CONSOLIDATION AGREEMENT
between and among
Eagle Lake Incorporated,
all of the equity owners of
RVision LLC
and
Custom Federal, Inc.,
and
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------
August 30, 2005
TABLE OF CONTENTS
Article I Definitions and Construction......................................................................2
Section 1.01 Defined Terms.....................................................................................2
Section 1.02 Interpretation....................................................................................7
Section 1.03 Representations and Warranties Means of Risk Allocation Only......................................7
Article II The Consolidation.................................................................................7
Section 2.01 The Consolidation.................................................................................7
Section 2.02 Restrictions on New ▇▇▇ Stock.....................................................................7
Section 2.03 Closing; Closing Date.............................................................................7
Section 2.04 Deliveries at Closing.............................................................................7
Section 2.05 ▇▇▇ Charter Documents.............................................................................8
Section 2.06 Directors.........................................................................................8
Section 2.07 Exchange and Cancellation of Securities...........................................................8
Section 2.08 Calculation of Earnout Consideration..............................................................9
Article III Representations, Warranties, and Covenants Respecting the Entities...............................12
Section 3.01 Organization and Qualifications..................................................................12
Section 3.02 Charter Documents................................................................................13
Section 3.03 Capitalization...................................................................................13
Section 3.04 Authority........................................................................................14
Section 3.05 No Conflict: Required Filings and Consents......................................................14
Section 3.06 Permits; Compliance..............................................................................15
Section 3.07 Financial Statements.............................................................................15
Section 3.08 Absence of Certain Changes or Events.............................................................16
Section 3.09 Absence of Litigation or Unasserted Claims.......................................................17
Section 3.10 Customers, Suppliers, and Third-party Payors.....................................................17
Section 3.11 Tax Matters......................................................................................18
Section 3.12 Taxes............................................................................................18
Section 3.13 No Vote Required.................................................................................20
Section 3.14 Brokers..........................................................................................20
Section 3.15 Information Supplied.............................................................................20
Section 3.16 Employee Benefit Plans; Labor Matters............................................................20
Section 3.17 Employee Relations...............................................................................21
Section 3.18 Certain Business Practices.......................................................................21
Section 3.19 Environmental Matters............................................................................21
Section 3.20 Insurance........................................................................................22
Section 3.21 Certain Contracts and Restrictions...............................................................22
Section 3.22 Owned Properties.................................................................................22
Section 3.23 Real Property Leases.............................................................................23
Section 3.24 Personal Property Leases.........................................................................23
Section 3.25 Easements........................................................................................23
Section 3.26 Inventories......................................................................................24
Section 3.27 Futures Trading and Fixed Price Exposure.........................................................24
Section 3.28 Intellectual Property............................................................................24
Section 3.29 Proprietary Information and Noncompetition Agreements............................................24
Section 3.30 Transactions with Affiliates.....................................................................25
Section 3.31 Compliance with Securities Laws..................................................................25
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Section 3.32 Bank Accounts and Powers of Attorney.............................................................26
Section 3.33 Americans with Disabilities Act Compliance.......................................................26
Section 3.34 Minute Book......................................................................................26
Section 3.35 Solvency.........................................................................................26
Section 3.36 Foreign Corrupt Practices........................................................................26
Section 3.37 Internal Accounting Controls.....................................................................26
Article IV Representations, Warranties, and Covenants
Respecting Constituent Affiliate Owners..........................................................27
Section 4.01 Authority; Enforcement; Ownership................................................................27
Section 4.02 No Violation.....................................................................................27
Section 4.03 Preemptive Rights................................................................................27
Section 4.04 Termination of Agreements........................................................................27
Section 4.05 Repayment of Indebtedness........................................................................28
Section 4.06 Private Offering of Securities...................................................................28
Section 4.07 Control of Related Businesses....................................................................28
Article V Conduct Prior to Closing.........................................................................28
Section 5.01 Affirmative Covenants of Each Party..............................................................28
Section 5.02 Negative Covenants of All Parties................................................................28
Section 5.03 Access and Information; Noncompetition...........................................................31
Article VI Additional Agreements............................................................................33
Section 6.01 Filings or Notices Pursuant to Securities Laws...................................................33
Section 6.02 Appropriate Action; Consents; Filings............................................................33
Section 6.03 Acquisition of New ▇▇▇ Stock.....................................................................34
Section 6.04 Limitation on Resale of New ▇▇▇ Stock of Constituent Affiliate Owners Following Offering.........37
Section 6.05 New ▇▇▇ 2005 Long-term Incentive Plan............................................................38
Section 6.06 Tax Treatment....................................................................................38
Section 6.07 Public Announcements.............................................................................39
Section 6.08 Employment Agreements............................................................................39
Section 6.09 Key-Man Life Insurance...........................................................................39
Section 6.10 Confidential Information and Invention Assignment................................................40
Section 6.11 Certain Tax Matters..............................................................................40
Section 6.12 Additional Equity Funding........................................................................40
Section 6.13 Additional Interim Loans to RVision..............................................................41
Section 6.14 Certain Shares Issuable at Closing...............................................................41
Section 6.15 ▇▇▇ Restructuring................................................................................41
Section 6.16 Transfer of Certain Outstanding RVision Units....................................................42
Section 6.17 Additional Audited Constituent Financial Statements..............................................42
Section 6.18 Patent Assignment to RVision.....................................................................42
Section 6.19 ISAP Consent.....................................................................................42
Section 6.20 Election of Directors............................................................................43
Section 6.21 Spinoffs Offer To Purchase New ▇▇▇ Stock from RVision Constituent Owners.........................43
Section 6.22 Officer and Director Insurance...................................................................43
Section 6.23 Assumption of Guaranty of CFed Lease and Release of ▇▇▇▇▇ as Guarantor...........................43
Section 6.24 Director Indemnification.........................................................................43
Section 6.25 Stockholder Agreement between Certain Constituent Affiliate Owners...............................43
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Article VII Closing Conditions...............................................................................43
Section 7.01 Third-party Conditions to Obligations of Each Party under this Agreement.........................43
Section 7.02 Additional Conditions to Obligations of Each Party...............................................44
Section 7.03 Performance of Additional Agreements.............................................................45
Article VIII Termination, Amendment, and Waiver...............................................................46
Section 8.01 Termination......................................................................................46
Section 8.02 Effect of Termination............................................................................47
Section 8.03 Amendment........................................................................................47
Section 8.04 Waiver...........................................................................................47
Section 8.05 Fees, Expenses, and Other Payments...............................................................47
Article IX Indemnification and Offset.......................................................................48
Section 9.01 Indemnification..................................................................................48
Section 9.02 Offset to Earnout Consideration..................................................................50
Article X Choice of Law; Submission to Jurisdiction and Waiver of Jury Trial; Dispute Resolution...........51
Section 10.01 Governing Law....................................................................................51
Section 10.02 Consent to the Nonexclusive Jurisdiction of the Courts of the State of California................51
Section 10.03 Waiver of Jury Trial.............................................................................52
Section 10.04 Mediation and Arbitration........................................................................52
Article XI General Provisions...............................................................................54
Section 11.01 Effectiveness of Representations, Warranties, and Agreements.....................................54
Section 11.02 Notices..........................................................................................55
Section 11.03 Headings.........................................................................................56
Section 11.04 Severability.....................................................................................56
Section 11.05 Entire Agreement.................................................................................56
Section 11.06 Assignment.......................................................................................56
Section 11.07 Parties in Interest..............................................................................57
Section 11.08 Failure or Indulgence Not Waiver; Remedies Cumulative............................................57
Section 11.09 Counterparts.....................................................................................57
Section 11.10 Partial Execution................................................................................57
EXHIBITS
Exhibit A-1 Amended and Restated Articles of Incorporation of Eagle Lake Incorporated
Exhibit A-2 Bylaws of Eagle Lake Incorporated
Exhibit B 2005 Long-term Incentive Plan
Exhibit C Notice of Option Grant
Exhibit D-1 Executive Employment and Noncompetition Agreement of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Exhibit D-2 Executive Employment and Noncompetition Agreement of ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Exhibit D-3 Executive Employment and Noncompetition Agreement for ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Exhibit D-4 Executive Employment and Noncompetition Agreement for ▇▇▇▇▇ ▇▇▇▇▇
Exhibit E Confidential Information and Invention Assignment Agreement
Exhibit F Nondisclosure and Development Agreements
Exhibit G Assignment
Exhibit H Consent and Agreement
Exhibit I Irrevocable Purchase Offer
Exhibit J Voting Agreement
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CONSOLIDATION AGREEMENT
THIS CONSOLIDATION AGREEMENT (this "Agreement"), executed as of August
30, 2005 (the "Execution Date"), is entered into between and among EAGLE LAKE
INCORPORATED, a Nevada corporation ("▇▇▇"); all of the equity owners of RVISION
LLC, a California limited liability company ("RVision"), as set forth on the
signature page and on Appendix A to this Agreement (the "RVision Owners"); all
of the equity owners of CUSTOM FEDERAL, INC., a California corporation ("CFed"),
as set forth on the signature page and on Appendix B to this Agreement (the
"CFed Owners"); and for the limited purposes set forth in Article IX, ▇▇▇▇▇▇ ▇.
▇▇▇▇▇, an individual and officer and director of ▇▇▇ ("▇▇▇▇▇"). RVision and CFed
are sometimes hereinafter referred to separately as a "Constituent" and together
as the "Constituents," and the RVision Owners and CFed Owners are sometimes
together referred to as the "Constituent Owners." ▇▇▇ and the Constituents are
sometimes referred to individually as an "Entity" and together as the
"Entities." ▇▇▇ and the Constituent Owners are sometimes hereinafter together
referred to as the "Parties."
Recitals
A. In order to implement their common long-term business and financial
goals, the Parties to this Agreement desire to implement a consolidation
strategy through which the business and operations of the Constituents and ▇▇▇
will be consolidated into a single enterprise, with ▇▇▇ being the parent holding
company with the Constituents operating subsidiaries of ▇▇▇ (the
"Consolidation"). Upon the terms and subject to the conditions of this
Agreement, ▇▇▇ will transfer all of its assets to one or more newly-created,
wholly-owned subsidiaries of ▇▇▇ (the "Spinoff(s)"), in consideration for which
Spinoffs will assume all liabilities of ▇▇▇ and certain obligations. ▇▇▇ will
then acquire the business and operations of the Constituents through the
exchange of the issued and outstanding shares of capital stock and ownership
interests of each of the respective Constituents (referred to separately as
"RVision Units" and "CFed Shares," respectively, and together as the
"Constituent Equity") held by the RVision Owners and CFed Owners for
newly-issued shares of ▇▇▇ common stock, after giving effect to the reverse
stock split as provided herein ("New ▇▇▇ Stock"), which stock shall be subject
to certain restrictions on transfer as hereinafter provided. Such New ▇▇▇ Stock
shall be issued at closing and upon meeting certain earnout criteria (together,
the "Consolidation Consideration"). The issued and outstanding shares of common
stock of ▇▇▇, par value $0.001 per share ("▇▇▇ Stock"), held by the current
stockholders of ▇▇▇ (the "▇▇▇ Stockholders") will remain issued and outstanding
as provided in this Agreement.
B. The board of directors and ▇▇▇ Stockholders and the principal owners
of each Constituent have (i) determined the Consolidation is consistent with and
in furtherance of their long-term business strategies and is fair to, and in,
their best interests, and (ii) approved and adopted this Agreement, including
the Consolidation, the issuance of New ▇▇▇ Stock, and the other transactions
contemplated hereby.
C. The Parties intend that the Consolidation and related transactions
contemplated by the Parties shall constitute a single, unified transaction that,
for federal income tax purposes, shall qualify as a nontaxable transaction under
the provisions of ▇▇▇▇▇▇▇ ▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ Internal Revenue Code of
1986, as amended (the "Code").
Agreement
NOW, THEREFORE, in consideration of the foregoing Recitals, which are
incorporated herein by reference, and the respective representations,
warranties, covenants, and agreements set forth in this Agreement, and other
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good and valuable consideration, the receipt and adequacy of which are hereby
acknowledged and confirmed, the Parties hereto agree as follows.
Article I
Definitions and Construction
Section 1.01 Defined Terms. When used herein, the following terms shall
have the meanings set forth below.
"ADA" means Americans with Disabilities Act of 1990.
"Affiliate" means, respecting any Person, (a) a spouse or member of the
immediate family of such Person, (b) any member, manager, director, officer, or
partner of such Person, (c) any corporation, partnership, business, association,
limited liability company, firm, or other entity of which such Person is a
member, manager, director, officer, or partner or owns or controls, directly or
indirectly, more than 50% of the voting stock or other equity interests, and (d)
any other Person that directly or indirectly controls, is controlled by, or is
under direct or indirect common control with such first Person.
"Agreed Adjustments" has the meaning specified in Subsection 2.08(j).
"Agreement" means this Consolidation Agreement.
A Person shall be deemed a "Beneficial Owner" or to have "Beneficial
Ownership" of ▇▇▇ Stock or Constituent Equity, as the case may be, in accordance
with the interpretation of the term "Beneficial Ownership" as defined in Rule
13d-3 under the Exchange Act, as in effect on the date hereof; provided that, a
Person shall be deemed to be the Beneficial Owner, and to have Beneficial
Ownership, of ▇▇▇ Stock or Constituent Equity, as the case may be, that such
Person or any Affiliate of such Person has the right to acquire (whether such
right is exercisable immediately or only after the passage of time) pursuant to
any agreement, arrangement, or understanding, or upon the exercise of conversion
rights, exchange rights, warrants, or options, or otherwise.
"Business Day" means any day other than a Saturday, Sunday, or a legal
holiday in the state of California or any other day on which commercial banks in
such states are authorized by Law or government decree to close.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq., any amendments thereto, any
successor statutes, and any regulations promulgated thereunder.
"CFed" means Custom Federal, Inc., a California corporation.
"CFed Closing Consideration" has the meaning specified in Subsection
2.07(b).
"CFed Constituent Representative" has the meaning specified in Section
2.08(h).
"CFed Disclosure Schedules" has the meaning specified in the preamble
to Article III.
"CFed Earnout Consideration" has the meaning specified in Subsection
2.07(b).
"CFed Owners" means the equity owners of CFed listed on the signature
page and Appendix B to this Agreement.
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"CFed Shares" has the meaning specified in Recital A to this Agreement.
"Charter Documents" means, for a corporation, its articles or
certificate of incorporation and bylaws, as presently in effect and including
all amendments and restatements thereto, and for a limited liability company,
its articles of organization, operating agreement and bylaws, as presently in
effect and including all amendments and restatements thereto.
"Closing" has the meaning specified in Section 2.03.
"Closing Date" has the meaning specified in Section 2.03.
"Code" means the Internal Revenue Code of 1986, as amended.
"Competing Transaction" has the meaning specified in Subsection
5.02(f).
"Confidential Information" has the meaning specified in Subsection
5.03(d).
"Confidential Information and Invention Assignment Agreement" means the
Confidential Information and Invention Assignment Agreement referred to in
Subsection 6.10(a) to be entered into on or before the Closing between ▇▇▇ and
each Named Executive Officer and such other Constituent Owners as ▇▇▇ may
request, the form of which is attached to this Agreement as Exhibit E.
"Consolidation" has the meaning specified in Recital A to this
Agreement.
"Consolidation Consideration" comprises the New ▇▇▇ Stock issuable at
the Closing and upon meeting certain criteria set forth in Section 2.08 as
summarized in Recital A to this Agreement.
"Constituent" means RVision or CFed.
"Constituent Affiliate Owner(s)" has the meaning specified in the
preamble to Article III.
"Constituent Equity" has the meaning specified in Recital A to this
Agreement.
"Constituent Owners" means the RVision Owners and CFed Owners.
"Constituent Representative" has the meaning specified in Subsection
2.08(h).
"Covered Disputes" has the meaning specified in Section 10.05.
"Customers" has the meaning specified in Subsection 5.03(e).
"Disagreement Notice" has the meaning specified in Subsection 9.02(b).
"Earnout Calculation" has the meaning specified in Subsections 2.08(e),
(f), and (g).
"Earnout Period" has the meaning specified in Subsection 2.08(d).
"▇▇▇" means Eagle Lake Incorporated, a Nevada corporation.
3
"▇▇▇ Access Representatives" has the meaning specified in Subsection
5.03(b).
"▇▇▇ Disclosure Schedules" has the meaning specified in the preamble to
Article III.
"▇▇▇ Representative" has the meaning specified in Subsection 2.08(h).
"▇▇▇ Stock" has the meaning specified in Recital A to this Agreement.
"▇▇▇ Stockholders" has the meaning specified in Recital A to this
Agreement.
"Employment Agreement" means the Executive Employment and
Noncompetition Agreement referred to in Section 6.08 to be entered into
contemporaneously with the execution of this Agreement between ▇▇▇ and each of
the Named Executive Officers, substantially in the forms of ▇▇▇▇▇▇▇▇ ▇-▇, ▇-▇,
▇-▇, and D-4 attached hereto.
"Entity" means ▇▇▇, RVision, or CFed.
"Entity Benefit Plan" has the meaning specified in Subsection 3.16(b).
"Entity Intellectual Property" has the meaning specified in Section
3.28.
"Entity Material Adverse Effect" has the meaning specified in
Subsection 3.01(a).
"Entity Permits" has the meaning specified in Section 3.06.
"ERISA" has the meaning specified in Subsection 3.16(b).
"Exchange Act" means the Securities Exchange Act of 1934, any
amendments thereto, any successor statutes, and any regulations promulgated
thereunder.
"Exchanged Certificates" has the meaning specified in Subsection
2.07(d).
"Execution Date" means the date on which this Agreement is executed as
set forth in the first paragraph hereof.
"Expenses" has the meaning specified in Subsection 8.05(b).
"Generally accepted accounting principles" or "GAAP" means accounting
principles that are (a) consistent with the principles promulgated or adopted by
the United States Financial Accounting Standards Board and its predecessors and
other recognized principle setting bodies, in effect from time to time; (b)
applied on a basis consistent with prior periods; and (c) such that a certified
public accountant would, insofar as the use of accounting principles is
pertinent, be in a position to base an opinion as to financial statements in
which such principles have been properly applied.
"Governmental Entities" has the meaning specified in Subsection
3.05(b).
"Gross Margin" has the meaning specified in Subsection 2.08(d).
"Gross Sales" has the meaning specified in Subsection 2.08(d).
"Indemnified Party" has the meaning specified in Subsection 9.01(c).
4
"Indemnifying Party" has the meaning specified in Subsection 9.01(c).
"Irrevocable Purchase Offer" has the meaning specified in Subsection
6.21.
"ISAP" means Industrial Security Alliance Partners, Inc.
"Key Employee" means any executive-level employee that either alone or
in concert with others develops, collects, or has access to any Entity
Intellectual Property (as hereinafter defined), as the case may be.
"▇▇▇▇▇" means ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, an individual.
"Law" means any law, statute, regulation, rule, code, or ordinance
enacted, adopted, issued, or promulgated by any Governmental Entity.
"Lien" means, respecting any asset or property of any character, any
mortgage, pledge, security interest, lien (including any mechanics or
materialmen lien, tax lien, shipper or warehousemen lien, or customs lien),
right of first refusal, option or other right to acquire, transfer for security,
charge, claim, easement, conditional sale agreement, title retention agreement,
defect in title, or other encumbrance or adverse claim of any nature pertaining
to or affecting such asset or property, whether voluntary or involuntary, and
whether arising by Law, contract, or otherwise.
"Losses" has the meaning specified in Section 9.01(a).
"LTIP" means the 2005 Long-term Incentive Plan, the form of which is
attached to this Agreement as Exhibit B.
"Named Executive Officers" has the meaning specified in Section 6.08.
"Net New Capital" has the meaning specified in Subsection 2.08(d).
"Nevada Law" means the Nevada Revised Statutes, any amendments thereto,
any successor statutes, and any regulations promulgated thereunder.
"New ▇▇▇ Stock" has the meaning specified in Recital A to this
Agreement and after giving effect to the reverse stock split to be effected
immediately preceding the Closing in accordance with Subsection 6.15(d).
"Nondisclosure and Development Agreements" means the Nondisclosure and
Development Agreement referred to in Subsection 6.10(b) to be entered into on or
before the Closing between ▇▇▇ and employees and other representatives of the
Constituents as ▇▇▇ may request, the form of which is attached to this Agreement
as Exhibit F.
"Offset Notice" has the meaning specified in Subsection 9.02(a).
"Order" has the meaning specified in Subsection 6.02(b).
"Owners Access Representatives" has the meaning specified in Subsection
5.03(a).
"Party" and "Parties" means ▇▇▇ and the Constituent Owners.
5
"Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, other
entity, or group (as defined in Section 13(d) of the Exchange Act).
"Pre-Closing Financial Statements" has the meaning specified in
Subsection 3.07(a).
"Proceeding" has the meaning specified in Subsection 10.02(a).
"Proprietary Information" has the meaning specified in Section 3.29.
"Proprietary Information Agreement" has the meaning specified in
Section 3.29.
"Recent Balance Sheet" has the meaning specified in Subsection 3.07(a).
"Recent Statement of Operations" has the meaning specified in
Subsection 3.07(a).
"Restricted Period" has the meaning specified in Subsection 6.04(a).
"Returns" has the meaning specified in Subsection 3.12(b).
"RVision" means RVision, LLC, a California limited liability company.
"RVision Closing Consideration" has the meaning specified in Subsection
2.07(a).
"RVision Constituent Representative" has the meaning specified in
Section 2.08(h).
"RVision Disclosure Schedules" has the meaning specified in the
preamble to Article III.
"RVision Earnout Consideration" has the meaning specified in Subsection
2.07(a).
"RVision Owners" means the equity owners of RVision listed on the
signature page and Appendix A to this Agreement.
"RVision Units" has the meaning specified in Recital A to this
Agreement.
"▇▇▇▇" means the Superfund Amendments and Reauthorization Act of 1986,
Pub. L. no. 99 499.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Securities and
Exchange Commission thereunder, all as the same shall be in effect at the time.
"Spinoffs" means Pamplona and Niagara, both of which are newly-created,
wholly-owned subsidiaries of ▇▇▇ to which it will transfer certain assets in
consideration of the assumption of liabilities and obligations of ▇▇▇ as
provided in Section 6.15.
"Taxes" has the meaning specified in Subsection 3.12(a).
"Third-party Claim" has the meaning specified in Subsection 9.01(c).
6
Section 1.02 Interpretation. Unless otherwise specified therein,
all terms defined in this Agreement shall have the defined meanings when used in
the other documents and agreements contemplated by this Agreement or any
certificate or other document made or delivered pursuant hereto or thereto.
Words used herein, regardless of the number and gender used, shall be
deemed and construed to include any other number, singular or plural, and any
other gender, masculine, feminine or neuter, as the context requires and, as
used herein, unless the context otherwise requires, the words "hereof,"
"hereby," "hereto," "hereinafter," "herein," and "hereunder," and words of
similar import, shall refer to this Agreement as a whole and not to any
particular provision hereof. The term "including" shall be deemed to be
illustrative and shall not limit the sense of the words preceding such term.
Accounting terms used herein shall have the meanings given to them by GAAP
applied on a consistent basis by the Person to which they relate. References to
any Law shall be construed as a reference to the same as in effect on the date
of this Agreement. Unless otherwise expressly stated, all dollar amounts stated
herein are in United States currency.
Section 1.03 Representations and Warranties Means of Risk
Allocation Only. The representations and warranties of the Parties in this
Agreement are for the sole purpose of allocating risks, responsibilities,
rights, and remedies among the Parties to this Agreement and in accordance with
the terms hereof and are not intended to constitute and do not constitute any
representation or warranty outside the terms of this Agreement or to or for the
benefit of any Person not a Party hereto.
Article II
The Consolidation
Section 2.01 The Consolidation. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with any and all
applicable state Laws, the Constituent Owners will transfer, assign, convey, and
set over unto ▇▇▇, and ▇▇▇ will receive and accept from the Constituent Owners,
all shares of Constituent Equity owned or held by the Constituent Owners, which
shall constitute 100% of the ownership interest in each of the Constituents,
free and clear of any Lien, in exchange for the Consolidation Consideration, as
defined in Recital A.
Section 2.02 Restrictions on New ▇▇▇ Stock. Subsequent transfer of
shares of New ▇▇▇ Stock to be issued in the Consolidation in accordance with
this Agreement will be subject to certain restrictions (a) under the Securities
Act and Regulation D promulgated by the SEC thereunder as more particularly set
forth in accordance with Section 6.03; (b) under certain applicable state
securities Laws; and (c) for a period of 180 days immediately following the
completion of any initial public offering of ▇▇▇ Stock in accordance with
Section 6.04.
Section 2.03 Closing; Closing Date. Unless this Agreement shall
have been terminated in accordance with Section 8.01 and subject to the
satisfaction or, if permissible, waiver of the conditions set forth in Article
VII, the consummation of the Consolidation shall take place at a closing (the
"Closing"), at the offices of ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇,
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, or such other mutually agreeable
location on November 2, 2005, at 10:00 a.m., local time, or on such other date
and at such other time and place as the Constituents and ▇▇▇ may mutually agree
(the "Closing Date"). The Closing shall be effective at 12:01 a.m., Mountain
Time, on the Closing Date.
Section 2.04 Deliveries at Closing. At the Closing, each of the
respective Parties hereto shall execute, acknowledge, and deliver (or shall
cause to be executed, acknowledged, and delivered) the appropriate documents as
follows.
7
(a) Each Constituent Owner shall deliver to ▇▇▇ certificates
evidencing all of the shares or units of Constituent Equity held, duly
endorsed in blank for transfer or accompanied by powers-of-attorney
duly executed in blank, and each accompanied by reasonable assurances
that such endorsements are genuine and effective, and with all
necessary transfer tax and other revenue stamps, acquired at the
Constituent Owner's expense, affixed and canceled, or if such
certificate has been lost, an appropriate affidavit reasonably
satisfactory to ▇▇▇ to such effect, and each Constituent Owner shall
take such steps as shall be necessary to cause such Constituent Equity
to be delivered and transferred to ▇▇▇.
(b) ▇▇▇ shall deliver stock certificates representing the
Shares of New ▇▇▇ Stock to be delivered in accordance with this
Agreement.
(c) Each Party shall deliver the certificates, schedules,
agreements, resolutions, or other instruments required by this
Agreement to be so delivered at or prior to Closing.
(d) The Parties shall deliver such other items as may
reasonably be requested by the other Parties hereto and their
respective legal counsel in order to effectuate or evidence the
transactions contemplated hereby.
(e) The Parties shall deliver updated disclosure schedules
dated as of the date of Closing, so that the representations and
warranties contained in this Agreement as modified by such updated
disclosure schedules shall be true and correct as of the Closing Date.
Section 2.05 ▇▇▇ Charter Documents. At or prior to the Closing
Date, the Charter Documents of ▇▇▇ shall be amended and restated in the forms of
Exhibits A-1 and A-2, respectively, attached hereto and incorporated herein by
reference.
Section 2.06 Directors. At the Closing, ▇▇▇ shall cause its board
of directors to be reorganized to consist of the Persons selected in accordance
with the provisions of Sections 6.15(g) and 6.20, each to hold office in
accordance with the Charter Documents of ▇▇▇.
Section 2.07 Exchange and Cancellation of Securities. Except as
otherwise provided herein, shares of New ▇▇▇ Stock shall be distributed to the
Constituent Owners in respect of Constituent Equity as follows.
(a) The RVision Units held by all RVision Owners at the
Closing Date shall be converted into the right to receive 8,000,000
shares of New ▇▇▇ Stock at the Closing ("RVision Closing
Consideration"), plus the right to receive up to 2,000,000 additional
shares of New ▇▇▇ Stock as finally determined in accordance with the
provisions of Section 2.08 ("RVision Earnout Consideration"), all
divided among the RVision Owners pro rata in proportion to the number
of RVision Units held by each RVision Owner as set forth on Appendix A.
(b) The CFed Shares held by all CFed Owners at the Closing
Date shall be converted into the right to receive 2,050,000 shares of
New ▇▇▇ Stock at the Closing ("CFed Closing Consideration"), plus the
right to receive up to 1,025,000 additional shares of New ▇▇▇ Stock as
finally determined in accordance with the provisions of Section 2.08
("CFed Earnout Consideration"), all divided among the CFed Owners pro
rata in proportion to the number of CFed Shares held by each CFed Owner
as set forth on Appendix B.
8
(c) Notwithstanding any provision of this Agreement to the
contrary, each share of Constituent Equity held in the treasury of a
Constituent immediately prior to the Closing Date shall be canceled and
extinguished without any conversion thereof and no payment shall be
made with respect thereto.
(d) At the Closing Date, the holders of RVision Units and CFed
Shares shall cease to have any rights respecting such shares except as
otherwise provided herein or by Law. Such holders of RVision Units and
CFed Shares shall have the right to have their certificates evidencing
their equity ownership in RVision and CFed ("Exchanged Certificates")
exchanged for certificates evidencing whole shares of New ▇▇▇ Stock
constituting the RVision Closing Consideration and the CFed Closing
Consideration upon the surrender of such certificates in RVision and
CFed, as the case may be. No fractional shares of New ▇▇▇ Stock shall
be issued as the RVision Closing Consideration and the CFed Closing
Consideration and, in lieu thereof, the number of shares of New ▇▇▇
Stock issuable to any Constituent Owner of record as RVision Closing
Consideration or CFed Closing Consideration shall be rounded to the
nearest whole share of New ▇▇▇ Stock, with 0.5 rounded upward.
(e) At the Closing, ▇▇▇ shall deliver, upon surrender of each
Exchanged Certificate to ▇▇▇ for cancellation, to the holder of such
Exchanged Certificate a certificate representing that number of whole
shares of New ▇▇▇ Stock that such holder has the right to receive in
exchange for the Exchanged Certificate surrendered pursuant to the
provisions of this Article II (after taking into account all
Constituent Equity then held by such holder).
Section 2.08 Calculation of Earnout Consideration.
(a) In the event that (i) ▇▇▇ receives an aggregate of at
least $12,000,000 in Net New Capital following the Closing Date and
prior to May 1, 2006, and (ii) ▇▇▇, during the Earnout Period (as
defined below), has Gross Sales (as defined below) equal to or greater
than $18,000,000, that number of shares equal to 60% of each of the
RVision Earnout Consideration and the CFed Earnout Consideration shall
be earned and shall thereafter be issuable and deliverable as provided
below..
(b) In the event that ▇▇▇ receives less than an aggregate of
$12,000,000 in Net New Capital following the Closing Date and prior to
May 1, 2006, that number of shares equal to 60% of each of the RVision
Earnout Consideration and the CFed Earnout Consideration shall be
earned and shall thereafter be issuable and deliverable as provided
below.
(c) A number of shares equal to 40% of each of the RVision
Earnout Consideration and the CFed Earnout Consideration shall be
earned and shall thereafter to issuable and deliverable as provided
below in the event that ▇▇▇ has a Gross Margin (as defined below) of at
least 25% for calendar year 2006.
(d) For purposes of this Section 2.08:
"Earnout Period" means the 18 consecutive whole calendar
months commencing on the first of the first full calendar
month following the Closing Date.
"Gross Margin" means the amount by which Gross Sales exceeds
cost of goods sold as reported on ELI's consolidated
statements of operations for the applicable period.
9
"Gross Sales" means the amount reported as revenues from all
sources on ELI's consolidated statements of operations for the
applicable period.
"Net New Capital" means the amount of increases in capital
stock and additional paid-in capital, after deducting offering
and issuance costs, on ELI's consolidated statement of
stockholders' equity for the applicable period.
All information required for the determination of the Earnout
Consideration in accordance with this Section 2.08 shall be derived
from the consolidated financial statements for ▇▇▇ and its consolidated
subsidiaries for the applicable period in accordance with GAAP,
consistently applied (except to the extent required by changes in
GAAP). All financial statements for any calendar quarter shall be
unaudited but shall contain adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the
financial condition and results for the period presented. All financial
statements for any calendar year shall be audited and accompanied by an
unqualified report by ELI's regular certified public accountants.
(e) Within 45 days following the expiration of the Earnout
Period, ▇▇▇ shall, based on a review of its regularly prepared
quarterly financial statements, prepare and distribute to each of the
Constituent Owners, in the manner for giving notices as provided in
this Agreement, a calculation setting forth in reasonable detail the
determination of the number of shares issuable in accordance with
Section 2.08(a) or (c) (an "Earnout Calculation"). Such Earnout
Calculation shall be accompanied with copies of the ▇▇▇ consolidated
financial statements for all periods from which the Gross Sales and Net
New Capital amounts used in such calculation have been derived and
shall be accompanied by a certificate signed by the principal
accounting officer or other responsible executive of ▇▇▇ preparing such
calculation to the effect that it has been completed in accordance with
the requirements of this Section 2.08. In the event that ▇▇▇ fails or
refuses to deliver an Earnout Calculation in accordance with this
Subsection 2.08(e) within 75 days following the expiration of the
Earnout Period, ▇▇▇ shall be obligated to issue and deliver all of the
shares issuable in accordance with the provisions of Subsection
2.08(a), unless ▇▇▇ is able to prove by a clear preponderance of the
evidence that such failure or refusal has been caused by any gross
negligence or willful misconduct of one or more Constituent Owners.
(f) If ▇▇▇ does not obtain $12,000,000 in Net New Capital
following the Closing Date and prior to May 1, 2006, then on or before
May 10, 2006, ▇▇▇ shall issue and deliver all of the shares issuable in
accordance with the provisions of Subsection 2.08(b), unless ▇▇▇ is
able to prove by a clear preponderance of the evidence that such
failure or refusal has been caused by any gross negligence or willful
misconduct of one or more Constituent Affiliate Owners.
(g) On or before March 31, 2007, ▇▇▇ shall, based on a review
of its regularly prepared annual financial statements for calendar year
2006, prepare and distribute to each of the Constituent Owners, in the
manner for giving notices as provided in this Agreement, a statement of
whether ▇▇▇ is obligated to issue additional shares in accordance with
the provisions of Subsection 2.08(b) (an "Earnout Calculation"). Such
statement shall be accompanied with copies of the ▇▇▇ consolidated
financial statements for calendar year 2006 and shall be accompanied by
a certificate signed by the principal accounting officer or other
responsible executive of ▇▇▇ preparing such statement to the effect
that it has been completed in accordance with the requirements of this
Section 2.08. In the event that ▇▇▇ fails or refuses to deliver an
Earnout Calculation in accordance with this Subsection 2.08(g) on or
before April 30, 2007, ▇▇▇ shall be obligated to issue and deliver all
of the shares issuable in accordance with the provisions of Subsection
2.08(b), unless ▇▇▇ is able to prove by a clear preponderance of the
10
evidence that such failure or refusal has been caused by any gross
negligence or willful misconduct of one or more Constituent Owners.
(h) Promptly following distribution of an Earnout Calculation,
each Constituent Owner may review such Earnout Calculation and, within
30 days after the date of such distribution, may deliver to ▇▇▇ a
certificate setting forth such owner's objection to the Earnout
Calculation, together with a summary of the reasons therefor and
alternative calculations that, in the view of such Constituent
Owner(s), are necessary to eliminate such objections. To resolve any
objection timely brought within 30 days, the RVision Constituent Owners
hereby designate ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ as the RVision Constituent
Representative (the "RVision Constituent Representative"), and the CFed
Constituent Owners hereby designate Brain ▇▇▇▇▇ as the CFed Constituent
Representative (the "CFed Constituent Representative")(the RVision
Constituent Representative and the CFed Constituent Representative are
each referred to as a "Constituent Representative" and together as the
"Constituent Representatives"). The Constituent Owners of a Constituent
shall be bound by any and all actions taken by the Constituent
Representative hereby appointed on their behalf. In connection with the
deliberations and negotiations set forth in accordance with this
Section 2.08, each Constituent Representative shall represent the
interests of the Constituent Owners making the appointment and shall
not represent ▇▇▇ or the other Constituent, and shall not have any
fiduciary duty to ▇▇▇ or its stockholders, even if such Constituent
Representative is also then a member of the board of directors of ▇▇▇.
▇▇▇ shall be represented in such deliberations and negotiations by a
committee comprised of all directors who were not Constituent Owners
or, if ▇▇▇ does not then have any directors who were not Constituent
Owners, by an independent representative designated by the board of
directors of ▇▇▇ (the "▇▇▇ Representative").
(i) In the event no Constituent Owner timely objects to an
Earnout Calculation, such Earnout Calculation shall be final and
binding as to all such Constituent Owners and ▇▇▇ for purposes of this
Agreement, but shall not limit the representations, warranties,
covenants, rights, claims, remedies, and agreements of the Parties set
forth elsewhere in this Agreement.
(j) In the event any Constituent Owner timely objects to an
Earnout Calculation, the Constituent Representatives and ▇▇▇
Representative shall meet, upon 10 days' written notice provided by the
board of directors of ▇▇▇, to use their reasonable efforts to resolve
by written agreement any differences as to the Earnout Calculation at
issue (the "Agreed Adjustments"). In the event such representatives so
resolve any such differences, the Earnout Calculation, as adjusted by
the Agreed Adjustments, shall be final and binding as to all
Constituent Owners and ▇▇▇ for purposes of this Agreement but shall not
limit the representations, warranties, covenants, rights, claims,
remedies, and agreements of the Parties set forth elsewhere in this
Agreement.
(k) In the event any objections timely raised by any
Constituent Owner are not resolved by Agreed Adjustments within 60 days
following distribution of the Earnout Calculation, the issue or amounts
in question shall be determined by binding arbitration in accordance
with the provisions of Section 10.05.
(l) Following the resolution of any objection in accordance
with the foregoing, ▇▇▇ shall deliver to each Constituent Owner a
certificate setting forth the revised Earnout Calculation incorporating
the foregoing adjustments. The revised Earnout Calculation, after
giving effect to the adjustments resulting from the Agreed Adjustments
or arbitration, as the case may be, shall be final and binding on ▇▇▇
and all Constituent Owners for purposes of this Agreement but shall not
limit the representations, warranties, covenants, rights, claims,
remedies, and agreements of the Parties set forth elsewhere in this
Agreement.
11
(m) The Parties shall make available to ▇▇▇, the Constituent
Owners, the Constituent Representatives, and the ▇▇▇ Representative
such books, records, and other information (including accounting work
papers) as they may reasonably request to audit or review the Earnout
Calculations hereunder.
(n) Promptly (but not later than five days) after the final
determination of the number of shares constituting the RVision Earnout
Consideration and the CFed Earnout Consideration, ▇▇▇ shall cause to be
issued and delivered to all Constituent Owners stock certificates
representing the appropriate number of additional shares of New ▇▇▇
Stock to which they are entitled.
(o) The cumulative adjustments in accordance with this Section
2.08 shall constitute an adjustment to the Consolidation Consideration.
(p) The Parties hereto acknowledge that a portion of the
RVision Earnout Consideration and the CFed Earnout Consideration will
be treated as imputed interest for income tax purposes in accordance
with Treasury Regulations Section 1.1275-4(c). The Parties will
cooperate with each other and make whatever elections are permitted
under applicable income tax law, so that all such imputed interest is
the smallest permitted amount. In accordance with Treasury Regulations
Section 1.1274-4(a)(1), the Parties will determine the amount of such
imputed interest by selecting the lowest applicable federal rate in
effect during the (i) the three-month period ending with the month in
which this Agreement is executed, or (ii) the three-month period ending
with the month in which the Closing occurs.
Article III
Representations, Warranties, and Covenants
Respecting the Entities
In connection with this Agreement and the transactions contemplated
hereby, each Entity shall deliver disclosure schedules that shall be
correspondingly numbered to the Sections of this Article III (the "RVision
Disclosure Schedules," the "CFed Disclosure Schedules," or the "▇▇▇ Disclosure
Schedules," as the case may be). The Entities' disclosure schedules shall
contain complete and correct copies, as presently in effect, of all documents,
agreements, instruments, arrangements, contracts, commitments, or writings of
any nature (including any amendments thereto) that in any way relate to the
items listed, described, or disclosed therein. When used herein, reference to an
Entity in relation to a particular schedule shall mean such Entity as described
in the referenced schedule and shall be deemed to include any subsidiary of such
Entity.
As an inducement to, and to obtain the reliance of, each of the other
Parties, each RVision Owner and CFed Owner who owns 5% or more of the issued and
outstanding equity securities of RVision or CFed, as set forth on Appendices A
or B (a "Constituent Affiliate Owner"), jointly and severally, represents,
warrants, and covenants respecting RVision and CFed, respectively, and ▇▇▇
represents, warrants, and covenants respecting ▇▇▇, all as of the Execution
Date, as follows.
Section 3.01 Organization and Qualifications.
(a) Each Entity is an entity duly organized, validly existing,
and in good standing under the Laws of its state of organization; has
all requisite power and authority to own, lease, and operate its
properties and assets and to carry on its business as it is now being
conducted; and is duly qualified and in good standing to do business in
each jurisdiction in which the nature of the business conducted by it
12
or the ownership or leasing of its properties makes such qualification
necessary, other than where the failure to be so duly qualified and in
good standing would not have an Entity Material Adverse Effect. The
term "Entity Material Adverse Effect" as used in this Agreement shall
mean any change or effect that, individually or when taken together
with all such other changes or effects, would be reasonably likely to
be materially adverse to the assets, liabilities, financial condition,
results of operations, or current or future business of such Entity.
(b) Each Entity does not own, directly or indirectly, any
subsidiaries and, except as set forth in Disclosure Schedule 3.01(b),
each such Entity does not own an equity interest in any other
corporation, partnership, joint venture arrangement, or other business
entity that is material to the assets, liabilities, financial
condition, results of operations, or current or future business of
Entity. Except as set forth in Disclosure Schedule 3.01(b), each Entity
does not have any predecessor, as that term is defined under GAAP.
(c) Disclosure Schedule 3.01(c) sets forth a list of all
states where each Entity conducts and is qualified to conduct business.
Section 3.02 Charter Documents. Included in Disclosure Schedule
3.02 is a complete and correct copy of each Entity's Charter Documents. Each
Entity is not in violation of any of the provisions of its Charter Documents.
Section 3.03 Capitalization.
(a) Set forth in Disclosure Schedule 3.03(a) is (i) a
description of the authorized number of shares of each class or series
of equity securities capital stock and ownership interests; (ii) a list
showing the name, address, and holdings of each holder of record of
equity securities of Entity as of the date of this Agreement, and (iii)
a list of the number of equity securities reserved for issuance and the
purpose therefor. Except as set forth in Disclosure Schedule 3.03(a),
there are no other shares of Entity's equity securities reserved for
issuance on the exercise of any other call, commitment, right, or other
contractual arrangements to which Entity is a party or by which it is
bound. All of the issued and outstanding shares of equity securities of
Entity are duly authorized, validly issued, fully paid, and
nonassessable and not issued in violation of (nor are any of the
authorized shares of equity securities of Entity subject to) any
preemptive or similar rights created by statute, the certificate or
articles of organization, operating agreement or bylaws of Entity, or
any agreement to which each Entity is a party or bound.
(b) Disclosure Schedule 3.03(b) sets forth all obligations,
contingent or otherwise, of each Entity to (i) repurchase, redeem, or
otherwise acquire any shares of Entity's equity securities; or (ii)
provide material funds to, make any material investment in (in the form
of a loan, advance, financial accommodation, capital contribution or
otherwise), or provide any guarantee respecting the obligations of any
other Person. Except as described in Disclosure Schedule 3.03(b), each
Entity does not directly or indirectly own, has not agreed to purchase
or otherwise acquire, or does not hold any interest convertible into or
exchangeable or exercisable for 5% or more of the equity securities of
any corporation, partnership, limited liability company, joint venture,
or other business association or entity. Except as set forth in
Disclosure Schedule 3.03(b), there are no agreements, arrangements, or
commitments of any character (contingent or otherwise) pursuant to
which any Person is or may be entitled to receive any payment based on
the revenues or earnings or calculated in accordance therewith, of each
Entity. Except as set forth in Disclosure Schedule 3.03(b), there are
no voting trusts, proxies, or other agreements or understanding to
which each Entity is a party, by which each Entity is bound, or of
13
which it has knowledge respecting the voting of any shares of capital
stock or ownership interests of each Entity. Included in Disclosure
Schedule 3.03(b) are complete and correct copies of all documents,
agreements, or other instruments, as presently in effect, that evidence
or relate to the items set forth on Disclosure Schedule 3.03(b).
(c) Disclosure Schedule 3.03(c) describes all options,
warrants or other rights (including securities rights), agreements,
arrangements, or commitments of any character to which each Entity is a
party or by which it is bound relating to the issued or unissued equity
securities of each Entity or obligating each Entity to grant, issue, or
sell any equity securities of each Entity. Included in Disclosure
Schedule 3.03(c) are complete and correct copies of all options,
warrants, or other agreements, as presently in effect, that evidence or
relate to the items set forth on Disclosure Schedule 3.03(c).
Section 3.04 Authority. Each Entity has all requisite power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder, and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by each Entity and the consummation by each
Entity of the transactions contemplated hereby has been duly authorized by all
necessary company action, and no other proceedings on the part of each Entity
are necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by each
Entity and, assuming the due authorization, execution, and delivery thereof by
all other Parties, constitutes the legal, valid, and binding obligation of each
Entity enforceable against each such Entity in accordance with its terms, except
that (a) such enforcement may be subject to applicable bankruptcy, insolvency,
or other similar Laws, now or hereafter in effect affecting creditors' rights
generally, and (b) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
Section 3.05 No Conflict: Required Filings and Consents.
(a) Except as set forth in Disclosure Schedule 3.05(a), the
execution and delivery of this Agreement by each Entity does not, and
the consummation of the transaction contemplated hereby will not, (i)
conflict with or violate the Charter Documents of each Entity, (ii)
conflict with or violate any federal, state, foreign or local Law or
Order applicable to each Entity or by which any of its properties is
bound or subject, or (iii) result in any breach of or constitute a
default (or an event that with notice or lapse of time or both would
become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, or result in the creation
of a Lien on any of the properties or assets of each Entity pursuant to
any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument, or obligation to which
each Entity is a party or by or to which each Entity or any of its
respective properties is bound or subject, except for any such
conflicts or violations described in clause (ii) or breaches, defaults,
events, rights of termination, amendment, acceleration or cancellation,
payments obligations, or Liens described in clause (iii) that would not
have an Entity Material Adverse Effect.
(b) Except as set forth in Disclosure Schedule 3.05(b), the
execution and delivery of this Agreement by each Entity does not, and
consummation of the transactions contemplated hereby will not, require
any Entity to obtain any consent, license, permit, approval, waiver,
authorization or Order of, or to make any filing with or notification
to, any governmental or regulatory authority, domestic or foreign
(collectively, "Governmental Entities"), except when the failure to
obtain such consents, licenses, permits, approvals, waivers,
authorizations or Orders, or to make such filings or notifications,
14
would not, either individually or in the aggregate, materially
interfere with Entity's performance of its obligations under this
Agreement and would not have an Entity Material Adverse Effect.
(c) Except as set forth in Disclosure Schedule 3.05(c), no
contract, agreement, lease, or other commitment, written or oral, to
which Entity is a party or to which any of its properties or assets are
subject requires the consent of the other party in order to consummate
the transactions herein contemplated, except when the failure to obtain
such consent would not have an Entity Material Adverse Effect. In the
event a supply or sales contract may not be assigned without the
consent of the other party to the agreement, which consent cannot be
obtained before Closing, Entity will remain the party to the contract,
purchase products respecting sales contracts, and sell products
respecting purchase contracts, in either case at Entity's cost, insofar
as practicable to maintain the economic value of the contract.
Section 3.06 Permits; Compliance. Included in Disclosure Schedule
3.06 are complete and correct copies of all of Entity's franchises, grants,
authorizations, licenses, permits, easements, variances, exemptions, consents,
certificates, approvals, and Orders necessary to own, lease, and operate its
properties and to carry on its business in all material respects as it is now
being conducted or as presently foreseeable (collectively, the "Entity
Permits"), and, to Entity's knowledge, each third-party operator of any of
Entity's properties is in possession of all such Entity Permits, and there is no
action, proceeding, or investigation pending or, to the knowledge of Entity,
threatened regarding suspension or cancellation of any of the Entity Permits,
except when the failure to possess, or the suspension or cancellation of, such
Entity Permits would not have an Entity Material Adverse Effect. The Entity and
the conduct of the business of Entity are in compliance with all federal, state,
foreign, or local Laws or Orders applicable to Entity or by which any of its
properties is bound, except when noncompliance would not have an Entity Material
Adverse Effect. Except as set forth in Disclosure Schedule 3.06, Entity has not
received from any Governmental Entity any written notification respecting
possible conflicts, defaults, or violations of Laws, except for written notices
relating to possible conflicts, defaults, or violations that would not have an
Entity Material Adverse Effect.
Section 3.07 Financial Statements.
(a) Included in Disclosure Schedule 3.07(a) to this Agreement
are (i) the unaudited financial statements of Entity as of December 31,
2004, including the balance sheet and the related statements of
operations, stockholders' equity, and cash flows for the period then
ended, and (ii) the unaudited balance sheet of Entity as of July 31,
2005 (the "Recent Balance Sheet"), and the related statements of
operations ("Recent Statement of Operations"), stockholders' equity,
and cash flows for the period commencing December 31, 2004, through the
date of the Recent Balance Sheet (such financial statements as of or
through the date of the Recent Balance Sheet are collectively referred
to herein as the "Pre-Closing Financial Statements"). All such
financial statements meet the requirements of Regulation S-B of the
Securities Act and have been prepared in accordance with GAAP
consistently applied throughout the periods involved, except as
explained in the notes to such financial statements.
(b) Such financial statements, as of their respective dates,
fairly reflect in all material respects the financial position of the
Entity as of such date and the results of operations for the periods
presented. Except as reflected on the Recent Balance Sheet, Entity did
not have any liability or obligation (absolute or contingent) that
should be reflected in a balance sheet or the notes thereto prepared in
accordance with GAAP. All assets reflected on Entity's Recent Balance
Sheet are properly reported and present fairly in all material respects
the assets of Entity's business in accordance with GAAP.
15
(c) Entity's books and records, financial and otherwise, are
in all material respects complete and correct and have been maintained
in such a fashion as to permit the audit of Entity's financial
statements for at least two full years in accordance with GAAP.
(d) Except as set forth on the Recent Balance Sheet or in the
notes thereto, or Disclosure Schedule 3.07(d), Entity has good and
marketable title to its accounts receivable, free of any Liens and free
of any material defenses, counterclaims, and set-offs, and all of such
accounts receivable arose in the ordinary course of Entity's business
and are collectible in all material respects, net of any reported
applicable allowance for doubtful accounts determined in accordance
with GAAP, in the amounts recorded in such Recent Balance Sheet upon
the continuation of reasonable collection efforts by regular employees
of Entity, without resorting to litigation.
(e) Except as set forth Disclosure Schedule 3.07(e) or in
Entity's Recent Balance Sheet, Entity has no material contingent
liability, direct or indirect, matured or unmatured.
Section 3.08 Absence of Certain Changes or Events. Except as set
forth in Disclosure Schedule 3.08 to this Agreement, since the date of Entity's
Recent Balance Sheet in accordance with the description in Section 3.07, there
has not been any material adverse change in the business, operations,
properties, level of inventory, assets, or condition of the business or any
damage, destruction, or loss (whether or not covered by insurance) constituting
an Entity Material Adverse Effect, including:
(a) any change in the assets, liabilities, financial
condition, or operating results of Entity from that reflected in
Entity's Recent Balance Sheet, except changes in the ordinary course of
business;
(b) any damage, destruction, or loss, whether or not covered
by insurance;
(c) any waiver by Entity of a valuable right or of a material
debt owed to it;
(d) any change or amendment to Entity's Charter Documents or
any agreement by which Entity or any of its assets or properties is
bound or subject;
(e) any loans made by Entity to or for the benefit of its
employees, officers, or directors, or any members of their immediate
families, other than travel advances and other advances made in the
ordinary course of its business;
(f) any resignation or termination of any executive officer or
Key Employee of Entity, and Constituent Affiliate Owners are not aware
of any impending resignation or termination of employment of any such
officer or Key Employee;
(g) any material change in any compensation arrangement or
agreement with any employee, director, or equity owner, other than
pursuant to the Employment Agreements to be entered into in connection
with the transactions contemplated by this Agreement;
(h) any adoption, creation, or material change in any profit
sharing, bonus, deferred compensation, insurance, pension, retirement,
or other employee benefit plan, payment, or arrangement made to, for,
or with Entity's officers, directors, or employees;
(i) any sale, assignment, or transfer of any patents,
trademarks, copyrights, trade secrets, or other intangible assets;
16
(j) any satisfaction or discharge of any Lien or payment of
any obligation by Entity, except in the ordinary course of business and
that is not material to the business, properties, prospects, or
financial condition of Entity;
(k) any declaration, setting aside, or payment or other
distribution in respect of any of Entity's equity ownership, or any
direct or indirect redemption, purchase, or other acquisition of any of
such equity ownership by Entity;
(l) any Lien created by Entity respecting any of its material
properties or assets, except Liens for Taxes not yet due or payable;
(m) any receipt of notice that there has been a loss of, or
material order cancellation by, any major Customer of Entity;
(n) any other event or condition of any character that has had
an Entity Material Adverse Effect; or
(o) any agreement or commitment by Entity to do any of the
things described or in accordance with this Section 3.08.
Section 3.09 Absence of Litigation or Unasserted Claims.
Disclosure Schedule 3.09 describes any claim, suit, litigation, proceeding,
arbitration or, to the knowledge of each Entity, investigation of any kind, at
Law or in equity (including actions or proceedings seeking injunctive relief),
pending or threatened against Entity or any of its properties (except for
claims, actions, suits, litigation, proceedings, arbitrations, or investigations
that would not have an Entity Material Adverse Effect). Except as disclosed in
Disclosure Schedule 3.09, each Entity has not received notice of any potential,
claim, suit, litigation, proceeding, arbitration, or investigation, and Entity
is not subject to any continuing Order of, consent decree, settlement agreement,
or other similar written agreement with, or, to the knowledge of Entity,
continuing investigation by, any Governmental Entity, or any Order, writ, or
award of any Government Entity or arbitrator, including cease-and-desist or
other Orders, except for matters that would not have an Entity Material Adverse
Effect. Except as disclosed on Disclosure Schedule 3.09, to the best of such
Entity's or Constituent Affiliate Owner's knowledge, there is no existing
condition, situation, or set of circumstances that is probable or reasonably
possible to result in any Entity Material Adverse Effect, whether or not there
has been any manifestation by the potential claimant of an awareness of a
possible claim or assessment, unless it is probable that a claim will be
asserted and there is a reasonable possibility that the outcome will have an
Entity Material Adverse Effect.
Section 3.10 Customers, Suppliers, and Third-party Payors.
(a) Disclosure Schedule 3.10(a) includes (i) a list of names
and addresses of the 10 largest Customers and the 10 largest suppliers
(measured by dollar volume of purchasers or sales in each case) of
Entity and the percentage of the business of Entity that each Customer
or supplier represents or represented during each of the preceding
three fiscal years, and the period since December 31, 2004; and (ii)
copies of the forms of purchase order for inventory and other supplies
and sales contracts for finished goods used by Entity.
(b) There exists no actual or threatened termination,
cancellation, or limitation of, or any modification or change in, the
business relationship of Entity with (i) any Customer or group of
Customers of Entity whose purchases individually or in the aggregate
are material to the operation of the business of Entity, (ii) any
supplier or group of suppliers of Entity whose sales individually or in
the aggregate are material to the operation of the business of Entity,
or (iii) any government agency, private entity, or other third-party
17
payor or group of any of the foregoing whose payments individually or
in the aggregate are material to the operation of the business of
Entity. There exists no present condition, state of facts, or
circumstances involving Customers, suppliers, or payors that Entity can
now reasonably foresee would have an Entity Material Adverse Effect
after the consummation of the transactions contemplated by this
Agreement or the continuation of Entity's business in essentially the
same manner in which it has heretofore been conducted.
(c) Except as disclosed on Disclosure Schedule 3.10(c) or to
the extent that the applicable statute of limitations has expired, all
payment claims filed by or on behalf of Entity with third-party payors
have been duly and timely filed, accompanied by the appropriate
detailed supporting documentation, including requisite original
signatures, and are true, correct, and complete. Entity has no
liability respecting the return, reimbursement, or adjustment of any
amount received from any such third-party payor to date (including any
interest or penalties) accrued for or applicable to the period ended on
the date of Entity's Recent Balance Sheet, except as reflected therein
or as disclosed on Disclosure Schedule 3.10(c).
Section 3.11 Tax Matters. Neither Entity nor any Constituent
Affiliate Owner, nor to the knowledge of Entity or any Constituent Affiliate
Owner, any of its Affiliates, has taken or agreed to take any action that would
prevent the Consolidation from constituting a tax-free transaction qualifying in
accordance with the provisions of Section 351 of the Code.
Section 3.12 Taxes.
(a) For purposes of this Section 3.12, the term "Taxes" shall
mean (i) any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and
liabilities, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupations, value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes, together with all interest, penalties and
additions imposed with respect to such amounts; (ii) any liability for
the payment of any amounts of the type described in clause (i) as a
result of being a member of an affiliated, consolidated, combined, or
unitary group for any period; and (iii) any liability for the payment
of any amounts of the type described in clause (i) or (ii) as a result
of any express or implied obligation to indemnify any other person or
as a result of any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any
liability for taxes of a predecessor entity.
(b) Disclosure Schedule 3.12(b) includes complete, signed
copies of (i) all returns and information statements respecting any
Taxes ("Returns") of Entity for all periods since the formation of
Entity that remain open under the statute of limitations for
assessments, and (ii) examination reports of and statements of
deficiencies assessed against Entity. Entity does not do business or
derive income from any state, local, territorial, or foreign taxing
jurisdiction so as to be subject to Taxes or Return filing
requirements, other than those Returns described in the preceding
sentence. Except as disclosed on Disclosure Schedule 3.12(b) or to the
extent that the applicable statute of limitations has expired, all
Returns required to be filed by or on behalf of Entity have been duly
filed on a timely basis with the appropriate Governmental Entities and
are true, correct, and complete, and all Taxes for all periods covered
by such Returns, or respecting any period (or portion thereof) prior to
the Closing Date, have been duly paid in full or a provision for the
payment thereof has been made in accordance with generally accepted
18
accounting principles and is reflected on Entity's Recent Balance
Sheet. Entity has no liabilities respecting the payment of any Taxes
(including any deficiencies, interest, or penalties) accrued for or
applicable to the period ended on the date of Entity's Recent Balance
Sheet, except as reflected therein, and all such dates and years and
periods prior thereto and for which Entity may at said date have been
liable in its own right or as transferee of the assets of any other
corporation or other entity, except for Taxes accrued but not yet due
and payable.
(c) Except as set forth on Disclosure Schedule 3.12(c), Entity
has not elected at any time pursuant to the Code to be treated as an S
corporation in accordance with Section 1362(a) of the Code or a
collapsible corporation in accordance with Section 341(f) of the Code,
nor has Entity made any other elections pursuant to the Code (other
than elections that relate solely to methods of accounting,
depreciation, or amortization) that would have an Entity Material
Adverse Effect on Entity, its financial condition, its business as
presently conducted or proposed to be conducted, or any of its
properties or material assets. There are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any
Return of Entity.
(d) Entity has complied in all respect with all applicable
Laws relating to the payment and withholding of Taxes (including any
estimated Taxes and the withholding of Taxes in accordance with
Sections 1441 and 1442 of the Code or similar provisions under any
foreign Laws) and has, within the time and the manner prescribed by
Law, withheld from employee wages and paid over all amounts required to
be paid under applicable Laws. There are no Liens on any of the assets
of Entity respecting Taxes other than for Taxes not yet due and
payable. There is no material dispute or claim concerning any
liabilities for Taxes of Entity either raised or reasonably expected to
be raised by any taxing authority.
(e) Except as disclosed in Disclosure Schedule 3.12(e), (i)
there is no audit of any Returns of Entity by a Governmental Entity or
taxing authority in process, pending, or threatened (formally or
informally) and Entity has no knowledge of any such potential audit;
(ii) except to the extent that the applicable statute of limitations
has expired and except as to matters that have been resolved, no
deficiencies exist or have been asserted (either formally or
informally) or are expected to be asserted respecting Taxes of Entity,
and no notice (either formally or informally) has been received by
Entity that it has not filed a Return or paid Taxes required to be
filed or paid by it; (iii) Entity is not a party to any pending action
or proceeding for assessment or collection of Taxes, nor has such
action or proceeding been asserted or threatened (either formally or
informally) against it or any of its assets, except to the extent that
the applicable statute of limitations has expired and except as to
matters that have been resolved; (iv) no waiver or extension of any
statute of limitations is in effect respecting Taxes or Returns of
Entity; (v) no action has been taken that would have the effect of
deferring any liability for Taxes of Entity originally due and payable
in any period prior to the Closing Date to any period after the Closing
Date; (vi) there are no requests for rulings, subpoenas, or requests
for information pending respecting the Taxes of Entity; (vii) no power
of attorney has been granted by Entity respecting any matter relating
to Taxes; (viii) Entity has never been included in an affiliated group
of corporations, within the meaning in accordance with Section 1504 of
the Code; and (ix) Entity is not (nor has it ever been) a party to any
tax-sharing agreement between Affiliate corporations.
(f) Except as disclosed in Disclosure Schedule 3.12(f), Entity
has not engaged in a transaction that is a "reportable transaction"
within the meaning of Treasury Regulation Section 1.6011-4(b)(1) or
that is the same as or substantially similar to one of the types of
transactions that the Internal Revenue Service has determined to be a
tax avoidance transaction and identified by notice, regulation, or
other form of published guidance as a listed transaction, as set forth
in Treasury Regulation Section 1.6011-4(b)(2).
19
(g) Such Constituent Affiliate Owners and ▇▇▇ have no plan or
intent and know of no plan or intent by any other Constituent Owner or
▇▇▇ that would cause such Constituent Owners not to be in control of
▇▇▇ immediately after the Closing, within the meaning of Code Section
368(c).
Section 3.13 No Vote Required. Except for the matters set forth in
Section 6.15, no vote of the holders of any class or series of Entity equity
security is necessary to approve the Consolidation and the transactions
contemplated by this Agreement.
Section 3.14 Brokers. Except as set forth in Disclosure Schedule
3.14 or as otherwise provided in this Agreement, no broker, finder, or
investment banker is entitled to any brokerage, finder's, or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Entity.
Section 3.15 Information Supplied. Without limiting any of the
representations and warranties contained herein, no representation or warranty
of Entity and no statement by Entity or other information contained in or
documents referred to in the Entity disclosure schedules, as of the date of such
representation, warranty, statement, or document, contains or contained any
untrue statement of material fact, or, at the date thereof, omits or omitted to
state a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which such statements are or were
made, not misleading.
Section 3.16 Employee Benefit Plans; Labor Matters.
(a) Entity is not bound by or subject to (and none of its
operations is bound by or subject to) any written or oral, express or
implied, contract, commitment, or arrangement with any labor union, and
no labor union has requested or, to the knowledge of Entity, has sought
to represent any of the employees, representatives, or agents of
Entity. There is no strike or other labor dispute involving Entity
pending or, to the knowledge of Entity, threatened that could have an
Entity Material Adverse Effect and Entity is not aware of any labor
organization activity involving its employees. Entity is not aware that
any officer or Key Employee, or that any group of Key Employees,
intends to terminate employment with Entity, nor does Entity have a
present intention to terminate the employment of any of the foregoing.
The employment of each officer and employee of Entity is terminable at
the will of Entity.
(b) Except as set forth in Disclosure Schedule 3.16(b), Entity
does not maintain nor has it contributed during the past five years or
such shorter period as it has been in existence to any employee benefit
plan (as such term is defined in the Employee Retirement Security Act
("ERISA") Section 3(s) or respecting which Entity or any member of its
ERISA Group would incur liability in accordance with Sections 4065,
4069, 4212(c), or 4204 of ERISA, and any other retirement, pension,
stock option, stock application rights, profit sharing, incentive
compensation, deferred compensation, savings, thrift, vacation pay,
severance pay, or other employee compensation or benefit plan,
agreement, practice, or arrangement, whether written or unwritten,
whether or not legally binding (collectively, the "Entity Benefit
Plans"). As of the date of this Agreement, except as would not have an
Entity Material Adverse Effect, the material Entity Benefit Plans
maintained by Entity, or any member of its ERISA Group, or respecting
which Entity has or may have a liability are in substantial compliance
with applicable Laws, including ERISA and the Code. Disclosure Schedule
3.16(b) sets forth a list of all Entity Benefit Plans, true and
complete copies of which have been furnished to ▇▇▇. Respecting the
Entity Benefit Plans, no event has occurred and, to the knowledge of
Entity, there exists no condition or set of circumstances, in
20
connection with which Entity or any member of its ERISA Group could be
subject to any liability under the terms of such Entity Benefit Plans,
ERISA, the Code, or any other applicable Law that would have an Entity
Material Adverse Effect.
(c) Except as otherwise set forth on Disclosure Schedule
3.16(c), neither Entity nor any member of its ERISA Group contributes
to or has an obligation to contribute to, and has not within five years
prior to the date of this Agreement contributed to or had an obligation
to contribute to or has any secondary liability in accordance with
ERISA Section 4204 to, a multiemployer plan within the meaning in
accordance with Section 3(37) of ERISA.
(d) Neither Entity nor any member of its ERISA Group is or has
ever been a party to any collective bargaining or other labor union
contracts. No collective bargaining agreement is being negotiated by
Entity. There is no pending or threatened labor dispute, strike, or
work stoppage against Entity that may interfere with the business
activities of Entity. None of Entity or any of its representatives or
employees has committed any unfair labor practices in connection with
the operation of the business of Entity, and there is no pending or
threatened charge or complaint against Entity by the National Labor
Relations Board or any comparable state agency.
(e) Respecting each Entity Benefit Plan that is a "group
health plan" within the meaning in accordance with Section 5000(b) of
the Code, each such Entity Benefit Plan complies and has complied with
the requirements of Part 6 of Title I of ERISA and Sections 4980B and
5000 of the Code, except when the failure to so comply would not have
an Entity Material Adverse Effect.
(f) Except as otherwise set forth on Disclosure Schedule
3.16(f), Entity is not a party or subject to any agreement or
arrangement, and has not established any plan, policy, practice, or
program, requiring it to pay or provide any other form of compensation
or benefit or vesting rights to any Person performing services for
Entity that would not be payable or provided in the absence of this
Agreement or the consummation of the transactions contemplated hereby,
including any parachute payment in accordance with Section 280G of the
Code.
Section 3.17 Employee Relations. To the best of such Entity's or
Constituent Affiliate Owner's knowledge, Entity has complied in all material
respects with all applicable Laws that relate to prices, wages, hours,
harassment, disabled access, discrimination employment, collective bargaining,
and the operation of its business and is not liable for any arrears of wages or
any Taxes or penalties for failure to comply with any of the foregoing. Entity
believes that its relations with its employees are satisfactory.
Section 3.18 Certain Business Practices. None of Entity, or any
directors, officers, agents, members or employees of Entity on behalf of Entity,
has used any funds for unlawful contributions, gifts, or entertainment or other
unlawful expenses relating to political activity.
Section 3.19 Environmental Matters. The terms "hazardous waste,"
"hazardous substance," "disposal," "release," and "threatened release," as used
in this Agreement, shall have the same meanings as set forth in the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended, 42 U.S.C. ss. 9601, et seq. ("CERCLA"), the Superfund Amendments and
Reauthorization Act of 1986, Pub. L. no. 99 499 ("▇▇▇▇"), the Hazardous
Materials Transportation Act, 49 U.S.C. ss. 1801, et seq., the Resource
Conservation and Recovery Act, 49 U.S.C. ss. 6901, et seq., or other applicable
state or federal Laws adopted pursuant to any of the foregoing. Except as set
forth in Disclosure Schedule 3.19, (a) during the period of Entity's ownership,
use, or other occupancy of the properties of Entity, Entity has not used,
generated, manufactured, stored, treated, disposed of, or released any hazardous
waste or substance on, under, or about any of the properties, except in
compliance with environmental Laws; and (b) Entity has no knowledge of, or
reason to believe that there has been (i) any use, generation, manufacture,
21
storage, treatment, disposal, release, or threatened release of any hazardous
waste or substance by any prior owners or occupants of any of the properties,
except in compliance with environmental Laws, or (ii) any actual or threatened
litigation or claims of any kind against Entity or any other Person for whose
conduct it is or may be liable by any Person relating to such matters.
Section 3.20 Insurance. Disclosure Schedule 3.20 sets forth a true
and complete listing, and includes complete and correct copies, as presently in
effect, of all material policies currently in force, and all other policies
under which a claim could be made as of the date hereof (i.e., all
occurrence-based policies), for fire, products and environmental or pollution
control liability, professional liability, general liability, vehicle, workers'
compensation, directors and officers' liability, title and other insurance
owned, held by, or covering Entity or any of its property, assets, or
activities, past or present. As of the date hereof, all of such policies are in
full force and effect, and Entity has not received any outstanding notice of
cancellation or termination respecting any policy of fire, products or
environmental or pollution control liability, general liability, vehicle,
workers' compensation, directors' and officers' liability, title and other
insurance owned, held by, or covering Entity or any of its property, assets, or
activities, past or present. Neither the Consolidation nor any of the
transactions contemplated hereby shall cause the termination or may form the
basis for terminating any such insurance policies or insurance coverages
presently maintained by Entity.
Section 3.21 Certain Contracts and Restrictions. Other than
agreements, contracts, or commitments listed elsewhere in the Entity schedules,
Disclosure Schedule 3.21 lists, as of the date hereof, and includes a complete
and correct copy, as presently in effect, of each agreement, contract, or
commitment (including any amendments thereto) to which Entity is a party or by
which Entity is bound involving consideration to pass to or from Entity during
the next 12 months in excess of $100,000 or that is otherwise material to the
assets, liabilities, financial condition, results of operations, or current or
future business of Entity, taken as a whole. As of the date of this Agreement
and except as indicated on the Entity schedules, Entity has fully complied with
all material terms and conditions of all agreements, contracts and commitments
that will be listed in the Entity schedules and all such agreements, contracts,
and commitments are in full force and effect, Entity has no knowledge of any
defaults thereunder or any cancellations or modifications thereof, and such
agreements, contracts, and commitments are not subject to any memorandum or
other written document or understanding permitting cancellation.
Section 3.22 Owned Properties.
(a) Disclosure Schedule 3.22(a) contains a brief description
of each parcel of real property owned by Entity (showing the record
title holder, legal description, permanent index or tax assessor parcel
number, location, improvements, the uses being made thereof, and any
indebtedness secured by a mortgage or other encumbrance of any type
thereon) and of each option held by Entity to acquire any real
property, and of all easements, rights of way, and similar rights
respecting real property granted to Entity. Except as set forth in
Disclosure Schedule 3.22(a) (showing the name of the lessee, the date
of the lease, annual rental, expiration date, renewal and purchase
options, if any), there are no leases, subleases, tenancies, or other
rights of occupancy affecting such real property.
(b) Disclosure Schedule 3.22(b) contains a list of all
machinery, equipment, vehicles, furniture, and other personal property
owned by Entity having an original cost of $5,000 or more and used in
or relating to the business of Entity. Except as set forth in
Disclosure Schedule 3.22(b), all such personal property is in good
operating and serviceable condition and repair, reasonable wear and
tear excepted, and is suitable for the purposes for which it is being
used or is proposed to be used.
22
(c) Except as set forth in Disclosure Schedule 3.22(c), all of
the improvements owned by Entity are in good operating condition and
repair, suitable for the purposes for which they are being used, and
each has adequate rights of ingress and egress for the operation of the
business of Entity. Except as set forth on Disclosure Schedule 3.22(c),
no such improvement, or any appurtenance thereto or equipment therein,
or the operation or maintenance thereof, violates any restrictive
covenants or any provisions of any federal, state, or local Law or
zoning regulation, or encroaches on any property owned by others.
Entity shall deliver to each Entity complete and correct copies of any
title opinions, surveys, and appraisals in Entity's possession or any
policies of title insurance currently in force and in the possession of
Entity respecting each such parcel.
(d) Except as set forth in Disclosure Schedule 3.22(d) and
except for Liens arising in the ordinary course of business after the
date hereof and properties and assets disposed of in the ordinary
course of business after the date of Entity's Recent Balance Sheet,
Entity has good and marketable title free and clear of all Liens, the
existence of which would have an Entity Material Adverse Effect, to all
material properties and assets, whether tangible or intangible, real,
personal or mixed, reflected in Entity's Recent Balance Sheet as being
owned by Entity as of the date thereof or purported to be owned on the
date hereof.
Section 3.23 Real Property Leases. Disclosure Schedule 3.23 sets
forth a list and brief description of each lease or similar agreement (showing
the name of the lessor, the date of the lease, annual rental, expiration date,
renewal and purchase options, if any, the improvements thereon, the uses being
made thereof, and the location and the legal description of the real property
covered by such lease or other agreement) under which Entity is lessee of, or
holds or operates, any real property owned by any third Person and used in or
relating to the business of Entity. Entity has the right to quiet enjoyment of
all such real property described in Disclosure Schedule 3.23 for the full term
of each such lease or similar agreement (and any renewal option related thereto)
relating thereto. All leased premises are in good condition and repair, ordinary
wear and tear excepted, and there does not exist any condition that materially
interferes with the economic value or use thereof. Entity shall deliver to ▇▇▇
complete and correct copies of any title opinions, surveys, and appraisals in
Entity's possession or any policies of title insurance currently in force and in
the possession of Entity respecting each such parcel of leased property, except
as set forth in Disclosure Schedule 3.23, no consent of any lessor is required
in order for Entity to enter into the Consolidation. All buildings, fixtures,
equipment, and other property and assets that are material to its business held
under leases by Entity are held under valid instruments enforceable by Entity in
accordance with their respective terms. Included in Disclosure Schedule 3.23 are
complete and correct copies, as presently in effect (including any amendments
thereto), of each lease or similar agreement listed on Disclosure Schedule 3.23.
Section 3.24 Personal Property Leases. Disclosure Schedule 3.24
contains a brief description of each lease or other agreement or right, whether
written or oral (including in each case the annual rental, the expiration date
thereof, and a brief description of the property covered), under which Entity is
lessee of, or holds or operates, any machinery, equipment, vehicle, or other
tangible personal property owned by a third Person. All leases of such personal
property are in full force and effect according to their terms and there are no
outstanding defaults of Entity or any other party. Included in Disclosure
Schedule 3.24 are complete and correct copies, as presently in effect (including
any amendments thereto), of each lease or other agreement listed on Disclosure
Schedule 3.24.
Section 3.25 Easements. The business of Entity has been operated
in a manner that does not violate the material terms of any easements, rights of
way, permits, servitude, licenses, and similar rights relating to real property
used by Entity in its business except for violations that have not resulted and
will not result in an Entity Material Adverse Effect. All material Entity
23
easements are valid and enforceable and grant the rights purported to be granted
thereby and all rights necessary thereunder for the current operation of such
business.
Section 3.26 Inventories. The inventories of Entity (including raw
materials, supplies, work-in-process, finished goods, and other materials) are
in good, merchantable, and useable condition and (i) are reflected in Entity's
Recent Balance Sheet in accordance with GAAP, and (ii) are reflected in the
books and records of Entity at the lower of cost or market value on a first in
first out basis. The inventory obsolescence policies of Entity are appropriate
for Entity's industry and the reserve for inventory obsolescence contained in
Entity's Recent Balance Sheet fairly reflects the amount of obsolete inventory
as of such date. Disclosure Schedule 3.26(b) sets forth a list of all material
inventory as of Entity's Recent Balance Sheet.
Section 3.27 Futures Trading and Fixed Price Exposure. Entity is
not presently engaged in any futures or options trading nor is it a party to any
price, interest rate or currency swaps, ▇▇▇▇▇▇, futures, or other derivative
instruments.
Section 3.28 Intellectual Property. Except as otherwise set forth
in Disclosure Schedule 3.28, Entity owns or possesses sufficient legal rights to
(a) all trademarks, service marks, trade names, copyrights, trade secrets,
licenses, information, and proprietary rights and processes, and (b) all patents
and patent rights (collectively, the "Entity Intellectual Property") as are
necessary to the conduct of Entity's business as now conducted and as presently
proposed to be conducted, without any known conflict with, or infringement of,
the rights of others. No product or service marketed or sold (or proposed to be
marketed or sold) by Entity violates or will violate any license or infringe any
intellectual property rights of any other party. Other than respecting
commercially available software products under standard end-user object code
license agreements, there are no outstanding options, licenses, agreements,
claims, encumbrances, or shared ownership interests of any kind relating to the
foregoing, nor is Entity bound by or a party to any options, licenses, or
agreements of any kind respecting the patents, trademarks, service marks, trade
names, copyrights, trade secrets, licenses, information, proprietary rights, and
processes of any other Person. Entity has not received any communications
alleging that Entity has violated or, by conducting its business, would violate
any of the patents, trademarks, service marks, trade names, copyrights, trade
secrets, or other proprietary rights or processes of any other Person. Entity
has obtained and possesses valid licenses to use all of the software programs
present on the computers and other software-enabled electronic devices that it
owns or leases or that it has otherwise provided to its employees for their use
in connection with Entity's business. It will not be necessary to use any
inventions of any of Entity's employees (or Persons it currently intends to
hire) made prior to their employment by Entity, other than such inventions that
heretofore have been fully assigned to Entity. Each employee has assigned to
Entity all intellectual property rights he or she owns that are related to
Entity's business as now conducted. Disclosure Schedule 3.28 lists all patents,
patent applications, registered trademarks, trademark applications, registered
service marks, service ▇▇▇▇ applications, registered copyrights, and domain
names of Entity. Other than license fees under any agreement listed on
Disclosure Schedule 3.28, Entity is not obligated to make any payments of
royalties, fees, or otherwise to any owner or licensor of or claimant to any
Entity Intellectual Property respecting the use thereof in connection with the
conduct of its business as presently conducted. There are no agreements,
understandings, instruments, contracts, or Orders to which Entity is a party or
by which it is bound that involve indemnification by Entity respecting
infringements of Entity Intellectual Property. For purposes of this Section
3.28, Entity shall be deemed to have knowledge of a patent right if Entity has
actual knowledge of the patent right or would be found to be on notice of such
patent right as determined by reference to United States patent Laws.
Section 3.29 Proprietary Information and Noncompetition
Agreements. For purposes of this Section 3.29, "Proprietary Information" means
24
any and all Entity Intellectual Property, Customer names, plans, forecasts,
marketing, financial information, products, methodologies, technology, designs,
drawings, engineering, and other business information of Entity; provided,
however, Proprietary Information shall not include anything that is publicly
known or any nonproprietary generic knowledge or knowledge that a Person would
have gained in the course of employment with other employers in the same
industry or business generally. Each current and former employee of or
consultant to Entity that has had access to Entity's Intellectual Property or
has had knowledge of or access to Entity Proprietary Information has entered
into a confidentiality and nondisclosure agreement, substantially in the form
attached to Disclosure Schedule 3.29 (the "Proprietary Information Agreement").
Except as otherwise set forth on Disclosure Schedule 3.29, to the Entity's
knowledge, no officer, employee, or consultant of Entity is in violation of (a)
any Proprietary Information Agreement or any other confidentiality or
nondisclosure agreement or any prior employee contract or proprietary
information agreement with any other corporation or third party, or (b) any
agreement, covenant, or undertaking restricting or limiting in any material
respect the activities of such officer, employee, or consultant.
Section 3.30 Transactions with Affiliates.
(a) Disclosure Schedule 3.30(a) describes every material
contract, agreement, or arrangement between Entity and any Person who
is or has ever been an officer or director of Entity or Person owning
of record, or known by Entity to own beneficially, 10% or more of the
issued and outstanding capital stock or ownership interests of Entity
and which is to be performed in whole or in part after the date hereof
or was entered into within three years before the date hereof. In all
of such circumstances, the contract, agreement, or arrangement was for
a bona fide business purpose of Entity, and the amount paid or
received, whether in cash, in services, or in kind, is, has been during
the full term thereof, and is required to be during the unexpired
portion of the term thereof, no less favorable to Entity than terms
available from otherwise unrelated parties in arm's-length
transactions. Except as disclosed in Disclosure Schedule 3.30, no
officer or director of Entity or 10% stockholder of Entity has, or has
had during the preceding three years, any interest, directly or
indirectly, in any material transaction with Entity. Disclosure
Schedule 3.30(a) also describes any commitment by Entity, whether
written or oral, to lend any funds to, borrow any money from, or enter
into any other material transaction with any such affiliated Person.
Disclosure Schedule 3.30(a) includes complete and correct copies, as
presently in effect, of every contract, agreement, or arrangement
listed on Disclosure Schedule 3.30(a).
(b) Except as described in Disclosure Schedule 3.30(b), no Key
Employee, officer, director, or stockholder of the Constituents or
member of his or her immediate family is indebted to the Constituents,
nor are the Constituents indebted (or committed to make loans or extend
or guarantee credit) to any of them other than (i) for payment of
salary for services rendered, (ii) reimbursement for reasonable
expenses incurred on behalf of the Constituents, and (iii) for other
standard employee benefits made generally available to all employees.
None of such persons has any direct or indirect ownership interest in
any firm or corporation with which the Constituents are affiliated or
with which the Constituents have a business relationship, or any firm
or corporation that competes with the Constituents, except in
connection with the ownership of stock in publicly-traded companies. No
employee, officer, director, or stockholder, nor any member of their
immediate families, is, directly or indirectly, interested in any
material contract with the Constituents, except as described in
Disclosure Schedule 3.30(b) (other than such contracts as relate to any
such Person's ownership of capital stock or other securities of the
Constituents).
Section 3.31 Compliance with Securities Laws. All of the
securities offered and sold by Entity within three years prior to the date of
this Agreement were issued in transactions exempt from registration under the
Securities Act and state securities Laws.
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Section 3.32 Bank Accounts and Powers of Attorney. Disclosure
Schedule 3.32 sets forth (a) all bank accounts and safe deposit boxes maintained
by such Entity, if any, along with a list of the Persons authorized to draw
upon, have access to, or operate such accounts or boxes, and (b) the name of
each Person holding a general or specific power of attorney from such Entity.
Section 3.33 Americans with Disabilities Act Compliance. The
facilities used by the Entity are maintained in full accordance with the
Americans with Disabilities Act of 1990 (the "ADA"). Entity has not received any
notice to the effect, or otherwise been advised, that the facilities are not in
compliance with the ADA, and to Entity's knowledge, there are no existing
circumstances applicable to Entity that are likely to result in a violation of
the ADA.
Section 3.34 Minute Book. The minute book of Entity contains, and
will contain at the Closing Date, a complete record of all meetings, consents,
or other actions of its board or other governing body or bodies, including
committees thereof, and equity owners for the period from inception through the
date hereof and accurately reflects the substance of all transactions referred
to in such minutes in all material respects.
Section 3.35 Solvency. Entity is solvent (i.e., its assets have a
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured), and
currently Entity has no information that would lead it to reasonably conclude
that Entity would not have the ability, and does not intend to take any action
that would impair its ability, to pay its debts from time to time incurred in
connection therewith as such debts mature.
Section 3.36 Foreign Corrupt Practices. Neither Entity nor any of
its directors, officers, agents, employees, or other Person acting on behalf of
Entity has, directly or indirectly, in the course of his or her actions for or
on behalf of Entity, used any corporate funds for any unlawful contribution,
gift, or entertainment or other unlawful expenses relating to political
activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as
amended; or made any bribe, rebate, payoff, influence payment, kickback, or
other unlawful payment to any foreign or domestic government official or
employee. Without limiting the generality of the foregoing, Entity has not
directly or indirectly made or agreed to make (whether or not said payment is
lawful) any payment to obtain, or with respect to, sales other than usual and
regular compensation to its or their employees and sales representatives with
respect to such sales.
Section 3.37 Internal Accounting Controls. Entity and each of its
subsidiaries maintains a system of internal accounting controls sufficient to
provide reasonable assurance that (a) transactions are executed in accordance
with management's general or specific authorizations, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (c) access to assets is permitted only in accordance with
management's general or specific authorization, and (d) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
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Article IV
Representations, Warranties, and Covenants
Respecting Constituent Affiliate Owners
Each Constituent Affiliate Owner, severally but not jointly,
represents, warrants, and covenants as follows with respect to itself and no
other Constituent Affiliate Owner.
Section 4.01 Authority; Enforcement; Ownership. Such Constituent
Affiliate Owner has the full legal capacity, right, power, and authority to
enter into this Agreement, to perform such owner's obligations under this
Agreement, and to consummate the transactions contemplated herein, including the
right to sign on behalf of such constituent Affiliate Owner's spouse. This
Agreement has been duly executed and delivered by such Constituent Affiliate
Owner and constitutes a legal, binding, and valid obligation of such Constituent
Affiliate Owner, enforceable against such Constituent Affiliate Owner in
accordance with its terms. Such Constituent Affiliate Owner owns beneficially
and of record all of the shares of Constituent Equity as identified on
Disclosure Schedule 3.03(a) of the respective Entity schedules as being owned by
such Constituent Affiliate Owner, and except as set forth on Disclosure Schedule
4.01, such Constituent Equity is owned free and clear of all Liens and voting
trusts of every kind.
Section 4.02 No Violation. Except as set forth in Disclosure
Schedule 4.02, the execution and delivery of this Agreement by such Constituent
Affiliate Owner, the performance by such Constituent Affiliate Owner of its
obligations hereunder, and the consummation of the transactions contemplated
hereby (a) do not and will not result in any violation or breach of, constitute
a default or give rise to any right to termination, cancellation, or
acceleration or loss of any right or benefit under, or result in the imposition
of any Lien on any Constituent Equity owned by such Constituent Affiliate Owner
under any of the terms or provisions of any agreement, contract, instrument, or
commitment to which such Constituent Affiliate Owner is a party or by which such
Constituent Affiliate Owner or his or her property is bound, (b) do not and will
not conflict with or violate any applicable Law or Order binding upon or
applicable to such Constituent Affiliate Owner or its property, and (c) except
as set forth on Disclosure Schedule 4.02, do not require any consent, waiver,
authorization, or declaration of, filing or registration with, or other action
by any Governmental Entity or any other third party.
Section 4.03 Preemptive Rights. Such Constituent Affiliate Owner
does not have or hereby waives any preemptive or other right to acquire shares
of stock of the Constituent in which such Constituent Affiliate Owner holds
shares of Constituent Equity or of ▇▇▇ that such Constituent Affiliate Owner has
or may have had, other than the rights of such Constituent Affiliate Owner to
acquire New ▇▇▇ Stock pursuant to this Agreement.
Section 4.04 Termination of Agreements. Such Constituent Affiliate
Owner agrees to terminate, on or prior to the Closing Date, (a) executory
stockholders agreement, voting agreement, voting trust, subscription, option,
warrant, call, conversion right, or commitment of any kind that obligates the
Constituent in which such Constituent Affiliate Owner holds shares of
Constituent Equity to issue any securities or purchase, redeem, or otherwise
acquire any securities or any interests therein, (b) executory employment
agreement between such Constituent Affiliate Owner and the Constituent (but not
any noncompetition, nonsolicitation, or nondisclosure provisions contained
therein), and (c) any other existing executory agreement between the Constituent
in which such Constituent Affiliate Owner holds shares of Constituent Equity and
such Constituent Affiliate Owner, all save and except such agreements as are to
be executed and delivered in connection with the consummation of the
transactions contemplated by this Agreement in accordance with Article VI.
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Section 4.05 Repayment of Indebtedness. Such Constituent Affiliate
Owner agrees to cause all indebtedness owed by such Constituent Affiliate Owner
to the Constituent in which such Constituent Affiliate Owner holds shares of
Constituent Equity to be paid in full on or prior to the Closing.
Section 4.06 Private Offering of Securities. Neither such
Constituent Affiliate Owner nor any of its Affiliates nor anyone acting on its
behalf has offered or sold any security of the Constituent in which such
Constituent Affiliate Owner holds shares of Constituent Equity to any Person
under circumstances that would cause the consummation of the transactions
contemplated by this Agreement to require registration under the Securities Act.
Section 4.07 Control of Related Businesses. Except as set forth in
Disclosure Schedule 4.07, such Constituent Affiliate Owner is not, alone or with
one or more other Persons, the controlling Affiliate of any entity, business, or
trade that is engaged in any line of business that is the same as or similar to
any line of business in which any Constituent is engaged.
Article V
Conduct Prior to Closing
Section 5.01 Affirmative Covenants of Each Party. Except as
expressly set forth in this Agreement, as set forth in any RVision, CFed, or ▇▇▇
schedule, or otherwise consented to in writing by all other Parties, ▇▇▇ will,
and the RVision Owners and CFed Owners will cause RVision and CFed,
respectively, to:
(a) continue to operate its business in the ordinary course
consistent with past practices;
(b) use reasonable commercial efforts to preserve
substantially intact its business organization, maintain its material
rights and franchises, retain the services of its respective officers
and employees, and maintain its relationships with its material
Customers and suppliers;
(c) maintain and keep its material properties and assets in as
good repair and condition as at present, ordinary wear and tear
excepted, and maintain supplies and inventories of products based on
its customary business practice;
(d) use reasonable commercial efforts to keep in full force
and effect insurance and bonds comparable in amount and scope of
coverage to that currently maintained;
(e) (i) use reasonable commercial efforts to arrange on behalf
of ▇▇▇ one or more credit facilities to replace any existing credit
facility of the respective Constituent, certain of which may be
guaranteed personally by the owners of such Constituent, and (ii)
obtain the release of each such personal guarantee to such existing
credit facility or, if such releases are not obtained prior to the
Closing Date, to provide for indemnification by ▇▇▇ of each such
guarantor who is not then released from such personal guarantee; and
(f) take all such steps as are commercially reasonable in
order to consummate the Consolidation and all other transactions
contemplated hereby, including securing all requisite consents thereto.
Section 5.02 Negative Covenants of All Parties. Except as
expressly set forth in this Agreement, as set forth in any Constituent or ▇▇▇
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schedule, or otherwise consented to in writing by all other Parties, from the
date of this Agreement until the Closing Date, neither ▇▇▇, nor will the RVision
Owners and CFed Owners permit RVision and CFed, respectively, to:
(a) except as described in Disclosure Schedule 3.03(a) of the
RVision, CFed or ▇▇▇ disclosure schedules, declare or pay any dividend
on, or make any other distribution in respect of, outstanding shares of
capital stock or ownership interests; provided, however, that any
Constituent that is treated for federal income tax purposes as a
partnership or an S corporation for which an election in accordance
with Section 1362(a) of the Code is in effect may not, prior to
Closing, make any distribution to its equity owners that is not set
forth in Disclosure Schedule 5.02(a) without ELI's prior written
consent, which may be granted or withheld in its absolute discretion;
(b) except as described in Disclosure Schedule 3.03(b) of the
RVision, CFed, or ▇▇▇ schedules, (i) redeem, purchase, or otherwise
acquire any shares of its capital stock or ownership interests, or any
securities or obligations convertible into or exchangeable for any
shares of its capital stock or ownership interests (other than any such
acquisitions directly from such Party in exchange for capital
contributions or loans), or any options, warrants, or conversion or
other rights to acquire any shares of its capital stock or ownership
interests, or any such securities or obligations (except in connection
with the exercise of outstanding stock options in accordance with their
terms); (ii) effect any reorganization or recapitalization; (iii)
split, combine, or reclassify its capital stock or ownership interests;
or (iv) issue, authorize, or propose the issuance of any other
securities in respect of, in lieu of, or in substitution for shares of
its capital stock or ownership interests;
(c) except as described in Disclosure Schedule 3.03(c) of the
RVision, CFed, or ▇▇▇ schedules or as contemplated by this Agreement,
(i) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale (including the grant of any
Liens or limitations in voting rights) of, any shares of any class of
its capital stock or ownership interests (including shares or ownership
interests held in treasury), any securities convertible into or
exercisable or exchangeable for any such shares or ownership interests,
or any rights, warrants, or options to acquire any such shares or
ownership interests (except as permitted in accordance with Subsections
2.04(a) and 2.04(b) of this Agreement or for the issuance of shares
upon the exercise of outstanding stock options or the vesting of
restricted stock in accordance with the terms of outstanding ▇▇▇ of
Constituent Equity awards); (ii) amend or otherwise modify the terms of
any such rights, warrants, or options the effect of which shall be to
make such terms more favorable to the holders thereof; or (iii) take
any action to accelerate the exercisability of stock options;
(d) acquire or agree to acquire, by merging or consolidating
with, by purchasing any equity interest in or a portion of the assets
of, or by any other manner, any business or any corporation, limited
liability company, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to
acquire any assets of any other Person (other than the purchase of
assets from suppliers or vendors in the ordinary course of business and
consistent with past practice);
(e) sell, lease, exchange, mortgage, pledge, transfer, or
otherwise dispose of, or agree to sell, lease, exchange, mortgage,
pledge, transfer, or otherwise dispose of, any of its material assets,
except for the sale of inventory or other dispositions in the ordinary
course;
(f) initiate, solicit, or encourage (including by way of
furnishing information or assistance), or take any other action to
facilitate, any inquiries or the making of any proposal relating to, or
29
that may reasonably be expected to lead to, any Competing Transaction
(as defined below), or enter into discussions or negotiate with any
Person in furtherance of such inquiries or to obtain a Competing
Transaction, or agree to or endorse any Competing Transaction, or
authorize or permit any of the officers, directors, or employees of ▇▇▇
or any investment banker, financial advisor, attorney, accountant, or
other representative retained by such Party to take any such action,
and such Party shall promptly notify each other Party of all relevant
terms of any such inquiries and proposals received by or respecting
▇▇▇, RVision, or CFed or by any such officer, director, investment
banker, financial advisor, attorney, accountant, or other
representative relating to any of such matters, and if such inquiry or
proposal is in writing, such Party shall promptly deliver or cause to
be delivered to each other Party a copy of such inquiry or proposal.
For purposes of this Agreement, "Competing Transaction" shall mean any
of the following (other than the transactions contemplated by this
Agreement) involving a Party hereto: (i) any merger, consolidation,
share exchange, business combination, or similar transaction; (ii) any
sale, lease, exchange, mortgage, pledge, transfer, or other disposition
of 20% or more of the assets of ▇▇▇, RVision, or CFed; (iii) any tender
offer or exchange offer for 20% or more of the outstanding shares of
capital stock or ownership interests of ▇▇▇, RVision, or CFed or the
filing of a registration statement under the Securities Act in
connection therewith; (iv) any Person (other than stockholders of ▇▇▇,
RVision, or CFed as of the date of this Agreement) having acquired
Beneficial Ownership of, or any group (as such term is defined in
accordance with Section 13(d) of the Exchange Act and the rules and
regulations promulgated thereunder) having been formed that
beneficially owns, or has the right to acquire Beneficial Ownership of,
20% or more of the outstanding shares of capital stock or ownership
interests of ▇▇▇, RVision, or CFed; or (v) any public announcement of a
proposal, plan, or intention to do any of the foregoing or any
agreement to engage in any of the foregoing;
(g) release any third party from its obligations or grant any
consent under any existing standstill provision relating to a Competing
Transaction or otherwise under any confidentiality or other agreement,
or fail to fully enforce any such agreement;
(h) adopt or propose to adopt any amendments to its Charter
Documents that would alter the terms of its capital stock or ownership
interests or would have an adverse impact on the consummation of the
transactions contemplated by this Agreement;
(i) change any of its methods of accounting in effect at the
date of its Recent Balance Sheet; make or rescind any express or deemed
election relating to Taxes; settle or compromise any claim, action,
suit, litigation, audit, or controversy relating to Taxes (except when
the amount of such settlements or controversies, individually or in the
aggregate, does not exceed $10,000); or change any of its methods of
reporting income or deductions for federal income tax purposes from
those employed in the preparation of the federal income tax returns, if
any, for the most recent taxable year, except in each case, as may be
required by Law or GAAP;
(j) incur any obligations for borrowed money or purchase money
indebtedness or guarantee, whether or not evidenced by a note, bond,
debenture, or similar instrument, except in the ordinary course of
business consistent with past practice or as otherwise contemplated by
this Agreement;
(k) enter into any material arrangement, agreement, or
contract with any third party that provides for an exclusive
arrangement with that third party or is substantially more restrictive
on ▇▇▇, RVision, or CFed, as the case may be, or substantially less
advantageous to such than arrangements, agreements, or contracts
existing on the date hereof;
30
(l) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization, or
other material reorganization;
(m) pay, discharge, or satisfy any claims, liabilities, or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge, or satisfaction of any
such claims, liabilities, or obligations, that are (i) not payable to
any Affiliate of ▇▇▇, RVision, or CFed, (ii) reflected on, reserved
against in, or contemplated by the financial statements (or the notes
thereto) of ▇▇▇, RVision, or CFed, (iii) incurred in the ordinary
course of business consistent with past practice, and (iv) legally
required to be paid, discharged, or satisfied;
(n) knowingly take, or agree to commit to take, any action
that would make any representation or warranty of ▇▇▇, RVision, or CFed
contained herein or in its disclosure schedules inaccurate in any
respect at, or as of any time prior to, the Closing Date;
(o) engage in any transaction with, enter into any agreement,
arrangement, or understanding with, or pay any amount to, directly or
indirectly, any of such Party's Affiliates, including any transactions,
agreements, arrangements, or understanding with any Affiliate, other
than pursuant to such agreement, arrangements, or understandings
existing on the date of this Agreement and as set forth in Disclosure
Schedule 3.29 of the RVision, CFed and ▇▇▇ disclosure schedules, or
that are contemplated under this Agreement; provided that, such Party
provides each other Party with all information concerning any such
agreement, arrangement, or understanding that each other Party may
reasonably request;
(p) agree to or approve any commitment, including any
authorization for expenditure or agreement to acquire property, other
than in the ordinary course of business, obligating such Party for an
amount in excess of $10,000;
(q) engage in any futures or options trading or be a party to
any price or currency swaps, ▇▇▇▇▇▇, futures, or derivative
instruments; or
(r) agree in writing or otherwise to do any of the foregoing.
Section 5.03 Access and Information; Noncompetition.
(a) ▇▇▇ shall (i) afford the Constituent Owners and their
respective accountants, consultants, legal counsel, agents, and other
representatives (collectively, the "Owners Access Representatives")
reasonable access at reasonable times, upon reasonable prior notice, to
the officers, directors, employees, agents, properties, offices, and
other facilities of ▇▇▇ and to the books and records thereof; and (ii)
furnish promptly to each Constituent Owner and the Owners Access
Representatives such information concerning the business, properties,
contracts, records, and personnel of ▇▇▇ (including financial,
operating, and other data and information) as may be reasonably
requested, from time to time, by any Constituent or such Owners Access
Representatives.
(b) Each RVision Owner and CFed Owner shall cause RVision and
CFed, respectively, to (i) afford to ▇▇▇ and its officers, directors,
employees, accountants, consultants, legal counsel, agents, and other
representatives (collectively, the "▇▇▇ Access Representatives") and
each other Constituent Owner and the other Owners Access
Representatives, reasonable access at reasonable times, upon reasonable
prior notice, to the officers, directors, employees, accountants,
31
agents, properties, offices, and other facilities of such Constituent
and to the books and records thereof; and (ii) furnish promptly to ▇▇▇
and the ▇▇▇ Access Representatives and each other Constituent Owner and
the other Owners Access Representatives such information concerning the
business, properties, contracts, records, and personnel of such
Constituent (including financial, operating, and other data and
information) as may be reasonably requested, from time to time, by ▇▇▇,
the ▇▇▇ Access Representatives, each other Constituent Owner, and the
Owners Access Representatives.
(c) Notwithstanding the foregoing provisions in accordance
with this Section 5.03, no Party shall be required to grant access or
furnish information to any other Party to the extent that such access
to or the furnishing of such information is prohibited by Law. No
investigation by the Parties hereto made heretofore or hereafter shall
affect the representations and warranties of the Parties that are
herein contained and each such representation and warranty shall
survive such investigation.
(d) The information received in accordance with Subsections
5.03(a) and (b) shall be deemed to be "Confidential Information." Each
Party hereto agrees that it will treat in confidence all documents,
materials, and other Confidential Information that it shall have
obtained regarding any other Party, RVision, or CFed during the course
of the negotiations leading to the consummation of the transactions
contemplated hereby (whether obtained before or after the date of this
Agreement), the investigation provided for herein, and the preparation
of this Agreement and other related documents. Such documents,
materials, and other Confidential Information shall not be communicated
to any third Person (other than to its respective counsel, accountants,
financial advisors, or lenders) and shall not be used for any purpose
to the detriment of any other Party, RVision, or CFed. No Party shall
use any Confidential Information in any manner whatsoever except solely
for the purpose of evaluating a possible business relationship with any
other Party. No Party and no Owners Access Representative or ▇▇▇ Access
Representative will, during the term of this Agreement or at any time
during the two years thereafter, irrespective of the time, manner, or
cause of termination of this Agreement, use, disclose, copy, or assist
any other Person in the use, disclosure, or copying of any documents,
materials, or other Confidential Information of any other Party hereto
or of RVision or CFed.
(e) For a period of one year after the execution of this
Agreement, each Party will not, directly or indirectly, (i) solicit,
divert, or take away, or attempt to solicit, divert, or take away, the
business of any Customers, as defined below of any Constituent or ▇▇▇
respecting any such other Constituent's or ELI's business and
operations; or (ii) attempt or seek to cause any of the Customers of
any other Constituent or ▇▇▇ to refrain from maintaining, selling to,
or acquiring from or through any other Constituent or ▇▇▇ any product
or service relating to the business and operations of any other
Constituent or ▇▇▇. As used in this Agreement, "Customers" mean any
actual Customer of any Constituent or ▇▇▇ or its Affiliates served
within 12 months prior to the date of the execution of this Agreement,
as identified in Confidential Information in accordance with
Subsections (a) and (b) of this Section 5.03.
(f) Except as set forth in Disclosure Schedule 5.03(f), for a
period of one year subsequent to the execution of this Agreement, each
Party will not offer any employment or consulting position to any
employee of any Constituent or ▇▇▇, or induce or attempt to induce or
persuade any such employee to terminate his or her employment
relationship with any such Constituent or ▇▇▇ or assist any other
Person in doing the foregoing, except that no Constituent shall be
precluded from considering and accepting unsolicited applications from
such employees or applications from such employees in response to a
general solicitation of employment not specifically directed to
employees of any Constituent or ▇▇▇.
32
The covenants set forth in Subsections 5.03(d) through (f) shall survive the
termination of this Agreement for any reason.
Article VI
Additional Agreements
Satisfaction or performance of each of the additional agreements in
this Article VI is an express condition precedent to Closing.
Section 6.01 Filings or Notices Pursuant to Securities Laws.
(a) ▇▇▇ shall prepare and file with the SEC a notice on Form D
and such other notices or applications as ▇▇▇ may ▇▇▇▇ appropriate
under state securities Laws in connection with the transactions
contemplated by this Agreement. Each Constituent Owner and ▇▇▇ shall
take any action required to be taken under any applicable federal or
state securities Laws in connection with the issuance of shares of New
▇▇▇ Stock in the Consolidation. Each Constituent Owner shall furnish,
or shall cause such Constituent to furnish, to ▇▇▇ all information
concerning such Constituent Owner and the holders of its equity
securities as ▇▇▇ may reasonably request in connection with such
actions.
(b) The information supplied by any Party for inclusion in the
notices or other filings in accordance with this Section 6.01 shall
not, at the time filed, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. If at
any time prior to the Closing Date any event or circumstance relating
to any Party or any Party's Affiliates, or its or their respective
officers or directors, is discovered by any Party that should be set
forth in a supplement or amendment to any notices or other filings in
accordance with this Section 6.01, such Party shall promptly inform
each other Party thereof in writing. All documents that such Party is
responsible for filing with the SEC or any state authority in
connection with the transactions contemplated herein shall comply as to
form in all material respects with the applicable requirements of the
Securities Act and the rules and regulations thereunder, the Exchange
Act and the rules and regulations thereunder, state securities Laws,
and applicable state Laws.
Section 6.02 Appropriate Action; Consents; Filings.
(a) Each Constituent Affiliate Owner and ▇▇▇ shall use
reasonable commercial efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary,
proper, or advisable under applicable Laws or otherwise to consummate
and make effective the transactions contemplated by this Agreement,
(ii) obtain from any Governmental Entities any consents, licenses,
permits, waivers, approvals, authorizations, or Orders required to be
obtained or made by any Constituent or ▇▇▇ in connection with the
authorization, execution, and delivery of this Agreement and the
consummation of the transactions contemplated hereby, including the
Consolidation, (iii) make all necessary filings, and thereafter make
any other required submissions, respecting this Agreement and the
Consolidation required under (1) the Securities Act and the Exchange
Act and the rules and regulations thereunder, and any other applicable
federal or state securities Laws, and (2) any other applicable Law;
provided that, each Constituent Affiliate Owner and ▇▇▇ shall cooperate
with each other Party in connection with the making of all such
filings, including providing copies of all such documents to each
nonfiling Party and its advisors prior to such filings and, if
requested, shall accept all reasonable additions, deletions, or changes
suggested in connection therewith. Each Constituent Affiliate Owner and
33
▇▇▇ shall furnish all information required for any application or other
filing to be made pursuant to the rules and regulations of any
applicable Law in connection with the transactions contemplated by this
Agreement.
(b) Each Constituent Affiliate Owner and ▇▇▇ agree to
cooperate with respect to, and agree to use reasonable commercial
efforts vigorously to contest and resist, any action, including
legislative, administrative, or judicial action, and to have vacated,
lifted, reversed, or overturned any decree, judgment, injunction, or
other order (whether temporary, preliminary or permanent) (an "Order")
of any Governmental Entity that is in effect and that restricts,
prevents or prohibits the consummation of the Consolidation or any
other transactions contemplated by this Agreement. Each of the
Constituents, Affiliate Owners, and ▇▇▇ also agree to take any and all
actions that, if not taken, would cause any condition to Closing not to
be satisfied; provided, however, that in no event shall any
Constituent, Affiliate Owners, or ▇▇▇ be required to take any action
that would or could reasonably be expected to have an Entity Material
Adverse Effect.
(c) Each Constituent Affiliate Owner and ▇▇▇ shall give any
notices to third parties, and use reasonable commercial efforts to
obtain any third-party consents (i) necessary, proper, or advisable to
consummate the transactions contemplated by this Agreement, (ii)
otherwise required under any contracts, licenses, leases, or other
agreements in connection with the consummation of the transactions
contemplated hereby, or (iii) required to prevent an Entity Material
Adverse Effect from occurring prior to the Closing Date or an Entity
Material Adverse Effect on the business of ▇▇▇ from occurring after the
Closing Date. In the event that any Party shall fail to obtain any
third-party consent as described above, such Party shall use reasonable
commercial efforts, and shall take any such actions reasonably
requested by any other Party, to limit the adverse effect upon each of
the Constituents and ▇▇▇ and their respective businesses, resulting or
which could reasonably be expected to result after the Closing Date,
from the failure to obtain such consent.
(d) Each Constituent Affiliate Owner and ▇▇▇ shall use
reasonable commercial efforts to obtain release of any guarantees by
any Constituent Affiliate Owner of any third-party indebtedness or
obligation that will not be paid, discharged, or otherwise satisfied at
the Closing Date.
(e) Each Constituent Affiliate Owner and ▇▇▇ shall promptly
notify all other Parties of (i) any material change in its current or
future business, assets, liabilities, financial condition, or results
of operations, (ii) any material complaints, investigations, or
hearings (or communications indicating that the same may be
contemplated) of any Governmental Entities respecting its business or
the transactions contemplated hereby, (iii) the institution or the
threat of material litigation involving it, or (iv) any material event
or condition that might reasonably be expected to cause any of its
representations, warranties, covenants, or agreements set forth herein
not to be materially true and correct at the Closing Date. As used in
the preceding sentence, "material litigation" means any case,
arbitration, or adversary proceeding or other matter that would have
been required to be disclosed on Disclosure Schedule 3.09 the RVision,
CFed, or ▇▇▇ schedules, if in existence on the date hereof, or in
respect of which the legal fees and other costs to such Constituent or
▇▇▇, as the case may be, might reasonably be expected to exceed $10,000
over the life of the matter.
Section 6.03 Acquisition of New ▇▇▇ Stock. The consummation of
this Agreement and the transactions contemplated herein, including the issuance
of the New ▇▇▇ Stock, comprising the Consolidation Consideration to the
Constituent Owners as contemplated hereby, constitutes the offer and sale of
securities under the Securities Act and applicable state securities Laws. Such
transactions shall be consummated in reliance on exemptions from the
34
registration and prospectus delivery requirements of such statutes that depend,
among other items, on the circumstances under which the Constituent Owners
acquire such securities comprising the Consolidation Consideration.
(a) In order to provide documentation for reliance upon
exemptions from the registration and prospectus delivery requirements
for the issuance of New ▇▇▇ Stock in the Consolidation, each
Constituent Owner hereby makes the following representations and
warranties:
(i) Such Constituent Owner acknowledges that neither
the SEC nor the securities commission of any state or other
federal agency has made any determination as to the merits of
acquiring the New ▇▇▇ Stock, and that the transactions
contemplated herein involve certain risks.
(ii) Such Constituent Owner has received and read
this Agreement and understands the risk related to the
consummation of the transactions herein contemplated.
(iii) Such Constituent Owner has such knowledge and
experience in business and financial matters that such
Constituent Owner is capable of evaluating the Consolidation
and ▇▇▇ and its proposed business operations.
(iv) Such Constituent Owner has been provided with a
copy of the Agreement and the related disclosure schedules of
the Parties hereto plus all materials and information
requested by each or his or her representative, including any
information requested to verify any information furnished (to
the extent such information is available or can be obtained
without unreasonable effort or expense), and each has been
provided the opportunity for direct communication with ▇▇▇ and
its representatives regarding the transactions contemplated
hereby.
(v) All information that each Constituent Owner has
provided to ▇▇▇ or its agents or representatives concerning
suitability to hold shares in ▇▇▇ following the transactions
contemplated hereby is complete, accurate, and correct.
(vi) Such Constituent Owner has not offered or sold
any interest in this Agreement and has no present intention of
dividing the New ▇▇▇ Stock to be received or the rights under
this Agreement with others or of reselling or otherwise
disposing of any portion of such stock or rights, either
currently or after the passage of a fixed or determinable
period of time or on the occurrence or nonoccurrence of any
predetermined event or circumstance.
(vii) Such Constituent Owner was at no time solicited
by any leaflet, public promotional meeting, circular,
newspaper or magazine article, radio or television
advertisement, or any other form of general advertising or
solicitation in connection with the offer, sale, or purchase
of the New ▇▇▇ Stock through this Agreement.
(viii) As a result of the Consolidation, such
Constituent Owner believes that its financial prospects
resulting from its ownership in ▇▇▇ will not be materially
less favorable than his or her retained ownership in such
Constituent. Each Constituent Owner anticipates no need in the
foreseeable future to sell the New ▇▇▇ Stock to be acquired
pursuant hereto. Each is able to bear the economic risks of
this investment, and consequently, without limiting the
generality of the foregoing, is able to hold the New ▇▇▇ Stock
to be received for an indefinite period.
35
(ix) Such Constituent Owner understands that the New
▇▇▇ Stock has not been registered, but is being acquired by
reason of a specific exemption under the Securities Act as
well as under certain state securities Laws for transactions
by an issuer not involving any public offering and that any
disposition of the New ▇▇▇ Stock may, under certain
circumstances, be inconsistent with this exemption and may
make the holder who disposes of such stock an "underwriter"
within the meaning of the Securities Act. It is understood
that the definition of "underwriter" focuses upon the concept
of "distribution" and that any subsequent disposition of the
subject New ▇▇▇ Stock can only be effected in transactions
that are not considered distributions.
(x) Such Constituent Owner acknowledges that the
shares of New ▇▇▇ Stock must be held and may not be sold,
transferred, or otherwise disposed of for value unless they
are subsequently registered under the Securities Act or an
exemption from such registration is available. ▇▇▇ is under no
obligation to register the New ▇▇▇ Stock under the Securities
Act. If Rule 144 is available (and no assurance is given that
it will be except as expressly set forth in this Agreement),
after one year and prior to two years following the Effective
Date, only routine sales of such New ▇▇▇ Stock in limited
amounts can be made in reliance upon Rule 144 in accordance
with the terms and conditions of that rule. ▇▇▇ is under no
obligation to the stockholders or other equity owners of the
Constituents to make Rule 144 available, except as may be
expressly agreed to by it in writing in this Agreement, and in
the event Rule 144 is not available, compliance with
Regulation A or some other disclosure exemption may be
required before such Persons can sell, transfer, or otherwise
dispose of such New ▇▇▇ Stock without registration under the
Securities Act. ELI's registrar and transfer agent will
maintain a stop-transfer order against the registration of
transfer of the New ▇▇▇ Stock, and the certificate
representing the New ▇▇▇ Stock will bear a legend in
substantially the following form so restricting the sale of
such securities:
The securities represented by this certificate have
not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and are
"restricted securities" within the meaning of Rule
144 promulgated under the Securities Act. The
securities have been acquired for investment and may
not be sold or transferred without complying with
Rule 144 in the absence of an effective registration
or other compliance under the Securities Act.
(xi) Such Constituent Owner acknowledges that ▇▇▇ may
refuse to register transfer shares of the New ▇▇▇ Stock in the
absence of compliance with Rule 144 unless the holder
furnishes the issuer with a "no-action" or interpretive letter
from the SEC or an opinion of counsel reasonably acceptable to
▇▇▇ stating that the transfer is proper. Further, unless such
letter or opinion states that the shares of New ▇▇▇ Stock are
free of any restrictions under the Securities Act, ▇▇▇ may
refuse to transfer the New ▇▇▇ Stock to any transferee that
does not furnish in writing to ▇▇▇ the same representations
and agree to the same conditions respecting such New ▇▇▇ Stock
as set forth herein. ▇▇▇ may also refuse to transfer the New
▇▇▇ Stock if any circumstances are present reasonably
indicating that the transferee's representations are not
accurate.
(b) Such Constituent Owner shall execute and deliver to ▇▇▇,
at or prior to the Closing, such further letters of representation,
acknowledgment, suitability, or the like, as ▇▇▇ and its counsel may
36
reasonably request in connection with reliance on exemptions from
registration under such securities Laws.
(c) Each Party acknowledges that the basis for relying on
exemptions from registration or qualifications are factual, depending
on the conduct of the various Parties, and that no legal opinion or
other assurance will be required or given to the effect that the
transactions contemplated hereby are in fact exempt from registration
or qualification.
Section 6.04 Limitation on Resale of New ▇▇▇ Stock of Constituent
Affiliate Owners Following Offering. In order to facilitate the possibility of
obtaining additional equity for ▇▇▇ following the Closing, each Constituent
Affiliate Owner agrees that the New ▇▇▇ Stock shall be subject to the following
restrictions.
(a) The New ▇▇▇ Stock cannot be resold during a period
commencing on the date of filing by ▇▇▇ of a registration statement
under the Securities Act for a public offering for cash by ▇▇▇ of ▇▇▇
Stock, or securities convertible into or exercisable or exchangeable
for ▇▇▇ Stock, or for the resale of ▇▇▇ Stock issued in an unregistered
private placement accompanied by a covenant of ▇▇▇ to register resale
of such securities prior to the date on which such securities may be
resold under the provisions of Rule 144(k) under the Securities Act and
continuing until the earlier of abandonment of the proposed public
offering or 180 days following the effective date of such registration
statement (the "Restricted Period"). At the request of ▇▇▇, each
Constituent Affiliate Owner will cooperate with ▇▇▇ in providing
further reasonable written assurances respecting the foregoing in
connection with any such public offering.
(b) During the Restricted Period, Constituent Affiliate
Owners, excluding holders of shares that were sold and issued as part
of the public offering, may not directly or indirectly sell, offer to
sell, contract to sell (including any short sale), grant any option to
purchase or otherwise transfer or dispose of (other than to donees who
agree to be similarly bound) shares of New ▇▇▇ Stock received pursuant
to this Agreement at any time during such period except securities
included in such registration, except that after the Restricted Period,
an individual Constituent Affiliate Owner may sell during any 30 days
up to the number of shares permitted to be sold during any three months
under the volume limitations set forth in Rule 144(e).
(c) In order to enforce the covenant set forth in accordance
with this Section 6.04, ▇▇▇ shall have the right to impose
stop-transfer instructions respecting such shares of New ▇▇▇ Stock held
by Constituent Affiliate Owners, which also shall be binding on any
assignee of a Constituent Affiliate Owner, until the end of such
Restricted Period. During the Restricted Period, certificates
representing the shares of New ▇▇▇ Stock issued in the Consolidation to
Constituent Affiliate Owners in accordance with this Agreement shall
bear on their face a conspicuous legend noting the foregoing
restriction in substantially the following form:
The securities represented by this certificate may not be sold
during a period commencing on the date of filing by Eagle Lake
Incorporated of a registration statement under the Securities
Act of 1933, as amended (the "Securities Act") for a public
offering for cash by Eagle Lake Incorporated of Eagle Lake
Incorporated stock, or securities convertible into or
exercisable or exchangeable for Eagle Lake Incorporated stock,
or for the resale of Eagle Lake Incorporated stock issued in
an unregistered private placement accompanied by a covenant of
Eagle Lake Incorporated to register resale of such securities
prior to the date on which such securities may be resold under
37
the provisions of Rule 144(k) under the Securities Act and
continuing until the earlier of abandonment of the proposed
public offering or 180 days following the effective date of
such registration statement.
(d) Such Constituent Affiliate Owners shall execute and
deliver to ▇▇▇, at or prior to the Closing or thereafter, such
confirmation of their agreement to the foregoing restrictions as ▇▇▇
may reasonably request.
(e) Notwithstanding the foregoing, in the event of any
conflict or inconsistency between the foregoing and any provisions of
any employment agreement or registration rights agreement between ▇▇▇
and any Constituent Affiliate Owner, such employment or registration
rights agreement shall prevail.
Section 6.05 New ▇▇▇ 2005 Long-term Incentive Plan.
(a) Prior to the Closing, ▇▇▇ shall adopt and obtain approval
of the holders of a majority of its issued and outstanding ▇▇▇ Stock of
a 2005 Long-term Incentive Plan in substantially the form attached
hereto as Exhibit B (the "LTIP") authorizing up to 6,000,000 shares of
▇▇▇ Stock for issuance thereunder. Pursuant to the LTIP, at the Closing
▇▇▇ shall grant to the following Persons options to purchase the number
of shares of ▇▇▇ Stock set forth opposite their names below at any time
before the date that is seven years after the Closing Date:
Name of Optionee Number
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇...................................... 425,000
▇▇▇▇ ▇▇▇▇▇▇▇▇▇........................................ 425,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III.................................. 425,000
▇▇▇▇▇ ▇▇▇▇▇........................................... 925,000
----------
2,200,000
==========
(b) At the Closing, ▇▇▇ shall execute and deliver to each of
the above-named optionees a Notice of Option Grant in substantially the
form attached hereto as Exhibit C setting forth the terms and
conditions of such options.
(c) Prior to the Closing, ▇▇▇ shall adopt and approve a plan
to grant to each director assuming office prior to December 31, 2006,
that is not an employee of ▇▇▇ or a Constituent: (i) upon becoming a
director, five-year options to purchase at $1.50 per share 150,000
shares of New ▇▇▇ Stock (as adjusted for stock splits, combinations,
recapitalizations, and the like), and (ii) annually thereafter on a
date as specified by ELI's board of directors within 30 days following
the public release of ELI's annual audited financial statements,
five-year options to purchase that number of shares determined by
dividing $75,000 by the market price for the New ▇▇▇ Stock immediately
preceding the date of grant, but in no event less than 15,000 shares
(as adjusted for stock splits, combinations, recapitalizations, and the
like), at an exercise price equal to the market price for the New ▇▇▇
Stock immediately preceding the date of grant.
Section 6.06 Tax Treatment. It is intended that the Consolidation
between ▇▇▇ and the Constituents will constitute a single unified transaction,
and that such transaction shall meet the requirements in accordance with Section
351 of the Code. Each Party and Entity hereto shall use reasonable commercial
efforts, and shall not take, and shall use reasonable commercial efforts to
prevent any Affiliate of such Party or Entity from taking, any actions that
could prevent the Consolidation to be treated as a unified transaction and from
qualifying as a nontaxable transaction in accordance with the provisions of
Section 351 of the Code. Each Party acknowledges that there can be no assurance
that the Consolidation will ultimately constitute part of a Section 351
38
transaction. In such event, the Consolidation may result in a taxable event to a
Constituent Owner. Each Party hereby acknowledges that no representation or
warranty is being made or professional opinion given by any Party or its legal,
accounting, or tax advisers to any other Party regarding the treatment of this
transaction for federal or state income taxation. Each Party is relying and
shall rely exclusively on such Party's own legal, accounting, and tax advisers
regarding the treatment of this transaction for federal and state income tax
purposes, and not on any representation, warranty, or assurance from any other
Party or Entity or such other Party's or Entity's legal, accounting, or tax
advisers.
Section 6.07 Public Announcements. No Party shall issue any press
release or otherwise make any public statements respecting the Consolidation
without the approval of the Constituents and ▇▇▇. The press release announcing
the execution and delivery of this Agreement shall be a joint press release of
the Constituents and ▇▇▇.
Section 6.08 Employment Agreements. Contemporaneously with the
execution of this Agreement, the following Constituent Owners, who shall also be
executive officers of ▇▇▇ and its consolidated subsidiaries following the
Consolidation (the "Named Executive Officers"), shall execute and deliver
Executive Employment and Noncompetition Agreements in substantially the forms
attached as ▇▇▇▇▇▇▇▇ ▇-▇, ▇-▇, ▇-▇, and D-4, providing for the position set
forth opposite the name of each below, all subject to the Closing and to become
effective at the Closing Date:
Name Position
---- --------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.......... Chief Executive Officer and Chief Technology
Officer and Chairman of the Board of
Directors for so long as he serves as a
member of the Board of Directors
▇▇▇▇ ▇▇▇▇▇▇▇▇▇............ Senior Vice President--Mechanical Engineering
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III...... Senior Vice President--Sales and Integration
▇▇▇▇▇ ▇▇▇▇▇............... President and Chief Operating Officer and member
of the Board of Directors for so long as he
serves as a member of the Board of Directors
▇▇▇ shall use its commercially reasonable efforts to hire a chief financial
officer to assume such responsibilities as quickly as practicable following the
Closing.
Section 6.09 Key-Man Life Insurance. ▇▇▇ and the following
Constituent Owners and Named Executive Officers shall use their commercially
reasonable efforts to apply for and obtain key-man term life insurance policies,
to be purchased, paid for, maintained, and owned by ▇▇▇ and with ▇▇▇ named as
the primary beneficiary, on the following individuals in the amounts set forth
opposite their names below:
Name Amount
---- ------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇.................................. $3,000,000
▇▇▇▇ ▇▇▇▇▇▇▇▇▇.................................... 1,500,000
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III.............................. 1,500,000
▇▇▇▇▇ ▇▇▇▇▇....................................... 1,500,000
The foregoing insurance policies shall be applied for at or prior to the Closing
and shall be pursued with diligence and dispatch to obtain their issuance at the
earliest practicable date following the Closing, and shall be maintained by ▇▇▇
on each such Named Executive Officer for as long as he is employed by ▇▇▇.
39
Section 6.10 Confidential Information and Invention Assignment. At
or prior to the Closing:
(a) the Named Executive Officers and such other of the
Constituent Owners as ▇▇▇ may request shall enter into Confidential
Information and Invention Assignment Agreements in substantially the
form attached hereto as Exhibit E; and
(b) the Constituent Owners shall use their commercially
reasonably efforts to cause such other employees or other
representatives of the Constituents as ▇▇▇ may request to enter into
Nondisclosure and Development Agreements in substantially the form
attached hereto as Exhibit F.
Section 6.11 Certain Tax Matters. The following provisions shall
govern the allocation of responsibility as between ▇▇▇ and the Constituents for
certain tax matters following the Closing.
(a) For any tax period ending on or before the Closing Date,
the Constituent Owners shall prepare or cause to be prepared all
Returns for the respective Constituents that are required to (or
pursuant to an extension may) be filed after the Closing Date. Subject
to the requirements of applicable Law, each such Return shall be
prepared in a manner consistent such Constituents' past practices.
(b) ▇▇▇ and the Constituent Owners shall cooperate fully, as
and to the extent reasonably requested by each other Party, in
connection with the filing of Returns in accordance with this Section
6.11 and any audit, litigation, or other proceeding with respect to
Taxes. Such cooperation shall include provision of appropriate powers
of attorney or similar authorizations, the retention and (upon request
of either ▇▇▇ or the relevant Constituent Owners) the provision of
records and information that are reasonably relevant to any such audit,
litigation, or other proceeding, and making employees available on a
mutually convenient basis to provide additional information and
explanation of any material provided hereunder. ▇▇▇ shall retain all
books and records with respect to Tax matters pertinent to ▇▇▇ relating
to any tax periods and shall abide by all record retention agreements
entered into with any taxing authority, and shall give the Constituent
Owners reasonable written notice prior to transferring, destroying, or
discarding any such books and records prior to the expiration of the
applicable statute of limitations for that tax period, and if the
Constituent Owners so request, in the event of any proposed destruction
or discarding of the books and records, ▇▇▇ shall allow the Constituent
Owners or their duly designated representative to take possession of
the books and records. ▇▇▇ and the Constituent Owners shall, upon
request, use their reasonable commercial efforts to obtain any
certificate or other document from any Governmental Entity or any other
Person as may be necessary to mitigate, reduce, or eliminate any Tax
that could be imposed (including with respect to the transactions
contemplated hereby). Each of either ▇▇▇ or the relevant Constituent
Owner shall pay its own expenses incurred in complying with this
Section 6.11.
(c) The RVision Owners and the CFed Owners shall, at their
expense, be entitled to control any Tax audit of RVision and CFed,
respectively, to the extent such audit affects or may affect the amount
or character of income, gain, or loss includible by any of the
Constituents for periods or portions thereof ending on or before the
Closing Date. ▇▇▇ shall control all Tax audit issues that the
Constituents are not entitled, or do not elect, to control.
Section 6.12 Additional Equity Funding. Prior to or at the
Closing, ▇▇▇ shall use its commercially reasonable efforts to sell between
2,000,000 and 2,800,000 shares of New ▇▇▇ Stock at not less than $1.00 per share
for gross proceeds of between $2,000,000 and $2,800,000 in transactions exempt
40
from registration under the Securities Act and applicable provisions of state
Law. The sale of at least 2,000,000 shares at not less than $1.00 per share for
gross proceeds of $2,000,000 shall be a condition precedent to Closing. At least
$900,000 of the net proceeds from the sale of such securities shall be allocated
to CFed for use in marketing and sales.
Section 6.13 Additional Interim Loans to RVision. At the request
of RVision, ▇▇▇ shall extend additional interim advances to RVision, provided,
however, that the aggregate outstanding principal amount of all advances from
▇▇▇ to RVision prior to or after the date of this Agreement and outstanding at
or prior to the Closing Date shall not exceed $450,000. At the time of advancing
any such funds, RVision shall execute and deliver to ▇▇▇ a promissory note for
the amount of such advances, bearing interest at 9% per annum, and payable on or
before December 31, 2005, all as more particularly provided in the promissory
note in the form to be provided by ▇▇▇. Contemporaneously with the execution of
this Agreement, ▇▇▇ has arranged for a loan of $300,000 to RVision from lenders
not Parties to this Agreement on terms set forth in documents, copies of which
are included in Disclosure Schedule 6.13 to this Agreement.
Section 6.14 Certain Shares Issuable at Closing. At the Closing,
▇▇▇ shall issue to designees of ▇▇▇ an aggregate of 300,000 shares of New ▇▇▇
Stock.
Section 6.15 ▇▇▇ Restructuring. At or prior to the Closing, ▇▇▇
shall:
(a) exchange all issued and outstanding options, warrants,
conversion rights, or other rights to acquire shares of ▇▇▇ Stock into
newly issued shares of ▇▇▇ Stock, so that immediately preceding the
Closing, ▇▇▇ shall have no more than 3,000,000 shares of ▇▇▇ Stock
issued and outstanding prior to giving effect to the reverse stock
split referred to in Subsection (d) below;
(b) transfer 91,000 shares of RVision (which shall be
converted into 91,000 shares of New ▇▇▇ Stock in the Consolidation) and
all of its other assets, except for an aggregate of $500,000 in cash
and notes receivable from RVision, to the Spinoffs in consideration of
3,000,000 shares of common stock of the Spinoffs and the assumption of
all of ELI's liabilities on and as of the Closing;, including, without
limitation, any tax liabilities of ▇▇▇ resulting from the distribution
described in Section 6.15(c).
(c) distribute to the stockholders of ▇▇▇ immediately
preceding the Closing all of the issued and outstanding stock of the
Spinoffs issued on its organization as partial consideration of ELI's
transfer to the Spinoffs of the assets as set forth in the last
preceding Subsection;
(d) reverse split or consolidate its 3,000,000 shares of
issued and outstanding common stock so that immediately preceding the
Closing ▇▇▇ shall have no more than 1,200,000 shares of New ▇▇▇ Stock
issued and outstanding or reserved for issuance on the exercise of any
options, warrants, conversion rights, or similar rights;
(e) approve the LTIP and plan to issue options to directors as
set forth in Section 6.05;
(f) change the name of ▇▇▇ to "RVision, Inc." or a derivative
thereof acceptable to ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, to become
effective at or immediately following the Closing;
41
(g) consent to the election as directors of the following
persons, each to assume office at the Closing and to serve until the
next annual meeting of stockholders and until his successor is elected
and qualified:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
(h) obtain the approval of the foregoing by the stockholders
of ▇▇▇ in the manner required by Nevada Law and ELI's Charter
Documents.
Section 6.16 Transfer of Certain Outstanding RVision Units. ▇▇▇
shall have arranged for the purchase at Closing by third parties identified by
▇▇▇ of 375,000 RVision Units owned by ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ at a purchase price of
$1.00 per unit, for a total of $375,000.
Section 6.17 Additional Audited Constituent Financial Statements.
Immediately following the execution of this Agreement, each of the Constituents
shall prepare and engage a firm of certified public accountants registered with
the Public Company Accounting Oversight Board to examine and issue a report on
such Constituent's balance sheet as of December 31, 2004, and its related
statements of operations, cash flows, and stockholders equity for the years
ended December 31, 2004 and 2003 (or such shorter period as such Constituent and
its predecessor, if any, have been in existence) and to review such
Constituent's financial statements as required pursuant to Item 310 of SEC
Regulation S-B, all in accordance with GAAP and Regulation S-B under the
Exchange Act.
Section 6.18 Patent Assignment to RVision. Contemporaneously with
the execution of this Agreement, each Constituent Affiliate Owner of RVision in
whose name any patent, patent application, or similar rights relating to any
intellectual or proprietary information used or useful to the business of
RVision shall execute and deliver, and shall cause each third party in whose
name any patent, patent application, or similar rights relating to any
intellectual or proprietary information used or useful to the business of
RVision to execute and deliver, to RVision such assignments and other
conveyances in form suitable for recordation in the U.S. Patent and Trademark
Office, all substantially in the form of Exhibit G attached hereto and
incorporated herein by reference.
Section 6.19 ISAP Consent. Contemporaneously with the execution of
this Agreement, CFed Affiliate Owner ▇▇▇▇▇ ▇▇▇▇▇ shall deliver to ▇▇▇ a consent
and agreement of Industrial Security Alliance Partners, Inc. ("ISAP") and ISAP's
shareholders, consenting to ▇▇▇▇▇ ▇▇▇▇▇'▇ ownership and operation of CFed and
the transactions contemplated by this Agreement and to ▇▇▇▇▇ ▇▇▇▇▇'▇ employment
by ▇▇▇ and RVision following the Consolidation, subject to the agreement of ▇▇▇
that, for a period of one year following the Closing Date, (a) to the extent not
obligated to a third party, ▇▇▇ and RVision will grant to ISAP a first right of
refusal to provide ▇▇▇ and RVision with thermal imaging cameras at ISAP's most
favorable dealer volume prices; and (b) ▇▇▇ and RVision will not manufacture
thermal imaging cameras, all substantially in the form of Exhibit H attached
hereto and incorporated herein by reference, to be subject to the Closing and to
become effective at the Closing Date.
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Section 6.20 Election of Directors. The execution of this
Agreement by the Constituent Owners shall constitute their written consent to
the election as directors of the following persons, each to assume office at the
Closing and to serve until the next annual meeting of stockholders and until his
successor is elected and qualified:
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇
At the Closing, the board of directors of ▇▇▇ shall be expanded to five persons.
The foregoing three named directors shall unanimously appoint two persons who
are not Constituent Affiliate Owners to fill the vacancies created thereby.
Section 6.21 Spinoffs Offer To Purchase New ▇▇▇ Stock from RVision
Constituent Owners. At the Closing, ▇▇▇ shall cause the Spinoffs to deliver to
each RVision Constituent Owner receiving more than 50,000 shares of New ▇▇▇
Stock at the Closing the irrevocable, joint and several offer of the Spinoffs to
purchase shares of New ▇▇▇ Stock held by such RVision Constituent Owners
substantially in the form of Exhibit I attached hereto and incorporated herein
by reference (the "Irrevocable Purchase Offer").
Section 6.22 Officer and Director Insurance. The Parties shall use
their commercially reasonable efforts to obtain officer and director liability
insurance for the directors and executive officers of ▇▇▇ after the Closing in
mutually acceptable amounts with insurers with acceptable financial
responsibility.
Section 6.23 Assumption of Guaranty of CFed Lease and Release of
▇▇▇▇▇ as Guarantor. Prior to or at the Closing ▇▇▇: (a) shall assume and replace
▇▇▇▇▇ ▇▇▇▇▇ as the guarantor of the Office Lease Agreement between CFed, as
tenant, and Fifth & Laurel Associates, as landlord, dated October 4, 2004, and
shall obtain from landlord the release of ▇▇▇▇▇ ▇▇▇▇▇ as the guarantor of such
lease, and (b) shall assume the Office Lease Agreement between ISAP, as tenant,
and Fifth & Laurel Associates, as landlord, dated October 4, 2004, and shall
replace ▇▇▇▇▇ ▇▇▇▇▇ as the guarantor of the ISAP office lease and shall obtain
from landlord the release of ▇▇▇▇▇ ▇▇▇▇▇ as the guarantor of such lease.
Section 6.24 Director Indemnification. ▇▇▇ shall enter into
indemnification agreements with each of its incumbent directors and each
director whose term shall commence at the Closing on such terms as may be
mutually acceptable to ▇▇▇ and such director.
Section 6.25 Stockholder Agreement between Certain Constituent
Affiliate Owners. At or before the Closing, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇
shall enter into a voting agreement in which both agree to vote their New ▇▇▇
Stock for the election of themselves and each other as directors of ▇▇▇, all as
more particularly in the form of voting agreement attached hereto as Exhibit J
and incorporated herein by reference.
Article VII
Closing Conditions
Section 7.01 Third-party Conditions to Obligations of Each Party
under this Agreement. The respective obligations of each Party to effect the
Consolidation and the other transactions contemplated hereby shall be subject to
the satisfaction at or prior to the Closing Date of the conditions, which may be
waived in writing by the Parties hereto, in whole or in part, to the extent
permitted by applicable Law, that no Governmental Entity or federal or state
court of competent jurisdiction shall have enacted, issued, promulgated,
43
enforced, or entered any Law or Order (whether temporary, preliminary, or
permanent) that is in effect and has the effect of making the Consolidation
illegal or otherwise prohibiting consummation of the Consolidation.
Section 7.02 Additional Conditions to Obligations of Each Party.
The obligations of each Party to effect the Consolidation and the other
transactions contemplated hereby are also subject to the satisfaction at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in writing by all other Parties, in whole or in part, to the extent
permitted by applicable Law.
(a) Each of the representations and warranties of each other
Party contained in this Agreement shall be true and correct in all
material respects as of the Closing Date as though made on and as of
the Closing Date (except to the extent such representations and
warranties specifically relate to an earlier date, in which case such
representations and warranties shall be true and correct as of such
earlier date), except for changes permitted by this Agreement and
changes that, individually or in the aggregate are not reasonably
likely to have an Entity Material Adverse Effect whether or not such
change is set forth in the updated RVision Disclosure Schedules, the
updated CFed Disclosure Schedules, or the updated ▇▇▇ Disclosure
Schedules delivered in accordance with Subsection 2.04(e). Each of ▇▇▇
and the Constituent Owners shall have received a certificate of the
president and the chief financial officer or substantially equivalent
authority of ▇▇▇ and of each Constituent Affiliate Owner, dated the
Closing Date, to such effect.
(b) Each other Party shall have performed or complied with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or prior to the Closing Date. Each of ▇▇▇ and
the Constituent Owners shall have received a certificate of the
president and the chief financial officer or substantially equivalent
authority of ▇▇▇ and of each Constituent Affiliate Owner, dated the
Closing Date, to such effect.
(c) Since the date of this Agreement, there shall have been no
change, occurrence, or circumstance in the current or future business,
assets, liabilities, financial condition, or results of operations of
each other Party having or reasonably likely to have, individually or
in the aggregate, an Entity Material Adverse Effect. Each of ▇▇▇ and
the Constituent Owners shall have received a certificate of the
president and the chief financial officer or substantially equivalent
authority of ▇▇▇ and of each Constituent Affiliate Owner, dated the
Closing Date, to such effect.
(d) There shall not be any action taken, or any Law or Order
enacted, entered, enforced, or deemed applicable to the Consolidation,
by any Governmental Entity in connection with the grant of a regulatory
approval necessary, in the reasonable business judgment of such Party,
to the continuing operation of the current or future business of ▇▇▇
after the Consolidation, that imposes any condition or restriction upon
any Entity, its business or operations having or reasonably likely to
have, individually or in the aggregate, an Entity Material Adverse
Effect.
(e) Each other Party shall have received a certificate from
the Secretary of State or other appropriate authority of (i) the state
of organization of such Entity to the effect that such Entity is duly
organized, validly existing, and in good standing under the Laws of
such state, and (ii) from each state in which Entity is required to be
qualified to do business as a foreign corporation to the effect that
such Entity is duly so qualified to conduct business as a foreign
corporation in such state.
(f) Each of the Constituent Affiliate Owners shall have caused
their respective Constituent Entity to have delivered their financial
statements prepared in accordance with Section 6.17, accompanied by an
44
unqualified (except for an explanatory paragraph about the ability of
such Constituent Entity's to continue as a going concern) report of the
certified public accountants on such Constituent's balance sheet as of
December 31, 2004, and its related statements of operations, cash
flows, and stockholders equity for the years ended December 31, 2004
and 2003 (or such shorter period as such Constituent and its
predecessor, if any, have been in existence), and the amount of the
owners' equity reflected on the unaudited balance sheet as of June 30,
2005, shall be at least 85% of such equity as reflected in the balance
sheet included in such Constituent's Disclosure Schedule 3.07(a).
Section 7.03 Performance of Additional Agreements. The obligations
of the respective Parties to effect the Consolidation and the other transactions
contemplated hereby are subject to the satisfaction at or prior to the Closing
Date of the following further conditions and covenants, any or all of which may
be waived in writing by all other Parties, in whole or in part, to the extent
permitted by applicable Law:
(a) ▇▇▇ shall have prepared and delivered for transmittal to
the SEC, at or promptly following the Closing, a notice on Form D in
accordance with the requirements of Section 6.01;
(b) each Constituent Affiliate Owner and ▇▇▇ shall have
completed all appropriate actions and obtained all required consents
and filings in accordance with the requirements of Section 6.02;
(c) if requested by ▇▇▇, each of the Constituent Owners shall
have executed and delivered to ▇▇▇ such additional representations as
it may reasonably request respecting the acquisition of the New ▇▇▇
Stock in accordance with the requirements of Section 6.03;
(d) ▇▇▇ Constituent Affiliate Owners shall have delivered such
confirmations respecting their agreement to the limitations on resale
of New ▇▇▇ Stock following a possible offering in accordance with the
requirements of Section 6.04;
(e) ELI's Stockholders shall have approved the LTIP and
directors' option plan in accordance with the requirements of Section
6.05;
(f) the Named Executive Officers shall have entered into
Employment Agreements, and ▇▇▇ shall have engaged a chief financial
officer in accordance with the covenants set forth in Section 6.08;
(g) ▇▇▇ and the Named Executive Officers shall have satisfied
their covenant to apply for key-man life insurance in accordance with
the covenants set forth in Section 6.09;
(h) the Named Executive Officers and such other Constituent
Owners as ▇▇▇ may have requested shall have entered into Confidential
Information and Invention Assignment Agreements in accordance with the
requirements of Section 6.10;
(i) ▇▇▇ shall have received at least $2,000,000 in gross
proceeds from the sale of shares of ▇▇▇ Stock at not less than $1.00
per share in accordance with the requirements of Section 6.12;
(j) ▇▇▇ shall have extended additional interim advances to
RVision in accordance with the requirements of Section 6.13;
(k) ▇▇▇ shall have completed its restructuring in accordance
with the requirements of Section 6.15;
45
(l) ▇▇▇ shall have arranged at the Closing for the purchase by
third parties identified by ▇▇▇ of 375,000 RVision Units owned by
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in accordance with the requirements of Section 6.16;
(m) each of the Parties shall have received the additional
audited annual and unaudited interim financial statements of the
Constituents in accordance with the requirements of Section 6.17;
(n) RVision shall have received conveyances of patent rights
in accordance with the requirements of Section 6.18;
(o) ▇▇▇ shall have received the consent and agreement of ISAP
in accordance with the requirements of Section 6.19;
(p) the Spinoffs shall have delivered the Irrevocable Purchase
Offers in accordance with the requirements of Subsection 6.21;
(q) ▇▇▇ shall have obtained officer and director liability
insurance in accordance with the requirements of Subsection 6.22; and
(r) ▇▇▇ shall have satisfied the covenants respecting the
leases and the release of ▇▇▇▇▇ ▇▇▇▇▇ as the guarantor thereof on the
CFed and ISAP premises in accordance with the requirement of Subsection
6.23.
(s) ▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ shall have entered into a
voting agreement in accordance with the requirement of Section 6.25.
(t) The Parties shall have delivered updated disclosure
schedules in accordance with the requirement of Subsection 2.04(e).
Article VIII
Termination, Amendment, and Waiver
Section 8.01 Termination. This Agreement may be terminated at any
time prior to the Closing Date, whether before or after approval of this
Agreement and the Consolidation by the stockholders of each Constituent, in such
case when approval is required, by:
(a) mutual consent of all Parties;
(b) any Party, upon a material breach of any representation,
warranty, covenant, or agreement on the part of any other Party set
forth in this Agreement such that the conditions in accordance with the
requirements set forth in Subsections 7.02(a), 7.02(b), or 7.02(c) of
this Agreement, as the case may be, would be incapable of being
satisfied on or before the date that is 60 days after the Execution
Date (or as otherwise extended as described in accordance with
Subsection 8.01(d)); provided that, in any case, a willful breach shall
be deemed to cause such condition as to be incapable of being satisfied
for purposes in accordance with this Subsection 8.01(b);
(c) by any Party, if there shall be any Order that is final
and nonappealable preventing the consummation of the Consolidation,
46
except if the Party relying on such Order to terminate this Agreement
has not complied with its obligations in accordance with Subsection
6.02(b) of this Agreement; or
(d) by any Party, if the Consolidation shall not have been
consummated on or before the date that is 60 days after the Execution
Date; provided, however, that this Agreement may be extended by written
notice of all other Parties to a date not later than November 30, 2005,
if the Consolidation shall not have been consummated as a direct result
of any Party having failed on or before the date that is 60 days after
the Execution Date to receive all required regulatory approvals or
consents respecting the Consolidation.
The right of any Party hereto to terminate this Agreement in accordance with
this Section 8.01 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any Party hereto, any Person
controlling any such Party, or any of their respective officers, directors,
managers, members, partners, representatives, or agents, whether prior to or
after the execution of this Agreement.
Section 8.02 Effect of Termination. Except as in accordance with
the provisions in Subsections 5.03(d) through (f), 8.05, and 11.01 and Article X
of this Agreement, in the event of the termination of this Agreement in
accordance with Section 8.01, this Agreement shall forthwith become void, there
shall be no liability on the part of any Party to any other Party, and all
rights and obligations of any Party hereto shall cease, except that nothing
herein shall relieve any Party of any liability for any breach of such Party's
covenants or agreements contained in this Agreement or any willful breach of
such Party's representations or warranties contained in this Agreement.
Section 8.03 Amendment. This Agreement may be amended by an
instrument in writing signed by ▇▇▇ and each Constituent Affiliate Owner, except
that the provisions of Article IV may only be amended by all Parties hereto.
Section 8.04 Waiver. At any time prior to the Closing Date, any
two of ▇▇▇, the RVision Constituent Affiliate Owners, and the CFed Constituent
Affiliate Owners hereto may extend the time for the performance of any of the
obligations or other acts of any other of ▇▇▇, the RVision Constituent Affiliate
Owners, or the CFed Constituent Affiliate Owners, waive any inaccuracies in the
representations and warranties of any other of ▇▇▇, the RVision Constituent
Affiliate Owners, or the CFed Constituent Affiliate Owners contained herein or
in any document delivered pursuant hereto, and waive compliance by any other of
▇▇▇, the RVision Constituent Affiliate Owners, or the CFed Constituent Affiliate
Owners with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed by any two of ▇▇▇, the RVision Constituent Affiliate Owners, and the CFed
Constituent Affiliate Owners granting such extension or waiver.
Section 8.05 Fees, Expenses, and Other Payments.
(a) Except in accordance with the provisions in Subsection
8.05(c) of this Agreement, regardless of whether the Consolidation is
consummated or is not consummated, all Expenses (as defined in
Subsection 8.05(b)) incurred by the Parties hereto shall be borne
solely and entirely by the Party that has incurred such Expenses.
(b) "Expenses" as used in accordance with this Section 8.05
shall include all out of pocket expenses (including all fees and
expenses of counsel, accountants, investment bankers, experts and
consultants to a Party hereto and its Affiliates) incurred by a Party
or on its behalf in connection with or related to the authorization,
preparation, negotiation, execution, and performance of this Agreement;
47
the preparation, printing, filing, and mailing of communications to
Constituent Owners; the solicitation of approvals of Constituent
Owners; the restructuring of ▇▇▇; the offering and sale of ▇▇▇
securities (the costs of which shall be charged against and paid out of
the gross proceeds of such sale); and all other matters related to the
consummation of the transactions contemplated hereby.
(c) Each Party agrees that if this Agreement is terminated in
accordance with Subsections 8.01(b) and (c) and such termination is the
result of a willful breach of any representation, warranty, covenant,
or agreement of either of ▇▇▇ or the Constituent Affiliate Owners of
either Constituent contained herein, then ▇▇▇ shall pay, or the
Constituent Affiliate Owners that have willfully breached any
representation, warrant, covenant, or agreement shall cause their
Constituent to pay, as the case may be, an aggregate of $100,000 to the
other nonbreaching Entities, which amount is agreed to be reimbursement
of a liquidated amount for each Entity's Expenses in lieu of a precise
accounting of all Expenses, to be divided between the nonbreaching
Entities in equal shares.
(d) Any payment required to be made in accordance with
Subsection 8.05(c) of this Agreement shall be made as promptly as
practicable, but not later than three Business Days after termination,
and shall be made by wire transfer of immediately available funds to an
account designated by ▇▇▇ or the Constituent Affiliate Owners, as the
case may be.
Article IX
Indemnification and Offset
Section 9.01 Indemnification.
(a) Subject to the limitations in accordance with Subsections
9.01(d) and (e), ▇▇▇▇▇ covenants and agrees that he will indemnify,
defend, protect, and hold harmless ▇▇▇, the Constituents, or the
Constituent Owners from and against all claims, damages, losses,
liabilities, actions, suits, proceedings, demands, assessments,
adjustments, costs, and expenses (including specifically, but without
limitation, reasonable attorneys' fees, settlement costs, and any
legal, accounting, or other expenses incurred for investigating or
defending any actions or threatened actions and incurred in connection
with determining any such amount) (collectively, "Losses") incurred by
any of ▇▇▇, the Constituents, and Constituent Owners as a result of or
arising from (i) any breach of the representations and warranties made
by ▇▇▇ set forth herein or in the schedules or certificates delivered
in connection herewith; (ii) any nonfulfillment of any covenant or
agreement on the part of ▇▇▇ or ▇▇▇▇▇ and/or Pamplona under this
Agreement or of the Spinoffs under any agreement executed and delivered
by the Spinoffs pursuant thereto; or (iii) the actions or omissions of
▇▇▇ and/or its directors, officers, stockholders, employees, or agents
at or prior to the Closing.
(b) Other than permitted by Article V and subject to the
limitations in accordance with Subsections 9.01(d) and (e), each
Constituent Affiliate Owner covenants and agrees that such Constituent
Affiliate Owner will indemnify, defend, protect, and hold harmless ▇▇▇,
its subsidiaries, and/or the ▇▇▇ Stockholders and their respective
officers, stockholders, directors, divisions, subdivisions, Affiliates,
subsidiaries, parents, agents, employees, successors, and assigns from
and against Losses incurred by ▇▇▇, its subsidiaries, and/or the ▇▇▇
Stockholders as a result of or arising from (i) any breach of the
representations and warranties set forth herein or in the schedules or
certificates delivered in connection herewith with respect to the
Constituent in which such Constituent Affiliate Owner now holds
Constituent Equity; (ii) any breach of the representations and
warranties made by such Constituent Affiliate Owner pursuant to
48
Articles III and IV of this Agreement or in any schedules or
certificates delivered by such Constituent Affiliate Owner in
connection therewith; (iii) any nonfulfillment of any covenant or
agreement on the part of the Constituent Affiliate Owners or applicable
Constituent under this Agreement; (iv) the business, operations, or
assets of the applicable Constituent prior to the Closing Date; or (v)
the actions or omissions of the applicable Constituent and/or its
directors, officers, stockholders, employees, or agents prior to the
Closing Date.
(c) Claims by third parties shall be dealt with in the
following manner:
(i) In order for a Party hereto eligible to be
indemnified hereunder (an "Indemnified Party") to be entitled
to any indemnification provided for under this Agreement in
respect of, arising out of, or involving a claim or demand
made by any Person against the Indemnified Party (a
"Third-party Claim"), such Indemnified Party must notify the
Parties obligated to provide indemnification in accordance
with this Section (each, an "Indemnifying Party") in writing,
and in reasonable detail, of the Third-party Claim within 30
Business Days after receipt by such Indemnified Party of
written notice of the Third-party Claim; provided, however,
that failure to give such notification shall not affect the
indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually and materially
prejudiced as a result of such failure. Such notice shall
state the nature and the basis of such claim and a reasonable
estimate of the amount thereof. Thereafter, the Indemnified
Party shall deliver to the Indemnifying Party, within five
Business Days after the Indemnified Party's receipt thereof,
copies of all notices and documents (including court papers)
received by the Indemnified Party relating to the Third-party
Claim.
(ii) The Indemnifying Party shall have right to
defend and settle, at its own expense and by its own counsel
(provided that such counsel is not reasonably objected to by
the Indemnified Party), any Third-party Claim as the
Indemnifying Party pursues the same in good faith and
diligently and so long as the Third-party Claim does not
relate to an actual or potential Loss to which Subsection
9.01(c)(v) accordingly applies. If the Indemnifying Party
undertakes to defend or settle, it shall promptly notify the
Indemnified Party of its intention to do so, and the
Indemnified Party shall cooperate with the Indemnifying Party
and its counsel in the defense thereof and in any settlement
thereof. Such cooperation shall include, but shall not be
limited to, furnishing the Indemnifying Party with any books,
records, or information reasonably requested by the
Indemnifying Party that is in the Indemnified Party's
possession or control. Notwithstanding the foregoing, the
Indemnified Party shall have the right to participate in any
matter through counsel of its own choosing at its own expense
(unless there is a conflict of interest that prevents counsel
for the Indemnifying Party from representing the Indemnified
Party, in which case the Indemnifying Party will reimburse the
Indemnified Party for the expenses of its counsel). After the
Indemnifying Party has notified the Indemnified Party of its
intention to undertake to defend or settle any such asserted
liability, and for so long as the Indemnifying Party
diligently pursues such defense, the Indemnifying Party shall
not be liable for any additional legal expenses incurred by
the Indemnified Party in connection with any defense or
settlement of such asserted liability, except to the extent
such participation is requested by the Indemnifying Party, in
which event the Indemnified Party shall be reimbursed by the
Indemnifying Party for reasonable additional legal expenses
and out-of-pocket expenses, and except in the case of a
Third-party Claim relating in accordance to an actual or
potential Loss to which Subsection 9.03(c)(v) accordingly
applies.
49
(iii) No Indemnifying Party shall, in the defense of
any Third-party Claim, consent to entry of any judgment (other
than a judgment of dismissal on the merits without costs) or
enter into any settlement, except with the written consent of
the Indemnified Party, which does not include as an
unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all
liability in respect of such claim or matter.
(iv) If the Indemnifying Party does not assume the
defense of any Third-party Claim, then the Indemnified Party
may defend against such Third-party Claim in such manner as it
deems appropriate at the expense of the Indemnifying Party.
(v) Notwithstanding anything to the contrary in
accordance with this Section 9.01, if at any time, in the
reasonable opinion of an Indemnified Party (notice of which
opinion shall be given in writing to the Indemnifying Party),
any Third-party Claim seeks material prospective relief that
could have an adverse effect on any such Indemnified Party or
any subsidiary, then such Indemnified Party shall have the
right to control or assume (as the case may be) the defense of
any such Third-party Claim and the amount of any judgment or
settlement and the reasonable costs and expenses of defense
(including, but not limited to, fees and disbursements of
counsel and experts) shall be included as part of the
indemnification obligations of the Indemnifying Party
hereunder. If the Indemnified Party elects to exercise such
right, then the Indemnifying Party shall have the right to
participate in, but not control, the defense of such
Third-party Claim at the sole cost and expense of the
Indemnifying Party.
(d) No Indemnified Party shall assert any claim (other than a
Third-party Claim) for indemnification hereunder until such time as the
aggregate of all claims that all Indemnified Parties may have against
all Constituent Affiliate Owners of any single Constituent or against
▇▇▇▇▇ shall exceed $5,000 per claim or $25,000 in the aggregate, at
which time an Indemnified Party shall be entitled to seek
indemnification for all claims, including all such claims not
previously asserted.
(e) The indemnification obligations in accordance with this
Section 9.01 shall be limited to: (i) in the case of indemnification by
a Constituent Affiliate Owner, the amount of the Consolidation
Consideration received or to be received by any Constituent Affiliate
Owner and shall be payable by the delivery of New ▇▇▇ Stock received by
such Constituent Affiliate Owner in the Consolidation or, if such
Constituent Affiliate Owner no longer owns such New ▇▇▇ Stock, in cash
at $1.00 per share; and (ii) in the case of ▇▇▇▇▇, $1,200,000, payable
as a capital contribution to ▇▇▇ by the delivery of New ▇▇▇ Stock owned
by ▇▇▇▇▇ or, if ▇▇▇▇▇ no longer owns New ▇▇▇ Stock or owns inadequate
New ▇▇▇ Stock to meet the full $1,200,000 indemnification limit, in
cash;.
(f) The remedies set forth in this Article shall be the sole
and exclusive remedies with respect to monetary damages for matters
other than fraud. With respect to monetary damages for fraud and with
respect to any nonmonetary damages or relief, the remedies set forth in
this Article are cumulative and shall not be construed to restrict or
otherwise affect any other remedies that may be available.
Section 9.02 Offset to Earnout Consideration.
(a) At any time prior to the final delivery of certificates
representing the Earnout Consideration, ▇▇▇ may offset against the
Earnout Consideration any amount to which it is entitled to
50
indemnification in accordance with Section 9.01 by the delivery to the
Constituent Affiliate Owners of a notice (an "Offset Notice") setting
forth in reasonable detail the amount and basis for the claimed offset.
(b) The Constituent Affiliate Owners shall review the
calculations set forth in the Offset Notice and within 30 days after
the Offset Notice is given, any one of more of the Constituent
Affiliate Owners may advise ▇▇▇ of the respects, if any, in which they
dispute such calculation, setting forth with reasonable specificity the
particulars of such disagreement (the "Disagreement Notice"). If a
Constituent Affiliate Owner does not provide ▇▇▇ with a Disagreement
Notice within 30 days after delivery of the Offset Notice, the amount
of the offset against the Earnout Consideration set forth therein shall
be conclusive for determination of the amount of reduction, if any, to
the Earnout Consideration. If a Constituent Affiliate Owner provides
▇▇▇ with a Disagreement Notice within 30 days after delivery of the
Offset Notice, the Parties shall proceed with diligence and in good
faith to resolve any differences in such calculation. ▇▇▇ shall provide
the Constituent Affiliate Owners with full access at all reasonable
times, during regular business hours, upon three Business Days' prior
written notice, to the books, records, work papers, information, and
employees of ▇▇▇ and its accountants, auditors, and attorneys in
connection with the determination of the amount of the offset to the
Earnout Consideration in accordance with this Section 9.02.
(c) If the Parties cannot resolve any differences and agree on
the amount of the offset to the Earnout Consideration within 45 days
after the Disagreement Notice is given, then the Parties, within 20
days thereafter, shall submit the dispute for resolution in accordance
with the provisions of Section 10.05.
(d) The amount to which ▇▇▇ is entitled to indemnification
determined in accordance with the foregoing procedure shall be offset
and deducted from the number of shares constituting the Earnout
Consideration to the Constituent Affiliate Owners by which it is to be
borne at the rate of $1.00 per share of New ▇▇▇ Stock to which such
Constituent Affiliate Owner would otherwise be entitled.
(e) The right of offset in accordance with this Section 9.02
shall be in addition to any other rights and remedies set forth herein.
Article X
Choice of Law; Submission to Jurisdiction
and Waiver of Jury Trial; Dispute Resolution
Section 10.01 Governing Law. This Agreement shall be construed and
enforced in accordance with and governed by the Laws of the state of California
(without giving effect to any conflicts or choice of Laws provisions thereof
that would cause the application of the domestic substantive Laws of any other
jurisdiction).
Section 10.02 Consent to the Nonexclusive Jurisdiction of the
Courts of the State of California.
(a) Subject to the mediation and arbitration provisions in
accordance with Section 10.04 below, each of the Parties hereto hereby
consents to the nonexclusive jurisdiction of all state and federal
courts having jurisdiction in Santa ▇▇▇▇▇ County, California, regarding
any matter pertaining to RVision or both RVision and CFed, or in San
Diego County, California, regarding any matter pertaining to CFed but
not RVision, as well as to the jurisdiction of all courts to which an
appeal may be taken from such courts, for the purpose of any Proceeding
arising out of, or in connection with, this Agreement or any of the
51
related agreements or any of the transactions contemplated hereby or
thereby, including any Proceeding relating to ancillary measures in aid
of arbitration, provisional remedies and interim relief, or any
Proceeding to enforce any arbitral decision or award. For purposes of
this Article, "Proceeding" includes any threatened, pending, or
completed action, suit, arbitration, alternate dispute resolution
mechanism, investigation, inquiry, administrative hearing, or any other
actual, threatened, or completed proceeding, whether brought by or in
the right of any Entity or otherwise and whether civil, criminal,
administrative, or investigative, in which an Indemnified Party was,
is, or will be involved as a party or otherwise.
(b) Each Party covenants that it shall not challenge or set
aside any decision, award, or judgment obtained in accordance with the
provisions hereof.
(c) Each of the Parties hereto hereby expressly waives any and
all objections it may have to venue, including the inconvenience of
such forum, in any of such courts. In addition, each of the Parties
consents to the service of process by personal service or any manner in
which notices may be delivered hereunder in accordance with Section
11.02.
Section 10.03 Waiver of Jury Trial. Without limiting the provisions
in accordance with Section 10.04 relating to mediation and arbitration, each of
the Parties hereto hereby voluntarily and irrevocably waives trial by jury in
any Proceeding brought in connection with this Agreement, any of the related
agreements and documents, or any of the transactions contemplated hereby or
thereby.
Section 10.04 Mediation and Arbitration. In the event of any
dispute arising out of or relating in accordance with the provisions of Section
2.08 of this Agreement (the "Covered Dispute"), the Parties shall resolve such
dispute in accordance with the provisions of this Section 10.04. Within 14 days
following notice by one Party to the other of the existence of a Covered
Dispute, the Parties shall submit the Covered Dispute to at least four hours of
mediation. In the event the Covered Dispute is not settled within 15 calendar
days after the first mediation session, the Parties shall submit the Covered
Dispute to binding arbitration.
(a) All Proceedings in accordance with this Section 10.04
shall be conducted pursuant with the Laws relating to mediation,
arbitration, or alternative dispute resolution of the state whose Laws
are applicable to the interpretation and enforcement of this Agreement
in accordance with the provisions of Section 10.01 or, in the absence
of such state Law provisions, the mediation procedures of United States
Arbitration & Mediation, in each case as modified by the terms in
accordance with this Section 10.04.
(b) All arbitrators selected shall either (i) be retired
senior judges that have served for more than 10 years in the court of
record of general jurisdiction in the state whose Laws are applicable
to the interpretation and enforcement of this Agreement in accordance
with Section 10.01, or (ii) otherwise be independent licensed
attorneys. In the event of the failure, refusal, or inability of any
arbitrator to act, a new arbitrator shall be appointed in his or her
stead. Such appointment shall be made in the same manner as provided
for the appointment of such arbitrator so failing, refusing, or being
unable to act.
(c) If the amount of the controversy is less than $100,000 as
claimed by the Party(ies) demanding arbitration or otherwise on the
agreement of all Parties, the matter may be resolved by a single
arbitrator as provided in accordance with this Subsection. The
Party(ies) demanding arbitration shall serve on all other Parties, in
the manner provided in this Agreement for giving notices, a written
demand for arbitration, stating the specific facts upon which
52
arbitration is demanded. Within 15 days after service of the demand for
arbitration, the Party(ies) upon whom the demand is made shall serve
the demanding Party(ies) a list of five potential arbitrators. Within
10 days after service of the list of potential arbitrators, the
Party(ies) demanding arbitration shall select an arbitrator and two
alternate arbitrators. Within 10 days after the Party(ies) demanding
arbitration has selected an arbitrator and two alternates, the Parties
to the arbitration, by joint communication, shall contact the selected
arbitrator to determine if he or she is willing, able, and available to
act as arbitrator. If the selected arbitrator, for any reason, is
unwilling, unable, or unavailable to act, then the Parties, again by
joint communication, shall contact the first and, if necessary, the
second alternate to determine if he or she is willing, able, and
available to act as arbitrator. If none of the three chosen individuals
is willing, able, or available to act as arbitrator, then the selection
process set forth above shall be repeated until an arbitrator has been
appointed.
(d) If the amount in controversy as claimed in the written
statement of the notice submitting the matter to arbitration equals or
exceeds $100,000, the matter shall be determined by a panel of three
arbitrators. The Party(ies) notifying the other Party(ies) of the
demand for arbitration shall include with such demand the name of the
arbitrator selected by such Party(ies). Within 15 days after notice of
the demand for arbitration, the Party(ies) upon whom the demand is made
shall notify the demanding Party(ies) of the arbitrator selected by
such Party(ies) upon whom the demand is made. If the second arbitrator
is not so designated within or by the time specified, then the
appointment of such second arbitrator shall be made in the same manner
as is provided below for the appointment of a third arbitrator in a
case when the first and second arbitrator and the Parties themselves
are unable to agree upon the third arbitrator. The first and second
arbitrator so designated or appointed shall meet within 20 days after
the second arbitrator is appointed and if, within 30 days after the
second arbitrator is appointed, the first and second arbitrator do not
agree upon an arbitration decision and award, they shall themselves
appoint a third arbitrator, and in the event of their being unable to
agree upon such appointment within 10 days after the above time, the
third arbitrator shall be selected by the Parties themselves if they
can agree thereon within a further period of 15 days. If the Parties do
not so agree, then both Parties, by joint communication, or failing
such joint communication, within seven days, either Party may request
such appointment by the chief judge of the court having jurisdiction in
the premises in the state whose Laws govern the interpretation and
enforcement of this Agreement.
(e) The arbitration shall be conducted pursuant to such rules
and procedures as the arbitrator(s) may specify and otherwise,
according to the rules of civil procedure for courts of record of
general jurisdiction in the state whose Laws shall govern the
interpretation and enforcement of this Agreement in accordance with the
requirements of Section 10.01, including discovery procedures.
(f) The arbitration hearing shall be held no later than 120
days after the appointment of the last arbitrator(s), unless extended
by the mutual agreement of all Parties to the arbitration. The rules of
evidence shall be observed at the arbitration Proceeding. At the
discretion of the arbitrator(s), the arbitrator(s) may require
prehearing briefs from the Parties. Resolution of the Covered Dispute
shall be based solely upon the Laws governing the claims and defenses
pleaded, and the arbitrator(s) may not invoke any basis, including
notions of "just cause," other than such controlling Law. As reasonably
required to allow full use and benefits of this Agreement, the
arbitrator(s) may extend the time set for the giving of notices and
setting of hearings.
(g) The fees, costs, and expenses of the arbitration shall be
paid one-half by the Party(ies) demanding arbitration and one-half by
53
the other Party(ies) to the arbitration, subject to an award of
reimbursement of fees, costs, and expenses by the arbitrator(s) to the
prevailing Party(ies).
(h) Arbitration shall be the sole and exclusive remedy between
the Parties respecting any Covered Dispute, provided, however, the
arbitrator(s) shall not have the power or authority to revoke, reform,
or revise any portion of this Agreement or to award consequential,
incidental, or punitive damages. Awards shall include the
arbitrator(s)' written, reasoned opinion and, at either Party's written
request within 10 days after issuance of the award, shall be subject to
reversal and remand, modification, or reduction following a review by
the arbitrator(s) of the records and arguments of the Parties.
(i) Unless all the Parties to an arbitration otherwise consent
in writing, the location of the arbitration hearings and the place of
entry of the award shall be in Santa ▇▇▇▇▇ County, California,
regarding any matter pertaining to RVision or both RVision and CFed, or
in San Diego County, California, regarding any matter pertaining to
CFed but not RVision. The arbitration award shall be final and binding
and shall not be reviewable in any court on any grounds except
corruption, fraud, or undue means of a Party or for demonstrable
partiality or corruption of the arbitrator(s). The Parties intend to
eliminate all other court review of the award and the arbitration
Proceedings. Except for Proceedings to enforce or confirm an award,
Proceedings for interim, provisional, or injunctive relief as provided
herein, or a Proceeding brought by all Parties to the Covered Dispute
to vacate or modify an award, the initiation of any Proceeding relating
to a Covered Dispute that is arbitrable under this Agreement shall
constitute a material breach of this Agreement.
(j) The Parties understand that by agreeing to this binding
arbitration provision, they waive their rights to trial by jury.
(k) The rights, duties, and obligations of the Parties in
accordance with this Section 10.04 shall survive the termination of
this Agreement. Termination of this Agreement shall be without
prejudice to any rights that have accrued to any Party in accordance
with this Section 10.04.
(l) Except as necessary in a judicial Proceeding allowable in
accordance with this Section 10.04, all matters relating to any
arbitration shall be confidential, including the existence and subject
of the arbitration.
Article XI
General Provisions
Section 11.01 Effectiveness of Representations, Warranties, and
Agreements.
(a) Prior to the execution of this Agreement, each of the
Parties has made available to each other Party the opportunity to
review the RVision, CFed, and ▇▇▇ schedules to this Agreement and other
information available in accordance with the provisions of Article III.
Each Party has been afforded the opportunity to engage its own
attorneys, accountants, and other advisors to assist in the review of
such schedules and other information and has made its own decision
respecting the extent to which such Party has engaged such attorneys,
accountants, and other advisors. Except as set forth in accordance with
Subsection 11.01(b) of this Agreement, the representations, warranties,
and agreements of each Party hereto shall remain operative and in full
force and effect regardless of any investigation made by or on behalf
of any other Party hereto, any Person controlling any such Party, or
54
any of their officers, directors, managers, partners, representatives,
attorneys, accountants, or agents, whether prior to or after the
execution of this Agreement.
(b) The representations and warranties in this Agreement shall
terminate at the Closing Date, except that:
(i) the representations and warranties contained in
Article III (Representations, Warranties, and Covenants
Respecting Entities) and Article IV (Representations,
Warranties, and Covenants Respecting Constituent Affiliate
Owners) shall survive for a period of two years following the
Closing Date and thereafter respecting any matter as to which
any Party has previously received notice of a claim for which
indemnification or offset has been asserted until the
liability of the Parties shall have been determined in
accordance with Article X;
(ii) the representations and warranties contained in
accordance with Sections 3.11 (Tax Matters) and 3.12 (Taxes)
shall survive until the expiration of all relevant statutes of
limitation (including any extensions thereof), which shall be
deemed the expiration date for purposes of this clause and for
claims arising from a breach of the representations and
warranties contained in accordance with such Sections;
(iii) the representations, warranties, and covenants
in accordance with Sections 5.03(d) through (f), 8.05, 10.04,
and 11.01 shall survive termination; and
(iv) the representations, warranties, and covenants
set forth in Article X (Indemnification and Offset) and
Article XI (Choice of Law; Submission to Jurisdiction and
Waiver of Jury Trial; Dispute Resolution) shall survive the
Closing Date for the time and in the manner set forth therein.
Section 11.02 Notices. Any notice, demand, request, or other
communication permitted or required under this Agreement shall be in writing and
shall be deemed to have been given as of the date so delivered, if personally
served; as of the date so sent, if transmitted by facsimile and receipt is
confirmed by the facsimile operator of the recipient; as of the date so sent, if
sent by electronic mail and receipt is acknowledged by the recipient; one day
after the date so sent, if delivered by overnight courier service; or three days
after the date so mailed, if mailed by certified mail, return receipt requested,
addressed as follows:
(a) If to RVision Owners, to: such address as set forth on
Appendix A of this Agreement
with copies to: ▇▇▇▇ ▇ ▇▇▇▇▇▇▇ ▇▇.
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
and to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
55
(b) If to CFed Owners, to: such address as set forth on
Appendix B of this Agreement
with copies to: ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇ ▇▇▇▇▇
Facsimile (▇▇▇) ▇▇▇▇-▇▇▇▇
and to: Wenthur & Chachas, LLP
▇▇▇▇ ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
(c) If to ▇▇▇, Spinoffs,
or ▇▇▇▇▇, to: ▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
with copy to: ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇, LLC
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ (300 South)
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Facsimile (▇▇▇) ▇▇▇-▇▇▇▇
Each Party, by notice duly given in accordance herewith, may specify a different
address for the giving of any notice hereunder.
Section 11.03 Headings. The headings contained in this Agreement are
for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Section references herein are, unless the
context otherwise requires, references to Sections of this Agreement.
Section 11.04 Severability. If any term or other provision of this
Agreement is invalid, illegal, or incapable of being enforced by any rule of Law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any Party. Upon such determination that any term or other
provision is invalid, illegal, or incapable of being enforced, the Parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the Parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to the
extent possible.
Section 11.05 Entire Agreement. This Agreement (together with the
exhibits, the RVision, CFed and ▇▇▇ Disclosure Schedules) constitutes the entire
agreement of the Parties, and supersedes all prior agreements and undertakings,
both written and oral, among the Parties or between any of them, respecting the
subject matter hereof, expressly including that certain Letter of Intent dated
May 12, 2005, by and between ▇▇▇ and the Constituents, as subsequently amended
or extended.
Section 11.06 Assignment. This Agreement shall not be assigned by
operation of Law or otherwise.
56
Section 11.07 Parties in Interest. This Agreement shall be binding upon
and inure solely to the benefit of each Party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
Person any right, benefit, or remedy of any nature whatsoever under or by reason
of this Agreement.
Section 11.08 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any Party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty, or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and remedies
existing under this Agreement are cumulative to, and not exclusive of, any
rights or remedies otherwise available.
Section 11.09 Counterparts. This Agreement may be executed in multiple
counterparts, and by the different Parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
Section 11.10 Partial Execution. This Agreement shall become effective
and be binding upon the signatories thereto upon the signature by, and delivery
to the others, by ▇▇▇, the CFed Owners, and the Constituent Affiliate Owners of
RVision. Thereafter until the Closing Date, the Constituent Affiliate Owners of
RVision shall use their commercially reasonable efforts to obtain the signatures
of all other RVision Owners to this Agreement. If at the Closing less than all
RVision Owners have executed and joined in this Agreement, the RVision Owners
who have so executed and joined in this Agreement in accordance with the Charter
Documents of RVision to restructure the form of the transaction, as ▇▇▇ and the
CFed Owners may reasonably request, to assure that the Consolidation of RVision
is effective to effect the acquisition of 100% of RVision without any continuing
outstanding interest therein held by any RVision Owner, except for the
conversion of such interest into the right to receive New ▇▇▇ Stock in
accordance with the purpose and intent of Article II.
IN WITNESS WHEREOF, each of the Parties hereto has caused this
Agreement to be executed as of the date first written above individually or by
their respective officers thereunto duly authorized in the space provided below
or on one or more counterpart signature pages attached.
EAGLE LAKE INCORPORATED
By /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
---------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Individually
57
CONSOLIDATION AGREEMENT
COUNTERPART SIGNATURE PAGE
The undersigned hereby executes this counterpart signature page and
joins in the Consolidation Agreement between and among Eagle Lake Incorporated,
a Nevada corporation ("▇▇▇"), and all of the equity owners of RVision LLC, a
California limited liability company ("RVision"), all of the equity owners of
Custom Federal, Inc., a California corporation ("CFed"), and ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
("▇▇▇▇▇"), and acknowledges that this counterpart signature page may be affixed
with other counterpart signature pages of substantially like tenor executed by
other parties to such Agreement to constitute an original and which taken
together shall be but a single instrument. Capitalized terms used but not
defined herein shall have the meanings set forth in the Consolidation Agreement.
The undersigned has read Section 6.03 of the Consolidation Agreement in
which the undersigned makes certain representations and warranties respecting
the acquisition of the New ▇▇▇ Stock. The undersigned hereby confirms such
representations and warranties, specifically including the representation and
warranty that the undersigned (please check one):
[ ] is an "accredited investor" as defined in Rule 501 of
Regulation D under the Securities Act of 1933, a copy of which
is attached as Appendix C.
OR:
[ ] The undersigned has such knowledge and experience in financial
and business matter that he/she is capable of evaluating the
merits and risks of the Consolidation and has relied upon the
knowledge and expertise of the Affiliate Owners in evaluating
the merits and risks of the Consolidation and agrees to
provide such additional information respecting the suitability
of the investment contemplated hereby for the undersigned.
The undersigned has read Section 6.04 of the Consolidation Agreement
and further acknowledges the restrictions on transfer of the New ▇▇▇ Stock to be
received by the undersigned in the Consolidation Agreement as set forth therein.
Dated this 30 day of August, 2005.
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
(Consent of Spouse on following page.)
58
I, the consenting spouse, acknowledge that I have read the foregoing
Agreement and that I know its contents. I am aware that by its provisions my
spouse agrees to sell all his/her shares of RVision LLC or Custom Federal, Inc.,
including my community interest in them, on the occurrence of certain events. I
hereby consent to the sale, approve of the provisions of this Agreement, and
agree that those shares and my interest in them are subject to the provisions of
this Agreement and that I will take no action at any time to hinder operation of
the Agreement on those shares or my interest in them. I further agree that
should I become the sole legal owner of any of the shares under the Agreement
pursuant to a divorce decree issued by a court or under a divorce settlement
that I agree to be bound by the same terms, conditions, and obligations of a
Shareholder under this Agreement.
/s/
------------------------
Consenting Spouse
59
Amended Appendix A to
Consolidation Agreement Counterpart Signature Page
RVision Owners
Number Percent
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 5,279,192 65.99%
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ 1,426,450 17.83%
▇▇▇▇ ▇▇▇▇▇▇▇▇ 324,981 4.06%
▇▇▇▇▇▇ ▇▇▇▇▇▇ 288,044 3.60%
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 102,946 1.29%
▇▇▇▇ ▇▇▇▇▇▇▇ 49,628 0.62%
Eagle Lake Investments 91,000 1.14%
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ 24,000 0.30%
▇▇▇ ▇▇▇▇▇▇ 14,975 0.19%
▇▇▇▇▇ ▇▇▇▇▇▇ 18,000 0.23%
▇▇▇▇▇ ▇▇▇▇▇▇ 4,000 0.05%
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 80,000 1.00%
▇▇▇▇▇▇ ▇▇▇▇ 40,000 0.50%
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 10,000 0.13%
▇▇▇ ▇▇▇▇ 10,000 0.13%
▇▇▇▇ ▇▇▇▇▇▇ 1,000 0.01%
▇▇▇ ▇▇▇▇▇▇ 16,000 0.20%
▇▇▇▇ ▇▇▇▇▇▇▇ 32,395 0.40%
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ 12,000 0.15%
▇▇▇▇▇▇ ▇▇▇▇▇ 16,889 0.21%
Unleashed Media 30,000 0.38%
▇▇▇ ▇▇▇▇▇▇▇▇ 50,000 0.63%
▇▇▇ ▇▇▇▇▇ 50,000 0.63%
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ 5,000 0.06%
▇▇▇▇▇ Casersa 5,000 0.06%
▇▇▇▇ ▇▇▇▇▇▇▇ 3,500 0.04%
▇▇▇▇▇ ▇▇▇▇▇ 6,000 0.08%
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ 9,000 0.11%
------------- -----
Total 8,000,000 100.00%
Amended Appendix B to
Consolidation Agreement Counterpart Signature Page
CFed Owners
Number Percent
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III 900,000 43.90%
▇▇▇▇▇ ▇. ▇▇▇▇▇ 1,100,000 53.66%
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ 50,000 2.44%
------------- --------
Total 2,050,000 100.00%
Appendix C to
Consolidation Agreement Counterpart Signature Page
Accredited Investor as defined in ss.230.501 of the Securities Act of 1933
(i) Any bank as defined in Section 3(a)(2) of the Securities Act or any
savings and loan association or other institution as defined in Section
3(a)(5)(A) of the Securities Act whether acting in its individual or
fiduciary capacity; any broker or dealer registered pursuant to Section
15 of the Securities Exchange Act of 1934; any insurance company as
defined in Section 2(13) of the Securities Act; any investment company
registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that act; any
small business investment company licensed by the U. S. Small Business
Administration under Section 301(c) or (d) of the Small Business
Investment Act of 1958; any plan established and maintained by a state,
its political subdivisions, or any agency or instrumentality of a state
or its political subdivisions, for the benefit of its employees, if
such plan has total assets in excess of $5,000,000; any employee
benefit plan within the meaning of the Employee Retirement Income
Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such act, which is either a
bank, savings, and loan association, insurance company, or registered
investment adviser, or if the employee benefit plan has total assets in
excess of $5,000,000 or, if a self-directed plan, with investment
decisions made solely by persons that are accredited investors;
[ ] Yes [ ] No
(ii) Any private business development company as defined in Section
202(a)(22) of the Investment Advisers Act of 1940;
[ ] Yes [ ] No
(iii) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the
Securities offered, with total assets in excess of $5,000,000;
[ ] Yes [ ] No
(iv) Any director, executive officer, or general partner of the issuer
of the Securities being offered or sold, or any director, executive
officer, or general partner of a general partner of that issuer;
[ ] Yes [ ] No
(v) Any natural person whose individual net worth, or joint net worth
with that person's spouse, at the time of his or her purchase exceeds
$1,000,000;
[ ] Yes [ ] No
For purposes of category (v), the term "net worth" means the
excess of total assets over total liabilities. In computing
net worth for the purposes of category (v) above, the
undersigned's principal residence must be valued either at (A)
cost, including the cost of improvements, net of current
encumbrances upon the property or (B) the appraised value of
the property as determined upon a written appraisal used by an
institutional lender making a loan to the individual secured
by the property, including the cost of subsequent
improvements, net of current encumbrances upon the property.
(vi) Any natural person who had an individual income in excess of
$200,000 in each of the two most recent years or joint income with that
person's spouse in excess of $300,000 in each of those years and has a
reasonable expectation of reaching the same income level in the current
year;
[ ] Yes [ ] No
In determining income, the undersigned should add to his or
her adjusted gross income any amounts attributable to tax
exempt income received, losses claimed as a limited partner in
any limited partnership, deductions claimed for depletion,
contributions to an ▇▇▇ or ▇▇▇▇▇ retirement plan, alimony
payments, and any amount by which income from long-term
capital gains has been reduced in arriving at adjusted gross
income.
(vii) Any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the Securities offered, whose
purchase is directed by a sophisticated person as described in section
230.506(b)(2)(ii) of Regulation D; and
[ ] Yes [ ] No
(viii) Any entity in which all of the equity owners are accredited
investors.
[ ] Yes [ ] No
Exhibit A-1 to Consolidation Agreement
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
EAGLE LAKE INCORPORATED
Exhibit A-2 to Consolidation Agreement
BYLAWS OF EAGLE LAKE INCORPORATED
Exhibit B to Consolidation Agreement
2005 LONG-TERM INCENTIVE PLAN
Exhibit C to Consolidation Agreement
NOTICE OF OPTION GRANT
Exhibit D-1 to Consolidation Agreement
EXECUTIVE EMPLOYMENT AND NONCOMPETITION
AGREEMENT OF ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Exhibit D-2 to Consolidation Agreement
EXECUTIVE EMPLOYMENT AND NONCOMPETITION
AGREEMENT OF ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Exhibit D-3 to Consolidation Agreement
EXECUTIVE EMPLOYMENT AND NONCOMPETITION
AGREEMENT OF ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ III
Exhibit D-4 to Consolidation Agreement
EXECUTIVE EMPLOYMENT AND NONCOMPETITION
AGREEMENTOF ▇▇▇▇▇ ▇▇▇▇▇
Exhibit E to Consolidation Agreement
CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT
Exhibit F to Consolidation Agreement
NONDISCLOSURE AND DEVELOPMENT AGREEMENT
Exhibit G to Consolidation Agreement
ASSIGNMENT
Exhibit H to Consolidation Agreement
CONSENT AND AGREEMENT
Exhibit I to Consolidation Agreement
IRREVOCABLE PURCHASE OFFER
Exhibit J to Consolidation Agreement
VOTING AGREEMENT
