Exhibit 2
AGREEMENT AND PLAN OF MERGER
among
CONVERSION SERVICES INTERNATIONAL, INC.,
ISI MERGER CORP.,
INTEGRATED STRATEGIES, INC.
and
ISI CONSULTING, LLC
Dated as of July 29, 2005
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of July 29, 2005 (this
"Merger Agreement"), among Conversion Services International, Inc., a Delaware
corporation ("CSI"), ISI Merger Corp., a Delaware corporation and a wholly owned
subsidiary of CSI ("Merger Sub"), Integrated Strategies, Inc. ("ISI"), a
Delaware corporation, ISI Consulting, LLC, a Delaware limited liability company
("LLC") and Adam Hock and Larry Hock (the "Majority Stockholders").
WHEREAS, the Boards of Directors or other governing bodies of CSI,
Merger Sub, ISI and LLC have each approved the merger of ISI and LLC with and
into Merger Sub (the "Merger") upon the terms and subject to the conditions of
this Merger Agreement, thus enabling Merger Sub to acquire all of the common
stock of ISI and all of the membership interests of LLC in exchange for cash and
CSI's common stock, par value $0.001 ("CSI Common Stock");
WHEREAS, the Majority Stockholders (or members, as applicable) of
ISI and LLC have approved the Merger and the terms of this Merger Agreement; and
WHEREAS, CSI, Merger Sub, ISI, LLC and the Majority Stockholders
desire to make certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various conditions to the
Merger.
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties agree as follows:
ARTICLE I
THE MERGER
Section 1.01 The Merger; Effective Time of the Merger.
Upon the terms and conditions of this Merger Agreement and in accordance
with the Delaware General Corporation Law (the "DGCL") and the Delaware Limited
Liability Company Act ("DLLCA"), ISI and LLC shall be merged with and into
Merger Sub at the Effective Time (as hereinafter defined). The Merger shall
become effective immediately when a certificate of merger (the "Certificate of
Merger"), prepared and executed in accordance with the relevant provisions of
the DGCL and DLLCA, is duly filed with the Secretary of State of the State of
Delaware or, if agreed to by the parties, at such time thereafter as is provided
in the Certificate of Merger (the "Effective Time"). The filing of the
Certificate of Merger shall be made as soon as practicable after the closing of
the Merger (the "Closing").
Section 1.02 Closing.
The Closing shall take place at on a date and at a time to be specified by
the parties (the "Closing Date"), at the offices of CSI, unless another date,
time or place is agreed to by the parties.
Section 1.03 Merger Consideration.
(a) Subject to adjustments set forth in Sections 1.03(b) and 1.03(c)
below, the aggregate consideration to be paid at the Closing to the Majority
Stockholders shall consist of cash and notes with an aggregate value of
approximately $2,215,000 (collectively, the "Base Consideration"), consisting of
(i) cash of $2,050,000, minus any amounts owed by ISI under its line of credit
with Commerce Bank (the "Line of Credit"); (ii) a note in the Form on Exhibit A
which note shall be in principal amount equal to the Line of Credit minus
$50,000 (the "Line of Credit Note"), and payments on such Line of Credit Note
shall be due and payable in cash within seven (7) business days upon receipt of
outstanding accounts receivable acquired by Merger Sub in the Merger; and (iii)
a subordinated note of $165,000 with interest accruing at a rate of 5% per annum
(the "Subordinated Note" in form substantially similar to Exhibit B attached
hereto), which Subordinated Note and accrued interest shall be due and payable
in cash on the 15-month anniversary of the Closing Date. ISI represents that as
of the Closing Date, the working capital (current assets less current
liabilities) of ISI shall equal $450,000 as shown on a ISI Financial Statements
as prepared in accordance with generally accepted accounting principles
("GAAP"). If the working capital is less than $450,000, then the difference
shall be subtracted from the Line of Credit Note.
(b) In the event ISI meets the following Total Revenue and Gross Profits
thresholds (each as defined below) for the two six-month periods subsequent to
the Closing Date, then the Majority Stockholders will receive, in addition to
the Base Consideration, additional cash and shares of CSI Common Stock
("Additional Stock Consideration"), as follows:
(i) Sixty (60) days after the six-month anniversary of the date
hereof, the Majority Stockholders shall receive a payment equal to the result
obtained by multiplying $500,000 by the quotient obtained by dividing (A) the
Gross Profit (as defined below) achieved in that six-month period, by (B)
$900,000, but only upon obtaining at least 80% of each of the pre-determined
projections as listed below in Section 1.03(c) (the "Projections") on that
six-month anniversary of the Closing. This payment shall be made in two equal
payments of cash and CSI Common Stock. The number of shares of CSI Common Stock
issued hereunder shall be based on the volume-weighted average closing price of
the CSI Common Stock on the national securities exchange or automated quotation
system upon which such shares are then listed for the ten (10) trading days
prior to the six-month anniversary of the Closing. Solely by way of
illustration, if, in that six-month period, ISI achieves a Gross Profit of
$945,000, or 105% of the first six-month period projection, the Majority
Stockholders shall be entitled to receive $262,500 cash and $262,500 CSI Common
Stock, for a total of $525,000; and
(ii) Sixty (60) days after the one-year anniversary of the date
hereof, the Majority Stockholders shall receive a payment equal to the result
obtained by multiplying $500,000 by the quotient obtained by dividing (A) the
Gross Profit (as defined below) achieved in the six-month period immediately
following the period set forth in Section 1.03(b)(i) above, by (B) $900,000, but
only upon obtaining at least 80% of each of the Projections on that one-year
anniversary of the Closing. This payment shall be made in two equal payments of
cash and CSI Common Stock. The number of shares of CSI Common Stock issued
hereunder shall be based on the volume-weighted average closing price of the CSI
Common Stock on the national securities exchange or automated quotation system
upon which such shares are then listed for the ten (10) trading days prior to
the one-year anniversary of the Closing.
(c) The "Projections" are defined herein as follows:
- --------------------------------------------------------------------
ISI Total Revenue for ISI Gross Profit
applicable six-month for applicable
period six-month period
- --------------------------------------------------------------------
(i) First six-month $3,000,000 $900,000
period, ending on the
six-month anniversary of
the Closing Date
- --------------------------------------------------------------------
(ii) Second six-month $3,000,000 $900,000
period, ending on the
one-year anniversary of
the Closing Date, not to
include the six months
in (i) above
- --------------------------------------------------------------------
The determination of Total Revenue and Gross Profits shall be
calculated no later than 60 days following the end of the applicable six-month
period. As used herein, "Total Revenue" shall (i) include only Net Revenue (as
defined below) from ISI's operations during the applicable six-month period,
(ii) be determined in accordance with GAAP, applied on a basis consistent with
the historical audited consolidated financial statements of ISI (included in the
ISI Financial Statements (as defined below) and the financial statements
prepared for the financial reporting period ending prior to the applicable
six-month period) and (iii) exclude the impact of any adjustments or
modifications to the historical carrying values of ISI's assets and liabilities
resulting from the recording by CSI of the transaction contemplated by this
Merger Agreement. Notwithstanding the immediately preceding sentence, if the
accounting policies and procedures applied by ISI in the preparation of its
historical audited consolidated financial statements are not in accordance with
GAAP, then Total Revenue shall be equal to the lesser of (a) ISI's total Net
Revenue derived from its operations during the applicable period determined on a
basis consistent with the accounting policies and procedures applied by ISI in
the preparation of its historical audited consolidated financial statements, or
(b) ISI's Net Revenues derived from its operations during the applicable period
determined in accordance with GAAP. As used herein, "Gross Profits" equals Net
Revenues minus the cost of services (as defined by GAAP). Cost of services
includes, but is not limited to, cost of employee consultants, cost of outside
consultants, related payroll taxes and benefits, related training, travel and
entertainment. Gross Profit shall not include charges incurred by ISI from CSI
outside of the ordinary course of business. "Net Revenue" equals total client
billings actually received net of client reimbursements for billable expenses,
including, but not limited to, travel, lodging and meals. For the purpose of
determining Total Revenue and Gross Profits, future revenues earned by any
company associated with CSI that derive from existing client relationships of
ISI and LLC or their current employees, divisions or affiliates (not previously
established by CSI, its subsidiaries or affiliates) shall be included in the
calculation of Net Revenue. To receive credit for the Additional Stock
Consideration, the Majority Stockholders and CSI agree that the Majority
Stockholders will identify a client or customer prior to the beginning of a
client engagement so both parties may determine in good faith if such client or
customer has an existing relationship with CSI.
(d) CSI will (a) deposit in escrow (i) a portion of the Base Consideration
with a fair market value equal to $200,000 (the "Escrowed Amount"), consisting
of the Subordinated Note (equaling $165,000), and (ii) a $35,000 of the Line of
Credit Note, and (b) sixty (60) days after the six-month anniversary of the
Closing Date, an amount in CSI Common Stock equal to 10% of the amount issuable
to Majority Stockholders under the terms of Section 1.03(b)(i), to cover any
potential liabilities (i) incurred from the lawsuits (the "Lawsuits") currently
pending against ISI or LLC and related parties as disclosed in Section 3.01(i)
to the ISI Disclosure Letter (as hereinafter defined) and (ii) covered by the
indemnification provisions of Section 4.07 below, to be held in escrow pursuant
to the terms of the Escrow Agreement attached hereto as Exhibit C. All expenses
related to such Escrowed Amount shall be the responsibility of CSI.
Section 1.04 Effects of the Merger.
(a) At the Effective Time: (i) ISI and LLC shall be merged with and into
Merger Sub, the separate existences of ISI and LLC shall cease, and Merger Sub
shall continue as the surviving corporation (Merger Sub, ISI and LLC are
sometimes referred to herein as the "Constituent Corporations" and Merger Sub is
sometimes referred to herein as the "Surviving Corporation") and the merger
shall have such effects as are set forth in the DGCL and the DLLCA; (ii) the
Certificate of Incorporation of Merger Sub as in effect immediately prior to the
Effective Time shall be the Certificate of Incorporation of the Surviving
Corporation; and (iii) the Bylaws of Merger Sub as in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation.
(b) The directors and officers of Merger Sub at the Effective Time shall,
from and after the Effective Time, be the directors and officers of the
Surviving Corporation and shall serve until their successors have been duly
elected or appointed and qualified or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
(c) At the Effective Time, all of the shares of ISI Common Stock (as
defined below) issued and outstanding immediately prior to the Effective Time
shall, by virtue of the Merger and without any action on the part of ISI, Merger
Sub or CSI, be converted into and be exchangeable for the Base Consideration
payable to the Majority Stockholders, in their capacity as stockholders of ISI
pursuant to the terms of this Agreement, shall be distributed.
(d) At the Effective Time, all LLC Membership Interests (as defined below)
issued and outstanding immediately prior to the Effective Time shall, by virtue
of the Merger and without any action on the part of LLC, Merger Sub or CSI, be
converted into and be exchangeable for the Base Consideration payable to the
Majority Stockholders, in their capacity as membership holders of LLC pursuant
to the terms of this Agreement, shall be distributed.
(e) At the Effective Time, all options, warrants, convertible notes and
other rights, entitling the holders thereof to purchase or otherwise acquire any
shares of ISI capital stock or membership interests of LLC shall be canceled,
retired and cease to exist at and as of the Effective Time.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK
OF THE CONSTITUENT CORPORATIONS;
EXCHANGE OF MERGER CONSIDERATION
Section 2.01 Effect on Capital Stock.
At the Effective Time, by virtue of the Merger and without any
action on the part of the holder of any shares of common stock, no par value, of
ISI ("ISI Common Stock") or membership interests of LLC ("LLC Membership
Interests"), the Base Consideration and the Additional Stock Consideration paid
or issued in accordance with the terms of this Merger Agreement shall be deemed
to have been issued, or shall have been reserved for issuance, as applicable, in
full satisfaction of all rights pertaining to ISI Common Stock and LLC
Membership Interests. At the Effective Time, each share of ISI Common Stock and
all LLC Membership Interests owned prior to the Effective Time shall no longer
be outstanding and shall automatically be canceled and retired and shall cease
to exist, and each holder of a certificate representing any such shares or
membership interests shall cease to have any rights with respect thereto, except
the right to receive its portion of the Base Consideration and the Additional
Stock Consideration.
If, subsequent to the date of this Merger Agreement but prior to the
Effective Time, or prior to the date payment of Additional Stock Consideration
is made, as the case may be, the number of shares of CSI Common Stock issued and
outstanding is changed as a result of a stock split, reverse stock split,
recapitalization, reclassification or other similar transaction, the CSI Common
Stock and other items dependent thereon shall be appropriately and equitably
adjusted herein.
Section 2.02 Exchange of Certificates for Merger Consideration.
(a) Exchange Procedures. Upon surrender of a certificate or certificates
which, immediately prior to the Effective Time, represented all the outstanding
shares of ISI Common Stock and LLC Membership Interests (the "Certificates") for
cancellation to CSI or to such other agent or agents as may be appointed by CSI,
and any other required documents, the holder of record of such Certificate shall
be entitled to receive in exchange therefor the portion of the Base
Consideration which such holder has the right to receive, and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of ISI Common Stock and LLC Membership Interests that is not registered in the
transfer records of ISI or LLC, respectively, the appropriate Base Consideration
may be issued to a transferee if the Certificate representing such ISI Common
Stock and LLC Membership Interests is presented to CSI accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender the appropriate Base Consideration as contemplated by Section 2.02(b).
(b) No Further Ownership Rights in ISI Common Stock or LLC Membership
Interests. All shares of CSI Common Stock issued in exchange for and upon the
conversion of ISI Common Stock and LLC Membership Interests in accordance with
the terms hereof (including any cash paid pursuant to Section 2.02(a) or
2.02(c)) shall be deemed to have been issued in full satisfaction of all rights
pertaining to such shares of ISI Common Stock and LLC Membership Interests,
subject, however, to the rights pertaining to such shares of ISI Common Stock
and LLC Membership Interests with respect to Additional Stock Consideration, and
after the Effective Time there shall be no further registration of transfers on
the stock transfer books of the Surviving Corporation of the shares of ISI
Common Stock and LLC Membership Interests that were outstanding immediately
prior to the Effective Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they shall be canceled
and exchanged as provided in this Article II.
(c) No Liability. None of the parties shall be liable to any holder of
shares of ISI Common Stock, LLC Membership Interests or CSI Common Stock, as the
case may be, for such shares (or dividends or distributions with respect
thereto) or cash delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.01 Representations and Warranties of the Majority Stockholders.
Subject to the exceptions set forth in the disclosure letter to be
delivered by the Majority Stockholders to CSI and Merger Sub in connection
herewith (the "ISI Disclosure Letter"), the Majority Stockholders jointly and
severally represent and warrant to CSI and Merger Sub as follows:
(a) Organization, Standing and Power.
(i) Each of ISI and LLC is an entity, duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization, has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted, and is duly
qualified and in good standing to do business in each jurisdiction in which the
business it is conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, other than where the failure to
be so organized or so to qualify (individually or in the aggregate) would not
have a Material Adverse Effect (as hereinafter defined) on ISI and LLC. ISI has
delivered to CSI complete and correct copies of its Certificate of Incorporation
and Bylaws, and LLC has delivered to CSI complete and correct copies of its
Certificate of Formation and limited liability company operating agreement.
Section 3.01(a) of the ISI Disclosure Letter sets forth each direct or indirect
Subsidiary of ISI or LLC and its jurisdiction of organization and the
jurisdictions where it is qualified to do business.
(ii) As used in this Merger Agreement, the word "Subsidiary" means,
with respect to any party, any corporation or other organization, whether
incorporated or unincorporated, of which: (i) such party or any other Subsidiary
of such party is a general partner (excluding partnerships, the general
partnership interests of which are held by such party or any Subsidiary of such
party that do not have a majority of the voting interest in such partnership);
or (ii) at least a majority of the securities or other interests having by their
terms ordinary voting power to elect a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is, directly or indirectly, owned or controlled by such party or by
any one or more of its Subsidiaries, or by such party and any one or more of its
Subsidiaries.
(iii) As used in this Merger Agreement, a "Material Adverse Effect"
shall mean any effect or change that is or would be materially adverse to the
business, operations, assets, condition (financial or otherwise) or results of
operations of (i) in respect of ISI and LLC, ISI and LLC and their direct and
indirect Subsidiaries, taken as a whole, and (ii) in respect of CSI, CSI and all
of its direct and indirect Subsidiaries, taken as a whole.
(b) Capital Structure.
(i) Section 3.01(b)(i) of the ISI Disclosure Letter sets forth the
authorized, issued and outstanding capital stock or other equity interests of
ISI, LLC and each of their respective Subsidiaries as well as any other
securities (including debt securities) of ISI, LLC or their respective
Subsidiaries. All outstanding shares of capital stock of ISI and its
Subsidiaries have been duly authorized and validly issued and are fully paid and
non-assessable and were not issued in violation of any preemptive rights or
other preferential rights of subscription or purchase other than those that have
been waived or otherwise cured or satisfied and all such shares owned by ISI, or
a direct or indirect wholly owned Subsidiary of ISI, are free and clear of all
liens, charges, encumbrances, claims and options of any nature. All membership
interests of LLC and its Subsidiaries have been duly authorized and validly
issued and are fully paid and non-assessable and were not issued in violation of
any preemptive rights or other preferential rights of subscription or purchase
other than those that have been waived or otherwise cured or satisfied and all
such membership interests owned by LLC, or a direct or indirect wholly owned
Subsidiary of LLC, are free and clear of all liens, charges, encumbrances,
claims and options of any nature.
(ii) Section 3.01(b)(ii) of the ISI Disclosure Letter sets forth a
list of all options, warrants, convertible securities, rights, commitments
(including pre-emptive rights) or agreements to which ISI or any Subsidiary of
ISI is bound to issue, deliver, sell, purchase, redeem or acquire or cause to be
issued, delivered, sold, purchased, redeemed or acquired, shares of ISI Common
Stock, capital stock of an ISI Subsidiary or any other securities of ISI or its
Subsidiaries. Section 3.01(b)(ii) of the ISI Disclosure Letter further sets
forth a list of all options, warrants, convertible securities, rights,
commitments (including pre-emptive rights) or agreements to which LLC or any
Subsidiary of LLC is bound to issue, deliver, sell, purchase, redeem or acquire
or cause to be issued, delivered, sold, purchased, redeemed or acquired, LLC
Membership Interests, capital stock of a LLC Subsidiary or any other securities
of LLC or its Subsidiaries.
(iii) Except as disclosed in Section 3.01(b)(iii) of the ISI
Disclosure Letter, there are not as of the date hereof, and there will not be at
the Effective Time, any stockholder agreements, voting trusts or other
agreements or understandings to which ISI or LLC or Majority Stockholders are a
party or by which it is bound relating to the voting of any shares of the
capital stock of ISI or membership interests of LLC or any of their
Subsidiaries. There are no restrictions on ISI or LLC to vote the capital stock
of any of their Subsidiaries.
(c) Authority; No Violations; Consents and Approvals.
(i) The Board of Directors of ISI has approved the Merger and this
Merger Agreement, by vote of the directors with no negative vote, and has
resolved to deem this Merger Agreement and the transactions contemplated hereby,
including the Merger, advisable and fair to, and in the best interests of, ISI
and its stockholders. ISI has all requisite corporate power and authority to
enter into this Merger Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Merger Agreement and each of the
agreements required to be executed in connection therewith and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of ISI. This Merger Agreement and
each of the agreements required to be executed in connection therewith have been
duly executed and delivered by ISI and constitutes a valid and binding
obligation of ISI enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or effecting creditors' rights and to general
principles of equity and limitations imposed on indemnity obligations by
applicable federal and state securities laws.
The Board of Managers of LLC has approved the Merger and this
Merger Agreement, by vote of the members with no negative vote, and has resolved
to deem this Merger Agreement and the transactions contemplated hereby,
including the Merger, advisable and fair to, and in the best interests of, LLC
and its members. LLC has all requisite corporate power and authority to enter
into this Merger Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Merger Agreement and each of the
agreements required to be executed in connection therewith and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of LLC. This Merger Agreement and
each of the agreements required to be executed in connection therewith have been
duly executed and delivered by LLC and constitutes a valid and binding
obligation of LLC enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or effecting creditors' rights and to general
principles of equity and limitations imposed on indemnity obligations by
applicable federal and state securities laws.
This Merger Agreement and each of the agreements required to
be executed in connection therewith have been duly executed and delivered by the
Majority Stockholders and constitutes a valid and binding obligation of the
Majority Stockholders enforceable in accordance with its terms, subject, as to
enforceability, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or effecting creditors' rights and to general
principles of equity and limitations imposed on indemnity obligations by
applicable federal and state securities laws.
(ii) The execution and delivery of this Merger Agreement by ISI and
LLC does not, and the consummation by ISI and LLC of the transactions
contemplated hereby and compliance with the provisions hereof will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to the loss of a material benefit under, or
result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of ISI and LLC or any of their respective
Subsidiaries under any provision of (A) the Certificate of Incorporation or
Bylaws of ISI, the Certificate of Formation or limited liability company
operating agreement of LLC, or any provision of the comparable charter or
organizational documents of any of their respective Subsidiaries, (B) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to ISI and LLC
or any of their respective Subsidiaries or (C) any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to ISI and LLC or any of
their respective Subsidiaries or any of their respective properties or assets,
other than, in the case of clause (B) or (C), any such conflicts, violations,
defaults, rights, liens, security interests, charges or encumbrances that are
set forth on Section 3.01(a)(ii) of the ISI Disclosure Letter.
(iii) No consent, approval, order or authorization of, or
registration, declaration or filing with, or permit from, any U.S. or non-U.S.
court, administrative agency or commission or other governmental authority or
instrumentality (a "Governmental Entity"), is required by, or with respect to,
ISI and LLC or any of their respective Subsidiaries in connection with the
execution and delivery of this Merger Agreement by ISI and LLC or the
consummation by ISI and LLC of the transactions contemplated hereby, as to which
the failure to obtain or make would have a Material Adverse Effect on ISI and
LLC, except for: (A) the filing of the Certificate of Merger with the Secretary
of State of the State of Delaware; or (B) such filings and approvals as may be
required by any applicable state securities, "blue sky" or takeover laws, or
Environmental Law.
(d) Financial Statements. Attached hereto as Section 3.01(d)(i) to the ISI
Disclosure Letter is a copy of ISI's and LLC's audited consolidated financial
statements as of and for the year ended December 31, 2004, certified by Tanton &
Co., and unaudited consolidated financial statements as of and for the six-month
period ended June 30, 2005 (collectively, the "ISI Financial Statements").
Except as disclosed on Section 3.01(d)(ii) to the ISI Disclosure Letter, the ISI
Financial Statements were prepared in accordance with GAAP, applied on a
consistent basis during the periods involved and fairly present in accordance
with applicable requirements of GAAP (subject, in the case of the unaudited
statements, to normal year-end adjustments and the absence of footnotes) the
consolidated financial position of ISI and its consolidated Subsidiaries as of
their respective dates and the consolidated results of operations and the
consolidated cash flows of ISI and its Subsidiaries for the periods presented
therein.
(e) Absence of Certain Changes or Events. Except as disclosed in or as
reflected on the ISI Financial Statements, or except as contemplated by this
Merger Agreement, since June 30, 2005, there has not been: (i) any declaration,
setting aside or payment of any dividend or other distribution (whether in cash,
stock or property) with respect to any of ISI's capital stock; (ii) any
amendment of any term of any outstanding equity security of ISI, LLC or any
Subsidiary; (iii) any repurchase, redemption or other acquisition by ISI, LLC or
any Subsidiary of any outstanding shares of capital stock or other equity
securities of, or other ownership interests in, ISI, LLC or any Subsidiary; (iv)
any change in any method of accounting or accounting practice by ISI, LLC or any
Subsidiary; or (v) a Material Adverse Effect with respect to ISI or LLC.
(f) No Undisclosed Liabilities. Except as disclosed on Section 3.01(f) to
the ISI Disclosure Letter, there are no liabilities of ISI, LLC or any
Subsidiary of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, other than: (i) liabilities adequately
provided for on the Current Balance Sheet included in the ISI Financial
Statements; (ii) liabilities under this Merger Agreement; and (iii) as disclosed
on Section 3.01(f)(i) to the ISI Disclosure Letter.
(g) No Default. Except as included in Section 3.01(g) of the ISI
Disclosure Letter, neither ISI, LLC or any Subsidiary is in default or violation
(and no event has occurred which, with notice or the lapse of time or both,
would constitute a default or violation) of any term, condition or provision of
(i) in the case of ISI, LLC or any Subsidiary, their respective charters,
agreements and bylaws, (ii) any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which ISI, LLC or any Subsidiary
is now a party or by which ISI, LLC or any Subsidiary or any of their respective
properties or assets may be bound or (iii) any order, writ, injunction, decree,
statute, rule or regulation applicable to ISI, LLC or any Subsidiary.
(h) Compliance with Applicable Laws. ISI, LLC and any of their respective
Subsidiaries hold all permits, licenses, variances, exemptions, orders,
franchises and approvals of all Governmental Entities necessary for the lawful
conduct of their respective businesses (the "ISI Permits") and are in compliance
with the terms of the ISI Permits. The businesses of ISI, LLC and their
respective Subsidiaries are not being conducted in violation of any law,
ordinance or regulation of any Governmental Entity. No investigation or review
by any Governmental Entity with respect to ISI, LLC and their respective
Subsidiaries is pending or threatened.
(i) Litigation. Except as disclosed in the litigation report included in
Section 3.01(i) of the ISI Disclosure Letter, there is no (i) suit, action or
proceeding pending or threatened against or affecting ISI, LLC and their
respective Subsidiaries, or (ii) judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against ISI, LLC and their
respective Subsidiaries.
(j) Taxes.
(i) Each of ISI, LLC and their respective Subsidiaries and any
affiliated, combined or unitary group of which any such entity is or was a
member has (A) timely (taking into account any extensions) filed in correct form
all federal and all state, local and non-U.S. returns, declarations, reports,
estimates, information returns and statements ("Returns") required to be filed
by or with respect to it in respect of any Taxes (as hereinafter defined), (B)
timely paid all Taxes that are due and payable (except for audit adjustments
that would not have a Material Adverse Effect on ISI, LLC and their respective
Subsidiaries in the aggregate or to the extent that liability therefor is
reserved for in ISI's and LLC's most recent, regularly-prepared balance sheet
prepared as of June 30, 2005 (the "Current Balance Sheet")) for which ISI, LLC
and their respective Subsidiaries may be liable, (C) established reserves that
are included in the Current Balance Sheet that are adequate for the payment of
all Taxes not yet due and payable with respect to the results of operations of
ISI, LLC and their respective Subsidiaries through the date of the Current
Balance Sheet, and (D) complied in all respects with all applicable laws, rules
and regulations relating to the payment and withholding of Taxes and has in all
respects timely withheld from employee wages and paid over to the proper
governmental authorities all amounts required to be so withheld and paid over.
(ii) Section 3.01(j)(ii) to the ISI Disclosure Letter sets forth the
last taxable period through which the federal income Tax Returns of ISI, LLC and
their respective Subsidiaries have been examined by the Internal Revenue Service
("IRS") or otherwise closed. Except to the extent being contested in good faith,
all deficiencies asserted as a result of such examinations and any examination
by any applicable state, local or non-U.S. taxing authority have been paid,
fully settled or adequately provided for in the Current Balance Sheet. No
federal, state, local or non-U.S. Tax audits or other administrative proceedings
or court proceedings are presently pending with regard to any Taxes for which
ISI, LLC or any of their respective Subsidiaries would be liable, and no
deficiency for any such Taxes has been proposed, asserted or assessed pursuant
to any such examination against ISI, LLC and their respective Subsidiaries by
any federal, state, local or non-U.S. taxing authority with respect to any
period.
(iii) Neither ISI, LLC nor any of their respective Subsidiaries (A)
has executed or entered into (or prior to the close of business on the Closing
Date will execute or enter into) with the IRS or any other taxing authority (x)
any agreement or other document extending or having the effect of extending the
period for assessments or collection of any Taxes for which ISI, LLC and their
respective Subsidiaries would be liable or (y) a closing agreement pursuant to
Section 7121 of the Internal Revenue Code (the "Code"), or any predecessor
provision thereof or any similar provision of state, local or non-U.S. Tax law
that relates to the assets or operations of ISI, LLC or their respective
Subsidiaries, (B) has made a change in method of accounting for a taxable period
ending on or prior to the Closing Date, or (C) has sold assets on the
installment method.
(iv) There are no liens or security interests on any of the assets
of ISI, LLC and their respective Subsidiaries that arose in connection with any
failure or alleged failure to pay any Tax other than for Taxes which are not yet
delinquent.
(v) Neither ISI, LLC nor any of their respective Subsidiaries is a
party to an agreement that provides for the payment of any amount that would
constitute a "parachute payment" within the meaning of Section 280G of the Code.
(vi) Neither ISI, LLC nor any of their respective Subsidiaries has
made an election under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
such term is defined in Section 341(f)(4) of the Code) owned by ISI, LLC and
their respective Subsidiaries.
(vii) Neither ISI, LLC nor any of their respective Subsidiaries is a
party to, is bound by or has any obligation under any tax sharing agreement, tax
indemnity agreement or similar agreement or arrangement.
(viii) Neither ISI, LLC nor any of their respective Subsidiaries has
any liability for Taxes under Treas. Reg. ss. 1.1502-6, or any similar provision
of state, local or non-U.S. law, except for Taxes of the affiliated group of
which ISI and/or LLC is the common parent corporation, within the meaning of
Section 1504(a)(1) of the Code or any similar provision of state, local or
non-U.S. law.
(ix) Neither ISI, LLC nor any of their respective Subsidiaries has
participated in any international boycott within the meaning of Section 999 of
the Code.
(x) Except as disclosed on Section 3.01(j)(x) to the ISI Disclosure
Letter, neither ISI, LLC nor any of their respective Subsidiaries has had a
permanent establishment in any foreign country, as defined in any applicable
treaty or convention between the United States and such foreign country.
(xi) Neither ISI, LLC nor any of their respective Subsidiaries has
been a United States real property holding corporation within the meaning of
Section 897(c)(2) of the Code during the applicable period specified in Section
897(c)(1)(A)(ii) of the Code.
For purposes of this Merger Agreement, "Taxes" shall mean all
federal, state, local, non-U.S. and other taxes, charges, fees, levies, imposts,
duties, licenses or other assessments, together with any interest, penalties,
additions to tax or additional amounts imposed by any taxing authority.
(k) Employee Matters; ERISA.
(i) Benefit Plans. Section 3.01(k)(i) to the ISI Disclosure Letter
contains a true and complete list and description of each of the following
items: each employee benefit plan, program or arrangement covering any current
or former officer, director, employee or independent contractor of ISI, LLC or
any of their respective Subsidiaries or any of their dependents or beneficiaries
(each, an "ISI Beneficiary") including, but not limited to, any "employee
benefit plan" within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), whether or not terminated or
covered by ERISA, if ISI, LLC or any of their respective Subsidiaries could have
statutory or contractual liability with respect thereto on or after the date
hereof. The items described above, together with each management, employment,
deferred compensation, severance, change in control, bonus or other contract for
personal services with or covering any ISI Beneficiary, whether or not
terminated, if ISI, LLC or any of their respective Subsidiaries could have
statutory or contractual liability with respect thereto on or after the date
hereof, are referred to collectively herein as the "ISI Benefit Plans."
(ii) Contributions and Payments. All contributions and other
payments required to have been made by ISI, LLC or any entity required to be
aggregated therewith pursuant to Code Section 414 (an "ISI ERISA Affiliate")
with respect to any ISI Benefit Plan (or to any person pursuant to the terms
thereof) have been or will be timely made and all such amounts properly accrued
through the date of this Merger Agreement have been reflected in the ISI
Financial Statements.
(iii) Qualification; Compliance. Each ISI Benefit Plan that is
intended to be "qualified" within the meaning of Code Section 401(a) has been
determined by the IRS to be so qualified or the applicable remedial period
applicable to the Plan will not have ended prior to the Effective Time, and no
event or condition exists or has occurred that would reasonably be expected to
result in the revocation or denial of any such determination which would have a
Material Adverse Effect on ISI or LLC. With respect to each ISI Benefit Plan,
ISI, LLC and each ISI ERISA Affiliate are in compliance with, and each ISI
Benefit Plan and related source of benefit payment is and has been operated in
compliance with, all applicable laws, rules and regulations governing such plan
or source, including, without limitation, ERISA, the Code and applicable local
law (including non-U.S. law), except for violations that would not have a
Material Adverse Effect on ISI or LLC. No ISI Benefit Plan is subject to any
ongoing audit, investigation or other administrative proceeding of the IRS, the
Department of Labor, or any other federal, state or local governmental entity or
is scheduled to be subject to such an audit, investigation or proceeding.
(iv) Liabilities. With respect to the ISI Benefit Plans,
individually and in the aggregate, there exists no condition or set of
circumstances that could subject ISI, LLC or any ISI ERISA Affiliate to any
liability arising under the Code, ERISA or any other applicable law (including,
without limitation, any liability to or under any such plan or to the Pension
Benefit Guaranty Corporation ("PBGC"), or under any indemnity agreement to which
ISI, LLC or any ISI ERISA Affiliate is a party), which liability, excluding
liability for benefit claims, funding obligations and PBGC insurance premiums,
each payable in the ordinary course, would have a Material Adverse Effect on ISI
or LLC. No claim, action or litigation has been made, commenced or threatened,
by or against ISI, LLC or any of their respective Subsidiaries with respect to
any ISI Benefit Plan (other than for benefits or PBGC premiums payable in the
ordinary course).
(v) Retiree Welfare Plans. No ISI Benefit Plan that is a "welfare
plan" (within the meaning of ERISA Section 3(1)) provides benefits for any
retired or former employees (other than as required pursuant to ERISA Section
601).
(vi) Payments Resulting from Merger. The consummation or
announcement of any transaction contemplated by this Merger Agreement will not
(either alone or upon the occurrence of any additional or further acts or
events) result in (A) any payment (whether of severance pay or otherwise)
becoming due from ISI, LLC or any of their respective Subsidiaries to any ISI
Beneficiary or to the trustee under any "rabbi trust" or similar arrangement,
(B) any benefit under any ISI Benefit Plan being established or increased, or
becoming accelerated, vested or payable (except as provided in Section
2.01(g)(i)) or (C) any payment that would not be deductible under Section 280G
of the Code.
(vii) Funded Status of Plans. Each ISI Benefit Plan that is subject
to either the minimum funding requirements of ERISA Section 302 or to Title IV
of ERISA has assets that, as of the date hereof, have a fair market value not
less than the present value of the accrued benefit obligations thereunder on a
termination basis, as of the date hereof, based on the actuarial methods, tables
and assumptions utilized by such plan's independent actuary in preparing such
plan's most recently prepared actuarial valuation report, except to the extent
that applicable law would require the use of different actuarial assumptions if
such plan was to be terminated as of the date hereof, in which case those
different assumptions shall apply for purposes of this representation. ISI, LLC
and their respective Subsidiaries have no unfunded liabilities, as determined
under local funding requirements, with respect to any ISI Benefit Plans that
cover such non-U.S. employees.
(viii) Multiemployer Plans. No ISI Benefit Plan is or was a
"multiemployer plan" (within the meaning of ERISA Section 4001(a)(3)), a
multiple employer plan described in Code Section 413(c), or a "multiple employer
welfare arrangement" (within the meaning of ERISA Section 3(40)). Neither ISI,
LLC nor any ISI ERISA Affiliate has been obligated to contribute to, or
otherwise has or has had any liability with respect to, any multiemployer plan,
multiple employer plan, or multiple employer welfare arrangement.
(l) Labor Matters. Except as set forth in Section 3.01(l) to the ISI
Disclosure Letter,
(i) neither ISI, LLC nor any of their respective Subsidiaries is a
party to any collective bargaining agreement or other current labor agreement
with any labor union or organization, and there is no current union
representation dispute involving employees of ISI, LLC or any of their
respective Subsidiaries nor does ISI, LLC or any of their respective
Subsidiaries know of any activity or proceeding of any labor organization (or
representative thereof) or employee group (or representative thereof) to
organize any such employees;
(ii) there is no unfair labor practice charge or grievance arising
out of a collective bargaining agreement or other grievance procedure against
ISI, LLC or any of their respective Subsidiaries pending or threatened;
(iii) there is no complaint, lawsuit or proceeding in any forum by
or on behalf of any present or former employee, any applicant for employment or
any classes of the foregoing alleging breach of any express or implied contract
of employment, any law or regulation governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship against ISI, LLC or any of their respective
Subsidiaries pending or threatened;
(iv) there is no strike, dispute, slowdown, work stoppage or lockout
pending or threatened against or involving ISI, LLC or any of their respective
Subsidiaries;
(v) ISI, LLC and their respective Subsidiaries are in compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment, wages, hours of work and occupational safety and
health; and
(vi) there is no proceeding, claim, suit, action or governmental
investigation pending or threatened in respect to which any current or former
director, officer, employee or agent of ISI, LLC or any of their respective
Subsidiaries is or may be entitled to claim indemnification from ISI, LLC or any
of their respective Subsidiaries (A) pursuant to their respective charters,
agreements or bylaws, (B) as provided in any indemnification agreement to which
ISI, LLC or any of their respective Subsidiaries is a party or (C) pursuant to
applicable law.
(m) Intellectual Property.
(i) "Intellectual Property" means:
(1) all issued patents, reissued or reexamined patents,
revivals of patents, utility models, certificates of invention, registrations of
patents and extensions thereof, regardless of country or formal name
(collectively, "Issued Patents");
(2) all published or unpublished nonprovisional and
provisional patent applications, reexamination proceedings, invention
disclosures and records of invention (collectively with the Issued Patents, the
"Patents");
(3) all copyrights, copyrightable works, semiconductor
topography and mask work rights, including all rights of authorship, use,
publication, reproduction, distribution, performance transformation, moral
rights and rights of ownership of copyrightable works, semiconductor topography
works and mask works, and all rights to register and obtain renewals and
extensions of registrations, together with all other interests accruing by
reason of international copyright, semiconductor topography and mask work
conventions (collectively, "Copyrights");
(4) common law trademarks, registered trademarks, applications
for registration of trademarks, common law service marks, registered service
marks, applications for registration of service marks, trade names, registered
trade names and applications for registrations of trade names and trade dress
(collectively, "Trademarks");
(5) all right, title and interest of ISI and LLC to the extent
required and used to conduct their business as presently conducted in, to, or
under (i) all invention disclosures, improvements, trade secrets, proprietary
information, technology, technical data and customer lists, and all
documentation relating to any of the foregoing; (ii) all moral and economic
rights of authors and inventors, however denominated, (iii) database and data
collections and computer software, whether owned or licensed, to the extent
fully assignable; and (iv) all industrial designs and registration's and
applications therefor (collectively, as such is required and used to conduct the
business as currently conducted by ISI and LLC);
(6) all technology, ideas, inventions, designs, proprietary
information, manufacturing and operating specifications, know-how, formulae,
trade secrets, technical data, computer programs, hardware, software and
processes related to the business as such business is currently conducted and as
its business is proposed to be conducted;
(7) all domain names registered; and
(8) all other intangible intellectual property assets,
properties and rights (whether or not appropriate steps have been taken to
protect, under applicable law, such other intangible assets, properties or
rights).
(ii) Except as set forth in Section 3.01(m) to the ISI Disclosure
Letter, ISI, LLC and each of their respective Subsidiaries owns and has good and
marketable title to, or possesses legally enforceable rights to use, all
Intellectual Property used in the business of ISI and LLC as currently conducted
by ISI, LLC and each of their respective Subsidiaries (the "ISI Intellectual
Property"), free and clear of all liens, claims or encumbrances. ISI
Intellectual Property constitutes all of the Intellectual Property necessary to
enable ISI, LLC and each of their respective Subsidiaries to conduct their
business as such business is currently being conducted. ISI, LLC and each of
their respective Subsidiaries has not received notice that any current or former
officer, director, stockholder, employee, consultant or independent contractor
has asserted any right, claim or interest in or with respect to any ISI
Intellectual Property, and ISI, LLC and each of their respective Subsidiaries
are not aware of a reasonable basis for any such claim. There is no unauthorized
use, disclosure or misappropriation of any ISI Intellectual Property by any
employee or former employee of ISI, LLC and each of their respective
Subsidiaries or by any other third party. There are no royalties, fees or other
payments payable by ISI, LLC and each of their respective Subsidiaries to any
third person under any written or oral contract or understanding by reason of
the ownership, use, sale or disposition of ISI Intellectual Property. The
operation of the businesses of each of ISI, LLC and their respective
Subsidiaries does not conflict with, infringe upon, violate or interfere with or
constitute an appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property right, trade secret,
trademark, trade name, patent, service mark, brand mark, brand name, computer
program, database, industrial design, copyright or any pending application
therefor of any other person and there have been no claims made or notices
received in connection therewith.
(iii) With respect to each item of ISI Intellectual Property
incorporated into any product of Subsidiaries or otherwise used in the business
of Subsidiaries, Section 3.01(m) to the ISI Disclosure Letter lists:
(1) all Patents, Copyrights and Trademarks issued to or
registered by ISI, LLC and each of their respective Subsidiaries, including the
jurisdictions in which each such Intellectual Property has been issued or
registered or in which any such application for such issuance and registration
has been filed; and
(2) the following agreements relating to each of the
proprietary products of ISI, LLC and each of their respective Subsidiaries (the
"ISI Products") or other ISI Intellectual Property: (A) all agreements granting
any right to distribute or sublicense an ISI Product on any exclusive basis, (B)
any exclusive licenses of Intellectual Property to or from ISI, LLC and each of
their respective Subsidiaries, (C) agreements pursuant to which the amounts
actually paid or payable under firm commitments to ISI, LLC and each of their
respective Subsidiaries are $5,000 or more, (D) joint development agreements,
(E) any agreement by which ISI, LLC and each of their respective Subsidiaries
grants any ownership right to any ISI Intellectual Property owned by ISI, LLC
and each of their respective Subsidiaries, (F) any judicial, administrative,
regulatory or other governmental order relating to Intellectual Property, (G)
any option relating to any ISI Intellectual Property, and (H) agreements
pursuant to which any party is granted any rights to access source code or to
use source code, including without limitation any rights to create derivative
works of ISI Products.
(iv) Section 3.01(m) to the ISI Disclosure Letter contains an
accurate list as of the date of this Merger Agreement of all licenses,
sublicenses and other agreements to which ISI, LLC and each of their respective
Subsidiaries is a party and pursuant to which ISI, LLC and each of their
respective Subsidiaries is authorized to use any Intellectual Property owned by
any third party, excluding "off the shelf" or other software at a cost not
exceeding $5,000 and available through regular commercial distribution channels
on standard terms and conditions, including any related support and maintenance
("Third Party Intellectual Property").
(v) There is no unauthorized use, disclosure, infringement or
misappropriation of any ISI Intellectual Property, including any Third Party
Intellectual Property by any third party, including any employee or former
employee of Seller or any of its subsidiaries. Other than in respect of
agreements with ISI's officers and directors, LLC's officers and members, and
each of ISI's and LLC's respective Subsidiaries' officers and directors, ISI,
LLC and each of their respective Subsidiaries have not entered into any
agreement to indemnify any other person against any charge of infringement of
any Intellectual Property, other than indemnification provisions contained in
agreements with end users arising in the Ordinary Course. There are no
royalties, fees or other payments payable by ISI, LLC and each of their
respective Subsidiaries to any Person by reason of the ownership, use, sale or
disposition of Intellectual Property, excluding royalties, fees and other
payments related to "off the shelf" or other software at a cost not exceeding
$5,000.
(vi) ISI, LLC and each of their respective Subsidiaries are not in
breach of any license, sublicense or other agreement relating to ISI
Intellectual Property or Third Party Intellectual Property Rights. Neither the
execution, delivery or performance of this Merger Agreement or any ancillary
agreement contemplated hereby nor the consummation of the transactions
contemplated by this Merger Agreement will contravene, conflict with or result
in an infringement on ISI Intellectual Property, including any Third Party
Intellectual Property.
(vii) All Patents, registered Copyrights, registered Trademarks and
registered service marks held by ISI, LLC and each of their respective
Subsidiaries are valid and subsisting. All maintenance and annual fees due
through the date of this Merger Agreement have been fully paid and all fees paid
during prosecution and after issuance of any patent comprising or relating to
such item have been paid in the correct entity status amounts. ISI, LLC and each
of their respective Subsidiaries have not received any notice or other
communication (in writing or otherwise) of any actual, alleged, possible or
potential infringement, misappropriation or unlawful use of any proprietary
asset owned or used by any third party. ISI, LLC and each of their respective
Subsidiaries have not received notice of any proceeding pending or threatened
nor has any claim or demand been made, which challenges the legality, validity,
enforceability or ownership of any item of ISI Intellectual Property or Third
Party Intellectual Property or alleges a claim of infringement of any Patents,
Copyrights, Trademarks, service marks or violation of any trade secret or other
proprietary right of any third party. ISI, LLC and each of their respective
Subsidiaries has not brought a proceeding alleging infringement of ISI
Intellectual Property or breach of any license or agreement involving
Intellectual Property against any third party.
(viii) All current and former officers and employees of ISI, LLC and
each of their respective Subsidiaries have executed and delivered to ISI or LLC
an agreement (containing no exceptions or exclusions from the scope of its
coverage) regarding the protection of proprietary information and the assignment
to ISI or LLC of any Intellectual Property arising from services performed for
ISI, LLC or each of their respective Subsidiaries by such persons. All current
and former consultants and independent contractors to ISI, LLC and each of their
respective Subsidiaries involved in the development, modification, marketing and
servicing of ISI Products and/or ISI Intellectual Property have executed and
delivered to ISI or LLC an agreement (containing no exceptions or exclusions
from the scope of its coverage) regarding the protection of proprietary
information and the assignment to ISI or LLC of any Intellectual Property
arising from services performed for ISI, LLC and each of their respective
Subsidiaries by such persons. No employee or independent contractor of ISI, LLC
and each of their respective Subsidiaries is in violation of any term of any
patent disclosure agreement or employment contract or any other contract or
agreement relating to the relationship of any such employee or independent
contractor with ISI, LLC and each of their respective Subsidiaries.
(ix) ISI, LLC and each of their respective Subsidiaries has taken
commercially reasonable and customary measures and precautions necessary to
protect and maintain the confidentiality of all ISI Intellectual Property
(except such ISI Intellectual Property whose value would be unimpaired by public
disclosure) and otherwise to maintain and protect the full value of all
Intellectual Property it owns or uses. All Intellectual Property not otherwise
protected by Patents or Copyrights owned by ISI, LLC and each of their
respective Subsidiaries (except such ISI Intellectual Property whose value would
be unimpaired by public disclosure) used by or disclosed to a third party has
been pursuant to the terms of a written agreement between ISI, LLC and each of
their respective Subsidiaries and such third party.
(x) No product liability claims have been communicated in writing to
or threatened against ISI, LLC and each of their respective Subsidiaries.
(xi) A complete list of each of ISI Products and ISI's proprietary
software ("ISI Software"), together with a brief description of each, is set
forth in Section 3.01(m) to the ISI Disclosure Letter.
(xii) ISI, LLC and each of their respective Subsidiaries are not
subject to any proceeding or outstanding decree, order, judgment, or stipulation
restricting in any manner the use, transfer, or licensing thereof by ISI, LLC
and each of their respective Subsidiaries, or which may affect the validity, use
or enforceability of such ISI Intellectual Property. ISI, LLC and each of their
respective Subsidiaries are not subject to any agreement which restricts in any
material respect the use, transfer, or licensing by ISI, LLC and each of their
respective Subsidiaries of the ISI Intellectual Property owned by ISI, LLC and
each of their respective Subsidiaries, or ISI Products.
(n) Environmental Matters. For purposes of this Merger Agreement:
(i) "Environmental Law" means any applicable law regulating,
prohibiting or requiring the notification of Releases into any part of the
natural environment, pertaining to the protection of natural resources, the
environment and public and employee health and safety, or governing or
regulating the use, storage, handling, transportation, treatment, processing,
disposal or generation of any Hazardous Materials, including, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act (42 U.S.C. Section 9601 et seq.), the Hazardous Materials
Transportation Act (49 U.S.C. Section 1801 et seq.), the Resource Conservation
and Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean Water Act (33
U.S.C. Section 1251 et seq.), the Clean Air Act (33 U.S.C. Section 7401 et
seq.), the Toxic Substances Control Act (15 U.S.C. Section 7401 et seq.), the
Federal Insecticide, Fungicide, and Rodenticide Act (7 U.S.C. Section 136 et
seq.), Emergency Planning and Community Right to Know Act (42 U.S.C. Section
11001 et seq.), Safe Drinking Water Act (Section 42 U.S.C. Section 300 et seq.)
and the Occupational Safety and Health Act (29 U.S.C. Section 651 et seq.) and
the regulations promulgated pursuant thereto, and any other such applicable
county, province, state or local statutes, and the regulations promulgated
pursuant thereto, as such laws have been and may be amended or supplemented
through the Closing Date.
(ii) "Hazardous Material" means any substance, material or waste
which is regulated pursuant to any Environmental Law by any public or
governmental authority in the jurisdictions in which the applicable party or its
Subsidiaries conducts business, or in the United States, including, without
limitation, any material or substance which is defined as a "hazardous waste,"
"hazardous material," "hazardous substance," "extremely hazardous waste" or
"restricted hazardous waste," "contaminant," "pollutant," "toxic waste" or
"toxic substance" under any provision of Environmental Law;
(iii) "Release" means any release, spill, effluent, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor environment, or into or out of any
property owned, operated or leased by the applicable party or its Subsidiaries;
and
(iv) "Remedial Action" means all actions, including, without
limitation, any capital expenditures, required by a governmental entity or
required under any Environmental Law, or voluntarily undertaken to (I)
investigate, clean up, remove, treat, or in any other way ameliorate or address
any Hazardous Materials or other substance in the indoor or outdoor environment;
(II) prevent the Release or threat of Release, or minimize the further Release
of any Hazardous Material so it does not endanger or threaten to endanger the
public health or welfare of the indoor or outdoor environment; (III) perform
pre-remedial studies and investigations or post-remedial monitoring and care
pertaining or relating to a Release; or (IV) bring the applicable party into
compliance with any Environmental Law.
(1) The operations of ISI, LLC and their respective
Subsidiaries have been and, as of the Closing Date, will be in compliance with
all Environmental Laws;
(2) ISI, LLC and their respective Subsidiaries have obtained
and will, as of the Closing Date, maintain all permits required under applicable
Environmental Laws for the continued operations of their respective businesses;
(3) ISI, LLC and their respective Subsidiaries are not subject
to any outstanding orders, investigations or contracts with any Governmental
Entity or other person respecting (A) Environmental Laws, (B) Remedial Action or
(C) any Release or threatened Release of a Hazardous Material;
(4) ISI, LLC and their respective Subsidiaries have not
received any written communication alleging, with respect to any such party, the
violation of or liability under any Environmental Law or liability attributable
to the Release of any Hazardous Material;
(5) Neither ISI, LLC nor any of their Subsidiaries has any
contingent liabilities in connection with the Release of any Hazardous Material
into the indoor or outdoor environment (whether on-site or off-site);
(6) The operations of ISI, LLC and their respective
Subsidiaries involving the generation, transportation, treatment, storage or
disposal of Hazardous Material or any state equivalent are in compliance with
applicable Environmental Laws; and
(7) There is not now on or in any property (leased or owned)
of ISI, LLC and their respective Subsidiaries any of the following: (A) any
underground storage tanks or surface impoundments; (B) any asbestos-containing
materials; or (C) any polychlorinated biphenyls.
(o) Vote Required. The affirmative, unanimous vote (whether in writing or
by proxy) of the holders of the outstanding shares of ISI Common Stock voting
together as a single class, and the affirmative, unanimous vote of the LLC
Membership Interests voting together as a single class, are the only votes of
the holders of any class or series of ISI or LLC securities necessary to approve
this Merger Agreement and the transactions contemplated hereby, and such votes
approving the proposed transactions have been received. ISI has taken such other
action with respect to any other anti-takeover provisions in its Bylaws or
Certificate of Incorporation to the extent necessary to consummate the Merger on
the terms set forth in this Merger Agreement, and LLC has taken such other
action with respect to any other anti-takeover provisions in its Certificate of
Formation or limited liability company operating agreement to the extent
necessary to consummate the Merger on the terms set forth in this Merger
Agreement.
(p) Insurance. ISI maintains insurance coverage adequate for the operation
of the business of ISI and each of its Subsidiaries and LLC maintains insurance
coverage adequate for the operation of the business of LLC and each of its
Subsidiaries, and the transactions contemplated hereby will not materially
adversely affect such coverage. Section 3.01(p) to the ISI Disclosure Letter
sets forth a true and complete list of such coverage.
(q) Broker Fees. Except as disclosed on Section 3.01(q) of the ISI
Disclosure Letter, no broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Merger Agreement based upon arrangements made
by or on behalf of ISI or LLC.
(r) Material Contracts and Agreements. Section 3.01(r) to the ISI
Disclosure Letter includes: (a) a list of all written and oral contracts to
which Seller or any of its subsidiaries is a party or by which its property is
bound that involve consideration or other expenditure in excess of $5,000 or
performance over a period of more than six (6) months or that is otherwise
material to its business or operations (excluding licenses relating to third
party Intellectual Property at a cost not exceeding $5,000) ("Material
Contracts"); (b) a list of all real or personal property leases to which Seller
or any of its subsidiaries is a party involving consideration or other
expenditure in excess of $5,000 over the term of the lease ("Material Leases");
(c) a list of all guarantees of, or agreements to indemnify or be contingently
liable for, the payment or performance by any individual or entity to which ISI,
LLC or any of their respective subsidiaries is a party (excluding
indemnification provisions relating to the ISI Intellectual Property arising in
the ordinary course) ("Guarantees"); (d) each employment or severance contract,
lease agreement and credit agreement, note or other instrument relating to
indebtedness of ISI, LLC and their respective Subsidiaries; and (e) a list of
all contracts or other formal or informal understandings between ISI, LLC or any
of their respective subsidiaries and any of their respective officers,
directors, members, employees, agents, stockholders or affiliates ("Related
Party Agreements"). True and complete copies of each Material Contract, Material
Lease, Guarantee and Related Party Agreements, to the extent they are in written
form, have been furnished to CSI. Except as may be set forth in Section 3.01(r)
to the ISI Disclosure Letter, each Material Contract is in full force and
effect, valid and binding in accordance with its terms on Seller and no notice
of any material breach or violation thereof has been given to ISI or LLC. All
agreements listed in Section 3.01(r) to the ISI Disclosure Letter are valid,
binding and enforceable in accordance with their terms and are in full force and
effect against ISI or LLC, as applicable, and the other parties thereto, subject
to (a) judicial principles limiting the availability of specific performance,
injunctive relief and other equitable remedies, and (b) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
generally relating to or affecting creditors' rights.
(s) Title to Properties.
(i) Section 3.01(s)(i) to the ISI Disclosure Letter sets forth a
true and complete list of properties owned or leased by ISI, LLC and their
respective Subsidiaries. Each of ISI, LLC and their respective Subsidiaries has
good and indefeasible title to, or valid leasehold interests in, all its
properties and assets purported to be owned by it, except for such as are no
longer used or useful in the conduct of its businesses or as have been disposed
of in the ordinary course of business. All such assets and properties, other
than assets and properties in which ISI, LLC and their respective Subsidiaries
has leasehold interests, are free and clear of all liens, other than those set
forth on Section 3.01(s)(ii) to the ISI Disclosure Letter.
(ii) Each of ISI, LLC and their respective Subsidiaries has complied
in all material respects with the terms of all leases to which it is a party and
under which it is in occupancy, and all such leases are in full force and effect
and none of ISI, LLC and their respective Subsidiaries have received any notice
or other communication, oral or written, indicating that any such lease will be
terminated other than in the ordinary course of business.
(t) Accounts Receivable. All the accounts receivable of ISI and LLC are
listed on Section 3.01(t) to the ISI Disclosure Letter, at the aggregate
recorded amount thereof. Except as otherwise noted therein, these accounts
receivable are valid receivables and subject to no valid counterclaims or
set-offs.
(u) Creditors; Bankruptcy, etc. ISI and LLC are not a parties to any
proceeding as a debtor in any court under Title 11 of the United States
Bankruptcy Code or any other insolvency or debtors' relief act, whether state or
federal, or for the appointment of a trustee, receiver, liquidator, assignee,
sequestrator or other similar official of ISI or LLC or for a substantial part
of any of their assets or property.
(v) Clients and Customers. Section 3.01(v) to the ISI Disclosure Letter
lists the names and locations of the clients and customers of ISI and LLC from
January 1, 2000 through the Closing Date.
(w) Contributions and Payments. Neither ISI, LLC nor any of their
respective Subsidiaries, nor any of their employees, officers, directors or
agents, at any time during the last five (5) years have: (i) made any unlawful
contribution to any candidate for foreign office or failed to disclose fully any
contribution in violation of law, or (ii) made any payment to any federal or
state governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by the
laws of the United States or any jurisdiction thereof.
(x) Bank Accounts; Powers of Attorney. Section 3.01(v) to the ISI
Disclosure Letter hereto sets forth a complete and correct list showing: (a) all
banks in which ISI, LLC and each of their respective Subsidiaries maintains a
bank account or safe deposit box (collectively, "ISI Bank Accounts"), together
with, as to each such ISI Bank Account, the account number, the names of all
signatories thereof and the authorized powers of each such signatory and, with
respect to each such safe deposit box, the number thereof and the names of all
persons having access thereto; and (b) the names of all persons holding powers
of attorney from ISI and LLC, true and correct copies thereof which have been
delivered to the CSI.
(y) Disclosure. All statements and information contained in any
certificate, instrument, Disclosure Schedule or document delivered by or on
behalf of ISI, LLC and/or either of the Majority Stockholders shall be deemed
representations and warranties by ISI, LLC and the Majority Stockholders.
Section 3.02 Representations and Warranties of CSI and Merger Sub.
Subject to the exceptions set forth in the disclosure letter to be
delivered to ISI and LLC in connection herewith (the "CSI Disclosure Letter"),
CSI and Merger Sub jointly and severally represent and warrant to ISI and LLC as
follows:
(a) Organization, Standing and Power. Each of CSI and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of its state of incorporation, has all requisite corporate power and authority
to own, lease and operate its properties and to carry on its business as now
being conducted, and is duly qualified and in good standing to do business in
each jurisdiction in which the business it is conducting, or the operation,
ownership or leasing of its properties, makes such qualification necessary,
other than in such jurisdictions where the failure to be so organized or so to
qualify (individually or in the aggregate) would not have a Material Adverse
Effect on CSI or Merger Sub. CSI has heretofore delivered and made available to
ISI and LLC (or such information was readily accessible through the SEC Edgar
Website) accurate and complete copies of its Certificate of Incorporation and
by-laws, or other similar organizational documents, as currently in effect, of
CSI and each of its Subsidiaries.
(b) Capital Structure. As of the date hereof, the authorized capital stock
of CSI consists of 1,000,000,000 shares of CSI Common Stock and 20,000,000 of
preferred stock ("CSI Preferred Stock"). At the close of business on May 18,
2005, (i) 788,474,038 shares of CSI Common Stock were issued and outstanding,
and (ii) no shares of CSI Preferred Stock were outstanding. As of the date
hereof, the authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $0.001 per share, 100 shares of which are validly
issued, fully paid and nonassessable, and are owned by CSI. Merger Sub was
formed solely for the purpose of participating in the Merger, has no assets
other than that amount of cash that is required for it to be organized as a
corporation under the DGCL and has conducted no activities other than in
connection with its incorporation.
(c) Authority; No Violations, Consents and Approvals.
(i) Each of CSI and Merger Sub has all requisite corporate power and
authority to enter into this Merger Agreement and to consummate the transactions
contemplated hereby (including the issuance of shares of CSI Common Stock in the
Merger). The execution and delivery of this Merger Agreement and each of the
agreements required to be executed in connection therewith and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of CSI and Merger Sub (including the
issuance of shares of CSI Common Stock in the Merger). This Merger Agreement and
each of the agreements required to be executed in connection therewith has been
duly executed and delivered by CSI and Merger Sub. Assuming this Merger
Agreement constitutes the valid and binding obligation of ISI and LLC, it and
each of the agreements required to be executed in connection therewith also
constitutes a valid and binding obligation of each of CSI and Merger Sub and is
enforceable against each of them in accordance with its terms; provided,
however, that such enforceability is subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or affecting
creditors' rights and to general principles of equity and limitations imposed on
indemnity obligations by applicable federal and state securities laws.
(i) Except as set forth on Section 3.02(c)(ii) to the CSI Disclosure
Letter, the execution and delivery of this Merger Agreement does not, and the
consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
CSI or Merger Sub under, any provision of (A) the Certificate of Incorporation
or Bylaws of CSI or Merger Sub, (B) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to CSI or Merger Sub or (C) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to CSI or Merger
Sub or any of their properties or assets, other than, in the case of clause (B)
or (C), any such conflicts, violations, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate, would
not have a Material Adverse Effect on CSI, materially impair the ability of CSI
or Merger Sub to perform its respective obligations hereunder or prevent in any
material respect the consummation of any of the transactions contemplated
hereby.
(ii) To the Knowledge of CSI, no consent, approval, order or
authorization of, or registration, declaration or filing with, or permit from
any Governmental Entity is required by or with respect to CSI in connection with
the execution and delivery of this Merger Agreement by CSI and Merger Sub or the
consummation by CSI and Sub of the transactions contemplated hereby, as to which
the failure to obtain or make would have a Material Adverse Effect on CSI,
except for: (A) compliance with the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations thereunder as may be required
in connection with this Merger Agreement and the transactions contemplated
hereby, (B) the filing of the Certificate of Merger with the Secretary of State
of the State of Delaware or (C) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover laws or Environmental
Laws.
(d) SEC Documents. CSI has filed all reports, forms and documents required
to be filed by it with the Securities and Exchange Commission ("SEC"). A true
and complete copy of each report, schedule, registration statement and
definitive proxy statement filed by CSI with the SEC since January 30, 2004 (the
"CSI SEC Documents") has been made available to ISI and LLC (or such information
was readily accessible through the SEC Edgar Website).
(e) Absence of Certain Changes or Events. Except as disclosed in, or
reflected in the CSI SEC Documents, or except as contemplated by the Merger
Agreement, since the date of CSI's Current Balance Sheet (as defined below)
there has not been: (i) any declaration, setting aside or payment of any
dividend or other distribution (whether in cash, stock or property) with respect
to any of CSI's capital stock; (ii) any amendment of any material term of any
outstanding equity security of CSI or any Subsidiary; or (iii) a Material
Adverse Effect with respect to CSI.
(f) No Undisclosed Material Liabilities. Except as disclosed in the CSI
SEC Documents, to CSI's knowledge, there are no liabilities of CSI or any of its
Subsidiaries of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that would have a Material Adverse Effect
on CSI, other than liabilities adequately provided for on the balance sheet of
CSI dated as of March 31, 2005 (including the notes thereto) contained in CSI's
Quarterly Report on Form 10-QSB for the three-month period ended March 31, 2005
("CSI's Current Balance Sheet").
(g) Litigation. Except as disclosed in the CSI SEC Documents, there is no
(i) suit, action or proceeding pending or threatened against or affecting CSI or
any Subsidiary of CSI, or (ii) judgment, decree, injunction, rule or order of
any Governmental Entity or arbitrator outstanding against CSI or any Subsidiary
of CSI that (in any case) would have a Material Adverse Effect on CSI or prevent
CSI from consummating the transactions contemplated by this Merger Agreement.
(h) No Vote Required. No vote of the holders of any class or series of CSI
capital stock is necessary to approve the Merger Agreement or the transactions
contemplated hereby, including, without limitation, the issuance of CSI Common
Stock.
(i) Broker Fees. Except as disclosed on Section 3.02(i) of the CSI
Disclosure Letter, no broker, investment banker, or other person is entitled to
any broker's, finder's or other similar fee or commission in connection with the
transactions contemplated by this Merger Agreement based upon arrangements made
by or on behalf of CSI.
ARTICLE IV
ADDITIONAL AGREEMENTS
Section 4.01 Registration of Stock Consideration. CSI shall file with the SEC,
within 45 days of the issuance of Additional Stock Consideration, a registration
statement on Form SB-2 (the "Form SB-2") covering the resale of the shares of
all CSI Common Stock included in the Additional Stock Consideration. The
Majority Stockholders shall have one demand registration right and "piggyback"
registration rights, subject to underwriters' cutbacks.
Section 4.02 Legal Conditions to Merger. Except as otherwise provided herein,
each of ISI, LLC, CSI and Merger Sub will take all reasonable actions necessary
to comply promptly with all legal requirements that may be imposed on such party
with respect to the Merger and will promptly cooperate with and furnish
information to each other in connection with any such requirements imposed upon
any of them or any of their Subsidiaries in connection with the Merger. Each of
ISI, LLC and CSI will, and will cause their respective Subsidiaries to, take all
actions reasonably necessary to obtain (and will cooperate with each other in
obtaining) any consent, acquiescence, authorization, order or approval of, or
any exemption or nonopposition by, any Governmental Entity or court required to
be obtained or made by ISI, LLC, CSI or any of their Subsidiaries in connection
with the Merger or the taking of any action contemplated thereby or by this
Merger Agreement.
Section 4.03 Agreement to Defend. In the event any claim, action, suit,
investigation or other proceeding by any governmental body or other person or
other legal or administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or seeks damages in
connection therewith, the parties hereto agree to cooperate and use their
reasonable efforts to defend against and respond thereto.
Section 4.04 Public Announcements and Regulation FD.
(a) CSI, ISI and LLC will agree with each other with respect to the
contents thereof before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Merger
Agreement, except as may be required by SEC rules and regulations, applicable
law or by obligations pursuant to any listing agreement with any national
securities exchange or transaction reporting system (but shall still provide a
copy of such release to the other party).
(b) Any information concerning ISI or LLC disclosed to CSI or Merger Sub
or their respective affiliates or representatives or any information concerning
CSI or Merger Sub or their respective affiliates or representatives disclosed to
ISI or LLC, which has not been publicly disclosed, shall be kept strictly
confidential by the parties hereto and shall not be disclosed or used by the
recipients and until publicly disclosed by the party to which such information
relates; provided, however, that the foregoing provision shall not prohibit
disclosures by any party of information that (i) was in the possession of a
party prior to the date hereof, provided that such information is not known by
such party to be subject to a confidentiality agreement, (ii) is or becomes
generally available to the public other than as a result of a disclosure by a
party in violation of this Section 5.05, or (iii) a party is required to
disclose by law, including in connection with a proceeding or in connection with
the payment of Taxes. Each party hereto hereby agrees that no public
announcements concerning the terms of this Merger Agreement or the transactions
contemplated thereunder shall be made without the mutual consent of the parties,
not to be unreasonably withheld. Notwithstanding the foregoing, CSI shall be
entitled to issue a press release announcing the execution of this Merger
Agreement and the transactions contemplated hereunder.
(c) All parties hereto agree not to use any confidential information to
purchase, sell, make any short sale of, loan, grant any option for the purchase
of, or otherwise transfer or dispose of any shares of CSI Common Stock (or other
securities, warrants or other forms of convertible securities outstanding or
other rights to acquire such securities). All parties hereto acknowledge that
(i) a purpose of this Section 5.05(c) relating to confidentiality is so that CSI
will be in compliance with Regulation FD promulgated by the SEC, and other
applicable securities laws, and (ii) if ISI and LLC do not comply with the
provisions of this Section 5.05(c), CSI may be deemed by such action to be in
violation of such laws and regulations, which could have a Material Adverse
Effect on the business of CSI.
Section 4.05 Other Actions. Except as contemplated by this Merger Agreement,
neither CSI, ISI nor LLC shall, and shall not permit any of its Subsidiaries to,
take or agree or commit to take any action that is likely to result in any of
its respective representations or warranties hereunder being untrue or in any of
the conditions to the Merger set forth in Article VI not being satisfied.
Section 4.06 Advice of Changes. The parties hereto shall confer on a regular
basis with each other, report on operational matters and promptly advise each
other orally and in writing of any change or event having, or which, insofar as
can reasonably be foreseen, could have, a Material Adverse Effect on ISI or LLC.
Section 4.07 Indemnification.
(a) ISI, LLC and the Majority Stockholders shall jointly and severally
indemnify, defend and hold harmless each of CSI, Merger Sub, their officers,
directors, employees, shareholders, agents and consultants, and their respective
heirs, legal representatives, successors and assigns (the "CSI Indemnified
Parties") against all losses, claims, damages, costs, expenses (including
attorneys' fees), liabilities or judgments or amounts that are paid ("Losses")
in settlement of or in connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part on or arising in
whole or in part out of (i) the Lawsuits, (ii) any failure of any representation
or warranty of ISI, LLC or Majority Stockholders to be true and correct at or
before the Closing, (iii) any act, omission or conduct of ISI or LLC and their
respective directors, officers, employees or agents, or Majority Stockholders,
prior to the Closing, whether asserted or claimed prior to, or at or after, the
Closing, or (iv) the consummation of the transactions contemplated herein, and
any action taken in connection therewith ("Indemnified Liabilities"). Any CSI
Indemnified Party wishing to claim indemnification under this Section 4.07, upon
learning of any such claim, action, suit, proceeding or investigation, shall
notify ISI (or the Surviving Corporation, after the Closing), but the failure so
to notify shall not relieve a party from any liability that it may have under
this Section 4.07, except to the extent such failure materially prejudices such
party. A CSI Indemnified Party shall not be entitled to indemnification under
this Section 4.07 until the aggregate of the indemnification exceeds $20,000.
Indemnification for breaches of the representations of Section 3.01(j) shall be
limited to taxes for taxable periods ending on or prior to the Closing Date. No
CSI Indemnified Party shall be entitled to indemnification hereunder with
respect to a breach of any representation or warranty hereunder that such CSI
Indemnified Party had knowledge of prior to the Closing.
(b) All rights to indemnification under this Section 4.07 shall survive
the consummation of the Merger and the termination of this Agreement until the
first anniversary of the Closing Date, subject to the terms of the Escrow
Agreement attached hereto as Exhibit C. The provisions of this Section 5.09 are
intended to be for the benefit of, and shall be enforceable by, each CSI
Indemnified Party, and his, her or its heirs and representatives. No party shall
enter into any settlement regarding the foregoing without prior approval of the
CSI Indemnified Party.
(c) Notwithstanding anything to the contrary contained herein, the
Escrowed Amount shall be the sole and exclusive remedy available for all
Indemnified Liabilities and any other claims under this Merger Agreement, except
for those related to Taxes, which shall survive as long as the applicable
statute of limitations. The Escrowed Amount shall be subject to the terms of the
Escrow Agreement attached hereto as Exhibit C. The amount of any Loss subject to
Indemnification under this Section 5.09 shall be calculated net of any insurance
proceeds received by the Indemnified Party on account of such Loss. In the event
that an insurance or other recovery is made by any Indemnified Party with
respect to any Loss for which any such Person has been indemnified hereunder,
then a refund equal to the aggregate amount of the recovery shall be made
promptly in accordance with the terms of the Escrow Agreement. In the event that
any of the accounts receivable under the Line of Credit is collected by Merger
Sub, but Merger Sub has not submitted a required payment on the Line of Credit
Note within seven (7) business days upon receipt of such outstanding accounts
receivable, ISI shall have the opportunity to claim default for the amount due.
Merger Sub shall have the opportunity to cure this default within three (3)
business days of receipt of such default notice (the "Cure Period") and make the
requisite payment in full. If payment in full has not been made to the holders
of the Line of Credit Note by the end of the Cure Period, such holders shall
receive a consent judgment for the full amount of payment due. In the event that
payment has been made during the Cure Period, there shall be no consent judgment
for holders of the Line of Credit Note. In the event that a consent judgment is
received at any time, any subsequent consent judgment(s) received in accordance
with the above payment terms while a present consent judgment remains
outstanding and unpaid shall be for the entire outstanding balance of the Line
of Credit Note.
Section 4.08 Section 16. Prior to the Effective Time each of the parties hereto
shall take all such steps as may be required to cause the transactions
contemplated by this Merger Agreement including any dispositions of ISI Common
Stock and acquisitions of CSI Common Stock (including derivative securities with
respect to CSI Common Stock) by each Person who is or will be subject to the
reporting requirements of Section 16(a) of the Exchange Act with respect to ISI,
LLC or CSI, as the case may be, to be exempt under Rule 16b-3 promulgated under
the Exchange Act.
Section 4.09 Reservation of Common Shares. CSI shall at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued CSI Common Stock for the purpose of enabling it to
satisfy any obligation to issue Additional Stock Consideration, the number of
shares of CSI Common Stock which may be issuable as Additional Stock
Consideration. CSI or, if appointed, any transfer agent for the CSI Common Stock
(the "Transfer Agent"), will be irrevocably authorized and directed at all times
to reserve such number of authorized shares as shall be required for such
purpose. CSI shall keep a copy of this Merger Agreement on file with any such
Transfer Agent. CSI will supply any such Transfer Agent with duly executed
certificates for such purposes. CSI will furnish any such Transfer Agent a
notice of all adjustments and certificates related thereto made under Section
2.01(h) hereof. CSI covenants that all Additional Stock Consideration will be
validly authorized an issued, fully paid, nonassessable, free of preemptive
rights and free from all taxes, liens, charges and security interests with
respect to the issue thereof.
ARTICLE V
CLOSING DOCUMENTS
Section 5.01 Documents To Be Delivered by ISI, LLC and the Majority
Stockholders.
(a) Certifications and Opinion. ISI and LLC shall have furnished CSI and
Merger Sub with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors of ISI and a certified copy of a resolution or
resolutions duly adopted by the Board of Managers of LLC and approving this
Merger Agreement and consummation of the Merger and the transactions
contemplated hereby;
(ii) a certified copy of an unanimous resolution or resolutions duly
adopted by the holders of the outstanding shares of ISI Common Stock approving
the Merger and the transactions contemplated hereby, and a certified copy of an
unanimous resolution or resolutions duly adopted by the holders of the
outstanding LLC Membership Interests approving the Merger and the transactions
contemplated hereby;
(iii) a favorable opinion, dated the Closing Date, in customary form
and substance, of Foley & Lardner LLP, counsel to ISI and LLC, dated the Closing
Date substantially to the effect that:
1) Each of ISI, LLC and its Subsidiaries is an entity validly
existing and in good standing under the laws of its jurisdiction of organization
and has the corporate or limited liability company power, as the case may be, to
own its properties and assets and to carry on its business as presently
conducted;
2) ISI and LLC have the requisite corporate power to effect
the Merger as contemplated by this Merger Agreement; the execution and delivery
of this Merger Agreement and each of the agreements required to be executed in
connection herewith did not, and the consummation of the Merger will not,
violate any provision of ISI's Certificate of Incorporation or Bylaws or LLC's
Certificate of Formation or limited liability company operating agreement;
3) The Board of Directors of ISI has taken all action required
by the DGCL and its Certificate of Incorporation or its Bylaws, and the Board of
Managers of LLC has taken all action required by the DLLCA and its Certificate
of Formation or its limited liability company operating agreement, to approve
the Merger and to authorize the execution and delivery of this Merger Agreement
and the transactions contemplated hereby; the Majority Stockholders have taken
all action required by the DGCL and ISI's Certificate of Incorporation and
By-Laws to authorize the Merger in accordance with the terms of this Merger
Agreement; the ISI Membership Holders have taken all action required by the
DLLCA and LLC's Certificate of Formation and its limited liability company
operating agreement to authorize the Merger in accordance with the terms of this
Merger Agreement; and this Merger Agreement is a valid and binding agreement of
ISI and LLC.
(b) Good Standing Certificates. ISI and LLC shall have furnished CSI with
good standing and existence certificates for ISI, LLC and their respective
Subsidiaries from their respective jurisdictions of organization and other
jurisdictions as CSI shall reasonably request.
(c) JP Morgan Chase Agreement. Notwithstanding anything to the contrary
contained herein, that certain agreement by and between ISI and JP Morgan Chase,
pursuant to which ISI provides consulting services to JP Morgan Chase (the
"Morgan Agreement"), shall be in full force and effect on the Closing Date. As
of the Closing Date, none of ISI, LLC or the Majority Stockholders shall have
any knowledge or have received any communication, either written, oral or
otherwise, indicating there has been a breach, default or any other event that
could (i) immediately or with the passage of time, give rise to the Morgan
Agreement's termination, (ii) immediately or with the passage of time, alter the
terms of the Morgan Agreement in a manner detrimental to ISI, or (iii)
immediately or with the passage of time, give rise to the non-payment of any
obligations owed under the Morgan Agreement by JP Morgan Chase.
Section 5.02 Documents To Be Delivered by CSI and Merger Sub.
(a) Certifications and Opinion. CSI shall have furnished ISI and LLC with:
(i) a certified copy of a resolution or resolutions duly adopted by
the Board of Directors of CSI and Merger Sub approving this Merger Agreement and
consummation of the Merger and the transactions contemplated hereby; and
(ii) a favorable opinion, dated the Closing Date, in customary form
and substance, of Ellenoff Grossman & Schole LLP, counsel to CSI and Merger Sub,
substantially to the effect that:
1) Each of CSI and Merger Sub is a corporation validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has corporate power to own its properties and assets and to
carry on its business as presently conducted;
2) Each of CSI and Merger Sub has the requisite corporate
power to effect the Merger as contemplated by this Merger Agreement; the
execution and delivery of this Merger Agreement and each of the agreements
required to be executed in connection herewith did not, and the consummation of
the Merger will not, violate any provision of CSI's or Merger Sub's Certificate
of Incorporation or Bylaws; and
3) The respective Board of Directors of CSI and Merger Sub
have taken all action required under its jurisdiction of incorporation, its
Certificate of Incorporation or its Bylaws to authorize the execution and
delivery of this Merger Agreement and the transactions contemplated hereby, and
to authorize the Merger in accordance with the terms of this Merger Agreement;
and this Merger Agreement is a valid and binding agreement of CSI and Merger
Sub.
(b) Good Standing Certificates. CSI and Merger Sub shall have furnished
ISI and LLC with good standing and existence certificates for CSI and Merger Sub
from their respective jurisdictions of organization.
ARTICLE VI
GENERAL PROVISIONS
Section 6.01 Amendment. This Merger Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
Section 6.02 Payment of Expenses. Each party hereto shall pay its own expenses
(including legal and accounting fees) incident to preparing for entering into
and carrying out this Merger Agreement and the consummation of the transactions
contemplated hereby as well as for any audit fees for prior fiscal years,
whether or not the Merger shall be consummated. At Closing, CSI shall pay
$60,000 of ISI's investment banking fees owed to Innovation Advisors.
Section 6.03 Survival of Representations, Warranties and Agreements. All of the
representations, warranties and agreements in this Merger Agreement or in any
instrument delivered pursuant to this Merger Agreement shall survive the
Effective Time, for a period of one year from the Closing Date.
Section 6.04 Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, telegraphed or
telecopied or sent by certified or registered mail, postage prepaid, and shall
be deemed to be given, dated and received when so delivered personally,
telegraphed or telecopied or, if mailed, five business days after the date of
mailing to the following address or telecopy number, or to such other address or
addresses as such person may subsequently designate by notice given hereunder:
(a) if to CSI or Merger Sub, to:
Conversion Services International, Inc.
100 Eagle Rock Avenue
East Hanover, NJ 07936
Attention: Scott Newman
Fax: 973-560-9500
with a copy to:
Ellenoff Grossman & Schole LLP
370 Lexington Avenue
New York, NY 10017
Attention: Douglas S. Ellenoff, Esq.
Fax: 212-370-7889
(b) if to ISI or LLC, to:
Integrated Strategies, Inc.
11 Penn Plaza, 5th Floor
New York, New York 10001
Attention: Adam Hock
Fax: _____
with a copy to:
Foley & Lardner LLP
100 North Tampa Street, Suite 2700
Tampa, FL 33602
Attention: Richard H. Agster, Esq.
Fax: 813-221-4210
Section 6.05 Interpretation: Certain Definitions. When a reference is made in
this Merger Agreement to Sections, such reference shall be to a Section of this
Merger Agreement unless otherwise indicated. The table of contents, glossary of
defined terms and headings contained in this Merger Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Merger Agreement. Whenever the word "include," "includes" or "including" is
used in this Merger Agreement, it shall be deemed to be followed by the words
"without limitation." The phrase "made available" in this Merger Agreement shall
mean that the information referred to has been made available if requested by
the party to whom such information is to be made available. As used in this
Merger Agreement, "affiliate" means, as to the person specified, any person
controlled, controlled by, or under common control with such person, and
"person" means any individual, corporation, general or limited partnership,
limited liability company, joint venture, estate, trust or other entity.
Section 6.06 Counterparts. This Merger Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when two or more counterparts have been signed by each of
the parties and delivered to the other parties via mail, overnight courier or
facsimile, it being understood that all parties need not sign the same
counterpart.
Section 6.07 Entire Agreement; No Third-Party Beneficiaries. This Merger
Agreement (together with any other documents and instruments referred to herein)
(a) constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereto and (b) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
Section 6.08 Governing Law. Except to the extent Delaware law is mandatorily
applicable to the Merger, this Merger Agreement shall be governed and construed
in accordance with the laws of the State of New Jersey, without giving effect to
the principles of conflicts of law thereof.
Section 6.09 Assignment. Neither this Merger Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto (whether by operation of law or otherwise) without the prior written
consent of the other parties, except that Merger Sub may assign, in its sole
discretion, any or all of its rights, interests and obligations hereunder to any
newly formed direct or indirect wholly owned Subsidiary of CSI. Subject to the
preceding sentence, this Merger Agreement will be binding upon, inure to the
benefit of and be enforceable by the parties and their respective successors and
assigns.
Section 6.10 No Remedy in Certain Circumstances. Each party agrees that, should
any court or other competent authority hold any provision of this Merger
Agreement or part hereof to be null, void or unenforceable, or order any party
to take any action inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and enforceability of the
remaining provisions and obligations contained or set forth herein shall not in
any way be affected or impaired thereby, unless the foregoing inconsistent
action or the failure to take an action constitutes a material breach of this
Merger Agreement or makes the Merger Agreement impossible to perform in which
case this Merger Agreement shall terminate. Except as otherwise contemplated by
this Merger Agreement, to the extent that a party hereto took an action
inconsistent herewith or failed to take action consistent herewith or required
hereby pursuant to an order or judgment of a court or other competent authority,
such party shall not incur any liability or obligation unless such party
breached its obligations under Section 5.03 hereof or did not in good faith seek
to resist or object to the imposition or entering of such order or judgment.
Section 6.11 Enforcement of the Agreement. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Merger
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Merger Agreement and
to enforce specifically the terms and provisions hereof in any court of the
United States located in the State of New Jersey, this being in addition to any
other remedy to which they are entitled at law or in equity. In addition, each
of the parties hereto (a) consents to submit itself to the personal jurisdiction
of any Federal or state court sitting in New Jersey in the event any dispute
between the parties hereto arises out of this Merger Agreement solely in
connection with such a suit between the parties, (b) agrees that it will not
attempt to deny or defeat such personal jurisdiction by motion or other request
for leave from any such court and (c) agrees that it will not bring any action
relating to this Merger Agreement in any court other than a Federal or state
court sitting in New Jersey.
Section 6.12. Further Assurances. Subject to the terms and conditions herein
provided, the parties hereto shall do or cause to be done all such acts and
things as may be necessary, proper or advisable, consistent with all applicable
laws, to consummate and make effective the transactions contemplated by this
Merger Agreement as soon as reasonably practicable.
[SIGNATURE PAGE FOLLOWS]
IN WITNESS WHEREOF, each of the following has caused this Merger Agreement
to be signed by its respective officers thereunto duly authorized, all as of the
date first written above.
CONVERSION SERVICES INTERNATIONAL, INC.
By: /s/ Scott Newman
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Name: Scott Newman
Title: President and Chief Executive Officer
ISI MERGER CORP.
By: /s/ Scott Newman
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Name: Scott Newman
Title: President and Chief Executive Officer
INTEGRATED STRATEGIES, INC.
By: /s/ Adam Hock
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Name: Adam Hock
Title: Chairman and Chief Executive Officer
ISI CONSULTING, LLC
By: /s/ Adam Hock
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Name: Adam Hock
Title: Manager
MAJORITY STOCKHOLDERS:
/s/ Adam Hock
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ADAM HOCK
/s/ Larry Hock
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LARRY HOCK