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AGREEMENT AND PLAN OF REORGANIZATION
by and among
CRDENTIA CORP.,
NNI ACQUISITION CORPORATION
and
NURSES NETWORK, INC.
dated July 16, 2003
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AGREEMENT AND PLAN OF REORGANIZATION
This Agreement and Plan of Reorganization (this
"Agreement") is made and entered into as of July 16,
2003, by and among Crdentia Corp., a Delaware
corporation ("Parent"), NNI Acquisition Corporation, a
Delaware corporation and a wholly-owned subsidiary of
Parent ("Acquisition Co."), Nurses Network, Inc., a
California corporation (the "Company"), and Deborah
McDonnell and the Kenneth Family Trust (collectively,
the "Principal Stockholders").
RECITALS:
A. Upon the terms and subject to the conditions
of this Agreement and in accordance with the Delaware
General Corporation Law (the "DGCL") and the General
Corporation Law of the State of California (the
"CGCL"), Parent and the Company will enter into a
business combination transaction pursuant to which
Acquisition Co. will merge with and into the Company
(the "Merger").
B. The Board of Directors of Parent (i) has
determined that the Merger is consistent with and in
furtherance of the long-term business strategy of
Parent and fair to, and in the best interests of,
Parent and its stockholders, and (ii) has approved this
Agreement, the Merger and the other transactions
contemplated by this Agreement.
C. The Board of Directors of the Company (i) has
determined that the Merger is consistent with and in
furtherance of the long-term business strategy of the
Company and fair to, and in the best interests of, the
Company and its shareholders, and (ii) has approved
this Agreement, the Merger and the other transactions
contemplated by this Agreement.
D. The shareholders of the Company have
unanimously approved this Agreement, the Merger and the
other transactions contemplated by this Agreement.
E. The stockholder of Acquisition Co. has
approved this Agreement, the Merger and other
transactions contemplated by this Agreement.
F. Parent, Acquisition Co. and the Company
desire to make certain representations and warranties
and other agreements in connection with the Merger.
G. The parties intend, by executing this
Agreement, to adopt a plan of reorganization within the
meaning of Section 368 of the Code, and to cause the
Merger to qualify as a reorganization under the
provisions of Section 368(a) of the Code.
Now, Therefore, in consideration of the premises
and the mutual covenants and promises contained herein,
and for other good and valuable consideration, the
receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Defined Terms.
In addition to terms defined elsewhere in this
Agreement, the following defined terms have the
meanings indicated below:
"Q3/2003 Company Revenue" shall mean the Company's
gross revenues for the three month period ended
September 30, 2003.
"Q4/2003 Company Revenue" shall mean the Company's
gross revenues for the three month period ended
December 31, 2003.
"Q1/2004 Company Revenue" shall mean the Company's
gross revenues for the three month period ended March
31, 2004.
"Q2/2004 Company Revenue" shall mean the Company's
gross revenues for the three month period ended June
30, 2004.
"Q3/2004 Company Revenue" shall mean the Company's
gross revenues for the three month period ended
September 30, 2004.
"Q4/2004 Company Revenue" shall mean the Company's
gross revenues for the three month period ended
December 31, 2004.
"Accredited Stockholders" shall mean those
stockholders who qualify as accredited investors
pursuant to Regulation D as promulgated under the
Securities Act and as set forth on Schedule 1.1(a)
hereto.
"Acquisition" shall mean any transaction resulting
in the acquisition by Parent of another entity
(including, without limitation, by means of a stock
purchase, reorganization, merger or consolidation).
"Acquisition Co." has the meaning set forth in the
first paragraph of this Agreement.
"Actions or Proceedings" means any action, suit,
proceeding, arbitration, Order, inquiry, hearing,
assessment with respect to fines or penalties or
litigation (whether civil, criminal, administrative,
investigative or informal) commenced, brought,
conducted or heard by or before, or otherwise
involving, any Governmental or Regulatory Authority.
"Affiliate" means, with respect to any Person,
another Person that directly, or indirectly through one
or more intermediaries, controls, is controlled by or
is under common control with such Person.
"Assets and Properties" and "Assets or Properties"
of any Person each means all assets and properties of
every kind, nature, character and description (whether
real, personal or mixed, whether tangible or
intangible, whether absolute, accrued, contingent,
fixed or otherwise and wherever situated), including
the goodwill related thereto, operated, owned or leased
by such Person, including, without limitation, cash,
cash equivalents, accounts and notes receivable,
chattel paper, documents, instruments, general
intangibles, real estate, equipment, inventory, goods
and Intellectual Property.
"Benefit Plan" means any Plan established,
arranged or maintained by the Company or any corporate
group of which the Company is or was a member, existing
at the Closing Date or prior thereto, to which the
Company contributes or has contributed, or under which
any employee, officer, director or former employee,
officer or director of the Company or any beneficiary
thereof is covered, is eligible for coverage or has
benefit rights.
"Books and Records" of any Person means all files,
documents, instruments, papers, books, computer files
(including but not limited to files stored on a
computer's hard drive or on floppy disks), electronic
files and records in any other medium relating to the
business, operations or condition of such Person.
"Breach" means a "Breach" of a representation,
warranty, covenant, obligation, or other provision of
this Agreement or any instrument delivered pursuant to
this Agreement or any other agreement or document will
be deemed to have occurred if there is or has been
(a) any inaccuracy in a breach of, or any failure to
perform or comply with, such representation, warranty,
covenant, obligation, or other provision, or (b) any
claim (by any Person) or other occurrence or
circumstance that is or was inconsistent with such
representation, warranty, covenant, obligation, or
other provision, and the term "Breach" means any such
inaccuracy, breach, failure, claim, occurrence or
circumstance.
"CGCL" shall mean the General Corporation Law of
the State of California.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Company" has the meaning set forth in the first
paragraph of this Agreement.
"Company Disclosure Schedule" means the disclosure
schedule attached hereto which sets forth the
exceptions to the representations and warranties
contained in Article III hereof and certain other
information called for by this Agreement.
"Company Financial Statements" means (i) the
audited balance sheets of the Company and the related
audited statements of income and retained earnings for
the fiscal periods ended December 31, 2002,
December 31, 2001 and December 31, 2000, and (ii) the
Interim Financial Statements.
"Company Shares" shall mean the Common Stock of
the Company.
"Company Stockholders" means the holders of
Outstanding Common Stock, including the Principal
Stockholders.
"Consent" means any approval, consent,
ratification, waiver, or other authorization (including
any Governmental Authorization).
"Contemplated Transactions" means all of the
transactions contemplated by this Agreement, including:
(a) the Merger; (b) the execution, delivery, and
performance of the Non-Competition Agreements and the
Releases; (c) the performance by Parent and the Company
of their respective covenants and obligations under
this Agreement; and (d) Parent's acquisition and
ownership of the Company Shares and exercise of control
over the Company.
"Contract" means any agreement, contract,
obligation, promise, or undertaking (whether written or
oral and whether express or implied) that is legally
binding.
"Copyrights" has the meaning set forth in the
definition of "Intellectual Property."
"Encumbrances" means any mortgage, pledge,
assessment, security interest, deed of trust, lease,
lien, adverse claim, equitable interest, levy, charge,
community property interest, right of first refusal or
other encumbrance of any kind, or any conditional sale
or title retention agreement or other agreement to give
any of the foregoing in the future.
"ERISA" means the Employee Retirement Income
Security Act of 1974, as amended, and the rules and
regulations promulgated thereunder.
"ERISA Affiliate" means any entity which is a
member of a "controlled group of corporations" or which
is or was under "common control" with the Company as
defined in Section 414 of the Code.
"Exchange Act" means the Securities Exchange Act
of 1934, as amended.
"GAAP" means United States generally accepted
accounting principles, as currently defined by the
Financial Accounting Standards Board ("FASB") and other
agencies permitted by law to issue such pronouncements.
"Governmental Authorization" means any approval,
consent, license, permit, waiver, or other
authorization issued, granted, given or otherwise made
available by or under the authority of any Governmental
or Regulatory Authority or pursuant to any Legal
Requirement.
"Governmental or Regulatory Authority" means any
court, tribunal, arbitrator, authority, agency,
commission, official or other instrumentality of the
United States or other country, any state, county, city
or other political subdivision.
"Intellectual Property" means (i) inventions
(whether patentable or unpatentable and whether or not
reduced to practice), all improvements thereto, and all
patents, patent applications and patent disclosures,
together with all reissuances, continuations,
continuations-in-part, revisions, extensions and
reexaminations thereof (collectively, "Patents");
(ii) trademarks, service marks, trade dress, logos,
trade names and corporate names, together with all
translations, adaptations, derivations and combinations
thereof and including all goodwill associated
therewith, and all applications, registrations and
renewals in connection therewith
(collectively, "Trademarks"), (iii) copyrightable
works, all copyrights and all applications,
registrations and renewals in connection therewith and
mask works and all applications, registrations and
renewals in connection therewith (collectively,
"Copyrights"); (iv) trade secrets and confidential
business information (including without limitation,
product specifications, data, know-how, inventions and
ideas, past, current and planned research and
development, customer lists, current and anticipated
customer requirements, price lists, market studies,
business plans), however documented; (v) proprietary
computer software and programs (including object code
and source code) and other proprietary rights and
copies and tangible embodiments thereof (in whatever
form or medium); (vi) database technologies, systems,
structures and architectures (and related processes,
formulae, compositions, improvements, devices, know-
how, inventions, discoveries, concepts, ideas, designs,
methods and information) and any other related
information, however, documented; (vii) any and all
information concerning the business and affairs of a
Person (which includes historical financial statements,
financial projections and budgets, historical and
projected sales, capital spending budgets and plans,
the names and backgrounds of key personnel and
personnel training and techniques and materials),
however documented; (viii) any and all notes, analysis,
compilations, studies, summaries, and other material
prepared by or for a Person containing or based, in
whole or in part, on any information included in the
foregoing, however documented; (ix) all industrial
designs and any registrations and applications
therefor; (x) all databases and data collections and
all rights therein; and (xi) any similar or equivalent
rights to any of the foregoing anywhere in the world.
"Interim Financial Statements" means the unaudited
balance sheet and the related unaudited statement of
income and retained earnings for the Company, in each
case for the three month period ended March 31, 2003,
prepaid in accordance with GAAP and accompanied by
appropriate supporting schedules.
"Knowledge of the Company" or "Known to the
Company" means the knowledge of any officer or director
of the Company. An officer or director of the Company
will be deemed to have Knowledge of a particular fact
or other matter if: (i) such individual is actually
aware of such fact or other matter; or (ii) a prudent
individual could be expected to discover or otherwise
become aware of such fact or other matter in the course
of conducting a reasonably comprehensive investigation
concerning the existence of such fact or other matter.
"Legal Requirement" means any federal, state,
local, municipal, foreign, international,
multinational, or other administrative order,
constitution, law, ordinance, principle of common law,
regulation, statute or treaty.
"Material Adverse Effect" means, for any Person, a
material adverse effect whether individually or in the
aggregate (a) on the business, operations, financial
condition, Assets and Properties, liabilities or
prospects of such Person, or (b) on the ability of such
Person to consummate the transactions contemplated
hereby.
"Merger" has the meaning set forth in the first
recital of this Agreement.
"Non-Accredited Stockholders" shall mean those
stockholders of the Company who do not qualify as
"accredited investors" as defined in Regulation D
promulgated under the Securities Act, as set forth on
Schedule 1.1(b) hereto.
"Order" means any award, decision, writ, judgment,
decree, ruling, subpoena, verdict, injunction or
similar order of any Governmental or Regulatory
Authority (in each such case whether preliminary or
final).
"Ordinary Course of Business" means the action of
a Person that is (i) consistent with the past practices
of such Person and is taken in the ordinary course of
the normal day-to-day operations of such Person;
(ii) not required to be authorized by the board of
directors of the Company; and (iii) similar in nature
and magnitude to actions customarily taken, without the
action of the board of directors or similar body, in
the ordinary course of the normal day-to-day operations
of other Persons that are in the same line of business
as the Company.
"OTCBB" shall mean the National Association of
Securities Dealers, Inc. Over the Counter Bulletin
Board.
"Parent" has the meaning set forth in the first
paragraph of this Agreement.
"Parent Common Stock" means the shares of common
stock of Parent, $0.0001 par value.
"Parent SEC Documents" means each form, report,
schedule, statement and other document required to be
filed by the Parent since August 3, 2001 through the
date of this Agreement under the Exchange Act or the
Securities Act or by the rules and regulations of the
OTCBB, including any amendment to such document,
whether or not such amendment is required to be so
filed.
"Patents" has the meaning set forth in the
definition of "Intellectual Property."
"Permits" means all licenses, permits,
certificates of authority, authorizations, approvals,
registrations and similar consents granted or issued by
any Governmental or Regulatory Authority.
"Permitted Encumbrance" means (a) any Encumbrance
for taxes not yet due or delinquent or being contested
in good faith by appropriate proceedings for which
adequate reserves have been established in accordance
with GAAP and (b) any minor imperfection of title or
similar Encumbrance which individually or in the
aggregate with other such Encumbrances does not impair
the value of the property subject to such Encumbrance
or the use of such property in the conduct of the
business of the Company.
"Person" means any natural person, corporation,
general partnership, limited partnership, limited
liability company, proprietorship, other business
organization, trust, union, association or Governmental
or Regulatory Authority.
"Plan" means any bonus, incentive compensation,
deferred compensation, pension, profit sharing,
retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock,
leave of absence, layoff, vacation, day or dependent
care, legal services, cafeteria, life, health,
accident, disability, workers' compensation or other
insurance, severance, separation or other employee
benefit plan, practice, policy or arrangement of any
kind, whether written or oral, including, but not
limited to, any "employee benefit plan" within the
meaning of Section 3(3) of ERISA.
"Principal Stockholders" has the meaning set forth
in the first paragraph of this Agreement.
"Proceeding" means any action, arbitration, audit,
hearing, investigation, litigation, or suit (whether
civil, criminal, administrative, investigative or
informal) commenced, brought, conducted, or heard by or
before, or otherwise involving, any Governmental or
Regulatory Authority.
"Qualified Plan" means each Benefit Plan which is
intended to qualify under Section 401 of the Code.
"Related Person" means with respect to a
particular individual:
(a) each other member of such individual's
Family;
(b) any Person that is directly or
indirectly controlled by such individual or one or more
members of such individual's Family;
(c) any Person in which such individual or
members of such individual's Family hold (individually
or in the aggregate) a Material Interest; and
(d) any Person with respect to which such
individual or one or more members of such individual's
Family serve as a director, officer, partner, executor,
or trustee (or in a similar capacity).
With respect to a specified Person other than an
individual:
(a) any Person that directly or indirectly
controls, is directly or indirectly controlled by, or
is directly or indirectly under common control with
such specified Person;
(b) any Person that holds a Material
Interest in such specified Person;
(c) each Person that serves as a director,
officer, partner, executor, or trustee of such
specified Person (or in a similar capacity);
(d) any Person in which such specified
Person holds a Material Interest;
(e) any Person with respect to which such
specified Person serves as a general partner or a
trustee (or in a similar capacity); and
(f) any Related Person of any individual
described in clause (b) or (c).
For purposes of this definition, (a) the "Family"
of an individual includes (i) the individual, (ii) the
individual's spouse and former spouses, (iii) any other
natural person who is related to the individual or the
individual's spouse within the second degree, and
(iv) any other natural person who resides with such
individual, and (b) "Material Interest" means direct or
indirect benefit ownership (as defined in Rule 13d-3
under the Exchange Act) of voting securities or other
voting interests representing at least 10% of the
outstanding voting power of a Person or equity
securities or other equity interests representing at
least 10% of the outstanding equity securities or
equity interests in a Person.
"SEC" means the Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933,
as amended.
"Senior Debt" means (a) any indebtedness of Parent
(plus interest, premium and penalties due from or
arising out of such indebtedness, or any refinancing
thereof): (i) for borrowed funds; (ii) due to the
sellers or lessors of any real or personal property to
Parent; or (iii) for reimbursement obligations with
respect to letters of credit; (b) any other
indebtedness of Parent, except to the extent that the
holder of such indebtedness otherwise agrees in
writing; and (c) any debentures, notes or other
evidences of indebtedness issued in exchange for any of
the foregoing indebtedness, or any indebtedness arising
from the satisfaction of such indebtedness by a
guarantor.
"Tax" (and, with correlative meaning, "Taxes,"
"Taxable" and "Taxing") means (i) any federal, state,
local or foreign income, alternative or add-on minimum
tax, gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, profits, license,
withholding, payroll, employment, excise, severance,
stamp, occupation, premium, property, environmental or
windfall profit tax, custom, duty or other tax,
governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest or any
penalty, addition to tax or additional amount imposed
by any Governmental or Regulatory Authority responsible
for the imposition of any such tax (domestic or
foreign), (ii) any liability for payment of any amounts
of the type described in (i) as a result of being a
member of an affiliated, consolidated, combined,
unitary or other group for any Taxable period and
(iii) any liability for the payment of any amounts of
the type described in (i) or (ii) as a result of any
express or implied obligation to indemnify any other
person.
"Tax Return" means any return, report, information
return, schedule or other document (including any
related or supporting information) filed or required to
be filed with respect to any taxing authority with
respect to Taxes.
"Threatened" means a claim, Proceeding, dispute,
action or other matter will be deemed to have been
"Threatened" if any demand or statement has been made
(orally or in writing) or any notice has been given
(orally or in writing), or if any other event has
occurred or any other circumstances exist that would
lead a prudent Person to conclude that such a claim,
proceeding, dispute, action, or other matter is likely
to be asserted, commenced, taken, or otherwise pursued
in the future.
"Trademarks" has the meaning set forth in the
definition of "Intellectual Property."
"Trade Secrets and Other Proprietary Information"
has the meaning set forth in the definition of
"Intellectual Property."
ARTICLE II
THE MERGER
2.1 The Merger.
At the Effective Time and subject to and upon the
terms and conditions of this Agreement and the
applicable provisions of the DGCL and the CGCL,
Acquisition Co. shall be merged with and into the
Company, the separate corporate existence of
Acquisition Co. shall cease and the Company shall
continue as the surviving corporation. The Company as
the surviving corporation after the Merger is
hereinafter sometimes referred to as the "Surviving
Corporation."
2.2 Effective Time.
Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated
by the filing of a California agreement of merger
substantially in the form attached hereto as Exhibit A
(the "Agreement of Merger") with the Secretary of State
of the State of California and a certificate of merger
substantially in the form attached hereto as Exhibit B
(the "Certificate of Merger") with the Secretary of
State of the State of Delaware, in each case in
accordance with the relevant provisions of the CGCL and
the DGCL (the time of acceptance by the Secretary of
State of the State of California such filing, or such
later time as may be agreed in writing by the parties
and specified in the Agreement of Merger, being
the "Effective Time") as soon as practicable on the
Closing Date. Unless the context otherwise requires,
the term "Agreement" as used herein refers collectively
to this Agreement, the Agreement of Merger and the
Certificate of Merger.
2.3 Effect of the Merger.
At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the
applicable provisions of the DGCL and the CGCL.
Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the
property, rights, privileges, powers and franchises of
the Company and Acquisition Co. shall vest in the
Surviving Corporation, and all debts, liabilities and
duties of the Company and Acquisition Co. shall become
the debts, liabilities and duties of the Surviving
Corporation.
2.4 Certificate of Incorporation; Bylaws.
(a) At the Effective Time, the Certificate of
Incorporation of Acquisition Co. shall be the Articles
of Incorporation of the Surviving Corporation, except
that Article I thereof shall be amended to read in its
entirety as follows: "The name of the Corporation is
Nurses Network, Inc."
(b) At the Effective Time, the Bylaws of Acquisition
Co. shall be the Bylaws of the Surviving Corporation,
except that the Bylaws shall be amended to reflect that
the name of the Surviving Corporation shall be "Nurses
Network, Inc."
2.5 Directors and Officers.
The directors of Acquisition Co. immediately prior
to the Effective Time shall be the initial directors of
the Surviving Corporation, to serve until their
respective successors are duly elected or appointed and
qualified. The officers of Acquisition Co. immediately
prior to the Effective Time shall be the initial
officers of the Surviving Corporation, to serve until
their successors are duly elected or appointed or
qualified.
2.6 Effect on Capital Stock/Merger Consideration.
(a) Conversion of Company Common Stock. At the
Effective Time, by virtue of the Merger and without any
action on the part of any Person, each share of the
Company Common Stock issued and outstanding immediately
prior to the Effective Time (the "Outstanding Company
Common Stock"), shall be canceled and automatically
converted into the right to receive, upon surrender of
the certificates representing such shares and a letter
of transmittal (which shall be in such form and have
such provisions as Parent may reasonably specify), a
ratable portion of the Stock Consideration as
determined in Section 2.6(c) below. At the Effective
Time, all rights in respect of such Outstanding Company
Common Stock shall cease to exist, other than the right
to receive the Stock Consideration, and all such shares
shall be cancelled and retired.
(b) No Fractional Shares. In lieu of fractional
shares that would otherwise be issued to holders of
Outstanding Company Common Stock under this Agreement,
each holder of Outstanding Company Common Stock that
would have been entitled to receive a fractional share
shall receive such whole number of shares of Parent
Common Stock as is equal to the precise number of
shares of Parent Common Stock to which such person
would be entitled rounded down to the nearest whole
number.
(c) Merger Consideration. The merger consideration
shall consist of an amount equal to 0.60 times the sum
of the Q3/2003 Company Revenue, the Q4/2003 Company
Revenue, the Q1/2004 Company Revenue, the Q2/2004
Company Revenue, the Q3/2004 Company Revenue and the
Q4/2004 Company Revenue (collectively, the "Merger
Consideration"). The Merger Consideration shall be
paid in Parent Common Stock in six (6) installments as
follows:
(i) Q3/2003 Payment. Subject to the Payment Offset
provided for in Section 2.7(b), within five (5)
business days following the calculation of the Q3/2003
Company Revenue, Parent shall issue that number shares
of Parent Common Stock equal to the quotient obtained
by dividing (A) 0.60 times the Q3/2003 Company Revenue
by (B) the Parent Common Stock Value. The shares of
Parent Common Stock issuable pursuant to this
Section 2.6(c)(i) shall be referred to as the "Q3/2003
Payment."
(ii) Q4/2003 Payment. Subject to the Payment Offset
provided for in Section 2.7(b), if any, within five (5)
business days following the calculation of the Q4/2003
Company Revenue, Parent shall issue that number shares
of Parent Common Stock equal to the quotient obtained
by dividing (A) 0.60 times the Q4/2003 Company Revenue
by (B) the Parent Common Stock Value. The shares of
Parent Common Stock issuable pursuant to this
Section 2.6(c)(ii) shall be referred to as the "Q4/2003
Payment."
(iii) Q1/2004 Payment. Subject to the Payment
Offset provided for in Section 2.7(b), if any, within
five (5) business days following the calculation of the
Q1/2004 Company Revenue, Parent shall issue that number
shares of Parent Common Stock equal to the quotient
obtained by dividing (A) 0.60 times the Q1/2004 Company
Revenue by (B) the Parent Common Stock Value. The
shares of Parent Common Stock issuable pursuant to this
Section 2.6(c)(iii) shall be referred to as the
"Q1/2004 Payment."
(iv) Q2/2004 Payment. Subject to the Payment Offset
provided for in Section 2.7(b), if any, within five (5)
business days following the calculation of the Q2/2004
Company Revenue, Parent shall issue that number shares
of Parent Common Stock equal to the quotient obtained
by dividing (A) 0.60 times the Q2/2004 Company Revenue
by (B) the Parent Common Stock Value. The shares of
Parent Common Stock issuable pursuant to this
Section 2.6(c)(iv) shall be referred to as the "Q2/2004
Payment."
(v) Q3/2004 Payment. Subject to the Payment Offset
provided for in Section 2.7(b), if any, within five (5)
business days following the calculation of the Q3/2004
Company Revenue, Parent shall issue that number shares
of Parent Common Stock equal to the quotient obtained
by dividing (A) 0.60 times the Q3/2004 Company Revenue
by (B) the Parent Common Stock Value. The shares of
Parent Common Stock issuable pursuant to this
Section 2.6(c)(v) shall be referred to as the "Q3/2004
Payment."
(vi) Q4/2004 Payment. Subject to the Payment Offset
provided for in Section 2.7(b), if any, within five (5)
business days following the calculation of the Q4/2004
Company Revenue, Parent shall issue that number shares
of Parent Common Stock equal to the quotient obtained
by dividing (A) 0.60 times the Q4/2004 Company Revenue
by (B) the Parent Common Stock Value. The shares of
Parent Common Stock issuable pursuant to this
Section 2.6(c)(vi) shall be referred to as the "Q4/2004
Payment."
For purposes of this Agreement, the "Parent Common
Stock Value" shall mean fifty percent (50%) of the
average of the closing prices of the Parent Common
Stock as reported on the OTCBB or other national stock
exchange for the last five (5) trading day period
ending two (2) days prior to the Closing Date. For
purposes of this Agreement, "Stock Consideration" shall
mean the number of shares of Parent Common Stock
issuable on or after the Closing Date in accordance
with the terms and provisions this Agreement. For
purposes of this Agreement, the Q3/2003 Payment, the
Q4/2003 Payment, the Q1/2004 Payment, the Q2/2004
Payment, the Q3/2004 and the Q4/2004 Payment shall be
referred to collectively as the "Quarterly Payments"
and each as a "Quarterly Payment."
(d) Actions at the Effective Time. At the Effective
Time:
(i) Except for the securities referred to in
Section 2.6(d)(ii) below, each share of Outstanding
Company Common Stock will automatically, by virtue of
the Merger and without any action on the part of the
holder thereof, be canceled and converted into a right
to receive from Parent the Stock Consideration in the
amount as determined pursuant to this Section 2.6.
(ii) Each share of Company Common Stock held in the
treasury of the Company shall be canceled and retired
without payment of any consideration therefor.
(iii) Each share of common stock of Acquisition Co.
("Acquisition Co. Common Stock") issued and outstanding
immediately prior to the Effective Time shall be
converted into and exchanged for one validly issued,
fully paid and non-assessable share of common stock of
the Surviving Corporation and shall constitute the only
shares of capital stock of the Surviving Corporation
outstanding immediately after the Effective Time. Each
stock certificate of Acquisition Co. evidencing
ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the
Surviving Corporation.
2.7 Advance Closing Payment.
Subject to the conditions set forth in this
Section 2.7, an Advance Closing Payment (as defined in
Section 2.7(a) below) shall be calculated and payable
at the Closing in accordance with the provisions
hereof.
(a) Calculation; Manner of Payment. Parent shall
issue at the Closing that number shares of Parent
Common Stock equal to the quotient obtained by dividing
(i) the 2003 Annualized Company Revenue times 0.60,
less $64,000, by (ii) the Parent Common Stock Value.
The shares of Parent Common Stock issuable pursuant to
this Section 2.7 shall be referred to as the "Advance
Closing Payment." For purposes of this Agreement, the
"2003 Annualized Company Revenue" shall mean the
Company's 2003 gross revenues as of the Closing Date,
annualized for fiscal year 2003.
(b) Payment Offset. The total number of shares of
Parent Common Stock issued as the Advance Closing
Payment pursuant to Section 2.7 hereof shall be
deducted from the Q3/2003 Payment, and each subsequent
Quarterly Payment thereafter, as necessary, until the
total number of shares of Parent Common Stock deducted
from the Quarterly Payments equals the total number of
shares of Parent Common Stock issued as the Advance
Closing Payment; provided, however, that the Principal
Stockholders shall not be liable or be required to
disgorge their consideration in the event that the
Advanced Closing Payment exceeds the Merger
Consideration. For purposes of this Agreement, each
deduction from the Quarterly Payments pursuant this
Section 2.7 shall be referred to as a "Payment Offset."
2.8 Closing.
(a) Time and Place. The consummation of the Merger
under this Agreement (the "Closing") shall take place
at the offices of Morrison & Foerster LLP, 3811 Valley
Centre Drive, San Diego, CA 92130, at 10:00 a.m. on
August 14, 2003, or at such time and in such manner as
the parties mutually agree (the "Closing Date").
(b) Closing Deliveries by the Company and the
Principal Stockholders. At the Closing, the Company
and the Principal Stockholders, as the case may be,
shall have delivered or caused to be delivered to
Parent and/or Acquisition Co., as the case may be:
(i) the Certificate of Merger, duly executed by the
Company;
(ii) the Agreement of Merger, duly executed by the
Company;
(iii) the Non-Competition and Non-Solicitation
Agreement by and between Parent and each of the
individuals set forth on Schedule 2.8(b)(iii),
substantially in the form of Exhibit C (the "Non-
Competition Agreements"), duly executed by each of such
parties;
(iv) a certificate of an officer of the Company
substantially in the form of Exhibit D attached hereto,
duly executed by the Company;
(v) a certificate of the Secretary of the Company
substantially in the form of Exhibit E attached hereto,
certifying as of the Closing Date (A) a true and
complete copy of the organizational documents of the
Company certified as of a recent date by the Secretary
of State of California, (B) a certificate of each
appropriate Secretary of State certifying the good
standing of the Company in its state of incorporation
and all states in which it is qualified to do business,
(C) a true and complete copy of the resolutions of the
board of directors of the Company and the resolutions
of the shareholders of the Company, each authorizing
the execution, delivery and performance of this
Agreement by the Company and the consummation of the
transactions contemplated hereby and (D) incumbency
matters;
(vi) a Release by each of the Principal Stockholders,
substantially in the form of Exhibit F attached hereto
(the "Release"), duly executed by each Principal
Stockholder;
(vii) resignation letter of each of the officers
and directors of the Company, dated effective as of the
Closing;
(viii) such other documents as Parent may reasonably
request for the purpose of facilitating the
consummation of the Contemplated Transactions.
(c) Closing Deliveries By Parent. At the Closing,
Parent and/or Acquisition Co., as the case may be,
shall have delivered or caused to be delivered to the
Company and/or the Company Stockholders, as the case
may be:
(i) the Non-Competition Agreements, duly executed by
Parent;
(ii) a certificate of an officer of Parent,
substantially in the form of Exhibit G attached hereto,
duly executed by Parent;
(iii) a certificate of the Secretary of Parent
substantially in the form of Exhibit H attached hereto,
certifying as of the Closing Date (A) a true and
complete copy of the organizational documents of Parent
certified as of a recent date by the Secretary of State
of Delaware, (B) a true and complete copy of the
resolutions of the board of directors of Parent
authorizing the execution, delivery and performance of
this Agreement by Parent and the consummation of the
transactions contemplated hereby and (C) incumbency
matters;
(iv) a Promissory Note, substantially in the form to be
mutually agreed upon in good faith by Parent and the
Company and to be attached hereto as Exhibit I prior to
the Closing (the "McDonnell Note"), duly executed by
Parent for the assumption of the Company's payment
obligation to Deborah McDonnell in the amount of
$22,500;
(v) a Promissory Note, substantially in the form to be
mutually agreed upon in good faith by Parent and the
Company and to be attached hereto as Exhibit J prior to
the Closing (the "Kenneth Note I"), duly executed by
Parent for the assumption of the Company's payment
obligation to Robert Kenneth in the amount of $41,500;
and
(vi) a Promissory Note, substantially in the form to be
mutually agreed upon in good faith by Parent and the
Company and to be attached hereto as Exhibit K prior to
the Closing (the "Kenneth Note II"), duly executed by
Parent, for the reimbursement of Robert Kenneth's
payment obligation to Bank of America at, or prior to,
the Closing in the amount of $50,432.
2.9 Exemption from Registration.
The issuance of the Parent Common Stock issuable
as Stock Consideration will be exempt from registration
requirements of the Securities Act pursuant to the
private placement exemption provided by Rule 505 and/or
506 of Regulation D promulgated under the Securities
Act and/or Section 4(2) of the Securities Act, and
applicable state securities laws.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
The Company represents and warrants to Parent and
Acquisition Co. as of the date hereof and as of the
Closing Date, except as set forth on the Company
Disclosure Schedule furnished to Parent specifically
identifying the relevant subparagraph hereof, which
exceptions shall be deemed to be representations and
warranties as if made hereunder, as follows:
3.1 Organization of the Company.
The Company is a corporation duly organized,
validly existing, and in good standing under the laws
of the State of California. The Company is duly
authorized to conduct business and is in good standing
in California and each jurisdiction where such
qualification is required except for any jurisdiction
where failure so to qualify would not have a Material
Adverse Effect upon the Company. The Company has full
power and authority, and holds all Permits and
authorizations necessary to carry on its business and
to own and use the Assets and Properties owned and used
by the Company except where the failure to have such
power and authority or to hold such Permit or
authorization would not have a Material Adverse Effect
on the Company's business. The Company has delivered
to Parent correct and complete copies of its charter
documents and organizational documents, each as amended
to date.
3.2 Capital Stock of the Company.
(a) The authorized capital stock of the Company
consists of (i) 50,000 shares of common stock, par
value $1.00 per share ("Company Common Stock"), of
which 20,000 shares are issued and outstanding as of
the date hereof and (ii) no shares of capital stock of
the Company in treasury. Each share of the issued and
outstanding Company Common Stock is duly authorized,
validly issued, fully paid and nonassessable. Section
3.2(a) of the Company Disclosure Schedule sets forth a
complete and accurate list specifying the number of
shares of Company Common Stock held by each Company
Stockholder.
(b) There are no subscriptions, options, warrants,
calls, commitments and other rights of any kind for the
purchase or acquisition of, and any securities
convertible or exchangeable for, any capital stock of
the Company.
(c) There are no agreements to which the Company or
the Company Stockholders are parties or by which they
are bound with respect to the voting (including voting
trusts or proxies), registration under the Securities
Act, or sale or transfer (including agreements relating
to pre-emptive rights, rights of first refusal, co-sale
rights or "drag-along" rights) of any securities of the
Company.
3.3 Ownership of Shares.
Each of the Company Stockholders owns beneficially
and of record that number of shares of Company Common
Stock listed opposite such stockholder's name in
Section 3.2(a) of the Company Disclosure Schedule, free
and clear of all Encumbrances, and has good and valid
title to such shares. The delivery of the stock
certificate(s) representing the Outstanding Common
Stock owned by the Company Stockholders in the manner
provided in Section 2.6 will transfer to the Parent
good and valid title thereto free and clear of all
Encumbrances.
3.4 Authority of the Company.
The Company has all necessary power and authority
and has taken all action necessary to enter into this
Agreement, to consummate the transactions contemplated
hereby and to perform its obligations hereunder and no
other proceedings on the part of the Company are
necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement
has been duly and validly executed and delivered by the
Company and constitutes a legal, valid and binding
obligation of the Company enforceable against the
Company in accordance with its terms except (i) as
limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief
or other equitable remedies.
3.5 No Affiliates.
The Company does not have any Affiliates or
subsidiaries and is not a partner in any partnership or
a party to a joint venture.
3.6 Consents and Governmental Approvals and Filings.
No consent, approval or action of, filing with or
notice to any Governmental or Regulatory Authority on
the part of the Company is required in connection with
the execution, delivery and performance of this
Agreement or the consummation of the transactions
contemplated hereby.
3.7 Books and Records.
The minute books and other corporate records of
the Company as made available to Parent contain a true
and complete record of all actions taken at all
meetings and by all written consents in lieu of
meetings of the shareholders, the boards of directors
and committees of the boards of directors of the
Company. The Company has delivered or made available
true and complete copies of each document which has
been requested by Parent or its counsel in connection
with their legal and accounting review of the Company.
The stock transfer ledgers and other similar records of
the Company accurately reflect all issuances and record
transfers in the capital stock of the Company. The
other Books and Records of the Company are true,
correct and complete and have been maintained in
accordance with sound business practices.
3.8 Company Financial Statements.
The Company has previously delivered to Parent the
Company Financial Statements. Such Company Financial
Statements (i) are true, correct and complete,
(ii) have been prepared in accordance with the Books
and Records of the Company, (iii) have been prepared in
conformity with GAAP, and (iv) fairly present the
financial condition and results of operations of the
Company as of the respective dates thereof and for the
periods covered thereby; provided that the Interim
Financial Statements are subject to normal year-end
adjustments and lack footnotes and certain other
presentation items.
3.9 Absence of Changes.
Except for the execution and delivery of this
Agreement and the transactions to take place pursuant
hereto on or prior to the Closing Date, since
December 31, 2002, there has not been any material
adverse change, or any event or development which,
individually or together with other such events, could
reasonably be expected to result in a Material Adverse
Effect on the Company.
3.10 No Undisclosed Liabilities.
Except as disclosed in Section 3.10 of the Company
Disclosure Schedule or in the Company Financial
Statements, there are no liabilities (whether known or
unknown, whether asserted or unasserted, whether
absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or
to become due, including but not limited to any
liability for Taxes), nor any basis for any claim
against the Company for any such liabilities, relating
to or affecting the Company or any of its Assets and
Properties, other than such liabilities incurred after
December 31, 2002 in the Ordinary Course of Business
which have not had, and could not reasonably be
expected to result in, individually or in the
aggregate, a Material Adverse Effect on the Company.
3.11 Benefit Plans; ERISA.
(a) Section 3.11(a) of the Company Disclosure
Schedule lists each Benefit Plan together with a brief
description of the type of plan and benefit provided
thereunder. The Company has no commitment, proposal,
or communication to employees regarding the creation of
an additional Plan or any increase in benefits under
any Benefit Plan. The Company has provided to Parent
(i) a copy of each Benefit Plan (including amendments)
or, where substantially similar arrangements exist, a
sample copy and a list of persons participating in such
arrangement, (ii) the three most recent annual reports
on the Form 5500 series for each Benefit Plan required
to file such report and (iii) the most recent trustee's
report for each Benefit Plan funded through a trust.
(b) Each Benefit Plan has been operated and
administered in all material respects in accordance
with its terms and, as of the Closing Date, will be in
full compliance, in form and operation, with all
applicable laws (including but not limited to ERISA and
the Code). The reserves reflected in the Company
Financial Statements for the obligations of the Company
under all Benefit Plans are adequate and were
determined in accordance with GAAP.
(c) The consummation of the transactions contemplated
by this Agreement will not, either immediately or upon
the occurrence of any event thereafter, (i) entitle any
current or former employee or officer or director of
the Company or any ERISA Affiliate to severance pay,
unemployment compensation or any other payment, or
(ii) accelerate the time of payment or vesting, or
increase the amount of compensation otherwise due any
such individual.
3.12 Real Property.
The Company does not own any real property.
Section 3.12 of the Company Disclosure
Schedule contains a complete and accurate legal
description of each parcel of real property leased by
the Company (as lessee or lessor) (the "Real Property")
and all Encumbrances (other than Permitted
Encumbrances) relating to or affecting the Real
Property. The Company has a valid leasehold interest
in, all real property used in or relating to the
conduct of the Company's business, free and clear of
all Encumbrances other than Permitted Encumbrances.
3.13 Intellectual Property Rights.
(a) Section 3.13(a) of the Company Disclosure
Schedule sets forth, for the Intellectual Property
owned, in whole or in part, including jointly with
others (such schedule specifies if such Intellectual
Property is owned jointly), by the Company, a complete
and accurate list of all United States and foreign
(a) Patents and Patent applications; (b) Trademark
registrations and applications and unregistered
Trademarks; (c) copyright registrations and
applications, indicating for each, the applicable
jurisdiction, registration number (or application
number) and date issued (or date filed); and (d) all
other Intellectual Property to which the Company has
any ownership rights (including common law rights).
(b) The Company owns or possesses adequate licenses,
re-marketing or sublicensing rights, or other rights to
use, free and clear of Encumbrances, orders and
arbitration awards, all of its Intellectual Property
used in its business. The products used, manufactured,
marketed, sold or licensed by the Company, and all
Intellectual Property used in the conduct of the
Company's business as currently conducted, do not
infringe upon, violate or constitute the unauthorized
use of any rights owned or controlled by any third
party, including any Intellectual Property of any third
party.
(c) No litigation is now or, within the three years
prior to the date of this Agreement, was pending and no
notice or other claim in writing has been received by
the Company, (A) alleging that the Company has engaged
in any activity or conduct that infringes upon,
violates or constitutes the unauthorized use of the
Intellectual Property rights of any third party or
(B) challenging the ownership, use, validity or
enforceability of any Intellectual Property owned or
exclusively licensed by or to the Company.
(d) To the Knowledge of the Company, no third party is
misappropriating, infringing, diluting or violating any
Intellectual Property owned or licensed by the Company,
and no such claims have been brought against any third
party by the Company.
3.14 Compliance with Legal Requirements; Governmental
Authorizations.
(a) Except as set forth in Section 3.14 (a) of the
Company Disclosure Schedule:
(i) the Company is, and at all times since its
incorporation has been, in full compliance with each
Legal Requirement that is or was applicable to it or to
the conduct or operation of its business or the
ownership or use of any of its Assets;
(ii) no event has occurred or circumstance exists that
(with or without notice or lapse of time) (A) may
constitute or result in a violation by the Company of,
or failure on the part of the Company to comply with,
any Legal Requirement, or (B) may give rise to any
obligation on the part of the Company to undertake, or
to bear all or any portion of the cost of, any remedial
action of any nature; and
(iii) the Company has not received any notice or
other communication (whether oral or written) from any
Governmental or Regulatory Authority or any other
Person regarding (A) any actual, alleged, possible, or
potential violation of, or failure to comply with, any
Legal Requirement, or (B) any actual, alleged,
possible, or potential obligation on the part of the
Company to undertake, or to bear all or any portion of
the cost of, any remedial action of any nature.
(b) Section 3.14(b) of the Company Disclosure
Schedule contains a complete and accurate list of each
Governmental Authorization that is held by the Company
or that otherwise relates to the business of, or to any
of the assets owned or used by, the Company. Each
Governmental Authorization listed or required to be
listed in Section 3.14(b) of the Company Disclosure
Schedule is valid and is in full force and effect.
Except as set forth on Section 3.14(b) of the Company
Disclosure Schedule:
(i) the Company is, and at all times has been, in full
compliance with all of the terms and requirements of
each Governmental Authorization identified or required
to be identified in Section 3.14(b) of the Company
Disclosure Schedule;
(ii) no event has occurred or circumstance exists that
may (with or without notice or lapse of time)
(A) constitute or result directly or indirectly in a
violation of or a failure to comply with any term or
requirement of any Governmental Authorization listed or
required to be listed in Section 3.14(b) of the Company
Disclosure Schedule, or (B) result directly or
indirectly in the revocation, withdrawal, suspension,
cancellation, or termination of, or any modification
to, any Governmental Authorization listed or required
to be listed in Section 3.14(b) of the Company
Disclosure Schedule;
(iii) the Company has not received any notice or
other communication (whether oral or written) from any
Governmental or Regulatory Authority or any other
Person regarding (A) any actual, alleged, possible, or
potential violation of or failure to comply with any
term or requirement of any Governmental Authorization,
or (B) any actual, proposed, possible, or potential
revocation, withdrawal, suspension, cancellation,
termination of, or modification to any Governmental
Authorization; and
(iv) all applications required to have been filed for
the renewal of the Governmental Authorizations listed
or required to be listed in Section 3.14(b) of the
Company Disclosure Schedule have been duly filed on a
timely basis with the appropriate Governmental or
Regulatory Authority, and all other filings required to
have been made with respect to such Governmental
Authorizations have been duly made on a timely basis
with the appropriate Governmental or Regulatory
Authority.
The Governmental Authorizations listed in
Section 3.14(b) of the Company Disclosure
Schedule collectively constitute all of the
Governmental Authorizations necessary to permit the
company to lawfully conduct and operate its business in
the manner it currently conducts and operates such
business and to permit the Company to own and use its
assets in the manner in which it currently owns and
uses such assets.
3.15 Legal Proceedings; Orders.
(a) Except as set forth in Section 3.15(a) of the
Company Disclosure Schedule, there is no pending
Proceeding:
(i) that has been commenced by or against the Company
or that otherwise relates to or may affect the business
of, or any of the assets owned or used by the Company;
or
(ii) that challenges, or that may have the effect of
preventing, delaying, making illegal, or otherwise
interfering with, any of the Contemplated Transactions.
To the Knowledge of the Company, (1) no such
Proceeding has been Threatened, and (2) no event has
occurred or circumstance exists that may give rise to
or serve as a basis for the commencement of any such
Proceeding. The Company has delivered to Parent copies
of all pleadings, correspondence, and other documents
relating to each Proceeding listed in Section 3.15(a)
of the Company Disclosure Schedule. The Proceedings
listed in Section 3.15(a) of the Company Disclosure
Schedule will not have a material adverse effect on the
business, operations, assets, condition, or prospects
of the Company.
3.16 Contracts.
(a) Section 3.16 of the Company Disclosure
Schedule contains a true and complete list of each of
the following contracts, agreements or other
arrangements to which the Company is a party or by
which any of its Assets and Properties is bound (and,
to the extent oral, accurately describes the terms of
such contracts, agreements and arrangements):
(i) all collective bargaining or similar labor
agreements;
(ii) all contracts for the employment of any officer,
employee or other person or entity on a full time, part
time, consulting or other basis;
(iii) all loan agreements, indentures, debentures,
notes or letters of credit relating to the borrowing of
money or to mortgaging, pledging or otherwise placing a
lien on any material asset or material group of assets
of the Company;
(iv) each written warranty, guaranty, or other similar
undertaking with respect to contractual performance
extended by the Company;
(v) all leases or agreements under which the Company
is lessee or lessor of, or holds, or operates, any
property, real or personal, owned by any other party;
(vi) all commitments, contracts, sales contracts,
purchase orders, mortgage agreements or groups of
related agreements with the same party or any group or
affiliated parties which require or may in the future
require payment of any consideration by the Company;
(vii) each Contract for capital expenditures in
excess of $10,000;
(viii) all contracts or commitments that in any way
restrict the Company from carrying on its business
anywhere in the world;
(ix) all other contracts and agreements that
(A) involve the payment or potential payment in excess
of $10,000, pursuant to the terms of any such contract
or agreement, by the Company and (B) cannot be
terminated within 30 days after giving notice of
termination without resulting in any cost or penalty to
the Company; and
(x) each amendment, supplement, and modification
(whether oral or written) in respect to any of the
foregoing.
(b) A correct and complete copy of each Contract
disclosed in the Company Disclosure Schedule has been
previously provided to Parent. Each contract,
agreement or other arrangement disclosed in the Company
Disclosure Schedule is in full force and effect and
constitutes a legal, valid and binding agreement,
enforceable in accordance with its terms, of the
Company, and to the Knowledge of the Company, the other
parties thereto; and the Company has performed all of
its required obligations under, and is not in violation
or breach of or default under, any such contract,
agreement or arrangement. There are no renegotiations
of, attempts to renegotiate or outstanding rights to
renegotiate any material amounts paid or payable to the
Company under current or complete Contract with any
Person and, to the Knowledge of the Company, no such
Person has made written demand for such renegotiation.
The Contracts relating to the provision services by the
Company have been entered into in the Ordinary Course
of Business and have been entered into without the
commission of any act alone or in concert with any
other Person, or any consideration having been paid or
promised, that would be in violation of any Legal
Requirement.
3.17 Environmental Matters.
(a) The Company is in compliance with all applicable
"Environmental Laws" (as defined below) and there are
no circumstances which may materially prevent or
interfere with such compliance in the future. The
Company has not received any communication (whether
written or oral), whether from a Governmental or
Regulatory Authority, citizen group, employee or
otherwise, that alleges that the Company or any of the
Assets or Properties used in the Company's business is
not in full compliance with Environmental Laws.
(b) There are no past or present actions, activities,
circumstances, conditions, events or incidents arising
from the operation, ownership or use of any property
currently or formerly owned, operated or used by the
Company (or any entity formerly an Affiliate of the
Company), including, without limitation, the release,
emission, discharge or disposal of any "Material" (as
defined below) into the "Environment" (as defined
below), that could reasonably be expected to result in
the incurrence of costs under Environmental Laws.
(c) For purposes of this Section 3.17:
(i) "Environment" means any surface water, ground
water, drinking water supply, land surface or
subsurface strata, ambient air and any indoor
workplace.
(ii) "Environmental Laws" means all national, state,
local and foreign laws, codes, regulations, common law,
requirements, directives, Orders, and administrative or
judicial interpretations thereof, all as in effect on
the date hereof or on the Closing Date, that may be
enforced by any Governmental or Regulatory Authority,
relating to pollution, the protection of the
Environment or the emission, discharge, disposal,
release or threatened release of Materials in or into
the Environment.
(iii) "Material" means pollutants, contaminants or
chemical, industrial, hazardous or toxic materials or
wastes, including, without limitation, petroleum and
petroleum products.
3.18 Accounts Receivable.
All accounts receivable of the Company that are
reflected on the Company Financial Statements or the
accounting records of the Company as of the Closing
(collectively, the "Accounts Receivable") represent or
will represent valid obligations arising from sales
actually made or services actually performed in the
Ordinary Course of Business. Unless paid prior to the
Closing, the Accounts Receivable are or will be as of
the Closing current and collectible, net of the
respective reserves shown on the Company Financial
Statements or on the accounting records of the Company
as of the Closing (which reserves are adequate and
calculated consistent with past practice and, in the
case of the reserve as of the Closing, will not
represent a greater percentage of the Accounts
Receivable as of the Closing than the reserve reflected
in the Company Financial Statements and will not
represent a material adverse change in the composition
of such Accounts Receivable in terms of aging).
Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in
full, without any set-off, within 90 days after the
date on which it first becomes due and payable.
3.19 Insurance.
Set forth in Section 3.19 of the Company
Disclosure Schedule is a complete and accurate list of
all primary, excess and umbrella policies, bonds and
other forms of insurance currently owned or held by or
on behalf of and/or providing insurance coverage to the
Company or the Assets and Properties of the Company (or
any of the Company's directors, officers, salespersons,
agents or employees), including the following
information for each such policy: type(s) of insurance
coverage provided; name of insurer; effective dates;
policy number; per occurrence and annual aggregate
deductibles or self-insured retentions; per occurrence
and annual aggregate limits of liability and the
extent, if any, to which the limits of liability have
been exhausted. All policies set forth on the Company
Disclosure Schedule are in full force and effect, and
with respect to such policies, all premiums currently
payable or previously due have been paid, and no notice
of cancellation or termination has been received with
respect to any such policy.
3.20 Tax Matters.
(a) The Company has filed on a timely basis all Tax
Returns that it was required to file, and all such Tax
Returns were complete and accurate in all material
respects. The Company is not and has never been a
member of a group of corporations with which it has
filed (or been required to file) consolidated, combined
or unitary Tax Returns. The Company has paid on a
timely basis all Taxes that were due and payable
including, without limitation, employment taxes and any
fines, interest and penalties thereon. The unpaid
Taxes of the Company for tax periods through
December 31, 2002 do not exceed the accruals and
reserves for Taxes (excluding accruals and reserves for
deferred Taxes established to reflect timing
differences between book and Tax income) set forth on
the Company's most recent balance sheet. The Company
has no actual or potential liability for any Tax
obligation of any other taxpayer (including any
affiliated group of corporations or other entities that
included the Company during a prior period). All Taxes
that the Company is or was required by law to withhold
or collect have been duly withheld or collected and, to
the extent required, have been paid to the proper
Governmental or Regulatory Authority.
(b) The Company has delivered to Parent complete and
accurate copies of all federal income Tax Returns,
examination reports and statements of deficiencies
assessed against or agreed to by the Company. The
federal income Tax Returns of the Company have been
audited by the Internal Revenue Service or are closed
by the applicable statute of limitations for all
taxable years through the taxable year specified in
Section 3.20(b) of the Company Disclosure Schedule.
The Company has delivered or made available to Parent
complete and accurate copies of all other Tax Returns
of the Company, together with all related examination
reports and statements of deficiency for all periods
from and after incorporation. No examination or audit
of any Tax Return of the Company by any Governmental or
Regulatory Authority is currently in progress or, to
the Knowledge of the Company, threatened or
contemplated. The Company has not been informed by any
jurisdiction that the jurisdiction believes that the
Company was required to file any Tax Return that was
not filed. The Company has not waived any statute of
limitations with respect to Taxes or agreed to an
extension of time with respect to a Tax assessment or
deficiency.
3.21 Labor and Employment Relations.
To the Knowledge of the Company, no officer,
executive or group of five or more employees of the
Company has or have any plans to terminate his, her or
their employment with the Company. The Company is not
a party to or bound by any collective bargaining
agreement with any labor organization, group or
association covering any of its employees, and to the
Knowledge of the Company, there are no attempts to
organize any of the Company's employees by any person,
unit or group seeking to act as their bargaining agent.
The Company has complied with all applicable laws
relating to the employment of labor, including
provisions thereof relating to wages, hours, equal
opportunity, collective bargaining, discrimination
against race, color, national origin, religious creed,
physical or mental disability, sex, age, ancestry,
medical condition, marital status or sexual
orientation, occupational health and safety and the
withholding and payment of social security and other
Taxes. The Company is not liable for the payment of
any compensation, damages, taxes, fines, penalties or
other amounts, however designated, for the failure to
comply with any of the foregoing Legal Requirements.
3.22 Customers.
The Company has previously provided to Parent a
true and correct list of the Company's current
customers and the Company's customers during the 2000
and 2001 fiscal years related to the Company business.
Since January 1, 2002, no single customer or group of
affiliated customers contributing more than $10,000 per
annum to the gross revenues of the Company's business
has stopped doing business with the Company, and no
such customer has given notice to the Company of an
intention to discontinue doing business or reduce the
level of gross revenues from that in fiscal year 2002
with the Company.
3.23 Bank Accounts.
Section 3.23 of the Company Disclosure
Schedule contains a complete and accurate list of each
deposit account or asset maintained by or on behalf of
the Company with any bank, brokerage house or other
financial institution, specifying with respect to each
the name and address of the institution, the name under
which the account is maintained, the account number,
and the name and title or capacity of each Person
authorized to have access thereto.
3.24 Third Party Consents.
No consent, approval or authorization of any third
party on the part of the Company is required in
connection with the consummation of the transactions
contemplated hereunder except as otherwise provided in
Section 3.24 of the Company Disclosure Schedule.
3.25 Relationships with Related Persons.
No Principal Stockholder or any Related Person of
the Company has or since December 31, 2001 has had, any
interest in the property, whether real, personal or
mixed, or whether tangible or intangible, used in or
pertaining to the Company's businesses. No Principal
Stockholder or any Related Person of the Company owns,
or since December 31, 2001 has owned (of record or as
beneficial owner) an equity interest or any other
financial or profit interest in a Person that has
(i) had business dealings or a material financial
interest in any transaction with the Company or
(ii) engaged in competition with the Company with
respect to any line of the products or services of the
Company. Except as set forth in Section 3.25 of the
Company Disclosure Schedule, no Principal Stockholder
nor any Related Person of the Company is a party to any
Contract with or has any right or claim against the
Company.
3.26 Brokers.
Except as set forth in Section 3.26 of the Company
Disclosure Schedule, neither the Principal Stockholders
nor the Company have retained any broker in connection
with the transactions contemplated hereunder. Parent
has, and will have, no obligation to pay any broker's,
finder's, investment banker's, financial advisor's or
similar fee in connection with this Agreement or the
transactions contemplated hereby by reason of any
action taken by or on behalf of the Principal
Stockholders or the Company.
3.27 Material Misstatements and Omissions.
The statements, representations and warranties of
the Company contained in this Agreement (including the
exhibits and schedules hereto) and in each document,
statement, certificate or exhibit furnished or to be
furnished by or on behalf of the Company pursuant
hereto, or in connection with the transactions
contemplated hereby, taken together, do not contain and
will not contain any untrue statement of a material
fact and do not or will not omit to state a material
fact necessary to make the statements or facts
contained herein or therein, in light of the
circumstances made, not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION CO.
Parent and Acquisition Co., jointly and severally,
represent and warrant to the Company as of the date
hereof and as of the Closing Date, as follows:
4.1 Organization.
Parent is a corporation duly organized, validly
existing and in good standing under the laws of the
State of the Delaware. Acquisition Co. is a
corporation duly organized, validly existing, and in
good standing under the laws of the State of Delaware.
Each of Parent and Acquisition Co. is duly authorized
to conduct business and is in good standing under the
laws of each jurisdiction where such qualification is
required except for any jurisdiction where failure so
to qualify would not have a Material Adverse Effect
upon Parent or Acquisition Co., as the case may be.
4.2 Authority.
Each of Parent and Acquisition Co. has all
necessary corporate power and corporate authority and
has taken all corporate actions necessary to enter into
this Agreement, to consummate the transactions
contemplated hereby and to perform its respective
obligations hereunder and no other proceedings on the
part of Parent or Acquisition Co. are necessary to
authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has
been duly and validly executed and delivered by each of
Parent and Acquisition Co. and constitutes a legal,
valid and binding obligation of Parent and Acquisition
Co., respectively, enforceable against each of Parent
and Acquisition Co. in accordance with its terms except
(i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general
application affecting enforcement of creditors' rights
generally and (ii) as limited by laws relating to the
availability of specific performance, injunctive relief
or other equitable remedies.
4.3 Litigation.
There are no Actions or Proceedings pending or, to
the Knowledge of Parent or Acquisition Co., threatened
or anticipated against, relating to or affecting the
transactions contemplated by this Agreement, and, to
the Knowledge of Parent or Acquisition Co., there is no
basis for any such Action or Proceeding.
4.4 Reports and Financial Statements.
As of the date hereof, the Parent has furnished or
made available to the Company true and complete copies
of all Parent SEC Documents. As of their respective
filing dates, all such Parent SEC Documents complied in
all material respects with the requirements of the
Securities Act, the Exchange Act and the rules and
regulations of the OTCBB, as the case may be, and none
of such Parent SEC Documents contained any untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary to make the statements made therein, in light
of the circumstances in which they were made, not
misleading, except to the extent corrected by a
document subsequently filed with the SEC or OTCBB. The
Parent Financial Statements comply as to form in all
material respects with applicable accounting
requirements and with the published rules and
regulations of the SEC and OTCBB with respect thereto,
have been prepared in accordance with GAAP consistently
applied (except as may be indicated in the notes
thereto or, in the case of unaudited statements, as
permitted by Form 10-QSB of the SEC) and present fairly
the consolidated financial position of the Parent at
the dates thereof and the consolidated results of its
operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to
normal audit adjustments). As of the date hereof,
there has been no change in the Parent accounting
policies except as described in the notes to Parent
Financial Statements.
4.5 Brokers.
Neither Parent nor Acquisition Co. has retained
any broker in connection with the transactions
contemplated hereunder. Neither the Company nor the
Principal Stockholders has, and will have, any
obligation to pay any broker's, finder's investment
banker's, financial advisor's or similar fee in
connection with this Agreement or the transactions
contemplated hereby by reason of any action taken by or
on behalf of Parent or Acquisition Co.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF THE PRINCIPAL STOCKHOLDERS
Each Principal Stockholder hereby represents and
warrants to Parent and Acquisition Co. as follows (such
representations and warranties do not lessen or obviate
the representations and warranties of the Company and
the Stockholders set forth in Article III above):
5.1 Requisite Power and Authority.
Such Principal Stockholder has all necessary power
and authority under all applicable provisions of law to
execute and deliver this Agreement and to carry out its
provisions. All action on such Principal Stockholder's
part required for the lawful execution and delivery of
this Agreement has been or will be effectively taken
prior to the Closing. Upon execution and delivery,
this Agreement will be the valid and binding obligation
of such Principal Stockholder, enforceable in
accordance with its terms.
5.2 Investment Representations.
Such Principal Stockholder understands that the
shares of the Parent Common Stock have not been
registered under the Securities Act. Such Principal
Stockholder also understands that the shares of Parent
Common Stock are being offered and sold pursuant to an
exemption from registration contained in the Securities
Act based in part upon such Principal Stockholder's
representations and warranties contained in this
Agreement. Such Principal Stockholder hereby
represents and warrants as follows:
(a) Such Principal Stockholder is an "accredited
investor" as defined in Rule 501(a) of the Securities
Act.
(b) Such Principal Stockholder has substantial
experience in evaluating and investing in private
placement transactions of securities in companies
similar to Parent so that he, she or it is capable of
evaluating the merits and risks of his, her or its
investment in Parent and has the capacity to protect
his, her or its own interests. Such Principal
Stockholder must bear the economic risk of this
investment indefinitely unless the shares of Parent
Common Stock are registered pursuant to the Securities
Act, or an exemption from registration is available.
Such Principal Stockholder also understands that there
is no assurance that any exemption from registration
under the Securities Act will be available and that,
even if available, such exemption may not allow such
Principal Stockholder to transfer all or any portion of
the shares of Parent Common Stock under the
circumstances, in the amounts or at the times such
Principal Stockholder might propose.
(c) Such Principal Stockholder is acquiring the shares
of Parent Common Stock for such Principal Stockholder's
own account for investment only, and not with a view
towards their distribution.
(d) Such Principal Stockholder represents that by
reason of his, her or its business or financial
experience, such Principal Stockholder has the capacity
to protect his, her or its own interests in connection
with the transactions contemplated in this Agreement.
Further, such Principal Stockholder is aware of no
publication of any advertisement in connection with the
transactions contemplated in the Agreement.
(e) Such Principal Stockholder has received and read
the Parent SEC Filings and has had an opportunity to
discuss Parent's business, management and financial
affairs with directors, officers and management of
Parent and has had the opportunity to review Parent's
operations and facilities. Such Principal Stockholder
has also had the opportunity to ask questions of and
receive answers from Parent and its management
regarding the terms and conditions of this investment.
(f) Such Principal Stockholder acknowledges and agrees
that the shares of Parent Common Stock must be held
indefinitely unless they are subsequently registered
under the Securities Act or an exemption from such
registration is available. Such Principal Stockholder
has been advised or is aware of the provisions of
Rule 144 promulgated under the Securities Act as in
effect from time to time, which permits limited resale
of shares purchased in a private placement subject to
the satisfaction of certain conditions, including,
among other things, the availability of certain current
public information about Parent, the resale occurring
not less than one year after a party has purchased and
paid for the security to be sold, the sale being
through an unsolicited "broker's transaction" or in
transactions directly with a market (as said term is
defined under the Exchange Act) and the number of
shares being sold during any three month period not
exceeding specified limitations.
(g) Such Principal Stockholder resides in the state or
province identified in the address of such Principal
Stockholder set forth on the signature page to this
Agreement.
5.3 Transfer Restrictions.
Such Principal Stockholder acknowledges and agrees
that the shares of Parent Common Stock are subject to
restrictions on transfer set forth in this Section 5.3.
Such Principal Stockholder agrees not to make any
disposition of all or any portion of the shares of
Parent Common Stock unless and until: (i) there is
then in effect a registration statement under the
Securities Act covering such proposed disposition and
such disposition is made in accordance with such
registration statement; or (ii) the transferee (except
for transfers in compliance with Rule 144) has agreed
in writing to be bound by the terms of this Agreement,
such Principal Stockholder shall have notified Parent
of the proposed disposition and shall have furnished
Parent with a detailed statement of the circumstances
surrounding the proposed disposition and if reasonably
requested by Parent, such Principal Stockholder shall
have furnished Parent with an opinion of counsel,
reasonably satisfactory to Parent, that such
disposition will not require registration of such
shares under the Securities Act. Notwithstanding the
provisions of clauses (i) and (ii) above, no such
registration statement or opinion of counsel shall be
necessary for a transfer by such Principal Stockholder
to a family member of such Stockholder or trust for the
benefit of such Principal Stockholder; provided,
however, that in each case the transferee will be
subject to the terms of this Agreement to the same
extent as if he, she or it were an original Principal
Stockholder hereunder.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Operation of Business Prior to Effective Time.
Between the date hereof and the Effective Time,
the Company will operate its business in the Ordinary
Course of Business and, to the extent consistent
therewith, with no less diligence and effort than would
be applied in the absence of this Agreement, use all
commercially reasonable efforts to seek to preserve
intact its current business organizations, keep
available the service of its current officers and
employees and preserve its relationships with
customers, suppliers, distributors, lessors, creditors,
employees, contractors and others having business
dealings with it with the intention that its goodwill
and ongoing businesses shall be unimpaired at the
Effective Time.
6.2 No Solicitation or Negotiation.
Between the date hereof and the earlier of the
termination of this Agreement and September 30, 2003,
the Company will not (nor will the Company permit any
of the Company's officers, directors, employees,
agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any
person other than Parent and Acquisition Co.:
(i) solicit, initiate, entertain or encourage any
proposals or offers from, or conduct discussions with
or engage in negotiations with any person relating to
any possible acquisition of the Company or any of its
subsidiaries (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or
assets or any equity interest in the Company;
(ii) provide information with respect to it or any of
its subsidiaries to any person, other than Parent and
Acquisition Co., relating to, or otherwise cooperate
with, facilitate or encourage any effort or attempt by
any such person with regard to, any possible
acquisition of the Company (whether by way of merger,
purchase of capital stock, purchase of assets or
otherwise), any portion of its or their capital stock
or assets or any equity interest in the Company; or
(iii) enter into any agreement with any person
providing for the possible acquisition of the Company
or any of its subsidiaries (whether by way of merger,
purchase of capital stock, purchase of assets or
otherwise), any portion of its or their capital stock
or assets or any equity interest in the Company.
6.3 Access to Information.
Between the date hereof and the Effective Time,
the Company shall give Parent and its authorized
representatives (including, without limitation, its
attorneys and accountants), upon reasonable notice from
Parent, reasonable access to all employees, customers,
plants, offices, warehouses and other facilities, to
(and where necessary, provide copies of) all books and
records, contracts and all personnel files of current
employees of the Company and its subsidiaries as Parent
may reasonably require, and will cause its officers and
those of its subsidiaries to furnish Parent with such
financial and operating data and other information with
respect to the business and properties of the Company
and its subsidiaries as Parent may from time to time
reasonably request.
6.4 Notification of Certain Matters.
The Company shall give prompt notice to Parent of
(i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which has caused or
would be likely to cause any representation or warranty
contained in this Agreement by the Company to be untrue
or inaccurate at or prior to the Effective Time on
(ii) any failure by the Company to comply with or
satisfy in any material respect any covenant, condition
or agreement to be complied with or satisfied by it
hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.4 shall not cure such
breach or non-compliance by the Company, limit or
otherwise affect the remedies available hereunder to
Parent, or constitute an amendment of any
representation, warranty or statement in this Agreement
or the Company Disclosure Schedules.
6.5 Fees and Expenses.
Whether or not the Merger is consummated, all
fees, costs and expenses incurred in connection with
the Merger, this Agreement and the other agreements and
transactions contemplated hereby and thereby, including
all legal, accounting, financial advisory, broker's
consulting and other fees and expenses of third parties
incurred by a party in connection with the negotiation,
documentation and effectuation of the terms and
conditions of the Merger, this Agreement and the other
agreements and transactions contemplated hereby and
thereby ("Third Party Expenses"), shall be the
obligation of the respective party incurring such Third
Party Expenses. Notwithstanding the foregoing, the
Principal Stockholders shall pay all legal costs and
fees of their counsel and the Company shall not be
responsible for or pay for any such fees.
6.6 Subordination.
(a) Note Subordination. The parties hereto
acknowledge and agree that the McDonnell Note, the
Kenneth Note I and the Kenneth Note II (collectively,
the "Debt") shall be subordinated to all Senior Debt.
No payment of principal or interest shall be made on
the Debt if, but only as long as, there exists any
default, or the existence of any event which, with the
giving of notice, would constitute a default, in the
payment of Senior Debt, as determined by the terms of
any such Senior Debt. The Debt shall be pari-passu
with all other seller financing incurred in connection
with Parent acquisitions consummated prior to, or
following, the Closing.
(b) Subordination Documents. The parties hereto agree
to execute, at or following the Closing, as the case
may be, all subordination documents required by the
holders of Senior Debt.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
7.1 Conditions to the Obligations of the Company.
The obligation of the Company to effect the Merger is
subject to the satisfaction at or prior to the
Effective Time of the following conditions:
(a) the representations and warranties of Parent and
Acquisition Co. contained in this Agreement shall be
true and correct in all material respects at and as of
the Effective Time with the same effect as if made at
and as of the Effective Time (except to the extent such
representations specifically relate to an earlier date,
in which case such representations shall be true and
correct in all material respects as of such earlier
date, and in any event, subject to the foregoing
materiality qualification) and, at the Closing, Parent
and Acquisition Co. shall have delivered to the Company
a certificate to that effect, executed by an officer of
Parent and Acquisition;
(b) each of the covenants and obligations of Parent
and Acquisition Co. to be performed at or before the
Effective Time pursuant to the terms of this Agreement
shall have been duly performed in all material respects
at or before the Effective Time and, at the Closing,
Parent and Acquisition Co. shall have delivered to the
Company a certificate to that effect, executed by an
officer of Parent and Acquisition Co.; and
(c) Parent shall have delivered all of Closing
deliveries set forth in Section 2.8(c) above.
7.2 Conditions to the Obligations of Parent and
Acquisition Co.
The respective obligations of Parent and
Acquisition Co. to effect the Merger are subject to the
satisfaction at or prior to the Effective Time of the
following conditions:
(a) the representations and warranties of the Company
contained in this Agreement shall be true and correct
in all material respects at and as of the Effective
Time with the same effect as if made at and as of the
Effective Time (except to the extent such
representations specifically relate to an earlier date,
in which case such representations shall be true and
correct in all material respects as of such earlier
date) and, at the Closing, the Company shall have
delivered to Parent and Acquisition Co. a certificate
to that effect, executed by an executive officer of the
Company;
(b) each of the covenants and obligations of the
Company to be performed at or before the Effective Time
pursuant to the terms of this Agreement shall have been
duly performed in all material respects at or before
the Effective Time and, at the Closing, the Company
shall have delivered to Parent and Acquisition Co. a
certificate to that effect, executed by an executive
officer of the Company;
(c) the consents specified on Section 3.24 of the
Company Disclosure Schedule and any other material
third party consents necessary to consummate the
transactions contemplated hereby shall have been given,
obtained or complied with as applicable;
(d) the Company and the Company Stockholders, as the
case may be, shall have delivered all of the Closing
deliveries set forth in Section 2.8(b) above; and
(e) all proceedings taken by the Company and the
Company Stockholders and all instruments executed and
delivered by the Company and the Company Stockholders
on or prior to the Closing in connection with the
Contemplated Transactions shall be reasonably
satisfactory in form and substance to counsel for the
Parent and Acquisition Co.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
8.1 Termination.
This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective
Time whether before or after approval and adoption of
this Agreement:
(a) by written consent of Parent, Acquisition Co., and
the Company;
(b) by Parent and Acquisition Co. or the Company if
(i) any court of competent jurisdiction in the United
States or other United States federal or state
governmental entity shall have issued a final order,
decree or ruling, or taken any other final action,
restraining, enjoining or otherwise prohibiting the
Merger and such order, decree, ruling or other action
is or shall have become non-appealable, or (ii) the
Merger has not been consummated by September 30, 2003;
provided that no party may terminate this Agreement
pursuant to this clause (ii) if such party's failure to
fulfill any of its obligations under this Agreement
shall have been a principal reason that the Effective
Time shall not have occurred on or before said date;
(c) by the Company if (i) there shall have been a
material breach of any representations or warranties on
the part of Parent or Acquisition Co. set forth in this
Agreement or if any representations or warranties of
Parent or Acquisition Co. shall have become untrue in
any material respect, provided that the Company has not
breached any of its obligations hereunder in any
material respect; or (ii) there shall have been a
breach by Parent or Acquisition Co. of any of their
respective covenants or agreements hereunder in any
material respect or materially adversely affecting (or
materially delaying) the ability of Parent, Acquisition
Co. or the Company to consummate the Merger, and Parent
or Acquisition Co., as the case may be, has not cured
such breach within ten business days after notice by
the Company thereof, provided that the Company has not
breached any of its obligations hereunder in any
material respect; or
(d) by Parent and Acquisition Co. if (i) there shall
have been a material breach of any representations or
warranties on the part of the Company set forth in this
Agreement or if any representations or warranties of
the Company shall have become untrue in any material
respect, provided that neither Parent nor Acquisition
Co. has breached any of their respective obligations
hereunder in any material respect; (ii) there shall
have been a breach by the Company of one or more of its
covenants or agreements hereunder in any material
respect or materially adversely affecting (or
materially delaying) the ability of Parent, Acquisition
Co. or the Company to consummate the Merger, and the
Company has not cured such breach within ten business
days after notice by Parent or Acquisition Co. thereof,
provided that neither Parent nor Acquisition has
breached any of their respective obligations hereunder
in any material respect; or (iii) the results of
Parent's due diligence investigations are not
satisfactory to Parent for any reason in its sole
discretion.
8.2 Effect of Termination.
In the event of the termination and abandonment of
this Agreement pursuant to Section 8.1 above, this
Agreement shall forthwith become void and have no
effect without liability on the part of any party
hereto or its Affiliates, directors, officers or
stockholders other than the provisions of this
Section 8.2 and Sections 6.2, 6.5, 8.3, 10.7, and
10.10.
8.3 Amendment.
This Agreement may be amended by action taken by
the Company, Parent and Acquisition Co. at any time
before or after approval of the Merger by the
stockholders of the Company but after any such approval
no amendment shall be made that requires the approval
of such stockholders under applicable law without such
approval. This Agreement (including the Company
Disclosure Schedule) may be amended only by an
instrument in writing signed on behalf of the parties
hereto.
ARTICLE IX
ACTIONS BY THE PARTIES AFTER THE CLOSING
9.1 Survival of Representations, Warranties, Etc.
The representations, warranties and covenants
contained in or made pursuant to this Agreement or any
certificate, document or instrument delivered pursuant
to or in connection with this Agreement in the
transactions contemplated hereby shall survive the
execution and delivery of this Agreement and the
Closing hereunder (notwithstanding any investigation,
analysis or evaluation by any party hereto or their
designees of the Assets and Properties, business,
operations or condition (financial or otherwise) of the
other party), and thereafter the representations and
warranties of the parties herein shall continue to
survive in full force and effect.
9.2 Indemnification.
(a) By the Company Stockholders. The Company
Stockholders shall, jointly and severally, indemnify,
defend and hold harmless Parent, Acquisition Co., the
Surviving Corporation and their respective officers,
directors, employees, affiliates, agents, successors,
subsidiaries and assigns (collectively the "Parent
Group") from and against any and all costs, losses,
liabilities, damages, lawsuits, deficiencies, claims
and expenses (collectively, the "Damages"), incurred in
connection with, arising out of, resulting from or
incident to (i) any breach of any covenant,
representation, warranty or agreement or the inaccuracy
of any representation, made by the Company or the
Company Stockholders in or pursuant to this Agreement,
or in the other documents delivered in connection with
the transactions contemplated in this Agreement.
(b) Right of Set-Off. As security for their
obligation to indemnify Parent and Parent Group
hereunder, the Company Stockholders hereby grant each
of Parent and the Parent Group a right of set-off and
agree that at any time a payment or amount is owing by
the Company Stockholders pursuant to the terms of this
Article IX, or either Parent or the Parent Group has
made a claim for indemnification pursuant to the terms
of this Article IX, Parent and the Parent Group may set-
off, or direct the other party to set-off, amounts
owning by either Parent or the Parent Group to any of
the Company Stockholders.
(c) Notwithstanding the foregoing, the Company
Stockholders shall have no liability with respect to
the matters described in paragraph (a) above unless and
until the aggregate amount of Damages equal or exceed
$25,000 (the "Threshold Amount"). At such time as the
aggregate Damages equal or exceed the Threshold Amount,
Parent and/or the Parent Group shall be indemnified to
the full extent of all such Damages (including Damages
counted in determining whether the aggregate Damages
equal or exceed the Threshold Amount); provided,
however, that this paragraph shall not apply to any
intentional or fraudulent breach by any Company
Stockholder of any representation, warranty, covenant
or obligation.
(d) Limitation of Liability. The limitation of the
Company Stockholders for indemnification under this
Article IX shall be limited to its ratable portion of
the Parent Common Stock (as valued in accordance with
the terms of this Agreement) issued as Stock
Consideration. This limitation of liability shall not
apply to any intentional or fraudulent breach by any
party of any representation, warranty, covenant or
obligation.
9.3 Articles of Incorporation and Bylaws.
Notwithstanding anything to the contrary contained
in the Company's Articles of Incorporation or Bylaws,
the indemnification provisions of this Article IX shall
take precedence over such Articles of Incorporation or
Bylaws. No Company Stockholder nor any other director
or officer incumbent at any time prior to the Closing
shall be entitled to indemnification directly or
indirectly under the Company's Articles of
Incorporation or Bylaws or otherwise for any matter
upon which the Company or any Company Stockholder has
or might have an indemnification obligation hereunder
and the Articles of Incorporation and Bylaws shall be
deemed amended accordingly. However, the provisions of
this Section 9.3 are intended only for the regulation
of relations between the Company and the Company
Stockholders and any indemnified party. This Section
9.3 is not intended for the benefit of creditors or
other third parties and does not grant any rights to
creditors or other third parties.
9.4 Non-Exclusivity.
The parties hereto acknowledge and agree that the
indemnity obligations set forth above shall not be the
exclusive remedy of the indemnified parties with
respect to the Contemplated Transactions.
ARTICLE X
MISCELLANEOUS
10.1 Further Assurances.
In case at any time after the Closing any further
action is necessary or desirable to carry out the
purposes of this Agreement, each of the parties will
take such further action (including the execution and
delivery of such further instruments and documents) as
the other party reasonably may request, all the sole
cost and expense of the requesting party (unless the
requesting party is entitled to indemnification
therefor under Article IX).
10.2 Notices.
All notices, requests and other communications
hereunder must be in writing and will be deemed to have
been duly given only if delivered personally against
written receipt or by facsimile transmission with
answer back confirmation or mailed (postage prepaid by
certified or registered mail, return receipt requested)
or by overnight courier to the parties at the following
addresses or facsimile numbers:
If to Parent or Surviving Corporation:
Crdentia Corp.
455 Market Street, Suite 1220
San Francisco, CA 92105
Facsimile No.: (415) 543-1415
Attention: Chief Executive Officer
with copies to:
Morrison & Foerster llp
3811 Valley Centre Drive, Suite 500
San Diego, CA 92130
Facsimile No.: (858) 720-5125
Attention: Steven G. Rowles, Esq.
If to Principal Stockholders:
Deborah McDonnell
The Kenneth Family Trust
2014 Judah Street
San Francisco, CA 94122
Facsimile No.: (415) 664-6400
with copies to:
Law Offices of Michael J. Raifsnider
109 Geary St., 4th Floor
San Francisco, California 94108
Facsimile No.: (415) 982-5130
Attention: Michael J. Raifsnider, Esq.
All such notices, requests and other communications
will (i) if delivered personally to the address as
provided in this Section 10.2, be deemed given upon
delivery, (ii) if delivered by facsimile transmission
to the facsimile number as provided in this
Section 10.2, be deemed given upon receipt, and
(iii) if delivered by mail in the manner described
above to the address as provided in this Section 10.2,
be deemed given upon receipt (in each case regardless
of whether such notice, request or other communication
is received by any other Person to whom a copy of such
notice, request or other communication is to be
delivered pursuant to this Section). Any party from
time to time may change its address, facsimile number
or other information for the purpose of notices to that
party by giving notice specifying such change to the
other parties hereto.
10.3 Entire Agreement.
This Agreement (and all exhibits and schedules
attached hereto, all other documents delivered in
connection herewith) supersede all prior discussions
and agreements among the parties with respect to the
subject matter hereof and contains the sole and entire
agreement among the parties hereto with respect
thereto.
10.4 Waiver.
Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the
benefit thereof, but no such waiver shall be effective
unless set forth in a written instrument duly executed
by or on behalf of the party waiving such term or
condition. No waiver by any party hereto of any term
or condition of this Agreement, in any one or more
instances, shall be deemed to be or construed as a
waiver of the same or any other term or condition of
this Agreement on any future occasion. All remedies,
either under this Agreement or by law or otherwise
afforded, will be cumulative and not alternative.
10.5 No Third Party Beneficiary.
The terms and provisions of this Agreement are
intended solely for the benefit of each party hereto
and their respective successors or permitted assigns,
and it is not the intention of the parties to confer
third-party beneficiary rights upon any other Person
other than any Person entitled to indemnity under
Article IX.
10.6 No Assignment; Binding Effect.
Neither this Agreement nor any right, interest or
obligation hereunder may be assigned by any party
hereto without the prior written consent of the other
parties hereto and any attempt to do so will be void,
except that any party's rights to indemnification under
Article IX may be freely assigned. This Agreement is
binding upon, inures to the benefit of and is
enforceable by the parties hereto and their respective
successors and assigns.
10.7 Severability.
If any provision of this Agreement is held to be
illegal, invalid or unenforceable under any present or
future law, and if the rights or obligations of any
party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such
provision will be fully severable, (ii) this Agreement
will be construed and enforced as if such illegal,
invalid or unenforceable provision had never comprised
a part hereof, (iii) the remaining provisions of this
Agreement will remain in full force and effect and will
not be affected by the illegal, invalid or
unenforceable provision or by its severance herefrom
and (iv) in lieu of such illegal, invalid or
unenforceable provision, there will be added
automatically as a part of this Agreement a legal,
valid and enforceable provision as similar in terms to
such illegal, invalid or unenforceable provision as may
be possible and mutually acceptable to the parties
herein.
10.8 Governing Law.
This Agreement shall be governed by and construed
in accordance with the laws of the State of California
applicable to contracts executed and performed in such
State, without giving effect to conflicts of laws
principles.
10.9 Consent to Jurisdiction and Forum Selection.
Each of the Parent, Acquisition Co. and the
Company irrevocably agrees that any legal action or
proceeding with respect to this Agreement or for the
recognition and enforcement of any judgment in respect
hereof brought by the other party hereto or its
successors or assigns will be brought and determined in
either San Francisco County Superior Court or the
United States District Court for the North District of
California, and each of the Parent, Acquisition Co.,
the Principal Stockholders and the Company hereby
irrevocably submits with regard to any such action or
proceeding for itself and in respect to its property,
generally and unconditionally, to the exclusive
jurisdiction of the aforesaid courts. Each of the
Parent, Acquisition Co., the Principal Stockholders and
the Company hereby irrevocably waives, and agrees not
to assert, by way of motion, as a defense, counterclaim
or otherwise, in any action or proceeding with respect
to this Agreement, (a) any claim that it is not
personally subject to the jurisdiction of the above-
named courts for any reason other than the failure to
lawfully serve process, (b) that it or its property is
exempt or immune from jurisdiction of any such court or
from any legal process commenced in such courts
(whether through service of notice, attachment prior to
judgment, attachment in aid of execution of judgment,
execution of judgment or otherwise), (c) to the fullest
extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an
inconvenient forum, (ii) the venue of such suit,
action, or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be
enforced in or by such courts and (d) any right to
trial by jury.
10.10 Construction.
No provision of this Agreement shall be construed
in favor of or against any party on the ground that
such party or its counsel drafted the provision.
Any remedies provided for herein are not exclusive of
any other lawful remedies which may be available to
either party. This Agreement shall at all times be
construed so as to carry out the purposes stated
herein.
10.11 Counterparts.
This Agreement may be executed in any number of
counterparts and by facsimile, each of which will be
deemed an original, but all of which together will
constitute one and the same instrument.
10.12 Attorney's Fees.
In the event any action is brought for enforcement
or interpretation of this Agreement, the prevailing
party shall be entitled to recover reasonable
attorney's fees and costs incurred in said action.
[Remainder of this page intentionally left bank.]
In Witness Whereof, this Agreement has been duly
executed and delivered by the parties hereto, or their
duly authorized officer, as of the date first above
written.
CRDENTIA CORP.,
a Delaware corporation
By: /s/ Lawrence M. Davis
------------------------------------
Name: Lawrence M. Davis
Title: Chief Financial Officer
NNI ACQUISITION CORPORATION,
a Delaware corporation
By: /s/ Lawrence M. Davis
------------------------------------
Name: Lawrence M. Davis
Title: Chief Financial Officer
NURSES NETWORK, INC.,
a California corporation
By: /s/ Robert J. Kenneth
------------------------------------
Name: Robert J. Kenneth
Title: Secretary
/s/ Deborah A. McDonnell
------------------------------------
Deborah A. McDonnell
/s/ Robert J. Kenneth
------------------------------------
Robert J. Kenneth
SCHEDULE 1.1(a)
Accredited Stockholders
This schedule has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this schedule
will be furnished supplementally to the Securities and
Exchange Commission upon request.
SCHEDULE 1.1(b)
Non-Accredited Stockholders
This schedule has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this schedule
will be furnished supplementally to the Securities and
Exchange Commission upon request.
SCHEDULE 2.8(b)(iii)
Parties to Non-Competition Agreements
This schedule has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this schedule
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT A
Agreement of Merger
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT B
Certificate of Merger
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT C
Non-Competition Agreement
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT D
Officer's Certificate of Nurses Network, Inc.
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT E
Certificate of Secretary of Nurses Network, Inc.
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT F
Release
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT G
Officer's Certificate of Crdentia Corp.
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT H
Certificate of Secretary of Crdentia Corp.
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT I
McDonnell Note
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT J
Kenneth Note I
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.
EXHIBIT K
Kenneth Note II
This exhibit has been omitted in accordance with Item
601(b)(2) of Regulation S-K. A copy of this exhibit
will be furnished supplementally to the Securities and
Exchange Commission upon request.