AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
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entered into as of March 31, 2002 by and among Gateway International Holdings,
Inc., a Nevada corporation (the "Parent"), GWIH Acquisition Corp., a Nevada
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corporation and a wholly-owned subsidiary of Parent (the "Sub"), ▇▇▇▇▇▇▇ Cams,
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Inc., a California corporation (the "Company") and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇
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▇▇▇▇▇▇▇▇ (collectively, the "Shareholders").
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RECITALS
A. The Boards of Directors of each of the Company, Parent and Sub believe
it is in the best interests of each company and their respective shareholders
that Parent acquire the Company through the statutory merger of the Sub with and
into the Company (the "Merger") and, in furtherance thereof, have approved the
Merger.
B. Pursuant to the Merger, among other things, all of the issued and
outstanding shares of capital stock of the Company shall be converted into the
right to receive the consideration set forth in Section 1.2.
C. The parties intend that the Merger shall constitute a reorganization
within the meaning of Section 368 of the Internal Revenue Code of 1986, as
amended (the "Code").
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D. The Company and the Shareholders, on the one hand, and Parent and Sub,
on the other hand, desire to make certain representations, warranties, covenants
and other agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.3) and
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subject to and upon the terms and conditions of this Agreement and the
applicable provisions of the Nevada Revised Statutes ("Nevada Law") and the
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California General Corporation Law ("California Law"), the Sub shall be merged
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with and into the Company, the separate corporate existence of the Sub shall
cease and the Company shall continue as the surviving corporation and as a
wholly-owned subsidiary of the Parent. The surviving corporation after the
Merger is hereinafter sometimes referred to as the "Surviving Corporation."
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1.2 Merger Consideration. As consideration for the Merger (the "Merger
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Consideration"), Parent shall issue to the Shareholders an aggregate of One
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Million Three Hundred Thousand shares of Parent common stock, $0.001 par value
(the "Parent Common Stock").
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1.3 Effective Time. Unless this Agreement is earlier terminated pursuant to
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Section 8.1, the closing of the Merger (the "Closing") will take place as
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promptly as practicable, but no later than five (5) business days following
satisfaction or waiver of the conditions set forth in Article VI, at the offices
of ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇, LLP, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇, unless another place or time is agreed to in writing by Parent and
the Company. The date upon which the Closing actually occurs is herein referred
to as the "Closing Date." On the Closing Date, the parties hereto shall cause
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the Merger to be consummated by filing a Certificate of Merger (or like
instrument) substantially in the form attached hereto as Exhibit A (the "Merger
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Certificate") with the Secretary of State of the State of Nevada - and the
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Secretary of State of the State of California, in accordance with the applicable
provisions of Nevada Law and California Law (the time of acceptance by the
Secretary of State of the State of Nevada of such filing being referred to
herein as the "Effective Time").
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1.4 Effect of the Merger. At the Effective Time, the effect of the Merger
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shall be as provided in the applicable provisions of Nevada Law and California
Law. Without limiting the generality of the foregoing, and subject thereto, at
the Effective Time, all the property, rights, privileges, powers and franchises
of the Company and Sub shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Sub shall become the debts,
liabilities and duties of the Surviving Corporation.
1.5 Certificate of Incorporation; Bylaws.
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(a) Unless otherwise determined by Parent prior to the Effective Time, at
the Effective Time, the Certificate of Incorporation of the Company shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended as provided by law and such Certificate of Incorporation.
(b) The Bylaws of the Company, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended.
1.6 Directors and Officers. The directors of the Surviving Corporation
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immediately after the Effective Time shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
each to hold the office of director of the Surviving Corporation in accordance
with the provisions of the applicable laws of the State of California and the
Certificate of Incorporation and Bylaws of the Surviving Corporation until their
successors are duly qualified and elected. The officers of the Surviving
Corporation immediately after the Effective Time shall be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, each to hold office in accordance with the provisions of the
Bylaws of the Surviving Corporation.
1.7 Effect of Merger on the Capital Stock of the Constituent Corporations.
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(a) Certain Definitions. For all purposes of this Agreement, the following
terms shall have the following meanings:
"Company Capital Stock" shall mean shares of common stock of the
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Company and shares of any other capital stock of the Company.
"Company Common Stock" shall mean shares of the common stock, no par
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value per share, of the Company.
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"Exchange Ratio" shall be equal to the quotient obtained by
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dividing (i) the Merger Consideration (as defined below) by the total number
of shares of Company Capital Stock that are issued and outstanding immediately
prior to the Effective Time.
"GAAP" shall mean U.S. generally accepted accounting principles
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consistent with the reporting practices and principles used by Parent and the
Company from time to time.
"Knowledge" shall mean actual knowledge or what would be within the
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actual knowledge of a prudent person after reasonable investigation.
"Merger Shares" means that number of shares of Parent Common Stock
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to be issued to the Shareholders pursuant to Subsection 1.2.
"Parent Common Stock" shall mean shares of the common stock, $0.001
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par value per share, of Parent.
(b) Effect on Capital Stock. At the Effective Time, by virtue of the Merger
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and without any action on the part of Sub, the Company or the Shareholders, each
share of Company Capital Stock issued and outstanding immediately prior to the
Effective Time will be canceled and extinguished and be converted automatically
into the right to receive, upon surrender of the certificate representing such
share of Company Capital Stock in the manner provided in Section 1.8, a fraction
of the Merger Consideration, as determined pursuant to Section 1.2.
(c) Adjustment to Parent Common Stock. The number of shares of Parent
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Common Stock issuable hereunder shall be adjusted to reflect fully the effect of
any stock split, reverse stock split, stock dividend (including any dividend or
distribution of securities convertible into Parent Common Stock),
reorganization, recapitalization or other like change with respect to Parent
Common Stock occurring after the date hereof.
(d) Fractional Shares. No fractional share of Parent Common Stock shall be
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issued in the Merger. In lieu thereof, any fractional share shall be rounded up
to the nearest whole share of Parent Common Stock.
1.8 Surrender of Certificates. On and after the Effective Time, all of the
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outstanding certificates which prior to that time represented shares of the
Company Capital Stock shall be deemed for all purposes to evidence ownership of
and to represent the right to receive the Merger Consideration into which the
shares of the Company represented by such certificates have been converted as
herein provided. The registered owner on the books and records of the Company or
its transfer agent of any such outstanding stock certificate shall, until such
certificate shall have been surrendered for transfer or conversion or otherwise
accounted for to the Parent or its transfer agents, have and be entitled to
exercise any voting and other rights with respect to and to receive any dividend
and other distributions upon the shares of the Parent evidenced by such
outstanding certificate as above provided.
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1.9 No Further Ownership Rights in Company Capital Stock. The Merger
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Consideration to be issued pursuant to Section 1.2 above upon the surrender for
exchange of shares of Company Capital Stock in accordance with the terms hereof
shall be deemed to be full satisfaction of all rights pertaining to such shares
of Company Capital Stock, and there shall be no further registration of
transfers on the records of the Surviving Corporation of shares of Company
Capital Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, certificates are presented to the Surviving
Corporation for any reason, they shall be canceled and exchanged as provided in
this Article I.
1.10 Tax and Accounting Consequences. It is intended by the parties hereto
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that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code. Each party has consulted with its own tax advisors and
accountants with respect to the tax and accounting consequences, respectively,
of the Merger.
1.11 Taking of Necessary Action; Further Action. If, at any time after the
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Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Sub, the officers and directors of the
Company, Parent and Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND THE SHAREHOLDERS
Each of the Company and the Shareholders hereby, jointly and severally,
represent and warrant to Parent and Sub, subject to such exceptions as are
specifically disclosed in the disclosure schedule (referencing the appropriate
section numbers) supplied by the Company and the Shareholders to Parent (the
"Disclosure Schedule"), and dated as of the date hereof that on the date hereof
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and as of the Effective Time as though made at the Effective Time as follows:
2.1 Organization of the Company. The Company is a corporation duly
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organized, validly existing and in good standing under the laws of the State of
California. The Company has the corporate power to own its properties and to
carry on its business as now being conducted. The Company is duly qualified to
do business and in good standing as a foreign corporation in each jurisdiction
in which it conducts business. The Company has delivered a true and correct copy
of its Articles of Incorporation and Bylaws, each as amended to date, to Parent.
Schedule 2.1 lists the directors and officers of the Company. The operations now
being conducted by the Company have not been conducted under any other name.
2.2 Subsidiaries. The Company does not have, and has never had, any
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subsidiaries or affiliated companies and does not otherwise own, and has not
otherwise owned, any shares in the capital of or any interest in, or control,
directly or indirectly, any corporation, partnership, association, joint venture
or other business entity.
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2.3 Company Capital Structure.
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(a) The authorized capital stock of the Company consists of 1,000 shares of
authorized Company Common Stock of which 100 shares are issued and outstanding
as of the date of this Agreement. The Company Capital Stock is held by the
persons, with the domicile addresses and in the amounts set forth in Schedule
2.3(a). All outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Articles of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is bound
and have been issued in compliance with federal and state securities laws. There
are no declared or accrued unpaid dividends with respect to any shares of the
Company Capital Stock. The Company has no other capital stock authorized, issued
or outstanding.
(b) Except as set forth on Schedule 2.3(b), there are no outstanding
options, warrants, calls, rights, commitments or agreements of any character,
written or oral, to which the Company is a party or by which it is bound
obligating the Company to issue, deliver, sell, repurchase or redeem, or cause
to be issued, delivered, sold, repurchased or redeemed, any shares of the
capital stock of the Company or obligating the Company to grant, extend,
accelerate the vesting of, change the price of, or otherwise amend or enter into
any such option, warrant, call, right, commitment or agreement. Except as set
forth on Schedule 2.3(b), there are no outstanding stock appreciation, phantom
stock, profit participation, or other similar rights with respect to the
Company. There are no voting trusts, proxies, or other agreements or
understandings with respect to the voting stock of the Company.
2.4 Authority. Each of the Company and the Shareholders has all
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requisite power and authority to enter into this Agreement and any Related
Agreements (as hereinafter defined) to which it is a party and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and any Related Agreements to which it is a party and the consummation
of the transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of the Company, and no further action
is required on the part of the Company or the Shareholders to authorize the
Agreement, any Related Agreements to which it is a party and the transactions
contemplated hereby and thereby, subject only to the approval of this Agreement
by the Shareholders. The Board of Directors of the Company has unanimously
approved this Agreement and the Merger. This Agreement and any Related
Agreements to which the Company or the Shareholders is a party have been duly
executed and delivered by the Company or the Shareholders, as the case may be,
and, assuming the due authorization, execution and delivery by the other parties
hereto and thereto, constitute the valid and binding obligation of the Company
and the Shareholders, as the case may be, enforceable in accordance with their
respective terms, subject to the laws of general application relating to
bankruptcy, insolvency and the relief of debtors and to rules of law governing
specific performance, injunctive relief or other equitable remedies. The
"Related Agreements" shall mean all such ancillary agreements required in this
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Agreement to be executed and delivered in connection with the transactions
contemplated hereby.
2.5 No Conflict. Except as set forth in Schedule 2.5, the execution and
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delivery of this Agreement and any Related Agreements to which the Company or
the Shareholders are a party by either the Company or the Shareholders do not,
and, the consummation of the transactions contemplated hereby and thereby will
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not, conflict with, or result in any violation of, or default under (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
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the Articles of Incorporation and Bylaws of the Company, (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise or license to which the Company or the Shareholders or any of their
respective properties or assets are subject, or (iii) any judgment, order,
decree, statute, law, ordinance, rule or regulation applicable to the Company or
the Shareholders or their respective properties or assets.
2.6 Consents. No consent, waiver, approval, order or authorization of,
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or registration, declaration or filing with, any court, administrative agency or
commission or other federal, state, county, local or other foreign governmental
authority, instrumentality, agency or commission ("Governmental Entity") or any
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third party, including a party to any agreement with the Company (so as not to
trigger any Conflict), is required by or with respect to the Company or the
Shareholders in connection with the execution and delivery of this Agreement and
any Related Agreements to which the Company or the Shareholders are a party or
the consummation of the transactions contemplated hereby and thereby, except for
(i) such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable securities laws
thereby, and (ii) the filing of the Merger Certificate with the Secretary of
State of the State of Nevada and the Secretary of State of the State of
California.
2.7 Company Financial Statements. Schedule 2.7 sets forth the Company's
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unaudited balance sheet as of March 31, 2001 and the related unaudited
statements of income and cash flow for the twelve-month period ended March 31,
2001 and the Company's unaudited balance sheet as of December 31, 2001, and the
related unaudited statements of income and cash flow for the nine months then
ended (collectively, the "Unaudited Financials"). The Unaudited Financials are
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correct in all material respects and have been prepared in accordance with GAAP,
applied on a basis consistent throughout the periods indicated and consistent
with each other (except that the Unaudited Financials do not contain all the
notes that may be required by GAAP). The Unaudited Financials present fairly the
consolidated financial condition and consolidated operating results of the
Company and any consolidated subsidiaries as of the dates and during the periods
indicated therein, subject in the case of the Unaudited Financials for the
period ended December 31, 2001, to normal year-end adjustments, which will not
be material in amount or significance. The Company's unaudited balance sheet as
of December 31, 2001 shall be hereinafter referred to as the "Current Balance
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Sheet."
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2.8 No Undisclosed Liabilities. The Company has no liability,
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indebtedness, obligation, expense, claim, deficiency, guaranty or endorsement of
any type, whether accrued, absolute, contingent, matured, unmatured or other
(whether or not required to be reflected in financial statements in accordance
with GAAP), which individually or in the aggregate (i) has not been reflected in
the Current Balance Sheet, or (ii) has not arisen in the ordinary course of
business consistent with past practices since December 31, 2001.
2.9 No Changes. Except as set forth in Schedule 2.9, since December
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31, 2001, there has not been, occurred or arisen any:
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(a) Amendments or changes to the Articles of Incorporation or Bylaws of the
Company;
(b) Capital expenditure or commitment by the Company, either individually
or in the aggregate exceeding $10,000;
(c) Destruction of, damage to or loss of any material assets, business or
customer of the Company (whether or not covered by insurance);
(d) Labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(e) Change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(f) Revaluation by the Company of any of its assets;
(g) Declaration, setting aside or payment of a dividend or other
distribution with respect to the Company Capital Stock or any direct or indirect
redemption, purchase or other acquisition by the Company of the Company Capital
Stock;
(h) Increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors, employees or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment, by the Company, of a bonus or other additional salary or compensation
to any such person;
(i) Any agreement, contract, covenant, instrument, lease, license or
commitment to which the Company is a party or by which it or any of its assets
are bound or any termination, extension, amendment or modification to the terms
of any agreement, contract, covenant, instrument, lease, license or commitment
to which the Company is a party or by which it or any of its assets are bound;
(j) Sale, lease, license or other disposition of any of the assets or
properties of the Company or any creation of any security interest in such
assets or properties;
(k) Loan by the Company to any person or entity, incurring by the Company
of any indebtedness, guaranteeing by the Company of any indebtedness, issuance
or sale of any debt securities of the Company or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practice;
(l) Waiver or release of any right or claim of the Company including any
write-off or other compromise of any account receivable of the Company;
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(m) The commencement or notice or threat or reasonable basis therefore of
any lawsuit or, to the Company's or the Shareholders' Knowledge, proceeding or
investigation against the Company or its affairs;
(n) Notice of any claim or potential claim of ownership by any person other
than the Company of the Company Intellectual Property (as defined in Section
2.13) or of infringement by the Company of any other person's Intellectual
Property (as defined in Section 2.13);
(o) Issuance or sale, or contract to issue or sell, by the Company of any
shares of its capital stock or securities exchangeable, convertible or
exercisable therefore, or any securities, warrants, options or rights to
purchase any of the foregoing, except for options to purchase capital stock of
the Company granted to employees of the Company in the ordinary course of
business consistent with past practice;
(p) (i) Selling or entering into any license agreement with respect to the
Company Intellectual Property with any third party, (ii) buying or entering into
any license agreement with respect to the Intellectual Property of any third
party or (iii) change in pricing or royalties set or charged by the Company to
its customers or licensees or in pricing or royalties set or charged by persons
who have licensed Intellectual Property to the Company;
(q) Any event or condition of any character that has had or is reasonably
likely to have a Material Adverse Effect on the Company (for all purposes of
this Agreement, the term "Material Adverse Effect" means any change,
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event or effect that is materially adverse to the business, assets (including
intangible assets), condition (financial or otherwise), results of operations or
prospects of the Company);
(r) Transaction by the Company except in the ordinary course of business as
conducted on that date and consistent with past practices; or
(s) Negotiation or agreement by the Company or any officer or employee
thereof to do any of the things described in the preceding clauses (a) through
(r) (other than negotiations with Parent and its representatives regarding the
transactions contemplated by this Agreement).
2.10 Tax Matters.
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(a) Definition of Taxes. For the purposes of this Agreement,
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"Tax" or, collectively, "Taxes", means (i) any and all federal, state, local and
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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 occupation, and 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
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person with respect to such amounts and including any liability for taxes of a
predecessor entity.
(b) Tax Returns and Audits.
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(i) As of the Effective Time the Company will have prepared and timely
filed all required federal, state, local and foreign returns, estimates,
information statements and reports ("Returns") relating to
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any and all Taxes concerning or attributable to the Company or its operations
and such Returns are true and correct and have been completed in accordance with
applicable law.
(ii) As of the Effective Time the Company (A) will have paid all Taxes it
is required to pay and will have withheld with respect to its employees all
federal and state income taxes, Federal Insurance Contribution Act ("FICA"),
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Federal Unemployment Tax Act ("FUTA") and other Taxes required to
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be withheld, and (B) will have accrued on the Current Balance Sheet all Taxes
attributable to the periods covered by the Current Balance Sheet and will not
have incurred any liability for Taxes for the period prior to the Effective Time
other than in the ordinary course of business.
(iii) The Company has not been delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, assessed or proposed against the Company,
nor has the Company executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(v) No adjustment relating to any Returns filed by the Company has been
proposed formally or informally by any Tax authority to the Company or any
representative thereof.
(vi) The Company has no liabilities for unpaid federal, state, local and
foreign Taxes which have not been accrued or reserved against in accordance with
GAAP on the Current Balance Sheet, whether asserted or unasserted, contingent or
otherwise, and the Company has not incurred any liability for Taxes since the
date of the Current Balance Sheet other than in the ordinary course of business.
(vii) The Company has made available to Parent or its legal counsel, copies
of all foreign, federal and state income and all state sales and use Returns for
the Company filed for all periods since its inception.
(viii) There are (and immediately following the Effective Time there will
be) no liens, pledges, charges, claims, restrictions on transfer, mortgages,
security interests or other encumbrances of any sort (collectively, "Liens") on
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the assets of the Company relating to or attributable to Taxes other than Liens
for Taxes not yet due and payable.
(ix) Neither the Company nor the Shareholders have Knowledge of any basis
for the assertion of any claim relating or attributable to Taxes that, if
adversely determined, would result in any Lien on the assets of the Company.
(x) None of the Company's assets are treated as "tax-exempt use property,"
within the meaning of Section 168(h) of the Code.
(xi) As of the Effective Time, there will not be any contract, agreement,
plan or arrangement, including but not limited to the provisions of this
Agreement, covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible by the Company as an expense under applicable law.
(xii) The Company has not filed any consent agreement under Section 341(f)
of the Code or agreed to have Section 341(f)(4) of the Code apply to any
disposition of a subsection (f) asset (as defined in Section 341(f)(4) of the
Code) owned by the Company.
(xiii) The Company is not a party to any tax sharing, indemnification or
allocation agreement nor does the Company owe any amount under any such
agreement.
(xiv) The Company's tax basis in its assets for purposes of determining its
future amortization, depreciation and other federal income tax deductions is
accurately reflected on the Company's Tax books and records.
(xv) The Company is not, and has not been at any time, a "United States
Real Property Holding Corporation" within the meaning of Section 897(c)(2) of
the Code.
(c) Executive Compensation Tax. There is no contract, agreement, plan or
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arrangement to which the Company is a party, including but not limited to the
provisions of this Agreement, covering any employee or former employee of the
Company that, individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to Sections 162(m), 280G or 404
of the Code.
2.11 Restrictions on Business Activities. There is no agreement
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(non-compete or otherwise), commitment, judgment, injunction, order or decree to
which the Company is a party or otherwise binding upon the Company which has or
may have the effect of prohibiting or impairing any business practice of the
Company, any acquisition of property (tangible or intangible) by the Company or
the conduct of business by the Company. Without limiting the foregoing, the
Company has not entered into any agreement under which the Company is restricted
from selling, licensing or otherwise distributing any of its technology or
products to or providing services to, customers or potential customers or any
class of customers, in any geographic area, during any period of time or in any
segment of the market.
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2.12 Title of Properties; Absence of Liens and -Encumbrances; -Condition
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of Equipment.
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(a) The Company does not own any real property, and has never owned any
real property. Schedule 2.12(a) sets forth a list of all real property currently
leased by the Company, the name of the lessor, the date of the lease and each
amendment thereto and, with respect to any current lease, the aggregate annual
rental and/or other fees payable under any such lease. All such current leases
are in full force and effect, are valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event of default (or event which with notice or lapse of time, or
both, would constitute a default).
(b) The Company has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in the Current
Balance Sheet and except for Liens for Taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which are not material in
character, amount or extent, and which do not detract from the value, or
interfere with the present use, of the property subject thereto or affected
thereby.
(c) Schedule 2.12(c) lists all material items of equipment (the
"Equipment") owned or leased by the Company and such Equipment is, (i) adequate
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for the conduct of the business of the Company as currently conducted and (ii)
in good operating condition, regularly and properly maintained, subject to
normal wear and tear.
(d) The Company has sole and exclusive ownership, free and clear of any
Liens, of all customer files and other customer information relating to the
Company's current and former customers (the "Customer Information"). No person
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other than the Company possesses any claims or rights with respect to use of the
Customer Information.
2.13 Intellectual Property.
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(a) For the purposes of this Agreement, the following terms have the
following definitions:
(i) "Intellectual Property" shall mean any or all of the following
and all rights in, arising out of, or associated therewith: (i) all United
States and foreign patents and applications therefore and all reissues,
divisions, renewals, extensions, provisionals, continuations and
continuations-in-part thereof; (ii) all inventions (whether patentable or not),
invention disclosures, improvements, trade secrets, proprietary information,
know how, technology, technical data and customer lists, and all documentation
relating to any of the foregoing; (iii) all copyrights, copyright registrations
and applications therefore and all other rights corresponding thereto throughout
the world; (iv) all mask works, mask work registrations and applications
therefore; (v) all industrial designs and any registrations and applications
therefore throughout the world; (vi) all trade names, logos, common law
trademarks and service marks; trademark and service ▇▇▇▇ registrations and
applications therefore and all goodwill associated therewith throughout the
world; (vii) all databases and data collections and all rights therein
throughout the world; (viii) all computer software including all source code,
11
object code, firmware, development tools, files, records and data, all media on
which any of the foregoing is recorded, all World Wide Web addresses, sites and
domain names, (ix) any similar, corresponding or equivalent rights to any of the
foregoing and (x) all documentation related to any of the foregoing.
(ii) "Company Intellectual Property" shall mean any Intellectual
-------------------------------
Property that is owned by or exclusively licensed to the Company.
(iii) "Registered Intellectual Property" shall mean all United States,
--------------------------------
international and foreign: (i) patents, patent applications (including
provisional applications); (ii) registered trademarks, applications to register
trademarks, intent-to-use applications, or other registrations or applications
related to trademarks; (iii) registered copyrights and applications for
copyright registration; (iv) any mask work registrations and applications to
register mask works; and (v) any other Company Intellectual Property that is the
subject of an application, certificate, filing, registration or other document
issued by, filed with, or recorded by, any state, government or other public
legal authority.
(b) Schedule 2.13(b) lists all Registered Intellectual Property owned by,
or filed in the name of, the Company (the "Company Registered Intellectual
---------------------------------
Property") and lists any proceedings or actions before any court, tribunal
--------
(including the United States Patent and Trademark Office (the "PTO") or
equivalent authority anywhere in the world) related to any of the Company
Registered Intellectual Property.
(c) Each item of Company Intellectual Property, including all Company
Registered Intellectual Property listed in Schedule 2.13(b) and all Intellectual
Property licensed to the Company, is free and clear of any Liens. The Company
(i) is the exclusive owner of all trademarks and trade names used in connection
with the operation or conduct of the business of the Company, including the sale
of any products or technology or the provision of any services by the Company
and (ii) owns exclusively, and has good title to, all copyrighted works that are
Company products or other works of authorship that the Company otherwise
purports to own.
(d) To the extent that any Intellectual Property has been developed or
created by any person other than the Company for which the Company has, directly
or indirectly, paid, the Company has a written agreement with such person with
respect thereto and the Company thereby has obtained ownership of, and is the
exclusive owner of, all such Intellectual Property by operation of law or by
valid assignment.
(e) The Company has not transferred ownership of or granted any license of
or right to use or authorized the retention of any rights to use any
Intellectual Property that is or was Company Intellectual Property, to any other
person.
(f) The Company Intellectual Property constitutes all the Intellectual
Property used in and/or necessary to the conduct of its business as it currently
is conducted or is reasonably contemplated to be conducted, including, without
limitation, the design, development, manufacture, use, import and sale of the
products, technology and services of the Company (including products, technology
or services currently under development).
12
(g) Other than "shrink-wrap" and similar widely available commercial
end-user licenses, the contracts, licenses and agreements listed in Schedule
2.13(g) include all contracts, licenses and agreements to which the Company is a
party with respect to any Intellectual Property. No person who has licensed
Intellectual Property to the Company has ownership rights or license rights to
improvements made by the Company in such Intellectual Property that has been
licensed to the Company.
(h) Schedule 2.13(h) lists all contracts, licenses and agreements between
the Company and any other person wherein or whereby the Company has agreed to,
or assumed, any obligation or duty to warrant, indemnify, reimburse, hold
harmless, guaranty or otherwise assume or incur any obligation or liability or
provide a right of rescission with respect to the infringement or
misappropriation by the Company or such other person of the Intellectual
Property of any person other than the Company.
(i) The operation of the business of the Company as it currently is
conducted or is reasonably contemplated to be conducted, including but not
limited to the Company's design, development, use, import, manufacture and sale
of the products, technology or services (including products, technology or
services currently under development) of the Company does not infringe or
misappropriate the Intellectual Property of any person, violate the rights of
any person (including rights to privacy or publicity), or constitute unfair
competition or trade practices under the laws of any jurisdiction, and the
Company has not received notice from any person claiming that such operation or
any act, product, technology or service (including products, technology or
services currently under development) of the Company infringes or
misappropriates the Intellectual Property of any person or constitutes unfair
competition or trade practices under the laws of any jurisdiction (nor is the
Company or any of the Shareholders aware of any basis therefore).
(j) Each item of Company Registered Intellectual Property is valid and
subsisting, all necessary registration, maintenance and renewal fees in
connection with such Registered Intellectual Property have been paid and all
necessary documents and certificates in connection with such Company Registered
Intellectual Property have been filed with the relevant patent, copyright,
trademark or other authorities in the United States or foreign jurisdictions, as
the case may be, for the purposes of maintaining such Registered Intellectual
Property. There are no actions that must be taken by the Company within sixty
(60) days of the Closing Date, including the payment of any registration,
maintenance or renewal fees or the filing of any documents, applications or
certificates for the purposes of maintaining, perfecting, preserving or renewing
any Company Intellectual Property. In each case in which the Company has
acquired any Intellectual Property rights from any person, the Company has
obtained a valid and enforceable assignment sufficient to irrevocably transfer
all rights in such Intellectual Property (including the right to seek past and
future damages with respect to such Intellectual Property) to the Company and,
to the maximum extent provided for by, and in accordance with, applicable laws
and regulations, the Company has recorded each such assignment with the relevant
governmental authorities, including the PTO, the U.S. Copyright Office, or their
respective equivalents in any relevant foreign jurisdiction, as the case may be.
(k) There are no contracts, licenses or agreements between the Company and
any other person with respect to Company Intellectual Property under which there
13
is any dispute known to the Company or the Shareholders regarding the scope of
such agreement, or performance under such agreement including with respect to
any payments to be made or received by the Company there under.
(l) To the Knowledge of the Company and the Shareholders, no person is
infringing or misappropriating any Company Intellectual Property.
(m) The Company has taken all steps that are required to protect the
Company's rights in confidential information and trade secrets of the Company or
provided by any other person to the Company. Without limiting the foregoing, the
Company has, and enforces, a policy requiring each employee, consultant and
contractor to execute proprietary information, confidentiality and assignment
agreements substantially in the Company's standard forms, and all current and
former employees, consultants and contractors of the Company have executed such
an agreement.
(n) No Company Intellectual Property or product, technology or service of
the Company is subject to any proceeding or outstanding decree, order, judgment,
agreement or stipulation that restricts in any manner the use, transfer or
licensing thereof by the Company or may affect the validity, use or
enforceability of such Company Intellectual Property.
(o) No (i) product, technology, service or publication of the Company, (ii)
material published or distributed by the Company or (iii) conduct or statement
of the Company constitutes obscene material, a defamatory statement or material,
false advertising or otherwise violates any law or regulation.
2.14 Agreements, Contracts and Commitments.
-------------------------------------
(a) Except as set forth in Schedules 2.13(g), 2.13(h) or 2.14(a), the
Company is not a party to nor is it bound by:
(i) Any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
agreement, contract or commitment with a firm or other organization;
(ii) Any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(iii) Any fidelity or surety bond or completion bond;
(iv) Any lease of personal property with fixed annual rental payments
in excess of $10,000;
14
(v) Any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person;
(vi) Any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000 either
individually or in the aggregate;
(vii) Any agreement,contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business;
(viii) Any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit;
(ix) Any purchase order or contract for the purchase of materials
involving an amount in excess of $10,000 either individually or in the
aggregate;
(x) Any construction contracts;
(xi) Any dealer, distribution, joint marketing or development
agreement;
(xii) Any sales representative, original equipment manufacturer,
value added, remarketer or other agreement for distribution of the Company's
products or services; or
(xiii) Any other agreement, contract or commitment that involves
$10,000 or more or is not cancelable without penalty within thirty (30) days.
(b) The Company is in compliance with and has not breached, violated or
defaulted under, or received notice that it has breached, violated or defaulted
under, any of the terms or conditions of any agreement, contract, covenant,
instrument, lease, license or commitment to which the Company is a party or by
which it is bound (collectively a "Contract"), nor is the Company or any of the
Shareholders aware of any event that would constitute such a breach, violation
or default with the lapse of time, giving of notice or both. Each Contract is in
full force and effect and is not subject to any default there under by any party
obligated to the Company pursuant thereto. The Company has obtained, or will
obtain prior to the Closing Date, all necessary consents, waivers and approvals
of parties to any Contract as are required there under in connection with the
Merger or for such Contracts to remain in effect without modification after the
Closing. Following the Effective Time, the Surviving Corporation will be
permitted to exercise all of the Company's rights under the Contracts without
the payment of any additional amounts or consideration other than ongoing fees,
royalties or payments which the Company would otherwise be required to pay had
the transactions contemplated by this Agreement not occurred.
2.15 Interested Party Transactions. No officer, director or shareholder of
----------------------------
the Company (nor any ancestor, sibling, descendant or spouse of any of such
15
persons, or any trust, partnership or corporation in which any of such persons
has or has had an interest), has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services,
products or technology that the Company furnishes or sells, or proposes to
furnish or sell, or (ii) any interest in any entity that purchases from or sells
or furnishes to the Company any goods or services or (iii) a beneficial interest
in any Contract; provided, however, that ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation shall not
be deemed an "interest in any entity" for purposes of this Section 2.15.
2.16 Governmental Authorization. Schedule 2.16 accurately lists each
---------------------------
consent, license, permit, grant or other authorization issued to the Company by
a Governmental Entity (i) pursuant to which the Company currently operates or
holds any interest in any of its properties or (ii) which is required for the
operation of its business or the holding of any such interest (herein
collectively called "Company Authorizations"). The Company Authorizations are in
----------------------
full force and effect and constitute all Company Authorizations required to
permit the Company to operate or conduct its business or hold any interest in
its properties or assets.
2.17 Litigation. There is no action, suit or proceeding of any nature
----------
pending, or, to the Company's or the Shareholders' Knowledge, threatened,
against the Company, its properties or any of its officers or directors, nor, to
the Knowledge of the Company and the Shareholders, is there any reasonable basis
therefore. There is no investigation pending or, to the Company's or the
Shareholders' Knowledge, threatened against the Company, its properties or any
of its officers or directors (nor, to the Knowledge of the Company or the
Shareholders, is there any reasonable basis therefore) by or before any
Governmental Entity. No Governmental Entity has at any time challenged or
questioned the legal right of the Company to conduct its operations as presently
or previously conducted.
2.18 Accounts Receivable.
-------------------
(a) The Company has made available to Parent a list of all accounts
receivable of the Company as of December 31, 2001 along with a range of days
elapsed since invoice.
(b) All of the Company's accounts receivable arose in the ordinary
course of business, are carried at values determined in accordance with GAAP
consistently applied and are collectible except to the extent of reserves
therefore set forth in the Current Balance Sheet. No person has any Lien on any
of the Company's accounts receivable and no request or agreement for deduction
or discount has been made with respect to any of the Company's accounts
receivable.
2.19 Minute Books. The minutes of the Company made available to counsel for
------------
Parent are the only minutes of the Company and contain a reasonably accurate
summary of all meetings of the Board of Directors (or committees thereof) of the
Company and its shareholders or actions by written consent since the
incorporation of the Company.
2.20 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not: (i) operated any
underground storage tanks at any property that the Company has at any time
16
owned, operated, occupied or leased; or (ii) illegally released any material
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, and urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws (a
"Hazardous Material"), but excluding office and janitorial supplies properly and
safely maintained. No Hazardous Materials are present as a result of the
deliberate actions of the Company or, to the Company's or the Shareholders'
Knowledge, as a result of any actions of any other person or otherwise, in, on
or under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. The Company has not transported,
------------------------------
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Effective Time, nor has the Company disposed of, transported, sold, or
manufactured any product containing a Hazardous Material (any or all of the
foregoing being collectively referred to as "Hazardous Materials Activities") in
violation of any rule, regulation, treaty or statute promulgated by any
Governmental Entity in effect prior to or as of the date hereof to prohibit,
regulate or control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. The Company currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Material Activities,
respectively, and other businesses of the Company as such activities and
businesses are currently being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
--------------------------
proceeding, amendment procedure, writ, injunction or claim is pending, or, to
the Company's or the Shareholders' Knowledge, threatened concerning any
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
the Company. Neither the Company nor any of the Shareholders is aware of any
fact or circumstance that could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
2.21 Brokers' and Finders' Fees. Except as set forth in Schedule 2.21,
--------------------
the Company has not incurred, nor will it incur, directly or indirectly, any
liability for brokerage or finders' fees or agents' commissions or any similar
charges in connection with this Agreement or any transaction contemplated
hereby. Schedule 2.21 sets forth the principal terms and conditions of any
agreement, written or oral, with respect to such fees.
2.22 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate"
set forth in Section 2.22(a)(i) below (which definition shall apply only to this
Section 2.22), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
17
(i) "Affiliate" shall mean any other person or entity under
---------
common control with the Company within the meaning of Section 414(b), (c), (m)
or (o) of the Code and the regulations issued there under;
(ii) "Company Employee Plan" shall mean any plan, program,
---------------------
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, deferred compensation, performance
awards, stock or stock-related awards, fringe benefits or other employee
benefits or remuneration of any kind, whether written or unwritten or otherwise,
funded or unfunded, including without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA which is or has been maintained,
contributed to, or required to be contributed to, by the Company or any
Affiliate for the benefit of any Employee, or with respect to which the Company
or any Affiliate has or may have any liability or obligation;
(iii) "COBRA" shall mean the Consolidated Omnibus Budget
-----
Reconciliation Act of 1985, as amended;
(iv) "DOL" shall mean the Department of Labor;
---
(v) "Employee" shall mean any current or former employee,
--------
consultant or director of the Company or any Affiliate;
(vi) "Employee Agreement" shall mean each management,
--------
employment, severance, consulting, relocation, repatriation, expatriation,
visas, work permit or other agreement, contract or understanding between the
Company or any Affiliate and any Employee;
(vii) "ERISA" shall mean the Employee Retirement Income
-----
Security Act of 1974, as amended;
(viii) "FMLA" shall mean the Family Medical Leave Act of 1993,
-----
as amended;
(ix) "International Employee Plan" shall mean each Company
-----------------------------
Employee Plan that has been adopted or maintained by the Company or any
Affiliate, whether informally or formally, or with respect to which the Company
or any Affiliate will or may have any liability, for the benefit of Employees
who perform services outside the United States;
(x) "IRS" shall mean the Internal Revenue Service;
---
(xi) "Multi-employer Plan" shall mean any "Pension Plan"
--------------------
(as defined below) which is a "multi-employer plan," as defined in Section 3(37)
of ERISA;
(xii) "PBGC" shall mean the Pension Benefit Guaranty
----
Corporation; and
(xiii) "Pension Plan" shall mean each Company Employee Plan
------------
that is an "employee pension benefit plan," within the meaning of Section 3(2)
of ERISA.
18
(b) Schedule. Schedule 2.22(b) contains an accurate and complete list of
--------
each Company Employee Plan and each Employee Agreement under each Company
Employee Plan or Employee Agreement. The Company does not have any plan or
commitment to establish any new Company Employee Plan or Employee Agreement, to
modify any Company Employee Plan or Employee Agreement (except to the extent
required by law or to conform any such Company Employee Plan or Employee
Agreement to the requirements of any applicable law, in each case as previously
disclosed to Parent in writing, or as required by this Agreement), or to enter
into any Company Employee Plan or Employee Agreement.
(c) Documents. The Company has provided to Parent: (i) correct and complete
---------
copies of all documents embodying each Company Employee Plan and each Employee
Agreement including, without limitation, all amendments thereto and all related
trust documents; (ii) the most recent annual actuarial valuations, if any,
prepared for each Company Employee Plan; (iii) the three (3) most recent annual
reports (Form Series 5500 and all schedules and financial statements attached
thereto), if any, required under ERISA or the Code in connection with each
Company Employee Plan; (iv) if the Company Employee Plan is funded, the most
recent annual and periodic accounting of Company Employee Plan assets; (v) the
most recent summary plan description together with the summary(ies) of material
modifications thereto, if any, required under ERISA with respect to each Company
Employee Plan; (vi) all IRS determination, opinion, notification and advisory
letters, and all applications and correspondence to or from the IRS or the DOL
with respect to any such application or letter; (vii) all material written
agreements and contracts relating to each Company Employee Plan, including, but
not limited to, administrative service agreements, group annuity contracts and
group insurance contracts; (viii) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any liability to the
Company; (ix) all correspondence to or from any governmental agency relating to
any Company Employee Plan; (x) all COBRA forms and related notices; (xi) all
policies pertaining to fiduciary liability insurance covering the fiduciaries
for each Company Employee Plan; (xii) all discrimination tests for each Company
Employee Plan for the most recent plan year; and (xiii) all registration
statements, annual reports (Form 11-K and all attachments thereto) and
prospectuses prepared in connection with each Company Employee Plan.
(d) Employee Plan Compliance. (i) The Company has performed all obligations
------------------------
required to be performed by it under, is not in default or violation of, and has
no Knowledge of any default or violation by any other party to each Company
Employee Plan, and each Company Employee Plan has been established and
maintained in accordance with its terms and in compliance with all applicable
laws, statutes, orders, rules and regulations, including but not limited to
ERISA or the Code; (ii) each Company Employee Plan intended to qualify under
Section 401(a) of the Code and each trust intended to qualify under Section
501(a) of the Code has either received a favorable determination, opinion,
notification or advisory letter from the IRS with respect to each such Plan as
to its qualified status under the Code, including all amendments to the Code
effected by the Tax Reform Act of 1986 and subsequent legislation, or has
remaining a period of time under applicable Treasury regulations or IRS
pronouncements in which to apply for such a letter and make any amendments
necessary to obtain a favorable determination as to the qualified status of each
such Company Employee Plan; (iii) no "prohibited transaction," within the
meaning of Section 4975 of the Code or Sections 406 and 407 of ERISA, and not
otherwise exempt under Section 408 of ERISA, has occurred with respect to any
19
Company Employee Plan; (iv) there are no actions, suits or claims pending, or,
to the Knowledge of the Company or the Shareholders, threatened or reasonably
anticipated (other than routine claims for benefits) against any Company
Employee Plan or against the assets of any Company Employee Plan; (v) each
Company Employee Plan can be amended, terminated or otherwise discontinued after
the Effective Time in accordance with its terms, without liability to Parent,
Sub, the Company or any Affiliate (other than ordinary administration expenses);
(vi) there are no audits, inquiries or proceedings pending or, to the Knowledge
of the Company or the Shareholders or any Affiliates, threatened by the IRS or
DOL with respect to any Company Employee Plan; and (vii) neither the Company nor
any Affiliate is subject to any penalty or tax with respect to any Company
Employee Plan under Section 502(i) of ERISA or Sections 4975 through 4980 of the
Code.
(e) Pension Plan. Neither the Company nor any Affiliate has ever
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan that is subject to Title IV of ERISA or Section 412 of the Code.
(f) Multi-employer Plans. At no time has the Company or any Affiliate
-------------
contributed to or been required to contribute to any Multi-employer Plan.
(g) No Post-Employment Obligations. No Company Employee Plan provides, or
------------------
reflects or represents any liability to provide, retiree life insurance, retiree
health or other retiree employee welfare benefits to any person for any reason,
except as may be required by COBRA or other applicable statute, and the Company
has never represented, promised or contracted (whether in oral or written form)
to any Employee (either individually or to Employees as a group) or any other
person that such Employee(s) or other person would be provided with retiree life
insurance, retiree health or other retiree employee welfare benefit, except to
the extent required by statute.
(h) COBRA. Neither the Company nor any Affiliate has, prior to the
-----
Effective Time, violated any of the health care continuation requirements of
COBRA, the requirements of FMLA or any similar provisions of state law
applicable to its Employees.
(i) Effect of Transaction.
---------------------
(i) The execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the occurrence
of any additional or subsequent events) constitute an event under any Company
Employee Plan, Employee Agreement, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any Employee.
(ii) No payment or benefit which will or may be made by the Company or its
Affiliates with respect to any Employee as a result of the transactions
contemplated by this Agreement or otherwise will be characterized as a
"parachute payment," within the meaning of Section 280G(b)(2) of the Code (but
without regard to clause (ii) thereof).
20
(j) Employment Matters. The Company: (i) is in compliance with all
-------------------
applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of employment
and wages and hours, in each case, with respect to Employees; (ii) has withheld
and reported all amounts required by law or by agreement to be withheld and
reported with respect to wages, salaries and other payments to Employees; (iii)
is not liable for any arrears of wages or any taxes or any penalty for failure
to comply with any of the foregoing; and (iv) is not liable for any payment to
any trust or other fund governed by or maintained by or on behalf of any
governmental authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice). There is no pending, threatened or reasonably anticipated claim
or action against the Company under any worker's compensation policy or
long-term disability policy.
(k) Labor. No work stoppage or labor strike against the Company is pending,
-----
or to the Knowledge of the Company or the Shareholders, threatened or reasonably
anticipated. The Company does not know of any activities or proceedings of any
labor union to organize any Employees. There are no actions, suits, claims,
labor disputes or grievances pending, or, to the Knowledge of the Company or the
Shareholders, threatened or reasonably anticipated relating to any labor, safety
or discrimination matters involving any Employee, including, without limitation,
charges of unfair labor practices or discrimination complaints. Neither the
Company nor any of its subsidiaries has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act. The Company is not
presently, nor has it been in the past, a party to, or bound by, any collective
bargaining agreement or union contract with respect to Employees and no
collective bargaining agreement is being negotiated by the Company.
(l) International Employee Plan. Each International Employee Plan has been
----------------------------
established, maintained and administered in compliance with its terms and
conditions and with the requirements prescribed by any and all statutory or
regulatory laws that are applicable to such International Employee Plan.
Furthermore, no International Employee Plan has unfunded liabilities, that as of
the Effective Time, will not be offset by insurance or fully accrued. Except as
required by law, no condition exists that would prevent the Company or Parent
from terminating or amending any International Employee Plan at any time for any
reason.
(m) No Interference or Conflict. To the Knowledge of the Company and the
-----------------------------
Shareholders, no shareholder, officer, employee or consultant of the Company is
obligated under any contract or agreement subject to any judgment, decree or
order of any court or administrative agency that would interfere with such
person's efforts to promote the interests of the Company or that would interfere
with the Company's business. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's business as presently conducted
or proposed to be conducted nor any activity of such officers, directors,
employees or consultants in connection with the carrying on of the Company's
business as presently conducted or proposed to be conducted, will, to the
Company's and the Shareholders' Knowledge, conflict with or result in a breach
of the terms, conditions or provisions of, or constitute a default under, any
contract or agreement under which any of such officers, directors, employees or
consultants is now bound.
21
2.23 Insurance. Schedule 2.23 lists all insurance policies and fidelity
---------
bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company or any Affiliate. There is no
claim by the Company or any Affiliate pending under any of such policies or
bonds as to which coverage has been questioned, denied or disputed by the
underwriters of such policies or bonds. All premiums due and payable under all
such policies and bonds have been paid, and the Company is otherwise in
compliance with the terms of such policies and bonds (or other policies and
bonds providing substantially similar insurance coverage). The Company and the
Shareholders have no Knowledge of any threatened termination of, or premium
increase with respect to, any of such policies.
2.24 Compliance with Laws. The Company has complied with, is not in
---------------------
violation of, and has not received any notices of violation with respect to, any
foreign, federal, state or local statute, law or regulation.
2.25 Warranties; Indemnities. Except for the warranties and indemnities
------------------------
contained in those contracts and agreements set forth in Schedule 2.13(h), the
Company has not given any warranties or indemnities relating to products or
technology sold or licensed or services rendered by the Company.
2.26 Complete Copies of Materials. The Company has delivered or made
------------------------------
available true and complete copies of each document (or summaries of same) that
has been requested by Parent or its counsel.
2.27 Representations Complete. None of the representations or warranties
-------------------------
made by the Company or the Shareholders (as modified by the Disclosure
Schedule), nor any statement made in any Schedule or certificate furnished by
the Company or the Shareholders pursuant to this Agreement contains or will
contain at the Effective Time any untrue statement of a material fact, or omits
or will omit at the Effective Time to state any material fact necessary in order
to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub represent and warrant to the Company that on the date hereof
and as of the Effective Time as though made at the Effective Time as follows:
3.1 Organization, Standing and Power. Each of Parent and Sub is a
-----------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of Nevada. Each of Parent and Sub has the corporate power to own
its properties and to carry on its business as now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the failure to be so qualified would have a material adverse effect on the
ability of Parent and Sub to consummate the transactions contemplated hereby.
22
3.2 Authority. Each of Parent and Sub has all requisite power and authority
---------
to enter into this Agreement and any Related Agreements to which it is a party
and to consummate the transactions contemplated hereby and thereby. The
execution and delivery of this Agreement and any Related Agreements to which it
is a party and the consummation of the transactions contemplated hereby and
thereby have been duly authorized by all necessary corporate action on the part
of Parent and Sub, and no further action is required on the part of Parent or
Sub to authorize this Agreement, any Related Agreements to which it is a party
and the transactions contemplated hereby and thereby. This Agreement has been,
and any Related Agreements to which Parent or Sub is a party have been or will
have been prior to the Effective Time, duly executed and delivered by Parent and
Sub and, assuming the due authorization, execution and delivery by the other
parties hereto, constitute the valid and binding obligations of Parent and Sub,
enforceable in accordance with their respective terms, except as such
enforceability may be limited by principles of public policy and subject to the
laws of general application relating to bankruptcy, insolvency and the relief of
debtors and rules of law governing specific performance, injunctive relief or
other equitable remedies.
3.3 Merger Shares. The shares of Parent Common Stock to be issued pursuant
-------------
to the Merger will be duly authorized, validly issued, fully-paid, and
non-assessable.
3.4 Parent Financial Statements. Schedule 3.4 sets forth Parent's unaudited
---------------------------
balance sheet as of December 31, 2001 and the related unaudited statements of
income and cash flow for the three month period ended December 31, 2001 (the
"Parent Financials"). The Parent Financials have been prepared in accordance
with GAAP applied on a basis consistent throughout the periods indicated and
consistent with each other. The Parent Financials present fairly the
consolidated financial condition and operating results and cash flows of Parent
and its subsidiaries as of the dates and during the periods indicated therein.
3.5 No Conflict. The execution and delivery of this Agreement and any
------------
Related Agreement to which Parent or Sub is a party by Parent or Sub, as the
case may be, do not, and the consummation of the transactions contemplated
hereby and thereby will not, conflict with, or result in any violation of, or
default under (with or without notice or lapse of time, or both), or give rise
to a Conflict under (i) any provision of the Certificate of Incorporation or
Bylaws of Parent or Sub, (ii) any mortgage, indenture, lease, contract or other
agreement or instrument, permit, concession, franchise or license to which
Parent or Sub or any of their respective properties or assets are subject, or
(iii) any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or Sub or their respective properties or assets, except
where such Conflict will not have a material adverse effect on the business,
assets (including intangible assets), financial conditions or results of
operations of Parent and Sub, taken as a whole.
3.6 Consents. No consent, waiver, approval, order or authorization of, or
--------
registration, declaration or filing with any Governmental Entity or any third
party is required by or with respect to Parent or Sub in connection with the
execution and delivery of this Agreement and any Related Agreements to which the
Company or Sub is a party or the consummation of the transactions contemplated
hereby and thereby, except for (i) such consents, waivers, approvals, orders,
authorizations, registrations, declarations and filings as may be required under
applicable securities laws, and (ii) the filing of the Merger Certificate with
the Secretary of State of the State of Nevada and the Secretary of State of the
State of California.
23
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business of the Company. During the period from the date of
----------------------------------
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, each of the Company and the Shareholders agree
(except to the extent that Parent shall otherwise consent in writing), to carry
on the Company's business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay the debts and
Taxes of the Company when due, to pay or perform other obligations when due,
and, to the extent consistent with such business, use its reasonable best
efforts consistent with past practice and policies to preserve intact the
Company's present business organizations, keep available the services of the
Company's present officers and key employees and preserve the Company's
relationships with customers, suppliers, distributors, licensors, licensees, and
others having business dealings with it, all with the goal of preserving
unimpaired the Company's goodwill and ongoing businesses at the Effective Time.
The Company shall promptly notify Parent of any event or occurrence or emergency
not in the ordinary course of business of the Company and any material event
involving the Company. Except as expressly contemplated by this Agreement as set
forth in Schedule 4.1, the Company shall not, without the prior written consent
of Parent:
(a) (i) Sell any Company Intellectual Property or enter into any
license agreement with respect to the Company Intellectual Property with any
person or entity or (ii) buy any Intellectual Property or enter into any license
agreement with respect to the Intellectual Property of any person or entity;
(b) Transfer to any person or entity any rights to the Company
Intellectual Property;
(c) Enter into or amend any Contract pursuant to which any other party
is granted marketing, distribution or similar rights of any type or scope with
respect to any products or technology of the Company;
(d) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the Contracts set
forth or described in the Disclosure Schedule;
(e) Commence or settle any litigation;
(f) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of the capital
stock of the Company (or options, warrants or other rights exercisable
therefore);
24
(g) Issue, grant, deliver or sell or authorize or propose the
issuance, grant, delivery or sale of, or purchase or propose the purchase of,
any shares of its capital stock or securities convertible into, or
subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue or purchase any such shares
or other convertible securities.
(h) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the Company's
business;
(j) Sell, lease, license or otherwise dispose of any of its properties
or assets, except properties or assets which are not Intellectual Property and
only in the ordinary course of business and consistent with past practices;
(k) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others;
(l) Grant any loans to others or purchase debt securities of others or
amend the terms of any outstanding loan agreement;
(m) Grant any severance or termination pay (i)to any director or officer
or (ii) to any other employee except payments made pursuant to standard written
agreements outstanding on the date hereof and disclosed in the Disclosure
Schedule;
(n) Adopt any employee benefit plan, or enter into any employment
contract, pay or agree to pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees;
(o) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business;
(p) Pay, discharge or satisfy, in an amount in excess of $5,000 (in any
one case) or $10,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Current Balance Sheet;
(q) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, enter into any closing
agreement, settle any claim or assessment in respect of Taxes, or consent to any
extension or waiver of the limitation period applicable to any claim or
assessment in respect of Taxes;
(r) Enter into any strategic alliance or joint marketing arrangement or
agreement;
25
(s) Make any expenditures or enter into any commitments or transactions
exceeding $25,000 in the aggregate or any commitment or transaction of the type
described in Section 2.9 hereof; or
(t) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 4.1(a) through (s) above, or any other action that would
prevent the Company from performing or cause the Company not to perform its
covenants hereunder.
4.2 No Solicitation. Until the earlier of the Effective Time or the date of
---------------
termination of this Agreement pursuant to the provisions of Section 8.1 hereof,
neither the Company nor the Shareholders (nor will the Company permit any of its
officers, directors, agents, representatives or affiliates to) directly or
indirectly, take any of the following actions with any party other than Parent
and its designees: (a) solicit, encourage, initiate or participate in any
negotiations or discussions with respect to, any offer or proposal to acquire
all, substantially all or a significant portion of the Company's business,
properties or technologies or any portion of the Company's capital stock
(whether or not outstanding) whether by merger, purchase of assets, tender offer
or otherwise, or effect any such transaction, (b) disclose any information not
customarily disclosed to any person concerning the Company's business,
technologies or properties or afford to any person or entity access to its
properties, technologies, books or records, (c) assist or cooperate with any
person to make any proposal to purchase all or any part of the Company's capital
stock or assets, or (d) enter into any agreement with any person providing for
the acquisition of all or any significant portion of the Company (whether by way
of merger, purchase of assets, tender offer or otherwise). In addition to the
foregoing, if the Company or the Shareholders receives, prior to the Effective
Time or the termination of this Agreement, any offer, proposal, or request
relating to any of the above, the Company or the Shareholders, as applicable,
shall immediately notify Parent thereof, including information as to the
identity of the offeror or the party making any such offer or proposal and the
specific terms of such offer or proposal, as the case may be, and such other
information related thereto as Parent may reasonably request. The parties hereto
agree that irreparable damage would occur in the event that the provisions of
this Section 4.2 were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed by the parties that Parent
shall be entitled to seek an injunction or injunctions to prevent breaches of
the provisions of this Section 4.2 and to enforce specifically the terms and
provisions hereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which Parent may be
entitled at law or in equity.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Sale of Shares. The parties hereto acknowledge and agree that the
---------------
shares of Parent Common Stock issuable to the Shareholders pursuant to Section
1.2 shall constitute "restricted securities" within the meaning of Rule 144
under Securities Act of 1933, as amended (the "Securities Act"). The
-----------------
certificates for the shares of Parent Common Stock to be issued in the Merger
shall bear appropriate legends to identify such privately placed shares as being
26
restricted under the Securities Act, to comply with applicable state securities
laws and, if applicable, to notice the restrictions on transfer of such shares.
5.2 Access to Information. The Company shall afford Parent and its
-----------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Parent may reasonably
request and (c) all key employees of the Company as identified by Parent. The
Company agrees to provide to Parent and its accountants, counsel and other
representatives copies of internal financial statements (including returns and
supporting documentation) promptly upon request. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.3 Expenses. Whether or not the Merger is consummated, all fees and
--------
expenses incurred in connection with the Merger including, without limitation,
all legal, accounting, financial advisory, consulting and all other fees and
expenses of third parties incurred by a party in connection with the negotiation
and effectuation of the terms and conditions of this Agreement and the
transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses.
5.4 Public Disclosure. Unless otherwise required by law, neither party
------------------
hereto shall make, prior to the Effective Time, any disclosure (whether or not
in response to an inquiry) of the subject matter of this Agreement unless
approved by Parent prior to release, provided that such approval shall not be
unreasonably withheld.
5.5 Consents. The Company shall use its best efforts to obtain the
--------
consents, waivers, assignments and approvals under any of the Contracts as may
be required in connection with the Merger (all of such consents, waivers and
approvals are set forth in the Disclosure Schedule) so as to preserve all rights
of, and benefits to, the Company there under.
5.6 FIRPTA Compliance. On the Closing Date, the Company shall deliver to
------
Parent a properly executed statement in a form reasonably acceptable to Parent
for purposes of satisfying Parent's obligations under Treasury Regulation
Section 1.1445-2(c)(3).
5.7 Reasonable Efforts. Subject to the terms and conditions provided in
-------------------
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do promptly,
or cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated hereby, to obtain all necessary waivers, consents and approvals and
to effect all necessary registrations and filings and to remove any injunctions
or other impediments or delays, legal or otherwise, in order to consummate and
make effective the transactions contemplated by this Agreement for the purpose
of securing to the parties hereto the benefits contemplated by this Agreement;
provided that Parent shall not be required to agree to any divestiture by Parent
or the Company or any of Parent's subsidiaries or affiliates of shares of
27
capital stock or of any business, assets or property of Parent or its
subsidiaries or affiliates or of the Company, its affiliates, or the imposition
of any material limitation on the ability of any of them to conduct their
businesses or to own or exercise control of such assets, properties and stock.
5.8 Notification of Certain Matters. The Company and the Shareholders shall
-------------------------------
give prompt notice to Parent of (i) the occurrence or non-occurrence of any
event, the occurrence or non-occurrence of which is likely to cause any
representation or warranty of the Company or the Shareholders, respectively,
contained in this Agreement to be untrue or inaccurate at or prior to the
Effective Time and (ii) any failure of the Company or the Shareholders, as the
case may be, to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it hereunder; provided, however, that the
delivery of any notice pursuant to this Section 5.9 shall not limit or otherwise
affect any remedies available to the party receiving such notice. No disclosure
by the Company or the Shareholders pursuant to this Section 5.9, however, shall
be deemed to amend or supplement the Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant.
5.9 Additional Documents and Further Assurances. Each party hereto, at the
-------------------------------------------
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary or
desirable for effecting completely the consummation of this Agreement and the
transactions contemplated hereby.
5.10 Tax-Free Reorganization. The parties intend to adopt this Agreement
------------------------
and the Merger as a tax-free plan of reorganization under Section 368(a)(1)(A)
of the Code by virtue of the provisions of Section 368(a)(2)(D) of the Code. The
Merger Consideration issued in the Merger will be issued solely in exchange for
the Company Capital Stock, and no other transaction other than the Merger
represents, provides for or is intended to be an adjustment to the consideration
paid for the Company Capital Stock. In the Merger, no consideration that could
constitute "other property" within the meaning of Section 356(a)(1)(B) of the
Code is being transferred by Parent for the Company Capital Stock. The parties
shall not take a position on any tax return inconsistent with this Section 5.10.
From and after the Effective Time, none of Parent, Sub or the Company shall take
any action that could reasonably be expected to cause the Merger not to be
treated as a reorganization within the meaning of Section 368 of the Code.
5.11 Shareholder Approval. The Company shall promptly submit this Agreement
--------------------
and the transactions contemplated hereby to its Shareholders for approval and
adoption as provided by California Law, its Articles of Incorporation and Bylaws
and such other documents necessary in order to satisfy the requirements of
Section 4(2) of the Securities Act and Regulation D there under in connection
with the issuance and sale of Parent Common Stock in the Merger. The Company
shall use its best efforts to obtain the consent of its Shareholders sufficient
to approve the Merger and this Agreement and to enable the Closing to occur as
soon as possible.
5.12 Employee Plans. A list of the Company's Employee Plans is set forth in
--------------
Schedule 5.12.
28
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Company and the Shareholders. The
----------------------------------------------------------------
obligations of the Company and the Shareholders to consummate and effect this
Agreement and the transactions contemplated hereby shall be subject to the
satisfaction at or prior to the Effective Time of each of the following
conditions, any of which may be waived, in writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of Parent and Sub in this Agreement shall be true and correct in
all material respects on and as of the Effective Time as though such
representations and warranties were made on and as of such time and each of
Parent and Sub shall have performed and complied in all material respects with
all covenants and obligations of this Agreement required to be performed and
complied with by it as of the Effective Time.
(b) No Material Adverse Changes. There shall not have occurred any
---------------------------
material adverse change in the business, assets (including intangible assets),
condition (financial or otherwise), results of operations of Parent and its
subsidiaries, taken as a whole, since the date of this Agreement.
(c) Legal Opinion. The Company shall have received a legal opinion
--------------
from ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇, LLP, legal counsel to Parent, substantially in
the form of Exhibit B-1 hereto.
-----------
(d) Certificate of Parent. The Company shall have been provided
----------------------
with a certificate executed on behalf of Parent by the President to the effect
that, as of the Effective Time:
(i) All representations and warranties made by Parent and
Sub in this Agreement are true and correct in all material respects on and as of
the Effective Time as though such representations and warranties were made on
and as of such time;
(ii) All covenants and obligations of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects; and
(iii) The conditions set forth in this Section 6.1 have been
satisfied.
6.2 Conditions to the Obligations of Parent and Sub. The obligations of
-------------------------------------------------
Parent and Sub to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations
-----------------------------------------
and warranties of the Company and the Shareholders in this Agreement shall be
true and correct in all material respects on and as of the Effective Time as
though such representations and warranties were made on and as of the Effective
Time and the Company and the Shareholders shall have performed and complied in
29
all material respects with all covenants and obligations of this Agreement
required to be performed and complied with by it as of the Effective Time.
(b) Claims. There shall not have occurred any Claims(whether or not
------
or not asserted in litigation) that may materially and adversely affect the
consummation of the transactions contemplated hereby or may have a Material
Adverse Effect on the Company.
(c) Third Party Consents. Any and all consents, waivers,
------------------------
assignments and approvals listed in the Disclosure Schedule shall have been
obtained.
(d) No Injunction or Restraints; Illegality. 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, nor shall any
proceeding brought by an administration, agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Merger, which makes the consummation of the Merger illegal.
(e) Governmental Approval. Approvals from Governmental Entities
----------------------
(if any) deemed appropriate or necessary by any party to this Agreement shall
have been timely obtained.
(f) Litigation. There shall be no bona fide action, suit, claim or
----------
proceeding of any nature pending, or overtly threatened, against Parent, Sub or
the Company, their respective properties or any of their officers or directors,
arising out of, or in any way connected with, the Merger or the other
transactions contemplated by the terms of this Agreement.
(g) Legal Opinion. Parent shall have received a legal opinion from
-------------
legal counsel to the Company, substantially in the form of Exhibit B-2 hereto.
(h) Shareholders' Certificate. Shareholders shall have executed
--------------------------
and delivered to Parent a Shareholders' Certificate in substantially the form
attached hereto as Exhibit C.
(i) No Material Adverse Changes. There shall not have occurred any
----------------------------
material adverse change in the business, assets (including intangible assets),
results of operations, liabilities (contingent or accrued), financial condition
or prospects of the Company since the date of this Agreement.
(j) Shareholder Approval. Shareholders shall have approved this
---------------------
Agreement, the Merger and the transactions contemplated hereby and thereby.
(k) Certificate of the Company and Shareholders. Parent shall have
-------------------------------------------
been provided with a certificate executed by the Shareholders and executed on
behalf of the Company by its Chief Executive Officer and its Chief Financial
Officer to the effect that, as of the Effective Time:
30
(i) All representations and warranties made by the Company
and the Shareholders in this Agreement are true and correct in all material
respects on and as of the Effective Time as though such representations and
warranties were made on and as of such time;
(ii) All covenants and obligations of this Agreement to be
performed by the Company and the Shareholders on or before such date have
been so performed in all material respects; and
(iii) The provisions set forth in Sections 6.2 (b), (c), (j) and
(k) have been satisfied.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
7.1 Survival of Representations and Warranties. All of the Company's and
--------------------------------------------
the Shareholders' representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Merger and
continue until the earlier of the date which is the date of the auditor's report
for the first audit of Parent's financial statements after the Closing Date or
the date which is one year following the Closing Date (the "Expiration Date").
All of Parent's and Sub's representations and warranties contained herein or in
any instrument delivered pursuant to this Agreement shall terminate at the
Closing.
7.2 Indemnification by Shareholders. Following the Closing, the
-----------------------------------
Shareholders agree, jointly and severally, to protect, defend, indemnify and
hold the Parent and the Sub harmless with respect to any and all claims,
demands, suits, actions, administrative proceedings, losses, damages,
obligations, liabilities, costs and expenses, including without limitation
reasonable legal and other costs and expenses of investigating and defending any
actions or threatened actions, which arise as a result of or are related to (i)
any active or passive act, omission, occurrence, event or condition that
occurred prior to the Closing in connection with (a) the ownership of the
Company Capital Stock; (b) the Company's compliance with federal, state or local
laws, regulations or orders; (c) any environmental or hazardous material claim,
personnel claim or product liability claim relating to the Company; or (d) any
dispute or controversy between the Company's customers and other parties, or
(ii) any material misrepresentation or breach of any of the representations,
covenants or warranties of the Company or the Shareholders contained herein or
any material misstatements or failure to state a material fact required to be
stated with respect to the information provided by the Company or the
Shareholders, provided that the Parent and/or the Sub (the "Indemnified Party")
complies with the following indemnification procedure:
(a) The Indemnified Party shall, as soon as practicable (but in any event
within sixty (60) days) after it learns of a claim for indemnification under
this Section 7.2, give written notice to the Shareholders of its claim for
indemnification, which notice shall set forth the amount involved in the claim
for indemnification and contain a reasonably thorough description of the facts
constituting the basis of such claim.
31
(b) The Shareholders shall have a period of thirty (30) days from the
receipt of the notice referred to above to respond to the indemnity claim to the
satisfaction of the Indemnified Party. During such 30-day period, the
Indemnified Party, on the one hand, and the Shareholders, on the other hand,
shall use their respective best efforts to attempt in good faith to agree upon a
mutually acceptable resolution as to their respective rights with respect to any
such claim for indemnification, in which case the parties shall promptly prepare
and sign a memorandum setting forth such agreement.
(c) In the event that no agreement is reached during the 30-day period
specified in Subsection 7.2(b) above, then the Shareholders shall be obligated
to pay such claim. The Indemnified Party may elect to pay such claim and the
Shareholders shall be obligated to reimburse the Indemnified Party the amount
thereof.
(d) The Indemnified Party shall not settle or compromise any such claim
without the prior written consent of the Shareholders unless suit shall have
been instituted against the Indemnified Party and the Shareholders shall have
failed, after reasonable notice of institution of the suit, to take control of
such suit on behalf of the Indemnified Party. If the Shareholders admit in
writing that they will be liable to the Indemnified Party with respect to the
full amount and as to all material elements of a third party claim alleging
damages should the third party prevail in such suit, then the Shareholders shall
have the right to assume full control of the defense of such claim, and the
Indemnified Party shall be entitled to participate in the defense of such claim
only with the consent of the Shareholders.
(e) The Indemnified Party shall be entitled to recover all costs, fees
(including attorneys' fees), expenses and other damages to enforce against the
Shareholders its indemnification rights under this Section 7.2.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 Termination. Except as provided in Section 8.2, this Agreement may be
-----------
terminated and the Merger abandoned at any time prior to the Effective Time:
(a) By mutual consent of the Company and Parent.
(b) By Parent or the Company if: (i) the Effective Time has not
occurred by May 31st, 2002; provided, however, that the right to terminate this
-------- -------
Agreement under this Section 8.1(b)(i) shall not be available to any party whose
action or failure to act has been a principal cause of or resulted in the
failure of the Merger to occur on or before such date and such action or failure
to act constitutes a breach of this Agreement; (ii) there shall be a final
non-appealable order of a federal or state court in effect preventing
consummation of the Merger; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Merger by any Governmental Entity that would make consummation of the Merger
illegal.
32
(c) By Parent if there shall be any action taken, or any statute,
rule, regulation or order enacted, promulgated or issued or deemed applicable to
the Merger by any Governmental Entity, which would: (i) prohibit Parent's or
Sub's ownership or operation of any portion of the business of the Company or
(ii) compel Parent or the Company to dispose of or hold separate all or a
portion of the business or assets of the Company or Parent as a result of the
Merger.
(d) By Parent if it is not in material breach of its obligations
under this Agreement and there has been a material breach of any representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Shareholders and such breach has not been cured within ten (10)
calendar days after written notice to the Company; provided, however, that, no
-------- -------
cure period shall be required for a breach which by its nature cannot be cured.
(e) By the Company if neither it nor the Shareholders is in material
breach of their respective obligations under this Agreement and there has been a
material breach of any representation, warranty, covenant or agreement contained
in this Agreement on the part of Parent or Sub and such breach has not been
cured within ten (10) calendar days after written notice to Parent; provided,
however, that no cure period shall be required for a breach which by its nature
cannot be cured.
(f) By Parent or Sub if an event having a Material Adverse Effect on
the Company shall have occurred after the date of this Agreement.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 Effect of Termination. In the event of termination of this Agreement as
---------------------
provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Sub or the Company,
or their respective officers, directors or shareholders, provided that each
party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that, the provisions of Sections 5.3, 5.4,
5.5, Article IX and this Section 8.2 shall remain in full force and effect and
survive any termination of this Agreement.
8.3 Amendment. The parties hereto may amend this Agreement at any time by
---------
execution of an instrument in writing signed on behalf of each of the parties
hereto.
8.4 Extension; Waiver. At any time prior to the Effective Time, Parent and
------------------
Sub, on the one hand, and the Company and the Shareholders, on the other hand,
may, to the extent legally allowed, (i) extend the time for the performance of
any of the obligations of the other party hereto, (ii) waive any inaccuracies in
the representations and warranties made to such party contained herein or in any
document delivered pursuant hereto, and (iii) waive compliance with any of the
agreements or conditions for the benefit of such party contained herein. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
33
ARTICLE IX
GENERAL PROVISIONS
9.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice), provided, however,
that notices sent by mail will not be deemed given until received:
(a) If to Parent or Sub, to: Gateway International Holdings, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇▇ ▇▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, ▇▇▇▇▇ & ▇▇▇▇, LLP
▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
(b) If to the Company, to: ▇▇▇▇▇▇▇ Cams, Inc.
▇▇▇▇ ▇. ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile:
-------------------------
Attn.:
-----------------------------
With a copy to:
-----------------------------------
-----------------------------------
-----------------------------------
Facsimile:
-------------------------
Attn.:
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(c) If to the Shareholders, to:
-----------------------------------
-----------------------------------
-----------------------------------
Facsimile:
-------------------------
9.2 Interpretation. The words "include," "includes" and "including" when
--------------
used herein shall be deemed in each case to be followed by the words "without
limitation." 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.
34
9.3 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
----------------
Disclosure Schedule, and the documents and instruments and other agreements
among the parties hereto referenced herein: (a) constitute the entire agreement
among the parties with respect to the subject matter hereof and supersede all
prior agreements and understandings both written and oral, among the parties
with respect to the subject matter hereof; (b) are not intended to confer upon
any other person any rights or remedies hereunder; and (c) shall not be assigned
(other than by operation of law), except that Parent and Sub may assign their
respective rights and delegate their respective obligations hereunder to their
respective affiliates.
9.5 Severability. In the event that any provision of this Agreement or the
------------
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
9.6 Other Remedies. Except as otherwise provided herein, any and all
---------------
remedies herein expressly conferred upon a party will be deemed cumulative with
and not exclusive of any other remedy conferred hereby, or by law or equity upon
such party, and the exercise by a party of any one remedy will not preclude the
exercise of any other remedy.
9.7 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.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
and venue of any court within Orange County, California, in connection with any
matter based upon or arising out of this Agreement or the matters contemplated
herein, agrees that process may be served upon them in any manner authorized by
the laws of the State of California for such persons and waives and covenants
not to assert or plead any objection which they might otherwise have to such
jurisdiction, venue and such process.
9.8 Rules of Construction. The parties hereto agree that they have been
----------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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35
IN WITNESS WHEREOF, Parent, Sub, the Company and the Shareholders have
caused this Agreement to be signed, all as of the date first written above.
"Company"
▇▇▇▇▇▇▇ CAMS, INC.,
a California corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------------
Its: President & CEO, Secretary & Treasurer
---------------------------------------------
"Parent"
GATEWAY INTERNATIONAL HOLDINGS,
a Nevada corporation
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------------------
Its: Vice-President, President & CEO
---------------------------------------------
"Sub"
GWIH ACQUISITION CORP.,
a Nevada corporation
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------------------
Its: President & CEO
---------------------------------------------
"Shareholders"
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
----------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
