EXHIBIT 2.1
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") made this 25th of November, 2003 by
and among ALPHA VIRTUAL, INC., a Delaware corporation ("Parent"), A/V
ACQUISITION CORPORATION, a Nevada corporation ("Sub"), and VERIDICOM, INC., a
California corporation (the "Company").
Recitals:
A. The respective Boards of Directors of Parent and the Company have determined
that a merger of Sub with and into the Company (the "Merger"), upon the terms
and subject to the conditions set forth in this Agreement, would be fair and in
the best interests of their respective shareholders, and such Boards of
Directors have approved such Merger, pursuant to which shares of Common Stock of
the Company ("Company Common Stock") issued and outstanding immediately prior to
the Effective Time of the Merger (as defined in Section 1.03) will be converted
into the right to receive Common Stock of Parent ("Parent Common Stock") other
than Dissenting Shares (as defined in Section 2.01(d)).
B. Parent, Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger.
C. For federal income tax purposes, the parties intend that the Merger shall
qualify as a reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the representations, warranties, covenants
and agreements contained in this Agreement, the parties agree as follows:
ARTICLE I
The Merger
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1.01 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, and in accordance with the California Corporation Code (the
"California Statutes"), the Delaware Corporations Code (the "Delaware Statutes")
and the Nevada Corporations Code (the "Nevada Statutes"), Sub shall be merged
with and into the Company at the Effective Time of the Merger. At the Effective
Time of the Merger, the separate existence of Sub shall cease, and the Company
shall continue as the surviving corporation (the "Surviving Corporation") and
shall continue under the name Veridicom, Inc.
1.02 Closing. Unless this Agreement shall have been terminated and the
transactions herein contemplated shall have been abandoned pursuant to Section
7.01 and subject to the satisfaction or waiver of the conditions set forth in
Article VI, the closing of the Merger (the "Closing") will take place at 10:00
a.m. on the business day after satisfaction of the conditions set forth in
Article VI (or as soon as practicable thereafter following satisfaction or
waiver of the conditions set forth in Article VI) (the "Closing Date"), at the
offices of ▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP, unless another date, time or place is
agreed to in writing by the parties hereto.
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1.03 Effective Time of Merger. As soon as practicable following the satisfaction
or waiver of the conditions set forth in Article VI, the parties shall file
articles of merger (the "Articles of Merger") executed in accordance with the
relevant provisions of the California Statutes and the Delaware Statutes and
shall make all other filings or recordings required under the California,
Delaware and Nevada Statutes. The Merger shall become effective at such time as
the Articles of Merger are duly filed with the Secretaries of State of
California, Delaware and Nevada (as applicable), respectively, or at such other
time as is permissible in accordance with the California, Delaware and Nevada
Statutes and as Parent and the Company shall agree should be specified in the
Articles of Merger (the time the Merger becomes effective being the "Effective
Time of the Merger"). Parent shall use reasonable efforts to have the Closing
Date and the Effective Time of the Merger to be the same day.
1.04 Effects of the Merger. The Merger shall have the effects set forth in the
applicable provisions of the California, Delaware and Nevada Statutes.
1.05 Articles of Incorporation; Bylaws; Purposes.
(a) The Articles of Incorporation of the Company in effect immediately
prior to the Effective Time of the Merger shall be the Articles of Incorporation
of the Surviving Corporation until thereafter changed or amended as provided
therein or by applicable law.
(b) The Bylaws of the Company in effect at the Effective Time of the Merger
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(c) The purposes of the Surviving Corporation and the total number of its
authorized capital stock shall be as set forth in the Articles of Incorporation
of the Company in effect immediately prior to the Effective Time of the Merger
until such time as such purposes and such number may be amended as provided in
the Articles of Incorporation of the Surviving Corporation and by applicable
law.
1.06 Directors. The directors of the Company at the Effective Time of the Merger
shall be the directors of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
1.07 Officers. The officers of the Company at the Effective Time of the Merger
shall be the officers of the Surviving Corporation, until the earlier of their
resignation or removal or until their respective successors are duly elected and
qualified, as the case may be.
ARTICLE II
Effect of the Merger
on the Capital Stock
of the Constituent Corporations
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2.01 Effect on Capital Stock. As of the Effective Time of the Merger, by virtue
of the Merger and without any action on the part of the holders of shares of
Company Common Stock or any shares of capital stock of Sub:
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(a) Common Stock of Sub. Each share of common stock of Sub issued and
outstanding immediately prior to the Effective Time of the Merger shall be
converted into one share of Common Stock of the Surviving Corporation and shall
be the issued and outstanding capital stock of the Surviving Corporation.
(b) Cancellation of Parent-Owned Company Common Stock. Each share of
Company Common Stock that is owned by Parent, Sub or any other subsidiary of
Parent shall automatically be cancelled and retired and shall cease to exist,
and no Parent Common Stock or other consideration shall be delivered or
deliverable in exchange therefor.
(c) Conversion of Company Common Stock. Except as otherwise provided
herein, each issued and outstanding share of Company Common Stock shall be
converted into fully paid and nonassessable shares of Parent Common Stock in
accordance with the Exchange Ratio described in Section 2.02 (the "Merger
Consideration"). Three Million Two Hundred Fifty Thousand (3,250,000) shares of
said Merger Consideration shall be the "Initial Deposit" and deposited by the
Parent with the Exchange Agent (as described below) further to Section 2.04(a)
herein, and Two Hundred Fifty Thousand (250,000) shares, which are subject to
the twenty-four months lock-up period as referenced in subsection 2.01(d)
hereof, of said Merger Consideration shall be deposited into escrow pursuant to
the terms hereof, such shares to be known as the "Escrow Deposit" and which will
be deposited by the Escrow Agent (as described below) with the Exchange Agent
(as described below) further to Section 2.04(b)(vi) herein.
(d) Lock-Up. Fifty percent (50%) of the Company Common Stock converted into
shares of Parent Common Stock shall be subject to a twenty-four (24) month
lock-up, which shall begin as of the Closing Date. Notwithstanding the
foregoing, Parent shall authorize the removal of twelve (12) months of the
above-referenced lock-up as to any such shares under the following conditions:
(i) The subject shares are privately placed at no greater than a
thirty percent (30%) discount to the average of the closing price
of Parent Common Stock, as quoted on the NASDAQ National Market,
NASDAQ SmallCap Market, OTC Bulletin Board, or such exchange as
Parent Common Stock is quoted or listed, as the case may be, for
the five (5) trading days preceding the date of transfer; or
(ii) The subject shares are pledged with a reputable bank as collateral
for a loan.
(e) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger held by a holder (if any) who has the
right to demand payment for and an appraisal of such shares in accordance with
the California Statutes ("Dissenting Shares") shall not be converted into a
right to receive Merger Consideration unless such holder fails to perfect or
otherwise loses such holder's right to such payment or appraisal, if any. If,
after the Effective Time of the Merger, such holder fails to perfect or loses
any such right to appraisal, each such share of such holder shall be treated as
a share that had been converted as of the Effective Time of the Merger into the
right to receive Merger Consideration in accordance with this Section 2.01. The
Company shall give prompt notice to Parent of any demands received by the
Company for appraisal of shares of Company Common Stock, and Parent shall have
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the right to participate in all negotiations and proceedings with respect to
such demands. The Company shall not, except with the prior written consent of
Parent, make any payment with respect to, or settle or offer to settle, any such
demands.
(f) Cancellation and Retirement of Company Common Stock. As of the
Effective Time of the Merger, all shares of Company Common Stock issued and
outstanding immediately prior to the Effective Time of the Merger, shall no
longer be outstanding and shall automatically be cancelled and retired and shall
cease to exist, and each holder of a certificate representing any such shares of
Company Common Stock shall cease to have any rights with respect thereto, except
the right to receive the applicable Merger Consideration to be issued in
consideration therefor upon surrender of such certificate in accordance with
Section 2.04.
2.02 Exchange Ratio. The "Exchange Ratio" is as follows:
Each share of Company Common Stock shall be converted into 0.417426 of a share
of Parent Common Stock in the Merger, an Exchange Ratio of 1:0.417426 so that in
no case shall more than Three Million Five Hundred Thousand (3,500,000) shares
of Parent Common Stock be issued in the Merger. The Initial Deposit shall be
distributable by the Exchange Agent effective as of the Effective Time of the
Merger in accordance with the provisions of Section 2.04(a) herein and the
Escrow Deposit shall be distributable pursuant to the provisions of Section
2.04(b)(iv) herein. No fractional Parent Common Stock shall be issued in the
Merger. If the product of the number of shares a Company shareholder holds
immediately prior to the Closing multiplied by the exchange ratio would result
in the issuance of a fractional share of Parent Common Stock, that product will
be rounded down to the nearest whole number of shares of Parent Common Stock if
it is equal to or less than the fraction of one-half (.5) of one Parent Common
Stock or round up to the nearest whole number of shares of Parent Common Stock
if the said product is greater than the fraction of one-half (.5) of one Parent
Common Stock.
2.03 Stock Options; Warrants.
(a) Assumption. At the Effective Time of the Merger, all options to
purchase Company Common Stock then outstanding under the Company's 2001 Stock
Option Plan (the "Company Option Plan"), and all options to purchase Company
Common Stock then outstanding which are not under the Company Option Plan, in
each case whether vested or unvested, and the Company Option Plan itself, shall
be assumed by Parent in accordance with Section 2.03(b) hereof. There are no
outstanding warrants to purchase any shares of the capital stock of the Company.
(b) Stock Options. At the Effective Time of the Merger, each outstanding
option to purchase Company Common Stock (each, a "Company Stock Option"),
whether or not granted under the Company Option Plan, whether or not vested,
shall by virtue of the Merger be assumed by Parent. Each Company Stock Option so
assumed by Parent under this Agreement will continue to have, and be subject to,
the same terms and conditions of such options immediately prior to the Effective
Time of the Merger (including, without limitation, any repurchase rights or
vesting provisions and provisions regarding the acceleration of vesting on
certain transactions), except that (i) each Company Stock Option will be
exercisable (or will become exercisable in accordance with its terms) for that
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number of whole shares of Parent Common Stock equal to the product of the number
of Company Shares that were issuable upon exercise of such Company Stock Option
immediately prior to the Effective Time of the Merger multiplied by the Exchange
Ratio, rounded down to the nearest whole number of shares of Parent Common Stock
if the said product is equal to or less than the fraction of one-half (.5) of
one Parent Common Stock or rounded up to the nearest whole number of shares of
Parent Common Stock if the said product is greater than the fraction of one-half
(.5) of one Parent Common Stock, and (ii) the per share exercise price for the
shares of Parent Common Stock issuable upon exercise of such assumed Company
Stock Option will be equal to the quotient determined by dividing the exercise
price per Company Share at which such Company Stock Option was exercisable
immediately prior to the Effective Time of the Merger by the Exchange Ratio,
rounded up to the nearest whole cent. Parent shall comply with the terms of all
such Company Stock Options and use its best efforts to ensure, to the extent
required by, and subject to the provisions of, the Company Option Plan and
permitted under the Code or other relevant laws and regulations that any Company
Stock Option that qualified for tax treatment under Section 424(b) of the Code
prior to the Effective Time of the Merger continue to so qualify after the
Effective Time of the Merger. Parent shall take all corporate actions necessary
to reserve for issuance a sufficient number of shares of Parent Common Stock for
delivery upon exercise of all Company Stock Options on the terms set forth in
this Section 2.03(b). Parent will use its reasonable efforts to promptly file, a
registration statement on Form S-8, to the extent available, so as to register
the shares of Parent Common Stock subject to the assumed Company Option Plan and
shall use its best efforts to effect such registration and to maintain the
effectiveness of such registration statement for so long as a Company Stock
Option remains outstanding.
2.04 Exchange of Certificates
(a) Exchange Agent. As soon as reasonably practicable as of or after the
Effective Time of the Merger, Parent shall deposit the Initial Deposit with its
transfer agent (the "Exchange Agent"), for the benefit of the holders of shares
of Company Common Stock, for exchange in accordance with this Article II. Any
shares remaining in the Escrow Deposit (as described below) after the Settlement
Date (as described below) will be transferred by the Escrow Agent (as described
below) to the Exchange Agent further to the provisions of Section 2.04(b)(vi)
herein, for the benefit of the holders of shares of Company Common Stock, for
disbursement pro rata to the holders of shares of Company Common Stock as of the
Effective Date of the Merger.
(b) Escrow Deposit.
(i) At the Effective Time of the Merger, Parent will cause to be
delivered to Comercia Bank as escrow agent (the "Escrow Agent") the Escrow
Deposit to be held pursuant to the Escrow Agreement attached thereto as Exhibit
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C (The "Escrow Agreement").
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(ii) The settlement date as set forth herein and in the Escrow
Agreement (the "Settlement Date") shall be such date which is five months from
the Effective Time of the Merger and the date of the resolution of any
Disagreements pursuant to Section 2.04(vi) herein any and Contests further to
Section 8.03 herein.
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(iii) As soon as practicable after the Effective Time of the Merger,
Parent shall undertake an audit (the "Post-Closing Audit") of the books and
records of the Company for the years ended December 31, 2001 and 2002 and as of
the date of signing of this Agreement and to prepare an audited balance sheet of
the Company as of the date of signing of this Agreement (the "Audited Balance
Sheet"). The auditor (the "Auditor") conducting the Post-Closing Audit shall
consist of a firm of independent public accountants selected by Parent. The
Audited Balance Sheet of the Company shall (A) present fairly, in accordance
with generally accepted accounting principles consistently applied, the
financial position of the Company as of the date of signing of this Agreement
and (B) make full and adequate provision of all liabilities and obligations
(fixed or contingent) of the Company as of the date of signing of this Agreement
(the "Total Liabilities"). Upon completion of the Audited Balance Sheet, copies
shall forthwith be delivered to Gyung ▇▇▇ ▇▇▇ (the "Company Representative"),
Parent and the Escrow Agent. Any disputes concerning the Audited Balance Sheet
pursuant to this Section 2.04(b)(iii) shall be resolved pursuant to the
provisions of Section 2.04(b)(v).
(iv) In the event that the Company Representative should disagree (a
"Disagreement") with any accounting principle accepted by the Auditor, the
Company Representative shall within ten (10) days of the delivery of the Audited
Balance Sheet notify Parent and the Escrow Agent of such dispute in writing
setting forth the nature and facts of such Disagreement in reasonable detail. In
the event that Parent and the Company Representative cannot resolve the
Disagreement within ten (10) days following the delivery of the Company
Representative's notice to Parent and the Escrow Agent, the Parent and the
Company Representative shall within five days thereafter mutually select another
auditor (the "Second Auditor") which shall within sixty (60) days determine the
Total Liabilities. The determination of the Total Liabilities by the Second
Auditor shall be final. The fees payable to the Auditor shall be paid by the
Parent; the fee payable to the Second Auditor, if any, shall be paid equally by
Parent and the Company Representative.
(v) In the event it is finally determined under this Section 2.04(b)
that the Company's Total Liabilities as of the date of signing of this Agreement
are greater than Six Hundred Thousand Dollars ($600,000), Parent will deliver a
notice to the Escrow Agent that there is a determination of liability pursuant
to this Section 2.04 and the Escrow Agent shall be instructed that the number of
shares in the Escrow Deposit shall be reduced by the amount equal to the
deficiency (at an assumed per share price of $2.00) and shares representing the
amount of such deficiency shall forthwith be returned to Parent from the Escrow
Deposit for cancellation.
(vi) After the Settlement Date, all remaining shares, if any, in the
Escrow Deposit shall be transferred by the Escrow Agent to the Exchange Agent
for disbursement further to Section 2.04(a) herein, said transfer shall take
place within ten (10) business days after the Settlement Date. Exchange Agent
shall deliver stock certificates of Parent Common Stock to Company shareholders
of record as of the date immediately prior to the Closing within twenty (20)
business days of receiving the Escrow Deposit from Escrow Agent. The number of
shares of Parent Common Stock from the Escrow Deposit evidenced in the delivered
stock certificates to each Company shareholder will be in accordance with said
shareholder's pro rata holding of Company Common Stock as of the date
immediately prior to the Closing and the terms of Section 2.02 hereof.
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(c) Exchange Procedures. As soon as practicable after the Effective Time of
the Merger, each holder of an outstanding certificate or certificates which
prior thereto represented shares of Company Common Stock shall, upon surrender
to the Exchange Agent of such certificate or certificates and acceptance thereof
by the Exchange Agent, be entitled to a certificate or certificates representing
the number of shares of Parent Common Stock into which the aggregate number of
shares of Company Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to this Agreement.
The Exchange Agent shall accept such certificates upon compliance with such
reasonable terms and conditions as the Exchange Agent may impose to effect an
orderly exchange thereof in accordance with normal exchange practices. After the
Effective Time of the Merger, there shall be no further transfer on the records
of the Company or its transfer agent of certificates representing shares of
Company Common Stock and if such certificates are presented to the Company for
transfer, they shall be cancelled against delivery of certificates for Parent
Common Stock as hereinabove provided. If any certificate for such Parent Common
Stock is to be issued in a name other than that in which the certificate for
Company Common Stock surrendered for exchange is registered, it shall be a
condition of such exchange that the certificate so surrendered shall be properly
endorsed, with signature guaranteed, or otherwise in proper form for transfer
and that the person requesting such exchange shall pay to Parent or its transfer
agent any transfer or other taxes or other costs required by reason of the
issuance of certificates for such Parent Common Stock in a name other than that
of the registered holder of the certificate surrendered, or establish to the
satisfaction of Parent or its transfer agent that all taxes have been paid.
Until surrendered as contemplated by this Section 2.04(b), each certificate for
shares of Company Common Stock shall be deemed at any time after the Effective
Time of the Merger to represent only the right to receive upon such surrender
the Merger Consideration as contemplated by Section 2.01.
(d) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to Parent Common Stock with a record date after the
Effective Time of the Merger shall be paid to the holder of any unsurrendered
certificate for shares of Company Common Stock with respect to the shares of
Parent Common Stock represented thereby until the surrender of such certificate
in accordance with this Article II.
(e) No Further Ownership Rights in Company Common Stock. All shares of
Parent Common Stock issued upon the surrender for exchange of certificates
representing shares of Company Common Stock in accordance with the terms of this
Article II shall be deemed to have been issued (and paid) in full satisfaction
of all rights pertaining to the shares of Company Common Stock theretofore
represented by such certificates.
(f) No Liability. None of Parent, Sub, the Company or the Exchange Agent
shall be liable to any person in respect of any shares of Parent Common Stock
(or dividends or distributions with respect thereto) delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
If any certificates representing shares of Company Common Stock shall not have
been surrendered prior to December 31, 2004 any such shares, dividends or
distributions in respect of such certificate shall, to the extent permitted by
applicable law, become the property of the Surviving Corporation, free and clear
of all claims or interests of any person previously entitled thereto.
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ARTICLE III
Representations and Warranties
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3.01 Representations and Warranties of the Company. Except as set forth in the
Disclosure Schedule (as defined in subsection 3.01(a)), attached hereto as
Exhibit A, or a certain schedule comprising the Disclosure Schedule, the Company
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represents and warrants to Parent and Sub as follows:
(a) Organization, Standing and Corporate Power. The Company is duly
organized, validly existing and in good standing under the laws of the State of
California and has the requisite corporate power and authority to carry on its
business as now being conducted. The Company is duly qualified or licensed to do
business and is in good standing in each jurisdiction in which the nature of its
business or the ownership or leasing of its properties makes such qualification
or licensing necessary, other than in such jurisdictions where the failure to be
so qualified or licensed (individually or in the aggregate) would not have a
material adverse effect (as defined in Section 9.02) with respect to the
Company. Attached as Schedule 3.01(a) of the disclosure schedule ("Disclosure
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Schedule") delivered to Parent by the Company at the time of execution of this
Agreement are complete and correct copies of the Articles of Incorporation and
Bylaws of the Company.
(b) Subsidiaries. The Company does not own, directly or indirectly, any
capital stock or other ownership interest in any corporation, partnership,
business association, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of the Company consists
of Twenty Million (20,000,000) shares of Company Common Stock. Subject to any
Permitted Changes (as defined in Section 4.01(a)(ii)) there are Eight Million
Three Hundred Eighty Four Thousand Seven Hundred Eighteen (8,384,718) shares of
Common Stock outstanding. One Million Six Hundred Eighty Two Thousand Two
Hundred Seventy Four (1,682,274) shares of Company Common Stock are issuable
upon exercise of outstanding Company Stock Options. Except as set forth above,
no shares of capital stock or other equity securities of the Company are issued,
reserved for issuance or outstanding. All outstanding shares of capital stock of
the Company are duly authorized, validly issued, fully paid and nonassessable
and not subject to preemptive rights. There are no outstanding bonds,
debentures, notes or other indebtedness or other securities of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which shareholders of the Company
may vote. Except as set forth above, there are no outstanding securities,
options, warrants, calls, rights, commitments, agreements, arrangements or
undertakings of any kind to which the Company is a party or by which it is bound
obligating the Company to issue, deliver or sell, or cause to be issued,
delivered or sold, additional shares of capital stock or other equity or voting
securities of the Company or obligating the Company to issue, grant, extend or
enter into any such security, option, warrant, call, right, commitment,
agreement, arrangement or undertaking. The outstanding indebtedness for borrowed
money of the Company is set forth on Schedule 3.01(c) of the Disclosure
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Schedule. Other than the Company Stock Options and Company Warrants, there are
no outstanding contractual obligations, commitments, understandings or
arrangements of the Company to repurchase, redeem or otherwise acquire or make
any payment in respect of any shares of capital stock of the Company. Schedule
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3.01(c) of the Disclosure Schedule sets forth the ownership of the capital stock
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of the Company. There are no agreements or arrangements pursuant to which the
Company is or could be required to register shares of Company Common Stock or
other securities under the Securities Act of 1933, as amended (the "Securities
Act") or other agreements or arrangements with or among any securityholders of
the Company with respect to securities of the Company.
(d) Authority; Noncontravention. The Company has the requisite corporate
and other power and authority to enter into this Agreement and to consummate the
Merger. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company.
This Agreement has been duly executed and delivered by the Company and
constitutes a valid and binding obligation of the Company, enforceable against
the Company in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions hereof will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any obligation or
to loss of a material benefit under, or result in the creation of any lien upon
any of the properties or assets of the Company under, (i) the Articles of
Incorporation or Bylaws of the Company, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company, its properties or
assets, or (iii) subject to the governmental filings and other matters referred
to in the following sentence, any judgment, order, decree, statute, law,
ordinance, rule, regulation or arbitration award applicable to the Company, its
properties or assets. No consent, approval, order or authorization of, or
registration, declaration or filing with, or notice to, any federal, state or
local government or any court, administrative agency or commission or other
governmental authority, agency, domestic or foreign (a "Governmental Entity"),
is required by or with respect to the Company in connection with the execution
and delivery of this Agreement by the Company or the consummation by the Company
of the transactions contemplated hereby, except, with respect to this Agreement,
for the filing of the Articles of Merger with the Secretaries of State of
California and Delaware.
(e) Absence of Certain Changes or Events. Since September 5, 2003, the
Company has conducted its business only in the ordinary course consistent with
past practice, and there is not and has not been: (i) any material adverse
change with respect to the Company; (ii) any condition, event or occurrence
which individually or in the aggregate could reasonably be expected to have a
material adverse effect or give rise to a material adverse change with respect
to the Company; (iii) any event which, if it had taken place following the
execution of this Agreement, would not have been permitted by Section 4.01
without prior consent of Parent; or (iv) any condition, event or occurrence
which could reasonably be expected to prevent, hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement.
(f) Litigation; Labor Matters; Compliance with Laws.
(i) Except as qualified by Section 3.01(m) herein, there is no suit,
action or proceeding or investigation pending or, to the knowledge of the
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Company, threatened against or affecting the Company or any basis for any such
suit, action, proceeding or investigation that, individually or in the
aggregate, could reasonably be expected to have a material adverse effect with
respect to the Company or prevent, hinder or materially delay the ability of the
Company to consummate the transactions contemplated by this Agreement, nor is
there any judgment, decree, injunction, rule or order of any Governmental Entity
or arbitrator outstanding against the Company having, or which, insofar as
reasonably could be foreseen by the Company, in the future could have, any such
effect.
(ii) The Company is not a party to, or bound by, any collective
bargaining agreement, contract or other agreement or understanding with a labor
union or labor organization, nor is it the subject of any proceeding asserting
that it has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment nor
is there any strike, work stoppage or other labor dispute involving it pending
or, to its knowledge, threatened, any of which could have a material adverse
effect with respect to the Company.
(iii) The conduct of the business of the Company complies with all
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees or
arbitration awards applicable thereto.
(g) Benefit Plans. The Company is not a party to any collective bargaining
agreement or any bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding (whether or not legally
binding) under which the Company currently has an obligation to provide benefits
to any current or former employee, officer or director of the Company
(collectively, "Benefit Plans").
(h) Certain Employee Payments. The Company is not a party to any employment
agreement which could result in the payment to any current, former or future
director or employee of the Company of any money or other property or rights or
accelerate or provide any other rights or benefits to any such employee or
director as a result of the transactions contemplated by this Agreement, whether
or not (i) such payment, acceleration or provision would constitute a "parachute
payment" (within the meaning of Section 280G of the Code), or (ii) some other
subsequent action or event would be required to cause such payment, acceleration
or provision to be triggered.
(i) Tax Returns and Tax Payments. The Company has timely filed all Tax
Returns required to be filed by it, has paid all Taxes shown thereon to be due
and has provided adequate reserves in its financial statements for any Taxes
that have not been paid, whether or not shown as being due on any returns. No
material claim for unpaid Taxes has been made or become a lien against the
property of the Company or is being asserted against the Company, no audit of
any Tax Return of the Company is being conducted by a tax authority, and no
extension of the statute of limitations on the assessment of any Taxes has been
granted by the Company and is currently in effect. As used herein, "taxes" shall
mean all taxes of any kind, including, without limitation, those on or measured
by or referred to as income, gross receipts, sales, use, ad valorem, franchise,
profits, license, withholding, payroll, employment, excise, severance, stamp,
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occupation, premium value added, property or windfall profits taxes, customs,
duties or similar fees,, assessments or charges of any kind whatsoever, together
with any interest and any penalties, additions to tax or additional amounts
imposed by any governmental authority, domestic or foreign. As used herein, "Tax
Return" shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
(j) Environmental Matters. The Company is in compliance with all applicable
Environmental Laws. "Environmental Laws" means all applicable federal, state and
local statutes, rules, regulations, ordinances, orders, decrees and common law
relating in any manner to contamination, pollution or protection of human health
or the environment, and similar state laws.
(k) Material Contract Defaults. The Company has provided or made available
to Parent copies of all material contracts, agreements, commitments,
arrangements, leases, policies or other instruments to which it is a party or by
which it is bound ("Material Contracts") all of which are listed on Schedule
--------
3.01(k) of the Disclosure Schedule. The Company is not, or has not, received any
-------
notice or has any knowledge that any other party is, in default in any respect
under any Material Contract; and there has not occurred any event that with the
lapse of time or the giving of notice or both would constitute such a material
default. For purposes of this Agreement, a Material Contract means any contract,
agreement or commitment that is effective as of the Closing Date to which the
Company is a party (i) with expected receipts or expenditures in excess of
$10,000, (ii) requiring the Company to indemnify any person, (iii) granting
exclusive rights to any party, (iv) evidencing indebtedness for borrowed or
loaned money in excess of $10,000 or more, including guarantees of such
indebtedness, or (v) which, if breached by the Company in such a manner would
(A) permit any other party to cancel or terminate the same (with or without
notice of passage of time) or (B) provide a basis for any other party to claim
money damages (either individually or in the aggregate with all other such
claims under that contract) from the Company or (C) give rise to a right of
acceleration of any material obligation or loss of any material benefit under
any such contract, agreement or commitment. Notwithstanding the foregoing
definition, a Material Contract shall not include any contract with a fair
market valuation equal to or less than $10,000.
(l) Properties. The Company has good, clear and marketable title to all the
tangible properties and tangible assets reflected in the latest balance sheet as
being owned by the Company or acquired after the date thereof which are,
individually or in the aggregate, material to the Company's business (except
properties sold or otherwise disposed of since the date thereof in the ordinary
course of business), free and clear of all liens.
(m) Trademarks and Related Contracts. To the knowledge of the Company:
(i) As used in this Agreement, the term "Trademarks" means trademarks,
service marks, trade names, Internet domain names, designs, slogans, and general
intangibles of like nature; the term "Trade Secrets" means technology; trade
secrets and other confidential information, know-how, proprietary processes,
formulae, algorithms, models, and methodologies; the term "Intellectual
Property" means patents, copyrights, Trademarks, applications for any of the
11
foregoing, and Trade Secrets; the term "Company License Agreements" means any
license agreements granting any right to use or practice any rights under any
Intellectual Property (except for such agreements for shrink-wrap or click wrap
software or other off-the-shelf products that are generally available for less
than $25,000), and any written settlements relating to any Intellectual
Property, to which the Company is a party or otherwise bound; and the term
"Software" means any and all computer programs, including any and all software
implementations of algorithms, models and methodologies, whether in source code
or object code.
(ii) Schedule 3.01(m) of the Disclosure Schedule sets forth, for the
----------------
Intellectual Property owned by the Company, a complete and accurate list of all
U.S. and foreign (1) patents and patent applications; (2) Trademark
registrations (including Internet domain registrations) and applications and
material unregistered Trademarks; (3) copyright registrations and applications,
indicating for each, the applicable jurisdiction, registration number (or
application number), and date issued (or date filed). Schedule 3.01(m) of the
----------------
Disclosure Schedule sets forth a list of all third party Software that is
incorporated in any Software sold, licensed, leased or otherwise distributed by
the Company, indicating for each the title, owner/licensor of the Software.
Third party Software tools that are used to create the Software sold, licensed,
leased or otherwise distributed by the Company but are not incorporated therein
are specifically excluded from this list.
(iii) To the knowledge of the Company, none of the Company's
Intellectual Property, software or Company License Agreements infringe upon the
rights of any third party that may give rise to a cause of action or claim
against the Company or its successors.
(n) Board Recommendation. The Board of Directors of the Company has
unanimously determined that the terms of the Merger are fair to and in the best
interests of the shareholders of the Company and recommended that the holders of
the shares of Company Common Stock approve the Merger.
(o) Required Company Vote. The affirmative vote of a majority of the shares
of each of the Company Common Stock is the only vote of the holders of any class
or series of the Company's securities necessary to approve the Merger (the
"Company Shareholder Approval").
3.02 Representations and Warranties of Parent and Sub. Except as set forth in
the disclosure schedule delivered by Parent to the Company at the time of
execution of this Agreement (the "Parent Disclosure Schedule"), Parent and Sub
represent and warrant to the Company as follows:
(a) Organization, Standing and Corporate Power. Each of Parent, Sub and the
other Parent Subsidiaries (as defined in Section 3.02(b)) is (or at Closing will
be) duly organized, validly existing and in good standing under the laws of the
State of Delaware and California, as is applicable, and has the requisite
corporate power and authority to carry on its business as now being conducted.
Each of Parent, Sub and the other Parent Subsidiaries is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
12
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a material adverse effect with respect to Parent.
Parent has delivered to the Company complete and correct copies of its
Certificate of Incorporation and Bylaws and the articles of incorporation (or
other organization documents) and bylaws of Sub and the other Parent
Subsidiaries, which are attached as Schedule 3.02(a) to the Parent Disclosure
Schedule. ----------------
(b) Subsidiaries. The only direct or indirect subsidiaries of Parent are
listed in Schedule 3.02(b) of the Parent Disclosure Schedule (together with Sub,
----------------
the "Parent Subsidiaries"). All the outstanding shares of capital stock of each
such Parent Subsidiary which is a corporation have been validly issued and are
fully paid and nonassessable and, except as set forth in Schedule 3.02(b) of the
----------------
Parent Disclosure Schedule, are owned (of record and beneficially) by Parent,
free and clear of all Liens. Except for the capital stock of its subsidiaries,
which are corporations, Parent does not own, directly or indirectly, any capital
stock or other ownership interest in any corporation, partnership, business
association, joint venture or other entity.
(c) Capital Structure. The authorized capital stock of Parent consists of
60,000,000 shares of Parent Common Stock, $0.001 par value, of which 5,775,114
shares of Parent Common Stock are issued and outstanding and 2,211,088 shares of
Parent Common Stock are issuable upon the exercise of outstanding warrants,
convertible notes and options pursuant to Stock Option Plans (the "Parent Stock
Plans") and otherwise. Also authorized are 2,000,000 shares of preferred stock,
$0.001 par value, none of which is issued and outstanding. Except as set forth
above, no shares of capital stock or other equity securities of Parent are
issued, reserved for issuance or outstanding. All outstanding shares of capital
stock of Parent are, and all shares which may be issued pursuant to this
Agreement will be, when issued, duly authorized, validly issued, fully paid and
nonassessable and, not subject to preemptive rights, and issued in compliance
with all applicable state and federal laws concerning the issuance of
securities. There are no outstanding bonds, debentures, notes or other
indebtedness or other securities of Parent having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which shareholders of Parent may vote. Except as set forth above,
there are no outstanding securities, options, warrants, calls, rights,
commitments, agreements, arrangements or undertakings of any kind to which
Parent or any of its subsidiaries is a party or by which any of them is bound
obligating Parent or any its subsidiaries to issue, deliver or sell, or cause to
be issued, delivered or sold, additional shares of capital stock or other equity
securities of Parent or any of its subsidiaries or obligating Parent or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, additional shares of capital stock or other equity securities of Parent or
any of its subsidiaries or obligating Parent or any of its subsidiaries to
issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. There are no
outstanding contractual obligations, commitments, understandings or arrangements
of Parent or any of its subsidiaries to repurchase, redeem or otherwise acquire
or make any payment in respect of any shares of capital stock of Parent or any
of its subsidiaries. The authorized capital stock of Sub consists of 75,000
shares of common stock, no par value per share, 1,000 shares of which have been
13
validly issued, are fully paid and nonassessable, were issued in compliance with
all applicable state and federal laws concerning the issuance of securities, and
are owned by Parent, free and clear of any lien.
(d) Authority; Noncontravention. Parent and Sub have all requisite
corporate authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of this
Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated by this Agreement have been (or at Closing will have
been) duly authorized by all necessary corporate action on the part of Parent
and Sub. This Agreement has been duly executed and delivered by and constitutes
a valid and binding obligation of each of Parent and Sub, enforceable against
each such party in accordance with its terms. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated by this
Agreement and compliance with the provisions of this Agreement will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the creation of
any lien upon any of the properties or assets of Parent or any of its
subsidiaries under, (i) the articles of incorporation or bylaws of Parent or Sub
or the comparable charter or organizational documents of any other subsidiary of
Parent, (ii) any loan or credit agreement, note, bond, mortgage, indenture,
lease or other agreement, instrument, permit, concession, franchise or license
applicable to Parent, Sub or any other subsidiary of Parent or their respective
properties or assets, or (iii) subject to the governmental filings and other
matters referred to in the following sentence, any judgment, order, decree,
statute, law, ordinance, rule, regulation or arbitration award applicable to
Parent, Sub or any other subsidiary of Parent or their respective properties or
assets, other than, in the case of clauses (ii) and (iii), any such conflicts,
breaches, violations, defaults, rights, losses or liens that individually or in
the aggregate could not have a material adverse effect with respect to Parent or
could not prevent, hinder or materially delay the ability of Parent to
consummate the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity is required by or with respect to
Parent, Sub or any other subsidiary of Parent in connection with the execution
and delivery of this Agreement by Parent or Sub or the consummation by Parent or
Sub, as the case may be, of any of the transactions contemplated by this
Agreement, except for the filing of the Articles of Merger with the Secretaries
of State of Delaware and California and such other consents, approvals, orders,
authorizations, registrations, declarations, filings or notices as may be
required under the "blue sky" laws of various states.
(e) S.E.C. Documents; Undisclosed Liabilities. Parent has filed all
reports, schedules, forms, statements and other documents as required by the
Securities and Exchange Commission (the "S.E.C.") and Parent has delivered or
made available to the Company all reports, schedules, forms, statements and
other documents filed with the S.E.C. (collectively, and in each case including
all exhibits and schedules thereto and documents incorporated by reference
therein, the "Parent S.E.C. Documents"). As of their respective dates, the
Parent S.E.C. Documents complied in all material respects with the requirements
of the Securities Act or the Securities Exchange Act of 1934, as the case may
be, and the rules and regulations of the S.E.C. promulgated thereunder
14
applicable to such Parent S.E.C. documents, and none of the Parent S.E.C.
Documents (including any and all consolidated financial statements included
therein) as of such date contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Except to the extent set forth in Schedule
--------
3.02(e) of the Parent Disclosure Schedule and except to the extent revised or
-------
superseded by a subsequent filing with the S.E.C. (a copy of which has been
provided to the Company prior to the date of this Agreement), none of the Parent
S.E.C. Documents contains any untrue statement of a material fact or omits to
state any material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of Parent included in such Parent S.E.C. Documents comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the S.E.C. with respect thereto, have
been prepared in accordance with generally accepted accounting principles
(except, in the case of unaudited consolidated quarterly statements, as
permitted by Form 10-Q of the S.E.C.) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
present the consolidated financial position of Parent and its consolidated
subsidiaries as of the dates thereof and the consolidated results of operations
and changes in cash flows for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end audit adjustments as
determined by Parent's independent accountants). Except as set forth in the
Parent S.E.C. Documents, at the date of the most recent audited financial
statements of Parent included in the Parent S.E.C. Documents, neither Parent nor
any of its subsidiaries had, and since such date neither Parent nor any of such
subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, could reasonably be expected to have a material adverse effect with
respect to Parent.
(f) Absence of Certain Changes or Events. Except as disclosed in the Parent
S.E.C. Documents, since the date of the most recent financial statements
included in the Parent S.E.C. Documents, Parent has conducted its business only
in the ordinary course consistent with past practice in light of its current
business circumstances, and there is not and has not been: (i) any material
adverse change with respect to Parent; (ii) any condition, event or occurrence
which, individually or in the aggregate, could reasonably be expected to have a
material adverse effect or give rise to a material adverse change with respect
to Parent; (iii) any event which, if it had taken place following the execution
of this Agreement, would not have been permitted by Section 4.02 without the
prior consent of the Company; or (iv) any condition, event or occurrence which
could reasonably be expected to prevent, hinder or materially delay the ability
of Parent to consummate the transactions contemplated by this Agreement.
(g) Interim Operations of Sub. Sub was formed in October, 2003 solely for
the purpose of engaging in the transactions contemplated hereby, has (or will
have) engaged in no other business activities and has (or will have) conducted
its operations only as contemplated hereby.
(h) Benefit Plans. Except as disclosed in the Parent SEC Documents, Parent
is not a party to any Benefit Plans.
15
ARTICLE IV
Covenants Relating to
Conduct of Business Prior to Merger
-----------------------------------
4.01 Conduct of Company and Parent. From the date of this Agreement and until
the Effective Time, or until the prior termination of this Agreement, Company
and Parent shall not, unless mutually agreed to in writing:
(a) engage in any transaction, except in the normal and ordinary course of
business, or create or suffer to exist any Lien or other encumbrance upon any of
their respective assets or which will not be discharged in full prior to the
Effective Time;
(b) sell, assign or otherwise transfer any of their assets, or cancel or
compromise any debts or claims relating to their assets, other than for fair
value, in the ordinary course of business, and consistent with past practice;
(c) fail to use reasonable efforts to preserve intact their present
business organizations, keep available the services of their employees and
preserve its material relationships with customers, suppliers, licensors,
licensees, distributors and others, to the end that its good will and on-going
business not be impaired prior to the Effective Time;
(d) except for matters related to complaints by former employees related to
wages, suffer or permit any material adverse change to occur with respect to
Company and Parent or their business or assets; or
(e) make any material change with respect to their business in accounting
or bookkeeping methods, principles or practices, except as required by GAAP.
ARTICLE V
Additional Agreements
---------------------
5.01 Shareholders Meetings. The Company will, as promptly as practicable
following the execution of this Agreement, call, give notice of, convene and
hold a meeting of its shareholders (the "Shareholders Meeting") for the purpose
of approving this Agreement and the transactions contemplated by this Agreement
or obtain the unanimous written consent of its shareholders for the same
aforementioned purpose.
5.02 Access to Information; Confidentiality.
(a) The Company shall, and shall cause its officers, employees, counsel,
financial advisors and other representatives to, afford to Parent and its
representatives reasonable access during normal business hours during the period
prior to the Effective Time of the Merger to its properties, books, contracts,
commitments, personnel and records and, during such period, the Company shall,
and shall cause its officers, employees and representatives to, furnish promptly
to Parent all information concerning its business, properties, financial
condition, operations and personnel as such other party may from time to time
reasonably request. For the purposes of determining the accuracy of the
representations and warranties of the Company set forth herein and compliance by
16
the Company of its obligations hereunder, during the period prior to the
Effective Time of the Merger, Parent shall provide the Company and its
representatives with reasonable access during normal business hours to its
properties, books, contracts, commitments, personnel and records as may be
necessary to enable the Company to confirm the accuracy of the representations
and warranties of Parent set forth herein and compliance by Parent and Sub of
their obligations hereunder, and, during such period, Parent shall, and shall
cause its subsidiaries, officers, employees and representatives to, furnish
promptly to the Company upon its request (i) a copy of each report, schedule,
registration statement and other document filed by it during such period
pursuant to the requirements of federal or state securities laws and (ii) all
other information concerning its business, properties, financial condition,
operations and personnel as such other party may from time to time reasonably
request. Except as required by law, each of the Company, Sub, and Parent will
hold, and will cause its respective directors, officers, employees, accountants,
counsel, financial advisors and other representatives and affiliates to hold,
any nonpublic information in confidence.
(b) No investigation pursuant to this Section 5.02 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
5.03 Best Efforts. Upon the terms and subject to the conditions set forth in
this Agreement, each of the parties agrees to use its best efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement. Parent, Sub and the Company will use their best efforts and cooperate
with one another (i) in promptly determining whether any filings are required to
be made or consents, approvals, waivers, permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other debt
instruments and including such consents, approvals, waivers, permits or
authorizations as may be required to transfer the assets and related liabilities
of the Company to the Surviving Corporation in the Merger, in connection with
the transactions contemplated by this Agreement, and (ii) in promptly making any
such filings, in furnishing information required in connection therewith and in
timely seeking to obtain any such consents, approvals, permits or
authorizations. Parent and the Company shall mutually cooperate in order to
facilitate the achievement of the benefits reasonably anticipated from the
Merger.
5.04 Public Announcements. Parent and Sub, on the one hand, and the Company, on
the other hand, will consult with each other before issuing, and provide each
other the opportunity to review and comment upon, any press release or other
public statements with respect to the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by applicable
law or court process. The parties agree that the initial press release or
releases to be issued with respect to the transactions contemplated by this
Agreement shall be mutually agreed upon prior to the issuance thereof.
Notwithstanding the foregoing, Company may disclose the contemplated Merger in
17
letters to the Company's optionees for purposes of fulfilling the Company's
obligations under the Company Option Plan to the said optionees.
5.05 Expenses. All costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such expenses.
5.06 Directorships. Upon the Effective Time of the Merger or within three (3)
days following the Effective Time of the Merger, Parent shall take all action to
cause its Board of Directors to consist of six (6) members, one (1) member of
which shall be designated by the Company Representative to serve until his
successor is duly elected and qualified by the principal shareholders of the
Company.
5.07 No Solicitation. Except as previously agreed to in writing by the other
party, neither Company or Parent shall authorize or permit any of its officers,
directors, agents, representatives, or advisors to (a) solicit, initiate or
encourage or take any action to facilitate the submission of inquiries,
proposals or offers from any person relating to any matter concerning any
merger, consolidation, business combination, recapitalization or similar
transaction involving Company or Parent, respectively, other than the
transaction contemplated by this Agreement or any other transaction the
consummation of which would or could reasonably be expected to impede, interfere
with, prevent or delay the Merger or which would or could be expected to dilute
the benefits to the Company of the transactions contemplated hereby. Company or
Parent will immediately cease and cause to be terminated any existing
activities, discussions and negotiations with any parties conducted heretofore
with respect to any of the foregoing.
5.08 Payment of Total Liabilities. Unless otherwise stated in this Agreement,
Parent shall use reasonable efforts to negotiate in good faith and pay that
portion of the Company's Total Liabilities owed to, or, in lieu, enter into
settlement agreements with, within six (6) months of the Effective Date of the
Merger, former employees of the Company as listed in Exhibit B hereof.
---------
ARTICLE VI
Conditions Precedent
--------------------
6.01 Conditions to Each Party's Obligation to Effect the Merger. The respective
obligation of each party to effect the Merger is subject to the satisfaction or
waiver on or prior to the Closing Date of the following conditions:
(a) Shareholder Approval. The Company Shareholder Approval shall have been
obtained.
(b) OTCBB Clearance. The shares of Parent Common Stock shall have been
cleared for quotation on the Over-the-Counter Bulletin Board.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect.
18
(d) No Dissent. Holders of no more than twenty percent (20%) of the
Company's Common Stock shall have dissented to the Merger.
6.02 Conditions to Obligations of Parent and Sub. The obligations of Parent and
Sub to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date. Parent shall have
received a certificate signed on behalf of the Company by the president of the
Company to such effect.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to have a material adverse effect with respect to the Company or
adversely affect the ability of the Company to consummate the transactions
herein contemplated or perform its obligations hereunder), and Parent shall have
received a certificate signed on behalf of the Company by the president of the
Company to such effect.
(c) Consents, etc. Parent shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as necessary in connection with the transactions
contemplated hereby have been obtained.
(d) No Litigation. Except as otherwise disclosed in Schedule 3.01(f), there
----------------
shall not be pending or threatened by any Governmental Entity any suit, action
or proceeding (or by any other person any suit, action or proceeding which has a
reasonable likelihood of success), (i) challenging or seeking to restrain or
prohibit the consummation of the Merger or any of the other transactions
contemplated by this Agreement or seeking to obtain from Parent or any of its
subsidiaries any damages that are material in relation to Parent and its
subsidiaries taken as a whole, (ii) seeking to prohibit or limit the ownership
or operation by the Company, Parent or any of its subsidiaries of any material
portion of the business or assets of the Company, Parent or any of its
subsidiaries, or to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or any of its subsidiaries, as a
result of the Merger or any of the other transactions contemplated by this
Agreement, (iii) seeking to impose limitations on the ability of Parent or Sub
to acquire or hold, or exercise full rights of ownership of, any shares of
Company Common Stock or Common Stock of the Surviving Corporation, including,
without limitation, the right to vote the Company Common Stock or Common Stock
of the Surviving Corporation on all matters properly presented to the
shareholders of the Company or the Surviving Corporation, respectively, or (iv)
seeking to prohibit Parent or any of its subsidiaries from effectively
controlling in any material respect the business or operations of the Company.
(e) Marketing Distribution Agreement. The Company shall have entered into
Marketing Distribution Agreements with Biocom Co., Ltd. and Gyung ▇▇▇ ▇▇▇, in
substantially the forms attached hereto as Exhibit D.
---------
19
(f) Financial Statements. The Company shall have delivered to Parent
unaudited financial statements for each of the years ended December 31, 2001 and
2002 and for the period from January 1, 2003 through the end of the third
calendar quarter of 2003.
(g) Employment Agreements. The Company shall have terminated all employment
agreements and other arrangements with its employees prior to the Closing Date.
In addition, each of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇ shall have agreed to and
accepted employment with the Parent pursuant to the terms of offer letters, in
substantially the form attached hereto as Exhibit E.
---------
6.03 Conditions to Obligation of the Company. The obligation of the Company to
effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Parent and Sub set forth in this Agreement shall be true and correct in all
material respects, in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date. The Company shall
have received a certificate signed on behalf of Parent by the president of
Parent to such effect.
(b) Performance of Obligations of Parent and Sub. Parent and Sub shall have
performed the obligations required to be performed by them under this Agreement
at or prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to have a material adverse effect with respect to Parent or adversely
affect the ability of Parent to consummate the transactions herein contemplated
or perform its obligations hereunder), and the Company shall have received a
certificate signed on behalf of Parent by the president of Parent to such
effect.
(c) No Litigation. There shall not be pending or threatened any suit,
action or proceeding before any court, Governmental Entity or authority (i)
pertaining to the transactions contemplated by this Agreement or (ii) seeking to
prohibit or limit the ownership or operation by the Company, Parent or any of
its subsidiaries, or to dispose of or hold separate any material portion of the
business or assets of the Company, Parent or of its any subsidiaries.
(d) Consents, etc. Company shall have received evidence, in form and
substance reasonably satisfactory to it, that such licenses, permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as necessary in connection with the transactions
contemplated hereby have been obtained.
(e) Forgiveness of Advance. Parent shall forgive a $50,000 advance granted
to Company on July 25, 2003 in connection with a previously negotiated asset
purchase.
(f) Filing of Merger Agreement. Parent shall have filed or will promptly
file after the Closing Date in the office of the Secretary of State or other
office of each jurisdiction in which such filings are required for the Merger to
become effective.
20
(g) Payment of Salaries and Fees at Closing. Immediately prior to the
Closing Date, Parent shall make a payment by wire transfer to ▇▇▇▇▇▇ ▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇ at the direction of the Company for the
satisfaction of certain Company obligations, said payment representing payment
in full of all amounts owing by the Company to said parties as of immediately
prior to the Closing Date.
ARTICLE VII
Termination, Amendment and Waiver
---------------------------------
7.01 Termination. This Agreement may be terminated and abandoned at any time
prior to the Effective Time of the Merger:
(a) by mutual written consent of Parent and the Company;
(b) by either Parent or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable;
(c) by either Parent or the Company if the Merger shall not have been
consummated on or before November 15, 2003 (other than as a result of the
failure of the party seeking to terminate this Agreement to perform its
obligations under this Agreement required to be performed at or prior to the
Effective Time of the Merger); provided, however, that if either Parent or
-------- -------
Company requests an extension of the Closing after November 15, 2003, and if the
other party consents in writing, Parent shall make a cash contribution of
$25,000 to Company for working capital purposes for each seven (7) day extension
period;
(d) by Parent, if a material adverse change shall have occurred relative to
the Company, which constitutes as a material breach and is not curable, or if
curable, is not cured within thirty (30) days after written notice of such
breach is given by Parent to Company;
(e) by Parent, if the Company willfully fails to perform in any material
respect any of its material obligations under this Agreement, which constitutes
as a material breach and is not curable, or if curable, is not cured within
thirty (30) days after written notice of such breach is given by Parent to
Company; or
(f) by the Company, if Parent or Sub willfully fails to perform in any
material respect any of their respective material obligations under this
Agreement, which constitutes as a material breach and is not curable, or if
curable, is not cured within thirty (30) days after written notice of such
breach is given by Company to Parent.
7.02 Effect of Termination. In the event of termination of this Agreement by
either the Company or Parent as provided in Section 7.01, this Agreement shall
forthwith become void and have no effect, without any liability or obligation on
the part of Parent, Sub or the Company, other than the provisions of the last
sentence of Section 5.02(a) and this Section 7.02. Nothing contained in this
21
Section shall relieve any party for any breach of the representations,
warranties, covenants or agreements set forth in this Agreement.
7.03 Amendment. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
7.04 Extension; Waiver. Subject to Section 7.01(c), at any time prior to the
Effective Time of the Merger, the parties may (a) extend the time for the
performance of any of the obligations or other acts of the other parties, (b)
waive any inaccuracies in the representations and warranties contained in this
Agreement or in any document delivered pursuant to this Agreement, or (c) waive
compliance with any of the agreements or conditions contained in this Agreement.
Any agreement on the part of a party to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party. The failure of any party to this Agreement to assert any of its rights
under this Agreement or otherwise shall not constitute a waiver of such rights.
7.05 Procedure for Termination, Amendment, Extension or Waiver. A termination of
this Agreement pursuant to Section 7.01, an amendment of this Agreement pursuant
to Section 7.03 or an extension or waiver of this Agreement pursuant to Section
7.04 shall, in order to be effective, require in the case of Parent, Sub or the
Company, action by its Board of Directors.
7.06 Return of Company's Documents. In the event of termination of this
Agreement for any reason, Parent and Company will return to the other party all
of the other party's documents, work papers, and other materials (including
copies) relating to the transactions contemplated in this Agreement, whether
obtained before or after execution of this Agreement. Parent and Company will
not use any information so obtained from the other party for any purpose and
will take all reasonable steps to have such other party's information kept
confidential.
ARTICLE VIII
Indemnification and Related Matters
-----------------------------------
8.01 Survival of Representations and Warranties. The representations and
warranties in this Agreement or in any instrument delivered pursuant to this
Agreement shall survive the Effective Time of the Merger until the Settlement
Date.
8.02 Indemnification.
(a) Irrespective of any due diligence investigation conducted by Parent or
Sub with regard the transactions contemplated hereby, the Company shall
indemnify and hold the Parent, Sub and each of their officers and directors (the
"Parent Representatives") harmless from and against any and all liabilities,
obligations, damages, losses, deficiencies, costs, penalties, interest and
expenses (collectively, "Losses") arising out of, based upon, attributable to or
resulting from any and all Losses incurred or suffered by the Parent, the Sub or
any of the Parent Representatives resulting from or arising out of any breach of
a representation, warranty or covenant made by Company as set forth herein.
(b) Notwithstanding anything to the contrary contained in this Agreement,
in the absence of any fraud or intentional misconduct on the party of the
22
Company, the sole remedy of the Parent, Sub or the Parent Representatives
further to this Section 8.02 shall be offset of such Losses against shares held
------------
in the Escrow Deposit as further described in the Escrow Agreement and in
Section 8.04 herein.
------------
8.03 Notice of Indemnification. In the event any proceeding shall be threatened
or instituted or any claim or demand shall be asserted by any person in respect
of which payment may be sought by the Parent, Sub or any Parent Representative
(each an "Indemnitee") under the provisions of this Article VIII (an "Indemnity
Claim"), the Indemnitee shall promptly cause written notice of the assertion of
any such Claim of which it has knowledge which is covered by this indemnity to
be forwarded to the Company Representative and the Escrow Agent. Any notice of
an Indemnity Claim by reason of any of the representations, warranties or
covenants contained in this Agreement shall state specifically the
representation, warranty or covenant with respect to which the Indemnity Claim
is made, the facts giving rise to an alleged basis for the Claim, and the amount
of the liability asserted against the Indemnitor by reason of the Indemnity
Claim. Within ten (10) days of the receipt of such written notice, the Company
Representative shall notify the Indemnitee in writing of its intent to contest
the indemnification obligation (a "Contest") or to accept liability hereunder.
If the Company Representative accepts liability, the Parent will deliver a
Notice to Escrow Agent that there is a determination of liability under Section
8.03 and the Escrow Agent shall be instructed to adjust the Escrow Deposit
further to the Escrow Agreement. If the Company Representative does not respond
within ten (10) days of the request of such written notice to such written
notice, the Company Representative will be deemed to accept liability as it
relates to the Escrow Deposit. In such event, the Parent will deliver a Notice
to the Escrow Agent that there is a determination of liability to this Section
8.03 and the Escrow Agent shall be instructed to adjust the Escrow Deposit
further to the Escrow Agreement. In the event of a Contest, within ten (10) days
of the receipt of the written notice thereof, the parties will select
arbitrators and submit the dispute to binding arbitration in California. The
arbitrators shall be selected by the mutual agreement of the parties. If the
parties can not agree on the arbitrator, each may select one arbitrator and the
two designated arbitrators shall select the third arbitrator. If the third
arbitrator can not be agreed upon, the Federal District Court for the Southern
District of California shall select the third arbitrator. A decision by the
individual arbitrator or a majority decision by the three arbitrators shall be
final and binding upon the parties. Such arbitration shall follow the rules of
the American Arbitration Association and must be resolved by the arbitrators
within thirty (30) days after the matter is submitted to arbitration. If the
arbitration is ruled favorably for Parent so that there is a determination of a
Loss, the Parent will deliver a Notice to Escrow Agent that there is a
determination of liability pursuant to this Section 8.03 and the Escrow Agent
shall be instructed to adjust the Escrow Deposit further to the Escrow
Agreement.
8.04. Indemnification Payments. The Escrow Agent shall pay any sums due and
owing by the Indemnitor to the Indemnitee by delivering shares out of the Escrow
Deposit to the Parent in a number equal to the amount of the Loss (at an assumed
per share price of $2.00) within ten (10) days after receipt of Notice by the
Parent that there is a determination of liability pursuant to the provisions of
this Article VIII.
23
ARTICLE IX
General Provisions
------------------
9.01 Notices. All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by facsimile, electronic mail, or overnight courier
(providing proof of delivery) to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
(a) if to Parent or Sub, to:
Alpha Virtual, Inc.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
(b) if to the Company and/or Company Representative, to:
Veridicom, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and
Real ID Co., Ltd.
4th Floor of Sera Building
▇▇-▇ ▇▇▇▇▇▇▇▇-▇▇▇▇, ▇▇▇▇▇▇▇-▇▇
▇▇▇▇▇, ▇▇▇▇▇ 135-010
Attn: Gyung ▇▇▇ ▇▇▇
Fax: ▇▇▇-▇-▇▇▇▇-▇▇▇▇
with a copy to:
▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
9.02 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
24
(b) "material adverse change" or "material adverse effect" means, when used
in connection with the Company or Parent, any change or effect that either
individually or in the aggregate with all other such changes or effects is
materially adverse to the business, assets, properties, condition (financial or
otherwise) or results of operations of such party and its subsidiaries taken as
a whole (after giving effect in the case of Parent to the consummation of the
Merger);
(c) "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
(d) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its board of Directors or
other governing body (or, if there are no such voting interests, fifty percent
(50%) or more of the equity interests of which) is owned directly or indirectly
by such first person.
9.03 Interpretation. When a reference is made in this Agreement to a Section,
Exhibit or Schedule, such reference shall be to a Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated. 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. Whenever the words
"include", "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation".
9.04 Entire Agreement; No Third-Party Beneficiaries. This Agreement and the
other agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This Agreement
is not intended to confer upon any person other than the parties any rights or
remedies.
9.05 Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, regardless of the laws
that might otherwise govern under applicable principles of conflicts of laws
thereof.
9.06 Assignment. Neither this Agreement nor any of the rights, interests or
obligations under this Agreement shall be assigned, in whole or in part, by
operation of law or otherwise by any of the parties without the prior written
consent of the other parties. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
9.07 Enforcement. The parties agree that irreparable damage would occur in the
event that any of the provisions of this Agreement were not performed In
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of California, this being in addition to any other remedy
to which they are entitled at law or in equity. In addition, each of the parties
hereto (a) consents to submit itself to the personal jurisdiction of the Santa
25
▇▇▇▇▇ Superior Court in the event any dispute arises out of this Agreement or
any of the transactions contemplated by this Agreement to the extent such courts
would have subject matter jurisdiction with respect to such dispute, (b) agrees
that it will not attempt to deny or defeat such personal jurisdiction or venue
by motion or other request for leave from any such court, and (c) agrees that it
will not bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any state court other than such court.
9.08 Severability. Whenever possible, each provision or portion of any provision
of this Agreement will be interpreted in such manner as to be effective and
valid under applicable law but if any provision or portion of any provision of
this Agreement is held to be invalid, illegal or unenforceable in any respect
under any applicable law or rule in any jurisdiction, such invalidity,
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
9.09 Counterparts. This Agreement may be executed in one or more identical
counterparts, all of which shall be considered one and the same instrument and
shall become effective when one or more such counterparts shall have been
executed by each of the parties and delivered to the other parties.
26
IN WITNESS WHEREOF, the undersigned have caused their duly authorized
officers (or representatives in the case of Sub) to execute this Agreement as of
the date first above written.
ALPHA VIRTUAL, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
Attest:
/s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------------
▇▇▇▇ ▇▇▇▇▇▇, Secretary
A/V ACQUISITION CORPORATION
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
Attest:
/s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------
▇▇▇▇ ▇▇▇▇▇▇, Secretary
VERIDICOM, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
President
Attest:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Secretary
27
