AGREEMENT AND PLAN OF MERGER among UPSNAP, INC., UPSNAP ACQUISITION CORP. and MOBILE GREETINGS, INC. Dated August 9, 2007
Exhibit
2.1
AGREEMENT
AND PLAN OF MERGER
among
UPSNAP
ACQUISITION CORP.
and
MOBILE
GREETINGS, INC.
Dated
August 9, 2007
| ARTICLE I THE MERGER |
1
|
||
|
SECTION
1.01.
|
The
Merger
|
1
|
|
|
SECTION
1.02.
|
Closing
|
1
|
|
|
SECTION
1.03.
|
Effective
Time
|
2
|
|
|
SECTION
1.04.
|
Effects
of the Merger
|
2
|
|
|
SECTION
1.05.
|
Articles
of Incorporation; By-laws
|
2
|
|
|
SECTION
1.06.
|
Directors
and Officers
|
2
|
|
|
SECTION
1.07.
|
Exchange
of Securities
|
3
|
|
|
SECTION
1.08.
|
Treatment
of Options
|
4
|
|
|
SECTION
1.09.
|
Dissenting
Shares
|
4
|
|
|
SECTION
1.10.
|
Surrender
of Shares; Exchange; Stock Transfer Books
|
5
|
|
|
SECTION
1.11.
|
Additional
Consideration
|
7
|
|
|
SECTION
1.12.
|
Adjustments
to Merger Consideration
|
7
|
|
|
SECTION
1.13.
|
Subsequent
Actions
|
8
|
|
| ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY |
8
|
||
|
SECTION
2.01.
|
Organization
and Qualification; Subsidiaries
|
8
|
|
|
SECTION
2.02.
|
Articles
of Incorporation and By-laws
|
9
|
|
|
SECTION
2.03.
|
Capitalization
|
9
|
|
|
SECTION
2.04.
|
Authority
Relative to the Transactions
|
9
|
|
|
SECTION
2.05.
|
No
Conflict; Required Filings and Consents
|
10
|
|
|
SECTION
2.06.
|
Financial
Statements; No Undisclosed Liabilities
|
11
|
|
|
SECTION
2.07.
|
Absence
of Certain Changes or Events
|
12
|
|
|
SECTION
2.08.
|
Absence
of Litigation
|
12
|
|
|
SECTION
2.09.
|
Employee
Benefit Plans
|
13
|
|
|
SECTION
2.10.
|
Leased
Property; Title to Assets
|
14
|
|
|
SECTION
2.11.
|
Taxes
|
15
|
|
|
SECTION
2.12.
|
Material
Contracts
|
16
|
|
|
SECTION
2.13.
|
Labor
and Employment Matters
|
17
|
|
|
SECTION
2.14.
|
Permits;
Compliance
|
18
|
|
|
SECTION
2.15.
|
Intellectual
Property
|
18
|
|
i
|
SECTION
2.16.
|
Insurance
|
19
|
|
|
SECTION
2.17.
|
Brokers
|
20
|
|
|
SECTION
2.18.
|
Customers,
Receivables
|
20
|
|
|
SECTION
2.19.
|
Transactions
With Affiliates
|
20
|
|
|
SECTION
2.20.
|
Certain
Business Practices
|
20
|
|
|
SECTION
2.21.
|
No
Other Representations or Warranties; Full Disclosure
|
20
|
|
| ARTICLE III REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB |
21
|
||
|
SECTION
3.01.
|
Corporate
Organization
|
21
|
|
|
SECTION
3.02.
|
Articles
of Incorporation and By-laws
|
21
|
|
|
SECTION
3.03.
|
Capitalization
|
21
|
|
|
SECTION
3.04.
|
Authority
Relative to the Transactions
|
22
|
|
|
SECTION
3.05.
|
No
Conflict; Required Filings and Consents
|
23
|
|
|
SECTION
3.06.
|
Governmental
Consents
|
23
|
|
|
SECTION
3.07.
|
SEC
Filings; Financial Statements; No Undisclosed Liabilities
|
23
|
|
|
SECTION
3.08.
|
Absence
of Certain Changes or Events
|
25
|
|
|
SECTION
3.09.
|
Absence
of Litigation
|
25
|
|
|
SECTION
3.10.
|
Employee
Benefit Plans
|
26
|
|
|
SECTION
3.11.
|
Leased
Property; Title to Assets
|
27
|
|
|
SECTION
3.12.
|
Taxes
|
28
|
|
|
SECTION
3.13.
|
Material
Contracts
|
29
|
|
|
SECTION
3.14.
|
Labor
and Employment Matters
|
30
|
|
|
SECTION
3.15.
|
Permits;
Compliance
|
31
|
|
|
SECTION
3.16.
|
Intellectual
Property
|
31
|
|
|
SECTION
3.17.
|
Insurance
|
32
|
|
|
SECTION
3.18.
|
Brokers
|
32
|
|
|
SECTION
3.19.
|
Customers,
Receivables
|
32
|
|
|
SECTION
3.20.
|
Transactions
With Affiliates
|
33
|
|
|
SECTION
3.21.
|
Certain
Business Practices
|
33
|
|
|
SECTION
3.22.
|
Interim
Operations of Merger Sub
|
33
|
|
|
SECTION
3.23.
|
No
Other Representations or Warranties; Full Disclosure
|
33
|
|
| ARTICLE IV CONDUCT OF BUSINESS PENDING THE MERGER |
33
|
||
|
SECTION
4.01.
|
Conduct
of Business Pending the Merger
|
33
|
|
ii
|
SECTION
4.02.
|
Advice
of Changes; Government Filings
|
37
|
|
| ARTICLE V ADDITIONAL AGREEMENTS |
37
|
||
|
SECTION
5.01.
|
Access
to Information; Confidentiality
|
37
|
|
|
SECTION
5.02.
|
No
Solicitation of Transactions
|
38
|
|
|
SECTION
5.03.
|
Further
Action; Reasonable Best Efforts
|
39
|
|
|
SECTION
5.04.
|
Public
Announcements
|
40
|
|
|
SECTION
5.05.
|
Private
Financing
|
40
|
|
|
SECTION
5.06.
|
Additional
Agreements
|
40
|
|
|
SECTION
5.07.
|
Employee
Matters
|
41
|
|
|
SECTION
5.08.
|
Composition
of Parent’s Board of Directors
|
41
|
|
|
SECTION
5.09.
|
Audited
Financial Statements
|
41
|
|
|
SECTION
5.10.
|
Company
Stockholder Approval
|
41
|
|
|
SECTION
5.11.
|
Principal
Stockholders
|
42
|
|
|
SECTION
5.12.
|
Outstanding
Convertible Note
|
42
|
|
|
SECTION
5.13.
|
Updates
to Representations, Warranties and Disclosure Schedule\
|
42
|
|
|
SECTION
5.14.
|
Sale
of Company or Disposition of Company Assets
|
42
|
|
|
SECTION
5.15.
|
Exchange
Act Requirements
|
43
|
|
| ARTICLE VI CONDITIONS TO THE MERGER |
43
|
||
|
SECTION
6.01.
|
Mutual
Conditions to the Merger
|
43
|
|
|
SECTION
6.02.
|
Conditions
to Obligations of Parent and Merger Sub
|
43
|
|
|
SECTION
6.03.
|
Conditions
to Obligations of the Company
|
44
|
|
| ARTICLE VII TERMINATION, AMENDMENT AND WAIVER |
45
|
||
|
SECTION
7.01.
|
Termination
|
45
|
|
|
SECTION
7.02.
|
Effect
of Termination
|
47
|
|
|
SECTION
7.03.
|
Fees
and Expenses
|
47
|
|
|
SECTION
7.04.
|
Amendment
|
48
|
|
|
SECTION
7.05.
|
Waiver
|
48
|
|
| ARTICLE VIII INDEMNIFICATION |
49
|
||
|
SECTION
8.01.
|
Survival
of Representations and Warranties
|
49
|
|
|
SECTION
8.02.
|
Obligation
of the Company and its Shareholders to Indemnify
|
49
|
|
|
SECTION
8.03.
|
Obligation
of Parent to Indemnify
|
49
|
|
|
SECTION
8.04.
|
Procedure
|
49
|
|
iii
| ARTICLE IX GENERAL PROVISIONS |
52
|
||
|
SECTION
9.01.
|
Notices
|
52
|
|
|
SECTION
9.02.
|
Certain
Definitions
|
53
|
|
|
SECTION
9.03.
|
Severability
|
57
|
|
|
SECTION
9.04.
|
Entire
Agreement; Assignment
|
58
|
|
|
SECTION
9.05.
|
Parties
in Interest
|
58
|
|
|
SECTION
9.06.
|
Governing
Law
|
58
|
|
|
SECTION
9.07.
|
Waiver
of Jury Trial
|
58
|
|
|
SECTION
9.08.
|
Headings
|
58
|
|
|
SECTION
9.09.
|
Counterparts
|
59
|
|
|
SECTION
9.10.
|
Disclosure
Schedules
|
59
|
|
|
SECTION
9.11.
|
Interpretation
|
59
|
|
iv
AGREEMENT
AND PLAN OF MERGER, dated
August 9, 2007 (this “Agreement”), among
UPSNAP, INC., a Nevada
corporation (“Parent”), UPSNAP
ACQUISITION CORP., a California corporation and direct wholly owned Subsidiary
of Parent (“Merger Sub”), and MOBILE
GREETINGS, INC., a California corporation (the “Company”).
WHEREAS,
the Boards of Directors of Parent, Merger Sub, the Company (the “Company Board”) have
each determined that
it is in the best interests of their respective stockholders to enter into
this
Agreement providing for the merger (the “Merger”) of Merger Sub
with and into the Company
upon the terms and subject to the conditions set forth herein;
WHEREAS,
the Boards of Directors of Parent and Merger Sub, and the Company Board,
have
each approved this Agreement and declared its advisability and approved the
Merger upon the terms and subject to the conditions set forth
herein;
WHEREAS,
Parent, Merger Sub and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also
to
prescribe various conditions to the Merger;
WHEREAS,
the parties hereto desire that the Merger is effected by means of a transaction
which is described in Section 368 of the Code and accorded tax-free treatment
thereunder; and
WHEREAS,
capitalized terms not defined in the context in the Section in which they
first
appear shall have the meanings set forth in Section 9.02.
NOW,
THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby,
Parent, Merger Sub and the Company hereby agree as follows:
ARTICLE
I
THE
MERGER
|
SECTION
1.01.
|
The
Merger.
|
Upon
the
terms and subject to the conditions set forth in this Agreement, and in
accordance with the California Corporations Code (the “Act”),
at the Effective Time (as defined in Section 1.03), Merger Sub shall be merged
with and into the Company. As a result of the Merger, the separate
corporate existence of Merger Sub shall cease and the Company shall continue
as
the surviving corporation of the Merger (the “Surviving
Corporation”). The Company’s corporate name, existence and
all of its purposes, powers and objectives will continue unaffected and
unimpaired by the Merger, and as Surviving Corporation it will be governed
by
the Laws of the State of California and succeed to all of Merger Sub’s rights,
assets, liabilities and obligations in accordance with the Act.
|
SECTION
1.02.
|
Closing.
|
The
closing of the Merger (the “Closing”) shall
take place at 10:00 a.m., San Francisco, California time, on the
later to occur of (i) September 19, 2007 and (ii) the second Business
Day
after
satisfaction or waiver (as permitted by this Agreement and applicable Law)
of
the conditions (excluding conditions that, by their terms, cannot be satisfied
until the Closing Date) set forth in Article VI (the “Closing Date”), unless
another time or date
is agreed to in writing by the parties hereto. The Closing shall be
held at the offices of ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Raysman & ▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, unless another place is agreed to in writing
by the parties hereto.
|
SECTION
1.03.
|
Effective
Time.
|
At
the
Closing, the parties shall cause the Merger to be consummated by filing an
agreement of merger (the “Agreement
of
Merger”) with the Secretary of State of the State of California, in
such form as is required by, and executed in accordance with, the relevant
provisions of the Act. The date and time of acceptance by the
Secretary of State of the State of California of such filing of the Agreement
of
Merger (or such later time as may be agreed by the parties hereto and specified
in the Agreement of Merger) being the “Effective
Time.”
|
SECTION
1.04.
|
Effects
of the Merger.
|
The
Merger shall have the effects set forth in the applicable provisions of the
Act. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges,
immunities, powers and franchises of the Company and Merger Sub shall vest
in
the Surviving Corporation, and all debts, liabilities, obligations,
restrictions, disabilities and duties of each of the Company and Merger Sub,
now
existing or hereafter arising, shall become the debts, liabilities, obligations,
restrictions, disabilities and duties of the Surviving
Corporation. The parties intend and will take all necessary steps to
ensure that the Merger will be treated as a tax-free reorganization under
Section 368 of the Code.
|
SECTION
1.05.
|
Articles
of Incorporation; By-laws.
|
At
the
Effective Time, the articles of incorporation of the Company as in effect
immediately prior to the Effective Time shall be the articles of incorporation
of the Surviving Corporation until thereafter amended in accordance with
its
terms and applicable Law. At the Effective Time, the by-laws of
Merger Sub as in effect immediately prior to the Effective Time shall be
the
by-laws of the Surviving Corporation until thereafter duly amended in accordance
with their terms, the articles of incorporation of the Surviving Corporation
and
applicable Law.
|
SECTION
1.06.
|
Directors
and Officers.
|
The
directors of the Company immediately prior to the Effective Time shall submit
their resignations to be effective as of the Effective Time, in each case
to the
extent requested in writing by Parent to the Company prior to the Effective
Time. Immediately after the Effective Time, Parent shall take the
necessary action to cause the directors of Surviving Corporation to be the
same
as the directors of Parent immediately after the Effective Time, in accordance
with Section 5.08 of this Agreement. The directors of Surviving
Corporation shall hold office in accordance with the articles of incorporation
and by-laws of the Surviving Corporation. The officers of the Company
immediately prior to the Effective Time shall be the initial officers of
the
Surviving Corporation, in each case until their respective successors are
duly
elected or appointed and qualified or until their earlier death, resignation
or
removal.
2
|
SECTION
1.07.
|
Exchange
of Securities.
|
At
the
Effective Time, by virtue of the Merger and without any action on the part
of
Merger Sub, the Company or the holders of any of the following
securities:
|
|
(i)
|
each
share of common stock, no par value, of the Company (“Company
Common Stock”, and such shares, “Shares”) issued
and outstanding immediately prior to the Effective Time (other
than any
Shares to be canceled pursuant to Section 1.07(ii) and any Dissenting
Shares) shall be canceled and shall be exchanged into the right
to receive
approximately 9.68 (the “Conversion Ratio”) validly
issued, fully paid and non-assessable shares of common stock of
Parent,
par value $0.001 per share (“Parent Common Stock”), to
the holder of such Share, upon surrender, in the manner provided
in
Section 1.10, of the certificate that formerly evidenced such Share,
subject to adjustment as set forth in Sections 1.10(f) and Section
1.12
below; the Conversion Ratio is based on the number of fully
diluted shares outstanding of Parent and the Company as of the
date hereof
and shall be adjusted as of and at the Effective Date as necessary
to
account for (A) any Company Stock Options outstanding as of the
date
hereof that are terminated between the execution of this Agreement
and the
Effective Date and (B) any Parent options, warrants or other security
exercisable or convertible by its terms into Parent Common Stock
(including convertible promissory notes) that are terminated between
the
execution of this Agreement and the Effective
Date;
|
|
|
(ii)
|
each
Share owned by Merger Sub, Parent or any direct or indirect Subsidiary
of
Parent immediately prior to the Effective Time shall be canceled
without
any conversion thereof and no payment or distribution shall be
made with
respect thereto; and
|
|
|
(iii)
|
each
share of common stock, of Merger Sub issued and outstanding immediately
prior to the Effective Time shall be converted into one share of
common
stock, no par value, of the Surviving
Corporation.
|
The
Merger Consideration shall represent 50% of the total number of shares Parent
Common Stock outstanding as of the Effective Time, on a Fully-Diluted basis,
without giving effect to the Private Financing. It is the intention
of the parties that the total number of shares of Parent Common Stock issued
pursuant to Section 1.07(i) shall equal 12,920,756, and together with the
number
of shares of Parent Common Stock reserved for the Option Consideration and
the
conversion of the Note, a total of 25,810,324 shares of Parent Common Stock
(the
“Merger
Consideration”),
subject to adjustment in accordance with Section 1.12 below. The
issuance of shares of Parent Common Stock upon the Effective Date shall be
adjusted in accordance with Section 1.12 below, and as necessary to account
for
the exercise of any Company Stock Options that are exercised between the
execution of this Agreement and the Effective Date.
3
|
SECTION
1.08.
|
Treatment
of Options.
|
Each
option, warrant and security exercisable or convertible by its terms into
Company Common Stock (including convertible promissory notes), whether vested
or
unvested, which is outstanding immediately prior to the Effective Time (each,
a
“Company Stock Option”), shall be assumed
by Parent and shall be deemed to constitute an option, warrant or convertible
security, as the case may be, to acquire the same number of shares of Parent
Common Stock as the holder of such Company Stock Option would have been entitled
to receive pursuant to the Merger had such holder exercised or converted
such
Company Stock Option, in full immediately prior to the Effective Time (not
taking into account whether such Company Stock Option was in fact exercisable
or
convertible at such time) (the “Option
Consideration”). The aggregate number of Shares of Parent
Common Stock into which the Option Consideration will be convertible will
equal
no more than 8,489,568 Shares. The per share exercise price for the
shares of Parent Common Stock issuable upon exercise of the Option Consideration
will be equal to the quotient determined by dividing the exercise price per
share of Company Common Stock at which each Company Stock Option was exercisable
immediately prior to the Effective Time by the Exchange Ratio. For
purposes hereof, the “Exchange Ratio” shall equal the quotient of (i) the Fully
Diluted number of shares of Parent Common Stock issued and outstanding
immediately before the Effective Time (without giving effect to the Private
Financing) divided by (ii) the Fully Diluted Number of Shares of Company
Common
Stock issued and outstanding immediately before the Effective Time, which
equals
2,211,509. In order that no fractional shares of Parent Common Stock
shall be issued as a result of the Merger, the number of shares issuable
to each
Company Stock Option holder pursuant to this Section 1.08 shall be rounded
down
to the nearest full share. All other terms and conditions of such
Parent options, warrants and/or convertible securities shall be the same
as the
Company Stock Options that have been converted, as such Company Stock Options
existed immediately prior to the Effective Time, with full credit being given
for any vesting that has occurred prior to the Effective Time. As
soon as practicable after the Effective Time, Parent shall deliver to each
holder of a Company Stock Option an option, warrant or convertible security,
as
the case may be, in Parent. Parent shall take all necessary corporate
action to reserve for issuance a sufficient number of shares of Parent Common
Stock for delivery upon exercise of the Option Consideration. Parent
will use its reasonable efforts to file, no later than 90 days following
the
Effective Time, a registration statement on Form S-8 (or any successor to
Form
S-8), to the extent available, so as to register the shares of Parent Common
Stock subject to the Option Consideration eligible for a Form S-8, and shall
use
its reasonable efforts to effect such registration and to maintain
the effectiveness of such registration statement (and the current status
of the
prospectus contained therein) for so long as such Option Consideration remains
outstanding.
|
SECTION
1.09.
|
Dissenting
Shares.
|
|
(a)
|
Right. Notwithstanding
Section 1.07 hereof, Shares that are issued and outstanding immediately
prior to the Effective Time and which are held by holders of Shares
who
have not voted in favor of or consented to the Merger and who have
properly demanded and perfected their rights to be paid the fair
value of
such Shares (the “Dissenting Shares”) in accordance with
Section 1300 et. seq. of the Act (the
“Dissenters’ Rights Statute”) shall not
be converted into the right to receive Parent Common Stock, and
the
holders thereof shall be entitled to only such rights as are granted
by
the Dissenters’
|
4
|
|
Rights
Statute; provided, however, that if, after the Effective
Time, any such stockholder of the Company shall fail to perfect
or shall
effectively waive, withdraw, or lose such stockholder’s rights under the
Dissenters’ Rights Statute, such stockholder’s Shares in respect of which
the stockholder would otherwise be entitled to receive fair value
under
the Dissenters’ Rights Statute shall thereupon be deemed to have been
exchanged, at the Effective Time, into the right to receive Parent
Common
Stock without any interest thereon.
|
|
(b)
|
Notice
of Demand. The Company shall give Parent prompt notice of
any notice received by the Company of intent by a holder of Company
Common
Stock to demand the fair value of any Shares, withdrawals of such
notices
and any other instruments served pursuant to the Dissenters’ Rights
Statute and received by the Company. Parent shall have the
right to participate in all negotiations and proceedings with respect
to
the exercise of dissenters’ rights under the Dissenters’ Rights
Statute. The Company shall not, except with the prior written
consent of Parent (not to be unreasonably withheld) or as otherwise
required by an order, decree, ruling or injunction of a court of
competent
jurisdiction, make any payment with respect to any such exercise
of
dissenters’ rights or offer to settle or settle any such
rights.
|
|
(c)
|
In
the event that Parent or the Company makes any payment to a holder
or
holders of Dissenting Shares with respect to their Shares, the
Principal
Amount of the Note shall be reduced by the aggregate amount paid
to the
dissenting holders.
|
|
SECTION
1.10.
|
Surrender
of Shares; Exchange; Stock Transfer
Books.
|
|
(a)
|
Exchange
Agent. Prior to the Effective Time, and subject to
Company’s prior consent, not to be unreasonably withheld, Parent shall
designate the transfer agent for Parent Common Stock to act as
agent (the
“Exchange Agent”) for exchange and issuance of Parent
Common Stock in accordance with Section 1.07(i) and Section 1.11
of this
Agreement.
|
|
(b)
|
Exchange
of Certificates. At or prior to the Closing, the Parent
shall cause the Exchange Agent to deliver to Company the Exchange
Agent
Instruction Letter. As soon as reasonably practicable after the
Effective Time, the Parent shall cause to be mailed to each Person
who
was, at the Effective Time, a holder of record of Shares entitled
to
receive Parent Common Stock pursuant to Section 1.07(i), a
form of letter of transmittal (which shall specify that delivery
shall be
effected, and risk of loss and title to the certificates evidencing
such
Shares (the “Certificates”) shall pass, only upon proper
delivery of the Certificates to the Exchange Agent) and instructions
for
use in effecting the surrender of the Certificates pursuant to
such letter
of transmittal. Such letter of transmittal shall include
investment representations under the Securities Act, as requested
by
Parent, to be made by holders of the Company Common Stock. Upon
surrender to the Exchange Agent of a Certificate, together with
such
letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, and such other documents as may
be
reasonably required pursuant to such instructions, the holder of
such
Certificate shall receive in exchange therefore Parent Common Stock
for
each Share formerly evidenced by such Certificate, and such Certificate
shall then be
canceled. No
|
5
|
|
interest
shall accrue or be paid on the Parent Common Stock payable upon
the
surrender of any Certificate for the benefit of the holder of
such
Certificate. If the Parent Common Stock is to be registered to
a Person other than the Person in whose name the surrendered
Certificate
is registered, it shall be a condition of exchange that the Certificate
so
surrendered shall be endorsed properly or otherwise be in proper
form for
transfer and that the Person requesting such payment shall have
paid all
transfer and other taxes required by reason of the transfer of
the Parent
Common Stock to a Person other than the registered holder of
the
Certificate surrendered, or shall have established to the satisfaction
of
Parent that such taxes either have been paid or are not
applicable. If any holder of Shares is unable to surrender such
holder’s Certificates because such Certificates have been lost, stolen,
mutilated or destroyed, such holder may deliver in lieu thereof
an
affidavit and indemnity bond in form and substance and with surety
reasonably satisfactory to Parent.
|
|
(c)
|
Escheat. Neither
Parent nor the Company shall be liable to any holder of shares
of the
Company Common Stock for any shares of Parent Common Stock delivered
to
any public official pursuant to any abandoned property, escheat
or similar
Law.
|
|
(d)
|
Transfer
Books. At the Effective Time, the stock transfer books of
the Company shall be closed and thereafter there shall be no further
registration or transfers of Shares on the records of the
Company. From and after the Effective Time, the holders of
Shares outstanding immediately prior to the Effective Time shall
cease to
have any rights with respect to such Shares except as otherwise
provided
herein or by applicable Law.
|
|
(e)
|
Satisfaction. All
Parent Common Stock paid upon the surrender for exchange of Certificates,
and all Option Consideration paid in respect of Company Stock Options,
in
each case in accordance with the terms of this Article I shall
be deemed
to have been paid in full satisfaction of all rights pertaining
to the
Shares theretofore represented by such Certificates and the Company
Stock
Options, as applicable. If, after the Effective Time,
Certificates are presented to the Surviving Corporation or the
Exchange
Agent for any reason, they shall be canceled and exchanged as provided
in
this Article I, except as otherwise provided by
Law.
|
|
(f)
|
Adjustment. Notwithstanding
anything in this Agreement to the contrary, but subject to
Section 4.01, if, between the date of this Agreement and the
Effective Time, the issued and outstanding Shares or shares of
Parent
Common Stock shall have been changed into a different number of
shares or
a different class by reason of any stock split, reverse stock split,
stock
dividend, reclassification, redenomination, recapitalization, split-up,
combination, exchange of shares or other similar transaction, the
Parent
Common Stock to be issued in accordance with Section 1.07(i), the
Option
Consideration and any other dependent items shall be appropriately
adjusted to provide to the holders of Company Common Stock and
the parties
hereto the same economic effect as contemplated by this Agreement
prior to
such action and as so adjusted shall, from and after the date of
such
event, be the Parent Common Stock to be issued in accordance with
Section
1.07(i), the Option Consideration or other dependent item, subject
to
further adjustment in accordance with this
sentence.
|
6
|
(g)
|
No
Fractional Shares. No certificates or scrip evidencing
fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share
interests shall not entitle the holder to any rights as a stockholder
of
Parent. In lieu of fractional shares of Parent Common Stock,
any fractional share will be rounded up or down to the nearest
whole share
of Parent Common Stock.
|
|
SECTION
1.11.
|
Additional
Consideration.
|
As
additional consideration for the Merger, at the Effective Time, Parent shall
issue an unsecured convertible promissory notes in the principal amount (the
“Principal Amount”) of $2,200,000 (the
“Note”), subject to adjustment in accordance
with Section
1.09(c) above and Sections 1.12 and 8.04(d) below. The Note shall be
substantially in the form attached hereto as Exhibit A. The
Note shall be issued to an agent duly appointed by the holders of a majority
of
the outstanding Shares for the benefit of all holders of the Company Common
Stock and Company Stock Options (the “Agent”). The
Parent shall enter into a letter agreement with the Agent providing the rights
of the Agent, including indemnification rights. The Note shall remain
outstanding for twelve (12) months after the Effective Time (subject to earlier
conversion pursuant to the terms thereof), with Parent having the right,
in its
sole discretion, to extend the maturity date of the Note for an additional
six
(6) months, without premium or penalty, in the event that Parent is then
actively engaged in a primary underwritten offer of the Parent Common Stock,
and
with interest payable at maturity accruing at the applicable federal rate,
unless converted, in which event accrued interest shall be
waived. The Note shall be convertible at any time after the six (6)
month anniversary of the Effective Date, at the option of the Agent acting
at
the direction of such former Company stockholders who, in the aggregate,
owned
at least a majority of Company Common Stock immediately prior to the Effective
Date. The Notes will be convertible into shares of Parent Common
Stock at a conversion price of $0.50 per share, subject to adjustment in
accordance with anti-dilution provisions therein.
|
SECTION
1.12.
|
Adjustments
to Merger Consideration.
|
Based
upon the parties’ intent that the Transaction be treated as a tax free
reorganization under 368 of the Code, the parties have agreed that in no
event
shall the Principal Amount exceed twenty percent (20%) of the aggregate dollar
value of the consideration to be received by holders of Company Stock and
Company Stock Options in connection with the Transaction. The
aggregate dollar value of the consideration to be received in connection
with
the Transaction shall equal Merger Consideration multiplied by the Share
Price
plus the Principal Amount (the “Aggregate Consideration”). If as of
the Closing Date the Principal Amount would exceed twenty percent (20%) of
the
Aggregate Consideration, then the Principal Amount shall be reduced such
that
the Principal Amount of the Note is exactly equal to twenty percent (20%)
of the
Aggregate Consideration. Any such reduction in the Principal Amount
shall result in a corresponding increase in the number of Shares of Parent
Common Stock to be issued pursuant to Section 1.07, with such increase equaling
the dollar amount of the reduction in the Principal Amount divided by the
Share
Price.
7
|
SECTION
1.13.
|
Subsequent
Actions.
|
If,
at
any time after the Effective Time, the Surviving Corporation shall consider
or
be advised that any deeds, bills of sale, assignments, assurances or any
other
actions or things are necessary or desirable to vest, perfect or confirm
of
record or otherwise in the Surviving Corporation its right, title or interest
in, to or under any of the rights, properties or assets of either of the
Company
or Merger Sub acquired or to be acquired by the Surviving Corporation as
a
result of, or in connection with, the Merger or otherwise to carry out this
Agreement, the officers and directors of the Surviving Corporation shall
be
authorized to execute and deliver, in the name and on behalf of either the
Company or Merger Sub, all such deeds, bills of sale, assignments and assurances
and to take and do, in the name and on behalf of each of such corporations
or
otherwise, all such other actions and things as may be necessary or desirable
to
vest, perfect or confirm any and all right, title and interest in, to and
under
such rights, properties or assets in the Surviving Corporation or otherwise
to
carry out this Agreement, provided that such execution, delivery, and such
other
actions and things do not create any liability or obligation of the Company’s
shareholders.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to Parent and Merger Sub, except as
set
forth on the applicable portion of the disclosure schedule delivered by the
Company to Parent and Merger Sub (the “Company
Disclosure
Schedule”), that:
|
SECTION
2.01.
|
Organization
and Qualification;
Subsidiaries.
|
|
(a)
|
Organization. The
Company is a corporation duly incorporated, validly existing and
in good
standing under the Laws of the jurisdiction of its organization
and has
the requisite corporate power and corporate authority and all necessary
governmental approvals to own, lease and operate its properties
and to
carry on its business as it is now being conducted. The Company
is duly qualified or licensed as a foreign corporation to do business,
and
is in good standing, in each jurisdiction where the character of
the
properties owned, leased or operated by it or the nature of its
business
makes such qualification or licensing necessary, except for such
failures
to be so qualified or licensed or in good standing that would not,
individually or in the aggregate, reasonably be expected to have
a Company
Material Adverse Effect.
|
|
(b)
|
Subsidiaries. The
Company does not directly or indirectly own any equity or similar
interest
in, or any interest convertible into or exchangeable or exercisable
for
any equity or similar interest in, any corporation, partnership,
limited
liability company, joint venture or other business association
or
entity.
|
|
(c)
|
Power. The
Company has the requisite corporate power and corporate authority
in all
material respects to own, lease and operate its properties and
to carry on
its businesses as they are now being
conducted.
|
8
|
SECTION
2.02.
|
Articles
of Incorporation and
By-laws.
|
The
Company has heretofore furnished or made available to Parent a complete and
correct copy of the articles of incorporation and the by-laws or equivalent
organizational documents, each as amended to date, of the
Company. Such articles of incorporation, by-laws or equivalent
organizational documents are in full force and effect.
|
SECTION
2.03.
|
Capitalization.
|
|
(a)
|
Authorized
Stock. The authorized capital stock of the Company consists
of 10,000,000 shares of Company Common Stock and 10,000,000 shares
of
preferred stock. As of the date of this Agreement, 1,334,607
shares of Company Common Stock are issued and outstanding, all
of which
are validly issued, fully paid and nonassessable, and no shares
of
preferred stock are issued or outstanding. Except as set forth
in Section 2.03 of the Company Disclosure Schedule, which Schedule
sets forth the name of the holder of each Company Stock Option
or other
right to purchase capital stock of the Company, the number of Shares
that
may be purchased by such holder and the price per Share at which
such
Shares may be purchased, there are (i) no options, warrants, calls,
subscriptions or other rights, agreements, commitments, or other
arrangements of any character that are binding on the Company that
obligate the Company to issue, transfer or sell, redeem, repurchase
or
exchange any shares of capital stock of, or other equity interests
in, the
Company or any interest convertible into or exchangeable or exercisable
for any such capital stock or other equity interests, (ii) no voting
trusts, proxies or other similar agreements or understandings to
which the
Company is bound with respect to the voting of any such capital
stock or
other equity interests, (iii) no contractual obligations or
commitments restricting the transfer of, or requiring the registration
for
sale of, any such capital stock or other equity interests, (iv) no
bonds, debentures, notes or other indebtedness having the right
to vote on
any matters on which shareholders of the Company may vote (whether
or not
dependent on conversion or other triggering event), and (v) no stock
appreciation, phantom equity or other equity-based rights issued
by the
Company that have value based on the capital stock or other equity
interests of the Company. The Company Common Stock is not
subject to statutory preemptive
rights.
|
|
(b)
|
Stock
Option Plans. The Company has made available to Parent
accurate and complete copies of each of the Company’s stock option plans
(collectively, the “Company Stock Option Plans”) pursuant
to which the Company has granted the Company Stock Options that
are
currently outstanding. All Shares subject to issuance prior to
the Closing as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable,
will be
duly authorized, validly issued, fully paid and
nonassessable.
|
|
SECTION
2.04.
|
Authority
Relative to the
Transactions.
|
The
Company has all necessary corporate power and authority to execute and deliver
this Agreement, to perform its obligations hereunder and to consummate this
Agreement and the Merger contemplated hereby (collectively, the “Transactions”). The
execution
and delivery by the Company of this Agreement and the consummation by the
Company of the Transactions
9
have
been
duly and validly authorized by all necessary corporate action, and no other
corporate proceedings on the part of the Company are necessary to authorize
this
Agreement or to consummate the Transactions (other than, with respect to
the
Merger, the approval and adoption of this Agreement by the holders of a majority
of the then outstanding shares of Company Common Stock (the “Company
Stockholder
Approval”) and the filing and recordation of appropriate merger
documents as required by the Act). This Agreement has been duly and
validly executed and delivered by the Company and, assuming the due
authorization, execution and delivery by the other parties thereto, constitutes
the legal, valid and binding obligation of the Company, enforceable against
the
Company in accordance with its terms, subject to the effect of any applicable
bankruptcy, insolvency (including, without limitation, all Laws relating
to
fraudulent transfers), reorganization, moratorium or similar Laws affecting
creditors’ rights generally and subject to the effect of general principles of
equity (regardless of whether considered in a proceeding at Law or in
equity). The Company Board, at a meeting duly called and held, or by
unanimous written consent, has:
|
|
(i)
|
determined
that the Transactions are fair to, and in the best interests of,
the
holders of Shares;
|
|
|
(ii)
|
approved,
adopted and declared advisable this Agreement and the Transactions
(such
approval and adoption having been made in accordance with the Act
and the
Company’s articles of incorporation);
and
|
|
|
(iii)
|
resolved
to recommend that the holders of Shares approve and adopt this
Agreement
and the Merger (the “Company
Recommendation”).
|
|
SECTION
2.05.
|
No
Conflict; Required Filings and
Consents.
|
|
(a)
|
No
Conflict. The execution and delivery by the Company of this
Agreement do not, and the performance by the Company of this Agreement
and
the consummation of the Transactions by the Company do not and
will not at
Closing:
|
|
|
(i)
|
violate
the articles of incorporation or by-laws or any equivalent organizational
documents of the Company;
|
|
|
(ii)
|
violate
any United States or non-United States statute, law, ordinance,
regulation, rule, code, executive order, injunction, judgment,
decree or
other order (“Law”) applicable to the Company or by which
any property or asset of the Company is bound or affected, other
than any
such violation that would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect;
or
|
|
|
(iii)
|
except
as set forth in Section 2.05 of the Company Disclosure Schedule,
result in
any breach of or constitute a default (or an event which, with
notice or
lapse of time or both, would become a default) under, or give to
others
any rights of termination, amendment, acceleration or cancellation
of,
require consent of or notification to any counterparty under, or
result in
the creation of a lien or other encumbrance on any property or
asset of
the Company pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit,
|
10
|
|
|
franchise
or other instrument or obligation to which the Company is a party
or by
which the Company or any property or asset of Company is bound
or
affected, except for any such conflicts, violations, breaches,
defaults or
other occurrences which would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect,
or with
respect to agreements for which consents have been
obtained.
|
|
(b)
|
Government
Approval. The execution, delivery, and performance of this
Agreement by the Company and the consummation of the Transactions
by the
Company do not and will not at Closing require any consent, approval,
authorization or permit of, action by, filing with or notification
to, any
government, any instrumentality, subdivision, court, administrative
agency
or commission or other authority thereof, or any quasi-governmental
or
private body exercising any regulatory, taxing, importing or other
governmental or quasi-governmental authority (a “Governmental
Authority”), except for (i) those required under or in
relation to the Act with respect to the filing of the Agreement
of Merger
and the filing of documents, if any, required to be filed in connection
with the consummation of the Transactions with the relevant authorities
of
other states in which the Company is qualified to do business,
and
(ii) such other consents, permits, approvals, orders or
authorizations, the failure of which to obtain which would not,
individually or in the aggregate, reasonably be expected to have
a Company
Material Adverse Effect.
|
|
SECTION
2.06.
|
Financial
Statements; No Undisclosed
Liabilities.
|
|
(a)
|
Financial
Statements. Section 2.06 of the Company Disclosure Schedule
sets forth true, complete and correct copies of (i) the Company’s
unaudited consolidated financial statements at and for the years
ended
December 31, 2005 and 2006, and (ii) the Company’s unaudited
consolidated financial statements at and for the six-month periods
ended
June 30, 2006 and 2007, including a balance sheet as of June 30,
2007 (the “Company Balance Sheet”) (collectively, the
“Company Financial Statements”). Each of the
Company Financial Statements (including, in each case, any notes
thereto)
was prepared in accordance with United States generally accepted
accounting principles in effect as of the date of such financial
statements (“GAAP”) applied on a consistent basis
throughout the periods indicated (except that the interim Company
Financial Statements described in clause (ii) of the immediately
preceding
sentence omit footnote disclosures and are subject to normal year-end
adjustments, and except as otherwise set forth in the notes to
any Company
Financial Statements as well as Section 2.06(a) of the Company
Disclosure
Schedule) and each fairly presents, in all material respects, the
consolidated financial position, results of operations and cash
flows of
the Company as of the respective dates thereof and for the respective
periods indicated therein (subject to normal period-end adjustments
which,
individually and in the aggregate, were or will be consistent with
the
Company’s historical practices). Except a set forth in Section
2.06 of the Company Disclosure Schedule, the Company has no knowledge
of
any reason why the Company Audited Financials will be materially
different
from the Company Financial
Statements.
|
11
|
(b)
|
Books
and Records. The books and records of the Company are being
maintained and preserved in material compliance with applicable
legal and
accounting requirements.
|
|
(c)
|
Liabilities. Except
for any liabilities or obligations which would not, individually
or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect, Company has no liability or obligation (whether known,
unknown,
accrued, absolute, contingent or otherwise) other than (i) liabilities
and
obligations to the extent reflected, reserved for or disclosed
in the
Company Balance Sheet, and (ii) liabilities and obligations that
were
incurred in the ordinary course of business consistent with past
practice
since June 30, 2007, and that are not, individually or in the
aggregate, material to the Company.
|
|
SECTION
2.07.
|
Absence
of Certain Changes or
Events.
|
Since
December 31, 2006, except as set forth in Section 2.07 of the Company
Disclosure Schedule, or as expressly contemplated by this
Agreement:
|
|
(i)
|
the
Company has, in all material respects, conducted its businesses
in the
ordinary course and in a manner consistent with past
practice;
|
|
|
(ii)
|
there
has not been any event, circumstance, change or effect that, individually
or in the aggregate, has had, or would reasonably be expected to
have, a
Company Material Adverse Effect;
|
|
|
(iii)
|
except
in the ordinary course of business or as disclosed hereunder, there
has
not been any material increase in the compensation payable or which
could
become payable by the Company to its officers or employees, or
any
amendment of any compensation and benefit plans resulting in a
material
increase in payments thereunder;
|
|
|
(iv)
|
there
has not been any issuance or agreement to issue shares of Company
Common
Stock, other than under the Company Stock Option
Plans;
|
|
|
(v)
|
any
material change in financial or tax accounting methods, principles
or
practices by the Company except insofar as may have been required
by a
change in GAAP or Law;
|
|
|
(vi)
|
any
material Tax election by the Company or settlement or compromise
by the
Company of any material Tax liability or refund;
and
|
|
|
(vii)
|
the
Company has not taken any action that, if taken after the date
of this
Agreement, would constitute a material breach of, or require a
consent
under, any of the covenants set forth in
Section 4.01.
|
|
SECTION
2.08.
|
Absence
of Litigation.
|
There
is
no litigation, suit, claim, action, proceeding, arbitration or investigation
(an
“Action”), which, if adversely
determined
against the Company, would result in a liability exceeding 10%
12
of
the
Company’s gross assets set forth in the Company Balance Sheet or any judgments,
decrees, injunctions, investigations or orders of any Governmental Authority
pending or, to the Knowledge of the Company, threatened against or affecting
the
Company, or any property or asset of the Company or any of its officers or
directors that may adversely affect the Company.
|
SECTION
2.09.
|
Employee
Benefit Plans.
|
|
(a)
|
Plans. Section 2.09(a)
of the Company Disclosure Schedule lists all employee benefit plans
(as
defined in Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended (“ERISA”)) and all bonus, stock
option, stock purchase, restricted stock, phantom stock or other
equity
based compensation incentive, deferred compensation, excess benefit,
retiree medical or life insurance, supplemental retirement, severance,
salary continuation, pension, profit sharing, savings, retirement,
disability, insurance, Section 125 “cafeteria” or “flexible” benefit,
vacation, sick leave, employee loan, educational assistance, change
in
control, termination or any other similar fringe or employee benefit
plans, programs or arrangements, and all employment, retention,
termination, severance or other contracts or agreements, that cover
any of
the current or former employees, officers, or directors of the
Company and
with respect to which the Company has any liability or obligation
or that
are maintained, contributed to or sponsored by the Company (collectively,
the “Plans”). For each Plan, the Company has
furnished or made available to Parent a true and complete copy
of the
following documents, if applicable: (i) each Plan document and all
amendments thereto, and where such Plan is unwritten, a written
description of the terms thereof, (ii) all trust agreements,
insurance or annuity contracts or other funding vehicles, (iii) the
current summary plan description, (iv) the three most recent annual
reports on Form 5500 filed with the Internal Revenue Service (the
“IRS”) (together with any schedules thereto) and
(v) the most recent determination letter or opinion letter from the
IRS with respect to any Plan that is intended to be qualified under
Section 401(a) of the Code or the standardized prototype plan on
which such Plan is based. The Company may amend or terminate
any Plan (other than an employment agreement or any similar agreement
that
cannot be terminated without the consent of the other party) at
any time
without incurring liability thereunder, other than in respect of
accrued
and vested obligations and medical or welfare claims incurred prior
to
such amendment or termination. The Company has no plan,
contract or commitment, whether legally binding or not, to create
any
additional employee benefit or compensation plans, policies or
arrangements or, except as may be required by Law, to modify any
Plan.
|
|
(b)
|
Plan
Compliance. Each Plan has been maintained, operated and
administered in material compliance with its terms and the requirements
of
all applicable Laws including, without limitation, ERISA and the
Code. The Company has performed all obligations required to be
performed by it under, is not in material default under or in material
violation of, and to the Company’s Knowledge, no other party is in
material default or material violation of, any Plan. Neither
the Company nor, to the Company’s Knowledge, any of its directors,
officers, employees or agents has, with respect to any Plan, engaged
in or
been a party to any “prohibited transaction” (as defined in Section 4975
of the Code or Section 406 of ERISA), which could result in the
imposition
of either a penalty assessed pursuant
|
13
|
|
to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, in
each case applicable to the Company or any
Plan.
|
|
(c)
|
Payments. There
will be no payment, accrual of additional benefits, acceleration
of
payments or vesting of any benefit under any contract, agreement,
plan or
other arrangement, whether or not a Plan, and no employee, officer
or
director of the Company will become entitled to any severance,
termination
pay or similar payments or benefits in connection with the Transactions
(either alone or in combination with any other event), other than
as
specifically provided for in this Agreement or as set for in Section
2.09(c) of the Company Disclosure Schedule. No payment, accrual
of additional benefits, acceleration of payments or vesting of
any benefit
under this Agreement, any Plan or similar agreement or arrangement
between
the Company or any of its Affiliates and any “disqualified individual” (as
such term is defined in Section 280G of the Code) could constitute an
“excess parachute payment” (as such term is defined in Section 280G
of the Code) in connection with the transactions contemplated by
this
Agreement (either alone or in combination with any other
event). No amounts payable under any Plan or otherwise will
fail to be deductible to the Company or the Surviving Corporation
for
federal income tax purposes by virtue of Section 162(m) of the
Code.
|
|
(d)
|
Contributions. All
contributions, premiums or payments required to be made with respect
to
any Plan have been made on or before their due dates, with such
exceptions
as would not have a Company Material Adverse Effect. All
liabilities or expenses of the Company in respect of any Plan (including
workers compensation) which have not been paid are not Material
or have
been properly accrued on the Company’s most recent financial statements in
compliance with GAAP.
|
|
(e)
|
Employees. To
the Knowledge of Company, Company has no direct or indirect liability,
whether absolute or contingent, with respect to any misclassification
of
any person as an independent contractor rather than as an employee,
or
with respect to any employee leased from another employer, that
would
reasonably be expected to constitute a Company Material Adverse
Effect.
|
|
SECTION
2.10.
|
Leased
Property; Title to Assets.
|
|
(a)
|
Leases. True,
correct and complete copies of all leases, subleases or licenses
for each
parcel of real property and for each item of personal property
calling for
annual payments of at least $15,000, currently leased, subleased
or
licensed by the Company (the “Leased Property”), together
with any assignments, guaranties or amendments thereto (collectively,
the
“Lease Documents”) have been delivered or made available
to Parent. Except as would not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse
Effect, (i) all such current leases, subleases and licenses are
in full
force and effect, (ii) all such current leases, subleases and licenses
are
valid and effective in accordance with their respective terms,
and (iii)
there is not, under any of such leases, subleases and licenses,
any
existing default or event of default (or event which, with notice
or lapse
of time, or both, would constitute a default) by the Company or,
to the
Company’s Knowledge, by the other party to such lease, sublease or
license. The Company does not own any real
property. The tangible assets of the Company
taken
|
14
|
|
as
a whole constitute the assets necessary to operate the business
of the
Company and are, in all material respects, in good condition
and repair,
reasonable wear and tear excepted.
|
|
(b)
|
Liens. The
Company owns or has good, valid, marketable legal and beneficial
title in
all of their respective properties and assets, whether real, personal
or
intangible, included on the Company Balance Sheet (other than assets
disposed of in the ordinary course of business or acquired since
the date
thereof), free and clear of all encumbrances, except (i) statutory
liens
for amounts not yet delinquent or which are being contested in
good faith
(ii) other liens arising in the ordinary course of business and
not
incurred in connection with the borrowing of money, or (iii) security
interests or other liens set forth in Section 2.10 of the Company
Disclosure Schedule. Except as would not, individually or in
the aggregate, reasonably be expected to have a Company Material
Adverse
Effect, the Company is not a party to or obligated under any option,
right
of first refusal or other contractual right to sell, dispose of
or lease
any of its properties or any portion thereof or interest therein
to any
Person. Except as would not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect,
the
Company is not a party to any agreement or option to purchase any
property
or interest therein other than options for renewal of Leased Property
for
the benefit of the Company.
|
|
SECTION
2.11.
|
Taxes.
|
|
(a)
|
Tax
Returns. Except to the extent set forth on Section 2.11(a)
of the Company Disclosure Schedule, the Company has properly prepared
and
timely filed (or caused to be timely filed) all Tax Returns required
to be
filed by or with respect to it and has fully and timely paid and
discharged all Taxes required to be paid or discharged (whether
or not
shown on such Tax Returns) and has made adequate provision for
any taxes
that are not yet due and payable for all taxable periods, or portions
thereof, ending on or before the date of this Agreement. All
such Tax Returns (including information provided therewith or with
respect
thereto) are true, correct and complete in all material
respects. The Company has not granted any waiver of any statute
of limitations with respect to, or any extension of a period for
the
assessment of, any Tax for any taxable period and no request for
any such
waiver or extension is currently pending. All amounts of Taxes
required to be withheld by or with respect to the Company have
been timely
withheld and remitted in all respects to the applicable Governmental
Authority. The Company has complied in all material respects
with all Tax information reporting provisions under applicable
Laws. The Company is not a party to any indemnification,
allocation or sharing agreement with respect to Taxes and does
not have
any liability for Taxes of any Person (other than members of the
affiliated group, within the meaning of Section 1504(a) of the Code,
filing consolidated federal income tax returns of which the Company
is the
common parent) under Treasury Regulation § 1.1502-6, Treasury
Regulation § 1.1502-78 or any similar state, local or foreign Laws,
as a transferee or successor, or otherwise. The Company has
made available to Parent correct and complete copies of all Tax
Returns,
examination reports and statements of deficiencies for taxable
periods, or
transactions consummated, for which the applicable statutory periods
of
limitations have not expired.
|
15
|
(b)
|
Audits. There
are no pending or, to the Knowledge of the Company, threatened
in writing,
audits, examinations, investigations or other proceedings in respect
of
any Tax matter of the Company. No Governmental Authority has
given notice to the Company of its intention to assert any deficiency
or
claim for additional Taxes against the Company. No claim has
been made against the Company by any Governmental Authority in
a
jurisdiction where the Company does not file Tax Returns that the
Company
is or may be subject to taxation by that jurisdiction. All
deficiencies for Taxes asserted or assessed against the Company
have been
fully and timely paid, settled or properly reflected in the Company
Financial Statements.
|
|
(c)
|
Tax
Liens. There are no Tax liens upon any property or assets
of the Company except for statutory liens for current Taxes not
yet due
and payable and for liens, which individually or in the aggregate,
do not
exceed $10,000.
|
|
(d)
|
Section
355. The Company has not constituted a “distributing
corporation” or a “controlled corporation” (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of shares
qualifying for tax-free treatment under Section 355 of the Code
(i) in the two years prior to the date of this Agreement or
(ii) in a distribution that could otherwise constitute part of a
“plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) in conjunction with the transactions
contemplated by this Agreement.
|
|
(e)
|
Reportable
Transactions. The Company has not entered into any
transaction that constitutes (i) a “reportable transaction” within the
meaning of Treasury Regulation § 1.6011-4(b), (ii) a “confidential tax
shelter” within the meaning of Treasury Regulation § 301.6111-2(a)(2)
or (iii) a “potentially abusive tax shelter” within the meaning of
Treasury Regulation
§ 301.6112-1(b).
|
|
SECTION
2.12.
|
Material
Contracts.
|
|
(a)
|
List
of Contracts: Section 2.12(a) of the Company
Disclosure Schedule sets forth a true and complete list of contracts
and
agreements of the following types to which the Company is a party
or is
bound by, or to which any of the assets of the Company are subject
(such
contracts and agreements as are required to be set forth in
Section 2.12(a) of the Company Disclosure Schedule being the
“Material
Contracts”):
|
|
|
(i)
|
each
“material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) with respect to the
Company;
|
|
|
(ii)
|
all
contracts and agreements relating to issuances of securities of
the
Company (and all letters of intent, term sheets and draft agreements
relating to any such pending
transactions);
|
|
|
(iii)
|
all
contracts and agreements relating to indebtedness for borrowed
money or
capitalized lease obligations, in each case for which the Company
is
primarily or secondarily liable, or which are secured by assets
of the
Company, and in each case in an amount in excess of
$15,000;
|
16
|
|
(iv)
|
all
contracts and agreements (A) containing any non-compete covenant or
other covenant limiting the right of the Company to engage in any
line of
business or to make use of any Intellectual Property Rights or
(B) containing any material exclusive or sole supplier arrangement,
or other exclusive business arrangement, to which the Company is
subject;
|
|
|
(v)
|
all
agreements with any employee, including severance agreements with
existing
employees, or any consultant, broker or
agent;
|
|
|
(vi)
|
all
agreements with suppliers, customers, licensees or licensors, in
each case
in an amount in excess of $15,000;
|
|
|
(vii)
|
all
Lease Documents; and
|
|
|
(viii)
|
all
other contracts and agreements providing for payments by or
to the
Company, or the guarantee (whether or not contingent) by the
Company of
obligations of any third party, in excess of $15,000, whether
or not made in the ordinary course of business, or which are
otherwise
material to the Company or the conduct of its businesses, or
the absence
of which would, individually or in the aggregate, reasonably
be expected
to have a Company Material Adverse
Effect.
|
|
(b)
|
Validity;
Default. (i) Each Material Contract is valid and in
full force and effect in all material respects, and enforceable
against
the Company and against each other party thereto, in accordance
with its
terms (subject to the effect of any applicable bankruptcy, insolvency
(including, without limitation, all Laws relating to fraudulent
transfers), reorganization, moratorium or similar Laws affecting
creditors’ rights generally and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding
at
Law or in equity)); and
|
(ii)(A) neither
the execution of this Agreement nor the consummation of any Transaction shall
constitute a material default under, give rise to cancellation rights under,
or
otherwise adversely affect, in each case, in any material respect, any of
the
rights of the Company under any Material Contract, and (B) neither the
Company nor, to the Knowledge of the Company, any other party thereto, is
in
material breach of, or material default under, any Material Contract to which
it
is a party nor, to the Knowledge of the Company, has any event occurred that,
with notice or lapse of time or both, would constitute such a breach or default,
or permit termination, modification or acceleration of any party’s rights under
any Material Contract.
The
Company has furnished or made available to Parent true and complete copies
of
all Material Contracts, including any amendments thereto. In the
event any Material Contract is oral, the complete and correct terms thereof
are
set forth in Section 2.12(a) of the Company Disclosure Schedule.
|
SECTION
2.13.
|
Labor
and Employment Matters.
|
Section
2.13 of the Company Disclosure Schedule sets forth a true, correct and complete
list of all employees (full time and part-time) and consultants of the Company,
setting forth name, job
17
title,
salary, date of hire or retention and last salary adjustment. Except
as set forth on Section 2.13 of the Company Disclosure Schedule, the Company
is
and has been in material compliance with all applicable Laws respecting
employment and employment practices, terms and conditions of employment
(including termination of employment), wages, hours of work, occupational
safety
and health, and worker classification, and is not engaged in any unfair labor
practices. The Company has not received notice of the intent of any
Governmental Authority responsible for the enforcement of labor or employment
Laws to conduct an investigation with respect to or relating to Company
employees and, to the Knowledge of the Company, no such investigation is
in
progress. Except as set forth on Section 2.13 of the Company
Disclosure Schedule, all of the employees of the Company are on an “at will”
basis, and have entered into non-disclosure and shop-right agreements with
the
Company.
|
SECTION
2.14.
|
Permits;
Compliance.
|
Except
as
would not, individually or in the aggregate, reasonably be expected to have
a
Company Material Adverse Effect, (i) the Company is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own,
lease
and operate its properties and to carry on its business as now being conducted
(the “Company Permits”),
and (ii)
each such Company Permit is valid and in full force and
effect. Section 2.14 of the Company Disclosure Schedule sets forth a
true, correct and complete list of all Company Permits. Except as
would not, individually or in the aggregate, reasonably be expected to have
a
Company Material Adverse Effect, the Company is, and has been, in compliance
with, and to the Knowledge of the Company, is not under investigation with
respect to and has not been threatened to be charged with or given any notice
of
any violation of, any applicable Law or the terms and conditions of any Company
Permit.
|
SECTION
2.15.
|
Intellectual
Property.
|
|
(a)
|
Identification. Section 2.15
of the Company Disclosure Schedule sets forth a true, correct and
complete
list of all U.S. and material foreign (i) issued Patents and Patent
applications, (ii) Trademark registrations and applications,
(iii) Copyright registrations and applications, in each case, which
are owned by the Company.
|
|
(b)
|
Licenses. Section 2.15
of the Company Disclosure Schedule sets forth a list of all material
licenses of Intellectual Property Rights under which the Company
is either
a (i) licensor, or (ii) licensee, distributor or
reseller.
|
|
(c)
|
Validity
and Enforceability. The Company owns or has a valid right
to use, free and clear of all liens, all Intellectual Property
Rights
necessary, or used or held for use in connection with the business
of the
Company. All such Intellectual Property Rights are subsisting,
valid and enforceable.
|
|
(d)
|
Rights. Except
as would not, individually or in the aggregate, reasonably be expected
to
have a Company Material Adverse Effect, and except for the matters
identified in Section 2.15 of the Company Disclosure Schedule,
(i) none of the Intellectual Property Rights that are owned or
licensed by the Company conflicts with, infringes upon or misappropriates
or otherwise violates the Intellectual Property Rights of any third
party,
|
18
|
|
(ii) the
Company has not been sued, charged in writing with, or named
a defendant
in, any claim, suit, action or proceeding involving a claim of
infringement of any Intellectual Property Rights of others, (iii) to
the Knowledge of the Company, there is no threatened claim of
infringement
by the Company of any Intellectual Property Rights of others,
and
(iv) to the Knowledge of the Company, there is no continuing
infringement by others of the Intellectual Property Rights of
the
Company. No Intellectual Property Rights of the Company are
subject to any outstanding order, judgment, decree, stipulation
or
agreement restricting the use thereof by the Company. The
Company has not entered into any agreement to indemnify any other
individual or entity against any charge of infringement of any
Intellectual Property Right.
|
|
(e)
|
Definitions. For
purposes of this Article II, “Intellectual Property
Rights” means all U.S. and foreign (i) patents, patent
applications, patent disclosures, and all related continuations,
continuations-in-part, divisionals, reissues, re-examinations,
substitutions, and extensions thereof (“Patents”),
(ii) trademarks, service marks, trade names, domain names, logos,
slogans, trade dress, and other similar designations of source
or origin,
together with the goodwill symbolized by any of the foregoing
(“Trademarks”), (iii) copyrights and copyrightable
subject matter (“Copyrights”), (iv) rights of
publicity (v) Company Software and (vi) any other relevant
proprietary intellectual property rights. For purposes of this
Agreement, “Company Software” means computer software,
programs and databases in any form (including Internet web sites,
web
content and links, all versions, updates, corrections, enhancements,
and
modifications thereof, and all related documentation) (i) material
to the
operation of the business of the Company, including all computer
software
and databases operated by the Company on its web sites or used
by the
Company in connection with processing customer orders, storing
customer
information, or storing or archiving data, but excluding software
that is
in general distribution to users of personal computers, and (ii)
owned,
manufactured, distributed, sold, licensed or marketed by the
Company.
|
|
SECTION
2.16.
|
Insurance.
|
Section 2.16
of the Company Disclosure Schedule lists, and the Company has made available
to
Parent or its representatives for review current and complete copies of,
all
insurance policies, binders and surety and fidelity bonds relating to the
Company (including, without limitation, all policies or binders of casualty,
general liability and workers’ compensation insurance), all of which are
currently in effect. All premiums and other amounts due and payable
under each such policy, binder and bond have been paid. The Company
is not in default with respect to any material provision contained in any
such
policy, binder or bond and the Company has not failed to give any notice
of or
present any material claim thereunder as required by the terms
thereof. The Company has not received any written notice of
cancellation or non-renewal of any such policy, binder or bond. The
Company has not received any written notice from any of its insurance carriers
that any insurance premiums paid by it will be materially increased in the
future as a result of the claims experience of the Company. Except as
set forth on Section 2.16 of the Company Disclosure Schedule, adequate
reserves have been established for all claims under any such policy, binder
and
bond as to which the insurer has denied coverage.
19
|
SECTION
2.17.
|
Brokers.
|
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Company or any of its
Affiliates.
|
SECTION
2.18.
|
Customers,
Receivables.
|
Section 2.18
of the Company Disclosure Schedule sets forth a true, correct and complete
list
of the top ten customers of the Company since July 1, 2006 (by total revenue),
and the amount billed to the Company’s top ten customers. Except as
set forth in Section 2.18 of the Company Disclosure Schedule, none of the
customers listed on Section 2.18 of the Company Disclosure Schedule have
advised
the Company that it plans to discontinue or substantially reduce its business
relationship with the Company. All accounts receivables listed on the
Company Balance Sheet or on the accounting records of the Company represent
valid obligations arising from sales actually made or services actually
performed in the ordinary course of business, and are current and collectible
in
accordance with their terms except to the extent of any reserves properly
reflected in the Financial Statements or as otherwise set forth on Section
2.18
of the Company Disclosure Schedule.
|
SECTION
2.19.
|
Transactions
With Affiliates.
|
Except
as
otherwise disclosed in Section 2.19 of the Company Disclosure Schedule, there
are no contracts (other than expired contracts or contracts terminated in
accordance with their terms), commitments, agreements, arrangements or other
transactions between the Company, on the one hand, and any (a) present or
former
officer or director of the Company or any of their immediate family members
(including their spouses), (b) record or beneficial owner of five percent
or
more of the voting securities of the Company or (c) affiliate of any such
officer, director, immediate family member or beneficial owner, on the other
hand.
|
SECTION
2.20.
|
Certain
Business Practices.
|
Except
as
would not, individually or in the aggregate, reasonably be expected to have
a
Company Material Adverse Effect, neither the Company nor any director, officer,
agent or employee of the Company has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity or for the business of the Company, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
|
SECTION
2.21.
|
No
Other Representations or Warranties; Full
Disclosure.
|
Except
for the representations and warranties contained in Article II of this
Agreement, Parent and Merger Sub both acknowledge that neither Company nor
any
other Person on behalf of the Company makes any other express or implied
representation or warranty with respect to the Company regarding any information
provided to Parent. Neither this Agreement, the Company Disclosure
Schedule nor the exhibits or certificates delivered by the Company to Parent
in
20
connection
herewith or at Closing contain any untrue statement of a material fact or
omits
or will omit to state a material fact necessary in order to make the statements
contained herein or therein not misleading.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF PARENT AND MERGER SUB
Except
as
set forth on the applicable portion of the disclosure schedule delivered
by
Parent to Company (the “Parent Disclosure Schedule”), Parent
(sometimes including the UpSnap Subsidiary) and Merger Sub hereby, jointly
and
severally, represent and warrant to the Company that:
|
SECTION
3.01.
|
Corporate
Organization.
|
|
(a)
|
Organization. Parent
is a corporation duly incorporated, validly existing and in good
standing
under the Laws of the State of Nevada. Merger Sub is a
corporation duly organized, validly existing and in good standing
under
the Laws of the State of California. Each of Parent and Merger
Sub has the requisite corporate power and corporate authority to
own,
lease and operate its properties and to carry on its business as
now being
conducted. Each of Parent and Merger Sub is duly qualified or
licensed as a foreign corporation to do business, and is in good
standing,
in each jurisdiction where the character of the properties owned,
leased
or operated by it or the nature of its business makes such qualification
or licensing necessary, except for such failures to be so qualified
or
licensed or in good standing that would not, individually or in
the
aggregate, reasonably be expected to have a Parent Material Adverse
Effect.
|
|
(b)
|
Subsidiaries. Other
than the Merger Sub and Upsnap USA Inc. (“Upsnap
Subsidiary”), Parent does not directly or indirectly own any
equity or similar interest in, or any interest convertible into
or
exchangeable or exercisable for any equity or similar interest
in, any
corporation, partnership, limited liability company, joint venture
or
other business association or
entity.
|
|
(c)
|
Power. Each
of Parent, Merger Sub and Upsnap Subsidiary has the requisite corporate
power and corporate authority in all material respects to own,
lease and
operate its properties and to carry on its businesses as they are
now
being conducted.
|
|
SECTION
3.02.
|
Articles
of Incorporation and
By-laws.
|
Parent
has heretofore furnished or made available to Company a complete and correct
copy of the articles of incorporation and the by-laws or equivalent
organizational documents, each as amended to date, of Parent and Upsnap
Subsidiary. Such articles of incorporation, by-laws or equivalent
organizational documents are in full force and effect.
|
SECTION
3.03.
|
Capitalization.
|
|
(a)
|
Authorized
Stock. The authorized capital stock of Parent consists of
97,500,000 Shares. As of the date of this Agreement, 22,170,324
Shares are issued and outstanding, all of which are validly issued,
fully
paid and nonassessable. Except as set forth
in
|
21
|
|
Section 3.03
of the Parent Disclosure Schedule, which Schedule sets forth
the name of
the holder of each option, warrant, and security exercisable
or
convertible by its terms into Parent Common Stock (“Parent Stock
Option”) or other right to purchase capital stock of Parent,
the
number of Shares that may be purchased by such holder and the
price per
Share at which such Shares may be purchased, there are (i) no
options, warrants, calls, subscriptions or other rights, agreements,
commitments, or other arrangements of any character that are
binding on
Parent that obligate Parent to issue, transfer or sell, redeem,
repurchase
or exchange any shares of capital stock of, or other equity interests
in,
Parent or any interest convertible into or exchangeable or exercisable
for
any such capital stock or other equity interests, (ii) no voting
trusts, proxies or other similar agreements or understandings
to which
Parent is bound with respect to the voting of any such capital
stock or
other equity interests, (iii) no contractual obligations or
commitments restricting the transfer of, or requiring the registration
for
sale of, any such capital stock or other equity interests, (iv) no
bonds, debentures, notes or other indebtedness having the right
to vote on
any matters on which shareholders of Parent may vote (whether
or not
dependent on conversion or other triggering event), and (v) no stock
appreciation, phantom equity or other equity-based rights issued
by Parent
that have value based on the capital stock or other equity interests
of
Parent. Parent Common Stock is not subject to statutory
preemptive rights.
|
|
(b)
|
Stock
Option Plans. Parent has made available to Company accurate
and complete copies of each of Parent’s stock option plans (collectively,
the “Parent Stock Option Plans”) pursuant to which Parent
has granted the Parent Stock Options that are currently
outstanding. All Shares subject to issuance prior to the
Closing as aforesaid, upon issuance on the terms and conditions
specified
in the instruments pursuant to which they are issuable, will be
duly
authorized, validly issued, fully paid and
nonassessable.
|
|
(c)
|
Parent
Holdings. Parent owns all of the outstanding shares of
capital stock of Merger Sub and Upsnap
Subsidiary.
|
|
SECTION
3.04.
|
Authority
Relative to the
Transactions.
|
Each
of
Parent and Merger Sub has all necessary corporate power and authority to
execute
and deliver this Agreement, to perform its respective obligations hereunder
and
to consummate the Transactions. The execution and delivery by Parent
and Merger Sub of this Agreement and the consummation by Parent and Merger
Sub
of the Transactions have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of Parent
or
Merger Sub are necessary to authorize this Agreement or to consummate the
Transactions (other than, with respect to the Merger, the approval and adoption
of this Agreement by Parent as the sole stockholder of Merger Sub and the
filing
and recordation of appropriate merger documents as required by the
Act). This Agreement has been duly and validly executed and delivered
by Parent and Merger Sub and, assuming due authorization, execution and delivery
by the Company, constitutes the legal, valid and binding obligation of each
of
Parent and Merger Sub, enforceable against each of Parent and Merger Sub
in
accordance with its terms, subject to the effect of any applicable bankruptcy,
insolvency (including, without limitation, all Laws relating to fraudulent
transfers), reorganization, moratorium or similar Laws affecting creditors’
rights generally and subject to the effect of
22
general
principles of equity (regardless of whether considered in a proceeding at
Law or
in equity). All of the shares of Parent Common Stock constituting the
Merger Consideration to be issued to the holders of the Shares in the Merger
will, upon issuance, be validly issued, fully paid and nonassessable and
such
issuances were not and will not at Closing be subject to preemptive
rights. In addition, when shares of Parent Common Stock are issued
upon due exercise or conversion of any option, warrant or convertible security
granted in exchange for Company Stock Options such issuances will be validly
issued, fully paid and nonassessable and the issuances will not at Closing
be
subject to preemptive rights.
|
SECTION
3.05.
|
No
Conflict; Required Filings and
Consents.
|
The
execution and delivery by Parent and Merger Sub of this Agreement do not,
and
the performance by Parent and Merger Sub of this Agreement and the consummation
of the Transactions by Parent and Merger Sub do not and will not at Closing:
(i)
violate the articles of incorporation or by-laws of Parent or Merger Sub;
(ii)
violate any Law applicable to Parent or Merger Sub or by which any property
or
asset of either of them is bound or affected, other than any such violation
that
would not, individually or in the aggregate, reasonably be expected to have
a
Parent Material Adverse Effect; or (iii) result in any breach of, or constitute
a default (or an event which, with notice or lapse of time or both, would
become
a default) under, or give to others any rights of termination, amendment,
acceleration or cancellation of, require consent of or notification to any
counterparty under, or result in the creation of a lien or other encumbrance
on
any property or asset of Parent or Merger Sub pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise
or
other instrument or obligation to which Parent or Merger Sub is a party or
by
which Parent or Merger Sub or any property or asset of either of them is
bound
or affected, except for any such conflicts, violations, breaches, defaults
or
other occurrences which would not, individually or in the aggregate, reasonably
be expected to have a Parent Material Adverse Effect.
|
SECTION
3.06.
|
Governmental
Consents.
|
The
execution, delivery, and performance of this Agreement by each of Parent
and
Merger Sub and the consummation of the Transactions by each of Parent and
Merger
Sub do not and will not at Closing require any consent, approval, authorization
or permit of, action by, filing with or notification to, any Governmental
Authority, except for (i) those required under or in relation to
(A) the Exchange Act or the Securities Act, (B) the Act with respect
to the filing of the Agreement of Merger, and (C) such as may be required
under any applicable state securities or blue sky laws or takeover laws or
stock
exchange requirements and (ii) such other consents, permits, approvals,
orders or authorizations the failure of which to obtain would not, individually
or in the aggregate, reasonably be expected to have a Parent Material Adverse
Effect.
|
SECTION
3.07.
|
SEC
Filings; Financial Statements; No Undisclosed
Liabilities.
|
|
(a)
|
Parent
SEC Reports. Parent has made available to Company (via
▇▇▇▇▇) a correct and complete copy of the Parent SEC
Reports. Parent has filed all reports, proxy statements,
registration statements, forms and other documents required to
be filed by
it with the SEC pursuant to the Exchange Act or other applicable
securities statutes, regulations or rules since October 1, 2005
(collectively, including all exhibits and schedules thereto
and
|
23
|
|
documents
incorporated by reference therein, the “Parent SEC
Reports”). The Parent SEC Reports comply as to
form in all material respects with the requirements of the Exchange
Act in
effect on the date of filing. The information provided by
Parent in this Agreement, the Parent SEC Reports (other than
the financial
statements and notes and schedules thereto contained therein,
as to which
representations are made in subsection (b) below), and in any
documents
referenced or delivered pursuant hereto or thereto, does not
and will not,
as of their respective filing and effective dates (or, if amended
prior to
the date of this Agreement, as of the respective filing and effective
dates of such amendment), contain any untrue statement of a material
fact
or omit to state a material fact required to be stated herein
or therein
or necessary to make the statements herein or therein, in light
of the
circumstances under which they were made, not misleading (except
to the
extent amended, revised or superseded by a subsequently filed
Parent SEC
Reports that has been filed with the SEC prior to the date of
this
Agreement). Copies of all documents heretofore delivered or
made available to Company pursuant hereto were complete and accurate
copies of such documents. There is no fact known to Parent that
materially and adversely affects the businesses, prospects, conditions,
affairs, or operations of Parent or any of its properties or
assets that
has not been fully described in this Agreement, the Exhibits
hereto, or
the Parent SEC Reports.
|
|
(b)
|
Financial
Statements. The Parent’s audited consolidated financial
statements at and for the years ended September 30, 2005 and 2006,
and
unaudited consolidated financial statements at and for the six-month
periods ended March 31, 2006 and 2007 (including, in each case, any
notes thereto), including a balance sheet as of March 31, 2007 (the
“Parent Balance Sheet”) (collectively, the
“Parent Financial Statements”), are contained in the
Parent SEC Reports, were prepared in accordance with GAAP applied
on a
consistent basis throughout the periods indicated (except as may
be
indicated in the notes thereto) and each fairly presents, in all
material
respects, the consolidated financial position, results of operations
and
cash flows of Parent and its consolidated Subsidiaries as of the
respective dates thereof and for the respective periods indicated
therein. Each of the unaudited interim consolidated financial
statements (including, in each case, any notes thereto) contained
in the
Parent SEC Reports was prepared in accordance with GAAP applied
on a
consistent basis throughout the periods indicated (except as may
be
indicated in the notes thereto) and each fairly presents, in all
material
respects, the consolidated financial position, results of operations
and
cash flows of Parent and its consolidated Subsidiaries as of the
respective dates thereof and for the respective periods indicated
therein
(subject to normal period-end adjustments which, individually or
in the
aggregate, were not and will not be
material).
|
|
(c)
|
Liabilities. Except
for any liabilities or obligations which would not, individually
or in the
aggregate, reasonably be expected to have a Parent Material Adverse
Effect, Parent has no liability or obligation (whether known, unknown,
accrued, absolute, contingent or otherwise) other
than:
|
|
|
(i)
|
liabilities
and obligations to the extent reflected, reserved for or disclosed
in the
consolidated balance sheet of Parent and its consolidated Subsidiaries
as
of March 31, 2007, as set forth in the Parent’s Quarterly Report on Form
10-QSB for the period ended March 31, 2007 or in the notes thereto;
and
|
24
|
|
(ii)
|
liabilities
and obligations that were incurred in the ordinary course of business
consistent with past practice since March 31,
2007.
|
|
(d)
|
Books
and Records. The books and records of Parent are being
maintained and preserved in material compliance with all applicable
legal
and accounting requirements, including applicable provisions of
the
▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act.
|
|
Absence
of Certain Changes or
Events.
|
Since
December 31, 2006, except as set forth in Section 3.08 of the Parent
Disclosure Schedule, or as expressly contemplated by this
Agreement:
|
|
(i)
|
Parent
has, in all material respects, conducted its businesses in the
ordinary
course and in a manner consistent with past
practice;
|
|
|
(ii)
|
there
has not been any event, circumstance, change or effect that, individually
or in the aggregate, has had, or would reasonably be expected to
have, a
Parent Material Adverse Effect;
|
|
|
(iii)
|
except
in the ordinary course of business or as disclosed hereunder, there
has
not been any material increase in the compensation payable or which
could
become payable by the Parent to its officers or employees, or any
amendment of any compensation and benefit plans resulting in a
material
increase in payments thereunder;
|
|
|
(iv)
|
there
has not been any issuance or agreement to issue shares of Parent
Common
Stock, other than under the Parent Stock Option
Plans;
|
|
|
(v)
|
any
material change in financial or tax accounting methods, principles
or
practices by the Parent except insofar as may have been required
by a
change in GAAP or Law;
|
|
|
(vi)
|
any
material Tax election by the Parent or settlement or compromise
by the
Parent of any material Tax liability or refund;
and
|
|
|
(vii)
|
the
Parent has not taken any action that, if taken after the date of
this
Agreement, would constitute a material breach of, or require a
consent
under, any of the covenants set forth in
Section 4.01.
|
|
SECTION
3.09.
|
Absence
of Litigation.
|
There
is
no Action which if adversely determined against Parent would result in a
liability exceeding ten percent (10%) of Parent’s gross assets as of June 30,
2007, or any judgments, decrees, injunctions, investigations or orders of
any
Governmental Authority pending or, to the Knowledge of the Parent, threatened
against or affecting the Parent, or any property or asset of the Parent or
any
of its officers or directors that may adversely affect the Parent.
25
|
SECTION
3.10.
|
Employee
Benefit Plans.
|
|
(a)
|
Plans. Section 3.10(a)
of the Parent Disclosure Schedule lists all employee benefit plans
(as
defined in Section 3(3) of ERISA) and all bonus, stock option, stock
purchase, restricted stock, phantom stock or other equity based
compensation incentive, deferred compensation, excess benefit,
retiree
medical or life insurance, supplemental retirement, severance,
salary
continuation, pension, profit sharing, savings, retirement, disability,
insurance, Section 125 “cafeteria” or “flexible” benefit, vacation, sick
leave, employee loan, educational assistance, change in control,
termination or any other similar fringe or employee benefit plans,
programs or arrangements, and all employment, retention, termination,
severance or other contracts or agreements, that cover any of the
current
or former employees, officers, or directors of the Parent and with
respect
to which the Parent has any liability or obligation or that are
maintained, contributed to or sponsored by the Parent (collectively,
the
“ParentPlans”). For each
Parent Plan, the Parent has furnished or made available to Company
a true
and complete copy of the following documents, if applicable: (i) each
Parent Plan document and all amendments thereto, and where such
Parent
Plan is unwritten, a written description of the terms thereof,
(ii) all trust agreements, insurance or annuity contracts or other
funding vehicles, (iii) the current summary plan description,
(iv) the three most recent annual reports on Form 5500 filed with the
IRS (together with any schedules thereto) and (v) the most recent
determination letter or opinion letter from the IRS with respect
to any
Parent Plan that is intended to be qualified under Section 401(a) of
the Code or the standardized prototype plan on which such Parent
Plan is
based. The Parent may amend or terminate any Parent Plan (other
than an employment agreement or any similar agreement that cannot
be
terminated without the consent of the other party) at any time
without
incurring liability thereunder, other than in respect of accrued
and
vested obligations and medical or welfare claims incurred prior
to such
amendment or termination. The Parent has no plan, contract or
commitment, whether legally binding or not, to create any additional
employee benefit or compensation plans, policies or arrangements
or,
except as may be required by Law, to modify any Parent
Plan.
|
|
(b)
|
Plan
Compliance. Each Parent Plan has been maintained, operated
and administered in material compliance with its terms and the
requirements of all applicable Laws including, without limitation,
ERISA
and the Code. The Parent has performed all obligations required
to be performed by it under, is not in material default under or
in
material violation of, and to the Parent’s Knowledge, no other party is in
material default or material violation of, any Parent
Plan. Neither the Parent nor, to the Parent’s Knowledge, any of
its directors, officers, employees or agents has, with respect
to any
Parent Plan, engaged in or been a party to any “prohibited transaction”
(as defined in Section 4975 of the Code or Section 406 of ERISA),
which
could result in the imposition of either a penalty assessed pursuant
to
Section 502(i) of ERISA or a tax imposed by Section 4975 of the
Code, in
each case applicable to the Parent or any Parent
Plan.
|
|
(c)
|
Payments. There
will be no payment, accrual of additional benefits, acceleration
of
payments or vesting of any benefit under any contract, agreement,
plan or
other arrangement, whether or not a Parent Plan, and no employee,
officer
or director of the Parent will become entitled to any severance,
termination pay or similar payments
or
|
26
|
|
benefits
in connection with the Transactions (either alone or in combination
with
any other event), other than as specifically provided for in
this
Agreement or as set for in Section 3.10(c) of the Parent Disclosure
Schedule. No payment, accrual of additional benefits,
acceleration of payments or vesting of any benefit under this
Agreement,
any Parent Plan or similar agreement or arrangement between the
Parent or
any of its Affiliates and any “disqualified individual” (as such term is
defined in Section 280G of the Code) could constitute an “excess
parachute payment” (as such term is defined in Section 280G of the
Code) in connection with the transactions contemplated by this
Agreement
(either alone or in combination with any other event). No
amounts payable under any Parent Plan or otherwise will fail
to be
deductible to the Parent for federal income tax purposes by virtue
of
Section 162(m) of the Code.
|
|
(d)
|
Contributions. All
contributions, premiums or payments required to be made with respect
to
any Parent Plan have been made on or before their due dates, with
such
exceptions as would not have a Parent Material Adverse
Effect. All liabilities or expenses of the Parent in respect of
any Parent Plan (including workers compensation) which have not
been paid
are not Material or have been properly accrued on the Parent’s most recent
financial statements in compliance with
GAAP.
|
|
(e)
|
Employees. To
the Knowledge of Parent, Parent has no direct or indirect liability,
whether absolute or contingent, with respect to any misclassification
of
any person as an independent contractor rather than as an employee,
or
with respect to any employee leased from another employer, that
would
reasonably be expected to constitute a Parent Material Adverse
Effect.
|
|
SECTION
3.11.
|
Leased
Property; Title to Assets.
|
|
(a)
|
Leases. True,
correct and complete copies of all leases, subleases or licenses
for each
parcel of real property and for each item of personal property
calling for
annual payments of at least $15,000, currently leased, subleased
or
licensed by the Parent (the “ParentLeased
Property”), together with any assignments, guaranties or
amendments thereto (collectively, the
“ParentLease Documents”) have been
delivered or made available to Company. Except as would not,
individually or in the aggregate, reasonably be expected to have
a Parent
Material Adverse Effect, (i) all such current leases, subleases
and
licenses are in full force and effect, (ii) all such current leases,
subleases and licenses are valid and effective in accordance with
their
respective terms, and (iii) there is not, under any of such leases,
subleases and licenses, any existing default or event of default
(or event
which, with notice or lapse of time, or both, would constitute
a default)
by the Parent or, to the Parent’s Knowledge, by the other party to such
lease, sublease or license. The Parent does not own any real
property. The tangible assets of the Parent taken as a whole
constitute the assets necessary to operate the business of the
Parent and
are, in all material respects, in good condition and repair, reasonable
wear and tear excepted.
|
|
(b)
|
Liens. The
Parent owns or has good, valid, marketable legal and beneficial
title in
all of their respective properties and assets, whether real, personal
or
intangible, included on the Parent Balance Sheet (other than assets
disposed of in the ordinary course of business or acquired since
the date
thereof), free and clear of all encumbrances, except (i)
statutory
|
27
|
|
liens
for amounts not yet delinquent or which are being contested in
good faith
(ii) other liens arising in the ordinary course of business and
not
incurred in connection with the borrowing of money, or (iii)
security
interests or other liens set forth in Section 3.11 of the Parent
Disclosure Schedule. Except as would not, individually or in
the aggregate, reasonably be expected to have a Parent Material
Adverse
Effect, the Parent is not a party to or obligated under any option,
right
of first refusal or other contractual right to sell, dispose
of or lease
any of its properties or any portion thereof or interest therein
to any
Person. Except as would not, individually or in the aggregate,
reasonably be expected to have a Parent Material Adverse Effect,
the
Parent is not a party to any agreement or option to purchase
any property
or interest therein other than options for renewal of Parent
Leased
Property for the benefit of the
Parent.
|
|
SECTION
3.12.
|
Taxes.
|
|
(a)
|
Tax
Returns. Except to the extent set forth on Section 3.12(a)
of the Parent Disclosure Schedule, the Parent has properly prepared
and
timely filed (or caused to be timely filed) all Tax Returns required
to be
filed by or with respect to it and has fully and timely paid and
discharged all Taxes required to be paid or discharged (whether
or not
shown on such Tax Returns) and has made adequate provision for
any taxes
that are not yet due and payable for all taxable periods, or portions
thereof, ending on or before the date of this Agreement. All
such Tax Returns (including information provided therewith or with
respect
thereto) are true, correct and complete in all material
respects. The Parent has not granted any waiver of any statute
of limitations with respect to, or any extension of a period for
the
assessment of, any Tax for any taxable period and no request for
any such
waiver or extension is currently pending. All amounts of Taxes
required to be withheld by or with respect to the Parent have been
timely
withheld and remitted in all respects to the applicable Governmental
Authority. The Parent has complied in all material respects
with all Tax information reporting provisions under applicable
Laws. The Parent is not a party to any indemnification,
allocation or sharing agreement with respect to Taxes and does
not have
any liability for Taxes of any Person (other than members of the
affiliated group, within the meaning of Section 1504(a) of the Code,
filing consolidated federal income tax returns of which the Parent
is the
common parent) under Treasury Regulation § 1.1502-6, Treasury
Regulation § 1.1502-78 or any similar state, local or foreign Laws,
as a transferee or successor, or otherwise. The Parent has made
available to Company correct and complete copies of all Tax Returns,
examination reports and statements of deficiencies for taxable
periods, or
transactions consummated, for which the applicable statutory periods
of
limitations have not expired.
|
|
(b)
|
Audits. There
are no pending or, to the Knowledge of the Parent, threatened in
writing,
audits, examinations, investigations or other proceedings in respect
of
any Tax matter of the Parent. No Governmental Authority has
given notice to the Parent of its intention to assert any deficiency
or
claim for additional Taxes against the Parent. No claim has
been made against the Parent by any Governmental Authority in a
jurisdiction where the Parent does not file Tax Returns that the
Parent is
or may be subject to taxation by that jurisdiction. All
deficiencies for Taxes asserted or assessed against the Parent
have been
fully and timely paid, settled or properly reflected in the Parent
Financial Statements.
|
28
|
(c)
|
Tax
Liens. There are no Tax liens upon any property or assets
of the Parent except for statutory liens for current Taxes not
yet due and
payable and for liens, which individually or in the aggregate,
do not
exceed $10,000.
|
|
(d)
|
Section
355. The Parent has not constituted a “distributing
corporation” or a “controlled corporation” (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of shares
qualifying for tax-free treatment under Section 355 of the Code
(i) in the two years prior to the date of this Agreement or
(ii) in a distribution that could otherwise constitute part of a
“plan” or “series of related transactions” (within the meaning of
Section 355(e) of the Code) in conjunction with the transactions
contemplated by this Agreement.
|
|
(e)
|
Reportable
Transactions. The Parent has not entered into any
transaction that constitutes (i) a “reportable transaction” within the
meaning of Treasury Regulation § 1.6011-4(b), (ii) a “confidential tax
shelter” within the meaning of Treasury Regulation § 301.6111-2(a)(2)
or (iii) a “potentially abusive tax shelter” within the meaning of
Treasury Regulation
§ 301.6112-1(b).
|
|
SECTION
3.13.
|
Material
Contracts.
|
|
(a)
|
List
of Contracts: Section 3.13(a) of the Parent Disclosure
Schedule sets forth a true and complete list of contracts and agreements
of the following types to which the Parent is a party or is bound
by, or
to which any of the assets of the Parent are subject (such contracts
and
agreements as are required to be set forth in Section 3.13(a) of the
Parent Disclosure Schedule being the
“ParentMaterial
Contracts”):
|
|
|
(i)
|
each
“material contract” (as such term is defined in Item 601(b)(10) of
Regulation S-K of the SEC) with respect to the
Parent;
|
|
|
(ii)
|
all
contracts and agreements relating to issuances of securities of
the Parent
(and all letters of intent, term sheets and draft agreements relating
to
any such pending transactions);
|
|
|
(iii)
|
all
contracts and agreements relating to indebtedness for borrowed
money or
capitalized lease obligations, in each case for which the Parent
is
primarily or secondarily liable, or which are secured by assets
of the
Parent, and in each case in an amount in excess of
$15,000;
|
|
|
(iv)
|
all
contracts and agreements (A) containing any non-compete covenant or
other covenant limiting the right of the Parent to engage in any
line of
business or to make use of any Intellectual Property Rights or
(B) containing any material exclusive or sole supplier arrangement,
or other exclusive business arrangement, to which the Parent is
subject;
|
|
|
(v)
|
all
agreements with any employee, including severance agreements with
existing
employees, or any consultant, broker or
agent;
|
29
|
|
(vi)
|
all
agreements with suppliers, customers, licensees or licensors, in
each case
in an amount in excess of $15,000;
|
|
|
(vii)
|
all
Parent Lease Documents; and
|
|
|
(viii)
|
all
other contracts and agreements providing for payments by or
to the Parent,
or the guarantee (whether or not contingent) by the Parent
of obligations
of any third party, in excess of $15,000, whether or not made
in the ordinary course of business, or which are otherwise
material to the
Parent or the conduct of its businesses, or the absence of
which would,
individually or in the aggregate, reasonably be expected to
have a Parent
Material Adverse Effect.
|
|
(b)
|
Validity;
Default. (i) Each Parent Material Contract is valid
and in full force and effect in all material respects, and enforceable
against the Parent and against each other party thereto, in accordance
with its terms (subject to the effect of any applicable bankruptcy,
insolvency (including, without limitation, all Laws relating to
fraudulent
transfers), reorganization, moratorium or similar Laws affecting
creditors’ rights generally and subject to the effect of general
principles of equity (regardless of whether considered in a proceeding
at
Law or in equity)); and
|
|
|
(i)
|
(A) neither
the execution of this Agreement nor the consummation of any Transaction
shall constitute a material default under, give rise to cancellation
rights under, or otherwise adversely affect, in each case, in any
material
respect, any of the rights of the Parent under any Parent Material
Contract, and (B) neither the Parent nor, to the Knowledge of the
Parent, any other party thereto, is in material breach of, or material
default under, any Parent Material Contract to which it is a party
nor, to
the Knowledge of the Parent, has any event occurred that, with
notice or
lapse of time or both, would constitute such a breach or default,
or
permit termination, modification or acceleration of any party’s rights
under any Parent Material Contract.
|
The
Parent has furnished or made available to Company true and complete copies
of
all Parent Material Contracts, including any amendments thereto. In
the event any Parent Material Contract is oral, the complete and correct
terms
thereof are set forth in Section 3.13(a) of the Parent Disclosure
Schedule.
|
SECTION
3.14.
|
Labor
and Employment Matters.
|
Section
3.14 of the Parent Disclosure Schedule sets forth a true, correct and complete
list of all employees (full time and part-time) and consultants of the Parent,
setting forth name, job title, salary, date of hire or retention and last
salary
adjustment. The Parent is and has been in material compliance with
all applicable Laws respecting employment and employment practices, terms
and
conditions of employment (including termination of employment), wages, hours
of
work, occupational safety and health, and worker classification, and is not
engaged in any unfair labor practices. The Parent has not received
notice of the intent of any Governmental Authority responsible for the
enforcement of labor or employment Laws to conduct an investigation with
respect
to or relating to Parent employees and, to the Knowledge of the Parent, no
such
30
investigation
is in progress. Except as set forth on Section 3.14 of the Parent
Disclosure Schedule, all of the employees of the Parent are on an “at will”
basis, and have entered into non-disclosure and shop-right agreements with
the
Parent.
|
SECTION
3.15.
|
Permits;
Compliance.
|
Except
as
would not, individually or in the aggregate, reasonably be expected to have
a
Parent Material Adverse Effect, (i) the Parent is in possession of all
franchises, grants, authorizations, licenses, permits, easements, variances,
exemptions, consents, certificates, approvals and orders necessary to own,
lease
and operate its properties and to carry on its business as now being conducted
(the “ParentPermits”), and (ii) each such
Parent Permit is valid and in full force and effect. Section 3.15 of
the Parent Disclosure Schedule sets forth a true, correct and complete list
of
all Parent Permits. Except as would not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect,
the
Parent is, and has been, in compliance with, and to the Knowledge of the
Parent,
is not under investigation with respect to and has not been threatened to
be
charged with or given any notice of any violation of, any applicable Law
or the
terms and conditions of any Parent Permit.
|
SECTION
3.16.
|
Intellectual
Property.
|
|
(a)
|
Identification. Section 3.16
of the Parent Disclosure Schedule sets forth a true, correct and
complete
list of all U.S. and material foreign (i) issued Patents and Patent
applications, (ii) Trademark registrations and applications,
(iii) Copyright registrations and applications, in each case, which
are owned by the Parent.
|
|
(b)
|
Licenses. Section 3.16
of the Parent Disclosure Schedule sets forth a list of all material
licenses of Intellectual Property Rights under which the Parent
is either
a (i) licensor, or (ii) licensee, distributor or
reseller.
|
|
(c)
|
Validity
and Enforceability. The Parent owns or has a valid right to
use, free and clear of all liens, all Intellectual Property Rights
necessary, or used or held for use in connection with the business
of the
Parent. All such Intellectual Property Rights are subsisting,
valid and enforceable.
|
|
(d)
|
Rights. Except
as would not, individually or in the aggregate, reasonably be expected
to
have a Parent Material Adverse Effect, and except for the matters
identified in Section 3.16 of the Parent Disclosure Schedule,
(i) none of the Intellectual Property Rights that are owned or
licensed by the Parent conflicts with, infringes upon or misappropriates
or otherwise violates the Intellectual Property Rights of any third
party,
(ii) the Parent has not been sued, charged in writing with, or named
a defendant in, any claim, suit, action or proceeding involving
a claim of
infringement of any Intellectual Property Rights of others, (iii) to
the Knowledge of the Parent, there is no threatened claim of infringement
by the Parent of any Intellectual Property Rights of others, and
(iv) to the Knowledge of the Parent, there is no continuing
infringement by others of the Intellectual Property Rights of the
Parent. No Intellectual Property Rights of the Parent are
subject to any outstanding order, judgment, decree, stipulation
or
agreement restricting the use thereof by the Parent. The Parent
has not entered into any agreement
|
31
|
|
to
indemnify any other individual or entity against any charge of
infringement of any Intellectual Property
Right.
|
|
(e)
|
Definitions. For
purposes of this Article III, “Intellectual Property
Rights” means all U.S. and foreign Patents, Trademarks,
Copyrights, rights of publicity, Parent Software and any other
relevant proprietary intellectual property rights. For purposes
of this Agreement, “ParentSoftware”
means computer software, programs and databases in any form (including
Internet web sites, web content and links, all versions, updates,
corrections, enhancements, and modifications thereof, and all related
documentation) (i) material to the operation of the business of
the
Parent, including all computer software and databases operated
by the
Parent on its web sites or used by the Parent in connection with
processing customer orders, storing customer information, or storing
or
archiving data, but excluding software that is in general distribution
to
users of personal computers, and (ii) owned, manufactured, distributed,
sold, licensed or marketed by the
Parent.
|
|
SECTION
3.17.
|
Insurance.
|
Section 3.17
of the Parent Disclosure Schedule lists, and the Parent has made available
to
Company or its representatives for review current and complete copies of,
all
insurance policies, binders and surety and fidelity bonds relating to the
Parent
(including, without limitation, all policies or binders of casualty, general
liability and workers’ compensation insurance), all of which are currently in
effect. All premiums and other amounts due and payable under each
such policy, binder and bond have been paid. The Parent is not in
default with respect to any material provision contained in any such policy,
binder or bond and the Parent has not failed to give any notice of or present
any material claim thereunder as required by the terms thereof. The
Parent has not received any written notice of cancellation or non-renewal
of any
such policy, binder or bond. The Parent has not received any written
notice from any of its insurance carriers that any insurance premiums paid
by it
will be materially increased in the future as a result of the claims experience
of the Parent. Except as set forth on Section 3.17 of the Parent
Disclosure Schedule, adequate reserves have been established for all claims
under any such policy, binder and bond as to which the insurer has denied
coverage.
|
SECTION
3.18.
|
Brokers.
|
No
broker, finder or investment banker is entitled to any brokerage, finder’s or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Parent or any of its
Affiliates.
|
SECTION
3.19.
|
Customers,
Receivables.
|
Section 3.19
of the Parent Disclosure Schedule sets forth a true, correct and complete
list
of Parent’s top ten customers since July 1, 2006 (by total revenues), and the
amount billed to Parent’s top ten customers. Except as set forth in
Section 3.19 of the Parent Disclosure Schedule, none of the customers
listed on Section 3.19 of the Parent Disclosure Schedule have advised the
Parent
that it plans to discontinue or substantially reduce its business relationship
with the Parent. All accounts receivables listed on the Parent
Balance Sheet or on the accounting records of the Parent represent valid
obligations arising from sales actually made or services
32
actually
performed in the ordinary course of business, and are current and collectible
in
accordance with their terms except to the extent of any reserves properly
reflected in the Parent Financial Statements or as otherwise set forth on
Section 3.19 of the Parent Disclosure Schedule.
|
SECTION
3.20.
|
Transactions
With Affiliates.
|
Except
as
otherwise disclosed in Section 3.20 of the Parent Disclosure Schedule, there
are
no contracts (other than expired contracts or contracts terminated in accordance
with their terms), commitments, agreements, arrangements or other transactions
between the Parent, on the one hand, and any (a) present or former officer
or
director of the Parent or any of their immediate family members (including
their
spouses), (b) record or beneficial owner of five percent or more of the voting
securities of the Parent or (c) affiliate of any such officer, director,
immediate family member or beneficial owner, on the other hand.
|
SECTION
3.21.
|
Certain
Business Practices.
|
Except
as
would not, individually or in the aggregate, reasonably be expected to have
a
Parent Material Adverse Effect, neither the Parent nor any director, officer,
agent or employee of the Parent has (i) used any funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity or for the business of the Parent, (ii) made any unlawful
payment to foreign or domestic government officials or employees or to foreign
or domestic political parties or campaigns or violated any provision of the
Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any other
unlawful payment.
|
SECTION
3.22.
|
Interim
Operations of Merger Sub.
|
Merger
Sub was formed solely for the purpose of effecting the Merger, has engaged
in no
other business activities and has conducted its operations only as contemplated
hereby or in connection therewith.
|
SECTION
3.23.
|
No
Other Representations or Warranties; Full
Disclosure.
|
Except
for the representations and warranties contained in Article III of this
Agreement, the Company acknowledges that neither Parent, Merger Sub nor any
other Person on behalf of Parent or Merger Sub makes any other express or
implied representation or warranty with respect to Parent or Merger Sub
regarding any other information provided to the Company. Neither this
Agreement nor the exhibits or certificates delivered by Parent to the Company
in
connection herewith or at Closing contain any untrue statement of a material
fact or omit or will omit to state a material fact necessary in order to
make
the statements contained herein or therein not misleading.
ARTICLE
IV
CONDUCT
OF BUSINESS PENDING THE MERGER
|
SECTION
4.01.
|
Conduct
of Business Pending the
Merger.
|
|
(a)
|
Ordinary
Course. Each of the Company and the Parent agrees that,
between the date of this Agreement and the Effective Time, except
as
expressly contemplated by any other
|
33
|
|
provision
of this Agreement or as set forth in Section 4.01 of the Company
Disclosure Schedule and/or the Parent Disclosure Schedule, unless
the
other party shall otherwise consent in writing (such consent
not to be
unreasonably withheld or delayed), it
shall:
|
|
|
(i)
|
conduct
its respective business in the ordinary course of business and
in a manner
consistent with past practice;
|
|
|
(ii)
|
use
commercially reasonable efforts to preserve intact its business
organization, to keep available the services of its current officers
and
employees and to preserve the current relationships with customers,
suppliers and other Persons with which it has significant business
relations; and
|
|
|
(iii)
|
comply
in all material respects with all applicable Laws with regard to
its
financial statements, accounting practices, corporate governance,
business
and operations, including the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002, as the
same may
be amended from time to time, and the rules and regulations promulgated
thereunder.
|
|
(b)
|
Required
Consent. Except as expressly contemplated by any other
provision of this Agreement or as set forth in Section 4.01 of the
Company Disclosure Schedule and/or the Parent Disclosure Schedule,
neither
the Company nor Parent shall, between the date of this Agreement
and the
Effective Time, directly or indirectly, do, or propose to do, any
of the
following without the prior written consent of the designated
representative of Parent and the Company, with ▇▇▇▇▇▇▇ ▇▇▇▇▇ being
the
initial designated representative of Parent and ▇▇▇▇▇ ▇▇▇▇▇ being
the
initial representative of the Company (such consent not to be unreasonably
withheld or delayed):
|
|
|
(i)
|
amend
or otherwise change its articles of incorporation or by-laws or
equivalent
organizational documents;
|
|
|
(ii)
|
issue,
sell, pledge, dispose of, grant or encumber, or authorize such
issuance,
sale, pledge, disposition, grant, or encumbrance of any shares
of any
class of capital stock or other equity interests or other securities,
or
any options, warrants, convertible securities or other rights of
any kind
to acquire any shares of such capital stock or other equity interest
or
other securities (including, without limitation, any phantom interest),
except for the issuance of shares issuable pursuant to stock options
outstanding on the date of this Agreement;
or
|
|
|
(iii)
|
declare,
set aside, make or pay any dividend or other distribution, payable
in
cash, stock, property or otherwise, with respect to any of its
capital
stock;
|
|
|
(iv)
|
reclassify,
combine, split, subdivide or effect any similar transaction with
respect
to, or redeem, or purchase or otherwise acquire, directly or indirectly,
any of its capital stock;
|
|
|
(v)
|
other
than in the ordinary course of business and consistent with past
practice:
|
|
|
(A)
|
acquire
(including, without limitation, by merger, consolidation, or acquisition
of stock or assets or any other business combination)
any
|
34
|
|
|
corporation,
partnership, other business organization or any division thereof
or any
significant amount of assets; or
|
|
|
(B)
|
issue
any debt securities or similar obligations, incur indebtedness
for
borrowed money or grant any lien or security interest securing
obligations
with respect to indebtedness, or assume, guarantee or endorse,
or
otherwise become responsible for, the obligations of any Person;
or
|
|
|
(C)
|
make
any material loan, advance or capital contribution to, or investment
in,
any other Person; or
|
|
|
(D)
|
sell,
pledge, gift or encumber any of its
assets;
|
|
|
(vi)
|
(i)
|
hire
any additional employees other than in the ordinary course of business,
except (A) to fill vacancies arising after the date of this Agreement;
or
(B) to meet increased demand.
|
|
|
(A)
|
make
any offers to any officer or other executive employee (or any person
who
following such action, would be an officer or executive employee)
of an
employment position other than the employment position he or she
currently
holds, except for offers of an employment position made in the
ordinary
course of business and consistent with past practice in connection
with
the promotion or demotion of any employee who is not a director
or
officer;
|
|
|
(B)
|
increase
the compensation payable or to become payable to, or except as
required to
comply with applicable Law, adopt, enter into, terminate, amend
or
increase the amount or accelerate the payment or vesting of any
benefit or
award or amount payable under any stock option plan or other employee
benefit plan or other arrangement for the current or future benefit
or
welfare of, any director, officer or employee, except for increases
in the
ordinary course of business and consistent with past practice in
salaries
or wages of executive employees who are not directors or
officers;
|
|
|
(C)
|
grant
any loan, advance, extensions of credit to current or former employees
or
forgiveness or deferral of any loans due from any
employee;
|
|
|
(D)
|
establish,
adopt, enter into, terminate or amend any employee benefit plan
or
establish, adopt or enter into any plan, agreement, program, policy,
trust, fund or other arrangement for the benefit of any director,
officer
or employee except as required by this Agreement or the Transactions
contemplated hereby, or as required by ERISA, the Code or to otherwise
comply with applicable Law;
|
|
|
(E)
|
grant
any awards under any bonus, incentive, performance or other compensation
plan or arrangement or employee benefit
plan;
|
35
|
|
(vii)
|
enter
into, amend or terminate any employment or severance agreement
with or,
except in accordance with existing obligations, grant any severance,
termination, change in control or transaction bonus or pay to,
any
employee, officer or director;
|
|
|
(viii)
|
other
than benefits accrued through the date hereof and other than
in the
ordinary course of business for employees other than its officers
or
directors, pay any benefit not provided for under any employee
benefit
plan;
|
|
|
(ix)
|
enter
into, amend or modify in any material respect, or consent to the
termination of, any material contract or agreement, or amend, waive
or
modify in any material respect, fail to renew, or consent to the
termination of, its rights thereunder other than in the ordinary
course of
business consistent with past
practice;
|
|
|
(x)
|
change
any Tax election, annual tax accounting period, or method of tax
accounting, file amended Tax Returns or claims for Tax refunds,
enter into
a closing agreement relating to Taxes or any settlement of any
Tax claim,
audit or assessment;
|
|
|
(xi)
|
make
any changes in its accounting methods, principles or practices
currently
in effect, except as required by changes in
GAAP;
|
|
|
(xii)
|
adopt
a plan of complete or partial liquidation, dissolution, merger,
consolidation, restructuring, recapitalization or other reorganization
(other than the Transactions);
|
|
|
(xiii)
|
except
as required by applicable Law or GAAP, revalue in any material
respect any
of its assets, including writing down the value of inventory
in any
material manner, or writing-off notices or accounts receivable
in any
material manner;
|
|
|
(xiv)
|
pay,
discharge, satisfy, settle or compromise any claim, litigation,
liability,
obligation (absolute, asserted or unasserted, contingent or
otherwise) or
any Action, except for settlements or compromises involving
amounts not
exceeding $25,000 in the aggregate, including all fees, costs
and expenses
associated therewith;
|
|
|
(xv)
|
enter
into any material agreement or arrangement with any of its officers,
directors, employees or any “affiliate” or “associate” of any of its
officers or directors (as such terms are defined in Rule 405 under
the
Securities Act);
|
|
|
(xvi)
|
make,
authorize or agree to make any capital expenditures, or enter
into any
agreement or agreements providing for payments, except for
capital
expenditures not exceeding $25,000 in the
aggregate;
|
|
|
(xvii)
|
terminate
or fail to renew any permit that is material to the conduct
of its
business;
|
36
|
|
(xviii)
|
fail
to maintain in full force and effect all of its insurance (including
self-insurance) currently in effect, subject to renewal in
the ordinary
course of business consistent with past
practice;
|
|
|
(xix)
|
take
any action or omit to take any action within its control
that would, or is
reasonably likely to, result in any of the conditions to
the Merger set
forth in Article VI of this Agreement not being satisfied;
or
|
|
|
(xx)
|
authorize,
agree or commit to do any of the
foregoing.
|
|
SECTION
4.02.
|
Advice
of Changes; Government
Filings.
|
|
(a)
|
Advise. Each
party shall promptly advise the other orally and in writing of
(i) any representation or warranty made by it in this Agreement (A)
to the extent qualified by Material Adverse Effect or other materiality
qualifier becoming untrue or inaccurate and (B) to the extent not
qualified by Material Adverse Effect becoming untrue or inaccurate
in any
material respect except that this clause (B) shall be deemed
satisfied so long as such representations or warranties being untrue
or
inaccurate do not have a Material Adverse Effect on the Company
or Parent,
as the case may be, or (ii) the failure by it to comply with or
satisfy in any material respect any covenant, condition or agreement
required to be complied with or satisfied by it under this Agreement.
However, subject to Section 5.13 of this Agreement and any update
or
correction being deemed made as of the date of this Agreement in
accordance with Section 5.13, no such notification shall affect
the
representations, warranties, covenants or agreements of the parties
or the
conditions to the obligations of the parties or the remedies available
under this Agreement.
|
|
(b)
|
Filings. Subject
to applicable Laws relating to the exchange of information, each
of the
Company and Parent shall have the right to review in advance, and
to the
extent practicable each will consult with the other, with respect
to all
the information relating to the other party and each of their respective
Subsidiaries, which appears in any filings, announcements or publications
made with, or written materials submitted to, any third party or
any
Governmental Authority in connection with the Transactions. In
exercising the foregoing right, each of the parties hereto agrees
to act
reasonably and as promptly as practicable. Each party agrees
that, to the extent practicable, it will consult with the other
party with
respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Authorities
necessary
or advisable to consummate the Transactions and each party will
keep the
other party apprised of the status of matters relating to completion
of
the Transactions.
|
ARTICLE
V
ADDITIONAL
AGREEMENTS
|
SECTION
5.01.
|
Access
to Information;
Confidentiality.
|
|
(a)
|
Access. Subject
to applicable Law and the confidentiality agreement, dated March
8, 2007,
between Parent and the Company (the “Confidentiality
Agreement”), from the
|
37
|
|
date
of this Agreement until the Effective Time, the Company and Parent
shall
(and shall cause their respective subsidiaries
to):
|
|
|
(i)
|
provide
to each such party and to such party’s respective Representatives access,
during normal business hours and upon no less than twenty-four
(24) hours
advance notice, to the officers, employees, agents, properties,
offices
and other facilities of each such party and its respective Subsidiaries
and to the books and records
thereof;
|
|
|
(ii)
|
furnish
such information concerning the business, properties, contracts,
assets,
liabilities, personnel and other aspects of each such party as
may be
reasonably requested; and
|
|
|
(iii)
|
instruct
the employees, counsel and financial advisors of each such party
and its
respective Subsidiaries to reasonably cooperate with the other
party in
such investigation; provided, that such access with respect to
employees, customers, vendors or suppliers shall be subject to
obtaining
the prior written consent of the applicable party
hereto.
|
|
(b)
|
Confidentiality
Agreement. The Confidentiality Agreement shall survive the
execution and delivery of this
Agreement.
|
|
(c)
|
No
Waiver. Except as otherwise expressly provided herein, no
information or knowledge obtained by any party pursuant to this
Section 5.01 or otherwise shall affect or be deemed to modify any
representation or warranty made by any party
hereunder.
|
|
SECTION
5.02.
|
No
Solicitation of
Transactions.
|
|
(a)
|
Company
Obligations. The Company shall not, and the Company shall
cause its Representatives not to, directly or
indirectly:
|
|
|
(i)
|
solicit
or initiate any inquiries for the making of any proposal or offer
(including any proposal or offer to Company stockholders) that
constitutes, or would reasonably be expected to lead to, (i) any
acquisition or purchase of any of the assets of the Company or
of any
class of equity securities of the Company, (ii) any tender offer
(including a self tender offer) or exchange offer, (iii) any merger,
consolidation, business combination, sale of substantially all
assets,
recapitalization, liquidation, dissolution or similar transaction
involving the Company, or (iv) any other transaction the consummation
of
which would or would reasonably be expected to impede, interfere
with,
prevent or materially delay the Merger or which would or would
reasonably
be expected to materially dilute the benefits to Parent of the
Transactions (each such proposal or offer an
“CompanyAcquisition Proposal”);
or
|
|
|
(ii)
|
participate
in discussions or negotiations with, disclose or provide any non-public
information relating to the Company, or afford access to the officers,
employees, agents, business, properties, assets, books or records
of the
Company to, any
|
38
|
|
|
Person
with respect to or in connection with any potential Company Acquisition
Proposal.
|
The
Company shall, and shall instruct its Representatives to immediately cease
and
cause to be terminated all existing discussions or negotiations with any
Person
(other than Parent) conducted heretofore with respect to any proposal relating
to a Company Acquisition Proposal.
|
(b)
|
Parent
Obligations. Parent shall not, and Parent shall cause its
Subsidiaries and its and their respective Representatives not to,
directly
or indirectly:
|
|
|
(i)
|
solicit
or initiate any inquiries for the making of any proposal or offer
(including any proposal or offer to Parent stockholders) that constitutes,
or would reasonably be expected to lead to, (i) any acquisition
or
purchase of any of the assets of Parent or of any class of equity
securities of Parent, (ii) any tender offer (including a self tender
offer) or exchange offer, (iii) any merger, consolidation, business
combination, sale of substantially all assets, recapitalization,
liquidation, dissolution or similar transaction involving Parent,
or (iv)
any other transaction the consummation of which would or would
reasonably
be expected to impede, interfere with, prevent or materially delay
the
Merger or which would or would reasonably be expected to materially
dilute
the benefits to the Company or its Shareholders of the Transactions
(each
such proposal or offer an “ParentAcquisition
Proposal”); or
|
|
|
(ii)
|
participate
in discussions or negotiations with, disclose or provide any non-public
information relating to Parent or its Subsidiaries to, or afford
access to
the officers, employees, agents, business, properties, assets,
books or
records of the Parent to, any Person with respect to or in connection
with
any potential Parent Acquisition
Proposal.
|
Parent
shall, and shall cause its Subsidiaries and instruct its and their
Representatives to immediately cease and cause to be terminated all existing
discussions or negotiations with any Person (other than Parent) conducted
heretofore with respect to any proposal relating to a Parent Acquisition
Proposal.
|
SECTION
5.03.
|
Further
Action; Reasonable Best
Efforts.
|
Upon
the
terms and subject to the conditions of this Agreement, each of the parties
hereto shall: (i) promptly make its respective filings, and thereafter make
any
other required submissions, under any applicable Laws with respect to the
Transactions; and (ii) use its reasonable best efforts to take, or cause
to be
taken, all appropriate action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable Laws or otherwise to consummate
and make effective the Transactions, including, without limitation, using
its
reasonable best efforts to obtain all permits, consents, approvals,
authorizations, qualifications and orders of Governmental Authorities and
parties to contracts with the Company as are necessary for the consummation
of
the Transactions and to fulfill the conditions to the Merger.
39
|
SECTION
5.04.
|
Public
Announcements.
|
None
of
the Company, Parent, Merger Sub, or any of their respective Affiliates shall
issue or cause the publication of any press release or other public announcement
with respect to this Agreement or the transactions contemplated hereby without
the prior written approval of the other parties, except to the extent required
by Law and to the extent practicable, after reasonable prior notice to the
other
parties hereto.
|
Private
Financing.
|
The
Company agrees to provide, and shall cause its directors, officers and employees
to provide, all cooperation reasonably necessary in connection with a private
placement of Parent equity and/or debt securities the gross proceeds of which
shall be approximately $3,000,000 to be consummated contemporaneously with
or at
the Effective Time (the “Private Financing”), including
participation in meetings, due diligence sessions, road shows, the preparation
of offering memoranda, private placement memoranda, and similar documents,
and
other definitive financing documents, or other requested certificates or
documents as may be reasonably requested by Parent or Merger Sub. The
terms and conditions of the Private Financing shall be subject to the mutual
pre-approval of the Company and Parent.
|
SECTION
5.06.
|
Additional
Agreements.
|
At
the
Effective Time, the parties shall have executed and delivered the following
additional agreements:
|
(a)
|
a
registration rights agreement, substantially in the form attached
hereto
as Exhibit B, pursuant to which Parent agrees to register for
resale each share of Parent Common Stock issuable hereunder, in
form and
substance reasonably acceptable to the parties (the “Registration
Rights Agreement”);
|
|
(b)
|
Parent
shall have entered or shall cause the Surviving Corporation or
one of its
Subsidiaries to enter into employment agreements on terms and conditions
to be mutually agreed upon with each of (i) ▇▇▇▇ ▇▇▇▇▇▇▇; (ii)
▇▇▇▇▇
▇▇▇▇▇, and (iii) ▇▇▇▇▇▇ ▇▇▇▇▇▇ (collectively, the “Employment
Agreements”); and
|
|
(c)
|
a
shareholders agreement executed as of the Closing by certain principal
holders of Company Common Stock and Parent Common Stock in an effort
to
ensure that Parent’s board of directors is comprised as set forth in
Section 5.08 (the “Shareholders Agreement”), which
Agreement shall remain effective (i)for so long as the parties
thereto who
are former holders of Company Common Stock, together with members
of their
respective immediate families, hold at least 50% of the aggregate
shares
of Parent Common Stock issued to them under Section 1.07(i) or
(ii) the
rules of any trading system where the Parent Common Stock is then
listed
or traded or the Law or the rules of the SEC would prohibit or
materially
limit the ability to comply with the terms of Section 5.08, whichever
is
the earlier.
|
40
|
SECTION
5.07.
|
Employee
Matters.
|
As
of the
Effective Time, the Company’s employees shall be entitled to continued
employment with the Surviving Corporation, on all of the same terms and
conditions, except as otherwise provided in this Section 5.07 or in any separate
employment agreement between any Company employee and Parent. Parent
will cause the Surviving Corporation and its Subsidiaries to credit each
of the
Company’s employees who become employees of the Surviving Corporation for up to
two (2) years of their service to the Company prior to the Effective Time
for
purposes of eligibility and vesting (but not for benefit accrual, except
for
accrual of vacation (not to exceed four (4) weeks in the aggregate) and
severance benefits under Parent’s and/or the Surviving Corporation’s relevant
plans and policies). From and after the Effective Time, each Company
employee that becomes an employee of the Surviving Corporation shall be eligible
to participate in Parent’s stock option plan. Nothing herein express
or implied by this Agreement shall confer any rights or remedies, including
any
right to employment or benefits for a specified period, of any nature or
kind
whatsoever, under or by reason of this Agreement.
|
SECTION
5.08.
|
Composition
of Parent’s Board of
Directors.
|
Parent’s
board of directors shall consist of seven (7) individuals, a majority of
whom
shall constitute independent directors as defined for purposes of Rule 16b-3
under the Exchange Act. For so long as the Shareholders Agreement is
in effect (a) the parties thereto who were holders of Company Common Stock
shall
have the right to designate three (3) individuals as nominees to Parent’s board
of directors, at least two of which must be independent directors as defined
for
purposes of Rule 16b-3 under the Exchange Act and each of whom shall be
reasonably acceptable to Parent’s board of directors (the “Company
Designees”), and (b) one of the independent Company Designees will
serve on the compensation and audit committees of Parent’s board of directors
and on each other committee established by Parent’s board of
directors.
|
SECTION
5.09.
|
Audited
Financial Statements.
|
As
soon
as reasonably practicable following the Closing and no later than required
by
applicable Law, the Surviving Corporation shall cause to be delivered to
Parent
the audited consolidated financial statements for fiscal years ended on December
31, 2005 and 2006, accompanied by an opinion of the independent accounting
firm
selected by the Company Board (the “Company
Audited
Financials”). The Company Audited Financials shall be
prepared at Parent’s sole cost and expense. The Company Audited
Financials shall be prepared in accordance with GAAP applied on a consistent
basis throughout the periods indicated (except as may be indicated in the
notes
thereto) and shall fairly present, in all material respects, the consolidated
financial position, results of operations and cash flows of the Company as
of
the respective dates thereof and for the respective periods indicated therein,
and in the form required under Item 9.01 of Form 8-K.
|
SECTION
5.10.
|
Company
Stockholder Approval.
|
As
soon
as practicable after the date hereof, the Company shall either call and
thereafter hold a special meeting of the holders of the Company Common Stock
for
Company Stockholder Approval or obtain a written consent of holders of at
least
a majority of the outstanding shares of
41
the
Company Common Stock providing for Company Stockholder Approval and then
give
notice of such action to the remaining holders of the Company Common Stock
pursuant to Section 603 of the Act. The Company shall provide Parent
with drafts of the notice of stockholders meeting or the notice of action
of
majority holders, as applicable, together with any related material to be
sent
to Company stockholders at least two (2) Business Days prior to distribution
thereof. The related material to either of the notices may include a
request for waiver of statutory appraisal rights.
|
SECTION
5.11.
|
Principal
Stockholders.
|
▇▇▇▇▇
▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇ each agrees to vote,
or
execute a written consent of stockholder voting, all of his or her respective
shares of Company Common Stock, and exercise reasonable efforts to cause
the
members of their respective families to vote, or execute a written consent
of
stockholder voting, all of their shares of Company Common Stock, in favor
of
approval of this Agreement, the Merger and all other matters to be voted
upon
the Company’s stockholders in connection with the Transactions.
|
SECTION
5.12.
|
Outstanding
Convertible Note.
|
On
or
before the Closing Date, the Company shall pay or otherwise satisfy the Amended
and Restated Revolving Convertible Note, dated September 18, 2006, for a
loan of
$750,000 from Mobile Streams, Inc. to the Company.
|
SECTION
5.13.
|
Updates
to Representations, Warranties and Disclosure
Schedule.
|
Each
of
the Company and Parent shall have an affirmative obligation to promptly (i)
notify the other party to this Agreement if, at any time up to and including
the
Closing Date, either the Company or Parent shall become aware that any of
its
representations or warranties made in this Agreement have become incorrect
or
inaccurate in any material respect, and (ii) to update the Company Disclosure
Schedule and the Parent Disclosure Schedule, as applicable, upon becoming
aware
of any information that makes such Schedule incomplete or inaccurate in any
material respect. In the event either the Company or Parent gives a
notification to the other party pursuant to the immediately preceding sentence,
the other party shall have, as its sole remedy with respect to the correction
or
updating, the right to terminate this Agreement in accordance with Section
7.01
(iii) or (iv), as applicable. If such party does not exercise its
right to terminate this Agreement in accordance with Section 7.01 (iii) or
(iv),
as applicable, the corrected or updated matter shall be deemed made as of
the
date of this Agreement.
|
SECTION
5.14.
|
Sale
of Company or Disposition of Company
Assets.
|
Parent
hereby covenants and agrees that it shall not, and has no present intention
to
liquidate, dissolve or merge Company for a period of one (1) year following
the
Effective Date. Parent hereby covenants and agrees to use its best
efforts to preserve the tax free nature of the Transaction.
42
|
SECTION
5.15.
|
Exchange
Act Requirements.
|
Parent
hereby covenants and agrees that for a period of two (2) years from the
Effective Time it shall comply on a timely basis with (i) all reporting
requirements of the Exchange Act, (ii) all requirements applicable to a company
with stock listed on the OTC Bulletin Board or other trading system where
the
Parent Common Stock is then listed, and (iii) all public information reporting
and other requirements of the SEC for a company registered under the Exchange
Act.
ARTICLE
VI
CONDITIONS
TO THE MERGER
|
SECTION
6.01.
|
Mutual
Conditions to the Merger.
|
The
obligations of the Company, Parent and Merger Sub to consummate the Merger
shall
be subject to the satisfaction or waiver (where permissible), at or prior
to the
Closing, of the following conditions:
|
|
(i)
|
the
Company shall have obtained the Company Stockholder
Approval;
|
|
|
(ii)
|
no
Governmental Authority shall have enacted, issued, promulgated,
enforced
or entered any Law, rule, regulation, judgment, decree, executive
order or
award (an “Order”) which is then in effect and has the
effect of making the Merger illegal or otherwise preventing or
prohibiting
consummation of the Merger;
|
|
|
(iii)
|
not
more than two percent (2%) of the issued and outstanding shares
of Company
Common Stock shall be Dissenting
Shares;
|
|
|
(iv)
|
the
Closing of the Private Financing and Parent’s or Merger Sub’s (as
applicable) receipt of the proceeds of the Private Financing;
and
|
|
|
(v)
|
The
Company and Merger Sub shall have executed the Agreement of
Merger.
|
|
SECTION
6.02.
|
Conditions
to Obligations of Parent and Merger
Sub.
|
The
obligations of Parent and Merger Sub to effect the Merger shall be further
subject to the satisfaction or waiver at or prior to the Effective Time of
the
following conditions:
|
|
(i)
|
the
representations and warranties of the Company set forth in this
Agreement,
as the same may be updated or corrected in accordance with Section
5.13 of
this Agreement, shall be true and correct, in each case as of
the date of this Agreement and at and as of the Effective Time,
as though
made on and as of such date (unless any such representation or
warranty is
made only as of a specific date, in which event as of such specified
date), taking into account all materiality and Company Material
Adverse
Effect qualifiers, any updated disclosure schedules delivered by
Parent to
Company prior to Closing in accordance with Section 5.13, and except
for
any other failures to be true and correct that would not, individually
or
in the aggregate, reasonably be expected to have a Company Material
Adverse Effect;
|
43
|
|
(ii)
|
the
Company shall have performed in all material respects each of the
obligations, and complied in all material respects with each of
the
agreements and covenants, required to be performed by, or complied
with
by, it under this Agreement at or prior to the
Closing;
|
|
|
(iii)
|
there
shall not have been any event, circumstance, change or effect that,
individually or in the aggregate, has had, or would reasonably
be expected
to have, a Company Material Adverse
Effect;
|
|
|
(iv)
|
Parent
shall have received a certificate of the Chief Executive Officer
or the
Chief Financial Officer of the Company, certifying that the conditions
set
forth in Sections 6.02(i), (ii) and (iii) have been
satisfied;
|
|
|
(v)
|
the
Company shall have obtained and provided to Parent copies of evidence
with
respect to, the Company Required Consents, the terms of which shall
be
reasonably satisfactory to Parent and Merger
Sub;
|
|
|
(vi)
|
Parent
shall have received fully executed copies of the Registration Rights
Agreement, the Shareholders Agreement, and the Employment
Agreements.
|
|
|
(vii)
|
the
Company shall have obtained and provided to Parent a certificate
of good
standing with respect to the Company from the State of California,
which
certificate shall be dated a date not more than fifteen (15) Business
Days
prior to the Closing Date;
|
|
|
(viii)
|
Parent
shall have received an opinion of ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇, Marcus,
▇▇▇▇▇▇ &
▇▇▇▇ LLP, counsel to the Company, in the form and substance
reasonably
satisfactory to Parent; and
|
|
|
(ix)
|
no
suit, action, proceeding, claim, inquiry or investigation by any
Governmental Authority or any third party shall be pending seeking
to
prohibit or restrain, or seeking damages in connection with the
Merger or
the Transactions; and
|
|
SECTION
6.03.
|
Conditions
to Obligations of the
Company.
|
The
obligation of the Company to effect the Merger shall be further subject to
the
satisfaction or waiver at or prior to the Closing of the following
conditions:
|
|
(i)
|
the
representations and warranties of the Parent and Merger Sub set
forth in
this Agreement, as the same may be updated or corrected in accordance
with
Section 5.13 of this Agreement, in each case as of the date of this
Agreement and at and as of the Effective Time, as though made on
and as of
such date (unless any such representation or warranty is made only
as of a
specific date, in which event as of such specified date), taking
into
account all materiality and Parent Material Adverse Effect qualifiers,
any
updated disclosure schedules delivered by Company to Parent prior
to
Closing in accordance with Section 5.13, and except for any other
failures
to be true and correct which would not, individually or in the
aggregate,
reasonably be expected to have a Parent Material Adverse
Effect;
|
44
|
|
(ii)
|
each
of Parent and Merger Sub shall have performed in all material respects
each of the obligations, and complied in all material respects
with each
of the agreements and covenants, required to be performed by or
complied
with by it under this Agreement at or prior to the
Closing;
|
|
|
(iii)
|
there
shall not have been any event, circumstance, change or effect that,
individually or in the aggregate, has had, or would reasonably
be expected
to have, a Parent Material Adverse
Effect;
|
|
|
(iv)
|
the
Company shall have received certificates of the Chief Executive
Officer or
the Chief Financial Officer of each of Parent and Merger Sub, certifying
that the conditions set forth in Sections 6.03(i), (ii) and (iii)
have been satisfied;
|
|
|
(v)
|
the
Company shall have received fully executed copies of the Exchange
Agent
Instruction Letter, the Registration Rights Agreement, the Shareholders
Agreement, the Employment Agreements, the Notes and written confirmation
from the Agent that it is in receipt of a fully executed copy of
the Notes
it will hold for the benefit of former Company Stock Option
holders.
|
|
|
(vi)
|
Parent
shall have obtained and delivered to the Company certificates of
good
standing with respect to Parent and Merger Sub from the States
of Nevada
and the State of California, respectively, which certificates shall
be
dated a date not more than fifteen (15) Business Days prior to
the Closing
Date;
|
|
|
(vii)
|
the
Company shall have received the opinion of ▇▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ Raysman
&
▇▇▇▇▇▇▇ LLP, counsel to Parent and Merger Sub, in the form and
substance
reasonably satisfactory to the
Company;
|
|
|
(viii)
|
no
suit, action, proceeding, claim, inquiry or investigation by
any
Governmental Authority or any third party shall be pending
seeking to
prohibit or restrain, or seeking damages in connection with
the Merger or
the Transactions;
|
|
|
(ix)
|
Parent
shall have taken steps reasonably satisfactory to Company to ensure
compliance with Section 5.08 of this Agreement as soon as reasonably
practicable following the Closing;
and
|
|
|
(x)
|
Company
management shall have determined that the Merger will be treated
as a
tax-free reorganization under Section 368 of the
Code.
|
ARTICLE
VII
TERMINATION,
AMENDMENT AND WAIVER
|
SECTION
7.01.
|
Termination.
|
This
Agreement may be terminated and the Merger contemplated hereby may be abandoned
at any time prior to the Effective Time, notwithstanding adoption thereof
by the
stockholders of the Company:
45
|
|
(i)
|
by
Parent or the Company if any court or other Governmental Authority
of
competent jurisdiction shall have issued a final order, decree
or ruling
or taken any other final action restraining, enjoining or otherwise
prohibiting the Merger and such order, decree, ruling or other
action is
or shall have become final and
non-appealable;
|
|
|
(ii)
|
by
either Parent or the Company if the Effective Time shall not have
occurred
on or before September 30, 2007 (the “Termination Date”);
provided, that the right to terminate this Agreement pursuant to
this Section 7.01(ii) shall not be available to the party seeking to
terminate if any action of such party or the failure of such party
to
perform any of its obligations under this Agreement required to
be
performed at or prior to the Effective Time has been the cause
of, or
resulted in, the failure of the Effective Time to occur on or before
the
Termination Date and such action or failure to perform constitutes
a
breach of this Agreement;
|
|
|
(iii)
|
by
the Company if there shall have been a material breach of any
representation, warranty, covenant or agreement on the part of
Parent or
Merger Sub contained in this Agreement such that the conditions
set forth
in Sections 6.03(i) or 6.03(ii) would not be satisfied and, in either
such case, such breach is not capable of being cured or, if capable
of
being cured, shall not have been cured prior to the Termination
Date;
provided that the Company shall not have the right to terminate
this Agreement pursuant to this Section 7.01(iii) if the Company is
then in material breach of any of its covenants or agreements contained
in
this Agreement;
|
|
|
(iv)
|
by
Parent if there shall have been a material breach of any representation,
warranty, covenant or agreement on the part of the Company contained
in
this Agreement such that the conditions set forth in Sections 6.02(i)
or 6.02(ii) would not be satisfied and, in either such case, such
breach
is not capable of being cured or, if capable of being cured, shall
not
have been cured prior the Termination Date; provided that Parent
shall not have the right to terminate this Agreement pursuant to
this
Section 7.01(iv) if Parent or Merger Sub is then in material breach
of any of its covenants or agreements contained in this
Agreement;
|
|
|
(v)
|
by
Parent if this Agreement shall not have been adopted by the holders
of at
least a majority in combined voting power of the outstanding
Shares;
|
|
|
(vi)
|
by
the Company if this Agreement shall not have been adopted by the
holders
of at least a majority in combined voting power of the outstanding
Shares,
provided that the Company shall have complied with Section
5.10;
|
|
|
(vii)
|
by
Parent if the Company or the Company Board shall have breached
Section 5.02(a); or
|
|
|
(viii)
|
by
Company if Parent or the Parent Board shall have breached
Section 5.02(b).
|
46
|
SECTION
7.02.
|
Effect
of Termination.
|
In
the
event of the termination of this Agreement pursuant to Section 7.01, this
Agreement shall forthwith become void, and there shall be no liability under
this Agreement on the part of any party hereto, except: (i) as set forth
in
Section 7.03; and (ii) except as set forth in Section 7.03, nothing herein
shall relieve any party from liability for fraud or for any willful breach
of
any of its representations, warranties, covenants or agreements set forth
in
this Agreement prior to such termination. However, the terms of this
Section 7.02 and Sections 7.03, 7.04, 7.05 and Article IX shall survive any
termination of this Agreement.
|
SECTION
7.03.
|
Fees
and Expenses.
|
|
(a)
|
Generally. Except
as otherwise expressly set forth in this Agreement, all fees and
expenses
incurred in connection with the Transactions shall be paid by the
party
incurring such expenses, whether or not the Merger is
consummated. “Expenses” includes all
reasonable out-of-pocket expenses (including all reasonable fees
and
expenses of financing sources, counsel, accountants, investment
bankers,
experts and consultants to a party hereto and its affiliates) incurred
by
or on behalf of a party hereto or its prospective financing sources
in
connection with or related to the authorization, preparation, negotiation,
execution and performance of this Agreement and the Private
Financing.
|
|
(b)
|
Parent
Expenses.
|
|
|
(i)
|
In
the event that this Agreement is terminated by Parent (a) pursuant to
Section 7.01(vii) or (b) pursuant to Section 7.01(v) if
Company shall not have complied with Section 5.10, then the Company
shall
reimburse Parent for all Expenses incurred by or on behalf of Parent
or
its Affiliates as of the time of such reimbursement up to a maximum
of
$250,000 (the “Parent Expenses”), within thirty (30) days
following delivery of reasonable documentation of such Parent Expenses,
payable by wire transfer of immediately available
funds.
|
|
|
(ii)
|
The
payment of the Parent Expenses in accordance with this Section
7.03(b)
shall constitute liquidated damages and, except (A) as provided
in Section
7.03(d) or (B) for fraud, shall constitute the sole and exclusive
remedy
of Parent and Merger Sub for any and all damages arising under
or in
connection with any breach of any representation, warranty, covenant
or
agreement on the part of the Company contained in this
Agreement. The parties acknowledge that the Parent Expenses
constitute a reasonable estimate of the damages that will be suffered
by
reason of any action or omission giving rise to a right of payment
of the
Parent Expenses. The Affiliates of each party hereto may rely
upon the terms of this paragraph.
|
|
(c)
|
Company
Expenses.
|
|
|
(i)
|
In
the event that this Agreement is terminated by the Company pursuant
to
Section 7.01(viii), then Parent shall reimburse the Company for all
Expenses incurred by or on behalf of the Company or its Affiliates
as of
the time of such reimbursement up to a maximum of $100,000 (the
“Company
Expenses”),
|
47
|
|
|
within
thirty (30) days following delivery of reasonable documentation
of such
Company Expenses, payable by wire transfer of immediately available
funds.
|
|
|
(ii)
|
The
payment of the Company Expenses in accordance with this Section
7.03(c)
shall constitute liquidated damages and, except (A) as provided
in Section
7.03(d) or (B) for fraud, shall constitute the sole and exclusive
remedy
of the Company for any and all damages arising under or in connection
with
any breach of any representation, warranty, covenant or agreement
on the
part of Parent or Merger Sub contained in this Agreement. The
parties acknowledge that the Company Expenses constitute a reasonable
estimate of the damages that will be suffered by reason of any
action or
omission giving rise to a right of payment of the Company
Expenses. The Affiliates of each party hereto may rely upon the
terms of this paragraph.
|
|
(d)
|
Acknowledgement. Each
of the Company, Parent, and Merger Sub acknowledges that the agreements
contained in this Section 7.03 are an integral part of the Transactions.
In the event that the Company shall fail to pay the Parent Expenses
when
due or Parent shall fail to pay the Company Expenses when due,
the Company
or Merger Sub and Parent, as the case may be, shall reimburse the
other
party for all reasonable costs and expenses actually incurred or
accrued
by such other party (including reasonable fees and expenses of
counsel) in
connection with the collection under and enforcement of this Section
7.03.
|
|
SECTION
7.04.
|
Amendment.
|
This
Agreement may be amended by the parties hereto by action taken by or on behalf
of their respective boards of directors at any time prior to the Effective
Time. However, after the approval and adoption of this Agreement and
the Transactions by the stockholders of the Company, no amendment may be
made
that would reduce the amount or change the type of consideration into which
each
Share shall be converted upon consummation of the Merger unless the Company
shall have obtained such consent of the holders of Shares as may be required
by
the Act with respect to such amendment. This Agreement may not be
amended except by an instrument in writing signed by each of the parties
hereto.
|
SECTION
7.05.
|
Waiver.
|
At
any
time prior to the Effective Time, any party hereto may (i) extend the time
for
the performance of any obligation or other act of any other party hereto;
(ii)
waive any inaccuracy in the representations and warranties of any other party
contained herein or in any document delivered pursuant hereto; and (iii)
waive
compliance with any agreement of any other party or any condition to its
own
obligations contained herein. Any such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties
to
be bound thereby.
48
ARTICLE
VIII
INDEMNIFICATION
|
SECTION
8.01.
|
Survival
of Representations and
Warranties.
|
The
representations and warranties made by the Company, Parent and Merger Sub
herein
or in any instrument or document executed pursuant hereto shall survive the
Closing for a period of six (6) months following the Effective Time or shall
terminate upon the termination of this Agreement pursuant to Section 7.01,
as the case may be; provided, however, that the obligations to indemnify
and
hold harmless Company, Parent, Merger Sub, the Surviving Corporation or any
of
their Affiliates, as the case may be, shall not terminate with respect to
any
particular item as to which the person to be indemnified shall have, before
the
expiration date thereof, previously made a “Claim,” by delivering a notice of
such claim (stating in reasonable detail the basis of such Claim) to the
indemnifying party.
|
SECTION
8.02.
|
Obligation
of the Company and its Shareholders to
Indemnify.
|
Each
of
the Company and the holders of Parent Common Stock issuable under Section
1.07(i) of this Agreement (collectively, the
“CompanyIndemnitors”), severally agrees to
indemnify, defend and hold harmless Parent, Merger Sub, the Surviving
Corporation, and each of their respective directors, officers, employees,
Affiliates, successors and assigns (collectively, the
“ParentIndemnified Persons”) from and against
all Claims suffered or incurred by Parent, Merger Sub, the Surviving Corporation
or any of the foregoing Persons in any Action between a Parent Indemnified
Person and any Company Indemnitors, or between a Parent Indemnified Person
and
any third party or otherwise, arising out of any breach of the representations,
warranties, covenants and agreements of the Company contained in this Agreement
(as the same may be updated or corrected in accordance with in accordance
with
Section 5.13 of this Agreement).
|
SECTION
8.03.
|
Obligation
of Parent to Indemnify.
|
Parent
agrees to indemnify, defend and hold harmless Company and the holders of
Parent
Common Stock issuable under Section 1.07(i) of this Agreement, and each of
their
respective Affiliates, successors and assigns (collectively, the
“CompanyIndemnified Persons”) from and against
all Claims suffered or incurred by Company Indemnified Persons in any Action
between a Company Indemnified Person and Parent, or between a Company
Indemnified Person and any third party or otherwise, arising out of any breach
of the representations, warranties, covenants and agreements of Parent or
Merger
Sub contained in this Agreement (as the same may be updated or corrected
in
accordance with in accordance with Section 5.13 of this Agreement).
|
SECTION
8.04.
|
Procedure.
|
|
(a)
|
General. In
the event of any claim under Sections 8.02 or 8.03, the Indemnified
Person
shall notify the Indemnitors or Parent, as the case may be, in
writing of
said Claim, which notice shall set forth the basis of the Claim
and, if
then determinable by the Indemnified Person, a good faith estimate
of the
maximum potential damages that, in the Indemnified Person’s good faith
opinion, may be sustained in connection with such
Claim.
|
49
|
(b)
|
Third
Party Claims.
|
|
|
(i)
|
In
order for an Indemnified Person to be entitled to any indemnification
provided for under this Agreement in respect of, arising out of
or
involving a Claim or demand made by any other Person against the
Indemnified Person (a “Third Party Claim”), such
Indemnified Person shall notify the Indemnitor in writing, and
in
reasonable detail, of the Third Party Claim within ten (10) Business
Days
after receipt by such Indemnified Person of written notice of the
Third
Party Claim; provided, however, that failure to give such notification
shall not affect the indemnification provided hereunder except
to the
extent the Indemnitor shall have been actually prejudiced as a
result of
such failure (except that the Indemnitor shall not be liable
for any expenses incurred in connection with such Third Party Claim
during
the period in which the Indemnified Person failed to give such
notice). The Indemnified Person shall deliver to the Indemnitor
within five (5) Business Days after the Indemnified Person’s receipt
thereof, copies of all notices and documents (including court papers)
received by the Indemnified Person relating to each Third Party
Claim.
|
|
|
(ii)
|
If
a Third Party Claim is made against an Indemnified Person, the
Indemnitor shall be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with
counsel
selected by the Indemnitor; provided that such counsel is not reasonably
objected to by the Indemnified Person. Should the Indemnitor,
so elect to assume the defense of a Third Party Claim, the
Indemnitor shall not be liable to the Indemnified Person for
reasonable legal expenses subsequently incurred by the Indemnified
Person
in connection with the defense thereof. If the Indemnitor
assumes such defense, the Indemnified Person shall have the right
to
participate in the defense thereof and to employ counsel (not reasonably
objected to by the Indemnitor), at its own expense, separate from
the
counsel employed by the Indemnitor, it being understood that the
Indemnitor shall control such defense. The Indemnitor shall be
liable for the reasonable fees and expenses of counsel employed
by the
Indemnified Person for any period during which the Indemnitor has
failed
to assume the defense thereof (other than during the period prior
to the
time the Indemnified Person shall have given notice of the Third
Party
Claim as provided above).
|
|
|
(iii)
|
If
the Indemnitor elects to assume the defense of any Third Party
Claim, the
Indemnified Person shall cooperate with the Indemnitor in the defense
or
prosecution thereof. Such cooperation shall include the
retention and (upon the Indemnitor’s request) the provision to the
Indemnitor of records and information which are reasonably relevant
to
such Third Party Claim, and making employees available on a mutually
convenient basis to provide additional information and explanation
of any
material provided hereunder. Whether or not the Indemnitor
shall have assumed the defense of a Third Party Claim, the Indemnified
Person shall not admit any liability with respect to, or settle,
compromise or discharge, such Third Party Claim without the Indemnitor’s
prior written consent (which consent shall not be unreasonably
withheld). If the Indemnitor shall have assumed the defense of
a Third Party Claim, the Indemnified Person shall agree
to
|
50
|
|
|
any
settlement, compromise or discharge of such Third Party Claim
which the
Indemnitor may recommend and which by its terms obligates the
Indemnitor
to pay the full amount of the liability in connection with such
Third
Party Claim and which releases the Indemnified Person completely
in
connection with such Third Party
Claim.
|
|
(c)
|
Direct
Claims. In the event an Indemnified Person shall have a
Claim against an Indemnitor under Sections 8.02 or 8.03 that does
not
involve the assertion of a Third Party Claim against such Indemnified
Person, the Indemnified Person shall deliver notice of such Claim
with
reasonable promptness to the Indemnitor. The failure by any
Indemnified Person to so notify the Indemnitor shall not relieve
the
Indemnitor from any liability which it may have to such Indemnified
Person
hereunder, except to the extent that the Indemnitor demonstrates
that it
has been materially prejudiced by such failure. If the
Indemnitor disputes its liability with respect to such Claim, the
Indemnitor and the Indemnified Person shall proceed in good faith
to
negotiate a resolution of such dispute and, if not resolved through
negotiation, such dispute shall be resolved by litigation in an
appropriate court of competent
jurisdiction.
|
|
(d)
|
Limitations. An
Indemnitor shall not have an obligation to indemnify an Indemnified
Person
pursuant to this Agreement unless and until the damages caused
to the
Indemnified Person hereunder shall in the aggregate exceed $75,000,
in
which event the Indemnified Person shall be entitled to be indemnified
for
all damages for which the Indemnified Person is to be indemnified
for
pursuant hereto. In addition, in no event shall an Indemnitor
have an obligation to indemnify an Indemnified Person hereunder
for
damaged in excess of $2,200,000 in the
aggregate. Notwithstanding any other provision of this
Agreement, and in addition to any other rights and remedies available
to
the Parties hereto, once Parent has fully complied with the procedures
of
this Section 8.04 and an obligation to indemnify Parent Indemnified
Persons is finally determined, the outstanding principal balance
of the
Note shall be reduced by the amount of such indemnification
obligation(s). Prior to taking any action under this Section
8.04(d) and effecting any offset hereunder, Parent shall give Company
Indemnitors thirty (30) days’ prior written notice of its intent to do so,
specifying in reasonable detail the basis for such offset, and
upon
written request of ▇▇▇▇▇ ▇▇▇▇▇ meet and confer with ▇▇▇▇▇▇▇ ▇▇▇▇▇
prior to
the expiration of such thirty (30) day period in an effort to resolve
any
dispute concerning an offset in accordance with this Section
8.04(d). Only after complying with the foregoing procedures and
reducing the Note by the amount of such indemnification obligation
may the
Parent Indemnified Persons bring a claim for the balance of such
indemnification obligation against the Company Indemnitors (subject
to the
floor and ceiling set forth above). In the event Parent is
obligated to make any payments under this Article VIII, it may,
at its
sole discretion, make the payment in shares of Parent Common Stock
in a
number of shares equal to the (i) the dollar amount obligated to
be paid
hereunder divided by (ii) the average daily closing market price
of such
shares of Parent Common Stock for the five (5) Business Days immediately
preceding the payment date.
|
51
ARTICLE
IX
GENERAL
PROVISIONS
|
SECTION
9.01.
|
Notices.
|
All
notices, requests, claims, demands and other communications hereunder shall
be
in writing and shall be given (and shall be deemed to have been duly given
upon
receipt) by delivery in person, by facsimile transmissions between the hours
of
9:00 A.M. and 5:00 P.M. in the recipient party’s time zone, or by registered or
certified mail (postage prepaid, return receipt requested) or recognized
overnight courier to the respective parties at the following addresses (or
at
such other address for a party as shall be specified in a notice given in
accordance with this Section 9.01):
|
if
to Parent or Merger Sub:
c/o
UpSnap, Inc.
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇.▇.
▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: Chief
Executive Officer
|
|
with
a copy to:
▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇ Raysman & ▇▇▇▇▇▇▇ LLP
▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇
▇. ▇▇▇▇, Esq.
|
|
if
to the Company:
Mobile
Greetings, Inc.
▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇▇, #▇▇▇
▇▇▇▇▇▇
▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile
No: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇
▇▇▇▇▇, Chief Executive Officer
|
52
|
with
a copy to:
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇, LLP
▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone
No.: (▇▇▇) ▇▇▇-▇▇▇▇
Facsimile
No: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇
▇. ▇▇▇▇▇, Esq.
|
|
SECTION
9.02.
|
Certain
Definitions.
|
|
(a)
|
For
purposes of this Agreement:
|
“Affiliate”
of a specified Person means a Person who, directly or indirectly through
one or
more intermediaries, controls, is controlled by, or is under common control
with, such specified Person.
“Business
Day” means any day other than Saturday, Sunday or any other day on
which commercial banks are authorized or required by Law to close in San
Francisco, California.
“Claim”
means any and all demands, claims, actions or causes of action, assessments,
losses, damages, deficiencies, liabilities, judgments, settlements, costs
of
investigation or other expenses, including, without limitation, reasonable
attorney’s fees, expenses and disbursements.
“Code”
means the United States Internal Revenue Code of 1986, as amended including
any
successor provisions and transition rules, whether or not codified.
“Company
Material Adverse Effect” means any event, circumstance, change or
effect that, individually or in the aggregate with all other events,
circumstances, changes and effects, is or is reasonably likely (i) to
prevent or materially impede, interfere with, hinder, or delay the consummation
by the Company of the transactions contemplated by this Agreement or
(ii) to be materially adverse to the business, financial condition, assets,
liabilities, or results of operations of the Company and its Subsidiaries
taken
as a whole; provided that none of the following shall be deemed to constitute,
and none of the following shall be taken into account in determining whether
there has been, a Company Material Adverse Effect: (a) any adverse
change, event, development, or effect arising from or relating to (1) general
business or economic conditions, (2) national or international political
or
social conditions, including the engagement by the United States in hostilities,
whether or not pursuant to the declaration of a national emergency or war,
or
the occurrence of any military or terrorist attack upon the United States,
or
any of its territories, possessions, or diplomatic or consular offices or
upon
any military installation, equipment or personnel of the United States, (3)
changes in United States generally accepted accounting principles, (4) changes
in Applicable Laws, rules, regulations, orders, or other binding directives
issued by any governmental entity or (5) the taking of any action contemplated
by this Agreement and the other agreements contemplated hereby, (b) any existing
event, occurrence, or circumstance with respect to which Parent has Knowledge
as
of the date hereof and/or (c) any adverse change in or effect on the Company’s
assets that is cured by Company before the earlier of (1) the Closing Date
or
(2) the Termination Date.
53
“Company
Required Consents” means all consents, authorizations and approvals
which the failure to obtain in connection with the execution and delivery
by the
Company of this Agreement and the consummation of the Transactions by the
Company, would, individually or in the aggregate, reasonably be expected
to have
a Company Material Adverse Effect.
“Control”
(including the terms “controlled by” and “under common
control with”) means the possession, directly or indirectly, or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a Person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise.
“Exchange
Act” means the Securities Exchange Act of 1934, as
amended.
“Exchange
Agent Instruction Letter” means an irrevocable letter to the Exchange
Agent signed by an authorized representative of Parent that authorizes and
directs the Exchange Agent to issue and deliver Parent Common Stock in
accordance with Section 1.07(i) to each Certificate holder upon full compliance
with Section 1.10(b).
“Fully
Diluted” means, with respect to the issuer of securities, the number of
such issuer’s shares of common stock issued and outstanding after (A) each stock
option and warrant of such issuer is deemed exercised and converted into
the
number of shares of common stock subject to such stock option or warrant
and (B)
each share of preferred stock of such issuer (if any) is deemed converted
into
the number of shares of common stock into which the shares of such preferred
stock are convertible in accordance with the terms of each series of preferred
stock.
“Indemnified
Person” means a Company Indemnified Person or Parent Indemnified
Person, as the case may be.
“Indemnitors”
means Company Indemnitors or Parent, as the case may be.
“Knowledge
of the Company” and the “Company’s Knowledge” and
words of similar import means the actual knowledge (after reasonable inquiry)
of
any executive officer of the Company.
“Knowledge
of the Parent” and the “Parent’s Knowledge” and words
of similar import means the actual knowledge (after reasonable inquiry) of
any
executive officer of the Parent or any of its Subsidiaries.
“Parent
Material Adverse Effect” means any event, circumstance, change or
effect that, individually or in the aggregate with all other events,
circumstances, changes and effects, is or is reasonably likely (i) to
prevent or materially impede, interfere with, hinder, or delay the consummation
by the Parent or Merger Sub of the transactions contemplated by this Agreement
or (ii) to be materially adverse to the business, financial condition,
assets, liabilities, or results of operations of the Parent taken as a whole;
provided that none of the following shall be deemed to constitute, and none
of
the following shall be taken into account in determining whether there has
been,
a Parent Material Adverse Effect: (a) any adverse change, event,
development, or effect arising from or relating to (1) general business or
economic conditions, (2) national or international political or social
conditions, including the engagement by the United States in
54
hostilities,
whether or not pursuant to the declaration of a national emergency or war,
or
the occurrence of any military or terrorist attack upon the United States,
or
any of its territories, possessions, or diplomatic or consular offices or
upon
any military installation, equipment or personnel of the United States, (3)
changes in United States generally accepted accounting principles, (4) changes
in Applicable Laws, rules, regulations, orders, or other binding directives
issued by any governmental entity or (5) the taking of any action contemplated
by this Agreement and the other agreements contemplated hereby, (b) any existing
event, occurrence, or circumstance with respect to which Parent has Knowledge
as
of the date hereof and/or (c) any adverse change in or effect on the Parent’s
assets that is cured by Parent before the earlier of (1) the Closing Date
or (2)
the Termination Date.
“Person”
means an individual, corporation, partnership, limited partnership, limited
liability company, person (including, without limitation, a “person” as defined
in Section 13(d)(3) of the Exchange Act), trust, association or entity or
government, political subdivision, agency or instrumentality of a
government.
“Representative”
means, with respect to any Person, such the officers, directors, employees,
accountants, auditors, attorneys, consultants, legal counsel, agents, investment
bankers, financial advisors and other representatives of such Person and
of such
Person’s anticipated sources of financing.
“SEC”
means the Securities and Exchange Commission.
“Securities
Act” means the Securities Act of 1933, as amended.
“Share
Price” means the simple arithmetic average taken to four decimal places
of the share price of Parent Common Stock for the period beginning at 9:30
am
New York Time (“NYT”) and concluding at 4:00 pm NYT on each of the five (5)
consecutive trading days on the OTC Bulletin Board ending on the trading
day
immediately prior to the Closing Date.
“Subsidiary”
or “Subsidiaries” when used with respect to any party, shall
mean any corporation or other organization, whether incorporated or
unincorporated, at least a majority of the securities or other interests
of
which by their terms ordinary voting power to elect a majority of the board
of
directors or others performing similar functions with respect to such
corporation or other organization is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries, or by such party
and
one or more of its subsidiaries.
“Tax
Returns” means in respect of any Tax, any return, declaration, report,
election, estimate claim for refund or information return or other statement,
form or disclosure filed or required to be filed with any Governmental Authority
or taxing authority, including any schedule or attachment thereto, and including
any amendment thereof.
“Tax“
or “Taxes” shall mean (i) any and all federal, state,
provincial, local, foreign and other taxes, assessments, fees, levies, duties,
tariffs, customs, imposts and other governmental charges of any kind (together
with any and all interest, penalties, assessments additions to tax and
additional amounts imposed with respect thereto) imposed in connection therewith
or by any Governmental Authority or taxing authority, including, without
limitation: taxes or other charges on or with respect to income, capital
gains
franchise, windfall or other profits, gross receipts, real
55
or
personal property, sales, goods and services use, capital stock, withholding,
payroll, employment, social security (or similar), workers’ compensation,
utility, severance, production, occupation, premium, unemployment compensation
or net worth’s-taxes or other charges in the nature of excise, withholding, ad
valorem, stamp, transfer, value-added or gains taxes; license, registration
and
documentation fees; customs duties; tariffs and similar charges, (ii) any
liability for payment of amounts described in clause (i) whether as a result
of
transferee liability, of being a member of an affiliated, consolidated, combined
or unitary group for any period, or otherwise through operation of Law, and
(iii) any liability for the payment of amounts described in clause (i)
or (ii) as a result of any tax sharing, tax indemnity or tax allocation
agreement or any other express or implied agreement to indemnify any other
person.
|
(b)
|
The
following terms have the meaning set forth in the Sections set
forth
below:
|
|
Location
of definition
|
|
|
Act
|
Section
1.01
|
|
Action
|
Section
2.08
|
|
Agent
|
Section
2.11
|
|
Agreement
|
Preamble
|
|
Agreement
of
Merger
|
Section
1.03
|
|
Certificates
|
Section
1.10(b)
|
|
Closing
|
Section
1.02
|
|
Closing
Date
|
Section
1.02
|
|
Company
|
Preamble
|
|
Company
Audited
Financials
|
Section
5.09
|
|
Company
Acquisition
Proposal
|
Section
5.02(a)(i)
|
|
Company
Balance
Sheet
|
Section
2.06(a)
|
|
Company
Board
|
Recitals
|
|
Company
Common
Stock
|
Section
1.07(i)
|
|
Company
Designees
|
Section
1.07(i)
|
|
Company
Expenses
|
Section
2.06(a)
|
|
Company
Indemnitors
|
Section
8.02
|
|
Company
Permits
|
Section
2.14
|
|
Company
Recommendation
|
Section
2.04(iii)
|
|
Company
Software
|
Section
2.15(e)
|
|
Company
Stock
Option
|
Section
1.08
|
|
Company
Stock Option
Plans
|
Section
2.03(b)
|
|
Company
Stockholder
Approval
|
Section
2.04
|
|
Confidentiality
Agreement
|
Section
5.01(a)
|
|
Conversion
Ratio
|
Section
1.07
|
|
Copyrights
|
Section
2.15(e)
|
|
Dissenting
Shares
|
Section
1.09(a)
|
|
Effective
Time
|
Section
1.03
|
|
ERISA
|
Section
2.09(a)
|
|
Exchange
Agent
|
Section
1.10(a)
|
|
Expenses
|
Section
7.03(a)
|
|
GAAP
|
Section
2.06(a)
|
56
|
Governmental
Authority
|
Section
2.05(b)
|
|
Intellectual
Property
Rights
|
Section
2.15(e)
|
|
IRS
|
Section
2.09(a)
|
|
Law
|
Section
2.05(a)(ii)
|
|
Lease
Documents
|
Section
2.10(a)
|
|
Leased
Property
|
Section
2.10(a)
|
|
Material
Contracts
|
Section
2.12(a)
|
|
Merger
|
Recitals
|
|
Merger
Sub
|
Preamble
|
|
Note
|
Section
1.11
|
|
Option
Consideration
|
Section
1.08
|
|
Order
|
Section
6.01(ii)
|
|
Parent
|
Preamble
|
|
Parent
Balance
Sheet
|
Section
3.7(b)
|
|
Parent
Common
Stock
|
Section
1.07
|
|
Parent
Expenses
|
Section
7.03(b)(i)
|
|
Parent
Financial
Statements
|
Section
3.07(b)
|
|
Parent
Indemnified
Persons
|
Section
8.03
|
|
Parent
Lease
Documents
|
Section
3.11(a)
|
|
Parent
Leased
Property
|
Section
3.11(a)
|
|
Parent
Material
Contracts
|
Section
3.13(a)
|
|
Parent
Permits
|
Section
3.15
|
|
Parent
Plans
|
Section
3.10(a)
|
|
Parent
SEC
Reports
|
Section
3.07(a)
|
|
Parent
Stock
Option
|
Section
3.03(b)
|
|
Parent
Stock Option
Plan
|
Section
3.03(b)
|
|
Patents
|
Section
2.15(e)
|
|
Private
Financing
|
Section
5.05
|
|
Merger
Consideration
|
Section
1.07
|
|
Plans
|
Section
2.09(a)
|
|
Shares
|
Section
1.07(i)
|
|
Surviving
Corporation
|
Section
1.01
|
|
Termination
Date
|
Section
7.01(ii)
|
|
Third
Party
Claim
|
Section
8.04
|
|
Trademarks
|
Section
2.15(e)
|
|
Transactions
|
Section
2.04
|
|
SECTION
9.03.
|
Severability.
|
If
any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of Law, or public policy, all other conditions
and
provisions of this Agreement shall nevertheless remain in full force and
effect
so long as the economic or legal substance of the Transactions is not affected
in any manner materially adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto shall modify this Agreement so as to
effect the original intent of the parties as closely as possible in a mutually
acceptable manner in order that the Transactions be consummated as originally
contemplated to the fullest extent possible.
57
|
SECTION
9.04.
|
Entire
Agreement; Assignment.
|
This
Agreement, including all exhibits, annexes and schedules hereto, together
with
the Confidentiality Agreement, constitute the entire agreement among the
parties
with respect to the subject matter hereof and supersede all prior agreements
and
undertakings, both written and oral, (including without limitation the Letter
of
Intent, dated June 12, 2007, between Parent and the Company) among the parties,
or any of them, with respect to the subject matter hereof.
|
SECTION
9.05.
|
Parties
in Interest.
|
This
Agreement shall be binding upon and inure solely to the benefit of each party
hereto, and nothing in this Agreement, express or implied, is intended to
or
shall confer upon any other Person any right, benefit or remedy of any nature
whatsoever under or by reason of this Agreement, other than as provided in
Section 7.03(b)(ii), Section 7.03(b)(ii) and Article 8. No party
hereto may assign any of its rights or obligations hereunder without the
written
consent of the other parties hereto.
|
SECTION
9.06.
|
Governing
Law.
|
This
Agreement shall be governed by, and construed in accordance with, the Laws
of
the State of California applicable to contracts executed in and to be performed
in that State, without giving effect to any other choice of Law or conflict
of
Law provision or rule (whether of the State of California or
otherwise). The parties hereto hereby:
|
|
(i)
|
submit
to the exclusive jurisdiction of any such state or federal court
sitting
in the State of California for the purpose of any Action arising
out of or
relating to this Agreement brought by any party hereto;
and
|
|
|
(ii)
|
irrevocably
waive, and agree not to assert by way of motion, defense, or otherwise,
in
any such Action, any claim that it is not subject personally to
the
jurisdiction of the above-named courts, that its property is exempt
or
immune from attachment or execution, that the Action is brought
in an
inconvenient forum, that the venue of the Action is improper, or
that this
Agreement or the Transactions may not be enforced in or by any
of the
above-named courts.
|
|
SECTION
9.07.
|
Waiver
of Jury Trial.
|
EACH
PARTY TO THIS AGREEMENT WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE
LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT
OR
PROCEEDING ARISING OUT OF THIS AGREEMENT.
|
SECTION
9.08.
|
Headings.
|
The
descriptive headings contained in this Agreement are included for convenience
of
reference only and shall not affect in any way the meaning or interpretation
of
this Agreement.
58
|
SECTION
9.09.
|
Counterparts.
|
This
Agreement may be executed and delivered (including by facsimile transmission)
in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but
all of which taken together shall constitute one and the same
agreement.
|
SECTION
9.10.
|
Disclosure
Schedules.
|
The
inclusion of any item in any Section of the Company Disclosure Schedule or
the
Parent Disclosure Schedule shall also apply to other sections and subsections
to
the extent that it is reasonably apparent on the face of such disclosure
that
such disclosure would also apply to or qualify such other sections and
subsections; however, such inclusion:
|
(a)
|
does
not represent a determination by the Company or the Parent, as
applicable,
that such item is “material”;
|
|
(b)
|
does
not represent a determination by the Company or the Parent, as
applicable,
that such item did not arise in the ordinary course of
business.
|
|
SECTION
9.11.
|
Interpretation.
|
The
words
“hereof”, “herein” and “hereunder” and words of like import used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. The captions herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof. References to Articles and Sections are,
unless otherwise indicated, references to Articles and Sections of this
Agreement. Any singular term in this Agreement shall be deemed to include
the
plural, and any plural term the singular. Whenever the words
“include”, “includes” or “including” are used in this Agreement, they shall be
deemed to be followed by the words “without limitation”, whether or not they are
in fact followed by those words or words of like import. References
to any statute are to that statute as amended from time to time, and to the
rules and regulations promulgated thereunder, and, in each case, to any
successor statute, rules or regulations thereto.
59
IN
WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
|
|
||
|
By:
|
/s/ ▇▇▇▇ ▇▇▇▇▇▇▇ | |
|
Name:
▇▇▇▇ ▇▇▇▇▇▇▇
Title:
CEO
|
||
|
|
||
|
UPSNAP
ACQUISITION CORP.
|
||
|
By:
|
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇ | |
|
Name:
▇▇▇▇▇▇▇ ▇▇▇▇▇
Title:
President
|
||
|
|
||
|
MOBILE
GREETINGS, INC.
|
||
|
By:
|
/s/ ▇▇▇▇▇ ▇▇▇▇▇ | |
|
Name:
▇▇▇▇▇ ▇▇▇▇▇
Title:
CEO
|
||
The
following persons are parties to this Agreement solely to the extent of Section
5.11 hereof.
| /s/ ▇▇▇▇▇ ▇▇▇▇▇ | /s/ ▇▇▇▇ ▇▇▇▇▇▇▇ | |
|
▇▇▇▇▇
▇▇▇▇▇
|
▇▇▇▇
▇▇▇▇▇▇▇
|
|
|
|
||
| /s/ ▇▇▇▇▇▇ ▇▇▇▇▇ | /s/ ▇▇▇▇ ▇▇▇▇▇▇▇ | |
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇
|
▇▇▇▇
▇▇▇▇▇▇▇
|
60