the five-year period ending on the last day of the most
recent plan year end prior to the Closing Date, (i) no liability under Title IV
or Section 302 of ERISA has been incurred by the Company or any ERISA Affiliate
that has not been satisfied in full, and (ii) to the knowledge of the Company,
no condition exists that presents a material risk to the Company or any ERISA
Affiliate of incurring any such liability and (iii) the present value of accrued
benefits under such plan, based upon the actuarial assumptions used for funding
purposes in the most recent actuarial report prepared by such plan's actuary
with respect to such plan did not exceed, as of its latest valuation date, the
then current value of the assets of such plan allocable to such accrued
benefits. No Employee Plan or any trust established thereunder has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recently
ended fiscal year.
(i) Except as set forth in Section 3.10(i) of the Company
Disclosure Schedule, no Employee Plan provides medical, surgical,
hospitalization, death or similar benefits (whether or not insured) for
employees for periods extending beyond their retirement or other termination of
service, other than (i) coverage mandated by Section 4980B of the Code, Section
601 of ERISA or other applicable law, (ii) death benefits under any "pension
plan," (iii) benefits the full cost of which is borne by the employee (or his
beneficiary) or (iv) Employee Plans that can be amended or terminated by the
Company without consent. The Company does not have any current or projected
liability with respect to post-employment or post-retirement welfare benefits
for retired, former, or current employees of the Company.
(j) To the Company's knowledge, no material amounts payable
under the Employee Plans will fail to be deductible for Federal income tax
purposes by virtue of Section 162(m) of the Code.
(k) To the extent that the Company is deemed to be a fiduciary
with respect to any Plan that is subject to ERISA, the Company (i) during the
past five years has complied in all material respects with the requirements of
ERISA and the Code in the performance of its duties and responsibilities with
respect to such employee benefit plan and (ii) has not knowingly caused any of
the trusts for which it serves as an investment manager, as defined in Section
3(38) of ERISA, to enter into any transaction that would constitute a
"prohibited transaction" under
Page 16
Section 406 of ERISA or Section 4975 of the Code, with respect to any such
trusts, except for transactions that are the subject of a statutory or
administrative exemption.
(l) To the Company's knowledge, no person will be entitled to
a "gross up" or other similar payment in respect of excise taxes under Section
4999 of the Code with respect to the transactions contemplated by this
Agreement.
(m) None of the Employee Plans have been completely or
partially terminated and , to the Company's knowledge, none has been the subject
of a "reportable event" as that term is defined in Section 4043 of ERISA. No
amendment has been adopted which would require the Company or any ERISA
Affiliate to provide security pursuant to Section 307 of ERISA or Section
401(a)(29) of the Code.
SECTION 3.11 LABOR MATTERS.
(a) With respect to employees of the Company: (i) to the
knowledge of the Company, no senior executive or key employee has any plans to
terminate employment with the Company; (ii) there is no unfair labor practice
charge or complaint against the Company pending or, to the knowledge of the
Company, threatened before the National Labor Relations Board or any other
comparable Governmental Entity; (iii) there is no demand for recognition made by
any labor organization or petition for election filed with the National Labor
Relations Board or any other comparable Governmental Entity; (iv) no grievance
or any arbitration proceeding arising out of or under collective bargaining
agreements is pending and, to the knowledge of the Company, no claims therefor
have been threatened other than grievances or arbitrations incurred in the
ordinary course of business; (v) the execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby and thereby will
not give rise to termination of any existing collective bargaining agreement or
permit any labor organization to commence or initiate any negotiations in
respect of wages, hours, benefits, severance or working conditions under any
such existing collective bargaining agreements; and (vi) there is no litigation,
arbitration proceeding, governmental investigation, administrative charge,
citation or action of any kind pending or, to the knowledge of the Company,
proposed or threatened against the Company relating to employment, employment
practices, terms and conditions of employment or wages, benefits, severance and
hours.
(b) Section 3.11(b) of the Company Disclosure Schedule lists
the name, title, date of employment and current annual salary of each current
salaried employee whose annual salary exceeds $100,000. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
hereby and thereby will not (i) result in any payment (including severance,
unemployment compensation, tax gross-up, bonus or otherwise) becoming due to any
current or former director, employee or independent contractor of the Company,
from the Company under any Employee Plan or other agreement, (ii) materially
increase any benefits otherwise payable under any Employee Plan or other
agreement, or (iii) result in the acceleration of the time of payment, exercise
or vesting of any such benefits.
(c) Section 3.11(c) of the Company Disclosure Schedule sets
forth all contracts, agreements, plans or arrangements covering any employee of
the Company or its subsidiaries containing "change of control," "stay-put,"
transition, retention, severance or similar provisions,
Page 17
and sets forth the names and titles of all such employees, the amounts payable
under such provisions, whether such provisions would become payable as a result
of the Merger and the transactions contemplated by this Agreement, and when such
amounts would be payable to such employees, all of which are in writing, have
heretofore been duly approved by the Company, and true and complete copies of
all of which have heretofore been delivered to Parent. There is no contract,
agreement, plan or arrangement (oral or written) covering any employee of the
Company that individually or collectively could give rise to the payment of any
amount that would not be deductible pursuant to the terms of Section 280G of the
Code.
SECTION 3.12 ENVIRONMENTAL MATTERS. Except for such matters which would
not, individually or in the aggregate, reasonably be expected to result in a
material adverse effect on the Company or are listed in Section 3.12 of the
Company Disclosure Schedule:
(a) COMPLIANCE. (i) To the Company's knowledge, the Company is
in compliance in all material respects with all applicable Environmental Laws;
(ii) the Company has not received any written communication from any person or
governmental entity that alleges that the Company is not in compliance with
applicable Environmental Laws; and (iii) to the Company's knowledge, there have
not been any Releases of Hazardous Substances by the Company, at any property
currently or formerly owned or operated by the Company that occurred during the
period of the Company's ownership or operation of such property.
(b) ENVIRONMENTAL PERMITS. To the Company's knowledge, the
Company has all Environmental Permits necessary for the conduct and operation of
its business, and all such permits are in good standing or, where applicable, a
renewal application has been timely filed and is pending agency approval, and,
to the Company's knowledge, the Company is in compliance with all terms and
conditions of all such Environmental Permits and is not required to make any
expenditure in order to obtain or renew any Environmental Permits.
(c) ENVIRONMENTAL CLAIMS. There is no environmental
litigation, action, suit, case, proceeding pending or, to the Company's
knowledge, threatened, against the Company, or against any real or personal
property or operation that the Company owns, leases or manages.
(d) As used in this Agreement:
(i) "Environmental Laws" shall mean any and all
binding and applicable local, municipal, state, federal or
international law, statute, treaty, directive, decision,
judgment, award, regulation, decree, rule, guidance, order,
direction, consent, authorization, permit or similar
requirement, approval or standard concerning (A) occupational,
consumer and/or public health and safety, and/or (B)
environmental matters (including clean-up standards), with
respect to buildings, equipment, soil, sub-surface strata,
air, surface water, or ground water, whether set forth in
applicable law, whether to facilities such as those of the
Company Properties in the jurisdictions in which the Company
Properties are located or to facilities such as those used for
the transportation, storage or disposal of Hazardous
Substances generated by the Company or otherwise.
Page 18
(ii) "Environmental Permits" shall mean Permits
required by Environmental Laws.
(iii) "Hazardous Substances" shall mean any and all
dangerous substances, hazardous substances, toxic substances,
radioactive substances, hazardous wastes, special wastes,
controlled wastes, oils, petroleum and petroleum products,
computer component parts, hazardous chemicals and any other
materials which are regulated by the Environmental Laws or
otherwise found or determined to be potentially harmful to
human health or the environment.
(iv) "Release" shall mean any spilling, leaking,
pumping, emitting, emptying, discharging, injecting, escaping,
leaching, migrating, dumping or disposing of Hazardous
Substances (including the abandonment or discarding of
barrels, containers or other closed receptacles containing
Hazardous Substances) into the environment.
SECTION 3.13 INTELLECTUAL PROPERTY.
(a) Section 3.13(a) of the Company Disclosure Schedule sets
forth, for the Intellectual Property (as defined below) owned or purported to be
owned by the Company, a complete and accurate list of any U.S. and foreign (i)
patents and patent applications, (ii) trademarks and service marks which are
registered or the subject of an application for registration and material
unregistered trademarks or service marks , (iii) copyrights which are registered
or the subject of an application for registration, and (iv) Internet domain
names. The Company owns or has the valid right to use all patents and patent
applications, patent rights, trademarks, service marks, trademark or service
mark registrations and applications, trade names, logos, designs, Internet
domain names, slogans and general intangibles of like nature, together with all
goodwill related to the foregoing, copyrights, copyright registrations, renewals
and applications, Software (as defined below), technology, inventions,
discoveries, trade secrets and other Confidential Information, know-how,
proprietary processes, designs, processes, techniques, formulae, algorithms,
models and methodologies, licenses, and all other proprietary rights
(collectively, the "Intellectual Property") that it owns or is licensed to
Company in a manner sufficient for the conduct of the business of the Company as
it currently is conducted. "Software" means any and all (i) computer programs,
including any and all software implementations of algorithms, models and
methodologies, whether in source code or object code, (ii) databases and
compilations, including any and all data and collections of data, whether
machine readable or otherwise, (iii) descriptions, flow-charts and other work
product used to design, plan, organize and develop any of the foregoing, (iv)
the technology supporting and content contained on any owned or operated
Internet site(s), and (v) all documentation, including user manuals and training
materials, relating to any of the foregoing.
(b) All of the Intellectual Property owned or purported to be
owned by the Company is free and clear of all Liens, other than any Company
Permitted Liens.
(c) Any of the patents, patent applications, trademarks,
service marks and copyrights owned by the Company which have been issued by, or
registered or the subject of an
Page 19
application filed with, as applicable, the U.S. Patent and Trademark Office, the
U.S. Copyright Office or in any similar office or agency anywhere in the world,
including, but not limited to any items listed in Section 3.13(a) of the Company
Disclosure Schedule are subsisting, enforceable, in full force and effect, and
have not been cancelled, expired, abandoned or otherwise terminated and all
renewal fees in respect thereof have been duly paid and are currently in
compliance with all formal legal requirements (including the timely
post-registration filing of affidavits of use and incontestability and renewal
applications) and are, to the Company's knowledge, valid. There is no pending
or, to the Company's knowledge, threatened opposition, interference,
invalidation or cancellation proceeding before any court or registration
authority in any jurisdiction against any of the items listed in Section 3.13(a)
of the Company Disclosure Schedule or, to the Company's knowledge, against any
other Intellectual Property used by the Company.
(d) Subject to the disclaimer set forth in Section 3.13(f),
the conduct of the Company's business as currently conducted does not infringe
upon (either directly or indirectly such as through contributory infringement or
inducement to infringe), dilute, misappropriate or otherwise violate (i) any
Intellectual Property owned or controlled by any third party ("Third Party
Rights"), other than the rights of any third party under any patent, or (ii) to
the Company's knowledge, the rights of any third party under any patent. There
are no pending, or, to the knowledge of the Company, threatened claims against
the Company alleging that the operation of the business as currently conducted,
infringes on or conflicts with any Third Party Rights.
(e) To the Company's knowledge, no third party is
misappropriating, infringing, diluting, or violating any Intellectual Property
owned or purported to be owned by or licensed to or by the Company and no such
claims have been made against a third party by the Company.
(f) Notwithstanding anything contained herein to the contrary,
except with respect to the Great Plains Software licenses, the Company makes no
representation or warranty regarding the status of any Software licenses.
(g) Subject to the disclaimer set forth in Section 3.13(f),
the Section 3.13(g) of Company Disclosure Schedule sets forth a complete list of
all agreements under which the Company is granted rights to acquire or use the
Intellectual Property of a third party (other than shrink-wrap general purpose
software) (the "Company IP Agreements"). Except as set forth in Section 3.13(g)
of Company Disclosure Schedule, the Company is not under any obligation to pay
royalties or other payments in connection with any Company IP Agreement, nor
restricted from assigning its rights respecting Intellectual Property nor will
the Company otherwise be, as a result of the execution and delivery of this
Agreement or the performance of its obligations under this Agreement, in breach
of any Company IP Agreement. Each Company IP Agreement is in full force and
effect and has not been amended. Neither the Company nor, to the knowledge of
the Company, any other party thereto, is in default or breach under any such
Company IP Agreement. No event has occurred which, with the passage of time or
the giving of notice or both, would cause a breach of or default by the Company
under any of the Company IP Agreements and, to the knowledge of the Company,
there is no breach or anticipated breach by any other party to any Company IP
Agreement.
(h) To the Company's knowledge, the Products do not
intentionally contain any "viruses", "time-bombs", "key-locks", or any other
devices intentionally created that could
Page 20
disrupt or interfere with the operation of the Products or the integrity of the
data, information or signals they produce in a manner adverse to the Company or
any licensee or recipient.
(i) To the Company's knowledge, the Company has not embedded
any open source, copyleft or community source code in any of its Products which
are generally available or in development, including but not limited to any
libraries or code licensed under the GNU General Public License, GNU Lesser
General Public License or similar license arrangement.
SECTION 3.14 INSURANCE MATTERS. The Company has all material primary
insurance providing insurance coverage that is customary in amount and scope for
companies in the industry in which the Company operates. All such policies are
in full force and effect, all premiums due and payable thereon have been paid
and no written notice or, to the Company's knowledge, oral notice of
cancellation or termination has been received and is outstanding.
SECTION 3.15 TRANSACTIONS WITH AFFILIATES. Except as set forth on
Section 3.15 of the Company Disclosure Schedule, there are no outstanding
amounts payable to or receivable from, loans, leases or other existing
agreements between the Company on the one hand, and any member, officer,
manager, employee or affiliate of the Company or any family member or affiliate
of such member, officer, manager, employee or affiliate, on the other hand.
SECTION 3.16 VOTING REQUIREMENTS. The affirmative vote (in person or by
duly authorized and valid proxy at a Company stockholders' meeting or by written
consent) of the holders of all of the outstanding Company Common Stock in favor
of the adoption of this Agreement is the only vote of the holders of any class
or series of the Company's capital stock required by applicable law and the
Company's organizational instruments to duly effect such adoption.
SECTION 3.17 BROKERS. No broker, investment banker, financial advisor,
finder, consultant or other person is entitled to any broker's, finder's,
financial advisor's or other similar fee, compensation or commission, however
and whenever payable, in connection with the Merger and the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
SECTION 3.18 REAL PROPERTY.
(a) The Company does not own any real property. The Company
has valid leaseholds in all real estate leased by it, other than Company
Permitted Liens. Section 3.18(a) of the Company Disclosure Schedule sets forth a
complete list of all real property leased, subleased, or otherwise occupied or
used by the Company as lessee. With respect to each parcel of real property
leased, subleased, or otherwise occupied or used by the Company as lessee: (i)
the Company has a valid leasehold interest or other right of use and occupancy,
free and clear (other than Company Permitted Liens) of any Liens on such
leasehold interest or other rights of use and occupancy, except as do not
materially affect the occupancy or uses of such property. Each of the Company's
agreements with respect to real property leased, subleased, or otherwise
occupied or used by the Company as lessee is in full force and effect and has
not been amended. The Company is not, and to the knowledge of the Company, no
other party thereto, is in material default or material breach under any such
agreement. No event has occurred which, with the
Page 21
passage of time or the giving of notice or both, would cause a material breach
of or default by the Company under any of such agreement and, to the knowledge
of the , there is no breach by any other party to such agreements.
(b) As used in this Agreement, Company Permitted Liens shall
mean: (i) any Lien reflected in Section 3.18(b)(i) of the Company Disclosure
Schedule, (ii) Liens for Taxes not yet due or delinquent or as to which there is
a good faith dispute and for which there are adequate provisions on the books
and records of the Company for the year ended December 31, 2004 in accordance
with GAAP, (iii) with respect to real property, any Lien, encumbrance or other
title defect (x) which is not in a liquidated amount (whether material or
immaterial) and which does not, individually or in the aggregate, interfere
materially with the current use or materially detract from the value or
marketability of such property (assuming its continued use in the manner in
which it is currently used); or (y) which is on any real property leased by the
Company, as lessee, but which was not created by the Company, (iv) the rights of
parties to and/or any beneficiaries under any contract, license agreement,
commitment, lease or Permit, (v) deposits to secure the performance of bids,
trade contracts, leases, statutory obligations, bonds and other obligations of a
like nature and (vi) inchoate materialmen's, mechanics', carriers', workmen's,
repairmen's, landlord's and statutory liens arising in the ordinary course and
not past due and payable or the payment of which is being contested in good
faith by appropriate proceedings.
SECTION 3.19 TANGIBLE PERSONAL PROPERTY. Except as would not materially
impair the Company and its operations, the machinery, equipment, furniture,
fixtures and other tangible personal property (the "Tangible Personal Property")
owned, leased or used by the Company is in the aggregate sufficient and adequate
to carry on business in all material respects as presently conducted and is, in
the aggregate and in all material respects, in reasonably good operating
condition and repair, normal wear and tear excepted. The Company is in
possession of and has good title to, or valid leasehold interests in or valid
rights under contract to use, the Tangible Personal Property material to the
Company, taken as a whole, free and clear of all Liens, other than the Company
Permitted Liens.
SECTION 3.20 INVESTMENT COMPANY. The Company is not an investment
company required to be registered as an investment company pursuant to the
Investment Company Act of 1940.
SECTION 3.21 BOARD APPROVAL. Pursuant to meetings duly noticed and
convened in accordance with all applicable laws and at each of which a quorum
was present, the Board of Directors of the Company, after full and deliberate
consideration, unanimously (other than for directors who abstain) has (i) duly
approved this Agreement and resolved that the Merger and the transactions
contemplated hereby are fair to, advisable and in the best interests of the
Company's shareholders, (ii) resolved to unanimously recommend that the
Company's shareholders approve the Merger and the transactions contemplated
hereby and (iii) directed that the Merger be submitted for consideration by the
holders of Company Common Stock .
SECTION 3.22 BOOKS AND RECORDS. Except as set forth in Section 3.22 of
the Company Disclosure Schedule, the Company maintains and has maintained in all
material respects accurate books and records reflecting its assets and
liabilities and accounts, notes and
Page 22
other receivables and inventory are recorded accurately in all material
respects, and reasonably adequate procedures are implemented to effect the
collection thereof on a current and timely basis.
SECTION 3.23 STATUS OF COMPANY CAPITAL STOCK BEING TRANSFERRED. Curmi
and Kathryn Frank own all of the issued and outstanding capital stock of the
Company, and have full power to convey good and marketable title to their
capital stock, free of any liens, charges, or encumbrances of any nature.
SECTION 3.24 INVESTMENT IN PARENT COMMON STOCK.
(a) Curmi, the only Stockholder receiving Parent Common Stock
hereunder, is an "accredited investor" as defined in Rule 501(a)(3) under the
Securities Act of 1933, as amended (the "Securities Act").
(b) Curmi is acquiring the shares of Parent Common Stock to be
issued hereunder for investment for his own account, and not for the account of
another person, and not with a view to, or for sale in connection with, any
distribution, assignment, or resale of any part thereof in violation of the
Securities Act, nor with any present intention of any such distribution,
assignment, or resale. Alfred Curmi understands that the shares of Parent Common
Stock to be issued to him hereunder have not been registered in the United
States under the Securities Act or applicable state securities laws and may not
be sold, hypothecated or otherwise disposed of unless subsequently registered
under the Securities Act and applicable state securities laws or pursuant to any
exemption from such registration requirements, and that certificates
representing the shares of Parent Common Stock shall bear legends to this
effect. Alfred Curmi understands that Parent's issuance of the shares of Parent
Common Stock contemplated by this Agreement is intended to be exempt from the
registration provisions of the Securities Act, the availability of which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of Curmi's representations as expressed herein. Curmi is neither a
party to nor bound by any agreement regarding the ownership or disposition of
the shares of Parent Common Stock other than this Agreement and the Registration
Rights Agreement.
(c) Curmi has made independent investigation of Parent and
related matters as (i) he deems to be necessary or advisable in connection with
his investment in and acceptance of the shares of Parent Common Stock to be
issued to him hereunder and (ii) he believes to be necessary in order to reach
an informed decision as to the advisability of making an investment in and
accepting the shares of Parent Common Stock to be issued to him hereunder.
Without limiting the foregoing, Curmi has reviewed the Parent SEC Documents (as
hereinafter defined) and the Parent's other publicly-available SEC filings that
are available on EDGAR or that have been delivered by Parent to Alfred Curmi. In
evaluating his investment in and acceptance of the shares of Parent Common Stock
to be issued to him hereunder, Curmi has not relied upon any representation or
other information (oral or written) of Parent other than as set forth in such
Parent SEC Documents, such other SEC filings or this Agreement or the other
Transaction Documents.
(d) Curmi has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and risks of his
investment in the Parent Common
Page 23
Stock as contemplated by this Agreement, and is able to bear the economic risk
of such investment for an indefinite period of time. Curmi is not relying on
Parent for advice with respect to economic considerations involved in its
acquisition and acceptance of the shares of Parent Common Stock. However, Curmi
is relying on representations, statements and other information set forth in the
Parent SEC Documents, Parent's other publicly-available SEC filings, this
Agreement and the other Transaction Documents.
SECTION 3.25 DISCLOSURE. None of the representations and warranties
made by the Company and/or the Stockholder in this Agreement and contained in
any certificate or other instrument furnished or to be furnished to Parent
pursuant to this Agreement contains or will contain any untrue statement of a
material fact, or omits or will omit to state a material fact necessary in order
to make the statements contained in this Agreement not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth on the Disclosure Schedule delivered by Parent to
the Company and the Stockholder prior to the execution of this Agreement which
is hereby incorporated by reference in and constitutes an integral part of this
Agreement (the "PARENT DISCLOSURE SCHEDULE"), Parent and the Merger Sub hereby
represent and warrant to the Company and the Stockholder as follows:
SECTION 4.1 ORGANIZATION, STANDING AND CORPORATE POWER.
(a) Each of Parent and its subsidiaries (including the Merger
Sub) is a corporation or other legal entity duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is organized and
has the requisite corporate power and requisite authority to carry on its
business as presently being conducted. Each of Parent and its subsidiaries is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership, leasing or
operation of its properties makes such qualification or licensing necessary,
except for those jurisdictions where the failure to be so qualified or licensed
or to be in good standing individually or in the aggregate would not reasonably
be expected to have a material adverse effect on Parent.
(b) Parent has delivered or made available to the Company and
the Stockholder prior to the execution of this Agreement complete and correct
copies of the certificate of incorporation and by-laws or other organizational
documents of Parent and its subsidiaries and any and all other agreements,
documents and instruments setting forth or affecting the powers, designations,
preferences and relative participating, optional, and other special rights of
each class or and series of the shares of capital stock of Parent and the
qualifications, limitations or restrictions of such shares, each as in effect at
the date of this Agreement (the "Parent Organizational Documents").
SECTION 4.2 CAPITAL STRUCTURE.
(a) The authorized capital stock of Parent consists of
200,000,000 shares of Parent Common Stock, and 5,000,000 shares of Series A
Preferred Stock, par value $.001 per
Page 24
share, of Parent ("PARENT PREFERRED STOCK"). As of the date hereof: (i)
103,919,642 shares of Parent Common Stock were issued and outstanding; (ii)
1,433,639 shares of Parent Common Stock were held by Parent in its treasury;
(iii) no shares of Parent Common Stock were held by subsidiaries of Parent; (iv)
approximately 21,563,337 shares of Parent Common Stock were reserved for
issuance pursuant to stock-based plans (such plans, collectively, the "PARENT
STOCK PLANS"), all of which are subject to outstanding employee stock options or
other rights to purchase or receive Parent Common Stock granted under the Parent
Stock Plans (collectively, "PARENT EMPLOYEE STOCK OPTIONS"); (v) 14,893,333
shares of Parent Common Stock are reserved for issuance pursuant to convertible
notes, (vi) 15,101,026 shares of Parent Common Stock were reserved for issuance
pursuant to outstanding warrants. As of the date hereof, (w) 2,466,971 shares of
Parent Preferred Stock were issued and outstanding; (x) no shares of Parent
Preferred Stock were held by Parent in its treasury; (y) no shares of Parent
Preferred Stock were held by subsidiaries of Parent; and (z) 33,029 shares of
Parent Preferred Stock were reserved for issuance pursuant to outstanding
warrants.
(b) All outstanding shares of capital stock of Parent have
been, and all shares thereof which may be issued pursuant to this Agreement or
otherwise (including upon exercise of Parent Stock Options and outstanding
warrants, the conversion of outstanding convertible notes, the conversion of the
Parent Series A Preferred Stock) will be, when issued, duly authorized and
validly issued and are fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Parent's articles of incorporation or
any agreement to which Parent is a party or by which Parent may be bound. Except
as set forth in this Section and except for changes since the date of this
Agreement resulting from the exercise of any Parent Employee Stock Options
outstanding on such date, there are outstanding (i) no shares of capital stock
or other voting securities of Parent, (ii) no securities of Parent convertible
into or exchangeable for shares of capital stock or voting securities of Parent,
and (iii) no options or other rights to acquire from Parent, other than Employee
Stock Options, and no obligation of Parent to issue, any capital stock, voting
securities or securities convertible into or exchangeable for capital stock of
Parent.
(c) Parent has a sufficient number of duly authorized but
unissued shares of Parent Common Stock to issue the maximum number of such
Parent Shares contemplated by Article II of this Agreement as part of the Merger
Consideration. As soon as practicable after the Closing, Parent shall take all
necessary actions, including but not limited to, amending Parent's articles of
incorporation, to ensure that Parent will have sufficient shares of duly
authorized but unissued Parent Common Stock reserved to issue upon conversion of
the Promissory Note or any part thereof. The shares of Parent Common Stock to be
issued and delivered hereunder and upon any conversion of the Promissory Note
will be duly authorized, duly and validly issued, fully paid and non-assessable,
free and clear of any and all preemptive rights, rights of first refusal or
other encumbrances of any nature.
(d) The authorized capital stock of the Merger Sub consists of
200 shares of Common Stock, $.001 par value ("Merger Sub Common Stock"), of
which 200 shares of Merger Sub Common Stock are issued and outstanding and held
(and as of the Closing will continue to be held) by Parent of record and
beneficially. The Merger Sub is a newly formed subsidiary of Parent with no
obligations except as contemplated by this Agreement.
Page 25
(e) The Board of Directors of Parent has approved this
Agreement, the other Transaction Documents and the transactions contemplated
hereby and thereby, and the provisions of any "control share acquisition,"
"interested shareholders," "fair price," "affiliated transaction" or other
anti-takeover statute or regulation and any anti-takeover or other restrictive
provisions of Parent's articles of incorporation (i) are not applicable to the
Merger, the issuance of the Parent Shares, the issuance of the Promissory Note
and the other transactions contemplated by this Agreement or other Transaction
Documents, and (ii) will not limit the Stockholder's rights to purchase
additional shares of Parent Common Stock granted to the Stockholder under the
Transaction Documents or to exercise any rights (including voting rights) with
respect to any shares of Parent Company Stock acquired hereunder or thereunder.
SECTION 4.3 AUTHORITY; NONCONTRAVENTION.
(a) Each of Parent and the Merger Sub has the corporate power
and authority to execute, deliver and perform this Agreement, the Promissory
Note, and the other agreements to be executed and delivered by them in
connection herewith, to consummate the transactions contemplated hereby and
thereby, and to convey good and marketable title to the shares of Parent Common
Stock to be issued and delivered hereunder and upon any conversion of the
Promissory Note, free of any and all preemptive rights, rights of first refusal
or other encumbrances of any nature. All corporate acts and proceedings required
to be taken by or on the part of each of Parent and the Merger Sub to authorize
Parent and Merger Sub to execute, deliver and perform this Agreement, the
Promissory Note and the other agreements to be executed and delivered by Parent
and/or Merger Sub in connection herewith, to issue and deliver to the Company
Stockholders the shares of Parent Common Stock to be issued under this Agreement
and under the Promissory Note and to consummate the transactions contemplated
hereby and thereby have been duly and validly taken. This Agreement constitutes
a valid and binding agreement, and the Promissory Note and the other agreements
to be executed and delivered by Parent in connection herewith when so executed
and delivered will constitute valid and binding agreements, of each of Parent
and the Merger Sub, enforceable in accordance with their respective terms.
(b) The execution and delivery of this Agreement, the
Promissory Note and the other agreements to be executed and delivered by Parent
and/or the Merger Sub, as applicable, in connection herewith does not, and the
issuance and delivery to the Company Stockholders of the shares of Parent Common
Stock to be issued under this Agreement and the Promissory Note and the
consummation of the transactions contemplated hereby and thereby will not,
conflict with or result in a violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any material obligation under (i) any provision
of any Parent Organizational Documents or the organization documents of the
Merger Sub, (ii) any material loan or credit agreement, note, mortgage,
indenture, lease or other material agreement to which Parent or Merger Sub is a
party or (iii) any material instrument, permit, license, judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to Parent or
Merger Sub or their respective properties or assets.
(c) Except for the filing by Purchase of a Notice of Sale of
Securities on Form D and other notices or filings by Parent which may be
required under state securities laws, the execution, delivery and performance by
Parent and Merger Sub, as applicable, of this Agreement, the Promissory Note and
the other agreements to be executed and delivered by
Page 26
Parent and/or Merger Sub in connection herewith does not, and the issuance and
delivery to the Stockholder of the shares of Parent Common Stock to be issued
under this Agreement and the Promissory Note and the consummation of the
transactions contemplated hereby and thereby will not, require any consent,
approval, order or authorization of, action by or in respect of, or registration
or filing with, any Governmental Entity.
(d) The execution, delivery and performance by Parent and
Merger Sub, as applicable, of this Agreement, the Promissory Note and the other
agreements to be executed and delivered by Parent and/or Merger Sub, as
applicable, in connection herewith does not, and the issuance and delivery to
the Stockholder of the shares of Parent Common Stock to be issued under this
Agreement and the Promissory Note and the consummation of the transactions
contemplated hereby and thereby will not, result in the creation of any Liens
upon any asset of Parent or Merger Sub.
(e) Except as set forth in Section 4.3(e) of the Company
Disclosure Schedule, no consent, approval, waiver or other action by any person
(other than the Governmental Entities referred to in (c) above) under any Parent
Material Contract is required or necessary for, or made necessary by reason of,
the execution, delivery and performance by Parent of this Agreement the
Promissory Note and the other agreements to be executed and delivered by Parent
in connection herewith, nor the issuance and delivery to the Stockholder of the
shares of Parent Common Stock to be issued under this Agreement and the
Promissory Note, nor the consummation of the transactions contemplated hereby
and thereby.
SECTION 4.4 PARENT DOCUMENTS.
(a) As of their respective filing dates, (i) all reports filed
by Parent with the Securities and Exchange Commission (the "SEC") pursuant to
the Exchange Act (the "PARENT SEC DOCUMENTS") complied in all material respects
with the requirements of the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such Parent SEC Documents, and
(ii) no Parent SEC Documents, as of their respective dates contained any untrue
statement of a material fact or omitted, and no Parent SEC Document filed
subsequent to the date hereof will omit as of their respective dates, to state a
material fact required to be stated therein or necessary to make the statements
therein (in the case of registration statements of the Parent under the
Securities Act, in light of the circumstances under which they were made) not
misleading. Parent has made available to the Company and the Stockholder true
and correct copies of its Quarterly Reports on Form 10-Q for the fiscal quarters
ended March 31, 2004, June 30, 2004, and September 30, 2004, and a true and
correct copy of its proxy statement relating to its 2004 annual meeting of
stockholders held on November 17, 2004.
(b) The financial statements of Parent included in the Parent
SEC Documents (including the related notes) complied as to form, as of their
respective dates of filing with the SEC, in all material respects with
applicable accounting requirements and the published rules and regulations of
the SEC with respect thereto, have been prepared in accordance with GAAP
(except, in the case of unaudited statements, as permitted by Quarterly Report
Form 10-Q of the SEC) applied on a consistent basis during the periods and at
the dates involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial condition of Parent and its subsidiaries at
the dates thereof and the consolidated results of operations and cash flows
Page 27
of Parent and its subsidiaries for the periods then ended (subject, in the case
of unaudited statements, to notes and normal year-end audit adjustments that
were not material in amount or effect). Except for liabilities (i) reflected in
Parent's unaudited balance sheet as of December 31, 2004 or described in any
notes thereto (or for which neither accrual nor footnote disclosure is required
pursuant to GAAP), (ii) incurred in the ordinary course of business since
December 31, 2004 consistent with past practice or in connection with this
Agreement or the transactions contemplated hereby, or (iii) set forth on
Schedule 4.4(b) of the Parent Disclosure Schedule, neither Parent nor any of its
subsidiaries has any material liabilities or obligations of any nature. Parent
is not in material default in respect of any terms or conditions of any
indebtedness, nor does any default exist which could have a material adverse
effect on the business, assets, liabilities, condition (financial or otherwise),
cash flows or results of operations of Parent or its subsidiaries, or on the
ability of the Parent to perform its obligations under this Agreement or the
Transaction Documents.
SECTION 4.5 PERMITS; COMPLIANCE WITH APPLICABLE LAWS.
(a) To Parent's knowledge, Parent and its subsidiaries own
and/or possess all material Permits which are required for the operation of the
business of Parent and its subsidiaries as presently conducted. To the Parent's
knowledge, Parent and its subsidiaries are in compliance in all material
respects with the terms of their Permits. All of its Permits are in full force
and effect and no suspension, modification or revocation of any of them is
pending or, to the Parent's knowledge, threatened nor, to the Parent's
knowledge, do grounds exist for any such action.
(b) To the Parent's knowledge, each of Parent and its
subsidiaries is in compliance in all material respects with all applicable
statutes and laws applicable to Parent or any of its subsidiaries, and with all
regulations, ordinances, rules, writs, judgments, orders, decrees and
arbitration awards of each Governmental Entity applicable to Parent or any of
its subsidiaries.
(c) To Parent's knowledge, Parent and each of its subsidiaries
has timely filed all regulatory reports, schedules, forms, registrations and
other documents, together with any amendments required to be made with respect
thereto, that they were required to file with each Governmental Entity, and have
timely paid all fees and assessments, if any, due and payable in connection
therewith, except where the failure to make such payments and filings
individually or in the aggregate would not have a material adverse effect on
Parent.
SECTION 4.6 ABSENCE OF LITIGATION. Section 4.6 of the Parent Disclosure
Schedule contains a true and current summary description of each pending and, to
the Parent's knowledge, threatened litigation, action, suit, case, proceeding,
investigation or arbitration. Except as set forth in Section 4.6 of the Parent
Disclosure Schedule, no action, inquiry, demand, charge or investigation by any
Governmental Entity and no litigation, action, suit, case, proceeding,
investigation or arbitration by any person or Governmental Entity, in each case
with respect to Parent, or its subsidiaries or any of their respective
properties or Permits, is pending or, to the knowledge of Parent, threatened.
Except as set forth on Section 4.6 of the Parent Disclosure Schedule ,as of the
date hereof, (i) neither Parent nor any of its subsidiaries is subject to any
material order, consent decree, settlement or similar agreement with any
Governmental Entity,
Page 28
and (ii) since the date of the last Parent SEC Document, there has been no
judgment, injunction, decree, order or other determination of an arbitrator or
Governmental Entity applicable to Parent or any of its subsidiaries.
SECTION 4.7 VOTING REQUIREMENTS. No consent or approval of the holders
of the outstanding shares of Parent Common Stock or any other class of Parent
capital stock is required to approve the Merger and the transactions
contemplated by this Agreement under applicable law or the Parent's
organizational instruments.
SECTION 4.8 BROKERS. Except for Inveraray Partners, LLC, the fees and
expenses of which will be paid by Parent, no broker, investment banker,
financial advisor, finder, consultant or other person is entitled to any
broker's, finder's, financial advisor's or other similar fee, compensation or
commission, however and whenever payable, in connection with the Merger and the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent and/or Merger Sub. Parent hereby agrees to indemnify, hold
harmless and defend the Company from and against any and all claims, losses,
liability, costs and expenses (including reasonable attorneys' fees and expenses
at or before the trial level and any appellate proceedings) arising out of any
claim made by Inveraray Partners, LLC for fees, compensation, commissions and
expenses in connection with the transactions contemplated by this Agreement.
SECTION 4.9 BOARD APPROVAL. Pursuant to meetings duly noticed and
convened in accordance with all applicable laws and at each of which a quorum
was present, the Board of Directors of Parent, after full and deliberate
consideration, unanimously (other than for directors who abstain) has duly
adopted this Agreement and the other Transaction Documents and resolved that the
Merger and the transactions contemplated hereby and thereby are fair to,
advisable and in the best interests of Parent's shareholders. The Boards of
Directors of Parent and Merger Sub have duly approved this Agreement and the
other Transaction Documents and have determined that the Merger is advisable.
SECTION 4.10 BOOKS AND RECORDS. Each of Parent and its subsidiaries
maintains and has maintained accurate books and records reflecting its assets
and liabilities and accounts, notes and other receivables and inventory are
recorded accurately, and proper and adequate procedures are implemented to
effect the collection thereof on a current and timely basis.
SECTION 4.11 SARBANES OXLEY ACT COMPLIANCE. Parent is in material
compliance with all presently effective and applicable provisions of the
Sarbanes Oxley Act of 2002 (the "SARBANES OXLEY ACT") and is actively taking
steps to ensure that it will be in compliance with other provisions of the
Sarbanes Oxley Act upon the effectiveness or applicability to Parent of such
provisions.
SECTION 4.12 FINANCIAL PROJECTIONS. Any financial projections, sales
forecasts or forward-looking statements (collectively, the "PROJECTIONS")
regarding the Company that have been or may be provided to Purchaser or any of
its representatives by the Company or the Stockholder have been or will be
provided without any representation or warranty as to their accuracy. Neither
Parent nor any of its subsidiaries has relied on any Projections in making their
determination to enter into this Agreement or to consummate the Parent of any
other transaction contemplated hereby.
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SECTION 4.13 DISCLOSURE. None of the representations and warranties
made by Parent and/or Merger Sub in this Agreement or contained in any other
Transaction Document furnished or to be furnished to the Company or the
Stockholder pursuant to this Agreement contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material fact
necessary in order to make the statements contained in this Agreement or such
other Transaction Documents, not misleading.
SECTION 4.14 CONTINUITY OF BUSINESS. Neither Parent nor the Merger Sub
has taken any action that would create a material risk that the Merger would not
qualify as a reorganization within the meaning of section 368(a)(2)(D) of the
Code. Neither Parent nor the Merger Sub, as applicable, will make an election
under Section 338 of the Code. Immediately after the Closing, the Surviving
Corporation or a member of a "qualified group" (as defined in Treasury
Regulations Section 1.368-1(d)(4)) determined with respect to the Surviving
Corporation will hold all or substantially all of the assets of the Company.
Prior to and as of the Closing it is the plan and intention of Parent to
continue the historic business of the Company or to use a significant portion of
the Company's historic business assets in a business within the meaning of the
"continuity of business enterprise" regulations issued under Treasury
Regulations Section 1.368-1(d).
SECTION 4.15 FUNDS AVAILABLE. Parent has and will have at the Closing
adequate resources available to pay and deliver the Cash Consideration and the
other Merger Consideration.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS BY THE COMPANY. Except as required by
applicable law or regulation and except as otherwise contemplated by this
Agreement, until the earlier of the termination of this Agreement or the Closing
Date, the Company shall conduct its business in the ordinary course and
consistent with past practices. Accordingly, except as set forth in Section 5.1
of the Company Disclosure Schedule, except as required by applicable law or
regulation, except as otherwise contemplated by this Agreement or except as
consented to in advance by Parent, in writing (which consent shall not be
unreasonably withheld or delayed), after the date hereof and until the earlier
of the termination of this Agreement or the Closing Date, the Company shall not:
(a) amend or otherwise change its certificate of incorporation
or bylaws;
(b) issue, sell, pledge, dispose of, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any capital
stock of any class, or options, warrants, convertible securities or other rights
of any kind to acquire capital stock, or any other ownership interest, thereof,
or (ii) any of its assets, tangible or intangible, except in the ordinary course
of business, consistent with past practice;
(c) except in the ordinary course of business, consistent with
past practices, declare, set aside, make or pay any dividend or other
distribution, payable in cash, property or
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otherwise, with respect to its capital stock; notwithstanding anything contained
in this Agreement or any Transaction Document to the contrary, the Company may
pay any and all dividends or other distribution to the Stockholder and the other
Company Stockholders any amounts necessary to pay any Taxes for the fiscal year
ended December 31, 2004 and any tax year deemed ended as of the Closing Date.
(d) reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or
capital stock, by purchase, consolidation, or acquisition of stock or assets)
any interest in any corporation, partnership or other business organization or
division thereof, or make any investment either by purchase of stock or
securities, contributions of capital or property transfer, or, except in the
ordinary course of business, consistent with past practice, purchase any
property or assets of any other person, (ii) except in the ordinary course of
business, consistent with past practice, incur any indebtedness for borrowed
money or issue any debt securities or assume, guarantee or endorse or otherwise
as an accommodation become responsible for, the obligations of any person, or
make any loans or advances, or (iii) except in the ordinary course of business,
consistent with past practice, enter into any Company Material Contract;
(f) make any capital expenditure in excess of $25,000
individually or enter into any contract or commitment therefore, except in the
ordinary course of business, consistent with past practice;
(g) amend, terminate or extend any Company Material Contract,
except in the ordinary course of business, consistent with past practice and
except for any such termination as a result of a breach or default (or
anticipatory breach or default) by the other party to any such Company Material
Contract;
(h) delay or accelerate payment of any account payable or
other liability of the Company beyond or in advance of its due date or the date
when such liability would have been paid in the ordinary course of business
consistent with past practice; or
(i) agree, in writing or otherwise, to take or authorize any
of the foregoing actions or any action which would make any representation or
warranty contained in Article III untrue or incorrect in any material respect.
SECTION 5.2 ADVICE OF CHANGES. Each of the Stockholder, the Company,
Parent and the Merger Sub, shall promptly advise the other party orally and in
writing to the extent it has knowledge of (i) any representation or warranty
made by them contained in this Agreement that is qualified as to materiality
becoming untrue or inaccurate in any respect or any such representation or
warranty that is not so qualified becoming untrue or inaccurate in any material
respect, (ii) the failure by any of them to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by them under this
Agreement; (iii) any suspension or termination, or any material modification,
change or other alteration of any agreement, arrangement, business or other
relationship with any of the Company's or Parent's material customers or
suppliers, as applicable; or (iv) any change or event having, or which, insofar
as
Page 31
reasonably can be foreseen, could have a material adverse effect on the Company
or Parent, as applicable, or on the accuracy and completeness of its
representations and warranties or the ability of the Stockholder or the Company,
or Parent or the Merger Sub, as applicable, to satisfy the conditions set forth
in Article VII; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties (or remedies
with respect thereto) or the conditions to the obligations of the parties under
this Agreement; and provided further that a failure to comply with this Section
5.2 shall not constitute a failure to be satisfied of any condition set forth in
Article VII unless the underlying untruth, inaccuracy, failure to comply or
satisfy, or change or event would independently result in a failure of a
condition set forth in Article VII to be satisfied.
SECTION 5.3 NO SOLICITATION BY THE COMPANY.
(a) The Company will promptly notify Parent after receipt of
any written offer or indication that any person is considering making an offer
with respect to a Company Acquisition Proposal or any written request for
nonpublic information relating to the Company or for access to the properties,
books or records of the Company by any person who has indicated that such person
is interested in making, or who has made, an offer with respect to a Company
Acquisition Proposal, and will keep Parent fully informed of the status and
details of any such offer, indication or request. "Company Acquisition Proposal"
means any proposal for a Merger or other business combination involving the
Company or the acquisition of any equity interest in, or a substantial portion
of the assets of, the Company, other than the transactions contemplated by this
Agreement.
(b) From the date hereof until the termination hereof pursuant
to Section 9.1, the Company and the officers of the Company will not and the
Company will use commercially reasonable efforts to cause its directors,
employees and agents not to, directly or indirectly, (i) take any action to
solicit, initiate or encourage any offer or indication of interest from any
person or entity with respect to any Company Acquisition Proposal, (ii) engage
in negotiations with, or disclose any nonpublic information relating to the
Company to, any person or entity who has indicated that it is interested in
making, or who that has made, an offer with respect to a Company Acquisition
Proposal, or (iii) afford access to the properties, books or records of the
Company to, any person or entity who has indicated that it is interested in
making, or who that has made, an offer with respect to a Company Acquisition
Proposal.
SECTION 5.4 CONDUCT OF BUSINESS BY PARENT. Each of Parent and the
Merger Sub will conduct its business in substantially the same manner as before.
SECTION 5.5 TRANSITION. To the extent permitted by applicable law,
Parent and the Company shall, and shall cause their respective subsidiaries,
affiliates, officers and employees to, use their commercially reasonable efforts
to facilitate the integration of the Company with the businesses of Parent and
its subsidiaries to be effective as of the Closing Date.
ARTICLE VI
ADDITIONAL AGREEMENTS
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SECTION 6.1 ACCESS TO INFORMATION; CONFIDENTIALITY.
(a) The Company and the Stockholder shall afford to Parent and
to the officers, directors, current employees, accountants, counsel, financial
advisors, agents, lenders and other representatives of Parent (collectively,
"Parent Representatives"), reasonable access, upon reasonable prior notice,
during normal business hours during the period prior to the Closing Date, to all
the Company's properties, books, contracts, commitments, personnel and records
for purposes of allowing Parent to complete its due diligence of the Company to
effect the transactions contemplated hereunder, and, during such period, shall
furnish promptly to Parent (i) a copy of each material report, schedule and
other document filed by it with any Governmental Entity, and (ii) all other
information concerning its business, properties and personnel as Parent may
reasonably request; provided that, any such access and investigation shall be
conducted in such a manner as not to interfere unreasonably with the operation
of the business of the Company.
(b) The parties will hold, and will cause their respective
officers, directors, employees, consultants, advisors, counsel, lenders, agents
and representatives to hold, in confidence (subject to the provisions of this
paragraph, unless compelled to disclose by judicial or administrative process or
by other requirements of law), and to not use, directly or indirectly, except in
connection with their respective due diligence reviews of each other to effect
the transactions contemplated hereunder, any and all documents and information
concerning the other party and its subsidiaries furnished to it in connection
with the transactions contemplated hereby (collectively, "Confidential
Information"), except to the extent that such information can be shown to have
been (i) previously known on a nonconfidential basis by the receiving party ,
(ii) in the public domain through no fault of the receiving party, or (iii)
later lawfully acquired by the receiving party from other sources if the
receiving party has no reason to believe such source is bound by or is subject
to a confidentiality agreement with or obligation to the disclosing party, or
that such source is prohibited from transmitting such information by virtue of a
contractual, legal or fiduciary obligation to the disclosing party; provided
that the receiving party may disclose such information to its officers,
directors, employees, consultants, advisors and agents in connection with the
Merger so long as such persons are informed of the confidential nature of such
information and are directed to and agree in writing to treat such information
confidentially. If either party, or any of its officers, directors, employees,
consultants, advisors or agents becomes compelled by judicial or administrative
process or by other requirements of law to disclose any of the Confidential
Information, such party will provide the disclosing party with prompt notice of
such requirement prior to disclosing the Confidential Information so that the
disclosing party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this Agreement under the specific
circumstance. In the event that such protective order or other remedy is not
obtained, or the disclosing party waives compliance with the provisions of this
paragraph, the receiving party will furnish only that portion of the
Confidential Information that it is advised by its legal counsel is required by
applicable law or regulation. Each party's obligation to hold such information
in confidence shall be satisfied if it exercises the same care with respect to
such information as it would exercise to preserve the confidentiality of its own
similar information, which in any event, shall not be less than reasonable care.
Notwithstanding any other provision of this Agreement, if this Agreement is
terminated, such confidence and restriction on use shall continue to be
maintained, and upon request by the disclosing party, the receiving party shall
promptly return to the disclosing party,
Page 33
and cause all of the receiving party's officers, directors, employees,
consultants, advisors, counsel, lenders, agents to promptly return to the
disclosing party, all of the Confidential Information, and no copies,
reproductions or records of the Confidential Information (whether in written or
other tangible form or in any other recorded, electronic or magnetic storage
form), in whole or in part, shall be retained by the receiving party or its
officers, directors, employees, consultants, advisors or agents.
(c) The parties acknowledge that a disclosing party will be
irreparably harmed if any of the agreements or covenants in this Section 6.1 are
not performed in accordance with their terms, and that the disclosing party
would not have an adequate remedy at law for money damages if such agreements or
covenants were not performed in accordance with their terms. A disclosing party
shall be entitled to specific performance of such covenants and agreements, in
addition to, and without waiving, any other remedy to which they may be entitled
at law or in equity. In the event of any litigation, suit, action, arbitration
or other proceeding relating to this Agreement, if a court of competent
jurisdiction or arbitrator(s) determines that any provision of this Section 6.1
has been breached by a receiving party or by any of a receiving party's
officers, directors, employees, consultants, advisors, counsel, lenders, agents,
then the receiving party will reimburse the disclosing party for its costs,
disbursements and expenses (including, without limitation, legal fees and
expenses) incurred in connection with all such litigation, suits, actions,
arbitration or other proceedings, including fees, costs, disbursements and
expenses in regulatory and appellate proceedings. A party breaching this Section
6.1 shall reimburse and hold harmless the non-breaching party from any damage,
loss or expense (including reasonable attorney's fees) incurred as a result of
the use of the Confidential Information by the breaching party contrary to the
terms of this Agreement.
(d) The parties' obligations under this Section 6.1 shall
survive any termination of this Agreement and shall not expire.
SECTION 6.2 COMMERCIALLY REASONABLE EFFORTS. Except where otherwise
provided in this Agreement, each party will use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate the Merger as soon as practicable after the
satisfaction of the conditions set forth in Article VII hereof, PROVIDED that
the foregoing shall not require the Stockholder, the Company, Merger Sub or
Parent to take any action or agree to any condition that might, in the
reasonable judgment of the Stockholder, the Company, Merger Sub or Parent, as
the case may be, have a material adverse effect on the Stockholder, the Company,
Merger Sub or Parent, respectively.
SECTION 6.3 FEES AND EXPENSES. All costs, fees and expenses incurred in
connection with the Merger, this Agreement (including all instruments and
agreements prepared and delivered in connection herewith), and the transactions
contemplated by this Agreement shall be paid by the party incurring such fees or
expenses unless otherwise provided herein or therein; provided, however,
notwithstanding anything herein to the contrary, Parent shall bear the expense
of the audit of the Company's financial statements for the year ended December
31, 2004.
Page 34
SECTION 6.4 PUBLIC ANNOUNCEMENTS. Parent, Merger Sub, Stockholder and
the Company shall consult with each other before issuing, and shall provide each
other the opportunity to review, comment upon and concur with, and shall use
reasonable efforts to agree on, any press release or other public statements or
announcements (including pursuant to Rule 165 under the Securities Act and Rule
14a-12 under the Exchange Act) and any broadly distributed internal
communications with respect to the Merger, this Agreement and the transactions
contemplated by this Agreement, and shall not issue any such press release or
make any such public statement or announcement prior to such consultation,
except as either party may determine is required by applicable law or court
process (provided prior notice is given to the other party with a copy of any
such disclosure). Except as required by applicable law or court process, Parent
and Merger Sub shall not disclose, publish or file a copy of this Agreement, the
Transaction Documents or the Company Disclosure Schedules with any Governmental
Entity or other person without the Stockholder's prior written consent. If
Parent is required by applicable law or court process to file a copy of the
Company Disclosure Schedule with any Governmental Entity, Parent shall give the
Stockholder reasonable advance notice of such obligation so as to provide
Stockholder the opportunity to seek confidential treatment with respect to the
Merger Consideration and other terms and statements that are set forth in the
Company Disclosure Schedules. The parties agree that the initial press releases
(or joint press release if the parties so determine) to be issued with respect
to the Merger, this Agreement and the transactions contemplated by this
Agreement shall be in the form heretofore agreed to by the parties.
SECTION 6.5 REGULATION D. Parent shall use all reasonable efforts to
cause the shares of Parent Common Stock to be issued hereunder in connection
with the Merger and the shares of Parent Common Stock to be issued upon any
conversion of the Promissory Note to be issued in accordance with Regulation D
promulgated under the Securities Act. Each party hereto shall cooperate with the
other parties hereto with respect to all filings required pursuant to Regulation
D promulgated under the Securities Act and shall not knowingly take any action
or fail to act to the extent such action or failure to act would jeopardize the
issuance of the shares of Parent Common Stock hereunder in accordance with such
Regulation D.
SECTION 6.6 COMPANY TAX RETURNS. The Stockholder shall file the Star
Solutions, LLC federal income tax return for the tax year ended December 31,
2004, and any tax year deemed ended as of the Effective Time in a timely manner
and shall be responsible for all expenses incurred in such filings, including,
but not limited to, any taxes due pursuant to such tax returns, which shall be
payable by distributing the amount of taxes payable for such year from the
Company to the Stockholder prior to Closing.
SECTION 6.7 POST-CLOSING ACCESS. Parent agrees that all books and
records delivered to Parent by the Stockholder or the Company pursuant to this
Agreement shall be open for inspection by the Stockholder at any time during
regular business hours upon reasonable notice for a period of five (5) years (or
for such longer period as may be required by applicable law) following the
Closing and that during such period, the Stockholder may make such copies
thereof as it may reasonably desire. Without limiting the generality of the
foregoing, Parent shall not destroy or give up possession of any original or
final copy of any such books and records delivered to Parent hereunder (whether
stored on electronic media or otherwise) without first offering the Stockholder
the opportunity to obtain such original or final copy or a copy thereof.
Page 35
ARTICLE VII
CONDITIONS PRECEDENT
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER.
The respective obligation of each party to effect the Merger is subject to the
satisfaction or, to the extent permitted by applicable law, waiver by each of
Parent and the Stockholder on or prior to the Closing Date of the following
conditions:
(a) SHAREHOLDER APPROVALS. The Company shall have obtained the
consent of its shareholders to the Merger, this Agreement and the transactions
contemplated hereby.
(b) GOVERNMENTAL AND REGULATORY APPROVALS. All consents,
approvals and actions of, filings with and notices to any Governmental Entity
required by the Company, Parent or any of their subsidiaries under applicable
law or regulation to consummate the Merger and the transactions contemplated by
this Agreement, the failure of which to be obtained or made would result in a
material adverse effect on Parent's ability to conduct the business of the
Company in substantially the same manner as presently conducted, shall have been
obtained or made (all such approvals and the expiration of all such waiting
periods, the "REQUISITE REGULATORY APPROVALS").
(c) NO INJUNCTIONS OR RESTRAINTS. No judgment, order,
restraining order and/or injunction (temporary or otherwise), decree, statute,
law, ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Entity or other legal restraint or
prohibition (collectively, "RESTRAINTS") shall be in effect preventing or
materially delaying the consummation of the Merger; PROVIDED, HOWEVER, that each
of the parties shall have used its commercially reasonable efforts to have such
Restraint (other than any Restraint under a statute, law, ordinance, rule or
regulation) lifted, vacated or rescinded.
(d) BALANCE SHEET AT CLOSING. The Company shall have had not
less than One Million Six Hundred Thousand Dollars ($1,600,000.00) in cash on
deposit as of the Closing.
SECTION 7.2 CONDITIONS TO OBLIGATIONS OF PARENT. The obligation of
Parent and Merger Sub to effect the Merger is further subject to satisfaction or
waiver of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
representations and warranties of the Company set forth herein and in the
Company Disclosure Schedule shall be true and correct in all material respects
at and as of the Closing Date, as if made at and as of such time (except to the
extent expressly made as of an earlier date, in which case such representations
and warranties shall be true and correct in all material respects as of such
date). Parent shall have received a certificate of the Company's President to
the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company and
the Stockholder shall have performed in all material respects all obligations
required to be performed by them at or prior to the Closing Date under this
Agreement. Parent shall have received a certificate of the Company's President
to the foregoing effect.
Page 36
(c) REGULATORY CONDITION. No condition or requirement shall
have been imposed by one or more Governmental Entities in connection with any
required approval by them of the Merger that requires the Company to be operated
in a manner that would have a material adverse effect on the Company.
(d) NO COMPANY MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not be or exist any change, effect, event, circumstance,
occurrence or state of facts that has had, has or which reasonably could be
expected to have, a material adverse effect on the Company.
(e) EMPLOYMENT AGREEMENTS. Each of the Company employees
designated below shall have executed Employment Agreements in the respective
forms attached hereto as EXHIBIT C_(the "Employment Agreements"):
(i) Elaine Bellock
(f) CONSULTING AGREEMENT. FGBB, Inc. and Parent shall have
executed a Consulting Agreement in the form attached hereto as EXHIBIT D (the
"Consulting Agreement").
(g) RESIGNATION OF OFFICERS AND DIRECTORS. There shall have
been delivered to Parent the written resignations of the officers and directors
of the Company.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE
STOCKHOLDER. The obligation of the Company and the Stockholder to effect the
Merger is further subject to satisfaction or waiver of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Parent and the Merger Sub set forth herein and in the Parent
Disclosure Schedule shall be true and correct in all material respects at and as
of the Closing Date, as if made at and as of such time (except to the extent
expressly made as of an earlier date, in which case such representations and
warranties shall be true and correct in all material respects as of such date).
The Company and the Stockholder shall have received a certificate of Parent's
Chief Executive Officer and Chief Financial Officer to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND MERGER SUB.
Parent and Merger Sub shall have performed in all material respects all
obligations required to be performed by it at or prior to the Closing Date under
this Agreement. The Company and the Stockholder shall have received a
certificate of Parent's Chief Executive Officer and Chief Financial Officer to
the foregoing effect.
(c) REGULATORY CONDITION. No condition or requirement shall
have been imposed by one or more Governmental Entities in connection with any
required approval by them of the Merger that requires Parent or any of its
subsidiaries to be operated in a manner that would have a material adverse
effect on Parent.
(d) NO PARENT MATERIAL ADVERSE EFFECT. Since the date of this
Agreement, there shall not be or exist any change, effect, event, circumstance,
occurrence or state of facts that has had, has or which reasonably could be
expected to have, a material adverse effect on Parent.
Page 37
(e) EMPLOYMENT AGREEMENTS. Each of the Company employees
designated below shall have executed Employment Agreements in the respective
forms attached hereto as Exhibit C (the "Employment Agreements"):
(i) Elaine Bellock
(f) CONSULTING AGREEMENT. FGBB, Inc. and Parent shall have
executed a Consulting Agreement in the form attached hereto as EXHIBIT D (the
"Consulting Agreement").
(g) REGISTRATION RIGHTS AGREEMENT. Parent and Alfred Curmi
shall have entered into a Registration Rights Agreement in the form attached
hereto as EXHIBIT E (the "Registration Rights Agreement").
(h) PROMISSORY NOTE. Parent shall have executed and delivered
the Promissory Note to the order of Alfred Curmi.
(i) MERGER CONSIDERATION. Parent shall have (a) paid the Cash
Consideration to the Company Stockholders pursuant to Sections 2.1(a) and
2.1(b)(i); (b) issued the delivered the Parent Shares to the Stockholder
pursuant to Section 2.1(b)(ii); and (c) executed and delivered the Promissory
Note to the Stockholder pursuant to Section 2.1(b)(iii).
SECTION 7.4 FRUSTRATION OF CLOSING CONDITIONS. Neither Parent nor the
Stockholder may rely on the failure of any condition set forth in Section 7.1,
7.2 or 7.3, as the case may be, to be satisfied if such failure was caused by
such party's failure to use its own commercially reasonable efforts to
consummate the Merger and the other transactions contemplated by this Agreement,
as required by and subject to Section 6.2.
ARTICLE VIII
INDEMNIFICATION; ARBITRATION
SECTION 8.1 INDEMNIFICATION.
(a) Subject to the occurrence of the Closing under this
Agreement, Parent and its officers, directors and affiliates (the "Parent
Indemnified Parties") shall be indemnified and held harmless by the Stockholder
against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys' fees and expenses of investigation
(hereinafter individually a "Parent Loss" and collectively "Parent Losses")
incurred by the Parent Indemnified Parties directly or indirectly as a result
of: (i) any inaccuracy of a representation or warranty of the Company contained
in this Agreement in any material respect (provided that the Stockholder shall
have no liability or obligation with respect to any Parent Losses resulting from
the use or ownership by the Company of any Software), (ii) any failure to file
the Company tax returns for the tax year ended December 31, 2004 or the short
tax year ended as of the Effective Time, (iii) the merger of STAR SOLUTIONS of
Delaware, LLC with and into Star Solutions of Delaware, Inc., or (iv) any
failure by the Company (prior to the Closing Date) or Stockholder to perform or
comply with any covenant of the Company (to be performed prior to the Closing
Date) or the Stockholder contained in this Agreement in any material respect;
PROVIDED HOWEVER, that the Stockholder shall have no liability or obligation
(for indemnification or otherwise) with respect
Page 38
to any matters described in clauses (i), (ii), (iii) or (iv) above, and no
Parent Indemnified Party shall be entitled to receive indemnification payments
under clauses (i), (ii), (iii) or (iv) above with respect to any Parent Loss,
unless and until the aggregate amount of the Parent Losses exceeds $250,000, and
then only for the amount by which such Parent Losses exceeds $250,000; PROVIDED
FURTHER that, notwithstanding anything contained in this Agreement or any
Transaction Document to the contrary, the Stockholder shall not have any
liability (for indemnification or otherwise) under this Agreement, any of the
other Transaction Documents or any of the transactions contemplated hereby or
thereby in excess of $6,500,000 in the aggregate; and PROVIDED FURTHER that, in
determining the amount of any Parent Losses suffered by any Parent Indemnified
Party which give rise to liability of Stockholder hereunder, there shall have
been taken into account (x) the amount of any tax benefits actually realized by
such Parent Indemnified Party attributable to such Parent Losses or derived
therefrom in any period to and including the end of the taxable year following
the year in which the Parent Loss was incurred; and (y) the amount of any
insurance benefits actually realized by such Parent Indemnified Party
attributable to such Parent Losses or derived therefrom. At the Stockholder's
sole option, the Stockholder may pay any indemnification amount that may become
due and payable for any Purchaser Losses hereunder (i) by directing Parent to
set off such amount against the amount of unpaid principal and interest under
the Promissory Note in the inverse order of their maturities (i.e., without
interrupting Parent's obligations to pay the unpaid principal and interest
installments on their scheduled due dates); and, in the event that the aggregate
amount of any such indemnification liability exceeds the amount of unpaid
principal and interest under the Promissory Note, (ii) by using shares of Parent
Common Stock, without any discounts for brokerage or underwriting commissions.
The per share value of such shares for purposes of this Section 8.1(a) shall be
the greater of (x) $0.277391, or (y) the closing price of Parent Common Stock on
the date on which the Stockholder receives notice of such claim for
indemnification hereunder. Unless the Stockholder exercises his set off right as
described above, Parent shall have no right under this Agreement or any
Transaction Document to set off any amounts owing by the Stockholder under this
Agreement or any Transaction Document against amounts owing by Parent under the
Promissory Note, and Parent hereby waives any and all rights of set off that it
may have under applicable law.
(b) Subject to the occurrence of the Closing under this
Agreement, the Stockholder (the "Seller Indemnified Parties") shall be
indemnified and held harmless by Parent against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation (hereinafter individually a "Seller Loss" and
collectively "Seller Losses") incurred by the Seller Indemnified Parties
directly or indirectly as a result of: (i) any inaccuracy of a representation or
warranty of Parent or the Merger Sub contained in this Agreement in any material
respect, (ii) any failure by Parent or the Merger Sub to perform or comply with
any covenant of Parent or the Merger Sub contained in this Agreement in any
material respect; PROVIDED HOWEVER, that Parent shall have no liability or
obligation (for indemnification or otherwise) with respect to any matters
described in clauses (i) or (ii) above, and no Seller Indemnified Party shall be
entitled to receive indemnification payments under clauses (i) or (ii) above
with respect to any Seller Loss, unless and until the aggregate amount of the
Seller Losses exceeds $250,000, and then only for the amount by which such
Seller Losses exceeds $250,000; PROVIDED FURTHER that, notwithstanding anything
contained in this Agreement or any Transaction Document to the contrary, Parent
shall not have any liability (for indemnification or otherwise) under this
Agreement, any of the other Transaction
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Documents or any of the transactions contemplated hereby or thereby in excess of
$6,500,000 in the aggregate; and PROVIDED FURTHER that, in determining the
amount of any Seller Losses suffered by any Seller Indemnified Party which give
rise to liability of Parent hereunder, there shall have been taken into account
(x) the amount of any tax benefits actually realized by such Seller Indemnified
Party attributable to such Seller Losses or derived therefrom in any period to
and including the end of the taxable year following the year in which the Seller
Loss was incurred; and (y) the amount of any insurance benefits actually
realized by such Seller Indemnified Party attributable to such Seller Losses or
derived therefrom.
(c) Notwithstanding anything to the contrary herein, the
Stockholder shall have no liability (for indemnification or otherwise) with
respect to any representation or warranty in this Agreement or any other
Transaction Document, or any covenant or obligation under this Agreement or any
other Transaction Document to be performed and complied with prior to the
Closing, unless on or before August 18, 2006, Parent notifies the Stockholder of
a claim specifying the factual basis of that claim in reasonable detail, and the
Stockholder's indemnification obligations for Parent Losses incurred by the
Parent Indemnified Parties directly or indirectly as a result of any inaccuracy
of a representation or warranty or the breach of any covenant or obligation of
the Company or the Stockholder to be performed and complied with prior to the
Closing contained in this Agreement shall terminate on August 18, 2006.
Notwithstanding anything to the contrary herein, Parent shall have no liability
(for indemnification or otherwise) with respect to any representation or
warranty in this Agreement or any other Transaction Document, or any covenant or
obligation under this Agreement or any other Transaction Document to be
performed and complied with prior to the Closing, unless on or before August 18,
2006, the Company Stockholder notifies Parent of a claim specifying the factual
basis of that claim in reasonable detail, and Parent's indemnification
obligations for Seller Losses incurred by the Seller Indemnified Parties
directly or indirectly as a result of any inaccuracy of a representation or
warranty or the breach of any covenant or obligation of Parent to be performed
and complied with prior to the Closing contained in this Agreement shall
terminate on August 18, 2006.
(d) Notwithstanding anything to the contrary herein, the
existence of this Article VIII and of the rights and restrictions set forth
herein do not limit any legal remedy for claims based on fraud.
(e) Any claim for the recovery of Seller Losses or Parent
Losses shall be made by giving notice thereof in accordance with Section 10.2.
For purposes of this Section 8.1, the term "Third-Party Claim" shall mean any
claim by a third party against any indemnified party under this Section 8.1 (an
"Indemnified Person"), whether or not involving a legal, administrative or
governmental proceeding, which could give rise to a Seller Loss or a Parent
Loss, as applicable. Promptly after receipt by an Indemnified Person of notice
of the assertion of a Third-Party Claim against it, such Indemnified Person
shall, if a claim is to be made against the Parent or the Stockholder, as
applicable, for indemnification under this Section 8.1 (for purposes of this
paragraph, the Parent or the Stockholder, as applicable, is referred to as the
"Indemnifying Person"), give notice to such Indemnifying Person of the assertion
of such Third-Party Claim, provided that the failure to notify any Indemnifying
Person will not relieve such Indemnifying Person of any liability that it may
have to such Indemnified Person hereunder, except to the extent that such
Indemnifying Person demonstrates that the defense of such Third-Party Claim is
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prejudiced by such Indemnified Person's failure to give such notice. If an
Indemnified Person gives notice to the Indemnifying Person pursuant to this
paragraph of the assertion of a Third-Party Claim, the Indemnifying Person shall
be entitled to participate in the defense of such Third-Party Claim and, to the
extent that it wishes, to assume the defense of such Third-Party Claim with
counsel reasonably satisfactory to the Indemnified Person, PROVIDED the
Indemnifying Person notifies the Indemnified Person of its election to so assume
the defense within fifteen (15) days after the Indemnifying Person receives
notice from the Indemnified Person of the Third-Party Claim. After notice from
the Indemnifying Person to the Indemnified Person of its election to assume the
defense of such Third-Party Claim, the Indemnifying Person shall not, so long as
it diligently conducts such defense, be liable to the Indemnified Person under
this Agreement for any fees of other counsel or any other expenses with respect
to the defense of such Third-Party Claim, in each case subsequently incurred by
the Indemnified Person in connection with the defense of such Third-Party Claim,
other than reasonable costs of investigation. If the Indemnifying Person assumes
the defense of a Third-Party Claim, no compromise or settlement of such
Third-Party Claim may be effected by the Indemnifying Person without the
Indemnified Person's consent unless (i) there is no finding or admission of any
violation of law or any violation of the rights of any person; (ii) the sole
relief provided is monetary damages that are paid in full by the Indemnifying
Person; and (iii) the Indemnified Person shall have no liability with respect to
any compromise or settlement of such Third-Party Claim effected without its
consent. Notwithstanding the foregoing, if (i) there is a reasonable probability
that a Third-Party Claim may adversely affect the Indemnified Person other than
as a result of monetary damages for which it would be entitled to
indemnification under this Agreement, or (ii) the Indemnifying Person is also a
person against whom the Third-Party Claim is made and joint representation would
be inappropriate, the Indemnified Person may, by notice to the Indemnifying
Person, assume the exclusive right to defend, compromise or settle such
Third-Party Claim, but the Indemnifying Person will not be bound by any
determination of any Third-Party Claim so defended for the purposes of this
Agreement or any compromise or settlement effected without its consent. With
respect to any Third-Party Claim subject to indemnification under this Section
8.1: (i) both the Indemnified Person and the Indemnifying Person, as the case
may be, shall keep the other person informed of the status of such Third-Party
Claim and any related proceedings at all stages thereof where such person is not
represented by its own counsel, and (ii) the parties agree (each at its own
expense) to render to each other such assistance as they may reasonably require
of each other and to cooperate in good faith with each other in order to ensure
the proper and adequate defense of any Third-Party Claim.
SECTION 8.2 ARBITRATION. Any dispute, controversy or claim arising out
of or relating to this Agreement (a "Dispute") shall be settled by binding
arbitration. Any such arbitration proceeding shall be conducted by one
arbitrator mutually agreeable to the Stockholder and Parent. In the event that
within 45 days after submission of any Dispute to arbitration, Stockholder and
Parent cannot mutually agree on one arbitrator, Stockholder and Parent shall
each select one arbitrator, and the two arbitrators so selected shall select a
third arbitrator. The arbitrator or arbitrators, as the case may be, shall set a
limited time period and establish procedures designed to reduce the cost and
time for discovery while allowing the parties an opportunity, adequate in the
sole judgment of the arbitrator or majority of the three arbitrators, as the
case may be, to discover relevant information from the opposing parties about
the subject matter of the Dispute. The arbitrator or a majority of the three
arbitrators, as the case may be, shall rule upon motions to compel or limit
discovery and shall have the authority to impose
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sanctions, including attorneys' fees and costs, to the same extent as a
competent court of law or equity, should the arbitrators or a majority of the
three arbitrators, as the case may be, determine that discovery was sought
without substantial justification or that discovery was refused or objected to
without substantial justification. The decision of the arbitrator or a majority
of the three arbitrators, as the case may be, shall be binding and conclusive
upon the parties to this Agreement. Such decision shall be written and shall be
supported by written findings of fact and conclusions which shall set forth the
award, judgment, decree or order awarded by the arbitrator(s). Judgment upon any
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction. Any such arbitration shall be held in Denver, CO under the rules
then in effect of Judicial Arbitration and Mediation Services. The substantially
non-prevailing party shall pay all expenses relating to the arbitration,
including without limitation, the respective expenses of each party, the fees of
each arbitrator and applicable administrative fees. Notwithstanding the
provisions of this Section 8.2, and without limiting the right of the parties to
commence arbitration proceedings under this Section 8.2 with respect to any
Dispute arising out of or relating to Section 6.1 of this Agreement (a
"Confidentiality Dispute"), each party shall have the right and option to bring
an action for temporary, preliminary or permanent injunctive or other equitable
relief in the United States District Court for the Southern District of
California with respect to any Confidentiality Dispute. Each party consents to
submit itself to the personal jurisdiction of any Federal court located in the
State of California in the event any Confidentiality Dispute arises. The parties
irrevocably and unconditionally waive any objection to the laying of venue of
any action, suit or proceeding arising out of any Confidentiality Dispute in any
Federal court located in the State of California, and hereby further irrevocably
and unconditionally waive and agree not to plead or claim in any such court that
any such action, suit or proceeding brought in any such court has been brought
in an inconvenient forum.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing:
(a) by mutual written consent of Parent and the Stockholder;
(b) by either Parent or the Stockholder;
(i) if the Merger shall not have been consummated at
or prior to 5:00 p.m., Denver, CO, time, on March 18, 2005,
PROVIDED, HOWEVER, that the right to terminate this Agreement
pursuant to this Section 9.1(b)(i) shall not be available to
any party whose failure to perform any of its obligations
under this Agreement results in the failure of the Merger to
be consummated by such time and date.
(ii) if any Restraint having any of the effects set
forth in Section 9.1(c) shall be in effect and shall have
become final and nonappealable; PROVIDED, HOWEVER, that the
party seeking to terminate this Agreement pursuant to this
Section 9.1(b) (iii) shall have used its commercially
reasonable efforts to prevent the entry of such Restraint
(other than any Restraint under a statute, law,
Page 42
ordinance, rule or regulation) and to have such Restraint
vacated or removed (other than any Restraint under a statute,
law, ordinance, rule or regulation);
(iii) if any Governmental Entity that must grant a
Requisite Regulatory Approval shall have denied the applicable
Requisite Regulatory Approval and such denial shall have
become final and nonappealable; or
(c) by Parent or the Stockholder if the Company's stockholders
have not consented to Merger;
(d) by Parent, if the Stockholder or the Company shall have
breached any of their respective representations, warranties, covenants or other
agreements contained in this Agreement, which breach (i) would give rise to the
failure of a condition set forth in Section 7.2(a) or (b), and (ii) is either
incapable of being cured by the Company or the Stockholder, if curable, is not
cured within 15 days of receipt from Parent of written notice thereof; or
(e) by the Stockholder, if Parent or the Merger Sub shall have
breached any of their respective representations, warranties, covenants or other
agreements contained in this Agreement, which breach (i) would give rise to the
failure of a condition set forth in Section 7.3(a) or (b), and (ii) is either
incapable of being cured by Parent or the Merger Sub or, if curable, is not
cured within 15 days of receipt from the Stockholder of written notice thereof.
The party desiring to terminate this Agreement pursuant to clause (b), (c), (d)
or (e) of this Section 9.1 shall provide written notice of such termination to
the other party in accordance with Section 10.2, specifying in reasonable detail
the provision hereof pursuant to which such termination is effected.
SECTION 9.2 EFFECT OF TERMINATION.
(a) If this Agreement is terminated by either the Stockholder
or Parent as provided in Section 9.1, this Agreement forthwith shall become void
and have no effect, without any liability or obligation on the part of Parent,
the Merger Sub, the Company or the Stockholder; PROVIDED, HOWEVER, that nothing
herein shall relieve any party from any liability (in contract, tort or
otherwise, and whether pursuant to an action at law or in equity) for any
knowing or willful breach by such party of any of its representations,
warranties, covenants or agreements set forth in this Agreement or in respect of
fraud by any party. Notwithstanding the foregoing, the provisions of this
Article IX, Section 3.17, Section 4.8, Section 6.1, Section 6.3, Section 6.4,
Section 10.7, Section 10.8 and Section 10.11 shall survive any termination of
this Agreement.
(b) Anything in this Agreement to the contrary
notwithstanding, if any of the conditions specified in Article VII hereof for
its benefit have not been satisfied, Parent and/or the Stockholder (as
applicable) shall have the right to waive the satisfaction thereof and to
proceed with the transactions contemplated hereby.
SECTION 9.3 AMENDMENT. This Agreement may be amended by the parties at
any time. This Agreement may not be amended except by an instrument in writing
signed on behalf of all of the parties to be bound thereby.
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SECTION 9.4 EXTENSION; WAIVER. At any time prior to the Closing, a
party may (a) extend the time for the performance of any of the obligations or
other acts of the other party, (b) waive any inaccuracies in the representations
and warranties of the other party contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the provisions of Section
9.3 waive compliance by the other party with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
ARTICLE X
GENERAL PROVISIONS
SECTION 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The representations and warranties in this Agreement, in any other Transaction
Document or in any instrument delivered pursuant to this Agreement shall survive
the Closing Date for a period of eighteen (18) months and shall terminate and
shall be deemed void AB INITIO on the date that is eighteen (18) months from the
Closing Date. This Section 10.1 shall not limit any covenant or agreement of the
parties which by its terms contemplates performance after the Closing Date.
SECTION 10.2 NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, telecopied (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) If to Parent, to:
Incentra Solutions, Inc.
1140 Pearl Street
Boulder, Colorado 80302
Fax No.: (303) 440-7114
Attention: Thomas P. Sweeney III
with a copy (which shall not constitute notice
pursuant to this Section 10.2 to:
Reed Guest, Esq.
94 Underhill Road
Orinda, CA 94563
Fax No.: (925) 254-9226.
(b) if to the Company or to the Stockholder, to:
Alfred Curmi
910 Seasage Drive
Delray Beach, FL 33483
Fax No. (561) 208-3953
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with a copy (which shall not constitute notice pursuant to
this Section 10.2) to:
David Bates, Esq.
Gunster, Yoakley & Stewart, P.A.
777 South Flagler Drive
Suite 500, East Tower
West Palm Beach, FL 33401
Fax No. (561) 655-5677
SECTION 10.3 DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE" of any person means another person that
directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with, such first person, where
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management policies of a person, whether through
the ownership of voting securities, by contract, as trustee or executor, or
otherwise.
(b) "ENCUMBRANCES" shall mean Liens, security interests, deeds
of trust, encroachments, reservations, orders of Governmental Entities, decrees,
judgments, contract rights, claims or equity of any kind.
(c) "KNOWLEDGE" means, (i) with respect to the Company or the
Stockholder, as applicable, the actual knowledge after reasonable due inquiry,
of the Stockholder and of the Company's President; and (ii) with respect to
Parent or the Merger Sub, as applicable, the actual knowledge after reasonable
due inquiry, of Parent's executive officers.
(d) "MATERIAL ADVERSE CHANGE" or "MATERIAL ADVERSE EFFECT"
means, when used in reference to the Company or Parent, any change, effect,
event, circumstance, occurrence or state of facts that is, or which reasonably
could be expected to be, materially adverse to the business, assets,
liabilities, condition (financial or otherwise), cash flows or results of
operations of such party and its subsidiaries, considered as an entirety.
(e) "PERSON" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "ORDINARY COURSE OF BUSINESS, CONSISTENT WITH PAST
PRACTICES" or similar provision, when used with respect to the Company, refers
to the such practices of the Company and/or its predecessor limited liability
company, Star Solutions, LLC.
(g) a "SUBSIDIARY" of any person means another person, an
amount of the voting securities, other voting ownership or voting partnership
interests of which is sufficient to elect not less than a majority of its Board
of Directors or other governing body (or, if there are no such voting interests,
50% or more of the equity interests of which) is owned directly or indirectly by
such first person.
Page 45
(h) "Transaction Documents" means this Agreement, the
Promissory Note, the Registration Rights Agreement, the Consulting Agreement,
and any other agreement, document, certificate or instrument executed and/or
delivered by the Company or the Stockholder and/or Parent and/or the Merger Sub
pursuant to any of the foregoing documents, the Merger, or the transactions
contemplated thereby.
SECTION 10.4 INTERPRETATION. Whenever the words "include," "includes"
or "including" are used in this Agreement, they shall be deemed to be followed
by the words "without limitation." The words "hereof," "herein" and "hereunder"
and words of similar import when used in this Agreement shall refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
parties have participated jointly in the negotiation and drafting of this
Agreement. In the event an ambiguity or question of intent or interpretation
arises, this Agreement shall be construed as if drafted jointly by the parties
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any of the provisions of this Agreement.
SECTION 10.5 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other parties. A facsimile copy of a
signature page shall be deemed to be an original signature page.
SECTION 10.6 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement (including the documents and instruments executed and/or delivered
pursuant hereto) (a) constitutes the entire agreement, and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter of this Agreement and (b) except for the
provisions of Section 6.4 which shall inure to the benefit of and be enforceable
by the persons referred to therein, are not intended to confer upon any person
other than the parties hereto and their permitted successors and assigns any
rights or remedies.
SECTION 10.7 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the internal substantive and procedural laws of
the State of Colorado, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law of such state.
SECTION 10.8 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties hereto without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of, and be enforceable
by, the parties and their respective successors and assigns.
SECTION 10.9 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 10.10 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect.
Page 46
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible to the fullest extent permitted by applicable law in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the extent possible.
SECTION 10.11 ENFORCEMENT. The parties agree that irreparable damage
would occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement, this being in addition to any other
remedy to which they are entitled at law or in equity.
SECTION 10.12 FURTHER ASSURANCES. The parties agree (a) to furnish upon
request to each other such further information, (b) to execute and deliver to
each other such other documents, and (c) to do such other acts and things, all
as the other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
[The remainder of this page is intentionally left blank.]
Page 47
IN WITNESS WHEREOF, the Company, Parent, Merger Sub, and the
Stockholder have caused this Agreement to be signed by their respective officers
thereunto duly authorized, all as of the date first written above.
INCENTRA SOLUTIONS, INC.
By: /s/Thomas P. Sweeney III
-------------------------------
Name: Thomas P. Sweeney III
Title: Chief Executive Officer
STAR SOLUTIONS OF DELAWARE, INC.
By: /s/ Alfred Curmi
-------------------------------
Name: Alfred Curmi
Title: President
INCENTRA MERGER CORP.
By: /s/Thomas P. Sweeney III
------------------------------
Name: Thomas P. Sweeney III
Title: Chief Executive Officer
STOCKHOLDER:
/s/Alfred Curmi
----------------------------------
Alfred Curmi
MIAMI 406160.10
2/18/05
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