Exhibit 2.1
IMPORTANT NOTICE
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION (THE
"MERGER AGREEMENT") CONTAINS CERTAIN REPRESENTATIONS AND WARRANTIES (THE
"REPRESENTATIONS") BY DGSE COMPANIES, INC. ("DGSE") AND DGSE MERGER CORP., A
WHOLLY-OWNED SUBSIDIARY OF DGSE, IN FAVOR OF SUPERIOR GALLERIES, INC.
("SUPERIOR"), AND BY SUPERIOR IN FAVOR OF DGSE. NO PERSON, OTHER THAN THE
PARTIES TO THE MERGER AGREEMENT, ARE ENTITLED TO RELY ON THE REPRESENTATIONS
CONTAINED IN THE MERGER AGREEMENT. THE MERGER AGREEMENT IS FILED IN ACCORDANCE
WITH THE RULES OF THE SECURITIES AND EXCHANGE COMMISSION AS A MATERIAL PLAN OF
ACQUISITION, AND IS INTENDED BY DGSE AND SUPERIOR SOLELY AS A RECORD OF THE
AGREEMENT REACHED BY THE PARTIES THERETO. THE FILING OF THE MERGER AGREEMENT IS
NOT INTENDED AS A MECHANISM TO UPDATE, SUPERSEDE OR OTHERWISE MODIFY PRIOR
DISCLOSURES OF INFORMATION AND RISKS CONCERNING DGSE AND SUPERIOR WHICH DGSE AND
SUPERIOR HAVE MADE TO THEIR RESPECTIVE STOCKHOLDERS.
INVESTORS AND POTENTIAL INVESTORS SHOULD ALSO BE AWARE THAT THE REPRESENTATIONS
ARE QUALIFIED BY INFORMATION IN CONFIDENTIAL DISCLOSURE SCHEDULES THAT DGSE HAS
DELIVERED TO SUPERIOR, AND CONFIDENTIAL DISCLOSURE SCHEDULES THAT SUPERIOR HAS
DELIVERED TO DGSE (THE "DISCLOSURE SCHEDULES"). THE DISCLOSURE SCHEDULES CONTAIN
INFORMATION THAT MODIFIES, QUALIFIES AND CREATES EXCEPTIONS TO THE
REPRESENTATIONS.
INVESTORS AND POTENTIAL INVESTORS SHOULD ALSO BE AWARE THAT CERTAIN
REPRESENTATIONS MADE IN THE MERGER AGREEMENT ARE NOT INTENDED TO BE AFFIRMATIVE
REPRESENTATIONS OF FACTS, SITUATIONS OR CIRCUMSTANCES, BUT ARE INSTEAD DESIGNED
AND INTENDED TO ALLOCATE CERTAIN RISKS BETWEEN DGSE AND ITS WHOLLY-OWNED
SUBSIDIARY, ON THE ONE HAND, AND SUPERIOR AND ITS STOCKHOLDERS, ON THE OTHER
HAND. THE USE OF REPRESENTATIONS AND WARRANTIES TO ALLOCATE RISK IS A STANDARD
DEVICE IN MERGER AGREEMENTS.
ACCORDINGLY, STOCKHOLDERS, INVESTORS AND POTENTIAL INVESTORS SHOULD NOT RELY ON
THE REPRESENTATIONS AS AFFIRMATIONS OR CHARACTERIZATIONS OF INFORMATION
CONCERNING DGSE OR SPACEDEV AS OF THE DATE OF THE MERGER AGREEMENT, OR AS OF ANY
OTHER DATE.
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================================================================================
AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
by and among
DGSE COMPANIES, INC.
DGSE MERGER CORP.
SUPERIOR GALLERIES, INC.
and
STANFORD INTERNATIONAL BANK, LTD.,
as Stockholder Agent
----------------------------------
January 6, 2007
----------------------------------
================================================================================
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TABLE OF CONTENTS
-----------------
Page
----
Article I. Defined Terms; Construction.........................................2
Section 1.1 Certain Definitions.................................2
Section 1.2 Other Definitions..................................15
Section 1.3 Construction.......................................15
Article II. The Merger........................................................17
Section 2.1 The Merger.........................................17
Section 2.2 The Closing........................................17
Section 2.3 Effective Time.....................................17
Section 2.4 Effect of the Merger...............................17
Section 2.5 Certificate of Incorporation; Bylaws...............17
Section 2.6 Directors and Officers.............................18
Article III. Conversion of Securities; Exchange of Certificates...............18
Section 3.1 Conversion of Securities...........................18
Section 3.2 Capitalization Adjustments to Shares...............18
Section 3.3 Allocation and Distribution of
Merger Consideration...............................19
Section 3.4 Surrender of Certificates; Payment.................19
Section 3.5 Withholding Rights.................................21
Section 3.6 Share Transfer Books...............................21
Section 3.7 Company Options....................................21
Section 3.8 Unvested Company Shares............................22
Section 3.9 Company Warrants...................................23
Section 3.10 Appraisal Rights...................................24
Section 3.11 Taking of Necessary Action; Further Action.........24
Section 3.12 Tax Consequences...................................24
Section 3.13 Accounting Treatment...............................24
Section 3.14 Escrow Agreement; Escrow Account...................24
Section 3.15 Transfer Of Contingent Rights......................25
Article IV. Company Representations and Warranties............................26
Section 4.1 Organization and Qualification; Subsidiaries.......26
Section 4.2 Certificate of Incorporation and Bylaws;
Corporate Books and Records........................26
Section 4.3 Capitalization.....................................27
Section 4.4 Authority..........................................29
Section 4.5 No Conflict; Required Filings and Consents.........30
Section 4.6 Permits; Compliance With Law.......................31
Section 4.7 SEC Filings; Financial Statements..................31
Section 4.8 Disclosure Documents...............................33
Section 4.9 Absence of Certain Changes or Events...............34
Section 4.10 Employee Benefit Plans.............................35
Section 4.11 Customers..........................................39
Section 4.12 Contracts..........................................39
Section 4.13 Litigation.........................................42
Section 4.14 Environmental Matters..............................42
Section 4.15 Intellectual Property..............................43
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Section 4.16 Taxes..............................................46
Section 4.17 Insurance..........................................48
Section 4.18 Opinion of Financial Advisor.......................48
Section 4.19 Brokers............................................48
Section 4.20 Properties.........................................48
Section 4.21 Interested Party Transactions......................48
Section 4.22 Export and Import Laws.............................48
Section 4.23 Pseudo-Foreign Corporation.........................49
Section 4.24 Representations Complete...........................49
Article V. Representations and Warranties of Parent and Merger Sub............49
Section 5.1 Organization and Qualification; Subsidiaries.......49
Section 5.2 Certificate of Incorporation and Bylaws;
Corporate Books and Records........................50
Section 5.3 Capitalization.....................................50
Section 5.4 Authority..........................................51
Section 5.5 No Conflict; Required Filings and Consents.........52
Section 5.6 Permits; Compliance With Law.......................53
Section 5.7 SEC Filings; Financial Statements..................53
Section 5.8 Disclosure Documents...............................55
Section 5.9 Absence of Certain Changes or Events...............56
Section 5.10 Employee Benefit Plans.............................57
Section 5.11 Customers..........................................61
Section 5.12 Contracts..........................................61
Section 5.13 Litigation.........................................64
Section 5.14 Environmental Matters..............................64
Section 5.15 Intellectual Property..............................64
Section 5.16 Taxes..............................................67
Section 5.17 Insurance..........................................69
Section 5.18 Opinion of Financial Advisor.......................69
Section 5.19 Brokers............................................69
Section 5.20 Properties.........................................69
Section 5.21 Interested Party Transactions......................70
Section 5.22 Export and Import Laws.............................70
Section 5.23 Capitalization, Ownership and
Prior Activities of Merger Sub.....................70
Section 5.24 Interested Stockholders............................70
Section 5.25 Representations Complete...........................70
Article VI. Covenants.........................................................71
Section 6.1 SEC Reports; Preparation of Form S-4
and Proxy Statement................................71
Section 6.2 Parent Stockholders Meeting........................73
Section 6.3 Company Stockholders Meeting.......................73
Section 6.4 Access to Information; Confidentiality.............74
Section 6.5 Notice of Acquisition Proposals....................75
Section 6.6 Affiliate Letters..................................75
Section 6.7 Certain Notices....................................76
Section 6.8 Public Announcements...............................76
Section 6.9 Certain Litigation.................................76
Section 6.10 Employees..........................................77
Section 6.11 Termination of Benefit Plans.......................77
Section 6.12 Parent Board.......................................77
Section 6.13 Company Board......................................78
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Section 6.14 Tax Matters........................................78
Section 6.15 Third Party Consents...............................78
Section 6.16 Best Efforts.......................................78
Section 6.17 Refinancings.......................................79
Section 6.18 Indemnification....................................79
Article VII. Closing Conditions...............................................80
Section 7.1 Conditions to Obligations of Each
Party Under This Agreement.........................80
Section 7.2 Additional Conditions to Obligations
of Parent and Merger Sub...........................81
Section 7.3 Additional Conditions to Obligations
of the Company.....................................82
Article VIII. Survival of Representations, Warranties and Covenants;
Indemnification....................................83
Section 8.1 Survival of Representations, Warranties
and Covenants......................................83
Section 8.2 Indemnification; Closing Balance Sheet;
Escrow Account.....................................84
Section 8.3 Limitation on Indemnification......................85
Section 8.4 Indemnification Procedures.........................85
Section 8.5 Stockholder Agent..................................87
Section 8.6 Resolution of Conflicts............................90
Section 8.7 No Contribution....................................91
Section 8.8 Fraud; Willful Misrepresentation...................91
Section 8.9 Exclusive Remedies.................................91
Section 8.10 Purchase Price Adjustment..........................91
Article IX. Termination, Amendment and Waiver.................................92
Section 9.1 Termination........................................92
Section 9.2 Effect of Termination..............................93
Section 9.3 Amendment..........................................93
Section 9.4 Waiver.............................................93
Section 9.5 Fees and Expenses..................................93
Article X. General Provisions.................................................94
Section 10.1 Notices............................................94
Section 10.2 Headings...........................................95
Section 10.3 Severability.......................................95
Section 10.4 Entire Agreement...................................95
Section 10.5 Assignment.........................................96
Section 10.6 Parties in Interest................................96
Section 10.7 Governing Law; Consent to Jurisdiction;
Waiver of Trial by Jury............................96
Section 10.8 Disclosure.........................................97
Section 10.9 Counterparts.......................................97
Section 10.10 Facsimile Execution................................97
Section 10.11 Remedies Cumulative................................97
Section 10.12 Specific Performance...............................97
Section 10.13 Time...............................................97
Section 10.14 Certain Taxes......................................97
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TABLE OF EXHIBITS AND SCHEDULES
-------------------------------
Exhibit A.............Form of Certificate of Merger
Exhibit B.............Form of Letter of Transmittal
Exhibit C.............Form of Escrow Agreement
Exhibit D.............Form of Amended and Restated Commercial Loan and
Security Agreement
Exhibit E.............Form of Warrant
Exhibit F ............Form of Note Exchange Agreement
Exhibit G.............Form of Stanford Termination and Release Agreement
Exhibit H.............Form of Registration Rights Agreement
Exhibit I.............Form of Corporate Governance Agreement
Exhibit J.............Form of Stanford Officer's Certificate
Exhibit K.............Form of Company Legal Opinion
Exhibit L.............Form of Stanford Legal Opinion
Exhibit M.............Form of Parent Officers' Certificate
Exhibit N.............Form of Parent Legal Opinion
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INDEX OF DEFINED TERMS
----------------------
401(k) Plan................................77 Company Information...........................5
A Warrants.................................79 Company Insider..............................22
Acquisition Proposal........................2 Company IP...................................43
Actions.....................................3 Company Material Contract....................39
Actual Knowledge............................3 Company Option................................5
Affiliate...................................3 Company Permits..............................31
Affiliate Letter...........................76 Company Preferred Shares.....................27
Agreement...................................1 Company Products.............................43
Amend.......................................3 Company SEC Reports...........................5
Amended and Restated Stanford LOC..........79 Company Stock Option Plan.....................5
Applicable Time.............................3 Company Stockholder Approval.................30
B Warrants.................................79 Company Stockholders Meeting.................30
Balance Sheet Correction...................85 Company Subsidiaries.........................26
Basket Amount..............................85 Company Subsidiary...........................26
Beneficial Owner............................3 Company Warrant...............................5
Beneficial Ownership........................3 Company-Owned IP.............................43
Beneficially Own............................3 Confidentiality Agreement....................75
Beneficially Owning.........................3 Consent.......................................5
Best Efforts................................3 Continuing Employees.........................77
Blue Sky Laws...............................3 Contract......................................5
Board Recommendation........................3 Control.......................................5
Breach......................................3 controlled by.................................5
Business Day................................4 Conversion Agreements.........................5
Capitalization Adjustment...................4 D&O Insurance................................79
Certificate of Merger......................17 Defending Party..............................90
Certificates................................4 DGCL..........................................1
Claim Notice...............................84 DiGenova.....................................25
Closing....................................17 DiGenova Warrant..............................5
Closing Company Common Shares...............4 Dissenting Shares............................24
Closing Date...............................17 Dissenting Stockholders.......................5
COBRA......................................36 Effective Time...............................17
Code........................................4 Employment Agreements.........................5
Commitment..................................4 Encumber......................................6
Company.....................................1 Encumbrance...................................5
Company Affiliate..........................75 Entity........................................6
Company Balance Sheet.......................4 Environment...................................6
Company Balance Sheet Date..................4 Environmental Claims..........................6
Company Benefit Plans......................35 Environmental Laws............................6
Company Board...............................2 Environmental Release.........................6
Company Board Recommendation................4 Environmentally Released......................6
Company Bylaws.............................26 Equity Interest...............................6
Company Certificate of Incorporation.......26 ERISA.........................................7
Company Common Share........................4 ERISA Affiliate...............................7
Company Common Stock........................4 Escrow Account...............................24
Company Disclosure Schedules...............26 Escrow Agent..................................7
Company Financial Advisor..................48 Escrow Agreement.............................25
Company Financial Statements...............32 Escrow Assets................................88
Company Group..............................46 Escrow Period................................25
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Escrow Stock...............................24 Open Source Materials........................11
Escrow Termination Date.....................7 Order........................................11
Event.......................................7 Ordinary Course of Business..................11
Exchange Act................................7 Organizational Documents.....................11
Exchange Agent.............................20 Original Agreement............................1
Exchange Ratio.............................18 OTCBB........................................11
Exemption Conditions.......................29 Other Filings................................11
Expenses....................................7 Other Merger Filings.........................71
Facilities..................................7 Outside Date.................................92
Forbearance Agreement......................92 Outstanding Company Common Shares............29
Foreign Plan...............................37 Parent........................................1
Form S-4....................................7 Parent Authorized Stock Increase.............71
GAAP........................................7 Parent Balance Sheet.........................11
Governmental Entity.........................7 Parent Balance Sheet Date....................11
Governmental Permit.........................8 Parent Benefit Plans.........................57
Group.......................................8 Parent Board..................................2
Hazardous Materials.........................8 Parent Board Recommendation..................11
Indebtedness................................8 Parent Bylaws................................50
Indemnified Parties........................84 Parent Certificate of Incorporation..........50
Indemnifying Parties.......................84 Parent Common Share..........................12
Independent Committee.......................8 Parent Disclosure Schedules..................49
Insured Parties............................79 Parent Financial Advisor.....................69
Intellectual Property.......................8 Parent Financial Statements..................54
Interim Company Board......................78 Parent Group.................................67
IRS.........................................9 Parent Information...........................12
JAMS.......................................91 Parent IP....................................64
Key Employee................................9 Parent Material Contract.....................61
Knowledge...................................9 Parent Option................................12
Law.........................................9 Parent Permits...............................53
Lease.......................................9 Parent Products..............................64
Letters of Transmittal.....................19 Parent SEC Reports...........................12
Liability...................................9 Parent Stock Option Plan.....................12
Liable......................................9 Parent Stockholder Approval..................52
Lien........................................9 Parent Stockholders Meeting..................52
Limited Joinder Agreement...................1 Parent Subsidiaries..........................49
Lock-Up Agreement..........................10 Parent Subsidiary............................49
Losses......................................9 Parent Warrant...............................12
Made Available.............................10 Parent-Owned IP..............................64
Management Agreement.......................10 PCAOB........................................12
Material...................................10 Person.......................................12
Material Adverse Effect....................10 Post-Merger Parent Board.....................77
Materially.................................10 Principal Market.............................12
Materials of Environmental Concern.........10 Property.....................................12
Maximum Amount.............................79 Prosecuting Party............................91
Merger......................................1 Proxy Statement..............................12
Merger Sub..................................1 Registered Intellectual Property.............12
Minimum Company Stockholders Equity........11 Registration Rights Agreement................82
Minute Books...............................11 Related Agreement............................13
New Option.................................21 Representative...............................13
Note Exchange Agreement....................81 Repurchase Rights............................13
NPCA........................................1 SEC..........................................13
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SEC Reports................................13 Support Agreements...........................14
SEC Rules..................................13 Surviving Corporation........................17
Securities.................................13 SVCH.........................................81
Securities Act.............................13 Tangible Personal Property...................14
Security Interest..........................13 Tax Authority................................14
SFG........................................81 Tax Return...................................15
Shared Expenses Agreement..................93 Taxes........................................14
Significant Company Customer...............39 Termination and Release Agreement............81
Significant Parent Customer................61 Third Party Intellectual Property Rights.....15
SOX........................................14 Transaction..................................15
Specified Consents.........................30 Transaction Document.........................15
Stanford....................................1 Transfer.....................................15
Stanford LOC...............................79 Transferred..................................15
Stockholder Agent...........................1 Transferring.................................15
Stockholder Agent Expense Cap..............90 U.S. Export and Import Laws..................15
Stockholders...............................14 under common control with.....................5
Subsidiary.................................14 Unvested Company Shares......................22
Superior....................................1 WARN Act.....................................39
Superior Offer.............................14
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AMENDED AND RESTATED
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
is made and entered into as of January 6, 2007 (together with all schedules and
exhibits hereto, this "Agreement"), by and among (i) DGSE Companies, Inc., a
Nevada corporation (together with its successors and permitted assigns,
"Parent"), (ii) DGSE Merger Corp., a Delaware corporation and a direct
wholly-owned subsidiary of Parent (together with its successors and permitted
assigns, "Merger Sub"), (iii) Superior Galleries, Inc., a Delaware corporation
(f/k/a Tangible Asset Galleries, Inc., a Nevada corporation) (together with its
successors, the "Company" or "Superior"), and (iv) Stanford International Bank
Ltd., a company organized under the laws of Antigua and Barbuda (together with
its successors, "Stanford"), as agent, attorney-in-fact and representative for
the stockholders of the Company (together with its successors in such capacity,
the "Stockholder Agent"). Stanford is not a signatory to this Agreement but is
joining, and becoming a party to, this Agreement in its individual capacity and
as Stockholder Agent to the limited extent provided in that certain Limited
Joinder Agreement, made and entered into as of even date herewith (the "Limited
Joinder Agreement"), by and among the parties hereto (including Stanford).
R E C I T A L S
---------------
WHEREAS, the respective Boards of Directors of Parent, Merger Sub and the
Company have approved and declared advisable this Agreement and the merger of
Merger Sub with and into the Company (the "Merger"), with the Company being the
surviving corporation;
WHEREAS, on July 12, 2006, Parent, Merger Sub and the Company entered into
that certain Agreement and Plan of Merger and Reorganization (the "Original
Agreement"), and Stanford joined the Original Agreement pursuant to that certain
Limited Joinder Agreement, made and entered into as of July 12, 2006, relating
to the Merger;
WHEREAS, the "Outside Date" (as defined in the Original Agreement) has
transpired without the consummation of the Merger;
WHEREAS, since the date of the Original Agreement, the financial statements
of the Company have changed in material respects;
WHEREAS, the parties hereto desire to amend and restate the Original
Agreement and that certain Limited Joinder Agreement, made and entered into as
of July 12, 2006, by and among the parties hereto, in its entirety;
WHEREAS, the parties hereto wish to state herein their mutual agreements
and obligations and to set forth certain requirements with respect to the
disposition of Company Common Shares, the issuance of Parent Common Shares,
access to information about the Company and the management of the Company;
WHEREAS, in the Merger, one hundred percent (100%) of the issued and
outstanding shares of capital stock of the Company will be converted into the
right to receive shares of Common Stock of Parent (as set forth in Article III),
on the terms and subject to the conditions set forth in this Agreement and in
accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and Chapters 78 and 92A of Title 7 of the Nevada Revised Statutes (the
"NPCA"); and
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WHEREAS, the Board of Directors of the Company (the "Company Board") and
the Board of Directors of Parent (the "Parent Board") has each resolved to
recommend to its stockholders the adoption and approval of this Agreement and
the Merger.
A G R E E M E N T
-----------------
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth in this
Agreement, and intending to be legally bound hereby, the parties hereto hereby
agree as follows:
ARTICLE I.
DEFINED TERMS; CONSTRUCTION
Section 1.1. Certain Definitions. Unless otherwise expressly provided
herein, the following terms, whenever used in this Agreement, shall have the
meanings ascribed to them below or in the referenced Sections of this Agreement:
"Acquisition Proposal" means, (A) with respect to the Company, any
agreement, offer, proposal or indication of interest (other than this Agreement,
the Merger or any other offer, proposal or indication of interest by Parent), or
any public announcement of intention to enter into any such agreement or of any
intention to make any offer, proposal or indication of interest, relating to or
involving (i) the purchase from the Company or any Company Subsidiary or any
acquisition by any Person of more than a 10% interest (or, with respect to any
Person holding more than a 10% interest on the date hereof, of an additional
interest) in the total outstanding voting securities of the Company or any
Company Subsidiary (other than acquisitions of voting securities of a Company
Subsidiary by the Company) or any tender offer or exchange offer that if
consummated would result in any Person Beneficially Owning 10% or more of the
total outstanding voting securities of the Company or any Company Subsidiary,
(ii) any merger, consolidation, business combination or similar transaction
involving the Company or any Company Subsidiary, or (iii) any sale (other than
in the Ordinary Course of Business) or disposition of the assets of the Company
and the Company Subsidiaries in any single transaction or series of related
transactions that constitute or represent 10% or more of the total revenue or
operating assets of the Company and the Company Subsidiaries taken as a whole,
in each case other than (x) the Merger, (y) the exercise of Company Options, or
(z) the conversion or exchange of Company Preferred Shares or Company
Indebtedness by Stanford, as contemplated by Article VII; and (B) with respect
to Parent, any agreement, offer, proposal or indication of interest (other than
this Agreement, the Merger or any other offer, proposal or indication of
interest by the Company), or any public announcement of intention to enter into
any such agreement or of any intention to make any offer, proposal or indication
of interest, relating to or involving (i) the purchase from the Parent or any
Parent Subsidiary or any acquisition by any Person of more than a 10% interest
(or, with respect to any Person holding more than a 10% interest on the date
hereof, of an additional interest) in the total outstanding voting securities of
Parent or any Parent Subsidiary (other than acquisitions of voting securities of
a Parent Subsidiary by Parent) or any tender offer or exchange offer that if
consummated would result in any Person Beneficially Owning 10% or more of the
total outstanding voting securities of Parent or any Parent Subsidiary, (ii) any
merger, consolidation, business combination or similar transaction involving the
Parent or any Parent Subsidiary, or (iii) any sale (other than in the Ordinary
Course of Business) or disposition of the assets of Parent and the Parent
Subsidiaries in any single transaction or series of related transactions that
constitute or represent 10% or more of the total revenue or operating assets of
Parent and the Parent Subsidiaries taken as a whole, in each case other than the
Merger and the exercise of Parent Options.
-2-
"Actions" means any action, appeal, petition, plea, charge, complaint,
claim, suit (whether civil, criminal, administrative, judicial or investigative,
whether formal or informal, whether public, private or otherwise, whether at law
or in equity), demand, litigation, arbitration, mediation, hearing, inquiry,
investigation, audit or similar event, occurrence, or proceeding, in each case
commenced, brought, conducted or heard by or before, or otherwise involving, any
Governmental Entity, arbitrator or mediator.
"Actual Knowledge" means, with respect to a particular fact or other
matter, (i) with respect to an individual, that such individual is actually
aware of such fact or other matter, and (ii) with respect to an Entity, that any
Person who is serving, or who has at any time served, as a director, officer,
management-level employee, partner, executor or trustee of such Entity (or, in
all cases above, in any similar or equivalent capacity), or any employee of such
Entity charged with responsibility for a particular functional or regional area
of such Entity's business or operations, has, or at any time had, Actual
Knowledge of such fact or other matter.
"Affiliate" shall have the meaning ascribed to such term in Rule 144
promulgated under the Securities Act.
"Amend" means, with respect to any Contract, Law, filing or
Organizational Document, to amend, supplement, extend, waive a provision of or
otherwise modify such Contract, Law, filing or Organizational Document. The
related terms "Amended" and "Amendment" shall have the correlative meanings.
"Applicable Time" means (i) with respect to the Form S-4, the time the Form
S-4, or any amendment or supplement thereto, is filed with the SEC, the time the
Form S-4 becomes effective under the Securities Act and at the Effective Time,
(ii) with respect to the Proxy Statement, the date the Proxy Statement, or any
amendment or supplement thereto, is first mailed to the stockholders of Parent
or the Company, at the times of the Parent Stockholder Meeting and the Company
Stockholder Meeting, and at the Effective Time, or (iii) with respect to any
Other Filing, the date such Other Filing, or any amendment or supplement
thereto, is filed with the applicable Governmental Entity.
"Beneficial Owner" shall have the meaning ascribed to such term in Rule
13d-3 under the Exchange Act. The related terms "Beneficially Own",
"Beneficially Owning" and "Beneficial Ownership" shall have the correlative
meanings.
"Best Efforts" means the efforts that a prudent Person desirous of
achieving a result would use in similar circumstances to achieve that result as
expeditiously and effectively as possible.
"Board Recommendation" means the Company Board Recommendation or the Parent
Board Recommendation.
"Blue Sky Laws" means state securities or "blue sky" laws.
"Breach" means (a) any breach of, or inaccuracy in, any representation or
warranty, (b) any breach or violation of, default under (including any
designated "event of default"), failure to perform, failure to comply with or
failure to notify, or noncompliance with, any covenant, agreement or obligation,
or (c) any one or more other Events the existence of which, individually or
together, whether unconditionally or with the passing of time or the giving of
notice, or both, would (i) constitute a breach, violation, default, failure or
noncompliance referred to in clauses (a) and (b) next above, (ii) result in the
acceleration of, or permit any Person to accelerate, any monetary obligation,
(iii) result in the abridgement, modification, acceleration, termination,
revocation, rescission, redemption, cancellation or vesting of, or permit any
Person to abridge, modify, accelerate, delay, condition, terminate, revoke,
-3-
rescind, redeem or cancel, any right, license, liability, benefit, debt, power,
authority, privilege or obligation, or (iv) require, or permit any Person to
require, the payment of a monetary penalty or liquidated damages.
"Business Day" means any day other than (i) a Saturday or Sunday, and (ii)
any day on which the SEC shall be closed for business.
"Capitalization Adjustment" means, with respect to any class of shares, an
adjustment based on any stock split, reverse stock split, combination,
consolidation, reorganization or reclassification of, or any stock dividend
(including any dividend or distribution of Securities convertible into capital
stock) on, such class of shares, the recapitalization of the issuer thereof, or
any like change.
"Certificates" means, collectively, the stock certificates representing
Company Common Shares immediately before the Effective Time.
"Closing Company Common Shares" means the Company Common Shares outstanding
immediately at the Effective Time, including any Company Common Shares issued or
issuable upon the exercise or conversion, before or at the Effective Time, of
any Company Options, Company Warrants or other Commitments therefor, including
the conversions and exchanges contemplated by the Conversion Agreements and Note
Exchange Agreement, but, for avoidance of doubt, excluding Company Common Shares
(i) to be cancelled pursuant to Section 3.1(b), or (ii) issuable upon the
exercise of any Company Options or Company Warrants being assumed by Parent
pursuant to Section 3.7 and Section 3.9, respectively.
"Code" means the United States Internal Revenue Code of 1986, as Amended.
"Commitment" means (a) options, warrants, convertible securities,
exchangeable securities, subscription rights, purchase or acquisition rights,
conversion rights, exchange rights, or other Contracts that require an Entity to
issue any of its Equity Interests, (b) any other securities convertible into,
exchangeable or exercisable for, or representing the right to subscribe for, in
each case with or without consideration, any Equity Interest of an Entity, (c)
statutory pre-emptive rights or pre-emptive rights granted under an Entity's
Organizational Documents, (d) rights of first refusal, tag-along rights, co-sale
rights, drag-along rights, registration rights, piggyback rights, buy-sell
arrangements, or voting agreements, or (e) stock appreciation rights, phantom
stock, profit participation, or other similar rights with respect to an Entity.
"Company Balance Sheet" means the balance sheet of the Company as of the
Company Balance Sheet Date, as previously Made Available to Parent.
"Company Balance Sheet Date" means September 30, 2006.
"Company Board Recommendation" means the unanimous recommendation by the
Company Board that the Company's stockholders vote in favor of (i) the adoption
and approval of this Agreement and the Merger, and (ii) the Stockholder Agent
Appointment.
"Company Common Share" means a share of Company Common Stock.
"Company Common Stock" means the common stock, par value $0.001 per share,
of the Company.
-4-
"Company Information" means the statements regarding the Company, its
operations, business, directors, officers, Subsidiaries and stockholders
contained in the Form S-4, Proxy Statement or Other Filings.
"Company Option" means any option granted, to the extent not exercised,
expired or terminated, to a current or former employee, director, officer or
consultant of the Company or any Company Subsidiary, or any predecessor of any
of the foregoing, to purchase or otherwise acquire Company Common Shares
pursuant to any Company Stock Option Plan.
"Company SEC Reports" means all SEC Reports filed by the Company with the
SEC, including those that the Company may file subsequent to the date hereof.
"Company Stock Option Plan" means any equity incentive, stock option, stock
bonus, stock award or stock purchase plan, program or arrangement, as amended to
date, of the Company or any Company Subsidiary, or any predecessor of any of the
foregoing, including the Company's 2003 Omnibus Stock Option Plan and 2000
Omnibus Stock Option Plan.
"Company Warrant" means a warrant or similar right to purchase any Company
Common Shares.
"Consent" means any consent, approval, authorization, permit, ratification,
favorable vote, authorization, waiver, or other similar action.
"Contract" means any agreement, contract, subcontract, lease, sublease,
power of attorney, note, loan, evidence of indebtedness, letter of credit,
binding undertaking, covenant not to compete, license, instrument, obligation,
binding commitment, binding understanding, indenture, option or warranty; in
each case whether oral or written, express or implied.
"Control" means the possession, directly or indirectly, or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise. The related terms
"controlled by" and "under common control with" shall have the correlative
meanings.
"Conversion Agreements" means those certain Conversion Agreements, made and
entered into as of the date hereof, by and between the Company, on the one hand,
and Stanford or DiGenova, on the other hand.
"DiGenova Warrant" means that certain Warrant, issued by Parent to DiGenova
on the date hereof pursuant to that certain Securities Exchange Agreement, dated
as of the date hereof, by and between Parent and DiGenova.
"Dissenting Stockholders" means stockholders of the Company who have
perfected their appraisal rights pursuant to Section 262 of the DGCL, or are
otherwise duly exercising dissenters' or appraisal rights under applicable Law,
in respect of the Merger.
"Employment Agreements" means the executive employment agreements between
Parent, on the one hand, and Dr. L.S. Smith or William H. Oyster, on the other
hand, previously approved by the Parent Board and Made Available to the Company.
"Encumbrance" means, with respect to any Property, any Order, Lien,
easement, right of way, encroachment, servitude, right of first option, right of
-5-
first refusal or similar restriction, drag-along or similar rights, community or
other marital property interest, condition, equitable interest, license,
encumbrance or other binding restriction of any kind (including restrictions on
use, Transfer, receipt of income or exercise of any other attribute or indicia
of ownership) on such Property or any interest therein or right thereto, whether
directly or indirectly (through one or more intermediary Persons or otherwise),
whether voluntarily, involuntarily or by operation of law, and, where
applicable, any restriction on voting thereof or receipt of income thereon and
any Commitments in respect thereof; provided that Transfer restrictions under
federal securities and Blue Sky Laws and regulations shall be deemed not to be
an Encumbrance. The term "Encumber" shall have the correlative meaning.
"Entity" means any corporation (including any non-profit corporation),
general partnership, limited partnership, limited liability partnership, joint
venture, estate, trust, company (including any limited liability company or
joint stock company), firm, labor organization, unincorporated organization, or
other enterprise, association, organization or business entity.
"Environment" means soil, land surface or subsurface strata, surface waters
(including navigable waters and ocean waters), groundwaters, drinking water
supply, stream sediments, ambient air (including indoor air), plant and animal
life and any other environmental medium or natural resource.
"Environmental Claims" means, with respect to any Person, all accusations,
allegations, notices of violation, Encumbrances, claims, demands, suits or
causes of action for any damage, arising out of or related to the presence or
Release of, or exposure to, any Hazardous Substances at any of such Person's
Facilities, or the material failure by such Person to comply with any applicable
Environmental Laws.
"Environmental Laws" means any Law that requires or relates to (i) advising
appropriate authorities, employees or the public of intended, threatened or
actual Environmental Releases of Materials of Environmental Concern, violations
of discharge limits or other prohibitions and the commencement of activities,
such as resource extraction or construction, that could have significant impact
on the Environment, (ii) preventing or reducing to acceptable levels the
Environmental Release of Materials of Environmental Concern into the
Environment, (iii) reducing the quantities, preventing the Environmental Release
or minimizing the hazardous characteristics of wastes that are generated, (iv)
assuring that products are designed, formulated, packaged and used so that they
do not present unreasonable risks to human health or the Environment when used
or disposed of, (v) protecting the Environment, resources, species or ecological
amenities, (vi) reducing to acceptable levels the risks inherent in the
transportation of Materials of Environmental Concern, (vii) cleaning up
Materials of Environmental Concern that have been Environmentally Released,
preventing the threat of Environmental Release or paying the costs of such clean
up or prevention, (viii) making responsible parties pay private parties, or
groups of them, for damages done to their health or the Environment or
permitting self-appointed representatives of the public interest to recover for
injuries done to public assets, or (ix) the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Materials of Environmental Concern or the protection of human health or the
Environment.
"Environmental Release" means any release, spill, emission, leaking,
pumping, pouring, dumping, emptying, injection, deposit, disposal, discharge,
dispersal, leaching or migration on or into the Environment or into or out of
any property. The related term "Environmentally Released" shall have the
correlative meaning.
"Equity Interest" means (a) with respect to any corporation, any and all
shares of capital stock and any Commitments with respect thereto, (b) with
respect to any general or limited partnership, limited liability company, trust
or similar Entity, any and all units, interests or other partnership/limited
liability company interests, and any Commitments with respect thereto, and (c)
-6-
with respect to any other Entity, any other direct or indirect equity ownership,
participation or interest therein and any Commitments with respect thereto.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
Amended, and the regulations promulgated thereunder.
"ERISA Affiliate" means, with respect to any Person, any Entity or trade or
business (whether or not incorporated), other than such Person, that together
with such Person is considered under common control and treated as a single
employer under Sections 414(b), (c), (m) or (o) of the Code.
"Event" means any act, omission, occurrence, circumstance, development,
change, condition or other event or effect.
"Escrow Agent" means the escrow agent appointed by Parent to act as escrow
agent under the Escrow Agreement, together with its successors as escrow agent
thereunder.
"Escrow Termination Date" means the last day of the Escrow Period.
"Exchange Act" means the Securities Exchange Act of 1934, as Amended, and
the rules and regulations promulgated thereunder.
"Expenses" includes all reasonable out-of-pocket expenses (including all
reasonable fees and expenses of legal counsel, accountants, investment bankers,
experts and consultants to a party hereto and its Affiliates) incurred by a
party or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution and performance of this Agreement and the
Transactions, including the preparation, printing, filing and mailing of the
Form S-4 and Proxy Statement and the solicitation of stockholder approvals and
all other matters related to the Transactions.
"Facilities" means (i) plants, offices, manufacturing facilities, stores,
warehouses, administration buildings and real property and related facilities,
and (ii) with respect to any Person, all Facilities owned, leased, operated or
occupied at any time by such Person or any of such Person's Subsidiaries.
"Form S-4" means the registration statement on Form S-4 to be filed by
Parent with the SEC in connection with the issuance of the Parent Common Shares
constituting the Merger Consideration in the Merger, including the joint proxy
statement/prospectus forming a part thereof.
"GAAP" means generally accepted accounting principles for financial
reporting, as applied in the United States and in effect from time to time.
"Governmental Entity" means any (i) nation, state, county, city, town,
borough, village, district or other jurisdiction, (ii) supranational, national,
federal, state, local, municipal, foreign or other government, (iii)
governmental or quasi-governmental authority of any nature (including any
legislature, agency, board, bureau, branch, department, division, commission,
instrumentality, court, tribunal, magistrate, justice or other entity exercising
governmental or quasi-governmental powers), (iv) multi-national organization or
body, (v) any body exercising, or entitled to exercise, any administrative,
executive, judicial, legislative, police, military, regulatory or taxing
authority or power, (v) any stock exchange or similar self-regulatory
organization or any quasi-governmental or private body exercising any
regulatory, taxing or any other governmental or quasi-governmental authority, or
(vi) any official of any of the foregoing.
-7-
"Governmental Permit" means any permit, license, certificate, Consent,
clearance, certificate, registration, approval, accreditation, or other similar
authorization required by any Law or Governmental Entity.
"Group" has the meaning ascribed to such term in Section 13 of the Exchange
Act.
"Hazardous Substances" means all pollutants, contaminants, chemicals,
wastes, and any other infectious, toxic or otherwise hazardous substances or
materials (whether solids, liquids or gases) subject to regulation, control or
remediation under applicable Environmental Laws, including any material,
substance or waste which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous waste," "restricted
hazardous waste," "contaminant," "toxic waste" or "toxic substance" under any
provision of Environmental Law, and including radioactive materials, petroleum,
petroleum products, asbestos, presumed asbestos-containing material or
asbestos-containing material, urea formaldehyde and polychlorinated biphenyls.
"Indebtedness" means, with respect to any Person, without duplication, (i)
all obligations of such Person for borrowed money, or with respect to deposits
or advances of any kind to such Person, (ii) all obligations of such Person
evidenced by bonds, debentures, notes or similar instruments, (iii) all
obligations of such Person upon which interest charges are customarily paid,
(iv) all obligations of such Person under conditional sale or other title
retention agreements relating to property purchased by such Person, (v) all
obligations of such Person issued or assumed as the deferred purchase price of
Property or services (excluding obligations of such Person to creditors for raw
materials, inventory, services and supplies incurred in the ordinary course of
such Person's business), (vi) all capitalized lease obligations of such Person,
(vii) all obligations of others secured by any Encumbrance on Property owned or
acquired by such Person, whether or not the obligations secured thereby have
been assumed, (viii) all obligations of such Person under interest rate or
currency swap transactions (valued at the termination value thereof), (ix) all
letters of credit issued for the account of such Person (excluding letters of
credit issued for the benefit of suppliers to support accounts payable to
suppliers incurred in the ordinary course of business), (x) all obligations of
such Person to purchase Securities (or other Property) that arise out of or in
connection with the sale of the same or substantially similar Securities or
Property, and (xi) all guarantees and arrangements having the economic effect of
a guarantee of such Person of any Indebtedness of any other Person.
"Independent Committee" has the meaning ascribed to such term in the
Management Agreement.
"Intellectual Property" means any and all worldwide intellectual property
and intellectual property rights, including all patents and applications
therefor and all reissues, divisions, renewals, extensions, provisionals,
continuations and continuations-in-part thereof; all inventions (whether
patentable or not), invention disclosures, improvements, trade secrets,
proprietary information, know how, technology, technical data, proprietary
processes and formulae, algorithms, specifications, customer lists and supplier
lists; all designs and any registrations and applications therefor; all trade
names, logos, common law trademarks and service marks, trademark and service
mark registrations and applications therefor; Internet domain names and
toll-free numbers; all copyrights, copyright registrations and applications
therefor; all computer software, including all source code, object code,
firmware, and development tools, game engines, game rules, scripts, voice-overs,
characters, images, drawings, graphics, files, records and data; all rights in
prototypes; all databases and data collections and all rights therein; all moral
and economic rights of authors and inventors; and all other intellectual
property of any kind or nature.
-8-
"IRS" means the United States Internal Revenue Service and, to the extent
relevant, the United States Department of the Treasury.
"Key Employee" means, with respect to any Entity, any employee at the vice
president level or higher, or who is otherwise material to such Entity and such
Entity's Subsidiaries taken as a whole.
"Knowledge" means, with respect to a particular fact or other matter, (a)
in the case of an individual, (i) that such individual is actually aware of such
fact or other matter, or (ii) a prudent individual could be expected to have
discovered or otherwise have become aware of such fact or other matter in the
course of conducting a comprehensive investigation concerning the existence of
such fact or other matter, and (b) in the case of an Entity, that any Person who
is serving, or who has at any time served, as a director, officer,
management-level employee, partner, executor or trustee of such Entity (or, in
all cases above, in any similar or equivalent capacity), or any employee of such
Entity charged with responsibility for a particular functional or regional area
of such Entity's business or operations, has, or at any time had, Knowledge of
such fact or other matter.
"Law" means any federal, state, local, domestic, foreign, international or
multi national law (statutory, common, or otherwise), constitution, treaty,
statute, code, order, writ, injunction, decree, award, stipulation, ordinance or
administrative doctrine, ordinance, equitable principle, code, rule, regulation,
executive order, request, or other similar authority enacted, adopted,
promulgated, or applied by any Governmental Entity, each as Amended.
"Lease" means any lease of real or personal property or any lease or rental
agreement, license, right to use or installment and conditional sale agreement
to which the Company is a party or subject, and any other Contract of the
Company pertaining to the leasing or use of any Tangible Personal Property. The
related terms "Lease" and "Leased" used as a verb shall have the correlative
meanings.
"Liability" or "Liable" means any liability or obligation of any kind,
character or description, whether known or unknown, absolute or contingent,
matured or unmatured, disputed or undisputed, secured or unsecured, conditional
or unconditional, accrued or unaccrued, liquidated or unliquidated, vested or
unvested, joint or several, due or to become due, executory, determined,
determinable or otherwise, and whether or not the same is required to be accrued
on financial statements.
"Lien" means, in respect of any Property, any security interest, deed of
trust, mortgage, pledge, lien, statutory liens of any kind or nature,
hypothecation, charge, claim, lease or other similar interest or right in
respect of such Property.
"Losses" means, without duplication, all damages, losses (including loss
due to business interruption or operation shutdowns, increased costs of
operation, the loss of any available tax deduction, and including special,
exemplary, punitive or incidental loss or damage), deficiencies, costs of
mitigation or avoidance, Liabilities, expenses of whatever nature, costs
(including increased costs of business or operations), obligations, fines,
interest, penalties, and payments, whether incurred by or issued against a
Person, including (i) with respect to environmental liabilities and losses,
clean-up, remedial correction and responsive action, and (ii) with respect to
any Action or threatened Action, amounts paid in defense, settlement and
discovery, costs associated with obtaining injunctive relief, administrative
costs and expenses, reasonable fees and expenses of attorneys, expert witnesses,
accountants and other professional advisors, and other out-of-pocket costs of
investigation, preparation, and litigation in connection therewith. In computing
the amount of Losses, an offset shall be taken into account for tax savings (net
of reasonable costs and expenses incurred in obtaining such savings, and taking
into account the tax effect of any indemnity to which the Person may be
entitled) and for insurance benefits (without duplication of any amounts
credited or repaid pursuant to Section 8.1(d)).
-9-
"Lock-Up Agreement" means that certain Lock-Up Agreement, made and entered
into as of the date hereof, by and between DGSE and DiGenova.
"Made Available" means (a) in the case of Parent, that either (i) the
Company or its Representatives has delivered such materials to Parent or its
designated representatives via email or otherwise on or before December 31, 2006
(or such later date as Parent and the Company may agree in writing), or (ii)
such material constitutes part of the Parent SEC Reports filed with the SEC
prior to the date of this Agreement which are currently available through the
SEC's EDGAR system, and (b) in the case of the Company, that either (i) Parent
or its Representatives has delivered such materials to the Company or its
designated representatives via email or otherwise on or before December 31, 2006
(or such later date as Parent and the Company may agree in writing), or (ii)
such material constitutes part of the Company SEC Reports filed with the SEC
prior to the date of this Agreement which are currently available through the
SEC's EDGAR system.
"Management Agreement" means that certain Management Agreement, made and
entered into as of the date hereof, by and between Merger Sub and the Company.
"Material" or "Materially" means, with respect to any Person and any Event,
violation or Breach, any of the foregoing which, alone or in combination with
any other Events, violations or Breaches, is reasonably likely to result in or
have a Material Adverse Effect, taken as a whole, on such Person and its
Subsidiaries, taken as a whole.
"Material Adverse Effect" means, with respect to any Person and any Events,
that such Events, taken individually or in the aggregate, (i) have had, or are
reasonably likely to have, a materially adverse effect on the assets (including
intangible assets), Properties, business, financial condition or results of
operations of such Person and its Subsidiaries, taken as a whole, or (ii)
materially impede or delays, or are reasonably likely materially to impede or
delay, the ability of such Person or its Subsidiaries to perform its obligations
under this Agreement or any Related Agreements to which it is a signatory, or to
consummate the Transactions, in accordance with the terms hereof and thereof and
applicable Laws; provided, however, that no such Events to the extent resulting
from or arising out of any of the following shall be deemed to constitute, in
and of itself, a Material Adverse Effect, nor shall it be taken into
consideration when determining whether there has occurred a Material Adverse
Effect: (i) any change in applicable Laws, GAAP, regulations or application or
interpretations of such Laws, GAAP or regulations, but only to the extent that
such changes do not adversely affect such Person and its Subsidiaries in a
disproportionate manner from others in the industry or market generally, (ii)
the negotiation, execution, delivery, pendency or announcement of this
Agreement, the Related Agreements or the consummation of the Transactions,
including any loss of or adverse impact on relationships with employees,
customers, suppliers, licensors, licensees, or distributors of such Person or
its Subsidiaries as a result thereof, (iii) any Events affecting the industry in
which such Person operates generally, but only to the extent that such Events do
not adversely affect such Person and its Subsidiaries in a disproportionate
manner, (iv) changes in United States or world general political, economic or
capital market conditions, but only to the extent that such changes do not
adversely affect such Person and its Subsidiaries in a disproportionate manner,
(v) actual or threatened stockholder litigation arising from allegations of
breach of fiduciary duty relating to this Agreement or the Related Agreements,
including related claims with respect to disclosure of the Merger or this
Agreement, or (vi) any delay in the mailing of the Form S-4 or Proxy Statement
due to the SEC or Blue Sky Laws review process related thereto.
"Materials of Environmental Concern" means chemicals, pollutants,
pollution, contaminants, wastes, Hazardous Substances and any other substance
that is now or hereafter regulated by any applicable Environmental Law or that
is otherwise a danger to health, reproduction or the Environment.
-10-
"Merger Consideration" means 3,700,000 Parent Common Shares.
"Minimum Company Stockholders Equity" means negative Three Million One
Hundred Twenty-Three Thousand Four Hundred Twenty-Eight Dollars and no cents
(-$3,123,428).
"Minute Books" means, (i) with respect to any corporation, minute books of
such corporation containing records of all proceedings, consents, actions and
meetings of the Board of Directors, committees of the Board of Directors,
stockholders and committees of stockholders of such corporation, or (ii) with
respect to any other Entity, minutes or similar books and records of such Entity
containing records of all proceedings, consents, actions and meetings of the
equivalent governing bodies, including managing members in the case of a limited
liability company or general partners in case of a partnership, and owners of
such Entity.
"Order" means any order, ruling, decision, verdict, decree, writ, subpoena,
award, judgment, injunction, assessment, or other similar determination or
finding by, before, or under the supervision of any Governmental Entity,
arbitrator or mediator.
"Ordinary Course of Business" means, with respect to any action by any
Person, that such action (i) is consistent in nature, scope, quality, frequency
and magnitude with the past customs and practices of such Person, to the extent
practicable if such Person has a rapidly growing business, and is taken in the
ordinary course of the normal, day-to-day operations of such Person, and (ii)
does not require authorization by (1) such Person's board of directors (or any
committee thereof), (2) such Person's stockholders (or by any Person or group of
Persons exercising similar authority), or (3) more than one of such Person's (A)
principal executive officer, (B) principal operating officer, (C) principal
financial officer, and (D) other officer performing substantially similar
functions.
"Organizational Documents" means, with respect to any Entity, (i) if a
corporation, its articles or certificate of incorporation and its bylaws, or
(ii) if another type of Entity, any other charter, regulations or similar
document, including Contracts, adopted or filed in connection with the creation,
formation or organization of such Entity; in each case as Amended.
"OTCBB" means the OTC Bulletin Board.
"Other Filings" means all filings made by, or required to be made by, the
Company or Parent, as the case may be, with the SEC in connection with the
Transactions, other than the Form S-4 and Proxy Statement.
"Open Source Materials" means all software or other copyrightable work that
is distributed as "free software" or "open source software" or under
substantially similar licensing or distribution terms, including any software
licensed under a license approved as "Open Source" by the Open Source
Initiative, http://www.opensource.org/, or as "Free Software" by The Free
Software Foundation, http://www.fsf.org/.
"Parent Balance Sheet" means the balance sheet of Parent as of the Parent
Balance Sheet Date, as contained in the Parent SEC Reports.
"Parent Balance Sheet Date" means September 30, 2006.
"Parent Board Recommendation" means the unanimous recommendation by the
Parent Board that the Parent's stockholders vote in favor of (i) the adoption
and approval of this Agreement and the Merger, and (ii) the Parent Authorized
Stock Increase.
-11-
"Parent Common Share" means a share of common stock, par value $0.01 per
share, of Parent.
"Parent Information" means the statements regarding Parent, its operations,
business, directors, officers, Subsidiaries and stockholders contained in the
Form S-4, Proxy Statement or Other Filings.
"Parent Option" means any option granted, to the extent not exercised,
expired or terminated, to a current or former employee, director, officer or
consultant of Parent or any Parent Subsidiary, or any predecessor of any of the
foregoing, to purchase or otherwise acquire Parent Common Shares pursuant to any
Parent Stock Option Plan.
"Parent SEC Reports" means all SEC Reports filed by Parent with the SEC,
including those that Parent may file subsequent to the date hereof.
"Parent Stock Option Plan" means any equity incentive, stock option, stock
bonus, stock award or stock purchase plan, program or arrangement, as amended to
date, of Parent or any Parent Subsidiary, or any predecessor of any of the
foregoing, including Parent's Stock Option Plan, effective as of January 1, 2004
and, if approved at Parent's 2006 annual meeting of its stockholders, Parent's
2006 Equity Incentive Plan (as such plan is described in Parent's proxy
statement filed with the SEC on April 27, 2006).
"Parent Warrant" means a warrant or similar right to purchase any Parent
Common Shares.
"PCAOB" means the United States Public Company Accounting Oversight Board.
"Person" means any individual, Group, Governmental Entity or Entity.
"Principal Market" means, with respect to any Entity, the Nasdaq Capital
Market, the New York Stock Exchange, the Nasdaq National Market, the American
Stock Exchange, the OTCBB or any other national securities exchange registered
under Section 6 of the Exchange Act, whichever is at the time the principal
trading exchange, market or inter-dealer or automated quotation system for the
shares of common stock of such Entity.
"Property" means any present or future, legal or equitable, vested or
contingent right to or interest in any fixture, real property, personal property
or any other property or asset, including goods, leases, securities (whether or
not certificated), commercial paper, financial assets, commodities, accounts,
equipment, chattel paper, derivatives, instruments, money, claims, licenses,
Contracts, Intellectual Property, royalties and general intangibles, and any
proceeds of any of the foregoing.
"Proxy Statement" means the proxy materials constituting part of the joint
proxy statement/prospectus forming part of the Form S-4 or otherwise
communicated to Parent or Company stockholders in connection with the Merger or
relating to the Company Stockholders Meeting or the Parent Stockholders Meeting.
"Registered Intellectual Property" means, with respect to any Person, all
United States, international and foreign (i) patents and patent applications
(including provisional applications), (ii) registered trademarks or service
marks, applications to register trademarks or service marks, intent-to-use
applications, or other registrations or applications related to trademarks or
service marks, (iii) registered Internet domain names or toll-free numbers, and
(iv) registered copyrights and applications for copyright registration, in each
case of clauses (i) through (iv) next preceding, that is owned by, registered or
filed in the name of, such Person or any Subsidiary of such Person.
-12-
"Related Agreements" means the Confidentiality Agreement, the Shared
Expenses Agreement, the Escrow Agreement, the Limited Joinder Agreement, the
Certificate of Merger, the Employment Agreements, the A Warrants, the B
Warrants, the DiGenova Warrant, the Registration Rights Agreement, the
Termination and Release Agreements, the Management Agreement, the Conversion
Agreements, the Note Exchange Agreement, the Securities Exchange Agreement, the
Support Agreements, the Lock-Up Agreement, the Consulting Agreement, the
amendment to the Stanford LOC dated the date hereof, the Forbearance Agreement,
the Amended and Restated Stanford LOC, and any other agreement delivered on the
date hereof or at or in connection with the Closing.
"Representatives" means, with respect to any Person, such Person's
officers, directors, employees, managers, consultants, contractors, agents,
investment bankers, brokers, agents, and other financial, banking and legal
advisors or other representatives.
"Repurchase Rights" means, with respect to any Entity, outstanding rights
held by such Entity to repurchase or redeem Equity Interests in such Entity, or
similar restrictions in such Entity's favor with respect to any of its Equity
Interests.
"SEC" means the United States Securities and Exchange Commission.
"SEC Reports" means any forms, statements, schedules, requests, reports and
documents (including items incorporated by reference) required or authorized to
be filed with the SEC pursuant to the Securities Act or the Exchange Act or the
rule and regulations promulgated by the SEC thereunder.
"SEC Rules" means the rules and regulations promulgated by the SEC under
the Securities Act, the Exchange Act or SOX.
"Securities Act" means the Securities Act of 1933, as Amended, and the
rules and regulations promulgated thereunder.
"Securities" means any stock, capital stock or similar security, shares,
partnership (general or limited) interests, membership or limited liability
company interests or units, interests in a joint venture, voting trust
certificates, certificates of interest or participation in any profit sharing
agreement or arrangement or business trust, voting trust certificate, investment
contract, bonds, debentures, notes, or other evidences of indebtedness, secured
or unsecured, convertible, subordinated or otherwise, or in general any
instruments commonly known as "securities", or any certificates of interest or
participations in, temporary or interim certificates for, receipt for,
guarantees of, warrants or rights to subscribe to, purchase or otherwise
acquire, or any other Commitments, puts or other options, futures, or
certificate of deposit for, any of the foregoing.
"Security Interest" means any Lien, except for (i) liens for taxes,
assessments, governmental charges, or claims that are being contested in good
faith by appropriate Actions promptly instituted and diligently conducted and
only to the extent that a reserve or other appropriate provision, if any, has
been made on the face of the Company Financial Statements in an amount equal to
the Liability for which the lien is asserted, (ii) statutory liens of landlords
and warehousemen's, carriers', mechanics', suppliers', materialmen's,
repairmen's or other like liens (including contractual landlords' liens) arising
in the Ordinary Course of Business and with respect to amounts not yet
delinquent, or with respect to amounts being contested in good faith by
appropriate proceedings, and (iii) liens incurred or deposits made in the
Ordinary Course of Business in connection with workers' compensation,
unemployment insurance and other similar types of social security.
-13-
"SOX" means the Sarbanes-Oxley Act of 2002, as Amended, and the rules and
regulations promulgated thereunder.
"Stockholders" means all of the stockholders of the Company from time to
time, other than stockholders who do not hold any Company Common Shares other
than Dissenting Shares.
"Subsidiary" means, with respect to any Person, (a) any corporation in
which a controlling interest in the total voting power of all classes of the
Equity Interests entitled (without regard to the occurrence of any contingency)
to vote in the election of directors of such corporation is owned by such Person
directly or through one or more other Subsidiaries of such Person, and (b) any
Person other than a corporation of which at least a controlling interest of the
Equity Interests (however designated) entitled (without regard to the occurrence
of any contingency) to vote in the election of the governing body, partners,
managers, or others that will control the management of such Entity is owned by
such Person directly or through one or more other Subsidiaries of such Person.
"Superior Offer" means, with respect to the party receiving an offer, any
bona fide written offer, not solicited after the date of this Agreement by the
party or on behalf of the party by any of its Representatives, made by a Person
to acquire, directly or indirectly, pursuant to a tender offer, exchange offer,
merger, consolidation or other business combination (including by means of a
tender offer followed promptly by a back-end merger), all or substantially all
of the assets of the party receiving the offer or all of the total outstanding
voting securities of such party and as a result of which (i) Equity Interests
held by stockholders of such party immediately preceding such transaction would
represent or be converted into less than 50% of the Equity Interests in the
surviving or resulting Entity of such transaction or any direct or indirect
parent or Subsidiary thereof, or (ii) such third party acquiring, directly or
indirectly, all or substantially all of the assets of the party receiving the
offer and such party's Subsidiaries, taken as a whole, in each case for
consideration consisting exclusively of cash or publicly-traded equity
securities, on terms that such party's Board of Directors has in good faith
determined (after consulting with such party's legal counsel and financial
advisors), to be more favorable to its stockholders than the terms of the Merger
and taking into consideration whether such offer is reasonably capable of being
consummated, and whether financing to the extent required by the Person making
such offer, is then fully committed and available, and is not contingent.
"Support Agreements" means those certain Support Agreements, made and
entered into as of the date hereof, by and between certain stockholders of the
Company and Parent, and by and between Dr. L.S. Smith and the Company.
"Tangible Personal Property" means, with respect to any Person, all
machinery, equipment, tools, furniture, office equipment, computer hardware,
supplies, materials, vehicles and other items of tangible personal property
(other than inventories) of every kind owned or leased by such Person, wherever
located and whether or not carried on such Person's books.
"Taxes" means (i) all taxes, levies, assessments, duties, imposts or other
like assessments, charges or fees (including estimated taxes, charges and fees),
including income, profits, corporations, advance corporation, gross receipts,
transfer, excise, property, sales, use value-added, ad valorem, license,
capital, wage, employment, payroll, withholding, social security, severance,
occupation, import, custom, stamp, alternative, add-on minimum, environmental,
franchise or other governmental taxes or charges, imposed by any Governmental
Entity responsible for the imposition of any such tax (each, a "Tax Authority"),
including any interest, penalties or additions to tax applicable or related
thereto, (ii) all liability for the payment of any amounts of the type described
in clause (i) as the result of being (or ceasing to be) a member of an
affiliated, consolidated, combined or unitary group (or being included (or
required to be included) in any Tax Return related thereto), and (iii) all
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liability for the payment of any amounts as a result of an express or implied
obligation to indemnify or otherwise assume or succeed to the liability of any
other person with respect to the payment of any amounts of the type described in
clause (i) or clause (ii).
"Tax Return" means any report, return, statement, declaration, claim for
refund, information return or other written information (including any related
or supporting schedules, statements or information and amended returns) filed or
required to be filed in connection with any Taxes, including the administration
of any Laws, regulations or administrative requirements relating to any Taxes.
"Third Party Intellectual Property Rights" means, with respect to any
Person, any Intellectual Property owned by, or exclusively licensed by, another
Person (other than a Subsidiary of such first Person).
"Transaction Documents" means this Agreement, the Related Agreements and
any certificates, instruments, proxies or documents delivered or to be delivered
pursuant to or in connection with this Agreement, any Related Agreement or any
Transaction.
"Transactions" means all of the transactions contemplated by this
Agreement, including the Merger.
"Transfer" means, with respect to any Property, to sell, deed, dividend,
distribute (including upon liquidation or distribution), exchange, convey,
consign, negotiate, gift, devise, bequeath, pass by intestate succession,
assign, issue, or otherwise alienate, transfer or dispose of such Property or
any interest therein or right thereto, whether directly or indirectly (through
another Person or otherwise), whether voluntarily, involuntarily or by operation
of law, and whether with or without consideration. The related terms
"Transferred" and "Transferring" shall have the correlative meanings.
"U.S. Export and Import Laws" means all United States export and import
Laws and controls, including the Arms Export Control Act (22 U.S.C. ss. 2778),
the International Traffic in Arms Regulations (ITAR) (22 C.F.R. Subchapter M),
the Export Administration Act of 1979, as amended (50 U.S.C. ss.ss. 2401-2420),
the Export Administration Regulations (EAR) (15 C.F.R. 730-774), and all other
laws and regulations of the United States Government regulating the provision of
services to non-U.S. parties or the export and import of articles or information
from and to the United States of America and non-U.S. parties.
Section 1.2. Other Definitions. All other capitalized terms used in
this Agreement and not defined in Section 1.1 shall have the meanings ascribed
to such terms elsewhere in this Agreement.
Section 1.3. Construction. The parties hereto have participated jointly
in the negotiation and drafting of this Agreement with the assistance of legal
counsel, and any rule of construction or interpretation otherwise requiring this
Agreement to be construed or interpreted against any party shall not apply to
any construction or interpretation hereof. If an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof shall arise
favoring or disfavoring any party because of the authorship of any provision of
this Agreement. The parties intend that each representation, warranty and
covenant contained herein shall have independent significance. If any party has
Breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to a similar subject matter (regardless of the relative levels
of specificity) which the party has not breached shall not
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detract from or mitigate the fact that the party is in Breach of the first
representation, warranty, or covenant. For all purposes of this Agreement,
except as otherwise expressly provided or unless the context otherwise requires:
(a) all references in this Agreement to designated "Articles,"
"Sections" and other subdivisions, or to designated "Exhibits," "Schedules" or
"Appendices," are to the designated Articles, Sections and other subdivisions
of, or the designated Exhibits, Schedules or Appendices to, this Agreement;
(b) references to any Person includes such Person's successors and
assigns but, if applicable, only if such successors and assigns are not
prohibited by this Agreement, and reference to a Person in a particular capacity
excludes such Person in any other capacity or individually;
(c) references to any agreement, document or instrument means such
agreement, document or instrument as Amended and in effect from time to time in
accordance with the terms thereof, and shall be deemed to refer as well to all
addenda, annexes, appendices, exhibits, schedules and other attachments thereto;
(d) reference to any Law means such Law as Amended, codified, replaced
or reenacted, in whole or in part, and in effect from time to time, including
rules and regulations promulgated thereunder, and reference to any section or
other provision of any Law means that provision of such Law from time to time in
effect and constituting the substantive Amendment, codification, replacement or
reenactment of such section or other provision;
(e) references to "dollars" or "cash", and the "$" symbol, are
references to the lawful money of the United States of America;
(f) with respect to the determination of any period of time, "from"
means "from and including" and "to" means "to but excluding";
(g) the words "include," "includes," and "including" shall be deemed to
be followed by "without limitation";
(h) the term "or" shall not be exclusive;
(i) pronouIns in masculine, feminine, and neuter genders shall be
construed to include any other gender;
(j) whenever the singular number is used, if required by the context,
the same shall include the plural, and vice versa;
(k) the words "this Agreement," "herein," "hereof," "hereby,"
"hereunder," and words of similar import refer to this Agreement as a whole and
not to any particular Article, Section or other subdivision; and
(l) all accounting terms shall be interpreted, and all accounting
determinations hereunder shall be made, in accordance with GAAP.
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ARTICLE II.
THE MERGER
Section 2.1. The Merger. Upon the terms and subject to satisfaction or
waiver of the conditions set forth in this Agreement, and in accordance with the
DGCL, Merger Sub, at the Effective Time, shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of Merger
Sub shall cease and the Company shall continue as the surviving corporation of
the Merger (together with its successors, the "Surviving Corporation") and as a
wholly-owned subsidiary of Parent.
Section 2.2. The Closing. The closing of the Merger (the "Closing")
shall take place (i) on the second Business Day after the satisfaction or waiver
of each of the conditions set forth in Article VII, or (ii) at such other time
as Parent and the Company shall agree in writing (the date of the Closing, the
"Closing Date"). The Closing shall take place at the offices of Sheppard,
Mullin, Richter & Hampton LLP, 12275 El Camino Real, Suite 200, San Diego,
California 92130-2006, or at such other location as Parent and the Company agree
in writing.
Section 2.3. Effective Time. On the Closing Date, or on such other date
as may be mutually agreed by Parent and the Company, the parties hereto shall
cause the Merger to be consummated by filing a certificate of merger in
substantially the form of Exhibit A (the "Certificate of Merger") with the
Office of the Secretary of State of the State of Delaware, executed and
otherwise filed in accordance with the relevant provisions of the DGCL (the date
and time of such filing, or if another date and time is specified in the
Certificate of Merger, such specified date and time, the "Effective Time").
Section 2.4. Effect of the Merger. At the Effective Time, the effect of
the Merger shall be as provided in this Agreement, the Certificate of Merger and
the applicable provisions of the DGCL. Without limiting the generality of the
foregoing, at the Effective Time, except as otherwise provided herein, all the
Property, rights, privileges, powers and franchises of the Company and Merger
Sub shall vest in the Surviving Corporation, and all Indebtedness, Liabilities
and duties of the Company and Merger Sub shall become the Indebtedness,
Liabilities and duties of the Surviving Corporation.
Section 2.5. Certificate of Incorporation; Bylaws. The certificate of
incorporation and bylaws of Merger Sub as in effect immediately prior to the
Effective Time shall constitute the certificate of incorporation and bylaws of
the Surviving Corporation at and after the Effective Time; provided, however,
that (i) Article I of the certificate of incorporation of the Surviving
Corporation will be amended at the Effective Time to read "The name of the
corporation is Superior Galleries, Inc." (or as Parent and the Company may
otherwise agree prior to the filing of the Certificate of Merger), and (ii) at
the election of Parent, such election to be made in Parent's sole discretion and
effected by delivery of a notice to the Company on or before the Closing Date,
Article IV of the certificate of incorporation of the Surviving Corporation will
be amended at the Effective Time to read "The total number of shares of capital
stock which the corporation shall have authority to issue is 6,000,000 shares of
common stock, $0.0001 par value per share."; in each case until thereafter
amended.
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Section 2.6. Directors and Officers. Unless otherwise determined by
Parent prior to the Effective Time, the directors and officers of Merger Sub
immediately prior to the Effective Time shall be the sole directors and officers
of the Surviving Corporation effective as of the Effective Time, each to hold
office in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until their successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal.
ARTICLE III.
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
Section 3.1. Conversion of Securities. 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) Company Common Shares. Each Closing Company Common Share issued and
outstanding immediately prior to the Effective Time (exclusive of Dissenting
Shares referred to in Section 3.10) shall be automatically be cancelled and
retired and shall cease to exist, and the holder of a stock certificate that,
immediately prior to the Effective Time, represented issued and outstanding
Closing Company Common Shares shall cease to have any rights with respect
thereto, except the right to receive, upon the surrender of such certificates
(or delivery of the affidavit and bond, if any, specified in Section 3.4(i)) and
upon the terms and subject to the conditions set forth in this Article III and
elsewhere in this Agreement, 0.2731 Parent Common Shares for each Company Common
Share (the "Exchange Ratio").
(b) Cancellation of Certain Shares. Each Company Common Share held
immediately prior to the Effective Time by the Company, Parent, Merger Sub or
any Subsidiary of the Company, Parent or Merger Sub, and each share of any class
of capital stock of the Company other than the Company Common Stock (including
each series of preferred stock of the Company), shall be automatically cancelled
and retired and shall cease to exist, without any conversion thereof or
consideration therefor, and no payment shall be made with respect thereto.
(c) Capital Stock of Merger Sub. Each share of capital stock of Merger
Sub that is issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without further action on the part of the
sole stockholder of Merger Sub, be converted into and become (i) if Article IV
of the certificate of incorporation of the Surviving Corporation is amended at
the Effective Time as provided in clause (ii) in the proviso in Section 2.5,
five thousand, or (ii) otherwise, one; in either case, validly issued, fully
paid and non-assessable share(s) of common stock of the Surviving Corporation
(and the shares of Surviving Corporation into which the shares of Merger Sub
capital stock are so converted shall be the only shares of the Surviving
Corporation's capital stock that are issued and outstanding immediately after
the Effective Time). Each certificate evidencing ownership of shares of Merger
Sub common stock will evidence ownership of such shares of common stock of the
Surviving Corporation.
Section 3.2. Capitalization Adjustments to Shares. In the event of any
Capitalization Adjustment with respect to the Company Common Shares or Parent
Common Shares occurring after the date of this Agreement and prior to the
Effective Time, or with respect to Parent Common Shares being held in the Escrow
Account pursuant to the Escrow Agreement after the Effective Time for so long as
held therein, all references in this Agreement to specified numbers of shares of
any class or series affected thereby, and all calculations provided for that are
based upon numbers of shares of any class or series (or trading prices therefor)
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affected thereby, shall be equitably adjusted to the extent necessary to provide
the parties the same economic effect as contemplated by this Agreement prior to
such Capitalization Adjustment.
Section 3.3. Allocation and Distribution of Merger Consideration.
Subject to Section 3.1(b), Section 3.5, Section 3.14 and other provisions of
this Article III, the Merger Consideration shall be allocated among all
pre-Closing Stockholders pro rata according to the respective number of Closing
Company Common Shares held by each such stockholder. Parent (and, to the extent
applicable, the Stockholder Agent) shall deliver the Merger Consideration to the
Exchange Agent for distribution to such stockholders, provided that Parent may
retain any consideration in respect of any Dissenting Stockholders for
distribution pursuant to Section 3.10 or for paying any settlement, award or
judgment of any Actions relating to such stockholder's Dissenting Shares.
Section 3.4. Surrender of Certificates; Payment.
(a) Exchange Procedures.
(1) Promptly after the Effective Time, Parent shall instruct
the Exchange Agent to mail to each holder of record of Closing Company
Common Shares (i) a letter of transmittal, substantially in the form of
Exhibit B (collectively, the "Letters of Transmittal"), and (ii)
instructions for use in effecting surrender by such holder of its
Certificates to the Exchange Agent in exchange for the Merger
Consideration.
(2) The holder of each Certificate, upon the surrender of such
Certificate by such holder to the Exchange Agent (or the delivery of
the affidavit and bond, if any, specified in Section 3.4(i)), together
with a Letter of Transmittal duly completed and validly executed by
such holder in accordance with the instructions thereto, and such other
documents as may reasonably be required by the Exchange Agent, shall,
subject to Section 3.4(e) and Section 3.14, be entitled to receive in
exchange for such Certificate a certificate representing the number of
Parent Common Shares for which the Company Common Shares theretofore
represented by such Certificate may be exchanged pursuant to Section
3.1, and such surrendered Certificate shall forthwith thereafter be
cancelled and retired.
(3) Each Certificate shall be deemed at all times from and
after the Effective Time to represent only the right to receive, upon
exchange as contemplated in this Section 3.4, the Merger Consideration
to which the holder of the Company Common Shares formerly represented
by such Certificate is entitled to receive in the Merger.
(b) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the Effective Time with respect to
Parent Common Shares with a record date thirty or more days after the Effective
Time but prior to the surrender of a Certificate (or the delivery of the
affidavit and bond, if any, specified in Section 3.4(i)) will be paid or due to
the holder of such Certificate in respect of the Parent Common Shares
exchangeable therefor.
(c) Transfers of Ownership. In the event of a transfer of ownership of
Company Common Shares that is not registered on the transfer records of the
Company, the Merger Consideration payable hereunder with respect to such Company
Common Shares may be paid to a Person other than the Person in whose name the
Certificate so surrendered is registered, but only if (i) such Certificate shall
be properly endorsed and otherwise be in proper form for transfer, and (ii) that
the Person requesting such exchange shall have paid to Parent or any agent
designated by it any transfer or other taxes required by reason of the issuance
of a certificate for Parent Common Shares in any name other than that of the
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registered holder of the Certificates surrendered, or established to the
satisfaction of Parent or any agent designated by it that such tax has been paid
or is not payable.
(d) Exchange Agent. Prior to the Effective Time, Parent or a direct or
indirect Subsidiary of Parent shall make available to Registrar & Transfer
Company (or such other transfer agent which Parent may appoint to act as the
exchange agent hereunder from time to time), as exchange agent hereunder (in
such capacity, together with its successors in such capacity, the "Exchange
Agent"), for distribution by the Exchange Agent in accordance with this Article
III, certificates representing Parent Common Shares to deliver to the holders of
outstanding Company Common Shares (other than any Company Common Shares to be
canceled pursuant to Section 3.1(b) and Dissenting Shares referred to in Section
3.10), as the aggregate Merger Consideration payable to such holders pursuant to
Section 3.1 in exchange for such Company Common Shares. Parent shall deliver
irrevocable instructions to the Exchange Agent to cause the Exchange Agent to
deliver the Merger Consideration contemplated to be issued pursuant to Section
3.1 as promptly as reasonably practicable upon receipt of the documents,
including Letters of Transmittal and Certificates, described above. Upon
surrender of a Certificate to the Exchange Agent for exchange, together with a
duly executed Letter of Transmittal and such other documents as may be
reasonably required by the Exchange Agent, the Exchange Agent shall (i) deliver
to the holder of such Certificate a certificate representing the number of
Parent Common Shares that such holder has the right to receive as Merger
Consideration pursuant to this Article III, and (ii) deliver to the Escrow Agent
under the Escrow Agreement on behalf of such holder a certificate in the name of
the Escrow Agent with respect to the portion of the Escrow Shares that such
holder has placed in escrow pursuant to this Article III.
(e) No Fractional Shares. No certificate or scrip representing
fractional Parent Common Shares shall be issued upon the surrender of
certificates formerly representing Company Common Shares or otherwise in the
Merger, and in lieu thereof, any fractional Parent Common Share shall be rounded
up to the nearest whole Parent Common Share; provided that, prior to applying
the sentence next preceding with respect to any holder of Company Common Shares,
all Company Common Shares held by such holder shall be aggregated, taking into
account all certificates formerly representing Company Common Shares delivered
by such holder and the aggregate number of Company Common Shares represented
thereby, and after giving effect to the exercise of any Company Options or
Company Warrants to be exercised by such holder in connection with the Closing.
(f) Further Rights in Company Common Shares. All Merger Consideration
issued and paid upon conversion of the Company Common Shares in accordance with
the terms hereof shall be deemed to have been issued and paid in full
satisfaction of all rights pertaining to such Company Common Shares.
(g) Unclaimed Merger Consideration. The Exchange Agent shall upon
demand promptly return any portion of the Merger Consideration that remains
undistributed six months after the Effective Time, and any holders of Company
Common Shares immediately prior to the Effective Time who have not theretofore
complied with this Article III shall thereafter look only to Parent (subject to
applicable abandoned property, escheat and similar Laws) for the Merger
Consideration. Notwithstanding anything to the contrary contained herein, if any
Certificate has not been surrendered within three years of the Effective Time,
subject to applicable Law, any amounts payable in respect of such Certificate
shall, to the extent permitted by applicable Laws, become the property of the
Parent, free and clear of all claims or interests of any Person previously
entitled thereto.
(h) No Liability. None of Parent, the Company, Merger Sub or the
Surviving Corporation shall be liable to any Person for any Merger Consideration
delivered to a public official pursuant to any abandoned property, escheat or
similar Law.
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(i) Lost Certificates. If any Certificate shall have been lost, stolen
or destroyed, upon (i) the making of an affidavit of that fact by holder thereof
claiming such Certificate to be lost, stolen or destroyed, and (ii) if required
by Parent or the Exchange Agent in their respective discretion, the posting by
such holder of a bond, in such reasonable amount as Parent or the Exchange Agent
may direct, as indemnity against any claim that may be made against it with
respect to such Certificate; the Exchange Agent or Parent, as applicable, shall
deliver to such holder the appropriate Merger Consideration in exchange for the
Company Common Shares represented by such lost, stolen or destroyed Certificate.
Section 3.5 Withholding Rights. Each of Parent, Merger Sub, the
Surviving Corporation and the Exchange Agent shall be entitled to deduct and
withhold from the Merger Consideration otherwise payable pursuant to this
Agreement to any holder of Company Common Shares or Company Options such amounts
as it is required to deduct and withhold with respect to the making of such
payment under the Code and the rules and regulations promulgated thereunder, or
any provision of a Tax Law, or pursuant to other applicable Orders. To the
extent that amounts are so withheld from the Merger Consideration, such withheld
amounts shall be treated for all purposes of this Agreement as having been paid
to the holder of Company Common Shares or Company Options in respect of whom
such deduction and withholding was made.
Section 3.6 Share Transfer Books. At the Effective Time, the share
transfer books of the Company shall be closed, and, thereafter, there shall be
no further registration of Transfers of Company Common Shares theretofore
outstanding on the records of the Company. From and after the Effective Time,
the holders of certificates representing Company Common Shares outstanding
immediately prior to the Effective Time shall cease to have any rights with
respect to such Company Common Shares, except as otherwise provided herein or by
applicable Laws. On and after the Effective Time, any certificates presented to
the Exchange Agent or Parent for any reason shall be cancelled and retired, and
the holder thereof shall only have the right to receive the Merger
Consideration, without interest, upon the terms and subject to the conditions
hereof.
Section 3.7 Company Options.
(a) Before the Effective Time, the Company shall take all action
necessary such that each Company Option that is outstanding and unexercised
immediately prior to the Effective Time and that is not surrendered to Parent as
provided in Section 3.7(b) within 30 days of the Closing Date shall be
cancelled. As soon as practicable following the date hereof, the Company Board
(or, if appropriate, any committee thereof administering the Company Stock
Option Plans) shall adopt such resolutions or take such other actions as may be
required to effect the provisions of this Section 3.7, including making the
appropriate election under Section 8.3 of the Company's 2003 Omnibus Stock
Option Plan or 2000 Omnibus Stock Option Plan. The Company shall use its Best
Efforts to prevent the acceleration of any Company Option in connection with the
Merger or other Transactions.
(b) After the Effective Time, promptly upon the surrender by the
optionee for exchange of a Company Option granted pursuant to any Company Stock
Option Plan, Parent shall grant the optionee thereof a new option (each, a "New
Option") under a Parent Stock Option Plan to purchase Parent Common Shares
subject to, and exercisable upon, the terms and conditions of the Contracts
evidencing such Company Option previously Made Available to Parent, except:
(1) from and after the Effective Time, Parent and the Parent
Board or the Compensation Committee of the Parent Board, as the case
may be, shall be substituted for the Company and the Company
Subsidiaries and their respective Boards of Directors and committees
thereof for the purpose of administering the terms and conditions of
the substituted New Option;
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(2) all references to the Company (or any Company Subsidiary)
shall be replaced by references to Parent;
(3) all references to the Company (or any Company Subsidiary)
or its state of incorporation, address and similar information shall be
replaced by references to Parent and its state of incorporation,
address and other corresponding information;
(4) all references to Company Common Shares shall be replaced
by references to Parent Common Shares;
(5) the number of Parent Common Shares subject to the
substituted New Option shall equal the product of the number of Company
Common Shares subject to the surrendered Company Option times the
Exchange Ratio (with such product being rounded to the nearest whole
number of Parent Common Shares);
(6) the exercise price per Parent Common Share under the
substituted New Option shall be equal to the quotient of exercise price
per Company Common Share under the surrendered Company Option divided
by the Exchange Ratio (with such exercise price not to be less than the
par value per Parent Common Share); and
(7) any other changes required by Section 3.7(c) shall be
made.
Upon such surrender of a Company Option and the grant of a New Option, such
Company Option shall terminate and be of no further force or effect.
(c) The adjustments provided in this Section 3.7 with respect to any
Company Options that are "incentive stock options" (as defined in Section 422 of
the Code) shall be effected in a manner that complies with Code Section 424(a).
Except as otherwise provided in this Section 3.7, the duration and other terms
of each substituted New Option shall, to the extent permitted by Law and
otherwise reasonably practicable, be the same as the corresponding surrendered
Company Option (taking into account any changes thereto, including acceleration
thereof, provided for in the Company Stock Option Plan by reason of this
Agreement or the Transactions).
(d) Prior to the Effective Time, the Board of Directors of Parent, or
an appropriate committee of non-employee directors thereof, shall adopt a
resolution consistent with the interpretive guidance of the SEC so that the
assumption of the Company Options held by Company Insiders pursuant to Section
3.7(a) shall be an exempt transaction for purposes of Section 16 of the Exchange
Act by any officer or director of the Company who becomes subject to the
provisions of Section 16 of the Exchange Act in respect of Parent (a "Company
Insider").
(e) The Company and Parent shall take all commercially reasonable
actions that are necessary in order to effect the foregoing provisions of this
Section 3.7 as of the Effective Time.
(f) The total number of Parent Common Shares issuable under all Parent
Stock Option Plans immediately after the Effective Time shall not exceed
2,450,000.
Section 3.8 Unvested Company Shares. Parent Common Shares delivered as
Merger Consideration pursuant to this Article III in exchange for Company Common
Shares that immediately prior to the Effective Time were restricted, not fully
vested or subject to Repurchase Rights ("Unvested Company Shares") shall be
subject to the same terms, conditions, restrictions, vesting arrangements or
Repurchase Rights, including rights to dividends and voting rights, that were
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applicable to such Unvested Company Shares immediately prior to or at the
Effective Time (and, except as set forth in Section 3.8 of the Company
Disclosure Schedules, no vesting, acceleration, or lapse of Repurchase Rights,
shall occur with respect to such Unvested Company Shares by reason of the
Merger), and, notwithstanding any other provision of this Article III, Parent
shall be entitled to place or have placed appropriate legends or other
restrictions on the certificates representing such Parent Common Shares or to
delay the delivery or release of such Parent Common Shares to the holder of such
Unvested Company Shares. By virtue of this Agreement, all outstanding Repurchase
Rights with respect to Unvested Company Shares that the Company may hold
immediately prior to the Effective Time shall be assigned to Parent in the
Merger and shall thereafter be exercisable by Parent upon the same terms and
subject to the same conditions that were in effect immediately prior to the
Effective Time, except that Repurchase Rights may be exercised by Parent for
each Unvested Company Share by paying to the former holder thereof the
repurchase price in effect for such Unvested Company Share immediately prior to
the Effective Time divided by the Exchange Ratio and retaining the Parent Common
Shares for which such Unvested Company Share may have otherwise been exchanged.
Following the Effective Time, no Unvested Company Share, or right thereto, may
be Encumbered or Transferred by any Person, other than Parent, or be taken or
reached by any legal or equitable process in satisfaction of any Indebtedness or
other Liability of such Person, prior to the distribution to such Person of the
Parent Common Shares exchangeable therefor in accordance with this Agreement.
Section 3.9 Company Warrants. At the Effective Time, each
then-outstanding Company Warrant disclosed in Section 4.3(d) of the Company
Disclosure Schedules shall be assumed by Parent (and the Company covenants and
agrees to Amend each Company Warrant to provide for such assumption if necessary
to ensure that no Commitment to acquire any Company Common Shares or any other
Equity Interests of the Company will remain outstanding after the Effective
Time), subject to, and exercisable upon, the same terms and conditions as under
the applicable Company Warrant (as Amended and made available to Parent prior to
the date hereof), except:
(1) all references to the Company shall be replaced by
references to Parent;
(2) all references to the Company or its state of
incorporation, address and similar information shall be replaced by
references to Parent and its state of incorporation, address and other
corresponding information;
(3) all references to Company Common Shares shall be replaced
by references to Parent Common Shares;
(4) the number of Parent Common Shares subject to the Company
Warrant, as assumed, shall equal the product of the number of Company
Common Shares subject to such Company Warrant times the Exchange Ratio
(with such product being rounded to the nearest whole number of Parent
Common Shares);
(5) the exercise price per Parent Common Share under the
Company Warrant, as assumed, shall be equal to the quotient of exercise
price per Company Common Share under such Company Warrant divided by
the Exchange Ratio (with such exercise price not to be less than the
par value per Parent Common Share); and
(6) the anti-dilution provisions, if any, of such Company
Warrant shall not apply to, and the exercise price of such Company
Warrant shall not be effected by, the issuance of the Merger
Consideration.
-23-
Upon surrender of a Company Warrant to Parent for exchange, Parent shall issue
to the registered holder thereof a new warrant of like tenor, subject to the
changes and other provisions specified in this Section 3.9.
Section 3.10 Appraisal Rights. Notwithstanding anything in this
Agreement to the contrary, Company Common Shares that are outstanding
immediately prior to the Effective Time and held by a holder who has not voted
in favor of the Merger or consented thereto in writing and who has demanded
appraisal for such Company Common Shares in accordance with Section 262 of the
DGCL ("Dissenting Shares") shall not be cancelled and retired or be exchangeable
for the Merger Consideration and will be paid for by the Surviving Corporation
in accordance with Section 262 of the DGCL; provided, however, that if any such
holder shall fail to perfect or otherwise shall waive, withdraw or lose the
right to appraisal and payment under the DGCL, the right of such holder to such
appraisal of its Company Common Shares shall cease, and such Company Common
Shares shall be deemed cancelled and retired as of the Effective Time and the
holder thereof shall have the right to receive the Merger Consideration as
provided in this Article III. The Company shall give Parent (i) prompt notice of
any written demands (or purported demands) for appraisal received by the Company
with respect to shares of capital stock of the Company, withdrawals (or
attempted withdrawals) of such demands, and any other written instruments served
pursuant to Section 262 of the DGCL or other applicable Law and received by the
Company relating to stockholder appraisal rights, and (ii) the opportunity to
direct, in its reasonable business judgment, all negotiations and proceedings
with respect to exercise of such appraisal rights. The Company shall not, except
with Parent's prior written consent, (1) voluntarily make any payment with
respect to any demands for appraisal for Dissenting Shares, (2) offer to settle,
or settle, any such demands, (3) waive any failure to timely deliver a written
demand for appraisal in accordance with the DGCL, or (4) agree to do any of the
foregoing.
Section 3.11 Taking of Necessary Action; Further Action. If, at any
time after the Effective Time, any such further action is necessary or desirable
to carry out the purposes of this Agreement and to vest the Surviving
Corporation with full right, title, and possession to all Contracts, Property,
rights, privileges and powers of the Company and Merger Sub, the officers and
directors of the Company, Parent and Merger Sub are fully authorized in the name
of their respective corporations or otherwise to take, and the Company and
Parent shall cause them to take, all such lawful and necessary action.
Section 3.12 Tax Consequences. For federal income tax purposes, the
Merger is intended to constitute a reorganization within the meaning of Section
368 of the Code. Nothing in this Section 3.12 shall be interpreted as requiring
any change in the amount or kind of Merger Consideration payable to any Company
stockholder in connection with the Merger.
Section 3.13 Accounting Treatment. For accounting purposes, the Merger
is intended to be treated as a "purchase."
Section 3.14 Escrow Agreement; Escrow Account.
(a) At the Closing, Parent shall deliver to the Escrow Agent, on behalf
of the pre-Merger stockholders of the Company, stock certificates evidencing a
number of shares equal to 15% of (i) the number of Parent Common Shares issuable
at Closing pursuant to Section 3.1(a), and (ii) the total number of Parent
Common Shares for which the DiGenova Warrant may be exercised (collectively, the
"Escrow Stock"); provided, however, that Parent may deduct from the Escrow Stock
the amount, if any, owing to Parent at the time of the Closing pursuant to
Section 8.2(b), using the cash value per share set forth in the sentence next
succeeding. Parent shall cause the Escrow Agent to deposit the Escrow Stock into
an escrow account with the Escrow Agent (the "Escrow Account") for the purpose
-24-
of securing the indemnification obligations set forth in Article VIII, with each
Parent Common Shares being valued at $2.67 per share, subject to equitable
adjustment in the event of any post-Closing Capitalization Adjustment of Parent
Common Shares. The Escrow Agent shall maintain the Escrow Account for such
purposes until the date one calendar year after the Effective Time (the "Escrow
Period"); provided, however, that in the event any Indemnified Parties have made
any claims under Article VIII prior to the end of the Escrow Period, the Escrow
Period and the release of any Escrow Assets shall be tolled, and a number of
Parent Common Shares having an aggregate value up to the sum of the maximum
aggregate amount of such claims shall remain in the Escrow Account as security
and not be released to the pre-Merger Stockholders and Silvano DiGenova
("DiGenova"), until all such claims shall have been fully and finally resolved
and settled, as provided in the Escrow Agreement. The Escrow Account shall be
subject to the terms and provisions of Section 8.2 and the Escrow Agreement.
(b) Releases of Escrow Stock from the Escrow Account shall be subject
to the terms and conditions of an Escrow Agreement substantially in the form of
Exhibit C (with such amendments thereto as DGSE and the Escrow Agent may agree
with the consent of the Stockholder Agent, such consent not to be unreasonably
withheld, conditioned or delayed, the "Escrow Agreement") and Section 3.4(e).
(c) In the event that this Agreement is adopted by the stockholders of
the Company, then all such stockholders shall, without further act of any such
stockholder, be deemed to have consented to and approved (i) the terms and
conditions of the Escrow Agreement, (ii) the use of the Escrow Account as
collateral to secure the rights of the Indemnified Parties under Article VIII,
and (iii) the appointment by the Stockholders receiving Parent Common Shares in
the Merger of the Stockholder Agent as their exclusive agent, attorney-in-fact
and representative for and on behalf of each such Person (other than holders of
Dissenting Shares) under this Agreement and the Escrow Agreement.
(d) In the event of any inconsistency between this Agreement and the
Escrow Agreement regarding the powers, authorities, rights, duties, obligations
or liabilities of the Escrow Agent, the terms and provisions of the Escrow
Agreement shall control.
Section 3.15 Transfer Of Contingent Rights.
(a) The Merger Consideration and the interests in the Escrow Account,
and the provisions of this Article III and the Escrow Agreement related thereto,
are intended solely for the benefit of the Persons who immediately prior to the
Effective Time were Stockholders. Without limiting the generality of Section
10.5, except as expressly provided in Section 3.15(b), no Person may sell,
assign or otherwise Transfer (whether in connection with any sale, assignment or
other Transfer of any Parent Common Shares or otherwise) to any other Person (i)
any interest in any Merger Consideration not distributed to such first Person,
including any interest in the Escrow Account, or in any portion thereof, or (ii)
any right to participate, in whole or in part, in the distribution of any Merger
Consideration or to obtain any proceeds or shares from the Escrow Account
pursuant to Section 3.14 or the Escrow Agreement; and any attempt to do so shall
be null and void ab initio and of no force or effect. In no event shall the
right to receive contingent shares be evidenced by a negotiable instrument or
certificated security, or be readily marketable.
(b) Notwithstanding Section 3.15(a) and Section 10.5, an interest in
Merger Consideration may be assigned or Transferred involuntarily pursuant to
bequest, the laws of intestate succession or the order of a court in connection
with a settlement of property rights incident to divorce.
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ARTICLE IV.
COMPANY REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to Parent and Merger Sub that the
statements contained in this Article IV are true, correct and complete as of the
date of this Agreement, except as set forth, with respect to any specific
Section or subsection in this Article IV, in the corresponding section or
subsection of the schedules the Company has delivered to Parent concurrently
with the execution and delivery hereof (the "Company Disclosure Schedules") as
follows (it being understood that the disclosure of any matter or item in the
Company Disclosure Schedules shall not be deemed to constitute an
acknowledgement that such matter or item is required to be disclosed therein or
is material to a representation or warranty set forth in this Agreement and
shall not be used as a basis for interpreting the terms "material,"
"materially," "materiality" or "Material Adverse Effect" or any word or phrase
of similar import, and does not mean that such matter or item would, with any
other matter or item, have or be reasonably expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company):
Section 4.1 Organization and Qualification; Subsidiaries.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware. Each Subsidiary of the
Company (each a "Company Subsidiary" and, collectively, the "Company
Subsidiaries") has been duly organized, and is validly existing and in good
standing, under the laws of the jurisdiction of its incorporation or
organization, as the case may be. Each of the Company and each Company
Subsidiary has the requisite power and authority and all necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted and as currently proposed by it to be conducted.
Each of the Company and each Company Subsidiary is duly qualified or licensed to
do business, and is in good standing, in each jurisdiction where the character
of the properties owned, leased or operated by it or the nature of its business
makes such qualification, licensing or good standing necessary other than in
such jurisdictions where the failure to be so qualified individually or in the
aggregate would not have a Material Adverse Effect on the Company.
(b) Section 4.1(b) of the Company Disclosure Schedules sets forth a
true, correct and complete list of all of the Company Subsidiaries and the
jurisdictions of their organization. Except as set forth on Section 4.1(b) of
the Company Disclosure Schedules, none of the Company and the Company
Subsidiaries holds an Equity Interest in any other Entity. The Company directly,
or indirectly through the ownership of a Company Subsidiary, is the owner of all
of the issued and outstanding Equity Interests in each Company Subsidiary, and
all such Equity Interests are duly authorized, validly issued, fully paid and
nonassessable. Except as set forth in Section 4.1(b) of the Company Disclosure
Schedules, all of the issued and outstanding Equity Interests of each Company
Subsidiary are owned directly by the Company, or indirectly through the
ownership of a Company Subsidiary, free and clear of all Encumbrances and are
not subject to any preemptive right or right of first refusal created by Law or
the Organizational Documents of such Company Subsidiary or any Contract to which
such Company Subsidiary is a party or by which it is bound. There are no
outstanding Commitments or other Contracts of any character relating to the
issued or unissued Equity Interests or other Securities of any Company
Subsidiary, or otherwise obligating the Company or any Company Subsidiary to
issue, transfer, sell, purchase, redeem or otherwise acquire or sell any such
Equity Interests or Securities.
Section 4.2 Certificate of Incorporation and Bylaws; Corporate Books
and Records. The Company has Made Available to Parent a true, correct and
complete copy of the Company's Certificate of Incorporation, as Amended (the
"Company Certificate of Incorporation"), and the Company's Bylaws, as Amended
(the "Company Bylaws"), in each case as now in effect. The Company has Made
Available to Parent a true, correct and complete copy of the Organizational
-26-
Documents of each Company Subsidiary, in each case as Amended and now in effect.
Neither the Company nor any Company Subsidiary is in material violation of any
of the provisions of its Organizational Documents. Except as set forth in
Section 4.2 of the Company Disclosure Schedules, (i) true, correct and complete
copies of all Minute Books of the Company and the Company Subsidiaries have been
Made Available to Parent, and (ii) the Minute Books of the Company and each
Company Subsidiary Made Available to Parent contain accurate summaries of all
meetings of directors and stockholders (or equivalent managers and owners) or
actions by written consent of the directors and stockholders (or equivalent
managers and owners) of the Company and the respective Company Subsidiaries
through the date of this Agreement or the Closing Date, as the case may be.
Section 4.3 Capitalization.
(a) The authorized capital shares of the Company consist of 20,000,000
Company Common Shares and 10,000,000 shares of preferred stock, par value $0.001
per share (the "Company Preferred Shares"). As of December 31, 2006, 4,808,280
Company Common Shares (other than treasury shares) were issued and outstanding,
all of which are validly issued and fully paid, nonassessable and free of
preemptive rights (excluding shares held in the treasury of the Company). As of
the Closing Date (after giving effect to the conversions pursuant to Stanford's
Conversion Agreement), no Company Preferred Shares will be issued and
outstanding. As of December 31, 2006, the following (and only the following)
Company Preferred Shares were (i) authorized and (ii) issued and outstanding
(all of which issued and outstanding shares were validly issued and are fully
paid, nonassessable and free of preemptive rights, excluding shares held in the
treasury of the Company):
Shares of Series
Issued and
Designation of Series of Company Shares of Series Outstanding on
Preferred Shares Authorized Date Hereof
Series A $5.00 Redeemable 8%
Convertible Preferred Stock 125,000 0
Series B $1.00 Convertible Preferred Stock 3,400,000 3,400,000
Series D $1.00 Convertible Preferred Stock 2,000,000 2,000,000
Series E $1.00 Convertible Preferred Stock 2,500,000 2,500,000
(b) Except for the Company Common Shares reserved for issuance as set
forth in this Section 4.3 or in Section 4.3 of the Company Disclosure Schedules,
there are no Commitments or other rights or Contracts obligating the Company or
any Company Subsidiary to issue or sell any Equity Interests, or Securities
convertible into or exchangeable for Equity Interests, in the Company or any
Company Subsidiary. Since the Company Balance Sheet Date, the Company has not
issued any Equity Interests, or Securities convertible into or exchangeable for
such Equity Interests, other than those Company Common Shares reserved for
issuance as set forth in this Section 4.3 or in Section 4.3 of the Company
Disclosure Schedules. All issued and outstanding Company Common Shares and all
outstanding Company Options were issued, and all repurchases of Company Common
Shares were made, in material compliance with all applicable Laws.
(c) As of December 31, 2006, the Company has reserved 1,145,000 Company
Common Shares for issuance to employees, non-employee directors and consultants
pursuant to the Company Stock Option Plans, of which 356,250 shares are subject
to outstanding and unexercised Company Options and 788,750 shares remain
available for issuance thereunder, and 3,000 Company Common Shares for Company
Options granted outside the Company Stock Option Plans. As of December 31, 2006,
no outstanding Company Common Shares were subject to Repurchase Rights. Section
-27-
4.3(c)(1) of the Company Disclosure Schedules identifies (i) the name and full
address of each Person who held Company Options or Company Common Shares subject
to a Repurchase Right as of December 31, 2006, (ii) the particular Company Stock
Option Plan pursuant to which such Company Option was granted or such Company
Common Shares were issued, (iii) the date on which such Company Option was
granted or such Company Common Shares were issued, (iv) the exercise or base
price of such Company Option or the repurchase price of such Company Common
Shares, (v) the number of Company Common Shares subject to such Company Option
or Repurchase Right or value covered thereby, (vi) the number of Company Common
Shares as to which such Company Option had vested (or such Repurchase Right had
lapsed) at such date, (vii) the applicable vesting schedule for such Company
Option or such Company Common Shares and whether the exercisability or vesting
of such Company Option, or lapsing of the Repurchase Right, will be accelerated
or affected in any way by the Merger or the transactions contemplated hereby
(whether alone or in combination with any other event or condition, such as
termination of employment), (viii) the date on which such Company Option or
Repurchase Right expires, and (ix) in the case of shares subject to a Repurchase
Right, the material terms of any promissory note delivered in payment of the
purchase price for such Company Common Shares (including limitations on
recourse). All Company Options are nonqualified options under the Code. Section
4.3(c)(2) of the Company Disclosure Schedules sets forth a true, correct and
complete list of all holders of outstanding Company Options that are held by
Persons that are not employees of the Company or any Company Subsidiary
(including non-employee directors, consultants, advisory board members, vendors,
service providers or other similar Persons). All of the Company Common Shares
subject to issuance under the Company Stock Option Plans, upon issuance prior to
the Effective Time on the terms and conditions specified in the instruments
pursuant to which they are issuable, will be duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. The terms of each of
the Company Stock Option Plans and the applicable stock option agreements permit
(or, pursuant to action taken or to be taken by the Company prior to the Closing
Date, will permit) the assumption by Parent of all outstanding Company Options,
whether vested or unvested, as provided in this Agreement, without the consent
or approval of the holders of such securities or any other party. True, correct
and complete copies of each of the Company Stock Option Plans and the standard
form of all agreements and instruments relating to or issued under each Company
Stock Option Plan and all agreements and instruments relating to or issued under
the Company Stock Option Plans or Company Options that differ in any material
respect from such standard form agreements (it being understood that any
extension of the term, acceleration of vesting or reduction in the exercise
price shall be deemed material) have been Made Available to Parent, and such
agreements and instruments have not been Amended since being Made Available to
Parent, and there are no agreements, understandings or commitments to Amend such
agreements or instruments in any case from those Made Available to Parent. Each
Company Option (i) has been granted in accordance with the terms of the
applicable Company Stock Option Plan, (ii) has been granted with an exercise
price at least equal to the fair market value of the Company Common Shares on
the grant date, and (iii) has a grant date that is the date the option would be
considered granted for tax, corporate law and under generally accepted
accounting principles (that is, no Company Option has been backdated).
(d) Section 4.3(d) of the Company Disclosure Schedules sets forth all
outstanding Company Warrants and other Commitments (other than Company Options
disclosed in Section 4.3(c) of the Company Disclosure Schedules). The Company
has Made Available to Parent complete and correct copies of all Company Warrants
and Contracts governing such other Commitments, in each case as Amended to date.
At the Effective Time, no Company Options, Company Warrants or other Commitments
to acquire any Equity Interests of the Company shall be outstanding, except for
(i) Company Options disclosed in Section 4.3(c) of the Company Disclosure
Schedules and to be assumed by Parent pursuant to Section 3.7, and (ii) Company
Warrants disclosed in Section 4.3(d) of the Company Disclosure Schedules and to
be assumed by Parent pursuant to Section 3.9.
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(e) Section 4.3(e) of the Company Disclosure Schedules sets forth all
outstanding Contractual obligations of the Company or any Company Subsidiary (i)
restricting the transfer of, (ii) affecting the voting rights of, (iii)
requiring the repurchase, redemption or disposition of, or (iv) granting any
preemptive or anti-dilutive right with respect to; any Company Common Shares or
any other Equity Interests in the Company or any Company Subsidiary.
(f) After giving effect to the conversion of Preferred Shares pursuant
to the Conversion Agreements on the date hereof, (i) as of the date hereof and
(ii) if each of the Exemption Conditions is then satisfied, as of the record
date for the determination of the stockholders of the Company entitled to vote
at the Company Stockholders Meeting; not more than 25 percent of the Outstanding
Company Common Shares is or will be, as the case may be, held by Persons who
have addresses within the State of California according to the records of the
Company or its transfer agent. If each of the Exemption Conditions are satisfied
as of such record date, the exchange of the Merger Consideration for the
outstanding shares of capital stock of the Company will be exempt from the
qualification requirements of the California Securities Law of 1968, as amended,
by virtue of the exemption provided by Section 25103(c) thereof. "Outstanding
Company Common Shares" means, as of the date of determination, the total number
of outstanding Company Common Shares and Company Common Shares subject to
outstanding Company Options, minus the sum of (1) any Company Common Shares held
to the knowledge of the Company in the names of broker-dealers or nominees of
broker-dealers, and (2) any Company Common Shares and such Company Options
controlled by any one Person who controls directly or indirectly 50 percent or
more of the outstanding Company Common Shares. "Exemption Conditions" means, as
of a date of determination, each of the following conditions: (A) no Equity
Interests (other than Company Common Shares issued upon the exercise of Company
Options outstanding on the date hereof), or Commitments to acquire Equity
Interests, in the Company shall have been issued or redeemed after the date
hereof and prior to or on such date of determination, (B) between the date
hereof and such date of determination, no stockholder of the Company shall have
acquired direct or indirect control of additional Company Common Shares, such
that such stockholder then controls directly or indirectly 50% or more of the
outstanding Company Common Shares, and (C) the sum of (1) the number of Company
Common Shares or Company Options to acquire Company Common Shares held on the
date hereof by Persons who have addresses without the State of California and
which prior to or on such date of determination shall have become held by
Persons who have addresses within the State of California (including by means of
a change of address of record of any such a Person or upon the exercise of any
such Company Option), plus (2) the quotient of (x) the number of Company Common
Shares held on the date hereof by Persons who have addresses without the State
of California which are then held to the knowledge of the Company in the names
of broker-dealers or nominees of broker-dealers, divided by (y) four; shall be
less than 100,000.
Section 4.4 Authority.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and each Related Agreement to which it is a
signatory, to perform its obligations hereunder and thereunder and to consummate
the transactions contemplated hereby and thereby (other than, on the date
hereof, the Company Stockholder Approval), including the filing of the
Certificate of Merger pursuant to the DGCL. The execution and delivery of this
Agreement and each Related Agreement to which it is a signatory by the Company
and the consummation by the Company of the transactions contemplated hereby and
thereby, including said filing of the Certificate of Merger, have been duly and
validly authorized by all necessary corporate action (other than, on the date
hereof, the Company Stockholder Approval). Assuming the due authorization,
execution and delivery by Parent and Merger Sub of this Agreement, this
Agreement and each Related Agreement to which the Company is a signatory has
been duly authorized and validly executed and delivered by the Company and
constitutes a legal, valid and binding obligation of the Company, enforceable
-29-
against the Company in accordance with their respective terms, subject only to
the effect, if any, of (i) applicable bankruptcy and other similar Laws
affecting the rights of creditors generally, and (ii) rules of law governing
specific performance, injunctive relief and other equitable remedies. The
Company Board has unanimously (A) approved and declared advisable this
Agreement, each Related Agreement to which the Company is a signatory, the
Merger and the other Transactions applicable to it, (B) determined that this
Agreement and each Related Agreement to which it is a signatory and the terms
and conditions of the Merger and other Transactions are fair to, advisable and
in the best interests of the Company and its stockholders, and (C) directed that
the adoption of this Agreement and the approval of this Agreement, the Merger,
and the Stockholder Agent Appointment be submitted to the Company's stockholders
for approval at a meeting of such stockholders and recommended that all of the
Company's stockholders adopt and approve this Agreement and approve the Merger,
and the Stockholder Agent Appointment; provided, however, that after the date
hereof the Company Board acting in good faith may withdraw its recommendation.
The affirmative vote of the holders of a majority of the voting power of all
Company Common Shares and Company Preferred Shares issued and outstanding on the
record date set for the meeting of the Company's stockholders to adopt and
approve this Agreement and approve the Merger (the "Company Stockholders
Meeting") is the only vote of the holders of capital stock of the Company
necessary to adopt this Agreement under applicable Law and the Company's
Organizational Documents (the "Company Stockholder Approval").
(b) Assuming the representation set forth in Section 5.24 is true and
correct, the Company has taken all appropriate actions so that the restrictions
on "business combinations" contained in Section 203 of the DGCL will not apply
with respect to or as a result of this Agreement, the Related Agreements and the
transactions contemplated hereby and thereby, including the Merger, without any
further action on the part of the Company's stockholders or the Company Board.
Section 4.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Related
Agreements to which the Company is a signatory by the Company do not, and the
performance of this Agreement and such Related Agreements by the Company will
not, (i) conflict with or violate any provision of the Organizational Documents
of the Company or any Company Subsidiary, (ii) subject to obtaining the Company
Stockholder Approval and assuming that all Consents described in Section 4.5(b)
have been obtained and all filings and notifications described in Section 4.5(b)
have been made and any waiting periods thereunder have terminated or expired,
conflict with or violate any Law applicable to the Company or any Company
Subsidiary, or by which any Property of the Company or any Company Subsidiary is
bound or affected, (iii) result in the creation of any Encumbrance on any of the
Properties of the Company or any Company Subsidiary, or (iv) require any Consent
under, or result in any Breach of, any Company Material Contract or Company
Permit, in each case except as set forth in Section 4.5 of the Company
Disclosure Schedules.
(b) The execution and delivery of this Agreement and the Related
Agreements to which the Company is a signatory by the Company do not, and the
performance of this Agreement and such Related Agreements by the Company and
then consummation of the Transactions will not, require any Consent of, or
filing with or notification to, any Governmental Entity, except under or in
relation to (i) the Exchange Act, (ii) the Securities Act, (iii) any applicable
Blue Sky Laws, (iv) the rules and regulations of Parent's Principal Market, (v)
the filing and recordation of the Certificate of Merger as required by the DGCL
(together with the Consents, filings and notifications enumerated in clauses (i)
through (iv) next preceding, the "Specified Consents"), and (vi) such other
Consents and filings with or notifications to Governmental Entities the failures
of which to make or obtain, individually or in the aggregate, would not have a
Material Adverse Effect on the Company or Parent.
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Section 4.6 Permits; Compliance With Law.
(a) Each of the Company and each Company Subsidiary is in possession of
all material Governmental Permits, and has made all material filings,
applications and registrations with any Governmental Entity, in each case that
are necessary for the Company and each Company Subsidiary to own, lease or
operate its Properties, or to carry on its respective businesses substantially
in the manner described in the Company SEC Reports filed prior to the date
hereof or the Closing Date, as the case may be, and substantially as it is being
conducted as of the date hereof (the "Company Permits"), and all such Company
Permits are valid and in full force and effect, except where the failure to
have, or the suspension or cancellation of, or failure to be valid or in full
force and effect of, any of the Company Permits would not, individually or in
the aggregate, reasonably be expected to (i) prevent or materially delay
consummation of the Merger or any other transactions contemplated by this
Agreement, (ii) otherwise prevent or materially delay performance by the Company
of any of its material obligations under this Agreement or any Related Agreement
to which it is a signatory, or (iii) have a Material Adverse Effect on the
Company.
(b) None of the Company and the Company Subsidiaries is in conflict
with, or in default or violation of, (A) in any material respect, any Law
applicable to the Company or any Company Subsidiary or by which any Property of
the Company or any Company Subsidiary is bound or affected, or (B) any Company
Permit, except, with respect to clause (A) next preceding, for any such
conflicts, defaults or violations that would not, individually or in the
aggregate, reasonably be expected to (i) prevent or materially delay
consummation of the Merger or any other transactions contemplated by this
Agreement, (ii) otherwise prevent or materially delay performance by the Company
of any of its material obligations under this Agreement or any Related Agreement
to which it is a signatory, or (iii) have a Material Adverse Effect on the
Company. None of the Company Permits will be terminated or impaired or will
become terminable, in whole or in part, as a result of the transactions
contemplated by this Agreement or any Related Agreement to which it is a
signatory.
(c) Neither the Company nor any Company Subsidiary has, within the last
three years, received any warning, notice, notice of violation or probable
violation, notice of revocation or other communication from or on behalf of any
Governmental Entity, alleging (x) any conflict with, or default or violation of,
any Company Permit, or (y) that the Company or any Company Subsidiary requires
any Company Permit for its business as currently conducted that is not currently
held by it. Except as set forth in Section 4.6 of the Company Disclosure
Schedules, to the Company's Actual Knowledge, no investigation or inquiry by any
Governmental Entity with respect to the Company or any Company Subsidiary is
pending or threatened, in each case with respect to any alleged or claimed
violation of Law applicable to the Company or any Company Subsidiary or by which
any Property of the Company or any Company Subsidiary is bound or affected.
(d) Neither the Company nor any of the Company Subsidiaries, nor to the
Company's Actual Knowledge, any director, officer, Affiliate or employee
thereof, has on behalf of or with respect to the Company engaged in any conduct
constituting a violation of the Foreign Corrupt Practices Act of 1977, as
amended.
Section 4.7 SEC Filings; Financial Statements.
(a) The Company has filed all SEC Reports required under applicable Law
to be filed by it with the SEC since the effective date of the filing of the
initial Form 10-SB by the Company. All of the Company SEC Reports have been Made
Available to Parent.
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(b) As of their respective dates, each Company SEC Report (i) complied
as to form in all material respects with the requirements of the Securities Act,
the Exchange Act and the SEC Rules applicable to such Company SEC Report, and
(ii) did not at the time it was filed contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except to the extent corrected (A) in the
case of a Company SEC Report filed prior to the date of this Agreement that was
amended or superseded prior to the date of this Agreement, by the filing of such
amending or superseding Company SEC Report, and (B) in the case of a Company SEC
Report filed after the date of this Agreement that is amended or superseded
prior to the Effective Time, by the filing of such amending or superseding
Company SEC Report. None of the Company Subsidiaries is required to file any SEC
Reports with the SEC.
(c) As of their respective dates, each of the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Company SEC Reports, including the statement of stockholders' equity, (all of
the foregoing, the "Company Financial Statements") (i) complied as to form in
all material respects with the SEC Rules applicable thereto, (ii) were prepared
in accordance with GAAP applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on Form
10-Q, Form 8-K or any successor form under the Exchange Act), and (iii) fairly
presented in all material respects the consolidated financial position of the
Company and the Company Subsidiaries as at the respective dates thereof and the
consolidated results of Company's and the Company Subsidiaries' operations and
cash flows for the periods indicated in accordance with GAAP, except that the
unaudited interim financial statements may not contain footnotes and were or are
subject to normal and recurring year-end adjustments in accordance with GAAP.
Neither the Company nor any Company Subsidiary has any liabilities (absolute,
accrued, contingent or otherwise) required under GAAP to be set forth on a
balance sheet that are, individually or in the aggregate, material to the
business, results of operations or financial condition of the Company and the
Company Subsidiaries taken as a whole, except for (A) liabilities incurred since
the Company Balance Sheet Date in the Ordinary Course of Business which are of
the type that typically recur and which do not result from any Breach of
Contract, tort or default or violation of any Law, (B) those specifically set
forth or specifically and adequately reserved against in the Company Balance
Sheet, and (C) the fees and expenses of investment bankers, attorneys and
accountants incurred in connection with this Agreement and the Transactions
accruing after the Company Balance Sheet Date. Except as reflected in the
Company Financial Statements, neither the Company nor any Company Subsidiary is
a party to any material off-balance sheet arrangements (as defined in Item 303
of Regulation S-K promulgated by the SEC). The Company has not had any
disagreement with any of its auditors regarding accounting matters or policies
during any of its past three full fiscal years or to date during the current
fiscal year. The books and records of the Company and each Company Subsidiary
have been maintained, and are being maintained, in all material respects in
accordance with applicable legal and accounting requirements, and the Company
Financial Statements are consistent in all material respects with such books and
records.
(d) No investigation by the SEC with respect to the Company or any
Company Subsidiary is pending or, to the Knowledge of the Company, threatened.
(e) The Company has established and maintains "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act) that are reasonably designed to ensure that material information
(both financial and non-financial) relating to the Company and the Company
Subsidiaries required to be disclosed by the Company in the reports that it
files or submits under the Exchange Act is communicated to the Company's
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principal executive officer and principal financial officer, or persons
performing similar functions, as appropriate to allow timely decisions regarding
required disclosure and to make the certifications of the principal executive
officer and the principal financial officer of the Company required by Section
302 of SOX, with respect to such reports. For purposes of this Section 4.7(e),
"principal executive officer" and "principal financial officer" shall have the
meanings ascribed to such terms in SOX. Each of the principal executive officer
and the principal financial officer of the Company (or each former principal
executive officer and each former principal financial officer of the Company, as
applicable) has made all certifications required by Sections 302 and 906 of SOX
and the rules and regulations promulgated by the SEC thereunder with respect to
the Company SEC Reports.
(f) The Company maintains a system of internal accounting controls
designed to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization, and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences. The Company has Made Available to
Parent accurate and complete copies of all material policies, manuals and other
documents promulgating such internal accounting controls. Except as set forth in
Section 4.7(f) of the Company Disclosure Schedules, to the Company's Knowledge,
there are no "material weaknesses" (as defined by the PCAOB) and there are no
series of multiple "significant deficiencies" (as defined by the PCAOB) that are
reasonably likely to collectively represent a "material weakness" in the design
or operation of the Company's internal controls and procedures, and to the
Company's Knowledge, there are no significant deficiencies in the design or
operation of the Company's internal controls and procedures. To the Company's
Knowledge, since the date of the filing of its initial Form 10-SB, there has
been no fraud that involves management or other employees who have a significant
role in the Company's internal controls and procedures.
(g) To the Company's Knowledge, Singer Lewak Greenbaum & Goldstein LLP,
which has expressed its opinion with respect to the Company Financial Statements
as of June 30, 2004, June 30, 2005 and June 30, 2006 and for each of the
Company's fiscal years in the three-year period ended June 30, 2006, and
included in the Company SEC Reports (including the related notes), is
"independent" with respect to the Company and the Company Subsidiaries within
the meaning of Regulation S-X and, together with the Company's prior independent
public accounting firm Haskell & White LLP, has been "independent" within such
meaning at all times since January 1, 2002. The Company has made such disclosure
of non-audit services performed by Singer Lewak Greenbaum & Goldstein LLP or
Haskell & White LLP in its proxy statements with respect to its annual meetings
of its stockholders as is required under the Exchange Act, Securities Act and
SEC Rules, and all such non-audit services have been approved in advance by the
audit committee of the Company Board. The Company is in compliance with the
applicable criteria for continued listing of the Company Common Shares on the
OTCBB.
Section 4.8 Disclosure Documents.
(a) The Company Information included in, or incorporated by reference
into, the Form S-4, Proxy Statement and any Other Filings, and any amendments or
supplements thereto, will, at the Applicable Times, comply as to form in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act, the SEC Rules and other applicable Laws.
(b) The information supplied or to be supplied by or on behalf of the
Company or any of its officers, directors or stockholders for inclusion or use,
or incorporation by reference, in (i) the Form S-4, (ii) the Proxy Statement, or
(iii) any other document (including any report filed by the Company or Parent
under the Exchange Act) filed with any Governmental Entity in connection with
the Transactions, or in each case any amendment or supplement thereto; in each
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case do not and will not, at the Applicable Times, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein regarding the Company
Information, in light of the circumstances under which they are made, not
misleading. The Company Information provides all information relating to the
Company or its operations, business, directors, officers, Subsidiaries and
stockholders required to be provided by the provisions of the Securities Act,
the Exchange Act and the SEC Rules, including form S-4 and Regulation 14A.
(c) Notwithstanding the foregoing provisions of this Section 4.8, the
Company makes no representation or warranty, and assumes no responsibility, with
respect to statements made or incorporated by reference in the Form S-4, the
Proxy Statement or any Other Filings, or in each case any amendment or
supplement thereto, supplied by Parent (other than Company Information so
supplied) for inclusion or incorporation by reference therein.
Section 4.9 Absence of Certain Changes or Events. Since the Company
Balance Sheet Date, except as specifically disclosed in the Company SEC Reports
filed thereafter or as set forth in Section 4.9 of the Company Disclosure
Schedules, the Company and each Company Subsidiary has conducted its business
only in the Ordinary Course of Business and, since such date:
(a) no Events have caused a Material Adverse Effect on the Company;
(b) there has not been any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, Securities or Property) in
respect of, any of the Company's Equity Interests, or any purchase, redemption
or other acquisition by the Company of any of the Company's Equity Interests or
any other Securities of the Company or any Commitments for any such Equity
Interests of Securities, other than repurchases from employees or consultants
following their termination pursuant to the terms of existing Repurchase Rights;
(c) there has not been any Capitalization Adjustment of any of the
Company's Equity Interests;
(d) there has not been any increase in compensation or fringe benefits
paid or payable to any of the officers, directors or managers or employees of
the Company or any Company Subsidiary at the vice president or director level or
higher, or who earn base salary of more than $75,000 per year, or any payment by
the Company or any of the Company Subsidiaries of any bonus to any of their
officers, directors or managers or employees at the vice president or director
level or higher, or who earn base salary of more than $75,000 per year, or any
granting by the Company or any of the Company Subsidiaries of any increase in
severance or termination pay, or any entry by the Company or any of the Company
Subsidiaries into, or material Amendment of, any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving the Company of the nature of any
Transactions, or any subsequent event, other than increases in the Ordinary
Course of Business in base salary and target bonuses for employees who are not
officers of the Company, in an amount that does not exceed 50% of such base
salary, in connection with periodic compensation or performance reviews or for
ordinary course severance and release agreements as made in connection with the
termination of employment that do not provide severance in excess of the
Company's standard policies;
(e) there has not been any change by the Company or any of the Company
Subsidiaries in its accounting methods, principles or practices (including any
material change in depreciation or amortization policies or rates or revenue
recognition policies), except as required by concurrent changes in GAAP;
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(f) there has not been any sale, transfer, or other disposition of any
Company IP Rights or any other Properties by the Company or any of the Company
Subsidiaries, except in the Ordinary Course of Business;
(g) neither the Company nor any Company Subsidiary has made any loan,
advance or capital contribution to, or investment in, any Person, including any
director, officer or Affiliate of the Company, other than (i) loans, advances or
capital contributions to or investments in wholly-owned Subsidiaries or Entities
that became wholly-owned Subsidiaries made in the Ordinary Course of Business,
(ii) investments made in accordance with the Company's investment guidelines, a
copy of which has been Made Available to Parent, in the Ordinary Course of
Business, (iii) routine travel and entertainment expense advances in the
Ordinary Course of Business and in accordance with the Company's travel and
expense policy, a copy of which has been Made Available to Parent, and (iv)
loans and advances to third party customers made in the Ordinary Course of
Business;
(h) there has not been any material change with respect to the
management or other key personnel of the Company, any termination of employment
of any such employees or a material number of employees, or any material labor
dispute or material claim of unfair labor practices involving the Company or any
Company Subsidiary; and
(i) neither the Company nor any Company Subsidiary has agreed, whether
in writing or otherwise, to take any action described in this Section 4.9.
Section 4.10 Employee Benefit Plans.
(a) Section 4.10(a) of the Company Disclosure Schedules lists as of the
date of this Agreement, with respect to the Company and the Company Subsidiaries
and their respective ERISA Affiliates, (i) all employee benefit plans within the
meaning of Section 3(3) of ERISA, (ii) each loan from the Company, any Company
Subsidiary or any such ERISA Affiliate to an employee in excess of $10,000,
(iii) all stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, salary continuation, sabbatical, employee
relocation, cafeteria benefit (Section 125 of the Code), dependent care (Section
129 of the Code), life insurance or accident insurance plans, programs or
arrangements, (iv) all bonus, pension, profit sharing, savings, retirement,
deferred compensation or incentive plans, programs or arrangements, whether
written or oral, qualified or nonqualified, funded or unfunded, currently
effective or terminated, (v) other fringe or employee benefit plans, programs or
arrangements that apply to senior management and that do not generally apply to
all employees, and (vi) any employment or service agreements (except for offer
letters providing for at-will employment that do not provide for severance,
acceleration or post-termination benefits), compensation agreements or severance
agreements, written or otherwise, for the benefit of, or relating to, any
present or former director, officer, employee, or consultant (provided that, for
(1) former and current consultants, and (2) former directors, officers and
employees; such arrangements need only be listed if unsatisfied obligations of
the Company or any Company Subsidiary of greater than $10,000 remain thereunder)
of the Company or any Company Subsidiary (all of the foregoing described in
clauses (i) through (vi) next preceding, collectively, the "Company Benefit
Plans"). The Company has no liability with respect to any plan, arrangement or
practice of the type described in the preceding sentence other than the Company
Benefit Plans. The Company has not, since July 30, 2002, extended credit,
arranged for the extension of credit, or renewed, modified or forgiven an
extension of credit made prior to such date, in the form of a personal loan to
or for any person who was, at any time since such date, an officer or director
of the Company.
(b) Prior to the date of this Agreement, the Company has Made Available
to Parent a true, correct and complete copy of each Company Benefit Plan and all
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current and prior related plan documents (including adoption agreements, vendor
contracts and administrative services agreements, trust documents, insurance
policies or contracts (including policies relating to fiduciary liability
insurance covering the fiduciaries of such Company Benefit Plans), bonds
required by ERISA, employee booklets, summary plan descriptions and other
authorizing documents, summaries of material modifications and any material
written employee communications relating thereto) and has, with respect to each
Company Benefit Plan that is subject to ERISA reporting requirements, Made
Available to Parent true, correct and complete copies of the Form 5500 reports
filed for the last three plan years (including all audits, financial statements,
schedules and attachments thereto, where applicable). Any Company Benefit Plan
intended to be qualified under Section 401(a) of the Code has (i) obtained from
the IRS a current favorable determination letter as to its qualified status
under the Code and as to the exemption from tax under the provisions of Code
Section 501(a) of each trust created thereunder, or (ii) has been established
under a standardized master and prototype or volume submitter plan for which a
favorable Internal Revenue Service advisory letter or opinion letter has been
obtained by the plan sponsor and is valid as to the adopting employer. The
Company has also Made Available to Parent a true, correct and complete copy of
the most recent such Internal Revenue Service determination letter, advisory
letter or opinion letter issued with respect to each Company Benefit Plan, and,
to the Company's Knowledge, nothing has occurred since the issuance of each such
letter that could reasonably be expected to cause the loss of the tax-qualified
status of any Company Benefit Plan subject to Section 401(a) of the Code. The
Company has also Made Available to Parent all registration statements and
prospectuses and investment policy statements prepared in connection with each
Company Benefit Plan, where applicable. All individuals who, pursuant to the
terms of any Company Benefit Plan, are entitled to participate in such Company
Benefit Plan, are currently participating in such Company Benefit Plan or have
been offered an opportunity to do so. None of the Company and the Company
Subsidiaries and their respective ERISA Affiliates sponsors or maintains any
self-funded employee benefit plan, including any plan to which a stop-loss
policy applies.
(c) None of the Company Benefit Plans promises or provides retiree
medical or other retiree welfare benefits to any person other than as required
under the Consolidated Omnibus Budget Reconciliation Act of 1985, as Amended
("COBRA"), or applicable state law. There has been no prohibited transaction
(within the meaning of Section 406 of ERISA and Section 4975 of the Code) with
respect to any Company Benefit Plan that is not exempt under Section 408 of
ERISA. To the Company's Actual Knowledge, each Company Benefit Plan has been
administered in accordance with its terms and in compliance with the
requirements prescribed by applicable Law (including ERISA and the Code), and
the Company and the Company Subsidiaries, and their respective ERISA Affiliates,
each has performed all obligations required to be performed by it under, is not
in any material respect in default under or in violation of, and has no Actual
Knowledge of any material default or in violation by any other party to, any of
the Company Benefit Plans. None of the Company and the Company Subsidiaries and
their respective ERISA Affiliates is subject to any liability or penalty under
Sections 4976 through 4980 of the Code or Title I of ERISA with respect to any
of the Company Benefit Plans. All contributions required to be made by the
Company or any Company Subsidiary or any of their respective ERISA Affiliates to
any Company Benefit Plan have been made on or before their due dates and, to the
extent required by GAAP, all amounts have been accrued for the current plan year
(and no further contributions will be due or will have accrued thereunder as of
the Closing Date, other than contributions accrued in the Ordinary Course of
Business after the Company Balance Sheet Date as a result of the operations of
the Company and the Company Subsidiaries after the Company Balance Sheet Date).
In addition, with respect to each Company Benefit Plan intended to include a
Code Section 401(k) arrangement, the Company and each Company Subsidiary and
their respective ERISA Affiliates have at all times made timely deposits of
employee salary reduction contributions and participant loan repayments, as
determined pursuant to regulations issued by the United States Department of
Labor. No Company Benefit Plan that is an employee welfare benefit plan as
defined in Section 3(1) of ERISA is a self-insured plan. No Company Benefit Plan
is covered by, and none of the Company and the Company Subsidiaries and their
-36-
respective ERISA Affiliates has incurred or expects to incur any liability under
Title IV of ERISA or Section 412 of the Code. With respect to each Company
Benefit Plan subject to ERISA as either an employee pension benefit plan within
the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(1) of ERISA, the Company has prepared in good faith and
timely filed all requisite governmental reports (which were true, correct and
complete as of the date filed), including any required audit reports, and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
Company Benefit Plan. No Action has been brought, or to the Actual Knowledge of
the Company or any Company Subsidiary, is threatened, against the Company or any
Company Subsidiary or with respect to any such Company Benefit Plan, including
any audit or inquiry by the IRS or United States Department of Labor.
(d) None of the Company and the Company Subsidiaries and their
respective ERISA Affiliates is a party to, or has made any contribution to or
otherwise incurred any obligation under, any "multiemployer plan" as such term
is defined in Section 3(37) of ERISA or any "multiple employer plan" as such
term is defined in Section 413(c) of the Code. There has been no termination or
partial termination of any Company Benefit Plan within the meaning of Section
411(d)(3) of the Code.
(e) Each compensation and benefit plan required by Law or applicable
custom or rule of the relevant jurisdiction to be maintained or contributed to
outside of the United States (each such plan, a "Foreign Plan") by the Company
or any Company Subsidiary is listed in Section 4.10(e) of the Company Disclosure
Schedules, except for plans maintained by Governmental Entities. As regards each
such Foreign Plan, (i) such Foreign Plan is in compliance with the provisions of
the laws of each jurisdiction in which such Foreign Plan is maintained, to the
extent those laws are applicable to such Foreign Plan, (ii) the Company and each
Company Subsidiary, and each of their respective ERISA Affiliates, has complied
with all applicable reporting and notice requirements, and such Foreign Plan has
obtained from the Governmental Entity having jurisdiction with respect to such
Foreign Plan any required determinations, if any, that such Foreign Plan is in
compliance with the laws of the relevant jurisdiction if such determinations are
required in order to give effect to such Foreign Plan, and (iii) such Foreign
Plan has been administered in accordance with its terms and applicable Law.
(f) Section 4.10(f) of the Company Disclosure Schedules lists each
person who the Company reasonably believes is, with respect to the Company or
any Company Subsidiary or any of their respective ERISA Affiliates, a
"disqualified individual" (within the meaning of Section 280G of the Code and
the regulations promulgated thereunder) determined as of the date hereof.
(g) Section 4.10(g) of the Company Disclosure Schedules lists as of the
date of this Agreement each employee of the Company or any Company Subsidiary
who is not fully available to perform work because of disability or other leave
and also lists, with respect to each such employee, the basis of such disability
or leave and the anticipated date of return to full service.
(h) Except as set forth in Section 4.10(h) of the Company Disclosure
Schedules, none of the execution and delivery of this Agreement or the
consummation of the Transactions (or the Transactions in combination with any
subsequent transactions or events, other than transactions or events initiated
solely by Parent) will (i) result in any employee, director or consultant of the
Company or any Company Subsidiary becoming entitled to any deferred
compensation, bonus or severance pay or materially increase or otherwise enhance
any benefits otherwise payable by the Company or any Company Subsidiary, (ii)
result in the acceleration of the time of payment or vesting, or an increase in
the amount of any compensation due to any employee, director or consultant of
the Company or any Company Subsidiary, except as may be required under Section
411(d)(3) of the Code, (iii) result in forgiveness in whole or in part of any
outstanding loans made by the Company or any Company Subsidiary to any of their
employees, directors or consultants, or (iv) result in a payment that would be
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considered an "excess parachute payment" and treated as nondeductible under
Section 280G of the Code or subject to the excise Tax under Section 4999 of the
Code.
(i) To the Company's Knowledge, the Company has neither granted, nor is
a party to, any Contract that grants any compensation, equity award, or bonus,
that fails to comply in good faith with the provisions of Section 409A of the
Code.
(j) Each of the Company and the Company Subsidiaries is in compliance
in all material respects with all currently applicable Laws respecting
employment, discrimination in employment, terms and conditions of employment,
worker classification (including the proper classification of workers as
independent contractors and consultants), wages, hours and occupational safety
and health and employment practices, including the Immigration Reform and
Control Act. The Company and each Company Subsidiary has paid in full to all
employees, independent contractors and consultants all wages, salaries,
commissions, bonuses, benefits, and other compensation due to or on behalf of
such employees, independent contractors or consultants. Neither the Company nor
any Company Subsidiary is liable for any payment to any trust or other fund or
to any Governmental Entity, with respect to unemployment compensation benefits,
social security or other benefits or obligations for employees (other than
routine payments to be made in the Ordinary Course of Business). There are no
controversies pending or, to the Actual Knowledge of the Company, threatened,
between the Company or any Company Subsidiary and any of their respective
employees, which controversies have or could reasonably be expected to result in
an Action before any Governmental Entity.
(k) Neither the Company nor any of the Company Subsidiaries has any
obligation to pay any amount or provide any benefit to any former employee or
officer, other than obligations (i) for which the Company has established a
reserve for such amount on the Company Balance Sheet in accordance with GAAP,
and (ii) pursuant to Contracts entered into after the Company Balance Sheet Date
and disclosed on Section 4.10(k) of the Company Disclosure Schedules. Neither
the Company nor any Company Subsidiary is a party to or bound by any collective
bargaining agreement or other labor union contract, no collective bargaining
agreement is being negotiated by the Company or any Company Subsidiary and
neither the Company nor any Company Subsidiary has any duty to bargain with any
labor organization. There is no pending demand for recognition or any other
request or demand from a labor organization for representative status with
respect to any person employed by the Company or any Company Subsidiary. The
Company has no Actual Knowledge of any activities or proceedings of any labor
union to organize the employees of the Company or any Company Subsidiary. There
is no labor dispute, strike or group work stoppage against the Company or any
Company Subsidiary pending or to the Actual Knowledge of the Company threatened
that may interfere with the respective business activities of the Company or any
Company Subsidiary.
(l) To the Knowledge of the Company, no employee of the Company or any
Company Subsidiary is in violation of any term of any employment agreement,
patent disclosure agreement, non-competition agreement, or any restrictive
covenant to a former employer relating to the right of any such employee to be
employed by the Company or any Company Subsidiary because of the nature of the
business conducted or presently proposed to be conducted by the Company or any
Company Subsidiary or to the use of trade secrets or proprietary information of
others. No Key Employee of the Company or any Company Subsidiary has given
notice of termination or resignation to the Company or any Company Subsidiary,
nor does the Company otherwise have Actual Knowledge that any such Key Employee
intends to terminate his or her employment with the Company or any Company
Subsidiary. The employment of each of the employees of the Company or any
Company Subsidiary is "at will" and the Company and each Company Subsidiary does
not have any obligation to provide any particular form or period of notice prior
to terminating the employment of any of their respective employees, and the
employment of each employee of the Company and each Company Subsidiary may be
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terminated without prior notice and without financial liability to the Company
or any Company Subsidiary (other than as provided under applicable Law or as set
forth in Section 4.10(a) of the Company Disclosure Schedule).
(m) The Company has Made Available to Parent a true, correct and
complete list of the names of all current officers, directors, consultants and
employees of the Company and each Company Subsidiary showing each such person's
name, position, rate of annual remuneration, status as exempt/non-exempt and
bonuses for the current fiscal year and the most recently completed fiscal year.
(n) The Company has Made Available to Parent, with respect to the
Company and the Company Subsidiaries, true, correct and complete copies of each
of the following: (i) all forms of offer letters, (ii) all forms of employment
agreements and severance agreements, (iii) all forms of services agreements and
forms of agreements with current and former consultants or advisory board
members, (iv) all forms of confidentiality, non-competition or invention
agreements by and between current and former employees, consultants or others
and the Company or any Company Subsidiary (and a true, correct and complete list
of employees, consultants or others not subject thereto), (v) all management
organization charts, (vi) all agreements or insurance policies providing for the
indemnification of any officers or directors of the Company or any Company
Subsidiary, (vii) a summary of the Company's standard severance policy, (viii) a
summary of outstanding liability for termination payments and benefits to
current and former directors, officers, employees and consultants of the Company
or any Company Subsidiary, and (ix) a schedule of bonus commitments made to
employees of the Company or any Company Subsidiary.
(o) The Company and each Company Subsidiary is in compliance in all
material respects with the Worker Adjustment Retraining Notification Act of
1988, as Amended ("WARN Act"), or any similar Law. In the past two years (i) the
Company has not effectuated a "plant closing" (as defined in the WARN Act)
affecting any site of employment or one or more facilities or operating units
within any site of employment or facility of its business, (ii) there has not
occurred a "mass layoff" (as defined in the WARN Act) affecting any site of
employment or facility of the Company of any Company Subsidiary, and (iii) the
Company has not been affected by any transaction or engaged in layoffs or
employment terminations sufficient in number to trigger application of any
similar state, local or foreign law or regulation. The Company has not caused
any of its employees to suffer an "employment loss" (as defined in the WARN Act)
during the 90-day period prior to the date of this Agreement.
Section 4.11 Customers. Neither the Company nor any of the Company
Subsidiaries has any outstanding material dispute concerning its goods or
services with any coin or jewelry dealer, auction house, third party website,
independent sales agent or other customer, retailer or distributor who, in the
twelve months ending September 30, 2006, was one of the 20 largest sources of
consolidated revenue for the Company and the Company Subsidiaries, based on
amounts paid or payable during such periods (each, a "Significant Company
Customer"). Each Significant Company Customer is listed on Section 4.11 of the
Company Disclosure Schedules. Neither the Company nor any of the Company
Subsidiaries has received any written notice from any Significant Company
Customer that such Person (i) will not continue as a customer or distributor of
the Company or any Company Subsidiary after the Merger, (ii) intends to
terminate or materially modify existing Contracts or relationships with the
Company or any Company Subsidiary, or (iii) intends to materially reduce the
amount of business conducted with the Company and the Company Subsidiaries.
Section 4.12 Contracts. Section 4.12 of the Company Disclosure
Schedules specifically identifies (by the applicable subsection set forth below
in this Section 4.12) each Company Material Contract (other than this Agreement
or any Related Agreement). The term "Company Material Contract" shall include
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each of the following Contracts to which the Company or any Company Subsidiary
is a party to or by which the Company or any Company Subsidiary is bound (in
each case, other than this Agreement or any Related Agreement):
(a) any Contract with any Significant Company Customer;
(b) any Contract generating, or that is reasonably likely to generate,
more than 5% of revenues for the Company and the Company Subsidiaries over the
twelve month period from the date of this Agreement, other than those set forth
on Section 4.12(j) of the Company Disclosure Schedules;
(c) any Contract with any director, officer, employee or consultant
that would require the Company or any Company Subsidiary to make any payments in
connection with the Merger, or upon termination of employment, but excluding any
Contract (i) that is terminable at-will or, in the case of consultants, with 30
or fewer days of notice by the Company or any of the Company Subsidiaries
without cost, liability or financial obligations (other than accrued regular
compensation and benefits through the date of termination, including any such
notice period), or (ii) under which the Company and the Company Subsidiaries
collectively have paid or are obligated to pay less than $10,000;
(d) any Contract for indemnification (other than standard
indemnification provisions in Contracts entered into by the Company or any
Company Subsidiary in the Ordinary Course of Business) or any guaranty;
(e) any Contract containing any covenant limiting in any respect the
right of the Company or any of the Company Subsidiaries to (i) engage,
participate or compete in any line of business, market or geographic area, (ii)
develop, market or distribute products or services, (iii) conduct business with
any Person, (iv) solicit the employment of, or hire, any Person, or (v) compete
with any Person; or granting any exclusive sales, distribution, marketing or
other exclusive rights, rights of first refusal, "most favored nation" rights,
rights of first negotiation or other exclusive rights or similar terms to any
Person, but in each case excluding Contracts containing limitations that (A) are
not material to the Company or any Company Subsidiary, and (B) do not limit the
ability of the Company or any Company Subsidiary to develop or market additional
products or services;
(f) any Lease for real or personal property in which the amount of
payments that the Company or any of the Company Subsidiaries is required to make
on an annual basis exceeds $25,000;
(g) any Contract pursuant to the express terms of which the Company or
any of the Company Subsidiaries is currently obligated to pay in excess of
$25,000 (or, in the case of a Contract for the purchase of inventory made in the
Ordinary Course of Business, $50,000) in any one year period that is not
terminable by the Company or the Company Subsidiaries without penalty upon
notice of ninety (90) days or less;
(h) any Contract currently in force relating to the disposition or
acquisition by the Company or any of the Company Subsidiaries after the date
hereof of (i) assets with a book value exceeding $25,000 (or, in the case of the
sale of inventory made in the Ordinary Course of Business, $50,000) , or (ii)
Equity Interests in an Entity;
(i) any Contract pursuant to which the Company or any Company
Subsidiary is a licensor of Intellectual Property or agrees to Encumber, not
assert, Transfer or sell rights in or with respect to any Intellectual Property,
except for distribution contracts with retail outlets, independent sales agents,
other distributors and end users entered into by the Company or any Company
Subsidiary in the Ordinary Course of Business;
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(j) any joint venture Contract or any other Contract that involves a
sharing of revenues in excess of $10,000, or involves a sharing of profits, cash
flows, expenses or losses, with other Persons, or the payment of royalties to
any other Person, other than Contracts identified in Section 4.12(a) of the
applicable Company Disclosure Schedule;
(k) any Contract currently required to be filed as an exhibit pursuant
to Item 601(b)(10) of Regulation S-K promulgated under the Securities Act, other
than those currently on file with the SEC (including any Amendments to Contracts
filed as of the Company Balance Sheet Date that are required to be filed);
(l) any Contract containing a "standstill" provision with respect to
any Equity Interests of the Company;
(m) any Contract in effect on the date of this Agreement, including any
Company Stock Option Plan, relating to the sale, issuance, grant, exercise,
award, purchase, repurchase or redemption of any Company Common Shares or any
other Equity Interests or Securities of the Company or any of the Company
Subsidiaries, or any Commitments to purchase or otherwise acquire any such
Company Common Shares, Equity Interests or Securities, except for the Company
Stock Option Plans, the Company Options and Company Warrants disclosed in
Section 4.3 of the applicable Company Disclosure Schedule;
(n) any Contract under which the Company or any Company Subsidiary is
obligated to provide consulting services, development services, professional
services or support services (other than maintenance and support customer
contracts on the Company's standard, unmodified forms), in each case excluding
(i) Contracts that are terminable by the Company or Company Subsidiary on notice
of thirty (30) days or less without penalty in excess of $25,000, individually
or in the aggregate, and without any ongoing material obligations, and (ii)
Contracts that generated less than $25,000 in revenue to the Company during the
12 months preceding the date of this Agreement;
(o) any Contract with any investment banker, broker, advisor or similar
Person, or any accountant, legal counsel or other Person retained by the
Company, in connection with this Agreement and the Transactions, other than (i)
the Company Engagement Letter, and (ii) Contracts with service providers entered
into in the Company's Ordinary Course of Business with fees to be paid based on
the provider's customary hourly rates;
(p) any Contract pursuant to which the Company or any of the Company
Subsidiaries has acquired a business or Entity, or assets of a business or
Entity, whether by way of merger, consolidation, purchase of stock, purchase of
assets, license or otherwise, or any Contract pursuant to which it has any
material ownership interest in any other Entity (other than the Company
Subsidiaries), in either case which was entered into within the three years
preceding the date hereof or under which any Liabilities exist;
(q) all loan or credit agreements, notes, bonds, mortgages, indentures
and other agreements and instruments pursuant to which any Indebtedness of the
Company or any of the Company Subsidiaries in an aggregate principal amount in
excess of $25,000 is outstanding or may be incurred on the terms thereof, and
the respective principal amounts currently outstanding thereunder as of the date
hereof; or
(r) any other Contract not listed in subsections (a)-(q) next preceding
that individually provides for payments to or by the Company or any Company
Subsidiary in excess of $50,000, or pursuant to which the Company or any Company
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Subsidiary have been paid, or expects to be paid, more than $50,000 in any
consecutive 12-month period, or that individually provides for payments by the
Company or any Company Subsidiary in excess of $50,000 or is otherwise material
to the Company or the Company Subsidiaries or their respective businesses,
operations, financial condition, properties or assets (other than employee offer
letters in the Ordinary Course of Business).
Except as set forth on Section 4.12 of the Company Disclosure Schedules, all
Company Material Contracts are in written form. The Company has Made Available
to Parent true, correct and complete copies of each Company Material Contract,
as Amended to date. Each Company Material Contract is (i) valid and binding on
the Company and each Company Subsidiary party thereto and, to the Company's
Knowledge, each other party thereto, and (ii) in full force and effect. The
Company and each Company Subsidiary has in all material respects performed all
material obligations required to be performed by it to the date hereof under
each Company Material Contract and, to the Company's Knowledge, each other party
to each Company Material Contract has in all material respects performed all
obligations required to be performed by it under such Company Material Contract.
As of the date hereof, none of the Company and the Company Subsidiaries has
Knowledge of, or has received notice from the other contracting party of, any
actual or alleged material Breach of any Company Material Contract. There exists
no Breach with respect to the Company or any Company Subsidiary or, to the
Knowledge of the Company, with respect to any other contracting party, which,
with the giving of notice or the lapse of time or both, would reasonably be
expected to constitute a material Breach of such Company Material Contract.
Section 4.13 Litigation. Except as set forth in Section 4.13 of the
Company Disclosure Schedules, (i) there is no Action pending or, to the
Company's Actual Knowledge, threatened against the Company or any Company
Subsidiary or, to the Company's Actual Knowledge, for which the Company or any
Company Subsidiary is obligated to indemnify a third party, (ii) none of the
Company and the Company Subsidiaries is subject to any outstanding Order, and
(iii) to the Company's Knowledge, there has been no refusal to indemnify or
denial of indemnification and no intention to refuse indemnification, by any
third party in connection with any past, pending or threatened Action with
respect to which the Company or any Company Subsidiary is or may be entitled to
indemnification from any third party. Except as set forth in Section 4.13 of the
Company Disclosure Schedules, neither the Company nor any Company Subsidiary has
any Action pending against any other Person. There has not been since June 30,
2005, nor are there currently, any internal investigations or inquiries being
conducted by the Company, the Company Board (or any committee thereof) or any
third party at the request of any of the foregoing concerning any financial,
accounting, tax, conflict of interest, illegal activity, fraudulent or deceptive
conduct, violation of Company policy or other misfeasance or malfeasance issues.
Section 4.14 Environmental Matters.
(a) The Company and each Company Subsidiary is in material compliance
with all Environmental Laws.
(b) Neither the Company nor any Company Subsidiary has received
notification regarding any existing or potential Environmental Claims against
the Company or any Company Subsidiary, nor have any of them received any written
notification of any allegation of any actual or potential responsibility for, or
any Action regarding, (i) any violation of Environmental Laws, or (ii) any
Environmental Release or threatened Environmental Release at any Facilities of
any Materials of Environmental Concern generated or transported by the Company
or any Company Subsidiary.
(c) There has been no Environmental Release at any Facilities of the
Company or any Company Subsidiary of any Materials of Environmental Concern in
quantities that could trigger the need for investigation or remediation pursuant
to any Environmental Laws.
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Section 4.15 Intellectual Property.
(a) Unless otherwise expressly provided herein, the following terms,
whenever used in this Agreement, shall have the meanings ascribed to them in
this Section 4.15(a):
(1) "Company IP" means (i) all Intellectual Property used in
the conduct of the business of the Company or any Company Subsidiary as
currently conducted by the Company and the Company Subsidiaries, and
(ii) all other Company-Owned IP.
(2) "Company-Owned IP" means all Intellectual Property owned
by the Company or any Company Subsidiary.
(3) "Company Products" means, collectively, (i) all products
and services that are currently being published, marketed, licensed,
sold, leased, auctioned, distributed or performed, or offered for
publication, licensing, sale, lease, distribution or performance or at
auction, by or on behalf of the Company or any Company Subsidiary, and
(ii) all products or services currently under development by the
Company or any Company Subsidiary or that the Company or any of the
Company Subsidiaries are Contractually obligated to develop.
(b) The Company and the Company Subsidiaries (i) own and have
independently developed or acquired, or (ii) have the valid right or license
(exclusive or non-exclusive, as applicable) to, all Company IP. The Company IP
is sufficient for the conduct of the business of the Company and the Company
Subsidiaries as currently conducted and to the Company's Knowledge as currently
proposed to be conducted by the Company or any Company Subsidiary.
(c) Neither the Company nor any of the Company Subsidiaries has (i)
transferred ownership of any material Company-Owned IP to any third party, (ii)
knowingly permitted any material Company-Owned IP to enter the public domain, or
(iii) permitted any material Company Registered Intellectual Property or
application therefor to lapse (other than through the expiration of Registered
Intellectual Property at the end of its maximum statutory term or the
abandonment of trademarks or service marks in the Ordinary Course of Business
using reasonable business judgment).
(d) Except as set forth in Section 4.15(d) of the Company Disclosure
Schedules, the Company and the Company Subsidiaries own and have good and
exclusive title to all Company-Owned IP and all Company Registered Intellectual
Property, free and clear of any Encumbrances. Except as set forth in Section
4.15(d) of the Company Disclosure Schedules, the right, license and interest of
the Company and the Company Subsidiaries in and to all Third Party Intellectual
Property Rights licensed by the Company or a Company Subsidiary are free and
clear of all Encumbrances (excluding restrictions contained in the applicable
license agreements with such third parties).
(e) Except as set forth in Section 4.15(e) of the Company Disclosure
Schedules, none of the execution and delivery or effectiveness of this
Agreement, the consummation of the Transactions and the performance by the
Company of its obligations under this Agreement or the Related Agreements to
which it is a signatory, will cause the forfeiture or termination of, or give
rise to a right of forfeiture or termination of, any Company-Owned IP, or impair
the right of the Company, any Company Subsidiary or Parent to use, possess, sell
or license any Company-Owned IP or any portion thereof. After the Closing, all
Company-Owned IP will be fully transferable, alienable or licensable by the
Surviving Corporation without restriction and without payment of any kind to any
third party subject to any existing license and distribution agreements with
third parties.
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(f) Section 4.15(f) of the Company Disclosure Schedule lists all
Company Registered Intellectual Property, and for each item of such Registered
Intellectual Property, (i) the jurisdictions in which such Registered
Intellectual Property has been issued or registered or in which any application
for such issuance and registration has been filed, and (ii) the legal counsel
(if any) assisting in the initial registration or the maintenance of such
Registered Intellectual Property.
(g) Each item of Company Registered Intellectual Property is subsisting
(or, in the case of applications, applied for), all registration, maintenance
and renewal fees currently due in connection with such Registered Intellectual
Property have been or will be timely paid, and all documents, recordations and
certificates in connection with such Registered Intellectual Property currently
required to be filed have been or will be timely submitted to the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of prosecuting,
maintaining and perfecting such Registered Intellectual Property and recording
the Company's and the Company Subsidiaries' ownership interests therein.
(h) Except as set forth in Section 4.15(h) of the Company Disclosure
Schedules, to the Company's Actual Knowledge, there is no unauthorized use,
unauthorized disclosure, infringement or misappropriation of any Company-Owned
IP by any third party, including any employee or former employee of the Company
or any Company Subsidiary. Except as set forth in Section 4.15(h) of the Company
Disclosure Schedules, neither the Company nor any Company Subsidiary has
initiated any lawsuit, mediation or arbitration for infringement or
misappropriation of any Intellectual Property.
(i) Except as set forth in Section 4.15(i) of the Company Disclosure
Schedules, neither the Company nor any Company Subsidiary has (i) been sued in
any Action (or received any written notice or, to the Actual Knowledge of the
Company, threat) that involves a claim of infringement or misappropriation of
any Third Party Intellectual Property Right or which contests the validity,
ownership or right of the Company or any Company Subsidiary to exercise any
Intellectual Property right, or (ii) received any written communication that
puts the Company or any Company Subsidiary on notice of or involves an offer to
license or grant any Third Party Intellectual Property Right or immunities in
respect thereof.
(j) The operation of the business of the Company and the Company
Subsidiaries as such business is currently conducted and, to the Actual
Knowledge of the Company, as currently proposed to be conducted by the Company
or any Company Subsidiary, including (i) the design, development, manufacturing,
reproduction, marketing, licensing, sale, offer for sale, importation,
distribution, provision or use of any Company Product, and (ii) the Company's or
any Company Subsidiary's use of any product, device or process used in the
business of the Company or the Company Subsidiaries as currently conducted and,
to the Actual Knowledge of the Company, as currently proposed to be conducted by
the Company or any Company Subsidiary, does not and will not infringe or
misappropriate any Third Party Intellectual Property Rights and does not and, to
the Actual Knowledge of the Company, will not constitute unfair competition or
unfair trade practices under the Laws of any jurisdiction in which the Company
or any of the Company Subsidiaries conducts business.
(k) None of the Company-Owned IP, the Company Products, the Company and
the Company Subsidiaries is subject to any judicial or governmental Action or
outstanding Order (A) restricting in any manner the use, transfer, or licensing
by the Company or any Company Subsidiary of any Company-Owned IP or any Company
Product, or which may affect the validity, use or enforceability of any such
Company-Owned IP or Company Product, or (B) restricting the conduct of the
business of the Company or any Company Subsidiary in order to accommodate Third
Party Intellectual Property Rights.
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(l) Neither the Company nor any Company Subsidiary has received any
written opinion of legal counsel that any Company Product or the operation of
the business of the Company or any Company Subsidiary, as previously or
currently conducted, infringes or misappropriates any Third Party Intellectual
Property Rights.
(m) Except as set forth in Section 4.15(m) of the Company Disclosure
Schedules, each of the Company and the Company Subsidiaries has secured from all
of its consultants, employees and independent contractors who independently or
jointly contributed to the conception, reduction to practice, creation or
development of any material Company-Owned IP, an assignment of inventions and
ownership agreement, in the form Made Available to Parent, assigning all such
third party's Intellectual Property in such contribution that the Company or any
Company Subsidiary does not already own by operation of Law, and no such third
party has retained any rights or licenses with respect thereto.
(n) To the Company's Knowledge, no current or former employee,
consultant or independent contractor of the Company or any Company Subsidiary
(i) is in violation of any term or covenant of any Contract relating to
employment, invention disclosure, invention assignment, non-disclosure or
non-competition or any other Contract with any other party by virtue of such
employee's, consultant's or independent contractor's being employed by, or
performing services for, the Company or any Company Subsidiary or using trade
secrets or proprietary information of others without permission, or (ii) has
developed any technology, software or other copyrightable, patentable or
otherwise proprietary work for the Company or any Company Subsidiary that is
subject to any Contract under which such employee, consultant or independent
contractor has assigned or otherwise granted to any third party any rights
(including Intellectual Property rights) in or to such technology, software or
other copyrightable, patentable or otherwise proprietary work.
(o) To the Company's Knowledge, the employment of any employee of the
Company or any Company Subsidiary or the use by the Company or any Company
Subsidiary of the services of any consultant or independent contractor does not
subject the Company or any Company Subsidiary to any liability to any third
party for improperly soliciting such employee, consultant or independent
contractor to work for the Company or any Company Subsidiary, whether such
liability is based on contractual or other legal obligations to such third
party.
(p) Except as set forth in Section 4.15(p) of the Company Disclosure
Schedules, to the Company's Knowledge, no current or former employee, consultant
or independent contractor of the Company or any Company Subsidiary has any
right, license, claim or interest whatsoever in or with respect to any
Company-Owned IP.
(q) The Company and the Company Subsidiaries have taken commercially
reasonable steps to protect and preserve the confidentiality of all material
confidential or non-public information included in the Company IP Rights. All
use, disclosure or appropriation of such information owned by the Company or any
Company Subsidiary by or to a third party has been pursuant to the terms of a
written agreement or other legal binding arrangement between the Company or a
Company Subsidiary and such third party. All use, disclosure or appropriation of
such information by the Company and the Company Subsidiaries not owned by the
Company or any Company Subsidiary has been pursuant to the terms of a written
agreement between the Company or such Company Subsidiary and the owner of such
information, or is otherwise lawful.
(r) Except as set forth in Section 4.15(r) of the Company Disclosure
Schedules, to the Company's Knowledge, neither the Company nor any Company
Subsidiary has (i) incorporated Open Source Materials into, or combined Open
Source Materials with, Company IP, or (ii) distributed Open Source Materials in
conjunction with any Company IP.
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(s) To the Company's Knowledge, no (i) government funding, (ii)
facilities of a university, college, other educational institution or research
center, or (iii) funding from any Person (other than funds received in
consideration for the Company Equity Interests or Indebtedness incurred on
commercially reasonable terms) was used in the development of the Company-Owned
IP.
Section 4.16 Taxes.
(a) The Company and the Company Subsidiaries and each affiliated,
combined, consolidated or unitary group of which the Company or any Company
Subsidiary is or has been a member (each, a "Company Group") have timely filed
all material federal, state, local, and foreign Tax Returns required to be filed
by it in the manner prescribed by applicable Laws and all such Tax Returns were
true, complete and correct in all material respects. Except with respect to
Taxes that are immaterial in amount, all Taxes of the Company and the Company
Subsidiaries (whether or not shown or required to be shown on any Tax Return)
that are due and payable have been timely paid in full and the accruals and
reserves for Taxes (rather than any reserve for deferred Taxes established to
reflect timing difference between book and Tax income) reflected in the Company
Balance Sheet (rather than any notes thereto) are adequate in accordance with
GAAP to cover all unpaid Taxes of the Company and the Company Subsidiaries.
Except with respect to Taxes that are immaterial in amount, all reserves for
Taxes as adjusted for operations and transactions and the passage of time
through the Effective Time in accordance with past custom and practice of the
Company and the Company Subsidiaries are adequate in accordance with GAAP to
cover all unpaid Taxes of the Company and the Company Subsidiaries accruing
through the Effective Time.
(b) The Company and the Company Subsidiaries have withheld and paid
over all material Taxes required to have been withheld and paid over, and to the
Knowledge of the Company, the Company and the Company Subsidiaries have withheld
and paid over all other Taxes required to have been withheld and paid over, and
the Company and the Company Subsidiaries have complied with all material
information reporting and backup withholding requirements, including the
maintenance of required records with respect thereto, in each case in connection
with amounts paid or owing to any employee, creditor, independent contractor or
other third party. There are no Encumbrances on any of the Properties of the
Company or any Company Subsidiary with respect to Taxes.
(c) Except as set forth in Section 4.16(c) of the Company Disclosure
Schedules, no audit of material Tax Returns or other examination of the Company,
any Company Subsidiary or any member of any Company Group is pending or
threatened in writing. No deficiencies have been asserted against the Company or
any Company Subsidiary as a result of examinations by any Tax Authority and no
issue has been raised by any examination conducted by any Tax Authority that, by
application of the same principles, might result in a proposed deficiency for
any other period not so examined. Each deficiency resulting from any audit or
examination relating to Taxes of the Company or any Company Subsidiary by any
Tax Authority has been paid or is being contested in good faith and in
accordance with the Law and is fully reserved for on the Company Balance Sheet
in accordance with GAAP. No claim has ever been made by an authority in a
jurisdiction where the Company or any of the Company Subsidiaries does not file
Tax Returns that the Company or any Company Subsidiary, as the case may be, is
or may be subject to Tax in such jurisdiction. Neither the Company nor any
Company Subsidiary is subject to any private letter ruling of the IRS or
comparable rulings of other Tax Authorities that will be binding on the Company
or any Company Subsidiary with respect to any period following the Effective
Time. Neither the Company nor any of the Company Subsidiaries has granted any
power of attorney that is currently in force with respect to any material Taxes
or Tax Returns.
(d) Neither the Company nor any Company Subsidiary has requested any
extension of time within which to file any material Tax Return which Tax Return
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has not yet been filed. There are no agreements, waivers of statutes of
limitations, or other arrangements providing for extensions of time in respect
of the assessment or collection of any unpaid Taxes against the Company or any
Company Subsidiary.
(e) The Company and each Company Subsidiary have disclosed on their
federal income tax returns all material positions taken therein that could, if
not so disclosed, give rise to a substantial understatement penalty within the
meaning of Section 6662 of the Code. Neither the Company nor any Company
Subsidiary has been a party to or participated in any way in a transaction that
would be defined as a "reportable transaction" within the meaning of Treasury
Regulation Section 1.6011-4(b) (including any "listed transaction") or any
confidential corporate tax shelter within the meaning of Treasury Regulation
Section 1.6111-2.
(f) Except as set forth in Section 4.16(f) of the Company Disclosure
Schedules, neither the Company nor any Company Subsidiary has been a member of
any Company Group other than the Company Group of which the Company is the
parent. None of the Company or any Company Subsidiary has any liability for, or
any indemnification or reimbursement obligation with respect to, (i) Taxes of
any Person under Treasury Regulation Section 1.1502-6 (or any similar provision
under foreign, state or local Law), (ii) material Taxes of any Person as
transferee or successor, or (iii) material Taxes of any Person by contract for
Taxes. Neither the Company nor any Company Subsidiary is a party to any Tax
sharing agreement, Tax indemnity obligation or similar Contract or practice with
respect to Taxes (including any advance pricing agreement, closing agreement or
other agreement relating to Taxes with any Tax Authority).
(g) Except as set forth in Section 4.16(g) of the Company Disclosure
Schedules, neither the Company nor any Company Subsidiary (nor any officer of
the Company or any Company Subsidiary) is a party to any Contract (including
this Agreement, the Related Agreement and the arrangements contemplated hereby
and thereby) that, individually or collectively, could give rise to the payment
of any amount (whether in cash or property, including shares of capital stock)
that would not be deductible pursuant to the terms of Sections 162(a)(1), 162(m)
or 162(n) of the Code.
(h) Neither the Company nor any Company Subsidiary has agreed or is
required to make any adjustment under Code Section 481(a) or Section 482 (or an
analogous provision of state, local or foreign Law) by reason of a change in
accounting method or otherwise. Neither the Company nor any Company Subsidiary
will be required to include in income, or exclude any item of deduction from,
taxable income for any taxable period (or portion thereof) ending after the
Closing Date as a result of any "closing agreement" as described in Code Section
7121 (or any corresponding or similar provision of state, local or foreign
income Tax Law).
(i) Neither the Company nor any Company Subsidiary is or has been a
United States real property holding corporation (as defined in Section 897(c)(2)
of the Code).
(j) Neither the Company nor any Company Subsidiary has had or
maintained a permanent establishment other than in its country of organization.
(k) Section 4.16(k) of the Company Disclosure Schedule sets forth
information with respect to each of the Company and the Company Subsidiaries as
of the most recent practicable date regarding any material Tax holidays or
foreign rulings to which the Company or any Company Subsidiary (as the case may
be) is subject.
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(l) Neither the Company nor any Company Subsidiary has incurred, and no
state of affairs exist that could result in the Company or any Company
Subsidiary incurring, any penalty under Section 6662(e) of the Code.
Section 4.17 Insurance. Section 4.17 of the Company Disclosure
Schedules contains a true, correct and complete list of policies and bonds of
insurance maintained by the Company and each Company Subsidiary, and the Company
has Made Available to Parent true, correct and complete copies of such policies
and bonds of insurance. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid, and the Company and each
Company Subsidiary is otherwise in compliance in all material respects with the
terms of such policies and bonds. To the Knowledge of the Company, neither the
Company nor any Company Subsidiary has received written notification of any
threatened termination of, or material premium increase with respect to, any
such policies or bonds.
Section 4.18 Opinion of Financial Advisor. The Company Board has
received the written opinion of Stenton Leigh Valuation Group, Inc. (the
"Company Financial Advisor") addressed to the Company Board, to the effect that
the Merger Consideration is fair from a financial point of view to the holders
of Company Common Shares (other than Affiliates of the Company), and the Company
has delivered to Parent a true, correct and complete copy of such opinion solely
for informational purposes.
Section 4.19 Brokers. Except for any fees set forth in Section 4.19 of
the Company Disclosure Schedules, neither the Company nor any Affiliate of the
Company is obligated for the payment of any fees or expenses of any investment
banker, broker, advisor or similar party in connection with the origin,
negotiation or execution of this Agreement or in connection with the Merger or
any other Transaction. The Company is not obligated to continue to use the
services of the Company Financial Advisor following the Merger or to pay the
fees or expenses of the Company Financial Advisor in connection with any
transaction other than the Merger following consummation of the Merger.
Section 4.20 Properties. Neither the Company nor Company Subsidiary
owns any real property interests. Section 4.12 of the Company Disclosure
Schedules lists all material real property Leases to which the Company or any
Company Subsidiary is a party and each Amendment thereto that is now in effect.
All such current Leases are in full force and effect, are valid and effective in
accordance with their respective terms, and, except as set forth in Section 4.20
of the Company Disclosure Schedules, none of the Company and the Company
Subsidiaries and, to the Actual Knowledge of the Company, no other party, is in
Breach of any such Lease that would give rise to a material claim against the
Company or any Company Subsidiary.
Section 4.21 Interested Party Transactions. Except as disclosed in the
Company SEC Reports, since December 31, 2005, no event has occurred and no
relationship exists that would be required to be reported by the Company
pursuant to Item 404 of Regulation S-K.
Section 4.22 Export and Import Laws. The Company and each Company
Subsidiary has conducted its export transactions in accordance in all material
respects with applicable provisions of U.S. Export and Import Laws. Without
limiting the generality of the foregoing, (i) the Company and each Company
Subsidiary has obtained all export licenses and other approvals required for its
exports of products, Intellectual Property, software and technologies from the
United States, (ii) the Company and each Company Subsidiary is in material
compliance with the terms of all applicable export licenses or other approvals,
(iii) there are no pending or, to the Company's Actual Knowledge, threatened
claims against the Company or any Company Subsidiary with respect to such export
licenses or other approvals, (iv) to the Company's Knowledge, there are no
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conditions or circumstances pertaining to the Company's or any Company
Subsidiary's export transactions that may give rise to any future claims, and
(v) no Consents in respect of any export licenses of the Company are required in
connection with the Merger or the change in control of the Company, or such
Consents can be obtained expeditiously without material cost.
Section 4.23 Pseudo-Foreign Corporation. The Company is not as of the
date hereof, and will not be as of the date of the Company Stockholder Meeting,
the Closing Date or the Effective Time, a "foreign corporation" subject to the
requirements of Section 2115(b) of the California General Corporation Law.
Section 4.24 Representations Complete. Except as set forth in Section
4.24 of the Company Disclosure Schedules, none of the representations or
warranties made by the Company, and no financial statement, other written
financial information or statements made in any exhibit, schedule or certificate
Made Available or furnished by the Company to Parent pursuant to this Agreement
or any Related Agreement, or furnished by the Company in or in connection with
documents mailed or delivered to the stockholders of the Company or Parent for
use in soliciting their approval of this Agreement and the Merger, contains or
will contain at the Closing Date any untrue statement of a material fact or
omits or will omit at the Closing Date to state any material fact necessary in
order to make the statements contained herein or therein, in light of the
circumstances under which they were made, not misleading.
ARTICLE V.
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub each jointly and severally represents and
warrants to the Company that the statements contained in this Article V (or,
with respect to Merger Sub, the statements contained in Section 5.1(a), Section
5.4, Section 5.5 and Section 5.23, to the extent applicable to it) are true,
correct and complete as of the date of this Agreement, except as set forth, with
respect to any specific Section or subsection in this Article V, in the
corresponding section or subsection of the schedules Parent (on behalf of itself
and Merger Sub) has delivered to the Company concurrently with the execution and
delivery hereof (the "Parent Disclosure Schedules") as follows (it being
understood that the disclosure of any matter or item in the Parent Disclosure
Schedules shall not be deemed to constitute an acknowledgement that such matter
or item is required to be disclosed therein or is material to a representation
or warranty set forth in this Agreement and shall not be used as a basis for
interpreting the terms "material," "materially," "materiality" or "Material
Adverse Effect" or any word or phrase of similar import, and does not mean that
such matter or item would, with any other matter or item, have or be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent):
Section 5.1 Organization and Qualification; Subsidiaries.
(a) Parent is a corporation duly organized, validly existing and in
good standing under the laws of the State of Nevada, and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware. Each Subsidiary of Parent (each a "Parent Subsidiary"
and, collectively, the "Parent Subsidiaries") has been duly organized, and is
validly existing and in good standing, under the laws of the jurisdiction of its
incorporation or organization, as the case may be. Each of Parent and each
Parent Subsidiary has the requisite power and authority and all necessary
governmental approvals to own, lease and operate its properties and to carry on
its business as it is now being conducted and as currently proposed by it to be
conducted. Each of Parent and each Parent Subsidiary is duly qualified or
licensed to do business, and is in good standing, in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
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business makes such qualification, licensing or good standing necessary other
than in such jurisdictions where the failure to be so qualified individually or
in the aggregate would not have a Material Adverse Effect on Parent.
(b) Section 5.1(b) of the Parent Disclosure Schedules sets forth a
true, correct and complete list of all of the Parent Subsidiaries and the
jurisdictions of their organization. Except as set forth on Section 5.1(b) of
the Parent Disclosure Schedules, none of the Parent or any Parent Subsidiary
holds an Equity Interest in any other Entity. Parent directly, or indirectly
through the ownership of a Parent Subsidiary, is the owner of all of the issued
and outstanding Equity Interests in each Parent Subsidiary, and all such Equity
Interests are duly authorized, validly issued, fully paid and nonassessable.
Except as set forth in Section 5.1(b) of the Parent Disclosure Schedules, all of
the issued and outstanding Equity Interests of each Parent Subsidiary are owned
directly by Parent, or indirectly through the ownership of a Parent Subsidiary,
free and clear of all Encumbrances and are not subject to any preemptive right
or right of first refusal created by Law or the Organizational Documents of such
Parent Subsidiary or any Contract to which such Parent Subsidiary is a party or
by which it is bound. There are no outstanding Commitments or other Contracts of
any character relating to the issued or unissued Equity Interests or other
Securities of any Parent Subsidiary, or otherwise obligating Parent or any
Parent Subsidiary to issue, transfer, sell, purchase, redeem or otherwise
acquire or sell any such Equity Interests or Securities.
Section 5.2 Certificate of Incorporation and Bylaws; Corporate Books
and Records. Parent has Made Available to the Company a true, correct and
complete copy of Parent's Articles of Incorporation, as Amended (the "Parent
Certificate of Incorporation"), and the Parent's Bylaws, as Amended (the "Parent
Bylaws"), in each case as now in effect. Parent has Made Available to the
Company a true, correct and complete copy of the Organizational Documents of
each Parent Subsidiary, in each case as Amended and now in effect. Neither
Parent nor any Parent Subsidiary is in material violation of any of the
provisions of its Organizational Documents. Except as set forth in Section 5.2
of the Parent Disclosure Schedules, (i) true, correct and complete copies of all
Minute Books of Parent and the Parent Subsidiaries have been Made Available to
the Company, and (ii) the Minute Books of Parent and each Parent Subsidiary Made
Available to the Company contain accurate summaries of all meetings of directors
and stockholders (or equivalent managers and owners) or actions by written
consent of the directors and stockholders (or equivalent managers and owners) of
Parent and the respective Parent Subsidiaries through the date of this Agreement
or the Closing Date, as the case may be.
Section 5.3 Capitalization.
(a) The authorized capital shares of Parent consist of 10,000,000
Parent Common Shares. As of December 31, 2006, 4,913,290 Parent Common Shares
(other than treasury shares) were issued and outstanding, all of which are
validly issued and fully paid, nonassessable and free of preemptive rights
(excluding shares held in the treasury of Parent).
(b) Except for (i) Parent Common Shares reserved for issuance as set
forth in this Section 5.3 or in Section 5.3 of the Parent Disclosure Schedules,
and (ii) Commitments under the Transaction Documents; there are no Commitments
or other rights or Contracts obligating Parent or any Parent Subsidiary to issue
or sell any Equity Interests, or Securities convertible into or exchangeable for
Equity Interests, in Parent or any Parent Subsidiary. Since the Parent Balance
Sheet Date, Parent has not issued any Equity Interests, or Securities
convertible into or exchangeable for such Equity Interests, other than those
Parent Common Shares reserved for issuance as set forth in this Section 5.3 or
in Section 5.3 of the Parent Disclosure Schedules. All issued and outstanding
Parent Common Shares and all outstanding Parent Options were issued, and all
repurchases of Parent Common Shares were made, in material compliance with all
applicable Laws.
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(c) As of December 31, 2006, Parent has reserved 2,450,000 Parent
Common Shares for issuance to employees, non-employee directors and consultants
pursuant to Parent Stock Option Plans, of which 1,403,134 shares are subject to
outstanding and unexercised Parent Options and 1,046,866 shares remain available
for issuance thereunder. As of December 31, 2006, no outstanding Parent Common
Shares were subject to Repurchase Rights. Section 5.3(c)(1) of the Parent
Disclosure Schedules identifies (i) the name and full address of each Person who
held Parent Options or Parent Common Shares subject to a Repurchase Right as of
December 31, 2006, (ii) the particular Parent Stock Option Plan pursuant to
which such Parent Option was granted or such Parent Common Shares were issued,
(iii) the date on which such Parent Option was granted or such Parent Common
Shares were issued, (iv) the exercise or base price of such Parent Option or the
repurchase price of such Parent Common Shares, (v) the number of Parent Common
Shares subject to such Parent Option or Repurchase Right or value covered
thereby, (vi) the number of Parent Common Shares as to which such Parent Option
had vested (or such Repurchase Right had lapsed) at such date, (vii) the
applicable vesting schedule for such Parent Option or such Parent Common Shares
and whether the exercisability or vesting of such Parent Option, or lapsing of
the Repurchase Right, will be accelerated or affected in any way by the Merger
or the transactions contemplated hereby (whether alone or in combination with
any other event or condition, such as termination of employment), (viii) the
date on which such Parent Option or Repurchase Right expires, and (ix) in the
case of shares subject to a Repurchase Right, the material terms of any
promissory note delivered in payment of the purchase price for such Parent
Common Shares (including limitations on recourse). Section 5.3(c)(2) of the
Parent Disclosure Schedules sets forth a true, correct and complete list of all
holders of outstanding Parent Options that are held by Persons that are not
employees of Parent or any Parent Subsidiary (including non-employee directors,
consultants, advisory board members, vendors, service providers or other similar
Persons). All of the Parent Common Shares subject to issuance under Parent Stock
Option Plans, upon issuance prior to the Effective Time on the terms and
conditions specified in the instruments pursuant to which they are issuable,
will be duly authorized, validly issued, fully paid, nonassessable and free of
preemptive rights. True, correct and complete copies of each of the Parent Stock
Option Plans and the standard form of all agreements and instruments relating to
or issued under each Parent Stock Option Plan and all agreements and instruments
relating to or issued under Parent Stock Option Plans or Parent Options that
differ in any material respect from such standard form agreements have been Made
Available to the Company, and such agreements and instruments have not been
Amended since being Made Available to the Company, and there are no agreements,
understandings or commitments to Amend such agreements or instruments in any
case from those Made Available to the Company.
(d) Section 5.3(d) of the Parent Disclosure Schedules sets forth all
outstanding Parent Warrants and other Commitments (other than Parent Options
disclosed in Section 5.3(c) of the Parent Disclosure Schedules). Parent has Made
Available to the Company complete and correct copies of all Parent Warrants and
Contracts governing such other Commitments, in each case as Amended to date.
(e) Section 5.3(e) of the Parent Disclosure Schedules sets forth all
outstanding Contractual obligations of Parent or any Parent Subsidiary (i)
restricting the transfer of, (ii) affecting the voting rights of, (iii)
requiring the repurchase, redemption or disposition of, or (iv) granting any
preemptive or anti-dilutive right with respect to; any Parent Common Shares or
any other Equity Interests in Parent or any Parent Subsidiary.
Section 5.4 Authority. Each of Parent and Merger Sub has all necessary
corporate power and authority to execute and deliver this Agreement and each
Related Agreement to which it is a signatory, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated hereby
and thereby (other than, on the date hereof, the Parent Stockholder Approval),
including, with respect to Merger Sub, the filing of the Certificate of Merger
pursuant to the DGCL. The execution and delivery of this Agreement and each
Related Agreement to which Parent or Merger Sub is a signatory by Parent or
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Merger Sub, as the case may be, and the consummation by Parent and Merger Sub of
the transactions contemplated hereby and thereby, including, in the case of
Merger Sub, said filing of the Certificate of Merger, have been duly and validly
authorized by all necessary corporate action (other than, on the date hereof,
the Parent Stockholder Approval). Assuming the due authorization, execution and
delivery by the Company of this Agreement, this Agreement and each Related
Agreement to which Parent or Merger Sub is a signatory has been duly authorized
and validly executed and delivered by Parent or Merger Sub, as the case may be,
and constitutes its legal, valid and binding obligation, enforceable against
Parent or Merger Sub, as the case may be, in accordance with their respective
terms, subject only to the effect, if any, of (i) applicable bankruptcy and
other similar Laws affecting the rights of creditors generally, and (ii) rules
of law governing specific performance, injunctive relief and other equitable
remedies. The Parent Board and the Board of Directors of Merger Sub each has
unanimously (A) approved and declared advisable this Agreement, each Related
Agreement to which Parent or Merger Sub, as the case may be, is a signatory, the
Merger and the other Transactions applicable to it, (B) determined that this
Agreement and each Related Agreement to which Parent or Merger Sub, as the case
may be, is a signatory and the terms and conditions of the Merger and other
Transactions are fair to, advisable and in the best interests of Parent or
Merger Sub, as the case may be, and its stockholders, and (C) directed that the
adoption of this Agreement and the approval of this Agreement, the Merger and
the Parent Authorized Stock Increase be submitted to Parent's or Merger Sub's,
as the case may be and as applicable, stockholders for approval at a meeting of
such stockholders and recommended that all of Parent's or Merger Sub's, as the
case may be, stockholders adopt and approve this Agreement and approve the
Merger and, in the case of Parent, the Parent Authorized Stock Increase;
provided, however, that after the date hereof the Parent Board acting in good
faith may withdraw its recommendation. The affirmative vote of the holders of a
majority of all Parent Common Shares present in person or by proxy and voting at
the meeting of Parent's stockholders to adopt and approve this Agreement and
approve the Merger (the "Parent Stockholders Meeting") is the only vote of the
holders of capital stock of Parent necessary to adopt this Agreement under
applicable Law, including the NPCA, the Nasdaq Marketplace Rules and Parent's
Organizational Documents (the "Parent Stockholder Approval").
Section 5.5 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement and the Related
Agreements to which Parent or Merger Sub is a signatory by Parent or Merger Sub,
as the case may be, do not, and the performance of this Agreement and such
Related Agreements by Parent or Merger Sub, as the case may be, will not, (i)
subject to obtaining approval by Parent's stockholders for the Parent Authorized
Stock Increase, conflict with or violate any provision of the Organizational
Documents of Parent or any Parent Subsidiary, (ii) subject to obtaining the
Parent Stockholder Approval and approval of the sole stockholder of Merger Sub
and assuming that all Consents described in Section 5.5(b) have been obtained
and all filings and notifications described in Section 5.5(b) have been made and
any waiting periods thereunder have terminated or expired, conflict with or
violate any Law applicable to Parent or any Parent Subsidiary, or by which any
Property of Parent or any Parent Subsidiary is bound or affected, (iii) result
in the creation of any Encumbrance on any of the Properties of Parent or any
Parent Subsidiary, or (iv) require any Consent under, or result in any Breach
of, any Parent Material Contract or Parent Permit, in each case except as set
forth in Section 5.5 of the Parent Disclosure Schedules.
(b) The execution and delivery of this Agreement and the Related
Agreements to which Parent or Merger Sub is a signatory by Parent or Merger Sub,
as the case may be, do not, and the performance of this Agreement and such
Related Agreements by Parent or Merger Sub, as the case may be, and then
consummation of the Transactions will not, require any Consent of, or filing
with or notification to, any Governmental Entity, except for the Specified
Consents and such other Consents and filings with or notifications to
Governmental Entities the failures of which to make or obtain, individually or
in the aggregate, would not have a Material Adverse Effect on Parent.
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Section 5.6 Permits; Compliance With Law.
(a) Each of Parent and each Parent Subsidiary is in possession of all
material Governmental Permits, and has made all material filings, applications
and registrations with any Governmental Entity, in each case that are necessary
for Parent and each Parent Subsidiary to own, lease or operate its Properties,
or to carry on its respective businesses substantially in the manner described
in Parent SEC Reports filed prior to the date hereof or the Closing Date, as the
case may be, and substantially as it is being conducted as of the date hereof
(the "Parent Permits"), and all such Parent Permits are valid and in full force
and effect, except where the failure to have, or the suspension or cancellation
of, or failure to be valid or in full force and effect of, any of Parent Permits
would not, individually or in the aggregate, reasonably be expected to (i)
prevent or materially delay consummation of the Merger or any other transactions
contemplated by this Agreement, (ii) otherwise prevent or materially delay
performance by Parent of any of its material obligations under this Agreement or
any Related Agreement to which it or Merger Sub is a signatory, or (iii) have a
Material Adverse Effect on Parent.
(b) None of Parent and the Parent Subsidiaries is in conflict with, or
in default or violation of, (A) in any material respect, any Law applicable to
Parent or any Parent Subsidiary or by which any Property of Parent or any Parent
Subsidiary is bound or affected, or (B) any Parent Permit, except, with respect
to clause (B) next preceding, for any such conflicts, defaults or violations
that would not, individually or in the aggregate, reasonably be expected to (i)
prevent or materially delay consummation of the Merger or any other transactions
contemplated by this Agreement, (ii) otherwise prevent or materially delay
performance by Parent of any of its material obligations under this Agreement or
any Related Agreement to which it or Merger Sub is a signatory, or (iii) have a
Material Adverse Effect on Parent. None of the Parent Permits will be terminated
or impaired or will become terminable, in whole or in part, as a result of the
transactions contemplated by this Agreement or any Related Agreement to which it
or Merger Sub is a signatory.
(c) Neither Parent nor any Parent Subsidiary has, within the last three
years, received any warning, notice, notice of violation or probable violation,
notice of revocation or other communication from or on behalf of any
Governmental Entity, alleging (x) any conflict with, or default or violation of,
any Parent Permit, or (y) that Parent or any Parent Subsidiary requires any
Parent Permit for its business as currently conducted that is not currently held
by it. Except as set forth in Section 5.6 of Parent Disclosure Schedules, to
Parent's Actual Knowledge, no investigation or inquiry by any Governmental
Entity with respect to Parent or any Parent Subsidiary is pending or threatened,
in each case with respect to any alleged or claimed violation of Law applicable
to Parent or any Parent Subsidiary or by which any Property of Parent or any
Parent Subsidiary is bound or affected.
(d) Neither Parent nor any of Parent Subsidiaries, nor to Parent's
Actual Knowledge, any director, officer, Affiliate or employee thereof, has on
behalf of or with respect to Parent engaged in any conduct constituting a
violation of the Foreign Corrupt Practices Act of 1977, as amended.
Section 5.7 SEC Filings; Financial Statements.
(a) Parent has filed all SEC Reports required under applicable Law to
be filed by it with the SEC in the last five years. All of the Parent SEC
Reports have been Made Available to the Company.
(b) As of their respective dates, each Parent SEC Report (i) complied
as to form in all material respects with the requirements of the Securities Act,
the Exchange Act and the SEC Rules applicable to such Parent SEC Report, and
(ii) did not at the time it was filed contain any untrue statement of a material
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fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading, except to the extent corrected (A) in the
case of a Parent SEC Report filed prior to the date of this Agreement that was
amended or superseded prior to the date of this Agreement, by the filing of such
amending or superseding Parent SEC Report, and (B) in the case of a Parent SEC
Report filed after the date of this Agreement that is amended or superseded
prior to the Effective Time, by the filing of such amending or superseding
Parent SEC Report. None of the Parent Subsidiaries is required to file any SEC
Reports with the SEC.
(c) As of their respective dates, each of the consolidated financial
statements (including, in each case, any related notes thereto) contained in the
Parent SEC Reports (the "Parent Financial Statements"), (i) complied as to form
in all material respects with the published SEC Rules applicable thereto, (ii)
was prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q, Form 8-K or any successor form under the Exchange Act), and (iii)
fairly presented in all material respects the consolidated financial position of
Parent and the Parent Subsidiaries as at the respective dates thereof and the
consolidated results of Parent's and the Parent Subsidiaries' operations and
cash flows for the periods indicated in accordance with GAAP, except that the
unaudited interim financial statements may not contain footnotes and were or are
subject to normal and recurring year-end adjustments in accordance with GAAP.
Neither Parent nor any Parent Subsidiary has any liabilities (absolute, accrued,
contingent or otherwise) required under GAAP to be set forth on a balance sheet
that are, individually or in the aggregate, material to the business, results of
operations or financial condition of Parent and the Parent Subsidiaries taken as
a whole, except for (A) liabilities incurred since the Parent Balance Sheet Date
in the Ordinary Course of Business which are of the type that typically recur
and which do not result from any Breach of Contract, tort or default or
violation of any Law, (B) those specifically set forth or specifically and
adequately reserved against in the Parent Balance Sheet, and (C) the fees and
expenses of investment bankers, attorneys and accountants incurred in connection
with this Agreement and the Transactions. Except as reflected in the Parent
Financial Statements, neither Parent nor any Parent Subsidiary is a party to any
material off-balance sheet arrangements (as defined in Item 303 of Regulation
S-K promulgated by the SEC). Except as set forth in the Parent SEC Reports,
Parent has not had any disagreement with any of its auditors regarding
accounting matters or policies during any of its past three full fiscal years or
to date during the current fiscal year. The books and records of Parent and each
Parent Subsidiary have been maintained, and are being maintained, in all
material respects in accordance with applicable legal and accounting
requirements, and the Parent Financial Statements are consistent in all material
respects with such books and records.
(d) No investigation by the SEC with respect to Parent or any Parent
Subsidiary is pending or, to the Knowledge of Parent, threatened.
(e) Parent has established and maintains "disclosure controls and
procedures" (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the
Exchange Act) that are reasonably designed to ensure that material information
(both financial and non-financial) relating to Parent and the Parent
Subsidiaries required to be disclosed by Parent in the reports that it files or
submits under the Exchange Act is communicated to the Parent's principal
executive officer and principal financial officer, or persons performing similar
functions, as appropriate to allow timely decisions regarding required
disclosure and to make the certifications of the principal executive officer and
the principal financial officer of Parent required by Section 302 of SOX, with
respect to such reports. For purposes of this Section 5.7(e), "principal
executive officer" and "principal financial officer" shall have the meanings
ascribed to such terms in SOX. Each of the principal executive officer and the
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principal financial officer of Parent (or each former principal executive
officer and each former principal financial officer of Parent, as applicable)
has made all certifications required by Sections 302 and 906 of SOX and the
rules and regulations promulgated by the SEC thereunder with respect to the
Parent SEC Reports.
(f) Parent maintains a system of internal accounting controls designed
to provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. Parent has Made Available to the Company accurate
and complete copies of all material policies, manuals and other documents
promulgating such internal accounting controls. Except as set forth in Section
5.7(f) of the Parent Disclosure Schedules, to Parent's Knowledge, there are no
"material weaknesses" (as defined by the PCAOB) and there are no series of
multiple "significant deficiencies" (as defined by the PCAOB) that are
reasonably likely to collectively represent a "material weakness" in the design
or operation of Parent's internal controls and procedures, and to Parent's
Knowledge, there are no significant deficiencies in the design or operation of
Parent's internal controls and procedures. To Parent's Knowledge, in the last
five years, there has been no fraud that involves management or other employees
who have a significant role in Parent's internal controls and procedures.
(g) To Parent's Knowledge, (A) BKR Cornwell Jackson, which has
expressed its opinion with respect to the Parent Financial Statements as of
December 31, 2004 and as of December 31, 2005, and for each of Parent's fiscal
years in the two-year period ended December 31, 2005, and (B) CF & Co., L.L.P.,
which has expressed its opinion with respect to the Parent Financial Statements
as of December 31, 2003 and for Parent's fiscal year in the one-year period
ended December 31, 2003; in each case included in the Parent SEC Reports
(including the related notes), is "independent" with respect to Parent and the
Parent Subsidiaries within the meaning of Regulation S-X and has been
"independent" within such meaning at all times since January 1, 2002. Parent has
made such disclosure of non-audit services performed by BKR Cornwell Jackson or
CF & Co., L.L.P. in its proxy statements with respect to its annual meetings of
its stockholders as is required under the Exchange Act, Securities Act and SEC
Rules, and all such non-audit services have been approved in advance by the
audit committee of the Parent Board. Parent is in compliance with the applicable
criteria for continued listing of the Parent Common Shares on the Parent's
Principal Market.
Section 5.8 Disclosure Documents.
(a) The Parent Information included in, or incorporated by reference
into, the Form S-4, Proxy Statement and any Other Filings, and any amendments or
supplements thereto, will, at the Applicable Times, comply as to form in all
material respects with the applicable requirements of the Securities Act, the
Exchange Act, the SEC Rules and other applicable Laws.
(b) The information supplied or to be supplied by or on behalf of
Parent or any of its officers, directors or stockholders for inclusion or use,
or incorporation by reference, in (i) the Form S-4, (ii) the Proxy Statement, or
(iii) any other document (including any report filed by the Company or Parent
under the Exchange Act) filed with any Governmental Entity in connection with
the Transactions, or in each case any amendment or supplement thereto; in each
case do not and will not, at the Applicable Times, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein regarding the Parent
Information, in light of the circumstances under which they are made, not
misleading. The Parent Information provides all information relating to Parent
or its operations, business, directors, officers, Subsidiaries and stockholders
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required to be provided by the provisions of the Securities Act, the Exchange
Act and the SEC Rules, including form S-4 and Regulation 14A.
(c) Notwithstanding the foregoing provisions of this Section 5.8,
Parent makes no representation or warranty, and assumes no responsibility, with
respect to statements made or incorporated by reference in the Form S-4, the
Proxy Statement or any Other Filings, or in each case any amendment or
supplement thereto, supplied by the Company (other than Parent Information so
supplied) for inclusion or incorporation by reference therein.
Section 5.9 Absence of Certain Changes or Events. Since the Parent
Balance Sheet Date, except as specifically disclosed in the Parent SEC Reports
filed thereafter, as contemplated hereby or as set forth in Section 5.9 of the
Parent Disclosure Schedules, Parent and each Parent Subsidiary has conducted its
business only in the Ordinary Course of Business and, since such date:
(a) no Events have caused a Material Adverse Effect on Parent;
(b) there has not been any declaration, setting aside or payment of any
dividend on, or other distribution (whether in cash, Securities or Property) in
respect of, any of Parent's Equity Interests, or any purchase, redemption or
other acquisition by Parent of any of Parent's Equity Interests or any other
Securities of Parent or any Commitments for any such Equity Interests of
Securities, other than repurchases from employees or consultants following their
termination pursuant to the terms of existing Repurchase Rights;
(c) there has not been any Capitalization Adjustment of any of Parent's
Equity Interests;
(d) there has not been any increase in compensation or fringe benefits
paid or payable to any of the officers, directors or managers or employees of
Parent or any Parent Subsidiary at the vice president or director level or
higher, or who earn base salary of more than $100,000 per year, or any payment
by Parent or any of the Parent Subsidiaries of any bonus to any of their
officers, directors or managers or employees at the vice president or director
level or higher, or who earn base salary of more than $100,000 per year, or any
granting by Parent or any of the Parent Subsidiaries of any increase in
severance or termination pay, or any entry by Parent or any of the Parent
Subsidiaries into, or material Amendment of, any currently effective employment,
severance, termination or indemnification agreement or any agreement the
benefits of which are contingent, or the terms of which are materially altered,
upon the occurrence of a transaction involving Parent of the nature of any
Transactions, or any subsequent event, other than increases in the Ordinary
Course of Business in base salary and target bonuses for employees who are not
officers of Parent, in an amount that does not exceed 50% of such base salary,
in connection with periodic compensation or performance reviews or for ordinary
course severance and release agreements as made in connection with the
termination of employment that do not provide severance in excess of Parent's
standard policies;
(e) there has not been any change by Parent or any of the Parent
Subsidiaries in its accounting methods, principles or practices (including any
material change in depreciation or amortization policies or rates or revenue
recognition policies), except as required by concurrent changes in GAAP;
(f) there has not been any sale, transfer, or other disposition of any
Parent IP Rights or any other Properties by Parent or any of the Parent
Subsidiaries, except in the Ordinary Course of Business;
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(g) neither Parent nor any Parent Subsidiary has made any loan, advance
or capital contribution to, or investment in, any Person, including any
director, officer or Affiliate of Parent, other than (i) loans, advances or
capital contributions to or investments in wholly-owned Subsidiaries or Entities
that became wholly-owned Subsidiaries made in the Ordinary Course of Business,
(ii) investments made in accordance with Parent's investment guidelines, a copy
of which has been Made Available to the Company, in the Ordinary Course of
Business, (iii) routine travel and entertainment expense advances in the
Ordinary Course of Business and in accordance with Parent's travel and expense
policy, a copy of which has been Made Available to the Company, and (iv) loans
and advances to third party customers in the Ordinary Course of Business;
(h) there has not been any material change with respect to the
management or other key personnel of Parent, any termination of employment of
any such employees or a material number of employees, or any material labor
dispute or material claim of unfair labor practices involving Parent or any
Parent Subsidiary; and
(i) neither Parent nor any Parent Subsidiary has agreed, whether in
writing or otherwise, to take any action described in this Section 5.9.
Section 5.10 Employee Benefit Plans.
(a) Section 5.10(a) of the Parent Disclosure Schedules lists as of the
date of this Agreement, with respect to Parent and the Parent Subsidiaries and
their respective ERISA Affiliates, (i) all employee benefit plans within the
meaning of Section 3(3) of ERISA, (ii) each loan from Parent, any Parent
Subsidiary or any such ERISA Affiliate to an employee in excess of $5,000, (iii)
all stock option, stock purchase, phantom stock, stock appreciation right,
supplemental retirement, severance, salary continuation, sabbatical, employee
relocation, cafeteria benefit (Section 125 of the Code), dependent care (Section
129 of the Code), life insurance or accident insurance plans, programs or
arrangements, (iv) all bonus, pension, profit sharing, savings, retirement,
deferred compensation or incentive plans, programs or arrangements, whether
written or oral, qualified or nonqualified, funded or unfunded, currently
effective or terminated, (v) other fringe or employee benefit plans, programs or
arrangements that apply to senior management and that do not generally apply to
all employees, and (vi) any employment or service agreements (except for offer
letters providing for at-will employment that do not provide for severance,
acceleration or post-termination benefits), compensation agreements or severance
agreements, written or otherwise, for the benefit of, or relating to, any
present or former director, officer, employee, or consultant (provided that, for
(1) former and current consultants, and (2) former directors, officers and
employees; such arrangements need only be listed if unsatisfied obligations of
Parent or any Parent Subsidiary of greater than $5,000 remain thereunder) of
Parent or any Parent Subsidiary (all of the foregoing described in clauses (i)
through (vi) next preceding, collectively, the "Parent Benefit Plans"). Parent
has no liability with respect to any plan, arrangement or practice of the type
described in the preceding sentence other than the Parent Benefit Plans. Parent
has not, since July 30, 2002, extended credit, arranged for the extension of
credit, or renewed, modified or forgiven an extension of credit made prior to
such date, in the form of a personal loan to or for any person who was, at any
time since such date, an officer or director of Parent.
(b) Prior to the date of this Agreement, Parent has Made Available to
the Company a true, correct and complete copy of each Parent Benefit Plan and
all current and prior related plan documents (including adoption agreements,
vendor contracts and administrative services agreements, trust documents,
insurance policies or contracts (including policies relating to fiduciary
liability insurance covering the fiduciaries of such Parent Benefit Plans),
bonds required by ERISA, employee booklets, summary plan descriptions and other
authorizing documents, summaries of material modifications and any material
written employee communications relating thereto) and has, with respect to each
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Parent Benefit Plan that is subject to ERISA reporting requirements, Made
Available to the Company true, correct and complete copies of the Form 5500
reports filed for the last three plan years (including all audits, financial
statements, schedules and attachments thereto, where applicable). Any Parent
Benefit Plan intended to be qualified under Section 401(a) of the Code has (i)
obtained from the IRS a current favorable determination letter as to its
qualified status under the Code and as to the exemption from tax under the
provisions of Code Section 501(a) of each trust created thereunder, or (ii) has
been established under a standardized master and prototype or volume submitter
plan for which a favorable Internal Revenue Service advisory letter or opinion
letter has been obtained by the plan sponsor and is valid as to the adopting
employer. Parent has also Made Available to the Company a true, correct and
complete copy of the most recent such Internal Revenue Service determination
letter, advisory letter or opinion letter issued with respect to each Parent
Benefit Plan, and, to Parent's Knowledge, nothing has occurred since the
issuance of each such letter that could reasonably be expected to cause the loss
of the tax-qualified status of any Parent Benefit Plan subject to Section 401(a)
of the Code. Parent has also Made Available to the Company all registration
statements and prospectuses and investment policy statements prepared in
connection with each Parent Benefit Plan, where applicable. All individuals who,
pursuant to the terms of any Parent Benefit Plan, are entitled to participate in
such Parent Benefit Plan, are currently participating in such Parent Benefit
Plan or have been offered an opportunity to do so. None of Parent and the Parent
Subsidiaries and their respective ERISA Affiliates sponsors or maintains any
self-funded employee benefit plan, including any plan to which a stop-loss
policy applies.
(c) Except as set forth in Section 5.10(c) of the Parent Disclosure
Schedules, none of the Parent Benefit Plans promises or provides retiree medical
or other retiree welfare benefits to any person other than as required under
COBRA, or applicable state law. There has been no prohibited transaction (within
the meaning of Section 406 of ERISA and Section 4975 of the Code) with respect
to any Parent Benefit Plan that is not exempt under Section 408 of ERISA. To
Parent's Actual Knowledge, each Parent Benefit Plan has been administered in
accordance with its terms and in compliance with the requirements prescribed by
applicable Law (including ERISA and the Code), and Parent and the Parent
Subsidiaries, and their respective ERISA Affiliates, each has performed all
obligations required to be performed by it under, is not in any material respect
in default under or in violation of, and has no Actual Knowledge of any material
default or in violation by any other party to, any of the Parent Benefit Plans.
None of Parent and the Parent Subsidiaries and their respective ERISA Affiliates
is subject to any liability or penalty under Sections 4976 through 4980 of the
Code or Title I of ERISA with respect to any of the Parent Benefit Plans. All
contributions required to be made by Parent or any Parent Subsidiary or any of
their respective ERISA Affiliates to any Parent Benefit Plan have been made on
or before their due dates and, to the extent required by GAAP, all amounts have
been accrued for the current plan year (and no further contributions will be due
or will have accrued thereunder as of the Closing Date, other than contributions
accrued in the Ordinary Course of Business after the Parent Balance Sheet Date
as a result of the operations of Parent and the Parent Subsidiaries after the
Parent Balance Sheet Date). In addition, with respect to each Parent Benefit
Plan intended to include a Code Section 401(k) arrangement, the Parent and each
Parent Subsidiary and their respective ERISA Affiliates have at all times made
timely deposits of employee salary reduction contributions and participant loan
repayments, as determined pursuant to regulations issued by the United States
Department of Labor. No Parent Benefit Plan that is an employee welfare benefit
plan as defined in Section 3(1) of ERISA is a self-insured plan. No Parent
Benefit Plan is covered by, and none of Parent and the Parent Subsidiaries and
their respective ERISA Affiliates has incurred or expects to incur any liability
under Title IV of ERISA or Section 412 of the Code. With respect to each Parent
Benefit Plan subject to ERISA as either an employee pension benefit plan within
the meaning of Section 3(2) of ERISA or an employee welfare benefit plan within
the meaning of Section 3(1) of ERISA, Parent has prepared in good faith and
timely filed all requisite governmental reports (which were true, correct and
complete as of the date filed), including any required audit reports, and has
properly and timely filed and distributed or posted all notices and reports to
employees required to be filed, distributed or posted with respect to each such
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Parent Benefit Plan. No Action has been brought, or to the Actual Knowledge of
Parent or any Parent Subsidiary, is threatened, against Parent or any Parent
Subsidiary or with respect to any such Parent Benefit Plan, including any audit
or inquiry by the IRS or United States Department of Labor.
(d) None of Parent and the Parent Subsidiaries and their respective
ERISA Affiliates is a party to, or has made any contribution to or otherwise
incurred any obligation under, any "multiemployer plan" as such term is defined
in Section 3(37) of ERISA or any "multiple employer plan" as such term is
defined in Section 413(c) of the Code. There has been no termination or partial
termination of any Parent Benefit Plan within the meaning of Section 411(d)(3)
of the Code.
(e) Each Foreign Plan of Parent or any Parent Subsidiary is listed in
Section 5.10(e) of the Parent Disclosure Schedules, except for plans maintained
by Governmental Entities. As regards each such Foreign Plan, (i) such Foreign
Plan is in compliance with the provisions of the laws of each jurisdiction in
which such Foreign Plan is maintained, to the extent those laws are applicable
to such Foreign Plan, (ii) Parent and each Parent Subsidiary, and each of their
respective ERISA Affiliates, has complied with all applicable reporting and
notice requirements, and such Foreign Plan has obtained from the Governmental
Entity having jurisdiction with respect to such Foreign Plan any required
determinations, if any, that such Foreign Plan is in compliance with the laws of
the relevant jurisdiction if such determinations are required in order to give
effect to such Foreign Plan, and (iii) such Foreign Plan has been administered
in accordance with its terms and applicable Law.
(f) Section 5.10(f) of the Parent Disclosure Schedules lists each
person who Parent reasonably believes is, with respect to Parent or any Parent
Subsidiary or any of their respective ERISA Affiliates, a "disqualified
individual" (within the meaning of Section 280G of the Code and the regulations
promulgated thereunder) determined as of the date hereof.
(g) Section 5.10(g) of the Parent Disclosure Schedules lists as of the
date of this Agreement each employee of Parent or any Parent Subsidiary who is
not fully available to perform work because of disability or other leave and
also lists, with respect to each such employee, the basis of such disability or
leave and the anticipated date of return to full service.
(h) Except as set forth in Section 5.10(h) of the Parent Disclosure
Schedules, none of the execution and delivery of this Agreement or the
consummation of the Transactions (or the Transactions in combination with any
subsequent transactions or events, other than transactions or events initiated
solely by the Company) will (i) result in any employee, director or consultant
of Parent or any Parent Subsidiary becoming entitled to any deferred
compensation, bonus or severance pay or materially increase or otherwise enhance
any benefits otherwise payable by Parent or any Parent Subsidiary, (ii) result
in the acceleration of the time of payment or vesting, or an increase in the
amount of any compensation due to any employee, director or consultant of Parent
or any Parent Subsidiary, except as may be required under Section 411(d)(3) of
the Code, (iii) result in forgiveness in whole or in part of any outstanding
loans made by Parent or any Parent Subsidiary to any of their employees,
directors or consultants, or (iv) result in a payment that would be considered
an "excess parachute payment" and treated as nondeductible under Section 280G of
the Code or subject to the excise Tax under Section 4999 of the Code.
(i) To Parent's Knowledge, Parent has neither granted, nor is a party
to, any Contract that grants any compensation, equity award, or bonus, that
fails to comply in good faith with the provisions of Section 409A of the Code.
(j) Each of Parent and the Parent Subsidiaries is in compliance in all
material respects with all currently applicable Laws respecting employment,
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discrimination in employment, terms and conditions of employment, worker
classification (including the proper classification of workers as independent
contractors and consultants), wages, hours and occupational safety and health
and employment practices, including the Immigration Reform and Control Act.
Parent and each Parent Subsidiary has paid in full to all employees, independent
contractors and consultants all wages, salaries, commissions, bonuses, benefits,
and other compensation due to or on behalf of such employees, independent
contractors or consultants. Neither Parent nor any Parent Subsidiary is liable
for any payment to any trust or other fund or to any Governmental Entity, with
respect to unemployment compensation benefits, social security or other benefits
or obligations for employees (other than routine payments to be made in the
Ordinary Course of Business). There are no controversies pending or, to the
Actual Knowledge of Parent, threatened, between Parent or any Parent Subsidiary
and any of their respective employees, which controversies have or could
reasonably be expected to result in an Action before any Governmental Entity.
(k) Neither Parent nor any of the Parent Subsidiaries has any
obligation to pay any amount or provide any benefit to any former employee or
officer, other than obligations (i) for which Parent has established a reserve
for such amount on the Parent Balance Sheet in accordance with GAAP, and (ii)
pursuant to Contracts entered into after the Parent Balance Sheet Date and
disclosed on Section 5.10(k) of the Parent Disclosure Schedules. Neither Parent
nor any Parent Subsidiary is a party to or bound by any collective bargaining
agreement or other labor union contract, no collective bargaining agreement is
being negotiated by Parent or any Parent Subsidiary and neither Parent nor any
Parent Subsidiary has any duty to bargain with any labor organization. There is
no pending demand for recognition or any other request or demand from a labor
organization for representative status with respect to any person employed by
Parent or any Parent Subsidiary. Parent has no Actual Knowledge of any
activities or proceedings of any labor union to organize the employees of Parent
or any Parent Subsidiary. There is no labor dispute, strike or group work
stoppage against Parent or any Parent Subsidiary pending or to the Actual
Knowledge of Parent threatened that may interfere with the respective business
activities of Parent or any Parent Subsidiary.
(l) To the Knowledge of Parent, no employee of Parent or any Parent
Subsidiary is in violation of any term of any employment agreement, patent
disclosure agreement, non-competition agreement, or any restrictive covenant to
a former employer relating to the right of any such employee to be employed by
Parent or any Parent Subsidiary because of the nature of the business conducted
or presently proposed to be conducted by Parent or any Parent Subsidiary or to
the use of trade secrets or proprietary information of others. No Key Employee
of Parent or any Parent Subsidiary has given notice of termination or
resignation to Parent or any Parent Subsidiary, nor does Parent otherwise have
Actual Knowledge that any such Key Employee intends to terminate his or her
employment with Parent or any Parent Subsidiary. The employment of each of the
employees of Parent or any Parent Subsidiary is "at will" and Parent and each
Parent Subsidiary does not have any obligation to provide any particular form or
period of notice prior to terminating the employment of any of their respective
employees, and the employment of each employee of Parent and each Parent
Subsidiary may be terminated without prior notice and without financial
liability to the Parent or any Parent Subsidiary (other than as provided under
applicable Law or as set forth in Section 5.10(a) of the Parent Disclosure
Schedules).
(m) Parent has Made Available to the Company a true, correct and
complete list of the names of all current officers, directors, consultants and
employees of Parent and each Parent Subsidiary showing each such person's name,
position, rate of annual remuneration, status as exempt/non-exempt and bonuses
for the current fiscal year and the most recently completed fiscal year.
(n) Parent has Made Available to the Company, with respect to Parent
and the Parent Subsidiaries, true, correct and complete copies of each of the
following: (i) all forms of offer letters, (ii) all forms of employment
agreements and severance agreements, (iii) all forms of services agreements and
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forms of agreements with current and former consultants or advisory board
members, (iv) all forms of confidentiality, non-competition or invention
agreements by and between current and former employees, consultants or others
and Parent or any Parent Subsidiary (and a true, correct and complete list of
employees, consultants or others not subject thereto), (v) all management
organization charts, (vi) all agreements or insurance policies providing for the
indemnification of any officers or directors of Parent or any Parent Subsidiary,
(vii) a summary of Parent's standard severance policy, (viii) a summary of
outstanding liability for termination payments and benefits to current and
former directors, officers, employees and consultants of Parent or any Parent
Subsidiary, and (ix) a schedule of bonus commitments made to employees of Parent
or any Parent Subsidiary.
(o) Parent and each Parent Subsidiary is in compliance in all material
respects with the WARN Act or any similar Law. In the past two years (i) Parent
has not effectuated a "plant closing" (as defined in the WARN Act) affecting any
site of employment or one or more facilities or operating units within any site
of employment or facility of its business, (ii) there has not occurred a "mass
layoff" (as defined in the WARN Act) affecting any site of employment or
facility of Parent of any Parent Subsidiary, and (iii) Parent has not been
affected by any transaction or engaged in layoffs or employment terminations
sufficient in number to trigger application of any similar state, local or
foreign law or regulation. Parent has not caused any of its employees to suffer
an "employment loss" (as defined in the WARN Act) during the 90-day period prior
to the date of this Agreement.
Section 5.11 Customers. Neither Parent nor any of the Parent
Subsidiaries has any outstanding material dispute concerning its goods or
services with any jewelry dealer or other wholesale customer or distributor who,
in the six months ending September 30, 2006, was one of the 20 largest sources
of consolidated revenue for Parent and the Parent Subsidiaries, based on amounts
paid or payable during such periods (each, a "Significant Parent Customer").
Each Significant Parent Customer is listed on Section 5.11 of the Parent
Disclosure Schedules. Neither Parent nor any of the Parent Subsidiaries has
received any written notice from any Significant Parent Customer that such
Person (i) will not continue as a customer or distributor of Parent or any
Parent Subsidiary after the Merger, (ii) intends to terminate or materially
modify existing Contracts or relationships with Parent or any Parent Subsidiary,
or (iii) intends to materially reduce the amount of business conducted with
Parent and the Parent Subsidiaries.
Section 5.12 Contracts. Section 5.12 of the Parent Disclosure Schedules
specifically identifies (by the applicable subsection set forth below in this
Section 5.12) each Parent Material Contract (other than this Agreement or any
Related Agreement). The term "Parent Material Contract" shall include each of
the following Contracts to which Parent or any Parent Subsidiary is a party to
or by which Parent or any Parent Subsidiary is bound (in each case, other than
this Agreement or any Related Agreement):
(a) any Contract with any Significant Parent Customer;
(b) any Contract generating, or that is reasonably likely to generate,
more than $100,000 in revenues for Parent and the Parent Subsidiaries over the
twelve month period from the date of this Agreement, other than those set forth
on Section 5.12(i) of the Parent Disclosure Schedules;
(c) any Contract with any director, officer, employee or consultant
that would require Parent or any Parent Subsidiary to make any payments in
connection with the Merger, or upon termination of employment, but excluding any
Contract (i) that is terminable at-will or, in the case of consultants, with 30
or fewer days of notice by Parent or any of the Parent Subsidiaries without
cost, liability or financial obligations (other than accrued regular
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compensation and benefits through the date of termination, including any such
notice period), or (ii) under which Parent and the Parent Subsidiaries
collectively have paid or are obligated to pay less than $100,000;
(d) any Contract for indemnification (other than standard
indemnification provisions in Contracts entered into by Parent or any Parent
Subsidiary in the Ordinary Course of Business) or any guaranty;
(e) any Contract containing any covenant limiting in any respect the
right of Parent or any of the Parent Subsidiaries to (i) engage, participate or
compete in any line of business, market or geographic area, (ii) develop, market
or distribute products or services, (iii) conduct business with any Person, (iv)
solicit the employment of, or hire, any Person, or (v) compete with any Person;
or granting any exclusive sales, distribution, marketing or other exclusive
rights, rights of first refusal, "most favored nation" rights, rights of first
negotiation or other exclusive rights or similar terms to any Person, but in
each case excluding Contracts containing limitations that (A) are not material
to Parent or any Parent Subsidiary, and (B) do not limit the ability of Parent
or any Parent Subsidiary to develop or market additional products or services;
(f) any Lease for real or personal property in which the amount of
payments that Parent or any of the Parent Subsidiaries is required to make on an
annual basis exceeds $25,000;
(g) any Contract pursuant to the express terms of which Parent or any
of the Parent Subsidiaries is currently obligated to pay in excess of $25,000 in
any one year period that is not terminable by Parent or the Parent Subsidiaries
without penalty upon notice of ninety (90) days or less;
(h) any Contract currently in force relating to the disposition or
acquisition by Parent or any of the Parent Subsidiaries after the date hereof of
(i) assets with a book value exceeding $25,000; or (ii) Equity Interests in an
Entity;
(i) any Contract pursuant to which Parent or any Parent Subsidiary is a
licensor of Intellectual Property or agrees to Encumber, not assert, Transfer or
sell rights in or with respect to any Intellectual Property, except for
distribution contracts with retail outlets, independent sales agents, other
distributors and end users entered into by Parent or any Parent Subsidiary in
the Ordinary Course of Business;
(j) any joint venture Contract or any other Contract that involves a
sharing of revenues in excess of $25,000, or involves a sharing of profits, cash
flows, expenses or losses, with other Persons, or the payment of royalties to
any other Person, other than Contracts identified in Section 5.12(a) of the
applicable Parent Disclosure Schedule;
(k) any Contract currently required to be filed as an exhibit pursuant
to Item 601(b)(10) of Regulation S-K promulgated under the Securities Act, other
than those currently on file with the SEC (including any Amendments to Contracts
filed as of the Parent Balance Sheet Date that are required to be filed);
(l) any Contract containing a "standstill" provision with respect to
any Equity Interests of Parent;
(m) any Contract in effect on the date of this Agreement, including any
Parent Stock Option Plan, relating to the sale, issuance, grant, exercise,
award, purchase, repurchase or redemption of any Parent Common Shares or any
other Equity Interests or Securities of Parent or any of the Parent
Subsidiaries, or any Commitments to purchase or otherwise acquire any such
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Parent Common Shares, Equity Interests or Securities, except for the Parent
Stock Option Plans, the Parent Options and Parent Warrants disclosed in Section
5.3 of the applicable Parent Disclosure Schedule;
(n) any Contract under which Parent or any Parent Subsidiary is
obligated to provide consulting services, development services, professional
services or support services (other than maintenance and support customer
contracts on Parent's standard, unmodified forms), in each case excluding (i)
Contracts that are terminable by Parent or the Parent Subsidiary on notice of
thirty (30) days or less without penalty in excess of $25,000, individually or
in the aggregate, and without any ongoing material obligations, and (ii)
Contracts that generated less than $25,000 in revenue to Parent during the 12
months preceding the date of this Agreement;
(o) any Contract with any investment banker, broker, advisor or similar
Person, or any accountant, legal counsel or other Person retained by Parent, in
connection with this Agreement and the Transactions, other than Contracts with
service providers entered into in Parent's Ordinary Course of Business with fees
to be paid based on the provider's customary hourly rates;
(p) any Contract pursuant to which Parent or any of the Parent
Subsidiaries has acquired a business or Entity, or assets of a business or
Entity, whether by way of merger, consolidation, purchase of stock, purchase of
assets, license or otherwise, or any Contract pursuant to which it has any
material ownership interest in any other Entity (other than the Parent
Subsidiaries), in either case which was entered into within the three years
preceding the date hereof or under which any Liabilities exist;
(q) all loan or credit agreements, notes, bonds, mortgages, indentures
and other agreements and instruments pursuant to which any Indebtedness of
Parent or any of the Parent Subsidiaries in an aggregate principal amount in
excess of $100,000 is outstanding or may be incurred on the terms thereof, and
the respective principal amounts currently outstanding thereunder as of the date
hereof; or
(r) any other Contract not listed in subsections (a)-(q) next preceding
that individually provides for payments to or by Parent or any Parent Subsidiary
in excess of $50,000, or pursuant to which Parent or any Parent Subsidiary have
been paid, or expects to be paid, more than $50,000 in any consecutive 12-month
period, or that individually provides for payments by Parent or any Parent
Subsidiary in excess of $50,000 or is otherwise material to Parent or the Parent
Subsidiaries or their respective businesses, operations, financial condition,
properties or assets (other than employee offer letters in the Ordinary Course
of Business).
Except as set forth on Section 5.12 of the Parent Disclosure Schedules, all
Parent Material Contracts are in written form. Parent has Made Available to the
Company true, correct and complete copies of each Parent Material Contract, as
Amended to date. Each Parent Material Contract is (i) valid and binding on
Parent and each Parent Subsidiary party thereto and, to the Parent's Knowledge,
each other party thereto, and (ii) in full force and effect. Parent and each
Parent Subsidiary has in all material respects performed all material
obligations required to be performed by it to the date hereof under each Parent
Material Contract and, to Parent's Knowledge, each other party to each Parent
Material Contract has in all material respects performed all obligations
required to be performed by it under such Parent Material Contract. As of the
date hereof, none of Parent and the Parent Subsidiaries has Knowledge of, or has
received notice from the other contracting party of, any actual or alleged
material Breach of any Parent Material Contract. There exists no Breach with
respect to Parent or any Parent Subsidiary or, to the Knowledge of Parent, with
respect to any other contracting party, which, with the giving of notice or the
lapse of time or both, would reasonably be expected to constitute a material
Breach of such Parent Material Contract.
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Section 5.13 Litigation. Except as set forth in Section 5.13 of the
Parent Disclosure Schedules, (i) there is no Action pending or, to Parent's
Actual Knowledge, threatened against Parent or any Parent Subsidiary or, to
Parent's Actual Knowledge, for which Parent or any Parent Subsidiary is
obligated to indemnify a third party, (ii) none of Parent and the Parent
Subsidiaries is subject to any outstanding Order, and (iii) to Parent's
Knowledge, there has been no refusal to indemnify or denial of indemnification
and no intention to refuse indemnification, by any third party in connection
with any past, pending or threatened Action with respect to which Parent or any
Parent Subsidiary is or may be entitled to indemnification from any third party.
Except as set forth in Section 5.13 of the Parent Disclosure Schedules, neither
Parent nor any Parent Subsidiary has any Action pending against any other
Person. There has not been since December 31, 2005, nor are there currently, any
internal investigations or inquiries being conducted by Parent, the Parent Board
(or any committee thereof) or any third party at the request of any of the
foregoing concerning any financial, accounting, tax, conflict of interest,
illegal activity, fraudulent or deceptive conduct, violation of Parent policy or
other misfeasance or malfeasance issues.
Section 5.14 Environmental Matters.
(a) Parent and each Parent Subsidiary is in material compliance with
all Environmental Laws.
(b) Neither Parent nor any Parent Subsidiary has received notification
regarding any existing or potential Environmental Claims against Parent or any
Parent Subsidiary, nor have any of them received any written notification of any
allegation of any actual or potential responsibility for, or any Action
regarding, (i) any violation of Environmental Laws, or (ii) any Environmental
Release or threatened Environmental Release at any Facilities of any Materials
of Environmental Concern generated or transported by Parent or any Parent
Subsidiary.
(c) There has been no Environmental Release at any Facilities of Parent
or any Parent Subsidiary of any Materials of Environmental Concern in quantities
that could trigger the need for investigation or remediation pursuant to any
Environmental Laws.
Section 5.15 Intellectual Property.
(a) Unless otherwise expressly provided herein, the following terms,
whenever used in this Agreement, shall have the meanings ascribed to them in
this Section 5.15(a):
(1) "Parent IP" means (i) all Intellectual Property used in
the conduct of the business of Parent or any Parent Subsidiary as
currently conducted by Parent and the Parent Subsidiaries, and (ii) all
other Parent-Owned IP.
(2) "Parent-Owned IP" means all Intellectual Property owned by
Parent or any Parent Subsidiary.
(3) "Parent Products" means, collectively, (i) all products
and services that are currently being published, marketed, licensed,
sold, leased, auctioned, distributed or performed, or offered for
publication, licensing, sale, lease, distribution or performance or at
auction, by or on behalf of Parent or any Parent Subsidiary, and (ii)
all products or services currently under development by Parent or any
Parent Subsidiary or that Parent or any of the Parent Subsidiaries are
Contractually obligated to develop.
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(b) Parent and the Parent Subsidiaries (i) own and have independently
developed or acquired, or (ii) have the valid right or license (exclusive or
non-exclusive, as applicable) to, all Parent IP. The Parent IP is sufficient for
the conduct of the business of Parent and the Parent Subsidiaries as currently
conducted and to Parent's Knowledge as currently proposed to be conducted by
Parent or any Parent Subsidiary.
(c) Neither Parent nor any of the Parent Subsidiaries has (i)
transferred ownership of any material Parent-Owned IP to any third party, (ii)
knowingly permitted any material Parent-Owned IP to enter the public domain, or
(iii) permitted any material Parent Registered Intellectual Property or
application therefor to lapse (other than through the expiration of Registered
Intellectual Property at the end of its maximum statutory term or the
abandonment of trademarks or service marks in the Ordinary Course of Business
using reasonable business judgment).
(d) Except as set forth in Section 5.15(d) of the Parent Disclosure
Schedules, Parent and the Parent Subsidiaries own and have good and exclusive
title to all Parent-Owned IP and all Parent Registered Intellectual Property,
free and clear of any Encumbrances. Except as set forth in Section 5.15(d) of
the Parent Disclosure Schedules, the right, license and interest of Parent and
the Parent Subsidiaries in and to all Third Party Intellectual Property Rights
licensed by Parent or a Parent Subsidiary are free and clear of all Encumbrances
(excluding restrictions contained in the applicable license agreements with such
third parties).
(e) Except as set forth in Section 5.15(e) of the Parent Disclosure
Schedules, none of the execution and delivery or effectiveness of this
Agreement, the consummation of the Transactions and the performance by Parent of
its obligations under this Agreement or the Related Agreements to which it is a
signatory, will cause the forfeiture or termination of, or give rise to a right
of forfeiture or termination of, any Parent-Owned IP, or impair the right of
Parent or any Parent Subsidiary to use, possess, sell or license any
Parent-Owned IP or any portion thereof.
(f) Section 5.15(f) of the Parent Disclosure Schedule lists all Parent
Registered Intellectual Property, and for each item of such Registered
Intellectual Property, (i) the jurisdictions in which such Registered
Intellectual Property has been issued or registered or in which any application
for such issuance and registration has been filed, and (ii) the legal counsel
(if any) assisting in the initial registration or the maintenance of such
Registered Intellectual Property.
(g) Each item of Parent Registered Intellectual Property is subsisting
(or, in the case of applications, applied for), all registration, maintenance
and renewal fees currently due in connection with such Registered Intellectual
Property have been or will be timely paid, and all documents, recordations and
certificates in connection with such Registered Intellectual Property currently
required to be filed have been or will be timely submitted to the relevant
patent, copyright, trademark or other authorities in the United States or
foreign jurisdictions, as the case may be, for the purposes of prosecuting,
maintaining and perfecting such Registered Intellectual Property and recording
Parent's and the Parent Subsidiaries' ownership interests therein.
(h) Except as set forth in Section 5.15(h) of the Parent Disclosure
Schedules, to Parent's Actual Knowledge, there is no unauthorized use,
unauthorized disclosure, infringement or misappropriation of any Parent-Owned IP
by any third party, including any employee or former employee of Parent or any
Parent Subsidiary. Except as set forth in Section 5.15(h) of the Parent
Disclosure Schedules, neither Parent nor any Parent Subsidiary has initiated any
lawsuit, mediation or arbitration for infringement or misappropriation of any
Intellectual Property.
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(i) Except as set forth in Section 5.15(i) of the Parent Disclosure
Schedules, neither Parent nor any Parent Subsidiary has (i) been sued in any
Action (or received any written notice or, to the Actual Knowledge of Parent,
threat) that involves a claim of infringement or misappropriation of any Third
Party Intellectual Property Right or which contests the validity, ownership or
right of Parent or any Parent Subsidiary to exercise any Intellectual Property
right, or (ii) received any written communication that puts Parent or any Parent
Subsidiary on notice of or involves an offer to license or grant any Third Party
Intellectual Property Right or immunities in respect thereof.
(j) The operation of the business of Parent and the Parent Subsidiaries
as such business is currently conducted and, to the Actual Knowledge of Parent,
as currently proposed to be conducted by Parent or any Parent Subsidiary,
including (i) the design, development, manufacturing, reproduction, marketing,
licensing, sale, offer for sale, importation, distribution, provision or use of
any Parent Product, and (ii) Parent's or any Parent Subsidiary's use of any
product, device or process used in the business of Parent or the Parent
Subsidiaries as currently conducted and, to the Actual Knowledge of Parent, as
currently proposed to be conducted by Parent or any Parent Subsidiary, does not
and will not infringe or misappropriate any Third Party Intellectual Property
Rights and does not and, to the Actual Knowledge of Parent, will not constitute
unfair competition or unfair trade practices under the Laws of any jurisdiction
in which Parent or any of the Parent Subsidiaries conducts business.
(k) None of the Parent-Owned IP, the Parent Products, Parent and the
Parent Subsidiaries is subject to any judicial or governmental Action or
outstanding Order (A) restricting in any manner the use, transfer, or licensing
by Parent or any Parent Subsidiary of any Parent-Owned IP or any Parent Product,
or which may affect the validity, use or enforceability of any such Parent-Owned
IP or Parent Product, or (B) restricting the conduct of the business of Parent
or any Parent Subsidiary in order to accommodate Third Party Intellectual
Property Rights.
(l) Neither Parent nor any Parent Subsidiary has received any written
opinion of legal counsel that any Parent Product or the operation of the
business of Parent or any Parent Subsidiary, as previously or currently
conducted, infringes or misappropriates any Third Party Intellectual Property
Rights.
(m) Except as set forth in Section 5.15(m) of the Parent Disclosure
Schedules, each of Parent and the Parent Subsidiaries has secured from all of
its consultants, employees and independent contractors who independently or
jointly contributed to the conception, reduction to practice, creation or
development of any material Parent-Owned IP, an assignment of inventions and
ownership agreement, in the form Made Available to the Company, assigning all
such third party's Intellectual Property in such contribution that Parent or any
Parent Subsidiary does not already own by operation of Law, and no such third
party has retained any rights or licenses with respect thereto.
(n) To Parent's Knowledge, no current or former employee, consultant or
independent contractor of Parent or any Parent Subsidiary (i) is in violation of
any term or covenant of any Contract relating to employment, invention
disclosure, invention assignment, non-disclosure or non-competition or any other
Contract with any other party by virtue of such employee's, consultant's or
independent contractor's being employed by, or performing services for, Parent
or any Parent Subsidiary or using trade secrets or proprietary information of
others without permission, or (ii) has developed any technology, software or
other copyrightable, patentable or otherwise proprietary work for Parent or any
Parent Subsidiary that is subject to any Contract under which such employee,
consultant or independent contractor has assigned or otherwise granted to any
third party any rights (including Intellectual Property rights) in or to such
technology, software or other copyrightable, patentable or otherwise proprietary
work.
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(o) To Parent's Knowledge, the employment of any employee of Parent or
any Parent Subsidiary or the use by Parent or any Parent Subsidiary of the
services of any consultant or independent contractor does not subject Parent or
any Parent Subsidiary to any liability to any third party for improperly
soliciting such employee, consultant or independent contractor to work for
Parent or any Parent Subsidiary, whether such liability is based on contractual
or other legal obligations to such third party.
(p) Except as set forth in Section 5.15(p) of the Parent Disclosure
Schedules, to Parent's Knowledge, no current or former employee, consultant or
independent contractor of Parent or any Parent Subsidiary has any right,
license, claim or interest whatsoever in or with respect to any Parent-Owned IP.
(q) Parent and the Parent Subsidiaries have taken commercially
reasonable steps to protect and preserve the confidentiality of all material
confidential or non-public information included in the Parent IP Rights. All
use, disclosure or appropriation of such information owned by Parent or any
Parent Subsidiary by or to a third party has been pursuant to the terms of a
written agreement or other legal binding arrangement between Parent or a Parent
Subsidiary and such third party. All use, disclosure or appropriation of such
information by Parent and the Parent Subsidiaries not owned by Parent or any
Parent Subsidiary has been pursuant to the terms of a written agreement between
Parent or such Parent Subsidiary and the owner of such information, or is
otherwise lawful.
(r) Except as set forth in Section 5.15(r) of the Parent Disclosure
Schedules, to Parent's Knowledge, neither Parent nor any Parent Subsidiary has
(i) incorporated Open Source Materials into, or combined Open Source Materials
with, Parent IP, or (ii) distributed Open Source Materials in conjunction with
any Parent IP.
(s) To Parent's Knowledge, no (i) government funding, (ii) facilities
of a university, college, other educational institution or research center, or
(iii) funding from any Person (other than funds received in consideration for
the Parent Equity Interests or Indebtedness incurred on commercially reasonable
terms) was used in the development of the Parent-Owned IP.
Section 5.16 Taxes.
(a) Parent and the Parent Subsidiaries and each affiliated, combined,
consolidated or unitary group of which Parent or any Parent Subsidiary is or has
been a member (each, a "Parent Group") have timely filed all material federal,
state, local, and foreign Tax Returns required to be filed by it in the manner
prescribed by applicable Laws and all such Tax Returns were true, complete and
correct in all material respects. Except with respect to Taxes that are
immaterial in amount, all Taxes of Parent and the Parent Subsidiaries (whether
or not shown or required to be shown on any Tax Return) that are due and payable
have been timely paid in full and the accruals and reserves for Taxes (rather
than any reserve for deferred Taxes established to reflect timing difference
between book and Tax income) reflected in the Parent Balance Sheet (rather than
any notes thereto) are adequate in accordance with GAAP to cover all unpaid
Taxes of Parent and the Parent Subsidiaries. Except with respect to Taxes that
are immaterial in amount, all reserves for Taxes as adjusted for operations and
transactions and the passage of time through the Effective Time in accordance
with past custom and practice of Parent and the Parent Subsidiaries are adequate
in accordance with GAAP to cover all unpaid Taxes of Parent and the Parent
Subsidiaries accruing through the Effective Time.
(b) Parent and the Parent Subsidiaries have withheld and paid over all
material Taxes required to have been withheld and paid over, and to the
Knowledge of Parent, Parent and the Parent Subsidiaries have withheld and paid
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over all other Taxes required to have been withheld and paid over, and Parent
and the Parent Subsidiaries have complied with all material information
reporting and backup withholding requirements, including the maintenance of
required records with respect thereto, in each case in connection with amounts
paid or owing to any employee, creditor, independent contractor or other third
party. There are no Encumbrances on any of the Properties of Parent or any
Parent Subsidiary with respect to Taxes.
(c) Except as set forth in Section 5.16(c) of the Parent Disclosure
Schedules, no audit of material Tax Returns or other examination of Parent, any
Parent Subsidiary or any member of any Parent Group is pending or threatened in
writing. No deficiencies have been asserted against Parent or any Parent
Subsidiary as a result of examinations by any Tax Authority and no issue has
been raised by any examination conducted by any Tax Authority that, by
application of the same principles, might result in a proposed deficiency for
any other period not so examined. Each deficiency resulting from any audit or
examination relating to Taxes of Parent or any Parent Subsidiary by any Tax
Authority has been paid or is being contested in good faith and in accordance
with the Law and is fully reserved for on the Parent Balance Sheet in accordance
with GAAP. No claim has ever been made by an authority in a jurisdiction where
Parent or any of the Parent Subsidiaries does not file Tax Returns that Parent
or any Parent Subsidiary, as the case may be, is or may be subject to Tax in
such jurisdiction. Neither Parent nor any Parent Subsidiary is subject to any
private letter ruling of the IRS or comparable rulings of other Tax Authorities
that will be binding on Parent or any Parent Subsidiary with respect to any
period following the Effective Time.
(d) Neither Parent nor any Parent Subsidiary has requested any
extension of time within which to file any material Tax Return which Tax Return
has not yet been filed. There are no agreements, waivers of statutes of
limitations, or other arrangements providing for extensions of time in respect
of the assessment or collection of any unpaid Taxes against Parent or any Parent
Subsidiary.
(e) Parent and each Parent Subsidiary have disclosed on their federal
income tax returns all material positions taken therein that could, if not so
disclosed, give rise to a substantial understatement penalty within the meaning
of Section 6662 of the Code. Neither Parent nor any Parent Subsidiary has been a
party to or participated in any way in a transaction that would be defined as a
"reportable transaction" within the meaning of Treasury Regulation Section
1.6011-4(b) (including any "listed transaction") or any confidential corporate
tax shelter within the meaning of Treasury Regulation Section 1.6111-2.
(f) Except as set forth in Section 5.16(f) of the Parent Disclosure
Schedules, neither Parent nor any Parent Subsidiary has been a member of any
Parent Group other than the Parent Group of which Parent is the parent. None of
Parent or any Parent Subsidiary has any liability for, or any indemnification or
reimbursement obligation with respect to, (i) Taxes of any Person under Treasury
Regulation Section 1.1502-6 (or any similar provision under foreign, state or
local Law), (ii) material Taxes of any Person as transferee or successor, or
(iii) material Taxes of any Person by contract for Taxes. Neither Parent nor any
Parent Subsidiary is a party to any Tax sharing agreement, Tax indemnity
obligation or similar Contract or practice with respect to Taxes (including any
advance pricing agreement, closing agreement or other agreement relating to
Taxes with any Tax Authority).
(g) Except as set forth in Section 5.16(g) of the Parent Disclosure
Schedules, neither Parent nor any Parent Subsidiary (nor any officer of Parent
or any Parent Subsidiary) is a party to any Contract (including this Agreement,
the Related Agreement and the arrangements contemplated hereby and thereby)
that, individually or collectively, could give rise to the payment of any amount
(whether in cash or property, including shares of capital stock) that would not
be deductible pursuant to the terms of Sections 162(a)(1), 162(m) or 162(n) of
the Code.
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(h) Neither Parent nor any Parent Subsidiary has agreed or is required
to make any adjustment under Code Section 481(a) or Section 482 (or an analogous
provision of state, local or foreign Law) by reason of a change in accounting
method or otherwise. Neither Parent nor any Parent Subsidiary will be required
to include in income, or exclude any item of deduction from, taxable income for
any taxable period (or portion thereof) ending after the Closing Date as a
result of any "closing agreement" as described in Code Section 7121 (or any
corresponding or similar provision of state, local or foreign income Tax Law).
(i) Neither Parent nor any Parent Subsidiary is or has been a United
States real property holding corporation (as defined in Section 897(c)(2) of the
Code).
(j) Neither Parent nor any Parent Subsidiary has had or maintained a
permanent establishment other than in its country of organization.
(k) Section 5.16(k) of Parent Disclosure Schedule sets forth
information with respect to each of Parent and the Parent Subsidiaries as of the
most recent practicable date regarding any material Tax holidays or foreign
rulings to which Parent or any Parent Subsidiary (as the case may be) is
subject.
(l) Neither Parent nor any Parent Subsidiary has incurred, and no state
of affairs exist that could result in Parent or any Parent Subsidiary incurring,
any penalty under Section 6662(e) of the Code.
Section 5.17 Insurance. Section 5.17 of the Parent Disclosure Schedule
contains a true, correct and complete list of policies and bonds of insurance
maintained by Parent and each Parent Subsidiary, and the Parent has Made
Available to the Company true, correct and complete copies of such policies and
bonds of insurance. There is no material claim pending under any of such
policies or bonds as to which coverage has been questioned, denied or disputed
by the underwriters of such policies or bonds. All premiums due and payable
under all such policies and bonds have been paid, and Parent and each Parent
Subsidiary is otherwise in compliance in all material respects with the terms of
such policies and bonds. To the Knowledge of Parent, neither Parent nor any
Parent Subsidiary has received written notification of any threatened
termination of, or material premium increase with respect to, any such policies
or bonds.
Section 5.18 Opinion of Financial Advisor. In the event that the Parent
Board has resolved to retain a financial advisor and a fairness opinion in
connection with the Merger, the Parent Board has received the written opinion of
such financial advisor (the "Parent Financial Advisor") addressed to the Parent
Board, to the effect that the Merger Consideration is fair from a financial
point of view to the holders of Parent Common Shares, and Parent has delivered
to the Company a true, correct and complete copy of such opinion solely for
informational purposes.
Section 5.19 Brokers. Neither Parent nor any Affiliate of Parent is
obligated for the payment of any fees or expenses of any investment banker,
broker, advisor or similar party in connection with the origin, negotiation or
execution of this Agreement or in connection with the Merger or any other
Transaction.
Section 5.20 Properties.
(a) Section 5.20(a) of the Parent Disclosure Schedules lists all real
property owned by Parent or any Parent Subsidiary.
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(b) Section 5.20(b) of the Parent Disclosure Schedules lists all
material real property Leases to which Parent or any Parent Subsidiary is a
party and each Amendment thereto that is now in effect. All such current Leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and, except as set forth in Section 5.20(b) of the Parent
Disclosure Schedules, none of Parent and the Parent Subsidiaries and, to the
Actual Knowledge of Parent, no other party, is in Breach of any such Lease that
would give rise to a material claim against Parent or any Parent Subsidiary.
Section 5.21 Interested Party Transactions. Except as disclosed in the
Parent SEC Reports, since December 31, 2005, no event has occurred and no
relationship exists that would be required to be reported by Parent pursuant to
Item 404 of Regulation S-K.
Section 5.22 Export and Import Laws. Parent and each Parent Subsidiary
has conducted its export transactions in accordance in all material respects
with applicable provisions of U.S. Export and Import Laws. Without limiting the
generality of the foregoing, (i) Parent and each Parent Subsidiary has obtained
all export licenses and other approvals required for its exports of products,
Intellectual Property, software and technologies from the United States, (ii)
Parent and each Parent Subsidiary is in material compliance with the terms of
all applicable export licenses or other approvals, (iii) there are no pending
or, to Parent's Actual Knowledge, threatened claims against Parent or any Parent
Subsidiary with respect to such export licenses or other approvals, and (iv) to
Parent's Knowledge, there are no conditions or circumstances pertaining to
Parent's or any Parent Subsidiary's export transactions that may give rise to
any future claims.
Section 5.23 Capitalization, Ownership and Prior Activities of Merger
Sub.
(a) The authorized capital shares of Merger Sub consist of 1,000 shares
of common stock, par value $0.0001 per share. As of the date hereof, all of such
shares were issued and outstanding, all of which are held and owned directly by
Parent and are validly issued and fully paid, nonassessable and free of
preemptive rights. There are no Commitments or other rights or Contracts
obligating Parent or Merger Sub to issue or sell any Equity Interests, or
Securities convertible into or exchangeable for Equity Interests, in Merger Sub.
(b) Except for obligations or liabilities incurred in connection with
its incorporation or organization, the execution and deliver of this Agreement
and the Related Agreement to which it is a signatory and the Transactions,
Merger Sub has not and, prior to the Effective Time, will not have (i) incurred,
directly or indirectly through any Subsidiary or Affiliate, any Liabilities,
(ii) engaged in any business activities, or (iii) entered into any Contracts
with any Person.
Section 5.24 Interested Stockholders. None of Parent or any of its
Affiliates is an "interested stockholder" (as defined in Section 203 of the
DGCL) of the Company.
Section 5.25 Representations Complete. Except as set forth in Section
5.25 of the Parent Disclosure Schedules, none of the representations or
warranties made by Parent, and no financial statement, other written financial
information or statements made in any exhibit, schedule or certificate Made
Available or furnished by Parent to the Company pursuant to this Agreement or
any Related Agreement, or furnished by Parent in or in connection with documents
mailed or delivered to the stockholders of Parent or the Company for use in
soliciting their approval of this Agreement and the Merger, contains or will
contain at the Closing Date any untrue statement of a material fact or omits or
will omit at the Closing Date to state any material fact necessary in order to
make the statements contained herein or therein, in light of the circumstances
under which they were made, not misleading.
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ARTICLE VI.
COVENANTS
Section 6.1 SEC Reports; Preparation of Form S-4 and Proxy Statement.
(a) As promptly as practicable after the execution of this Agreement,
Parent shall, subject to the full and prompt assistance of the Company and
Stanford, prepare and file with the SEC the Proxy Statement, and Parent shall
prepare and file with the SEC the Form S-4, in which the Proxy Statement shall
be included as a prospectus (it being understood by the parties that Parent
intends to file a post-effective amendment to the Form S-4 to include the
Company FY 2006 Financial Statements and updated Parent and pro forma financial
statements therein prior to requesting the effectiveness of the Form S-4). The
Company shall promptly provide, and shall use its Best Efforts to cause the
other stockholders of the Company promptly to supply, to Parent and its
Representatives any and all information in writing concerning the Company, its
business, operations, directors, officers, Subsidiaries, stockholders or any
other matters which may in Parent's reasonable discretion be required for
inclusion in the Form S-4 or Proxy Statement, or to respond to any comments from
the SEC thereon, or reasonably requested by Parent in connection therewith. The
Company and Stanford shall promptly provide to Parent and its Representatives
any and all information in writing concerning Stanford's business, controlling
persons or any other matters which may in Parent's reasonable discretion be
required for inclusion in the Form S-4 or Proxy Statement, or to respond to any
comments from the SEC thereon, or reasonably requested by Parent in connection
therewith. Parent and the Company shall additionally prepare and file with the
SEC any Other Filings as and when required or requested by the SEC in connection
with this Agreement, the Related Agreements or the Transactions (the "Other
Merger Filings"). Prior to filing the Proxy Statement or any Other Merger Filing
with the SEC or any other Governmental Entity, Parent and the Company shall
provide the other of them with reasonable opportunity to review and comment on
each such filing in advance.
(b) Each of Parent and the Company shall use its reasonable Best
Efforts to have the Form S-4 declared effective under the Securities Act by the
SEC as promptly as practicable after the filing thereof with the SEC. Each of
Parent and the Company shall advise the other of them promptly after it receives
notice of any SEC request for an amendment or supplement to the Form S-4, the
Proxy Statement or any Other Merger Filing or comments thereon and responses
thereto or requests by the SEC for additional information. Parent and the
Company shall use their respective Best Efforts to promptly respond to any
comments from the SEC on the Form S-4, Proxy Statement or any Other Merger
Filing.
(c) The Proxy Statement shall solicit proxies for the approval by the
stockholders of Parent of (i) this Agreement and the Merger, (ii) an increase in
the number of Parent Common Shares authorized in the Parent Certificate of
Incorporation to 30,000,000 Parent Common Shares (or such other number as Parent
in its discretion deems will provide sufficient reserve authorized shares for
the issuance of the Merger Consideration, the issuance of Parent Common Shares
upon the exercise of Company Warrants assumed pursuant to Section 3.9, and such
additional shares as the Parent Board in its sole discretion deems prudent to
have authorized) (the "Parent Authorized Stock Increase"), and (iii) subject to
the consent of the Company (which consent shall not be unreasonably withheld,
conditioned or delayed), such other matters as Parent deems appropriate for
approval of its stockholders in furtherance of the Transactions.
(d) The Proxy Statement shall solicit proxies for the approval by the
stockholders of the Company of (i) this Agreement and the Merger, (ii) the
irrevocable appointment and constitution of the Stockholder Agent (for avoidance
of doubt, including its successors hereunder) as the exclusive agent,
attorney-in-fact and representative of the Stockholders in relation to or in
connection with this Agreement, the Escrow Agreement and the Transactions
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contemplated hereby and thereby, and (iii) subject to the consent of Parent
(which consent shall not be unreasonably withheld, conditioned or delayed), such
other matters as the Company deems appropriate for approval of its stockholders
in furtherance of the Transactions.
(e) Parent and the Company shall each use its reasonable Best Efforts
to cause the Proxy Statement to be mailed to its stockholders as promptly as
practicable after the Form S-4 is declared effective under the Securities Act.
Parent shall promptly provide the Proxy Statement, as amended or supplemented
from time to time, to the Company for use in connection with the meeting of the
stockholders of the Company to approve, among other matters, this Agreement and
the Merger.
(f) Parent shall use its Best Efforts to take any action (other than
qualifying to do business or registering as a broker-dealer in any jurisdiction
in which it is not now so qualified or registered) required to be taken under
any applicable Blue Sky Laws in connection with the issuance of Parent Common
Shares in the Merger, and the Company shall furnish all information concerning
the Company and its stockholders as may be reasonably requested in connection
with any such action.
(g) Parent agrees that the Form S-4 and the Proxy Statement (other than
with respect to Company Information) shall not, at any Applicable Time, contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company agrees that the Form S-4 and the Proxy Statement (other than with
respect to Parent Information) shall not, at any Applicable Time, contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the final conclusion of the Parent Stockholders Meeting or Company
Stockholders Meeting any Events occur relating to Parent or the Company, or any
of their respective officers, directors, stockholders or Subsidiaries, is
discovered or learned by Parent, the Company or Stanford which, individually or
together, (i) should be set forth in an amendment or supplement to the Form S-4,
the Proxy Statement or any Other Merger Filing, so that the Form S-4, Proxy
Statement or Other Merger Filing would not include any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, (ii) cause the Form S-4, Proxy Statement
or Other Merger Filing to become incorrect, incomplete or misleading in any
material respect, or (iii) under the Securities Act, the Exchange Act or the SEC
Rules, are otherwise required to be set forth in an amendment or supplement to
the Form S-4, Proxy Statement or Other Merger Filing; then in each such case,
the Person which discovers or learns of such Events shall promptly inform the
other of them of such Events in writing, and Parent and the Company shall
cooperate with each other, including by providing each other with any necessary
or desirable corrected, updated or supplemental information, in promptly filing
with the SEC or its staff or any other Governmental Entities or officials
thereof, and, to the extent required by the Securities Act, the Exchange Act,
the SEC Rules or other applicable Law, Parent and the Company shall cooperate
with each other in mailing to the their respective stockholders, any appropriate
amendment or supplement to the Form S-4, the Proxy Statement or Other Merger
Filing in order to cause the Form S-4, the Proxy Statement and Other Merger
Filing to comply with the Securities Act, the Exchange Act, the SEC Rules and
other applicable Law, and not to contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading.
(h) The parties shall notify each other promptly of the time when the
Form S-4 has become effective, of the issuance of any stop order or suspension
of the qualification or registration of the Parent Common Shares issuable in
connection with the Merger for offering or sale in any jurisdiction, or of the
receipt of any comments from the SEC or the staff of the SEC for amendments or
supplements to the Proxy Statement or the Form S-4 or for additional information
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and shall supply each other with copies of (i) all correspondence between it or
any of its Representatives, on the one hand, and the SEC or staff of the SEC, on
the other hand, with respect to the Proxy Statement, the Form S-4 or any Other
Merger Filing, and (ii) all orders of the SEC relating to the Form S-4.
(i) The Parties hereto acknowledge and agree that Parent shall be
responsible for directing and controlling the gathering of information for and
the preparation of all disclosures (including information relating to the
Company) to be included in the Form S-4, the Proxy Statement and the Other
Merger Filings and the filing thereof with the SEC. Parent hereby covenants to
use its Best Efforts to do so on its own behalf and on behalf of the Company at
the earliest practicable date and to proceed with due diligence to respond to
any comments from the SEC or the staff of the SEC as promptly as practicable
with a view to having the Form S-4 declared effective at the earliest
practicable date. Without limiting the generality of the foregoing, Parent shall
use its Best Efforts (and, with respect to the Company, shall cause Merger Sub
to use its Best Efforts under the Management Agreement) (i) to promptly complete
and file, or cause to be filed, the Form S-4, the Proxy Statement and the Other
Merger Filings along with any amendments or supplements thereto required or
requested by the SEC, (ii) to have the Form S-4 be declared effective, (iii) to
call, arrange and hold the respective special stockholders' meetings of Parent
and the Company to seek the stockholder approvals described herein, and (iv) to
take such other actions as may be reasonable or necessary to effectuate the
foregoing.
Section 6.2 Parent Stockholders Meeting.
(a) Promptly after the date on which the Form S-4 is declared effective
by the SEC and mailed to Parent's stockholders, Parent shall take all lawful and
commercially reasonable action necessary in accordance with the NPCA, the rules
and regulations of its Principal Market and its Organizational Documents to
call, notice, convene and hold the Parent Stockholders Meeting. Parent shall use
its Best Efforts to hold the Parent Stockholders Meeting within forty-five days
of the date the SEC declares the Form S-4 effective. In connection with the
Parent Stockholders Meeting, Parent shall (i) subject to applicable Laws, use
its Best Efforts (including postponing or adjourning the Parent Stockholders
Meeting to obtain a quorum or to solicit additional proxies) to obtain the
Parent Stockholder Approval, and (ii) otherwise comply with all applicable Law
pertaining to the Parent Stockholders Meeting. Notwithstanding anything to the
contrary contained in this Agreement, Parent may adjourn, delay or postpone the
Parent Stockholders Meeting (i) to the extent necessary to ensure that any
required supplement or amendment to the Form S-4 or Proxy Statement is provided
to its stockholders, or (ii) if as of the time for which the Parent Stockholders
Meeting is originally scheduled (as set forth in the Proxy Statement) there are
insufficient Parent Common Shares represented (either in person or by proxy) to
constitute a quorum necessary to conduct the business of the Parent Stockholders
Meeting.
(b) Until the termination of this Agreement in accordance with its
terms, Parent's obligation to call, give notice or convene and hold the Parent
Stockholders Meeting in accordance with this Section 6.2 shall not be limited or
otherwise affected by the commencement, disclosure, announcement or submission
to the Company of any Acquisition Proposal or Superior Offer, or by any
withholding, withdrawal or modification of the recommendation of the Company
Board in favor of the Company Stockholder Approval.
(c) Prior to the Closing Date, Parent shall take all necessary action
as the sole stockholder of Merger Sub to effect the due authorization and
approval of this Agreement and the approval of the Merger by the Board of
Directors and the stockholders of Merger Sub.
Section 6.3 Company Stockholders Meeting.
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(a) Promptly after the date on which the Form S-4 is declared effective
by the SEC and mailed to the Company's stockholders, the Company shall take all
lawful and commercially reasonable action necessary in accordance with the DGCL,
the rules and regulations of its Principal Market and its Organizational
Documents to call, notice, convene and hold the Company Stockholders Meeting.
The Company shall use its Best Efforts to hold the Company Stockholders Meeting
within forty-five days of the date the SEC declares the Form S-4 effective. In
connection with the Company Stockholders Meeting, the Company shall (i) subject
to applicable Laws, use its Best Efforts (including postponing or adjourning the
Company Stockholders Meeting to obtain a quorum or to solicit additional
proxies) to obtain the Company Stockholder Approval and Stockholder Agent
Appointment, and (ii) otherwise comply with all applicable Law pertaining to the
Company Stockholders Meeting. Notwithstanding anything to the contrary contained
in this Agreement, the Company may adjourn, delay or postpone the Company
Stockholders Meeting (i) to the extent necessary to ensure that any required
supplement or amendment to the Form S-4 or Proxy Statement is provided to its
stockholders, (ii) at Parent's request to permit Parent to register or qualify
the Parent Common Shares to be issued as Merger Consideration under applicable
Blue Sky Laws, or (iii) if as of the time for which the Company Stockholders
Meeting is originally scheduled (as set forth in the Proxy Statement) there are
insufficient the Company Common Shares represented (either in person or by
proxy) to constitute a quorum necessary to conduct the business of the Company
Stockholders Meeting.
(b) Until the termination of this Agreement in accordance with its
terms, the Company's obligation to call, give notice or convene and hold the
Company Stockholders Meeting in accordance with this Section 6.3 shall not be
limited or otherwise affected by the commencement, disclosure, announcement or
submission to the Company of any Acquisition Proposal or Superior Offer, or by
any withholding, withdrawal or modification of the recommendation of the Company
Board in favor of the Company Stockholder Approval.
Section 6.4 Access to Information; Confidentiality.
(a) From the date of this Agreement to the Effective Time, the Company
shall, and shall cause each Company Subsidiary and each of its and each Company
Subsidiary's Representatives to, (i) provide to Parent and Parent's
Representatives access, at reasonable times upon prior notice, to the officers,
employees, agents, properties, offices and other facilities and books and
records of the Company and the Company Subsidiaries, and (ii) furnish promptly
such information concerning the business, properties, insurance, Contracts,
prospects, Property, Liabilities, Tax Returns, Tax elections and all other
workpapers and studies relating to Taxes, personnel, internal financial
statements and other aspects of the Company and the Company Subsidiaries as
Parent or Parent's Representatives may reasonably request. Notwithstanding the
foregoing, the Company may restrict the foregoing access to the extent that (A)
any Law of any Governmental Entity applicable to the Company requires the
Company or any Company Subsidiary to restrict or prohibit such access to any
such Properties or information, (B) Parent's access to the information would
breach the Company's confidentiality obligations to a third party (provided that
upon Parent's reasonable request the Company shall use its reasonable efforts to
obtain such third party's consent to permit Parent access to such information,
subject to appropriate confidentiality protections), or (C) disclosure of any
such information or document would result in the loss of the Company's or any
Company Subsidiary's attorney-client privilege. Subject to compliance with
applicable Laws, from the date of this Agreement until the earlier of the
termination of this Agreement and the Effective Time, the Company shall confer
from time to time as reasonably requested by Parent to meet with one or more
Representatives of Parent to discuss any material changes or developments in the
operational matters of the Company and each Company Subsidiary and the general
status of the ongoing operations of the Company and the Company Subsidiaries.
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(b) From the date of this Agreement to the Effective Time, Parent
shall, and shall cause each Parent Subsidiary and each of its and each Parent
Subsidiary's Representatives to, (i) provide to the Company and the Company's
Representatives access, at reasonable times upon prior notice, to the officers,
employees, agents, properties, offices and other facilities and books and
records of Parent and Parent Subsidiaries, and (ii) furnish promptly such
information concerning the business, properties, insurance, Contracts,
prospects, Property, Liabilities, Tax Returns, Tax elections and all other
workpapers and studies relating to Taxes, personnel, internal financial
statements and other aspects of Parent and the Parent Subsidiaries as the
Company or the Company's Representatives may reasonably request. Notwithstanding
the foregoing, Parent may restrict the foregoing access to the extent that (A)
any Law of any Governmental Entity applicable to Parent requires Parent or any
Parent Subsidiary to restrict or prohibit such access to any such Properties or
information, (B) the Company's access to the information would breach Parent's
confidentiality obligations to a third party (provided that upon the Company's
reasonable request Parent shall use its reasonable efforts to obtain such third
party's consent to permit the Company access to such information, subject to
appropriate confidentiality protections), or (C) disclosure of any such
information or document would result in the loss of Parent's or any Parent
Subsidiary's attorney-client privilege. Subject to compliance with applicable
Laws, from the date of this Agreement until the earlier of the termination of
this Agreement and the Effective Time, Parent shall confer from time to time as
reasonably requested by the Company to meet with one or more Representatives of
the Company to discuss any material changes or developments in the operational
matters of Parent and each Parent Subsidiary and the general status of the
ongoing operations of Parent and the Parent Subsidiaries.
(c) The parties hereto acknowledge that Parent, the Company and
Stanford have previously executed that certain Mutual Confidentiality Agreement,
effective April 1, 2006 (as Amended from time to time, the "Confidentiality
Agreement"), which shall continue in full force and effect in accordance with
its terms.
Section 6.5 Notice of Acquisition Proposals. Each of Parent and the
Company agrees that, as promptly as practicable (but in no event more than
twenty-four hours after receipt), it shall advise the other of them orally and
in writing of (i) an Acquisition Proposal, (ii) any inquiry, expression of
interest, proposal or offer that constitutes, or could reasonably be expected to
lead to, an Acquisition Proposal, (iii) any request for non-public information
that could reasonably be expected to lead to an Acquisition Proposal, including,
in each such case, (1) the material terms and conditions of such Acquisition
Proposal, inquiry, expression of interest, proposal, offer, notice or request,
and (2) the identity of the Person making any such Acquisition Proposal,
inquiry, expression of interest, proposal, offer, notice or request. Each of
Parent and the Company shall (x) keep the other of them informed, as promptly as
practicable, of the status and details (including any Amendments or proposed
Amendments) of any such Acquisition Proposal, inquiry, expression of interest,
proposal, offer, notice or request, and (y) provide to the other of them, as
promptly as practicable, a copy of all written materials and other information
provided to it in connection with any such Acquisition Proposal, inquiry,
expression of interest, proposal, offer, notice or request. Parent and the
Company each shall provide the other of them with at least three (3) Business
Days prior written notice (or such lesser prior notice as provided to the
members of its Board of Directors but in no event less than twenty-four (24)
hours) of any meeting of its Board of Directors at which the its Board of
Directors is reasonably expected to discuss any Acquisition Proposal, including
to determine whether such Acquisition Proposal is a Superior Offer.
Section 6.6 Affiliate Letters. At least 30 days prior to the Closing
Date, the Company shall deliver to Parent a list of names and addresses of those
Persons who were, in the Company's reasonable judgment at the record date for
the Company Stockholders Meeting, "affiliates" (each such Person, a "Company
Affiliate") of the Company within the meaning of Rule 145 of the rules and
regulations promulgated under the Securities Act. The Company shall use its Best
Efforts to deliver or cause to be delivered to Parent, prior to the Closing
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Date, from each Company Affiliate, and Stanford agrees to deliver, an affiliate
letter (an "Affiliate Letter") in a customary form reasonably satisfactory to
Parent. Parent shall be entitled to place legends as specified in such
Affiliates Letters on the certificates representing any Parent Common Shares to
be received by such Company Affiliates pursuant to the Merger, and to issue
appropriate stop transfer instructions to the transfer agent for the Parent
Common Shares, consistent with the terms of such Affiliate Letters.
Section 6.7 Certain Notices. Parent and the Company shall notify the
other of them in writing promptly after learning of (i) any notice or other
communication from any Person alleging that the Consent of such Person is or may
be required in connection with the Merger or any other Transaction, (ii) any
notice or other communication from any Governmental Entity in connection with
the Merger or any other Transaction, (iii) any Action by or before any
Governmental Entity initiated by or against it or any of its Subsidiaries, or
known by it or any of its Subsidiaries to be threatened against it or any such
Subsidiary or any of their respective directors, officers, employees or
stockholders in their capacity as such, or of any verbal or written
correspondence from any Person asserting or implying a claim against it or any
of its Subsidiaries or with respect to any of its Properties (including
Intellectual Property), (iv) any Event not in the Ordinary Course of Business of
it or any of its Subsidiaries that, individually or in the aggregate with any
other such Events, (A) have a Material Adverse Effect on it, or (B) is
reasonably likely to cause any of the conditions to closing set forth in Article
VII not to be satisfied, or (v) any claim, or any verbal or written inquiry by
any Tax Authority regarding Taxes payable by it or any of its Subsidiaries.
Parent and the Company shall give prompt notice to the other of them of any
representation or warranty made by it contained in this Agreement or any Related
Agreement to which it is a signatory becoming untrue or inaccurate, or its
failure to comply with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement or any Related Agreement to which it is a signatory, provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or the conditions to the obligations of
the parties under this Agreement.
Section 6.8 Public Announcements. Parent and the Company shall use
their respective Best Efforts to agree to the text of the press release
announcing the execution and delivery of this Agreement. Parent and the Company
shall provide to each other any subsequent press releases and public written
statements or filings related to this Agreement, the Related Agreements, the
Merger or the other Transactions and shall consult with each other before
issuing or making any such release or written public statement or filing.
Neither the Company nor the Parent shall issue any such press release or make
any such public written statement or filing without the prior written consent of
the other of them (such consent not to be unreasonably withheld, delayed or
conditioned); provided that either Parent of the Company may, without obtaining
the prior consent of the other of them, issue such press release or make such
public statements or filings, including the filing of SEC Reports, as such party
determines in good faith, following consultation with legal counsel, are
required by applicable Law or the rules and regulations of its Principal Market,
if it has used reasonable efforts under the circumstances to first consult and
reach agreement with the other of them. The Company and Parent shall cause their
respective employees, officers and directors to comply with this Section 6.8.
Section 6.9 Certain Litigation. Parent and the Company shall promptly
advise the other of them orally and in writing of any Action commenced after the
date hereof against it or any of its directors by any of its stockholders
relating to this Agreement, any Related Agreement, the Merger or the other
Transactions, and shall keep the other of them reasonably informed regarding any
such Action. Parent and the Company shall give the other of them the opportunity
to consult with it regarding the defense or settlement of any such Action and
shall consider the views of the other of them with respect to such Action and
shall not settle any such Action without the prior written consent of the other
of them (which consent shall not be unreasonably withheld).
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Section 6.10 Employees.
(a) From and after the Effective Time, Parent and the Merger Sub shall
have the rights and obligations described in this Section 6.10 regarding the
individuals who were employees of the Company immediately prior to the Effective
Time and who continue employment with the Company, a Parent Subsidiary or Parent
following the Effective Time ("Continuing Employees"). With respect to any
potential Continuing Employee (i) Parent and the Company shall confer and work
together in good faith to determine appropriate employment terms, and (ii) the
Company shall, in good faith, cooperate with Parent and assist Parent with its
efforts to enter into offer letters, assignment of invention agreements and
related documents after the date of this Agreement and in any event prior to the
Closing Date.
(b) Within a reasonable period of time after the last Business Day of
each calendar month after the date of this Agreement and on or about the date
that is five Business Days prior to the expected Closing Date, if there shall
have been any change in the information required to be set forth in Section
4.10(f) of the Company Disclosure Schedules, the Company shall, deliver to
Parent a revised Section 4.10(f) of the Company Disclosure Schedules, which sets
forth each person who the Company reasonably believes is, with respect to the
Company or any of its ERISA Affiliates, a "disqualified individual" (within the
meaning of Section 280G of the Code and the regulations promulgated thereunder),
as of the date such revised Section 4.10(f) is delivered to Parent.
(c) Parent, in the event it does not continue the employee welfare
benefit plans sponsored and maintained by the Company, will take commercially
reasonable efforts after the Effective Time to cause Continuing Employees to be
eligible for employee welfare benefits that are substantially similar in the
aggregate to the benefits provided to similarly situated employees of Parent or
its Subsidiaries. To the extent Parent elects to have Continuing Employees, and
their eligible dependents where applicable, participate in Parent's employee
benefit plans, programs or policies following the Effective Time, (i) Parent
shall allow such Continuing Employees, and their eligible dependents where
applicable, to participate in such plans, programs and policies on terms
substantially similar to those provided to similarly situated employees of
Parent or its Subsidiaries, (ii) each Continuing Employee will, to the extent
reasonably practicable, receive credit for purposes of eligibility to
participate and vesting under such plans, programs and policies for years of
service with the Company or any Company Subsidiary prior to the Effective Time,
provided such credit does not result in duplication of benefits, and (iii)
Parent, to the extent required by applicable Law and as permitted by the terms
of the applicable group health plans, shall give credit for any co-payments or
deductibles paid during the year in which the Closing Date occurs and shall use
is commercially reasonable efforts to cause any pre-existing condition
limitations, eligibility waiting periods and evidence of insurability
requirements under any group health plans of Parent in which Continuing
Employees and their eligible dependents will participate to be waived.
Section 6.11 Termination of Benefit Plans. Unless Parent provides
contrary written notice to the Company, effective as of the day immediately
preceding the Closing Date, the Company shall terminate any and all Company
Benefit Plans intended to include a Code Section 401(k) arrangement (each, a
"401(k) Plan"). The Company shall provide Parent with a reasonable opportunity
to review and comment on the resolutions to be adopted by the Company's Board of
Directors and other action to be taken to effect the termination of the 401(k)
Plans.
Section 6.12 Parent Board. Subject to the applicable fiduciary duties
of the Parent Board, or any applicable committee thereof, and compliance by
Parent and the Parent Board, or such committee, in good faith with applicable
Law, including the SEC Rules and the listing rules of Parent's Principal Market,
Parent shall recommend the following directors to constitute the Parent Board
upon the consummation of the Merger (the "Post-Merger Parent Board"): Dr. L.S.
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Smith; William H. Oyster; two current Independent directors of the Parent Board;
two Independent nominees to be designated by Stanford prior to the filing of the
Form S-4; and David Rector. Effective as of the Effective Time, (i) the Parent
Board, if necessary, shall resolve to change the number of directors to serve on
the Parent Board, within the range permitted by Parent's Organizational
Documents, to effectuate the Post-Merger Parent Board, (ii) each director of the
Parent Board not included in the Post-Merger Parent Board shall resign, and
(iii) the remaining directors of the Parent Board shall fill any vacancies on
the Parent Board as necessary to effectuate the Post-Merger Parent Board.
Section 6.13 Company Board.
(a) Subject to the applicable fiduciary duties of the Company Board, or
any applicable committee thereof, and compliance by the Company and the Company
Board, or such committee, in good faith with applicable Law, including the SEC
Rules and the listing rules of the Company's Principal Market, the Company shall
recommend the following directors to constitute the Company Board promptly after
the effectiveness of this Agreement: Scott Williamson, John Benson, William H.
Oyster, Mitchell Stolz and David Rector (the "Interim Company Board"). Effective
as of the date hereof, (i) each director of the Company Board not included in
the Interim Company Board shall resign, and (ii) the remaining directors of the
Company Board shall fill any vacancies on the Company Board as necessary to
effectuate the Interim Company Board.
(b) Parent shall have the right to appoint a designee as an observer to
the Company Board and any committee thereof. Such designee shall be given notice
of all regular and special meetings at the same time and in the same manner as
the directors of the Company.
Section 6.14 Tax Matters. None of Parent, Merger Sub and the Company
shall, and none of them shall permit any of their respective Subsidiaries to,
take any action prior to or following the Closing that would reasonably be
expected to cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code.
Section 6.15 Third Party Consents.
(a) The Company shall use its reasonable Best Efforts to obtain and
deliver to Parent at or prior to the Closing all Consents and waivers under each
Contract listed or described (or required to be listed or described) in Section
4.5 of the Company Disclosure Schedule.
(b) Parent shall use its reasonable Best Efforts to obtain and deliver
to the Company at or prior to the Closing all Consents and waivers under each
Contract listed or described (or required to be listed or described) in Section
5.5 of the Parent Disclosure Schedule.
Section 6.16 Best Efforts. Subject to Article IX, each Party agrees to
use its Best Efforts, and to cooperate with the other Parties, to take, or cause
to be taken, all actions, and to do, or cause to be done, all things reasonably
necessary, appropriate or desirable to consummate and make effective, in the
most expeditious manner practicable, the Merger and the other Transactions,
including (i) taking all reasonable actions to satisfy the respective conditions
set forth in Article VII, including (A) promptly completing and filing, or
causing to be filed, the Form S-4, the Proxy Statement and the Other Merger
Filings, and any necessary amendments or supplements thereto, (B) using its
commercially reasonable efforts to have the Form S-4 declared effective, and (C)
arranging, convening and holding the Parent Stockholders Meeting or Company
Stockholders Meeting to seek the approvals described herein, and (ii) executing
and delivering such other instruments and doing and performing such other acts
and things as may be necessary or reasonably desirable to effect completely the
consummation of the Merger and the other Transactions.
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Section 6.17 Refinancings.
(a) The Company shall use its Best Efforts to amend and restate that
certain Commercial Loan and Security Agreement, dated October 1, 2003 (as
Amended from time to time, including on the date hereof, the "Stanford LOC"),
with Stanford, as lender, subject to and effective immediately prior to the
consummation of the Merger, in the form attached hereto as Exhibit D (the
"Amended and Restated Stanford LOC"). The Company shall not Amend the terms and
provisions of the Amended and Restated Stanford LOC without the written consent
of Parent.
(b) Parent shall use its Best Efforts to amend and restate that certain
Loan Agreement, dated as of December 22, 2005, by and between Parent and Texas
Capital Bank, National Association, and any applicable Loan Documents (as such
term is defined in such Loan Agreement), to permit (i) the Merger, and (ii) the
Surviving Corporation to grant to Stanford under the Amended and Restated
Stanford LOC a security interest in and other Liens on all of the Properties of
the Surviving Corporation and its Subsidiaries, including all Equity Interests
of the Subsidiaries of the Surviving Corporation, and to take all reasonable
further action as required by Stanford to perfect such security interest and
Liens (including the delivery of any stock certificates to Stanford and the
amendment of UCC-1 financing statements).
(c) In consideration of the amendments and restatements specified in
Section 6.17(a) and for the exchange of outstanding Company Indebtedness
pursuant to the Note Exchange Agreement, at the Closing or as soon thereafter as
reasonably practicable, Parent shall issue to (i) Stanford and its assignees
specified in Schedule 1, warrants substantially in the form of Exhibit E,
exercisable for a period of seven years from the date hereof for an aggregate of
845,634 Parent Common Shares at an exercise price of $1.89 per share (the "A
Warrants"); and (ii) Stanford and its assignees specified in Schedule 2,
warrants substantially in the form of Exhibit E, exercisable for a period of
seven years from the date hereof for an aggregate of 863,000 Parent Common
Shares at an exercise price of $0.001 per share (the "B Warrants"). As promptly
as practicable after the execution of this Agreement, Parent shall prepare and
file with the SEC a registration statement registering the issuance of the A
Warrants and B Warrants, and Parent shall use its reasonable Best Efforts to
have such registration statement declared effective under the Securities Act by
the SEC as promptly as practicable after the filing thereof with the SEC (it
being agreed that Parent shall be deemed to have prepared and filed such
registration statement as promptly as practicable if Parent includes the A
Warrants and the B Warrants on the Form S-4 as initially filed with the SEC).
Section 6.18 Indemnification.
(a) For four years after the Effective Time, Parent shall cause to be
maintained directors' and officers' liability insurance policies ("D&O
Insurance") in respect of acts or omissions occurring prior to the Effective
Time covering each individual who is an officer or director of the Company and
is listed on Section 6.18 of the Company Disclosure Schedules (the "Insured
Parties") and is covered as of the date hereof or hereafter by the Company's D&O
Insurance on terms with respect to coverage and amounts, to the extent
reasonably available to Parent, no less favorable than those of such policy in
effect on the date hereof; provided, however, that in no event shall Parent or
the Surviving Corporation be required to expend more than an amount per annum
equal to 150% of the current annual premiums paid by the Company for such
insurance (the "Maximum Amount") to maintain or procure insurance coverage
pursuant hereto; provided, further, that if the amount of the annual premiums
necessary to maintain or procure such insurance coverage exceeds the Maximum
Amount, Parent and the Surviving Corporation shall procure and maintain for such
four-year period as much coverage as is reasonably practicable for the Maximum
Amount; and, provided, further, that Parent and the Surviving Corporation shall
have the right (and prior to the Effective Time the Company shall take any
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action reasonably requested by Parent to perfect such right) to cause coverage
to be extended under the Company's D&O Insurance by obtaining a four-year "tail"
policy on terms and conditions no less advantageous, to the extent reasonably
available to Parent, than the Company's existing D&O Insurance provided by one
or more commercial insurance providers, and such "tail" policy shall satisfy in
full the obligations of Parent and the Surviving Corporation under this Section
6.18.
(b) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other Entity and shall not be
the continuing or surviving Entity of such consolidation or merger, or (ii)
transfers all or substantially all of its Properties to any Person; then in each
such case, proper provisions shall be made so that the successors and assigns of
the Surviving Corporation, or at Parent's option, Parent, shall assume, fulfill
and honor in all respects the obligations set forth in this Section 6.18.
(c) This Section 6.18 shall survive the consummation of the Merger, is
intended to benefit each of the Insured Parties, shall be binding on all
successors and assigns of the Surviving Corporation and Parent, shall be
enforceable by each Insured Party and his or her heirs and representatives, and
may not be amended, altered or repealed with respect to any Insured Party after
the Effective Time without the prior written consent of such Insured Party;
provided that until the Effective Time, any Amendment of this Agreement shall be
exclusively governed by Section 9.3.
ARTICLE VII.
CLOSING CONDITIONS
Section 7.1 Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of Parent, Merger Sub and the Company to
consummate the Merger and the other Transactions shall be subject to the
satisfaction, at or prior to the Closing, of each of the following conditions,
any or all of which may be waived in writing by Parent (on behalf of itself and
Merger Sub) or the Company, in whole or in part, to the extent permitted by
applicable Law:
(a) Company Stockholder Approval. (i) The Company Stockholder Approval
shall have been obtained, and (ii) the Stockholders shall have approved the
Stockholder Agent Appointment.
(b) Parent Stockholder Approval. (i) Either the Parent Stockholder
Approval shall have been obtained, or such approval shall not be required either
under the NPCA or for continued listing by the rules and regulations of Parent's
Principal Market, and (ii) the stockholders of Parent shall have approved the
Parent Authorized Stock Increase.
(c) No Adverse Law or Order. No Governmental Entity shall have enacted,
issued, promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) which is in effect and prevents or prohibits
consummation of any Transaction.
(d) Registration and Qualification of Parent Common Shares. The SEC
shall (i) have declared the Form S-4 effective under the Securities Act, (ii)
not have issued a stop order suspending the effectiveness of the Form S-4, and
not have initiated or threatened to initiate any proceedings for that purpose.
Any material Blue Sky Laws applicable to the issuance of the Parent Common
Shares constituting Merger Consideration shall have been complied with and no
stop order or similar Order shall have been issued or threatened in respect of
any Parent Common Shares constituting Merger Consideration by any applicable
state securities commissioner or court of competent jurisdiction.
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(e) No Adverse Order. No Order shall be in effect which (i) prohibits,
restrains or substantially interferes with the consummation of the Merger or any
other Transaction; (ii) relates to any Transaction and imposes upon Parent,
Merger Sub or the Company damages that are material to Parent, Merger Sub or the
Company; (iii) prohibits or limits in any respect Parent's right, power or
ability to vote, receive dividends with respect to or otherwise exercise
ownership rights with respect to any Equity Interests in the Surviving
Corporation or to own, operate or control the Surviving Corporation or any
material portion of the business or Property of Parent or the Surviving
Corporation; or (iv) has or would have a material adverse effect on the Company
or on Parent's ability to operate the Surviving Corporation's business, or to
own, use and enjoy the Property of the Surviving Corporation, after consummation
of the Transactions.
Section 7.2 Additional Conditions to Obligations of Parent and Merger
Sub. The obligations of Parent and Merger Sub to effect the Merger and the other
transactions contemplated herein are also subject to the satisfaction, at or
prior to the Effective Time, of the following conditions, any or all of which
may be waived, in whole or in part:
(a) Preferred Stock Conversions. All issued and outstanding Company
Preferred Shares shall have been tendered for conversion into Company Common
Shares immediately prior to the Effective Time, such that, at the Effective
Time, no Company Preferred Shares shall be issued and outstanding.
(b) Conversion Agreements. Stanford and DiGenova shall each be in
compliance with their respective Conversion Agreements, which shall each be in
full force and effect.
(c) Note Exchange Agreement. (i) Stanford and the Company shall have
executed and delivered to Parent the Note Exchange Agreement, substantially in
the form of Exhibit F (the "Note Exchange Agreement"), to be entered into by and
between Parent, the Company and Stanford, and (ii) Stanford shall have tendered
to the Company an amount of outstanding Company debt, and the notes evidencing
such debt, for exchange for Company Common Shares, all as provided in the Note
Exchange Agreement.
(d) Stanford LOC Refinancings. The Company and Stanford shall have
executed and delivered the Amended and Restated Stanford LOC, as contemplated by
Section 6.17(a).
(e) Termination and Release. (i) Stanford, Stanford Financial Group
Company ("SFG"), Stanford Venture Capital Holdings, Inc. ("SVCH"), and the
Company shall have executed and delivered the Termination and Release Agreement,
substantially in the form of Exhibit G (the "Termination and Release
Agreement"), and (ii) DiGenova shall have executed and delivered the supplement
attached as Exhibit A to that certain Termination and Release Agreement, made
and entered into as of the date hereof, by and between Parent, Merger Sub, the
Company, DiGenova, Stanford, SFG and Stanford Venture Capital Holdings, Inc.
(f) Escrow Agreement. The Stockholder Agent shall have entered into the
Escrow Agreement, which shall be in full force and effect as of the Closing
Date.
(g) Corporate Governance Agreement. Stanford shall have executed and
delivered the Corporate Governance Agreement, substantially in the form of
Exhibit I, which shall be in full force and effect as of the Closing Date.
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(h) Other Related Agreements. Stanford, SFG and SVCH shall have
executed and delivered to Parent and the Company each other Related Agreement to
which such Person is to be a party or signatory.
(i) Legal Opinion. The Company shall have delivered a legal opinion of
Rutan & Tucker LLP, counsel to the Company, in substantially the form of Exhibit
K, with such standard and customary procedures, qualifications and limitations
as are in form and substance reasonably satisfactory to Parent and its counsel.
(j) Stanford Deliverables. Stanford shall have delivered or caused to
be delivered to Parent all of the following agreements, instruments and
documents:
(1) an executed officers' certificate, substantially in the
form of Exhibit J, dated the Closing Date, signed by the Chief
Executive Officer or the Chief Financial Officer of Stanford,
certifying the fulfillment of certain conditions specified therein;
(2) a legal opinion of Adorno & Yoss LLP, counsel to Stanford,
in substantially the form of Exhibit L, with such standard and
customary procedures, qualifications and limitations as are in form and
substance reasonably satisfactory to DGSE and its counsel; and
(3) an Affiliate Letter from Stanford.
Section 7.3 Additional Conditions to Obligations of the Company. The
obligation of the Company to effect the Merger and the other transactions
contemplated herein are also subject to the satisfaction, at or prior to the
Effective Time, of the following conditions, any or all of which may be waived,
in whole or in part:
(a) Parent Line of Credit Modifications. Parent shall have executed and
delivered an amendment to its loan agreement and related documents, as
contemplated by Section 6.17(b).
(b) Registration Rights Agreement. Parent shall have duly executed and
delivered a registration rights agreement, substantially in the form of Exhibit
H (the "Registration Rights Agreement"), in respect of the Parent Common Shares
issuable upon the exercise of the A Warrants and the B Warrants and certain
other Parent Common Shares.
(c) Parent Officers' Certificate. Parent shall have delivered to the
Company an executed officers' certificate, substantially in the form of Exhibit
M, dated the Closing Date, signed by the Chief Executive Officer, the Chief
Financial Officer and the Chief Operations Officer of Parent, certifying the
fulfillment of the conditions specified in Section 7.3(a) and Section 7.3(b).
(d) Warrants. Parent shall have duly executed and tendered (subject
only to the exchange of the debt contemplated by the Note Exchange Agreement) to
Stanford and its assignees the A Warrants and the B Warrants pursuant to Section
6.17(c), and the SEC shall have declared a registration statement covering the
issuance by Parent of the A Warrants and the B Warrants to Stanford and its
assignees effective under the Securities Act.
(e) Other Deliverables. Parent shall have delivered or caused to be
delivered to the Company all of the agreements, instruments and documents
required to be delivered to the Company pursuant to the foregoing provisions of
this Section 7.3, together with:
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(1) a legal opinion of Sheppard, Mullin, Richter & Hampton,
LLP, special counsel to the Company, in substantially the form attached
hereto as Exhibit N, with such standard and customary procedures,
qualifications and limitations as are in form and substance reasonably
satisfactory to Superior and its counsel;
(2) certificates dated as of a date within a reasonable period
of time prior to the Closing Date as to the good standing of Parent,
Merger Sub and each material Parent Subsidiary, executed by the
appropriate officials of the applicable state of incorporation,
organization or formation, and each other jurisdiction in which Parent
or each material Parent Subsidiary is licensed or qualified to do
business as a foreign corporation;
(3) a certificate executed by the secretary of Parent
certifying, as complete and accurate as of the Closing Date, (i) the
complete Organizational Documents of Parent and each material Parent
Subsidiary, and (ii) the resolutions or actions of each of the
stockholders of Parent and the Board of Directors of Parent approving
this Agreement or the Merger; and
(4) the written resignations of directors of the Parent Board,
if any, as required by Section 6.12.
ARTICLE VIII.
SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS; INDEMNIFICATION
Section 8.1 Survival of Representations, Warranties and Covenants.
(a) The representations, warranties and certifications of Parent,
Merger Sub and the Company contained in this Agreement, or in any certificate or
other instrument delivered pursuant to this Agreement by such Person or on its
behalf, shall remain in effect until, and shall expire on, the Closing Date,
except that:
(1) the representations and warranties contained in Section
4.3 (Capitalization) shall survive until the date one calendar year
after the Closing Date;
(2) neither the Escrow Termination Date nor any of the other
foregoing time limits shall apply to claims based upon fraud or willful
misrepresentation; and
(3) the representation, warranty, covenant or obligation that
is the subject matter of a Claim Notice made in accordance with Section
8.1(c) on or before the Escrow Termination Date, or such later date as
applies to the survival of such representation, warranty, covenant or
obligation pursuant to this Section 8.1(a), shall not so expire with
respect to such Claim Notice or any subsequent Claim Notice that is
reasonably related to the subject matter of such initial Claim Notice,
but rather shall remain in full force and effect until such time as
each and every claim that is based upon the claims or alleged facts or
circumstances of such initial Claim Notice has been fully and finally
resolved, either by means of a written settlement agreement or by the
dispute resolution procedure set forth in Section 8.6.
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(b) The representations, warranties, certifications, covenants and
obligations of Parent, Merger Sub and the Company, and the rights and remedies
that may be exercised by any Person having a right to indemnification pursuant
to this Article VIII, shall not be limited or otherwise affected by or as a
result of any information furnished to, or any investigation made by or any
Knowledge of, any of the Indemnified Parties or any of their Representatives.
(c) For purposes of this Agreement, a "Claim Notice" relating to a
particular representation, warranty, covenant or obligation shall be deemed to
have been delivered if any Indemnified Party, acting in good faith, delivers to
the Stockholder Agent (with a copy to the Escrow Agent) a written notice stating
that such Indemnified Party believes that there is or has been a possible breach
of such representation, warranty, covenant or obligation and containing (i) a
brief description of the circumstances supporting such Indemnified Party's
belief that there is or has been such a possible breach; and (ii) a non-binding,
preliminary estimate of the aggregate dollar amount of the actual and potential
Losses that have arisen and may arise as a direct or indirect result of such
possible breach.
(d) It is the intent of the parties hereto that all indemnification
obligations under this Article VIII shall apply without regard to whether or not
(x) any Indemnifying Party was negligent or otherwise at fault in any respect
with regard to the existence or occurrence of any of the matters covered by any
such indemnification obligation, or (y) any Indemnifying Party otherwise caused
or created, or is claimed to have caused or created, the existence or occurrence
of any of the matters covered by any such indemnification obligation, whether
through its own acts or omissions or otherwise. Notwithstanding the foregoing,
the indemnification obligation of the Indemnifying Parties shall be reduced to
the extent that an Indemnified Party receives insurance proceeds or other
payment from a third party that specifically covers the Losses for which the
Indemnifying Parties otherwise would be required to indemnify such Indemnified
Party pursuant to this Article VIII. If an Indemnified Party receives insurance
proceeds or other payment from a third party that specifically covers Losses for
which one or more of the Indemnifying Parties previously paid such Indemnified
Party pursuant to this Article VIII, then such Indemnified Party shall refund to
the Indemnifying Parties an amount equal to the lesser of (i) the amount that
the Indemnifying Parties previously paid to such Indemnified Party relating to
such Losses, and (ii) the amount of such insurance proceeds or other payment.
Section 8.2 Indemnification; Closing Balance Sheet; Escrow Account.
(a) From and after the Closing Date, the Stockholders entitled to
Merger Consideration and DiGenova (collectively, the "Indemnifying Parties")
shall, subject to Section 8.3 (including the limitations on recourse), defend,
indemnify and hold Parent and its Representatives and Affiliates (including the
Surviving Corporation) (collectively, the "Indemnified Parties") harmless
against all Losses incurred by the Indemnified Parties directly or indirectly as
a result of any inaccuracy or Breach of any representation, warranty or
certification of the Company specified in Section 8.1(a)(1) (without giving
effect to (i) any Updated Disclosure Schedules, or (ii) to any sections of the
Disclosure Schedules, or portions thereof, identified in Section 8.2 of the
Parent Disclosure Schedules delivered on or prior to the date hereof); provided
that the Indemnifying Parties shall have no obligation to defend, indemnify or
hold the Indemnified Parties harmless against Losses (A) to the extent accrued
for in the Closing Balance Sheet, or (B) for avoidance of doubt, for any
inaccuracy or Breach of any representation, warranty or certification of the
Company not specified in Section 8.1(a)(1).
(b) The Company shall use its Best Efforts to prepare and file with the
SEC a quarterly report on Form 10-Q for the Company's fiscal quarter ended
December 31, 2006 prior to February 15, 2007 (or, if not then filed, as promptly
thereafter as practicable). On or prior to such filing date, Parent shall
prepare and deliver to the Stockholder Agent a certificate calculating the
difference of (x) the Minimum Company Stockholders Equity, minus (y) the
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stockholders' equity reflected in the consolidated financial statements
contained in such Form 10-Q (such difference, the "Balance Sheet Correction").
For example, if such stockholders' equity were -$4,000,000, then the Balance
Sheet Correction would be $876,572, but if such stockholders' equity were
- -$3,000,000, the Balance Sheet Correction would be $0 and no payment would be
made under this Section 8.2(b). Notwithstanding clause (A) to the proviso in
Section 8.2(a), if the Balance Sheet Correction is a positive number, then the
Indemnifying Parties shall, subject to Section 8.3 (including the limitations on
recourse), pay to Parent as an indemnity hereunder the full amount of the
Balance Sheet Correction. If the Balance Sheet Correction is a negative number,
no adjustment will be made and no payments will be due to any Party. The
Parties, and, by approval of this Agreement or the Merger, the Stockholders
entitled to Merger Consideration, (i) acknowledge that the Minimum Company
Stockholders Equity, which is based on financial information represented by the
Company to be true and correct, constitutes the basis for calculating the amount
of the Exchanged Debt (as such term is defined in the Note Exchange Agreement),
and (ii) agree that the amount of the Balance Sheet Correction, if positive,
constitutes a Loss to Parent.
(c) The Indemnifying Parties shall, subject to Section 8.3 (including
the limitations on recourse), pay to the Company as an indemnity hereunder any
amounts paid by the Company to or at the request of the Stockholder Agent
pursuant to Section 8.5(i). The Parties, and, by approval of this Agreement or
the Merger, the Stockholders entitled to Merger Consideration, agree that any
payments to or at the request of the Stockholder Agent under Section 8.5(i)
constitutes a Loss to the Company.
(d) As security for the indemnity provided to the Indemnified Parties
in this Article VIII and by virtue of this Agreement and the Certificate of
Merger, Parent shall deposit the Escrow Stock into the Escrow Account pursuant
to the terms set forth in Section 3.14 and the Escrow Agreement.
Section 8.3 Limitation on Indemnification.
(a) Notwithstanding any provision of this Agreement to the contrary,
after the Closing Date, the Indemnifying Parties shall have no obligation to
indemnify any Indemnified Parties until the aggregate of all Losses suffered by
the Indemnified Parties exceeds $100,000 (the "Basket Amount"), in which case
the Indemnified Parties shall be entitled to recover all Losses including the
Basket Amount; provided, however, that any Losses resulting from a willful or
intentional Breach of this Agreement or any Transaction Document or fraud by any
party hereto shall not be subject to such Basket Amount.
(b) Notwithstanding any provision of this Agreement to the contrary, in
the event any Indemnified Party shall suffer any Losses for which such
Indemnified Party is entitled to indemnification under this Article VIII, such
Indemnified Party shall be entitled to recover such Losses solely from the
Escrow Account pursuant to the terms and conditions set forth in the Escrow
Agreement, at the rate per share of Escrow Stock specified in Section 3.14(a),
until no additional amounts remain in the Escrow Account. Subject to Section
8.8, the Indemnifying Parties shall have no liability for Losses in excess of
the Escrow Stock deposited in the Escrow Account under Section 3.14(a), the
DiGenova Warrant, and the Escrow Agreement (including the proceeds thereof and
distributions thereon), and the Indemnified Parties shall have recourse solely
against the Escrow Stock and the other Escrow Assets.
(c) Subject to Section 8.8 and any claim based on the enumerated
representations set forth in Section 8.1(a), no claim for indemnification
hereunder or otherwise with respect to a breach of this Agreement may be made by
any Indemnified Party after the Escrow Termination Date.
Section 8.4 Indemnification Procedures. All claims for indemnification
under this Article VIII shall be asserted and resolved as follows:
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(a) Third Party Claims.
(1) Notice. In the event an Indemnified Party becomes aware of
a third-party claim that such Indemnified Party believes may result in
a demand against the Escrow Account, such Indemnified Party (or Parent
on its behalf) shall promptly notify the Stockholder Agent of such
claim; provided that the failure to so notify the Stockholder Agent
shall not relieve any Indemnifying Party of any liability that it may
have to any Indemnified Party, except to the extent that the
Indemnifying Party demonstrates that the defense of such third-party
claim is prejudiced by the failure to give such notice.
(2) Defense. If an Indemnified Party (or Parent on its behalf)
provides notice to the Stockholder Agent pursuant to Section 8.4(a)(1)
of the assertion of a third-party claim, the Stockholder Agent shall be
entitled to participate in the defense of such third-party claim and,
to the extent that it wishes (unless (i) the Stockholder Agent is also
a Person against whom the third-party claim is made and the Indemnified
Party determines in good faith that joint representation would be
inappropriate, or (ii) the Stockholder Agent fails to provide
reasonable assurance to the Indemnified Party of both (x) its financial
capacity to defend such third-party claim, and (y) its ability to
provide indemnification, including against the Escrow Account, with
respect to such third-party claim), to assume the defense of such
third-party claim with counsel satisfactory to the Indemnified Party.
After notice from the Stockholder Agent to the Indemnified Party of its
election to assume the defense of such third-party claim, the
Stockholder Agent shall not, so long as it diligently conducts such
defense, be liable to the Indemnified Party under Article VIII 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 Party in connection with the defense of such third-party
claim, other than reasonable costs of investigation. If the Stockholder
Agent assumes the defense of a third-party claim, (A) such assumption
shall establish conclusively for purposes of this Agreement that the
claims made in that third-party claim are within the scope of and
subject to indemnification, and (B) no compromise or settlement of such
third-party claims may be effected by the Stockholder Agent without the
Indemnified Party's written consent unless (1) there is no finding or
admission of any violation of Law or any violation of the rights of any
Person, (2) the sole relief provided is monetary damages that are paid
in full by the Stockholder Agent (including with Escrow Stock from the
Escrow Account), and (3) the Indemnified Party shall have no liability
with respect to any compromise or settlement of such third-party claims
effected without its written consent. If notice is given to a
Stockholder Agent of the assertion of any third-party claim and the
Stockholder Agent does not, within ten days after the Indemnified
Party's notice is provided, provide notice to the Indemnified Party of
its election to assume the defense of such third-party claim, the
Stockholder Agent and Indemnifying Parties shall be bound by any
determination made in such third-party claim or any compromise or
settlement effected by the Indemnified Party.
(3) Exception. Notwithstanding the foregoing, if an
Indemnified Party determines in good faith that there is a reasonable
probability that a third-party claim may adversely affect it or its
Related Persons other than as a result of monetary damages for which it
would be entitled to indemnification under this Agreement, the
Indemnified Party may, by notice to the Stockholder Agent, assume the
exclusive right to defend, compromise or settle such third-party claim,
but the Stockholder Agent shall not be bound by any determination of
any third-party claim (including the Losses incurred in connection
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therewith) so defended for the purposes of this Agreement or any
compromise or settlement effected without its written consent.
(4) Disputes. Any dispute between any Indemnified Party and
the Stockholder Agent under this Section 8.4(a) shall be resolved
pursuant to the dispute resolution procedures described in Section
8.4(b) and Section 8.6.
(5) Finality. In the event that the Stockholder Agent has
conducted any defense or consented to any settlement under this Section
8.4(a), neither the Stockholder Agent nor any of the Indemnifying
Parties shall have the right, power or authority to object to the
amount of any claim by any Indemnified Party against the Escrow Account
or otherwise with respect to and in accordance with such settlement.
(b) Non-Third Party Claims.
(1) In the event an Indemnified Party has a claim hereunder
that does not involve a claim being asserted against or sought to be
collected by a third party, such Indemnified Party shall with
reasonable promptness deliver a Claim Notice with respect to such claim
to the Stockholder Agent (with a copy to the Escrow Agent). If the
Stockholder Agent does not notify such Indemnified Party within thirty
(30) calendar days from the date of receipt of such Claim Notice that
the Stockholder Agent disputes such claim, the amount of such claim
shall be conclusively deemed a liability of the Indemnifying Parties
hereunder. In case the Stockholder Agent shall object in writing to any
claim made in accordance with this Section 8.4(b)(1), the Indemnified
Party shall have fifteen (15) calendar days to respond in a written
statement to the objection of the Stockholder Agent. If after such
fifteen (15) calendar day period there remains a dispute as to any
claim, the Indemnified Party and Stockholder Agent shall attempt in
good faith for sixty (60) calendar days to agree upon the rights of the
respective parties with respect to each of such claims. If the
Indemnified Party and Stockholder Agent should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both
parties. If such parties do not so agree, the Indemnified Party and
Stockholder Agent shall resolve such dispute pursuant to Section 8.6.
(2) If Parent or any Indemnified Party is making a claim
against the Escrow Account, the Escrow Agent shall refrain from
disbursing any portion of the Escrow Account until resolution of such
dispute pursuant to this Section 8.4 (including, if applicable, Section
8.6).
(c) Failure to Provide Notice. An Indemnified Party's failure to give
reasonably prompt notice to the Stockholder Agent of any actual, threatened or
possible claim or demand which may give rise to a right of indemnification
hereunder shall not relieve the Indemnifying Parties of any liability which the
Indemnifying Parties may have to such Indemnified Party, unless the failure to
give such notice materially and adversely prejudiced the Indemnifying Parties.
Section 8.5 Stockholder Agent.
(a) Appointment. By adopting and approving this Agreement, approving
the Merger, and appointing and constituting the Stockholder Agent as their
exclusive agent, attorney-in-fact and representative for purposes of this
Agreement, the Escrow Agreement and the Transactions contemplated hereby and
thereby at the Company Stockholder Meeting, the stockholders of the Company
shall have (i) appointed and constituted the Stockholder Agent their exclusive
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agent, attorney-in-fact and representative in relation to or in connection with
this Agreement, the Escrow Agreement and the Transactions contemplated hereby
and thereby, (ii) consented to and authorized the Stockholder Agent to take or
omit to take any and all actions and to make or omit to make any and all
decisions required or permitted to be taken by it under this Agreement or the
Escrow Agreement, and (iii) consented to and approved the terms and provisions
of the Escrow Agreement; in each case without any further action on the part of
any such stockholder. As evidenced by the execution of the Limited Joinder
Agreement or by countersigning the Escrow Agreement, as applicable, the
Stockholder Agent accepts such appointment as stockholder agent to act on behalf
of the Stockholders with respect to the matters contemplated by this Agreement
and the Escrow Agreement.
(b) Rights and Duties. The Stockholder Agent shall serve as the
exclusive agent, attorney-in-fact and representative for the Stockholders in
relation to or in connection with this Agreement, the Merger Agreement and the
Transactions, including the following rights, authorities, powers, duties and
obligations:
(1) to provide and receive notices and other communications;
(2) to agree to, negotiate, enter into settlements and
compromises of, make claims and demand arbitration and comply with
orders of courts and awards of arbitrators with respect to claims made
or any other action to be taken by or on behalf of any Indemnifying
Parties, or on its own behalf in its capacity as Stockholder Agent,
under this Article VIII or under the Escrow Agreement, and to take all
actions necessary or appropriate in the judgment of the Stockholder
Agent for the accomplishment of the foregoing;
(3) to use the Escrow Stock, cash, investments and other
assets held from time to time in the Escrow Account (the "Escrow
Assets") as collateral to secure the rights, and to demand and withdraw
Escrow Assets to satisfy the claims, of the Indemnified Parties under
this Article VIII and the Escrow Agreement;
(4) to demand, withdraw and use the Escrow Assets to reimburse
certain reasonable out-of-pocket fees and expenses of the Stockholder
Agent as provided in Section 3.14(b) and in the Escrow Agreement; and
(5) to take all actions necessary or appropriate in the
judgment of the Stockholder Agent for the accomplishment of any of the
foregoing.
(c) Actions of the Stockholder Agent. A decision, act, omission,
agreement, settlement, claim, consent or instruction of the Stockholder Agent in
relation to any matter referred to in Section 3.14(b) or this Article VIII or in
the Escrow Agreement shall constitute a decision, act, omission, agreement,
settlement, claim, consent or instruction, as the case may be, for all of the
Stockholders, and shall be final, binding and conclusive upon each and every
Stockholder, and Parent and the Escrow Agent may, without further inquiry,
conclusively rely upon any such decision, act, omission, agreement, settlement,
claim, consent or instruction of the Stockholder Agent as being the decision,
act, omission, agreement, settlement, claim, consent or instruction, as the case
may be, of each and every Stockholder. Parent and the Escrow Agent each is
hereby relieved from any liability to any Person for any acts done by them in
accordance with or in reliance upon any decision, act, omission, agreement,
settlement, claim, consent or instruction of the Stockholder Agent; provided,
however, that if Parent has in fact received a valid written notice of the
appointment of a successor Stockholder Agent, upon the effectiveness of such
appointment, Parent, and upon notification of such successor Stockholder Agent
from Parent, the Escrow Agent, and the Stockholders shall be obligated to
recognize, and shall be able to so rely only upon the decisions, acts,
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omissions, agreements, settlements, claims, consents and instructions of, such
successor Stockholder Agent as the Stockholder Agent for all purposes under this
Agreement and the Escrow Agreement. Neither Parent nor the Escrow Agent shall
incur any liability to any Person with respect to any action taken or suffered
by it in good faith in reliance on the Stockholder Agent as aforesaid.
(d) Resignation and Removal. The Stockholder Agent may resign at any
time by written notice to Parent and the Escrow Agent effective not earlier than
twenty days after receipt thereof by DGSE and the Escrow Agent, and the
Stockholder Agent may be removed at any time by written notice signed by
Stockholders holding not less than a majority of the Closing Company Common
Shares (exclusive of Dissenting Shares), as conclusively evidenced by Exhibit A
to the Escrow Agreement, effective not earlier than ten days after receipt
thereof by Parent and the Escrow Agent.
(e) Successors. The Stockholders shall have the sole right, power and
authority to appoint a successor Stockholder Agent. The Stockholders may appoint
a new or substitute Stockholder Agent in a written instrument delivered to
Parent and the Escrow Agent; provided that such successor Stockholder Agent (A)
was an Affiliate of the Company immediately preceding the Merger, (B) was or is
a director or officer of the Company or the Surviving Corporation, or (C) is
reasonably acceptable to Parent. Such instrument shall (1) represent and warrant
that (i) it is signed by Stockholders holding not less than a majority of the
Closing Company Common Shares, exclusive of Dissenting Shares, and (B) the
successor Stockholder Agent is qualified to act as such pursuant to the proviso
next preceding, (2) irrevocably appoint and constitute the successor Stockholder
Agent (for avoidance of doubt, including its successors hereunder) as the
exclusive agent, attorney-in-fact and representative of the Stockholders in
relation to or in connection with this Agreement, the Escrow Agreement and the
Transactions contemplated hereby and thereby, (3) be countersigned by such
successor Stockholder Agent, accepting such appointments and agreeing to be
fully bound by the duties and obligations, and to exercise the rights, powers
and authorities, of the Stockholder Agent under this Agreement and the Escrow
Agreement, and (4) otherwise be in form and substance reasonably satisfactory to
Parent. Parent shall be under no obligation whatsoever to investigate the
accuracy of any representation made in such written instrument and shall be
fully protected in relying on the accuracy thereof in good faith, irrespective
of any notice by any Person other than the Stockholder Agent to the contrary. If
the Stockholders shall have failed to appoint a successor Stockholder Agent
within ten days of the resignation or removal of the Stockholder Agent as
provided in this Section 8.5(e), Parent may petition any court of competent
jurisdiction for the appointment of a successor Stockholder Agent or for other
appropriate relief, with due regard to the qualifications for a successor
Stockholder Agent specified in the proviso to the first sentence of this Section
8.5(e), and any such resulting appointment shall be binding upon all
Stockholders, all parties hereto and all beneficiaries hereof. Upon such an
appointment of a successor Stockholder Agent, the Stockholder Agent shall accept
such appointment, and thereby be effectively constituted the Stockholder Agent
for all purposes of this Agreement and the Escrow Agreement, by (i)
countersigning this Agreement and the Escrow Agreement, agreeing to be bound by
and subject hereto and thereto, or (ii) executing a joinder agreement in form
and substance satisfactory to Parent.
(f) Vacancy. If at any time there is no Stockholder Agent, Parent or
the Escrow Agent may in its sole discretion, but shall not be obligated to,
serve notices on all Stockholders at the address of such Stockholders appearing
on Exhibit A to the Escrow Agreement, and such service shall be deemed notice
for all purposes hereof, but shall under no circumstances be obligated to accept
any notices from, or to negotiate with, any Stockholder.
(g) Exculpation. The Stockholder Agent shall not be liable for any act
done or omitted under this Agreement or the Escrow Agreement as Stockholder
Agent while acting in good faith, and any act done or omitted pursuant to the
advice of counsel shall be conclusive evidence of such good faith. In performing
any duties hereunder or under the Escrow Agreement, to the maximum extent
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permitted by applicable law, the Stockholder Agent shall not be directly or
indirectly liable to any party, or any Affiliates of any party, for damages,
losses, expenses or other Liabilities, whether sounding in tort, contract or
otherwise, arising from its acts or omissions, including for their active
negligence or other wrongful act of the Stockholder Agent, except for the acts
of gross negligence or willful misconduct of the Stockholder Agent.
(h) No Bond or Compensation. No bond shall be required of the
Stockholder Agent, and the Stockholder Agent shall receive no compensation for
its services.
(i) Reimbursement of Fees and Expenses. Subject to the terms,
limitations and conditions of this Section 8.5(i), the Stockholder Agent shall
be entitled to reimbursement from the Company for the out-of-pocket fees, costs
and expenses reasonably incurred by the Stockholder Agent on behalf of the
Stockholders in connection with the exercise and performance of its powers,
rights, authorities, duties and obligations under the agency granted and
appointments made, or deemed granted or made, in this Section 8.5.
(1) The Company shall reimburse the Stockholder Agent in cash
for the out-of-pocket fees, costs and expenses, including reasonable
attorneys' fees, reasonably incurred by the Stockholder Agent in
connection with performing and exercising its rights, authorities,
powers, duties and obligations on behalf of the Stockholders under this
Agreement and the Escrow Agreement up to (but not exceeding) an
aggregate amount of $100,000, or such greater amount as Parent may in
its sole and absolute discretion agree at the request of the
Stockholder Agent (such amount, the "Stockholder Agent Expense Cap").
(2) The Stockholder Agent may request reimbursement from
Parent only upon the presentation of invoices and receipts for the
amount requested and upon written certification that (i) such invoices
and receipts are true and correct, (ii) such amount has been and shall
be used strictly in accordance with the terms and provisions of this
Article VIII and the Escrow Agreement, and (iii) such amount, together
with (x) all amounts theretofore paid to the Stockholder Agent (for
avoidance of doubt, including any predecessors in such capacity)
pursuant to this Agreement, and (y) all amounts theretofore requested
by the Stockholder Agent from Parent pursuant to this Section 8.5(i)
and not paid or finally denied; do not exceed the Stockholder Agent
Expense Cap.
(3) Any dispute between Parent and the Stockholder Agent
regarding a claim by the Stockholder Agent for reimbursement of its
fees, costs and expenses, whether arising under this Agreement, the
Escrow Agreement or otherwise, shall be resolved pursuant to the
dispute resolution procedures described in Section 8.6.
(4) The Stockholder Agent shall not have recourse against the
Escrow Account, Parent, any Stockholder or, except for an aggregate
amount not to exceed the Stockholder Agent Expense Cap, the Company,
for any of its fees, costs or expenses hereunder or otherwise.
Section 8.6 Resolution of Conflicts.
(a) Arbitration. If no agreement can be reached after good faith
negotiation between the Indemnified Parties and the Stockholder Agent pursuant
to Section 8.4(b)(1), or if a dispute arises concerning the reimbursement of
Stockholder Agent fees and expenses, the Person defending the claim (the
"Defending Party"), may, by written notice to the Person asserting the claim
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(the "Prosecuting Party"), demand arbitration of the matter, which arbitration
shall be conducted by a single arbitrator. The Prosecuting Party and the
Defending Party shall use their respective Best Efforts to agree on the
arbitrator, provided that if they cannot so agree within ten (10) Business Days
(or such longer period as they may agree), either the Prosecuting Party or the
Defending Party can request that Judicial Arbitration and Mediation Services
("JAMS") select the arbitrator. The arbitrator shall set a limited time period
and establish procedures designed to reduce the cost and time for discovery
while allowing the Defending Party and Prosecuting Party an opportunity,
adequate in the sole judgment of the arbitrator, to discover relevant
information from the other of them about the subject matter of the dispute. The
arbitrator shall rule upon motions to compel or limit discovery and shall have
the authority to impose sanctions, including attorneys' fees and costs, to the
same extent as a court of competent law or equity, should the arbitrator
determine that discovery was sought without substantial justification or that
discovery was refused or objected to without substantial justification. The
decision of the arbitrator shall be written, shall be in accordance with
applicable Law and with this Agreement, and shall be supported by written
findings of fact and conclusions of law, which shall set forth the basis for the
decision of the arbitrator. The decision of the arbitrator as to the validity
and amount of any claim in a Claim Notice shall be binding and conclusive upon
the Prosecuting Party, the Defending Party, the parties hereto, the
Stockholders, the Indemnified Parties, the Indemnifying Parties, and,
notwithstanding any other provision of this Article VIII, the Escrow Agent, if
applicable, and each of such Persons shall be entitled to act in accordance with
such decision and the Escrow Agent, if applicable, shall be entitled to make or
withhold payments out of the Escrow Account in accordance therewith.
(b) Judgment; Venue; Arbitration Expenses. Judgment upon any award
rendered by the arbitrator may be entered in any court having jurisdiction. Any
such arbitration shall be held in Dallas, Texas under the commercial rules then
in effect for JAMS. The non-prevailing party to an arbitration shall pay its own
expenses, the fees of the arbitrator, any administrative fee of JAMS, and the
expenses, including attorneys' fees and costs, reasonably incurred by the other
party to the arbitration.
Section 8.7 No Contribution. The Stockholder Agent herby irrevocably
waives, and acknowledges and agrees that it shall not, on behalf of the
Indemnifying Parties, or otherwise, have and shall not exercise or assert (or
attempt to exercise or assert), any right of contribution, right of indemnity or
other right or remedy against the Surviving Corporation in connection with any
indemnification or other rights any Indemnified Party may have under or in
connection with this Agreement.
Section 8.8 Fraud; Willful Misrepresentation. Notwithstanding any
provision in this Agreement to the contrary, the liability of any Person for
fraud or willful misrepresentation on the part of such Person shall not be
subject to any limitations set forth in this Article VIII. Without limiting the
generality of the foregoing, any claim with respect to such liability need not
be presented within the time limits set forth in Section 8.1(a)(1) and shall be
subject only to the applicable statutes of limitation, and notwithstanding
Section 8.9, any such claim shall be cumulative to any remedies provided in this
Article VIII.
Section 8.9 Exclusive Remedies. Except as set forth in Section 8.8, the
remedies set forth in this Article VIII and elsewhere in this Agreement shall be
the sole and exclusive remedies of the parties hereto and the Indemnified
Parties against any Indemnifying Party, Stockholder or any party hereto with
respect to any claim relating to this Agreement or the Merger and the facts and
circumstances relating and pertaining thereto.
Section 8.10 Purchase Price Adjustment. Any payments made pursuant to
this Article VIII shall be treated for tax purposes as an adjustment to the
Merger Consideration.
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ARTICLE IX.
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 Termination. This Agreement may be terminated, and the
Merger and the other transactions contemplated by this Agreement may be
abandoned, at any time prior to the Effective Time, by written notice explaining
the reason for such termination (without prejudice to other remedies which may
be available to the Parties under this Agreement, at law or in equity):
(a) by the mutual written consent of Parent and the Company, pursuant
to resolutions adopted by their respective Boards of Directors;
(b) by either Parent or by resolution of the Independent Committee:
(1) if (i) the Merger shall not have been consummated prior to
(A) March 31, 2007, or (B) if Parent has received notice from the SEC
that the SEC will review the Form S-4 or any other Parent SEC Report or
Company SEC Report, which review is responsible for a delay in the SEC
declaring the Form S-4 effective, the date six months after the date
Parent first filed the Form S-4 with the SEC (such date, the "Outside
Date"), (ii) the terminating party is not, on the date of termination,
in Material Breach of this Agreement, and (iii) the terminating party
has not Breached this Agreement in a manner which is responsible for
delaying the effectiveness of the Form S-4;
(2) if (i) Stanford or its assigns declares or notifies the
Company of an "Event of Default" under the Stanford LOC or an
"Additional Default" under that certain Forbearance Agreement, made as
of the date hereof (the "Forbearance Agreement"), by and between the
Company and Stanford, (ii) Stanford or its assigns demands payment of
any principal due under the Amended and Restated Commercial Note issued
by the Company to Stanford in connection with the amendment of the
Stanford LOC on the date hereof, (iii) Stanford or its assigns
exercises any rights or remedies against the Company, or seizes any
collateral of the Company, under the Stanford LOC (other than for
collection of accrued and unpaid interest), or (iv) the Forbearance
Period (as defined in the Forbearance Agreement) expires or terminates
and is not extended upon the request of Parent or the Company within
five days of such request;
(3) if (i) any Governmental Entity of competent jurisdiction
shall have issued an Order or taken any other action (including the
failure to take action) permanently restraining, enjoining or otherwise
prohibiting any Transaction, and such Order or other action shall have
become final and nonappealable, (ii) the terminating party is not, on
the date of termination, in Material Breach of this Agreement; and
(iii) the terminating party has not Breached this Agreement in a manner
which is responsible for such Order having been issued or such action
having been taken;
(4) if (i) the Company Stockholder Approval or Stockholder
Agent Appointment shall not have been obtained at the Company
Stockholders Meeting or at any adjournment or postponement thereof,
(ii) the terminating party is not, on the date of termination, in
Material Breach of this Agreement, and (iii) the terminating party has
not Breached this Agreement in a manner which is responsible for the
failure to obtain the Company Stockholder Approval or Stockholder Agent
Appointment, as the case may be; or
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(5) if (i) the satisfaction of a closing condition of the
terminating party in Article VII is impossible; (ii) the terminating
party is not, on the date of termination, in Material Breach of this
Agreement; and (iii) the terminating party has not Breached this
Agreement in a manner causing the impossibility of satisfying such
closing condition; and
(c) by Stanford if the Merger shall not have been consummated prior to
the Outside Date.
Section 9.2 Effect of Termination. In the event of termination of this
Agreement by either the Company, Parent or Stanford as provided in Section 9.1,
all obligations and Liabilities of the parties hereto under this Agreement shall
forthwith terminate and become void and there shall be no Liability or
obligation on the part of any party hereto or their respective Subsidiaries,
officers, directors or stockholders, except (i) with respect to any breaches of
Section 6.4 or Section 6.8, (ii) for the terms and provisions of the
Confidentiality Agreement or Section 9.5, (iii) with respect to any Liabilities
or damages incurred or suffered by a party as a result of the willful breach by
any other party of any of its representations, warranties, covenants or other
agreements set forth in this Agreement, (iv) for avoidance of doubt, amounts
owed under the Shared Expenses Agreement, and (v) the provisions of Article I
and Article X, to the extent applicable to clauses (i)-(iv) next preceding.
Section 9.3 Amendment. This Agreement may be amended, supplemented or
otherwise modified at any time prior to the Effective Time upon the execution
and delivery of a written instrument executed by each of the parties hereto;
provided, however, that, after the Company Stockholder Approval or the Parent
Stockholder Approval has been obtained, if required by applicable Law or the
rules and regulations of the applicable party's Principal Market, such amendment
shall require an additional Company Stockholder Approval or Parent Stockholder
Approval, as the case may be.
Section 9.4 Waiver. At any time prior to the Effective Time, any party
hereto may (i) extend the time for the performance of any of the obligations or
other acts of any other party hereto, (ii) waive any inaccuracies in the
representations and warranties of any other party contained herein or in any
document delivered pursuant hereto, (iii) waive compliance by any other party
with any of its agreements and covenants set forth herein, or (iv) waive the
satisfaction of any conditions to its obligations contained herein; provided,
however, that, after the Company Stockholder Approval or the Parent Stockholder
Approval has been obtained, if required by applicable Law or the rules and
regulations of the applicable party's Principal Market, such extension or waiver
shall require an additional Company Stockholder Approval or Parent Stockholder
Approval, as the case may be. Any such extension or waiver shall be valid only
if set forth in an instrument in writing signed by the party or parties to be
bound thereby, but neither such a written extension or waiver, nor the failure
to insist on strict compliance with an obligation, covenant, agreement or
condition, shall operate as a waiver of, or estoppel with respect to, any
subsequent or other failure.
Section 9.5 Fees and Expenses. Subject to the terms and provisions of
that certain letter agreement, dated April 3, 2006 (the "Shared Expenses
Agreement"), by and among Parent, the Company and Stanford, regarding the
sharing of certain expenses related to the exploration of a possible business
combination between Parent and the Company, which agreement shall remain and
continue in full force and effect in accordance with its terms, all Expenses
incurred by the parties hereto shall be borne solely and entirely by the party
that has incurred the same.
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ARTICLE X.
GENERAL PROVISIONS
Section 10.1 Notices. All notices, requests, instructions or other
documents to be given or delivered under this Agreement shall be in writing and
shall be deemed given: (i) five Business Days following the deposit of
registered or certified mail in the United States mails, postage prepaid, (ii)
when confirmed by telephone confirmation, if sent by facsimile or email (but
only if followed by transmittal by reputable national courier service or hand
delivery on the next Business Day), (iii) when delivered, if delivered
personally to the intended recipient, and (iv) one Business Day following
delivery to a reputable national courier service for overnight delivery, postage
prepaid; and in each case, addressed to a party at the following address for
such party:
If to Parent, Merger Sub or the Surviving Corporation, addressed to it at:
DGSE Companies, Inc.
2817 Forest Lane
Dallas, Texas 75234
Attn: Dr. L.S. Smith
Facsimile: [omitted]
Email: [omitted]
with a copy (which shall not constitute notice and which shall not be
required for delivery to be effective) to:
Sheppard, Mullin, Richter & Hampton LLP
12275 El Camino Real, Suite 200
San Diego, California 92130-2006
Attn: John J. Hentrich, Esq.
Facsimile: [omitted]
Email: [omitted]
If to the Company, addressed to it at:
Superior Galleries, Inc.
9478 W. Olympic Boulevard
Beverly Hills, California 90212
Attn: Chair, Special Independent Committee
Facsimile: [omitted]
Email: [omitted]
with copies (which shall not constitute notice and which shall not be
required for delivery to be effective) to Stanford and to:
Rutan & Tucker LLP
611 Anton Boulevard Suite 1400
Costa Mesa, California 92626-1931
Attn: Thomas Brockington, Esq.
Facsimile: [omitted]
Email: [omitted]
If to Stanford, addressed to it at:
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Stanford International Bank Ltd.
c/o Stanford Financial Group
6075 Poplar Avenue
Memphis, Tennessee 38119
Attn: James M. Davis, Chief Financial Officer
Facsimile: [omitted]
Email: [omitted]
with a copy (which shall not constitute notice and which shall not be
required for delivery to be effective) to:
Adorno & Yoss LLP
2525 Ponce de Leon Blvd., Suite 400
Miami, Florida 33134-6012
Attn: Seth P. Joseph, Esq.
Facsimile: [omitted]
Email: [omitted]
Any party hereto may change its address, email address or fax number for
purposes hereof to such other address, email address or fax number as such party
may have previously furnished to the other parties hereto in writing in
accordance with this Section 10.1.
Section 10.2 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 10.3 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 terms and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. 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 in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the extent
possible.
Section 10.4 Entire Agreement. This Agreement (together with the
Exhibits, Schedules, Company Disclosure Schedules, Parent Disclosure Schedule
and the other documents delivered pursuant hereto) and the Related Agreements,
and any certificates, schedules and proxies delivered pursuant hereto or
thereto, constitute the entire agreement and understanding of the parties hereto
in respect of its and their subject matter and supersede all prior agreements
and undertakings by or among the parties, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof or thereof
(including the Original Agreement and that certain Limited Joinder Agreement,
made and entered into as of July 12, 2006, by and among the Parties hereto,
which agreements are superseded in their entirety by this Agreement and the
Limited Joinder Agreement, respectively).
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Section 10.5 Assignment. Neither this Agreement nor any of the rights,
interests, Liabilities or obligations hereunder or under the Escrow Agreement
shall be assigned by any of the parties hereto, in whole or in part, by
operation of Law or otherwise, without the prior written consent of the other
parties hereto, and any attempt to make any such assignment without such consent
shall be null and void and of no force or effect. Notwithstanding the foregoing,
Merger Sub may, in its sole discretion, assign any and all rights, interests and
obligations under this Agreement or under the Escrow Agreement to any
wholly-owned Subsidiary of Parent.
Section 10.6 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and their respective
successors and permitted assigns. Nothing in this Agreement, express or implied,
is intended to or shall confer upon any other Person any right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement, except as
provided in (i) Section 6.18 with respect to Insured Parties, (ii) Article VIII
with respect to Indemnified Parties, and (iii) Section 8.5 with respect to the
Escrow Agent.
Section 10.7 Governing Law; Consent to Jurisdiction; Waiver of Trial by
Jury.
(a) This Agreement and the performance of the obligations of the
parties hereunder shall be governed by, and construed in accordance with, the
laws of the State of Texas applicable to contracts negotiated, executed and to
be performed entirely within such State, except that the Merger shall be
governed by, and construed in accordance with, the laws of the State of
Delaware.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction and venue of
any Texas district court and any state appellate court therefrom within the
County of Dallas in the State of Texas (or, if the Texas district court declines
to accept jurisdiction over a particular matter, any state or federal court
within said County) in any action or proceeding arising out of or relating to
this Agreement or the Transactions or for recognition or enforcement of any
judgment relating hereto, and each of the parties hereto hereby irrevocably and
unconditionally (i) agrees not to commence any such action or proceeding except
in such courts, (ii) agrees that any claim in respect of any such action or
proceeding may be heard and determined in such Texas state court or, to the
extent permitted by law, in such federal court, (iii) waives, to the fullest
extent it may legally and effectively do so, any objection that it may now or
hereafter have to the laying of venue of any such action or proceeding in any
such Texas state or federal court, and (iv) waives, to the fullest extent
permitted by law, the defense of an inconvenient forum to the maintenance of
such action or proceeding in any such Texas state or federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law.
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.1. Nothing in this
Agreement shall affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(d) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY THAT MAY
ARISE UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT
ISSUES, AND THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT
IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR
INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (1) NO
REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY
OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK
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TO ENFORCE EITHER OF SUCH WAIVERS, (2) IT UNDERSTANDS AND HAS CONSIDERED THE
IMPLICATIONS OF SUCH WAIVERS, (3) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (4) IT
HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL
WAIVERS AND CERTIFICATIONS IN THIS Section 10.7(d).
Section 10.8 Disclosure. Any matter set forth in any section of a
party's disclosure schedule shall be considered disclosed for other sections of
such disclosure schedule, but only to the extent that it would be readily
apparent that such matter on its face would apply to a particular other section
of such disclosure schedule. The provision of monetary or other quantitative
thresholds for disclosure does not and shall not be deemed to create or imply a
standard of materiality hereunder.
Section 10.9 Counterparts. This Agreement may be executed in two or
more original or facsimile counterparts, and by the different parties hereto in
separate counterparts, each of which when executed shall be deemed to be an
original but all of which taken together shall constitute but one and the same
agreement.
Section 10.10 Facsimile Execution. A facsimile, telecopy or other
reproduction of this Agreement may be executed by one or more Parties, and an
executed copy of this Agreement may be delivered by one or more Parties by
facsimile, email or similar electronic or digital transmission pursuant to which
the signature of or on behalf of such Party can be seen, and such execution and
delivery shall be considered valid, binding and effective for all purposes. At
the request of any Party, all Parties agree to execute an original of this
Agreement as well as any facsimile, telecopy or other reproduction hereof.
Section 10.11 Remedies Cumulative. Except as otherwise provided herein,
any and all remedies herein expressly conferred upon a party hereto shall be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party hereto of any
one remedy shall not preclude the exercise of any other remedy and nothing in
this Agreement shall be deemed a waiver by any party of any right to specific
performance or injunctive relief.
Section 10.12 Specific Performance. Each of the parties hereto
acknowledges and agrees that any breach or non-performance of, or default under,
any of the terms and provisions hereof would cause substantial and irreparable
damage to the other parties hereto, and that money damages would be an
inadequate remedy therefor. Accordingly, each of the parties hereto agrees that
each of them shall be entitled to seek equitable relief, including specific
performance and injunctive relief, in the event of any such breach,
non-performance or default in any action, suit or proceeding instituted in any
court of the United States or any State having competent jurisdiction, or before
any arbitrator or referee, in addition to any other remedy to which such party
may be entitled, at law or in equity. Each party hereto agrees to waive any
requirement for the posting of, or securing of, a bond in connection with any
such remedy.
Section 10.13 Time. Time is of the essence in the performance of this
Agreement.
Section 10.14 Certain Taxes. All transfer, documentary, sales, use,
stamp, registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with the Merger, if any, shall be paid by the
stockholders of the Company.
[THE REMAINDER OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK ]
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the date first above written.
DGSE COMPANIES, INC.
By: /s/ Dr. L.S. Smith
------------------------------------------
Dr. L.S. Smith
Chairman and Chief Executive Officer
DGSE MERGER CORP.
By: /s/ William H. Oyster
------------------------------------------
William H. Oyster
Chief Executive Officer
SUPERIOR GALLERIES, INC.
By: /s/ Silvano DiGenova
------------------------------------------
Silvano DiGenova
Chief Executive Officer
EXHIBIT A.
FORM OF CERTIFICATE OF MERGER
-----------------------------
(Attached)
EXHIBIT B.
FORM OF LETTER OF TRANSMITTAL
-----------------------------
(Attached)
EXHIBIT C.
FORM OF ESCROW AGREEMENT
------------------------
(Attached)
EXHIBIT D.
FORM OF AMENDED AND RESTATED COMMERCIAL LOAN AND SECURITY AGREEMENT
-------------------------------------------------------------------
(Attached)
EXHIBIT E.
FORM OF WARRANT
---------------
(Attached)
EXHIBIT F.
FORM OF NOTE EXCHANGE AGREEMENT
-------------------------------
(Attached)
EXHIBIT G.
FORM OF STANFORD TERMINATION AND RELEASE AGREEMENT
--------------------------------------------------
(Attached)
EXHIBIT H.
FORM OF REGISTRATION RIGHTS AGREEMENT
-------------------------------------
(Attached)
EXHIBIT I.
FORM OF CORPORATE GOVERNANCE AGREEMENT
--------------------------------------
(Attached)
EXHIBIT J.
FORM OF STANFORD OFFICER'S CERTIFICATE
--------------------------------------
(Attached)
EXHIBIT K.
FORM OF COMPANY LEGAL OPINION
-----------------------------
(Attached)
EXHIBIT L.
FORM OF STANFORD LEGAL OPINION
------------------------------
(Attached)
EXHIBIT M.
FORM OF PARENT OFFICERS' CERTIFICATE
------------------------------------
(Attached)
EXHIBIT N.
FORM OF PARENT LEGAL OPINION
----------------------------
(Attached)
SCHEDULE 1
A WARRANT DISTRIBUTION AND ALLOCATION
-------------------------------------
% of
Underlying
Name Address Shares
Stanford International Bank, Ltd. No. 11 Pavilion Drive 50.00%
St. John's, Antigua
West Indies
Daniel T. Bogar 1016 Sanibel Drive 11.56%
Hollywood, Fl. 33019
William R. Fusselmann 141 Crandon Blvd. # 437 11.56%
Key Biscayne, FL 33149
Osvaldo Pi 6405 SW 104th Street 11.56%
Pinecrest, FL 33156
Ronald M. Stein 6520 Allison Road 11.56%
Miami Beach, Fl. 33141
Charles M. Weiser 3521 N. 55th Ave. 1.87%
Hollywood, FL 33021
Tal Kimmel 201 South Biscayne Blvd 1.87%
Miami, FL 33131
Sch.1
SCHEDULE 2
B WARRANT DISTRIBUTION AND ALLOCATION
-------------------------------------
% of
Underlying
Name Address Shares
Stanford International Bank, Ltd. No. 11 Pavilion Drive 50.0%
St. John's, Antigua
West Indies
Daniel T. Bogar 1016 Sanibel Drive 12.5%
Hollywood, Fl. 33019
William R. Fusselmann 141 Crandon Blvd. # 437 12.5%
Key Biscayne, FL 33149
Osvaldo Pi 6405 SW 104th Street 12.5%
Pinecrest, FL 33156
Ronald M. Stein 6520 Allison Road 12.5%
Miami Beach, Fl. 33141
Sch.2