AGREEMENT AND PLAN OF MERGER
BY AND AMONG
WIZZARD SOFTWARE CORPORATION,
WIZZARD ACQUISITION CORP.,
WEBMAYHEM, INC. (d/b/a LIBERATED SYNDICATION),
▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇,
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
February 27, 2007
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is dated as of
February____, 2007, by and among WIZZARD SOFTWARE CORPORATION, a Colorado
corporation ("Parent"); WIZZARD ACQUISITION CORP., a Pennsylvania corporation
and wholly-owned subsidiary of Parent ("Merger Subsidiary"); WEBMAYHEM, INC.,
a Pennsylvania corporation doing business as LIBERATED SYNDICATION (the
"Company"), and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ (collectively, the "Company Principal Shareholders").
WHEREAS, the Company is engaged in the podcasting business (the
"Business");
WHEREAS, the Parent and the Company have executed a Letter of Intent by
which the Company was to have merged with and into Merger Subsidiary, with
Merger Subsidiary to be the surviving entity;
WHEREAS, the Boards of Directors of Parent, Merger Subsidiary and the
Company, and the shareholders of Merger Subsidiary and the Company, believe it
would be preferable to merge Merger Subsidiary into the Company, and have
approved the merger of the Merger Subsidiary with and into the Company (the
"Merger") upon the terms and subject to the conditions set forth herein;
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization within the meaning of Section 368(a)(1)(A)
and (a)(2)(E) of the Internal Revenue Code of 1986, as amended (the "Code");
WHEREAS, (i) all of the outstanding securities of the Company; and (ii)
all of the cash proceeds and Parent common stock to be paid as consideration
at Closing for such Company common stock, shall be held in escrow pending the
Closing of the transactions contemplated by this Agreement pursuant to the
terms of an escrow agreement to be executed by the parties substantially in
the form attached as Exhibit "A" hereto (the "Escrow Agreement" ); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, and agreements in connection with the Merger and also to prescribe
various conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual representations, warranties, covenants, and agreements contained
herein, the parties hereto agree as follows:
ARTICLE I
THE MERGER; CONVERSION OF SHARES
1.1. The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.2 hereof), the
Merger Subsidiary will be merged with and into the Company in accordance with
the provisions of the Pennsylvania Consolidated Statutes (the "Pennsylvania
Code"), whereupon the separate corporate existence of the Merger Subsidiary
will cease, and the Company will continue as the surviving corporation (the
"Surviving Corporation"). From and after the Effective Time, the Surviving
Corporation will possess all the rights, privileges, powers and franchises and
be subject to all the restrictions, disabilities and duties of the Company and
Merger Subsidiary, all as more fully described in the Pennsylvania Code.
1.2. Effective Time. As soon as practicable after each of the
conditions set forth in Article VI and Article VII has been satisfied or
waived, the Company and Merger Subsidiary will file, or cause to be filed,
with the Secretary of State of the Commonwealth of Pennsylvania, Articles of
Merger for the Merger, which Articles of Merger will be in the form required
by and executed in accordance with the applicable provisions of the
Pennsylvania Code. The Merger will become effective at the time such filing
is made or, if agreed to by Parent, Merger Subsidiary and the Company, such
later time or date set forth in the Articles of Merger (the "Effective Time").
1.3. Closing.
(a) Unless this Agreement has been terminated and the
transactions contemplated herein have been abandoned pursuant to Article IX
hereof, the closing of the Merger (the "Closing") will take place at a time
and on a date (the "Closing Date") to be specified by the parties, which will
be no later than March 14, 2007 (the "Termination Date"); provided, however,
that all of the conditions provided for in Articles VI and VII hereof shall
have been satisfied or waived by such date. The Closing will be held at the
offices of ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, 455 East ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, or such other place as the parties may agree, at which
time and place the documents and instruments necessary or appropriate to
effect the transactions contemplated herein will be exchanged by the parties.
Except as otherwise provided herein, all actions taken at the Closing will be
deemed to have been taken simultaneously.
(b) At the Closing, Parent shall issue and exchange with
the Company's shareholders as identified on Exhibit B attached hereto (the
"Company Shareholders") as consideration for all shares of Company Common
Stock (as defined in Section (1.4(a)), a total of 5,326,320 "restricted"
shares of Parent Common Stock (as defined in Section (1.4(a)) and cash in the
amount of $250,000 (the "Closing Date Payment" as defined in Section 1.4(a)).
The Closing Date Payment shall be prorated among the Company Shareholders as
indicated on Exhibit "B" hereto. The shares of Parent Common Stock referenced
in this Agreement and exchangeable with the Company Shareholders shall be
"restricted securities" as defined in Rule 144 promulgated by the Securities
and Exchange Commission (the "SEC") under the Securities Act of 1933, as
amended and shall be subject to the restrictions on transfer set forth in a
Lock-Up/Leak-Out Agreement signed by each Company Shareholder in the form
attached as "Exhibit D" hereto (the "Lock-Up/Leak-Out Agreement"). Parent
shall assume no Company debt owed to the Company Shareholders. Upon execution
of this Agreement, Parent shall cause the Closing Date Payment and shares of
Parent Common Stock issuable as additional consideration pursuant to Section
1.3(c) to be deposited into an escrow account in accordance with the terms of
the Escrow Agreement.
(c) Additional Consideration. As further consideration
for the Merger, Parent shall provide the following additional consideration to
the Company Stockholders:
(i) On that date which is six (6) months after the
Closing Date, Parent shall pay the Company Shareholders a total of $100,000 in
cash, prorated as indicated on Exhibit "B" attached hereto.
(ii) Parent shall issue and deliver a total of
713,150 additional "restricted" shares of Parent Common Stock to the Company
Shareholders, in the pro rata amounts indicated on Exhibit "B" attached hereto
if, in December 2007, both (A) the Surviving Corporation's Podcast Media File
Downloads are greater than 66,546,810 and (B) the number of Unique IP
Addresses requesting those Podcast Media File Downloads is at least 5,745,067
("Milestone No. 1"). To protect Parent from any unusual spikes in downloads
in December 2007, if both the number of monthly Podcast Media File Downloads
and the number of Unique IP Addresses have reached the amounts stated above in
December 2007, then they must have achieved at least the levels stated above
in November 2007 in order for Milestone No. 1 to be achieved. If the
increased level for Podcast Media File Downloads and Unique IP Addresses
stated above was not previously achieved in November 2007, then both the
number of monthly Podcast Media File Downloads and the number of Unique IP
Addresses must remain at or above these levels during January 2008 in order
for Milestone No. 1 to be achieved. For purposes of determining whether the
Podcast Media File Downloads element of Milestone No. 1 has been achieved, the
parties shall use the Surviving Corporation's web logs collecting requests
from the entire Libsyn media delivery network (including both the ▇▇▇▇▇▇.▇▇▇
and ▇▇▇▇▇▇▇▇▇.▇▇▇ media delivery systems) to count all requests for media
files received by the Surviving Corporation. The parties shall utilize the
processing of the web logs for purposes of calculating the number of Unique IP
Addresses requesting media files by filtering the web logs to include only one
request per IP address.
(iii) Parent shall issue and deliver a total of
2,281,580 additional "restricted" shares of Parent Common Stock to the
Company Shareholders, in the pro rata amounts indicated on Exhibit "B"
attached hereto, once both (A) the Surviving Corporation's gross revenues
equal or exceed five million dollars ($5,000,000) and (B) the Surviving
Corporation's EBITDA equals or exceeds one and one-half million dollars
($1,500,000) calculated from the first anniversary of the Closing Date through
the second anniversary of the Closing Date ("Milestone No. 2") provided that,
in the event Milestone No. 2 is not satisfied during such period, then
Milestone No. 2 will be deemed satisfied if its requirements are met during
the period beginning on the third anniversary of the Closing Date and ending
on the fourth anniversary of the Closing Date in which case the additional
shares of Parent Common Stock shall be due to the Company Shareholders fifteen
(15) days after the beginning of the calendar month after the month in which
the Surviving Corporation meets these requirements.
(iv) Parent shall issue and deliver a total of
2,281,580 additional "restricted" shares of Parent Common Stock to the
Company Shareholders, in the pro rata amounts indicated on Exhibit "B"
attached hereto, once both (A) the Surviving Corporation's gross revenues
equal or exceed fifteen million dollars ($15,000,000) and the Surviving
Corporation's EBITDA equals or exceeds five million dollars ($5,000,000)
calculated from the second anniversary of the Closing Date through the third
anniversary of the Closing Date ("Milestone No. 3", collectively with
Milestone ▇▇. ▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇. ▇, ▇▇▇ "▇▇▇▇▇▇▇▇▇▇").
(▇) Notice and Payment Procedures for Additional
Consideration. When the Company Shareholders believe that the Surviving
Corporation has satisfied the requirements of a Milestone, the Surviving
Corporation shall send a written notice to Parent indicating how the Milestone
has been satisfied and attaching (i) a calculation of Podcast Media File
Downloads and Unique IP Addresses (with supporting documentation for each
calculation) with regards to Milestone No. 1 and (ii) financial statements of
the Surviving Corporation and calculations of EBITDA and gross revenues with
regards to Milestones No. 2 and No. 3, evidencing satisfaction of the relevant
Milestone (the "Milestone Satisfaction Notice"). Parent shall issue the
shares of Parent Common Stock constituting the additional consideration
associated with the satisfaction of each Milestone to the Company Shareholders
based on the financial statements of the Surviving Corporation prepared in
accordance with GAAP for the measurement of each Milestone. The Surviving
Corporation shall not be obligated to audit such financial statements unless
so instructed by Parent. These financial statements shall be used to
calculate gross revenues and EBITDA for the applicable measurement period in
which the Company Shareholders believe that the Surviving Corporation has
satisfied the requirements of a Milestone and, accordingly, net income derived
from such financial statements shall be adjusted to exclude each of the items
set forth in the definition of EBITDA. Any fees related to the audit of such
financial statements performed pursuant to Parent's instruction shall be borne
by Parent and shall not be deemed an expense of the Surviving Corporation for
purposes of satisfying any of the Milestones or otherwise.
(e) Automatic Vesting Upon Sale of Surviving Corporation
or Parent. In the event that Parent sells (i) at least a majority of the
capital stock or substantially all of the assets of the Surviving Corporation
or (ii) at least a majority of the capital stock or all or substantially all
of the assets of Parent at any time before any of the Milestones have been
satisfied then, without any further action on the part of the Surviving
Corporation or the Company Shareholders, all Milestones that remain eligible
to be satisfied shall automatically be deemed satisfied and all additional
consideration related to such Milestones shall immediately be due and payable
to the Company Shareholders and shall be issued to them. In addition, the
Company Shareholders shall be released from all remaining obligations under
the Lock-Up/Leakout Agreement. In addition, all obligations of Parent set
forth in this Agreement or the Transaction Documents shall be binding on any
third party who purchases at least a majority of the capital stock or
substantially all of the assets of the Surviving Corporation or Parent.
(f) Automatic Vesting Upon Termination Without Cause. In
the event that the employment of any Company Shareholder who is employed by
the Surviving Corporation is terminated without "Cause" as such term may be
defined in any employment agreement between the Company Shareholder and the
Surviving Corporation, then, without any further action on the part of the
Surviving Corporation or the terminated Company Shareholder, all Milestones
that remain eligible to be satisfied shall automatically be deemed satisfied
and all additional consideration related to such Milestones shall immediately
be due and payable to the terminated Company Shareholder. However, the
terminated Company Shareholder shall remain subject to all remaining
obligations under the Lock-Up/Leakout Agreement.
(g) Continued Employment Not a Condition to Earning
Milestones. The parties acknowledge and agree that the additional
consideration payable to the Company Shareholders upon achievement of the
Milestones is additional consideration for the Merger and employment or
continued employment by Parent or the Surviving Corporation is not a condition
or requirement to any Company Shareholder earning any of the additional
consideration due upon achievement of the Milestones.
1.4. Conversion of Interests. Subject to the terms and
conditions of this Agreement, at the Effective Time, by virtue of the Merger
and without any action on the part of the Company and/or the Merger
Subsidiary:
(a) All of the shares of the Company (the "Company Common
Stock") issued and outstanding immediately prior to the Effective Time (except
for Company Common Stock referred to in Section 1.4(c) hereof) will be
converted into an aggregate of 5,326,320 shares of common stock of the Parent
(the "Parent Common Stock") and Two Hundred Fifty Thousand Dollars ($250,000)
payable to the Company Shareholders as described in Paragraph 1.3(b) and the
right to receive an aggregate of One Hundred Thousand Dollars ($100,000)
payable to the Company Shareholders as described in Paragraph 1.3(c)(i) and an
aggregate of 5,276,310 shares of Parent Common Stock issuable upon
satisfaction of the applicable Milestones.
(b) All stock options, warrants, convertible debt, other
convertible securities or other rights to acquire shares of the Company
(collectively the "Company's Convertible Securities") outstanding at the
Effective Time, whether or not exercisable and whether or not vested, and all
of which are listed on the "Company Disclosure Schedule" as defined in Section
2.1 hereof, shall be cancelled.
(c) Each share of Company Common Stock issued and
outstanding immediately prior to the Effective Time that is then owned
beneficially or of record by Parent, Merger Subsidiary, or any direct or
indirect subsidiary of Parent or the Company will be canceled without payment
of any consideration therefor and without any conversion thereof.
Furthermore, at the Effective Time, one (1) share of Company Common Stock
shall be issued to Parent.
(d) Except as expressly set forth herein, each share of
any other equity interest of the Company (other than Company Common Stock)
will be canceled without payment of any consideration therefor and without any
conversion thereof.
(e) Each share of common stock of Merger Subsidiary
("Merger Subsidiary Common Stock"), issued and outstanding immediately prior
to the Effective Time will be canceled as of the Effective Time.
1.5. Exchange of Company Common Stock.
(a) Immediately prior to Closing, the holders of the
Company's Series A Convertible Preferred Stock shall convert their shares of
Series A Convertible Preferred Stock into shares of Company Common Stock in
accordance with the terms of the Company's Articles of Incorporation. At the
Closing, the Company will arrange for each holder of record (a "Company
Shareholder") of Company Common Stock outstanding immediately prior to the
Effective Time to deliver to the Parent appropriate evidence of such holder's
Company Common Stock ("Company Certificates"), together with an appropriate
assignment signed by such holders, in exchange for the number of whole shares
of Parent Common Stock into which such interests have been converted as
provided in Section 1.4(a), and the Company Certificate(s) so surrendered will
be canceled.
(b) All shares of Parent Common Stock issued upon the
surrender for exchange of shares of Company Common Stock in accordance with
the terms hereof will be deemed to have been issued in full satisfaction of
all rights pertaining to such Company Common Stock.
(c) As of the Effective Time, the holders of Company
Certificates representing shares of Company Common Stock will cease to have
any rights as a Company Shareholder, except such rights, if any, as they may
have pursuant to the Pennsylvania Code. Except as provided above, until such
Company Certificates are surrendered for exchange, each such Company
Certificate will, after the Effective Time, represent for all purposes only
the right to receive certificates representing the number of whole shares of
Parent Common Stock into which Company Common Stock shall have been converted
pursuant to the Merger as provided in Section 1.4(a).
(d) No fractional shares of Parent Common Stock will be
issued upon the surrender for exchange of Company Certificates. Any
fractional share will be rounded up to the next whole share of Parent Common
Stock.
1.6. Articles of Incorporation of the Surviving Corporation. The
Articles of Incorporation of the Company as in effect immediately prior to the
Effective Time will be the Articles of Incorporation of the Surviving
Corporation.
1.7. Bylaws of the Surviving Corporation. The Bylaws of the
Company, as in effect immediately prior to the Effective Time, will be the
Bylaws of the Surviving Corporation until thereafter amended in accordance
with applicable law.
1.8. Directors and Officers of the Surviving Corporation. The
directors and officers of the Company, as of the Effective Time, shall be
designated as the directors and officers of the Surviving Corporation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company and the Company Principal Shareholders, severally and not
jointly, each hereby represent and warrant to Parent and Merger Subsidiary as
follows:
2.1. Disclosure Schedule. The disclosure schedule attached
hereto as Exhibit 2.1 (the "Company Disclosure Schedule") is divided into
sections that correspond to the sections of this Article II. The Company
Disclosure Schedule comprises a list of all exceptions to the truth and
accuracy of, and of all disclosures or descriptions required by, the
representations and warranties set forth in the remaining sections of this
Article II.
2.2. Corporate Organization, etc. The Company is a corporation
duly organized, validly existing and duly subsisting under the laws of the
Commonwealth of Pennsylvania with the requisite corporate power and authority
to carry on its business as it is now being conducted and to own, operate and
lease its properties and assets and is duly qualified or licensed to do
business as a foreign corporation in good standing in every other jurisdiction
in which the character or location of the properties and assets owned, leased
or operated by it or the conduct of its business requires such qualification
or licensing, except in such jurisdictions in which the failure to be so
qualified or licensed and in good standing would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below) on the Company.
The Company Disclosure Schedule contains a list of all jurisdictions in which
the Company is qualified or licensed to do business and includes complete and
correct copies of the Company's articles of incorporation and bylaws. The
Company does not own or control any capital stock of any corporation or any
interest in any partnership, joint venture or other entity.
2.3. Capitalization. The authorized capital securities of the
Company is set forth in the Company Disclosure Schedule. The number of shares
of Company Common Stock and Company Series A Convertible Preferred Stock
outstanding, as of the date of this Agreement and as set forth in the Company
Disclosure Schedule, represent all of the issued and outstanding capital
securities of the Company. All issued and outstanding shares of Company
Common Stock are duly authorized, validly issued, fully paid and nonassessable
and are without, and were not issued in violation of, preemptive rights.
Except as set forth in the Company Disclosure Schedule, there are no shares of
Company Common Stock or other equity securities of the Company outstanding or
any securities convertible into or exchangeable for such interests, securities
or rights. Other than as set forth on the Company Disclosure Schedule and
pursuant to this Agreement, there is no subscription, option, warrant, call,
right, contract, agreement, commitment, understanding or arrangement to which
the Company is a party, or by which it is bound, with respect to the issuance,
sale, delivery or transfer of the capital securities of the Company, including
any right of conversion or exchange under any security or other instrument.
The Company has no subsidiaries.
2.4. Authorization. The Company has all requisite corporate
power and authority to enter into, execute, deliver and perform its
obligations under this Agreement. This Agreement has been duly and validly
executed and delivered by the Company and is the valid and binding legal
obligation of the Company enforceable against the Company in accordance with
its terms, subject to bankruptcy, moratorium, principles of equity and other
limitations limiting the rights of creditors generally.
2.5. Non-Contravention. Except as set forth in the Company
Disclosure Schedule, neither the execution, delivery and performance of this
Agreement or the Transaction Documents, nor the consummation of the
transactions contemplated herein or therein will:
(a) violate, contravene or be in conflict with any
provision of the articles of incorporation or bylaws of the Company;
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of time,
or both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to any right of termination,
cancellation, imposition of fees or penalties under any debt, note, bond,
lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which the
Company is a party or by which the Company or any of the Company's properties
or assets is or may be bound that would have a Material Adverse Effect;
(c) result in the creation or imposition of any pledge,
lien, security interest, restriction, option, claim or charge of any kind
whatsoever ("Encumbrances") upon any property or assets of the Company under
any debt, obligation, contract, agreement or commitment to which the Company
is a party or by which the Company or any of the Company's assets or
properties are bound; or
(d) violate any statute, treaty, law, judgment, writ,
injunction, decision, decree, order, regulation, ordinance or other similar
authoritative matters (referred to herein individually as a "Law" and
collectively as "Laws") of any foreign, federal, state or local governmental
or quasi-governmental, administrative, regulatory or judicial court,
department, commission, agency, board, bureau, instrumentality or other
authority (referred to herein individually as an "Authority" and collectively
as "Authorities") in a manner that will have a Material Adverse Effect.
2.6. Consents and Approvals. Except as set forth in the Company
Disclosure Schedule, with respect to the Company, no consent, approval, order
or authorization of or from, or registration, notification, declaration or
filing with ("Consent") any individual or entity, including without limitation
any Authority, is required in connection with the execution, delivery or
performance of this Agreement by the Company or the consummation by the
Company of the transactions contemplated herein.
2.7. Financial Statements. The Company Disclosure Schedule
contains a copy of each of the balance sheet and statement of income of the
Company as of and for the year ended December 31, 2005 (the "Financial
Statements") and each of the balance sheet as of December 31, 2006 (the
"Latest Balance Sheet") and income statement for the year ended December 31,
2006 (together with the Latest Balance Sheet, the "Latest Financial
Statements"). Except as disclosed therein or in the Company Disclosure
Schedule, the aforesaid Financial Statements and Latest Financial Statements:
(i) are based upon the books and records of the Company; and (ii) are true,
complete and accurate in all material respects and fairly present the
financial position of the Company as of the dates thereof, and the income or
loss of the Company for the periods then ended, provided that, the Financial
Statements and Latest Financial Statements were not prepared in accordance
with generally accepted accounting principles ("GAAP") and significant
adjusting journal entries and accruals may be necessary to convert the
Financial Statements and Latest Financial Statements from a cash basis to be
GAAP compliant.
2.8. Absence of Undisclosed Liabilities. To the knowledge of the
Company Principal Shareholders, the Company does not have any material
liabilities, obligations or claims, whether secured or unsecured, accrued or
unaccrued, fixed or contingent, matured or unmatured, direct or indirect,
contingent or otherwise and whether due or to become due (referred to herein
individually as a "Liability" and collectively as "Liabilities"), other than:
(a) Liabilities that are fully reflected or reserved for in the Latest Balance
Sheet; (b) Liabilities that are set forth on the Company Disclosure Schedule;
(c) Liabilities incurred by the Company in the ordinary course of business
after the date of the Latest Balance Sheet and consistent with past practice;
(d) Liabilities in an amount not to exceed $10,000 individually or in the
aggregate unless such amounts are disclosed on the Company Disclosure
Schedule; or (e) Liabilities for express executory obligations to be performed
after the Closing under the contracts described in Section 2.14 of the Company
Disclosure Schedule.
2.9. Absence of Certain Changes. Except as set forth in the
Company Disclosure Schedule, since December 31, 2006, the Company has owned
and operated its assets, properties and business in the ordinary course of
business and consistent with past practice. Without limiting the generality
of the foregoing, subject to the aforesaid exceptions:
(a) the Company has not experienced any change that has
had or could reasonably be expected to have a Material Adverse Effect on the
Company; and
(b) the Company has not suffered (i) any loss, damage,
destruction or other property or casualty (whether or not covered by
insurance) or (ii) any loss of officers, employees, dealers, distributors,
independent contractors, customers or suppliers, which had or may reasonably
be expected to result in a Material Adverse Effect on the Company.
2.10. Assets. Except as set forth in the Company Disclosure
Schedule, the Company has good and marketable title to, or a valid leasehold
interest in, all of its assets and properties, whether or not reflected in the
Latest Balance Sheet or acquired after the date thereof (except for properties
sold or otherwise disposed of since the date thereof in the ordinary course of
business and consistent with past practices), that relate to or are necessary
for the Company to conduct its business and operations as currently conducted
(collectively, the "Assets"), free and clear of any mortgage, pledge, lien,
security interest, conditional or installment sales agreement, encumbrance,
claim, easement, right of way, tenancy, covenant, encroachment, restriction or
charge of any kind or nature (whether or not of record) (a "Lien"), other than
(i) liens securing specific Liabilities shown on the balance sheet with
respect to which no breach, violation or default exists; (ii) mechanics,'
carriers,' workers' or other like liens arising in the ordinary course of
business; (iii) minor imperfections of title that do not individually or in
the aggregate, impair the continued use and operation of the Assets to which
they relate in the operation of the Company as currently conducted; and (iv)
liens for current taxes not yet due and payable or being contested in good
faith by appropriate proceedings ("Permitted Liens").
2.11. Receivables and Payables.
(a) Except as set forth on the Company Disclosure
Schedule, all accounts receivable of the Company represent sales in the
ordinary course of business and, to the knowledge of the Company Principal
Shareholders, are current and collectible net of any reserves shown on the
Latest Balance Sheet and none of such receivables is subject to any Lien other
than a Permitted Lien.
(b) Except as set forth on the Latest Balance Sheet or
elsewhere in Exhibit 2.1, there are no liabilities and there will be no
liabilities in an amount greater than $10,000 at the time of Closing.
2.12. Intellectual Property Rights. The Company Disclosure
Schedule contains a detailed listing of all patents, patent applications,
patent rights, registered and unregistered trademarks, trademark applications,
trade names, service marks, service ▇▇▇▇ applications, copyrights, internet
domain names, computer programs and other computer software, inventions, know-
how, trade secrets, technology, proprietary processes, trade dress, software
and formulae (collectively, "Intellectual Property Rights") used in the
operation of its Business as currently conducted. Except as set forth on the
Company Disclosure Schedule, to the knowledge of the Company Principal
Shareholders, the use of all Intellectual Property Rights in the Business of
the Company as presently conducted does not infringe or violate the
Intellectual Property Rights of any person or entity. Except as described on
the Company Disclosure Schedule, to the knowledge of the Company Principal
Shareholders: (a) the Company does not own or use any Intellectual Property
Rights pursuant to any written license agreement; (b) the Company has not
granted any person or entity any rights, pursuant to a written license
agreement or otherwise, to use the Intellectual Property Rights; (c) the
Company owns, has unrestricted right to use and has sole and exclusive
possession of and has good and valid title to, all of the Intellectual
Property Rights, free and clear of all Liens and Encumbrances; and (d) all
application, maintenance and other necessary fees are fully paid with the
United States Patent Office and any corresponding foreign agencies. All
license agreements relating to Intellectual Property Rights are binding and
there is not, under any of such licenses, any existing default or event of
default (or event which with notice or lapse of time, or both, would
constitute a default, or would constitute a basis for a claim of non-
performance) on the part of the Company or, to the knowledge of the Company
Principal Shareholders, any other party thereto that would cause a Material
Adverse Effect.
2.13. Litigation. Except as set forth in the Company Disclosure
Schedule, there is no legal, administrative, arbitration, or other proceeding,
suit, claim or action of any nature or investigation, review or audit of any
kind, or any judgment, decree, decision, injunction, writ or order pending,
noticed, scheduled, or, to the knowledge of the Company Principal
Shareholders, threatened or contemplated by or against or involving the
Company, its assets, properties or business or its directors, officers, agents
or employees (but only in their capacity as such), whether at law or in
equity, before or by any person or entity or Authority, which could result in
a loss of at least $10,000, or which questions or challenges the validity of
this Agreement or any action taken or to be taken by the parties hereto
pursuant to this Agreement or in connection with the transactions contemplated
herein.
2.14. Contracts and Commitments; No Default.
(a) Except as set forth in the Company Disclosure
Schedule, the Company is not a party to, nor are any of the Assets bound by,
any written or oral:
(i) employment, non-competition, consulting or
severance agreement, collective bargaining agreement, or pension, profit-
sharing, incentive compensation, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay or retirement
plan or agreement;
(ii) indenture, mortgage, note, installment
obligation, agreement or other instrument relating to the borrowing of money
by the Company;
(iii) contract, agreement, lease (real or personal
property) or arrangement that (A) is not terminable on less than 30 days'
notice without penalty, (B) is not over one year in length of obligation of
the Company, or (C) involves an obligation of more than $10,000 over its term;
(iv) contract, agreement, commitment or license
relating to Intellectual Property Rights or contract, agreement or commitment
of any other type, whether or not fully performed, not otherwise disclosed
pursuant to this Section 2.14;
(v) obligation or requirement to provide funds to or
make any investment (in the form of a loan, capital contribution or otherwise)
in any person or entity; or
(vi) outstanding sales contracts, commitments or
proposals that will result in any material loss upon completion or performance
thereof after allowance for direct distribution expenses, or bound by any
outstanding contracts, bids, sales or service proposals quoting prices that
are reasonably expected to result in a loss in excess of $10,000.
(b) True and complete copies (or summaries, in the case of
oral items) of all agreements disclosed pursuant to this Section 2.14 (the
"Company Contracts") have been provided to Parent for review. Except as set
forth in the Company Disclosure Schedule, all of the Company Contracts items
are valid and enforceable by and against the Company in accordance with their
terms, and are in full force and effect. The Company is not in any breach,
violation or default, however defined, in the performance of any of its
obligations under any of the Company Contracts that would result in a Material
Adverse Effect, and no facts and circumstances exist which, whether with the
giving of due notice, lapse of time, or both, would constitute such breach,
violation or default thereunder or thereof, that would result in a loss in
excess of $10,000, and, to the knowledge of the Company Principal
Shareholders, no other parties thereto are in a breach, violation or default,
however defined, thereunder or thereof, that would result in a Material
Adverse Effect and no facts or circumstances exist which, whether with the
giving of due notice, lapse of time, or both, would constitute such a breach,
violation or default thereunder or thereof.
2.15. Compliance with Law; Permits and Other Operating Rights.
Except as set forth in the Company Disclosure Schedule, to the knowledge of
the Company Principal Shareholders, the Assets, properties, business and
operations of the Company are and have been in compliance in all respects with
all Laws applicable to the Company's assets, properties, business and
operations, except where the failure to comply would not have a Material
Adverse Effect. To the knowledge of the Company Principal Shareholders, the
Company possesses all material permits, licenses and other authorizations from
all Authorities necessary to permit it to operate the Business in the manner
in which it presently is conducted and the consummation of the transactions
contemplated by this Agreement will not prevent the Company from being able to
continue to use such permits and operating rights. The Company has not
received notice of any violation of any such applicable Law, and is not in
default with respect to any order, writ, judgment, award, injunction or decree
of any Authority.
2.16. Brokers. Neither the Company nor, to the knowledge of the
Company Principal Shareholders, any of the its directors, officers or
employees, has employed any broker, finder, investment banker or financial
advisor or incurred any liability for any brokerage fee or commission,
finder's fee or financial advisory fee, in connection with the transactions
contemplated hereby, nor is there any basis known to the Company for any such
fee or commission to be claimed by any person or entity as a result of the
Company's actions. Any such fees payable shall be paid by the Company
Shareholders from the Closing Date Payment or the cash paid to the Company
Shareholders as outlined in Section 1.3(b), or otherwise, by the Company
Shareholders.
2.17. Books and Records. The books of account, minute books,
stock record books, and other material records of the Company, all of which
have been made available to Parent, are complete and correct in all material
respects and have been maintained in accordance with reasonable business
practices. The minute books of the Company contain accurate and complete
records of all formal meetings held of, and corporate action taken by, the
directors and officers, the managers and committees of the managers of the
Company. At the Closing, all of those books and records will be in the
possession of the Company.
2.18. Tax Matters.
(a) Except as set forth on the Company Disclosure
Schedule: (i) the Company and (ii) each other Person included in any
consolidated or combined Tax Return and part of an affiliated group, within
the meaning of Section 1504 of the Code, of which the Company is or has been a
member ("Company Tax Affiliate"), for the years that it was a Company Tax
Affiliate:
(i) has timely paid or caused to be paid all Taxes
required to be paid by it though the date hereof and as of the Closing Date
(including any Taxes shown due on any Tax Return);
(ii) has filed or caused to be filed in a timely and
proper manner (within any applicable extension periods) all Tax Returns
required to be filed by it with the appropriate Authority in all jurisdictions
in which such Tax Returns are required to be filed; and all tax returns filed
on behalf of the Company and each Company Tax Affiliate were complete and
correct in all material respects; and
(iii) has not requested or caused to be requested any
extension of time within which to file any Tax Return, which Tax Return has
not since been filed.
(b) The Company has previously delivered true, correct and
complete copies of all Federal Tax Returns filed by or on behalf of the
Company through the date hereof for the periods ending after December 31,
2004.
(c) Except as set forth in the Company Disclosure
Schedule:
(i) since January 1, 2004, neither the Company nor
any Company Tax Affiliate (for the years that it was a Company Tax Affiliate)
has been notified by the Internal Revenue Service (the "IRS") or any other
Authority that any issues have been raised (and no such issues are currently
pending) by the IRS or any other Authority in connection with any Tax Return
filed by or on behalf of the Company or any Company Tax Affiliate; there are
no pending Tax audits and no waivers of statutes of limitations have been
given or requested with respect to the Company or any Company Tax Affiliate
(for years that it was a Company Tax Affiliate); no Tax liens have been filed
against the Company or unresolved deficiencies or additions to Taxes have been
proposed, asserted or assessed against the Company or any Company Tax
Affiliate (for the years that it was a Company Tax Affiliate);
(ii) full and adequate accrual has been made (A) on
the Latest Balance Sheet, and the books and records of the Company for all
income taxes currently due and all accrued Taxes not yet due and payable by
the Company for all periods ending on or prior to the date of the Latest
Balance Sheet, and (B) on the books and records of the Company for all Taxes
payable by the Company for all periods beginning after the date of the Latest
Balance Sheet;
(iii) The Company has not incurred any liability for
Taxes from and after the date of the Latest Balance Sheet other than Taxes
incurred in the ordinary course of business and consistent with past
practices;
(iv) The Company has not (A) made an election (or had
an election made on its behalf by another person) to be treated as a
"consenting corporation" under Section 341(f) of the Code or (B) a "personal
holding company" within the meaning of Section 542 of the Code;
(v) The Company has complied in all material
respects with all applicable Laws relating to the collection or withholding of
Taxes (such as Taxes or withholding of Taxes from the wages of employees);
(vi) The Company has no liability in respect of any
Tax sharing agreement with any Person and all Tax sharing agreements to which
the Company has been bound have been terminated;
(vii) The Company has not incurred any liability to
make any payments either alone or in conjunction with any other payments that:
(A) shall be non-deductible under, or would
otherwise constitute a "parachute payment" within the meaning of Section 280G
of the Code (or any corresponding provision of state local or foreign
Applicable Law related to Taxes); or
(B) are or may be subject to the imposition of
an excise Tax under Section 4999 of the Code;
(viii) The Company has not agreed to (nor has any other
Person agreed to on its behalf) and is not required to make any adjustments or
changes on, before or after the Closing Date, to its accounting methods
pursuant to Section 481 of the Internal Revenue Code, and the IRS has not
proposed any such adjustments or changes in the accounting methods of the
Company;
(ix) no claim has been made within the last three
years by any taxing authority in a jurisdiction in which the Company does not
file Tax Returns that the Company is or may be subject to taxation by that
jurisdiction;
(x) the consummation of the Merger will not trigger
the realization or recognition of intercompany gain or income to the Company
under the Federal consolidated return regulations with respect to Federal,
state or local taxes; and
(xi) The Company is not currently, nor has it been at
any time during the previous five years, a "U.S. real property holding
corporation" and, therefore, the shares of Company Common Stock are not "U.S.
real property interests," as such terms are defined in Section 897 of the
Code.
2.19. Reorganization.
(a) Fair Market Value. The fair market value of the
Parent Common Stock and other consideration received by each Company
Shareholder will be approximately equal to the fair market value of the
Company Common Stock surrendered in the exchange.
(b) Expenses. Other than reorganization expenses set
forth in the Company Disclosure Schedule, the Company and the Company
Shareholders will pay their own expenses, if any, incurred in connection with
the transaction.
(c) Assets Exceed Liabilities. The fair market value of
the assets of the Company will equal or exceed the sum of its liabilities plus
the amount of liabilities, if any, to which the assets are subject.
(d) Additional Shares. Following the Merger, the Company
will not issue additional shares of its stock that would result in Parent
losing control of the Company within the meaning of I.R.C. Section 368(c)(1).
(e) No Plan or Intention. To the knowledge of the
Company, there is no plan or intention by the Company Shareholders to sell,
exchange, or otherwise dispose of a number of shares of stock received in the
transaction to any person related to Parent that would reduce the
shareholders' ownership of Parent to a number of shares having a value, as of
the date of the transaction, of less than 50 percent of the value of all of
the formerly outstanding stock of the Company as of the same date. For
purposes of this representation, shares of the Company Common Stock exchanged
for cash or other property, surrendered by dissenters, or exchanged for cash
in lieu of fractional shares of Parent Stock will be treated as outstanding
Company Common Stock on the date of the transaction. Moreover, shares of
Company Common Stock and shares of Parent Common Stock held by Company
shareholders and otherwise sold, redeemed, or disposed of prior or subsequent
to the transaction will be considered in making this representation.
(f) Intercorporate Debt. Except as set forth in the
Company Disclosure Schedule, there is no intercorporate indebtedness existing
between the Company and Parent that was issued, acquired, or will be settled
at a discount.
(g) Liabilities. The liabilities of Company and the
liabilities to which the assets of Company are subject were incurred by
Company in the ordinary course of its business.
(h) Bankruptcy Proceedings. The Company is not under the
jurisdiction of a court in a Title 11 or similar case within the meaning of
I.R.C. Section 368(a)(3)(A).
(i) Assets Transferred. Following the transaction, the
Company will hold at least ninety percent (90%) of the fair market value of
its net assets and at least seventy percent (70%) of the fair market of its
gross assets and at least ninety percent (90%) of the fair market value of
Merger Subsidiary's net assets and at least seventy percent (70%) of the fair
market of Merger Subsidiary's gross assets immediately prior to the Merger.
For purposes of this representation, amounts paid by the Company or Merger
Subsidiary to dissenters, amounts paid by the Company or Merger Subsidiary to
shareholders who receive cash or other property, amounts paid by the Company
or Merger Subsidiary to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the Company
immediately preceding the transfer, will be included as assets of the Company
or Merger Subsidiary, respectively, immediately prior to the Merger.
(j) Voting Stock. In the Merger, shares of Company Common
Stock representing control of the Company, as defined in I.R.C. Section
368(c)(1), will be exchanged solely for voting stock of Parent. For purposes
of this representation, shares of Company Common Stock exchanged for cash or
other property originating with Parent will be treated as outstanding Company
Common Stock on the date of the Merger.
(k) Options. At the time of the Merger, the Company will
not have outstanding any warrants, options, convertible securities, or any
other type of right pursuant to which any person could acquire stock in the
Company that, if exercised or converted, would effect Parent's acquisition or
retention of control of the Company, as defined in I.R.C. Section 368(c)(1) of
the Code.
(l) No Prior Stock Holdings. Parent does not own, nor has
it owned during the past five (5) years any shares of stock of the Company.
(m) Investment Company. The Company is not an investment
company as defined in I.R.C. Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
2.20. Business Generally; Accuracy of Information. No
representation or warranty made by the Company in this Agreement, the Company
Disclosure Schedule or in any document, agreement or certificate furnished or
to be furnished to Parent at the Closing by or on behalf of the Company in
connection with any of the transactions contemplated by this Agreement
contains or will contain any untrue statement of material fact or omit or will
omit to state any material fact necessary in order to make the statements
herein or therein not misleading in light of the circumstances in which they
are made, and all of the foregoing completely and correctly present the
information required or purported to be set forth herein or therein.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PARENT
AND THE MERGER SUBSIDIARY
Parent and the Merger Subsidiary represent and warrant to the Company
and the Company Shareholders as follows:
3.1. Disclosure Schedule. The disclosure schedule attached
hereto as Exhibit 3.1 (the "Parent Disclosure Schedule") is divided into
sections that correspond to the sections of this Article III. The Parent
Disclosure Schedule comprises a list of all exceptions to the truth and
accuracy of, and of all disclosures or descriptions required by, the
representations and warranties set forth in the remaining sections of this
Article III.
3.2. Corporate Organization, Standing and Power. Parent is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Colorado; and Merger Subsidiary is a corporation duly
organized, validly existing and duly subsisting under the laws of the
Commonwealth of Pennsylvania. Each of Parent and Merger Subsidiary has all
corporate power and authority to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on Parent and Merger Subsidiary. The
Parent Disclosure Schedule contains a list of all jurisdictions in which each
of Parent and Merger Subsidiary is qualified or licensed to do business.
Parent owns all of the outstanding capital stock of Merger Subsidiary.
3.3. Authorization. Each of Parent and the Merger Subsidiary has
all the requisite corporate power and authority to enter into this Agreement
and to carry out the transactions contemplated herein. The Board of Directors
of Parent and the Merger Subsidiary, and Parent as the sole shareholder of the
Merger Subsidiary, have taken all action required by law, their respective
articles of incorporation and bylaws or otherwise to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated herein. This Agreement is the valid and binding
legal obligation of Parent and the Merger Subsidiary enforceable against each
of them in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or similar laws
that affect creditors' rights generally.
3.4. Capitalization. The authorized capital securities of the
Parent and Merger Subsidiary are set forth in the Parent Disclosure Schedule.
The number of shares of Parent Common Stock, as of the date of this Agreement
and as set forth in the Parent Disclosure Schedule, represent all of the
issued and outstanding capital securities of the Parent. All issued and
outstanding shares of Parent Common Stock are duly authorized, validly issued,
fully paid and nonassessable and are without, and were not issued in violation
of, preemptive rights. Other than as set forth on the Parent Disclosure
Schedule, there are no shares of Parent Common Stock or other equity
securities of Parent outstanding or any securities convertible into or
exchangeable for such interests, securities or rights. Other than as set
forth on the Parent Disclosure Schedule and pursuant to this Agreement, there
is no subscription, option, warrant, call, right, contract, agreement,
commitment, understanding or arrangement to which Parent is a party, or by
which it is bound, with respect to the issuance, sale, delivery or transfer of
the capital securities of Parent, including any right of conversion or
exchange under any security or other instrument.
3.5. Non-Contravention. Neither the execution, delivery and
performance of this Agreement or the Transaction Documents, nor the
consummation of the transactions contemplated herein or therein will:
(a) violate any provision of the articles of incorporation
or bylaws of Parent or the Merger Subsidiary; or
(b) be in conflict with, or constitute a default, however
defined (or an event which, with the giving of due notice or lapse of time, or
both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to, any right of termination,
cancellation, imposition of fees or penalties under, any debt, note, bond,
lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which Parent
or the Merger Subsidiary is a party or by which Parent or the Merger
Subsidiary or any of their respective properties or assets is or may be bound;
(c) result in the creation or imposition of any
Encumbrance upon any property or assets of Parent or the Merger Subsidiary
under any debt, obligation, contract, agreement or commitment to which Parent
or the Merger Subsidiary is a party or by which Parent or the Merger
Subsidiary or any of their respective assets or properties is or may be bound;
or
(d) violate any Law of any Authority.
3.6. Consents and Approvals. No Consent is required by any
person or entity, including without limitation any Authority, in connection
with the execution, delivery and performance by Parent or Merger Subsidiary of
this Agreement, or the consummation of the transactions contemplated herein,
other than any Consent which, if not made or obtained, will not, individually
or in the aggregate, have a Material Adverse Effect on the business of Parent
or Merger Subsidiary.
3.7. Valid Issuance. The Parent Common Stock to be issued in
connection with the Merger will be duly authorized and, when issued, delivered
and paid for as provided in this Agreement, will be validly issued, fully paid
and non-assessable.
3.8. SEC Filings; Financial Statements.
(a) Parent has delivered, or made available to the Company
via the Securities and Exchange Commission's web site ▇▇▇.▇▇▇.▇▇▇, accurate
and complete copies (excluding copies of exhibits) of each report,
registration statement and definitive proxy and information statements filed
by Parent with the SEC (collectively, with all information incorporated by
reference therein or deemed to be incorporated by reference therein, the
"Parent SEC Documents"). All statements, reports, schedules, forms and other
documents required to have been filed by Parent with the SEC have been so
filed. Except as set forth in the Parent Disclosure Schedule, as of the time
it was filed with the SEC (or, if amended or superseded by a filing prior to
the date of this Agreement, then on the date of such filing): (i) each of the
Parent SEC Documents complied in all material respects with the applicable
requirements of the Securities Act of 1933, as amended (the "Securities Act")
or the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
(ii) none of the Parent SEC Documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. There is no
fact, event or circumstance that has occurred since the date of the last
Parent SEC Document, or that now exists, that (i) would have been required to
be disclosed in a Parent SEC Document, if it had occurred prior to the date
thereof, or (ii) has had a material adverse effect individually or in the
aggregate on the business, finances, operations or prospects of Parent.
(b) The consolidated financial statements contained in the
Parent SEC Documents: (i) complied as to form in all material respects with
the published rules and regulations of the SEC applicable thereto; (ii) were
prepared in accordance with GAAP and the PCAOB standards applied on a
consistent basis throughout the periods covered except as may be indicated in
the notes to such financial statements and, in the case of unaudited
statements, as permitted by Form 10-QSB of the SEC; and (iii) fairly present,
in all material respects, the consolidated financial position of Parent and
its consolidated subsidiaries as of the respective dates thereof and the
consolidated results of operations of Parent and its consolidated subsidiaries
for the periods covered thereby. All adjustments considered necessary for a
fair presentation of the financial statements have been included.
(c) Except as set forth on the Parent Disclosure Schedule,
Parent does not have any Liabilities, except for (i) Liabilities expressly
stated in the most recent balance sheet included in the Parent SEC Documents
or the notes thereto, or (ii) Liabilities which do not exceed $25,000 in the
aggregate.
3.9. No Assets. As of the Closing, Parent will not have any
assets or operations except as identified in the most recent balance sheet
and notes thereto included in the Parent SEC Documents or the Parent
Disclosure Schedule. Except as set forth in the Parent Disclosure Schedule,
Parent has good and marketable title to all of its Assets, free and clear of
any and all Liens, other than Permitted Liens.
3.10. Absence of Certain Changes. Except as set forth in the
Parent SEC Documents, Parent has owned and operated its assets, properties and
business in the ordinary course of business and consistent with past practice.
Without limiting the generality of the foregoing, subject to the aforesaid
exceptions, Parent has not experienced any change that has had or could
reasonably be expected to have a Material Adverse Effect on the Parent and the
consolidated balance sheet of Parent dated as of December 31, 2006 and the
consolidated income statement and statement of cash flows of Parent for the
year ended December 31, 2006 will not, when filed with the SEC, include any
information that has or could reasonably be expected to have a Material
Adverse Effect on Parent.
3.11. Litigation. Except as disclosed in the Parent SEC
Documents, there is no legal, administrative, arbitration, or other
proceeding, suit, claim or action of any nature or investigation, review or
audit of any kind, or any judgment, decree, decision, injunction, writ or
order pending, noticed, scheduled, or, to the knowledge of the Parent or the
Merger Subsidiary, threatened or contemplated by or against or involving the
Parent or Merger Subsidiary, their respective assets, properties or business
or its directors, officers, agents or employees (but only in their capacity as
such), whether at law or in equity, before or by any person or entity or
Authority, or which questions or challenges the validity of this Agreement or
any action taken or to be taken by the parties hereto pursuant to this
Agreement or in connection with the transactions contemplated herein.
3.12. Contracts and Commitments; No Default. The Parent is not
a party to, nor are any of its Assets bound by, any contract (a "Parent
Contract") that is not disclosed in the Parent SEC Documents. Except as
disclosed in the Parent SEC Documents, none of the Parent Contracts contains a
provision requiring the consent of any party with respect to the consummation
of the transactions contemplated by this Agreement. The Parent is not in
breach, violation or default, however defined, in the performance of any of
its obligations under any of the Parent Contracts, and no facts and
circumstances exist which, whether with the giving of due notice, lapse of
time, or both, would constitute such breach, violation or default thereunder
or thereof, and, to the knowledge of the Parent, no other parties thereto are
in a breach, violation or default, however defined, thereunder or thereof, and
no facts or circumstances exist which, whether with the giving of due notice,
lapse of time, or both, would constitute such a breach, violation or default
thereunder or thereof.
3.13. No Broker or Finder. No broker, finder or investment
banker is entitled to any brokerage, finder's or other fee or commission in
connection with the Merger or any of the other transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Parent.
Any such fees shall be paid by Parent.
3.14. Intercompany And Affiliate Transactions; Insider
Interests. Except as expressly identified in the Parent SEC Documents, there
are, and during the last two years there have been, no transactions,
agreements or arrangements of any kind, direct or indirect, between the
Parent, on the one hand, and any director, officer, employee, stockholder, or
affiliate of the Parent, on the other hand, including, without limitation,
loans, guarantees or pledges to, by or for the Parent or from, to, by or for
any of such persons, that are currently in effect.
3.15. Compliance with Law; Permits and Other Operating Rights.
Except as set forth in the Parent Disclosure Schedule, the Assets, properties,
business and operations of Parent and Merger Subsidiary are and have been in
compliance in all respects with all Laws applicable to their respective
assets, properties, business and operations, except where the failure to
comply would not have a Material Adverse Effect. Parent possesses all
material permits, licenses and other authorizations from all Authorities
necessary to permit them to operate their respective business in the manner in
which it presently is conducted and the consummation of the transactions
contemplated by this Agreement will not prevent Parent or Merger Subsidiary
from being able to continue to use such permits and operating rights. Parent
has not received notice of any violation of any such applicable Law, and is
not in default with respect to any order, writ, judgment, award, injunction or
decree of any Authority.
3.16. Tax Matters.
(a) Except as set forth on the Parent Disclosure Schedule:
(i) Parent and (ii) each other Person included in any consolidated or combined
Tax Return and part of an affiliated group, within the meaning of Section 1504
of the Parent Code, of which Parent is or has been a member ("Parent Tax
Affiliate"), for the years that it was a Parent Tax Affiliate of Parent:
(i) has timely paid or caused to be paid all Taxes
required to be paid by it though the date hereof and as of the Closing Date
(including any Taxes shown due on any Tax Return);
(ii) has filed or caused to be filed in a timely and
proper manner (within any applicable extension periods) all Tax Returns
required to be filed by it with the appropriate Authority in all jurisdictions
in which such Tax Returns are required to be filed; and all tax returns filed
on behalf of Parent and each Parent Tax Affiliate were completed and correct
in all material respects; and
(iii) has not requested or caused to be requested any
extension of time within which to file any Tax Return, which Tax Return has
not since been filed.
(b) Parent has previously delivered true, correct and
complete copies of all Federal Tax Returns filed by or on behalf of Parent
through the date hereof for the periods ending after December 31, 2004.
(c) Except as set forth in the Parent Disclosure Schedule:
(i) since January 1, 2004, neither Parent nor any
Parent Tax Affiliate (for the years that it was a Parent Tax Affiliate) has
been notified by the Internal Revenue Service or any other Authority that any
issues have been raised (and no such issues are currently pending) by the IRS
or any other Authority in connection with any Tax Return filed by or on behalf
of Parent or any Parent Tax Affiliate; there are no pending Tax audits and no
waivers of statutes of limitations have been given or requested with respect
to Parent or any Parent Tax Affiliate (for years that it was a Parent Tax
Affiliate); no Tax liens have been filed against Parent or unresolved
deficiencies or additions to Taxes have been proposed, asserted or assessed
against Parent or any Parent Tax Affiliate (for the years that it was a Parent
Tax Affiliate);
(ii) full and adequate accrual has been made (i) on
the most recent balance sheet included in the Parent SEC filings, and the
books and records of Parent for all income Taxes currently due and all accrued
Taxes not yet due and payable by Parent for all periods ending on or prior to
the date of the most recent balance sheet included in the Parent SEC
Documents, and (ii) on the books and records of Parent and for all Taxes
payable by Parent for all periods beginning after the date of the most recent
balance sheet included in the Parent SEC Documents;
(iii) Parent has not incurred any liability for Taxes
from and after the date of the most recent balance sheet included in the
Parent SEC Documents other than Taxes incurred in the ordinary course of
business and consistent with past practices;
(d) Parent has not (i) made an election (or had an
election made on its behalf by another person) to be treated as a "consenting
corporation" under Section 341(f) of the Code or (ii) a "personal holding
company" within the meaning of Section 542 of the Code;
(e) Parent has complied in all material respects with all
Laws relating to the collection or withholding of Taxes (such as Taxes or
withholding of Taxes from the wages of employees);
(f) Parent has no liability in respect of any Tax sharing
agreement with any Person and all Tax sharing agreements to which Parent has
been bound have been terminated;
(g) Parent has not incurred any liability to make any
payments either alone or in conjunction with any other payments that:
(i) shall be non-deductible under, or would
otherwise constitute a "parachute payment" within the meaning of Section 280G
of the Code (or any corresponding provision of state local or foreign income
Tax Law); or
(ii) are or may be subject to the imposition of an
excise Tax under Section 4999 of the Code;
(h) Parent has not agreed to (nor has any other Person
agreed to on its behalf) and is not required to make any adjustments or
changes on, before or after the Closing Date, to its accounting methods
pursuant to Section 481 of the Code, and the Internal Revenue Service has not
proposed any such adjustments or changes in the accounting methods of Parent;
(i) no claim has been made within the last three years by
any taxing authority in a jurisdiction in which Parent does not file Tax
Returns that Parent is or may be subject to taxation by that jurisdiction;
(j) the consummation of the Merger will not trigger the
realization or recognition of intercompany gain or income to Parent under the
Federal consolidated return regulations with respect to Federal, state or
local Taxes;
(k) none of Parent's stockholders are foreign Persons
within the meaning of Treasury Regulation 1.1445-2(b) of the rules and
regulations promulgated under Section 1445 of the Code, and the Company has
been furnished with a true and accurate certificate of Parent so stating which
complies in all respects with Treasury Regulation Section 1.1445-2(b)(2) of
such rules and regulations; and
(l) Parent is not currently, nor has it been at any time
during the previous five years, a "U.S. real property holding corporation"
and, therefore, the Parent Common Stock is not "U.S. real property interests,"
as such terms are defined in Section 897 of the Code.
3.17. Reorganization.
(a) Reacquisition of Stock. Neither Parent nor any person
related to Parent as defined under Treas. Reg. Section 1.368-1(e)(2) plans or
intends to reacquire any of the Parent Stock issued in the Merger.
(b) No Plan or Intention. Parent has no plan or intention
to liquidate the Company; to merge the Company with and into another
corporation; to sell or otherwise dispose of the stock of the Company; or to
sell or otherwise dispose of any of the assets of the Company acquired in the
transaction, except for dispositions made in the ordinary course of business
or transfers described in I.R.C. Section 368(a)(2)(C); or to cause the Company
to sell or otherwise dispose of any of its assets or any of the assets
acquired from merger subsidiary, except for dispositions made in the ordinary
course of business or transfers of assets to a corporation controlled by the
Company.
(c) Historic Business. Following the transaction, Parent
shall cause the Company to continue the historic business of the Company or
use a significant portion of the Company's historic business assets in a
business.
(d) Intercorporate Debt. Except as set forth in the
Parent Disclosure schedule, there is no intercorporate indebtedness existing
between the Company and Parent that was issued, acquired, or will be settled
at a discount.
(e) Investment Company. Parent is not an investment
company as defined in I.R.C. Sections 368(a)(2)(F)(iii) and 368(a)(2)(F)(iv).
(f) Control. Prior to the Merger, Parent will be in
control of Merger Subsidiary within the meaning of I.R.C. Section 368(c)(1).
(g) Fair Market Value. The fair market value of the
Parent Common Stock and other consideration received by each Company
Shareholder will be approximately equal to the fair market value of the
Company Stock surrendered in the exchange.
(h) Expenses. Parent and Merger Subsidiary will pay their
own expenses, if any, incurred in connection with the transaction.
(i) Assets Transferred. Following the transaction, the
Company will hold at least ninety percent (90%) of the fair market value of
its net assets and at least seventy percent (70%) of the fair market of its
gross assets and at least ninety percent (90%) of the fair market value of
Merger Subsidiary's net assets and at least seventy percent (70%) of the fair
market of Merger Subsidiary's gross assets immediately prior to the Merger.
For purposes of this representation, amounts paid by the Company or Merger
Subsidiary to dissenters, amounts paid by the Company or Merger Subsidiary to
shareholders who receive cash or other property, amounts paid by the Company
or Merger Subsidiary to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by the Company
immediately preceding the transfer, will be included as assets of the Company
or Merger Subsidiary, respectively, immediately prior to the Merger.
(j) Voting Stock. In the Merger, shares of Company Common
Stock representing control of the Company, as defined in I.R.C. Section
368(c)(1), will be exchanged solely for voting stock of Parent. For purposes
of this representation, shares of Company Common Stock exchanged for cash or
other property originating with Parent will be treated as outstanding Company
Common Stock on the date of the Merger.
(k) No Prior Stock Holdings. Parent does not own, nor has
it owned during the past five (5) years any shares of stock of the Company.
3.18. Business Generally; Accuracy of Information. No
representation or warranty made by Parent or Merger Subsidiary in this
Agreement, the Parent Disclosure Schedule, or in any document, agreement or
certificate furnished or to be furnished to the Company at the Closing by or
on behalf of Parent or Merger Subsidiary in connection with any of the
transactions contemplated by this Agreement contains or will contain any
untrue statement of material fact or omit or will omit to state any material
fact necessary in order to make the statements herein or therein not
misleading in light of the circumstances in which they are made, and all of
the foregoing completely and correctly present the information required or
purported to be set forth herein or therein.
ARTICLE IV
COVENANTS OF THE PARTIES PRIOR TO CLOSING
4.1. Conduct of Business. Except as contemplated by this
Agreement, during the period from the date of this Agreement to the Closing
Date, the Company and Parent will each conduct its business and operations
according to its ordinary and usual course of business consistent with past
practices. Without limiting the generality of the foregoing, and, except as
otherwise expressly provided in this Agreement or as otherwise disclosed on
the Parent Disclosure Schedule or Company Disclosure Schedule, respectively,
prior to the Closing Date, without the prior written consent of the other
party, not to be unreasonably delayed or withheld, neither the Parent nor the
Company will:
(a) amend its articles of incorporation or bylaws;
(b) issue, reissue, sell, deliver or pledge or authorize
or propose the issuance, reissuance, sale, delivery or pledge of shares of
capital stock of any class (other than shares of Company Common Stock issuable
upon conversion of shares of Company Series A Convertible Preferred Stock), or
securities convertible into capital stock of any class, or any rights,
warrants or options to acquire any convertible securities or capital stock;
(c) adjust, split, combine, subdivide, reclassify or
redeem, purchase or otherwise acquire, or propose to redeem or purchase or
otherwise acquire, any shares of its capital stock, or any of its other
securities;
(d) declare, set aside or pay any dividend or other
distribution (whether in cash, stock or property or any combination thereof)
in respect of its capital stock, redeem or otherwise acquire any shares of its
capital stock or other securities, alter any term of any of its outstanding
securities;
(e) (i) except as required under any employment agreement,
increase in any manner the compensation of any of its directors, officers or
other employees; (ii) pay or agree to pay any pension, retirement allowance or
other employee benefit not required or permitted by any existing plan,
agreement or arrangement to any such director, officer or employee, whether
past or present; or (iii) commit itself to any additional pension, profit-
sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement
or other employee benefit plan, agreement or arrangement, or to any employment
agreement or consulting agreement (arising out of prior employment ) with or
for the benefit of any person, or, except to the extent required to comply
with applicable law, amend any of such plans or any of such agreements in
existence on the date of this Agreement;
(f) hire any additional personnel;
(g) incur, assume, suffer or become subject to, whether
directly or by way of guarantee or otherwise, any Liabilities which,
individually or in the aggregate, exceed $10,000 in the case of the Company
and $25,000 in the case of Parent;
(h) make or enter into any commitment for capital
expenditures in excess of $10,000 in the case of the Company and $25,000 in
the case of Parent;
(i) pay, lend or advance any amount to, or sell, transfer
or lease any properties or assets (real, personal or mixed, tangible or
intangible) to, or enter into any agreement or arrangement with, any of its
officers or directors or any affiliate or associate of any of its officers or
directors;
(j) terminate, enter into or amend in any material respect
any contract, agreement, lease, license or commitment, or take any action or
omit to take any action which will cause a breach, violation or default
(however defined) under any contract, except in the ordinary course of
business and consistent with past practice;
(k) acquire any of the business or assets of any other
person or entity;
(l) permit any of its current insurance (or reinsurance)
policies to be cancelled or terminated or any of the coverage thereunder to
lapse, unless simultaneously with such termination, cancellation or lapse,
replacement policies providing coverage equal to or greater than coverage
remaining under those cancelled, terminated or lapsed are in full force and
effect;
(m) enter into other material agreements, commitments or
contracts not in the ordinary course of business or in excess of current
requirements;
(n) settle or compromise any suit, claim or dispute, or
threatened suit, claim or dispute (other than any settlement or compromise
having no effect upon the Company, its assets, operations or financial
position); or
(o) agree in writing or otherwise to take any of the
foregoing actions or any action which would make any representation or
warranty in this Agreement untrue or incorrect in any material respect.
Nothing herein shall prevent the Company from operating its business in
the ordinary course and consistent with past practice.
4.2. Access. Throughout the period between the date of this
Agreement and the Effective Time, each party will afford to the other and its
directors, officers, employees, counsel, accountants, investment advisors and
other authorized representatives and agents, reasonable access to the
facilities, properties, books and records of the party during normal business
hours in order that the other may have full opportunity to make such
investigations as it will desire to make of the affairs of the disclosing
party. Each party will furnish such additional financial and operating data
and other information as the other will, from time to time, reasonably
request; provided, however, that any such investigation will not affect or
otherwise diminish or obviate in any respect any of the representations and
warranties of the disclosing party. Upon the other party's request, each
party will use reasonable efforts to cause its independent certified public
accountants to provide reasonable access to their workpapers.
4.3. Confidentiality. Each of the parties hereto agrees that it
will not use, or permit the use of, any of the information relating to any
other party hereto furnished to it in connection with the transactions
contemplated herein ("Information") in a manner or for a purpose detrimental
to such other party or otherwise than in connection with the transaction, and
that they will not disclose, divulge, provide or make accessible
(collectively, "Disclose"), or permit the Disclosure of, any of the
Information to any person or entity, other than their respective directors,
officers, employees, investment advisors, accountants, counsel and other
authorized representatives and agents, except as may be required by judicial
or administrative process or, in the opinion of such party's counsel, by other
requirements of Law; provided, however, that prior to any Disclosure of any
Information permitted hereunder, the disclosing party will first obtain the
recipients' undertaking to comply with the provisions of this Section with
respect to such information. The term "Information" as used herein will not
include any information relating to a party that can be shown: (i) to have
been in the recipient's possession prior to its receipt from another party
hereto; (ii) to be now or to later become generally available to the public
through no fault of the recipient party; (iii) to have been available to the
public at the time of its receipt by the recipient party; (iv) to have been
received separately by the recipient party in an unrestricted manner from a
person entitled to disclose such information; or (v) to have been developed
independently by the recipient party without regard to any information
received in connection with this transaction. Each party hereto also agrees
to promptly return to the party from whom it originally received such
information all original and duplicate copies of written materials containing
Information should the transactions contemplated herein not occur. A party
hereto will be deemed to have satisfied its obligations to hold the
Information confidential if it exercises the same care as it takes with
respect to its own similar information.
4.4. Filings; Consents; Removal of Objections. Subject to the
terms and conditions herein provided, the parties hereto will use their best
efforts to take or cause to be taken all actions and do or cause to be done
all things necessary, proper or advisable under applicable Laws to consummate
and make effective, as soon as reasonably practicable, the transactions
contemplated hereby, including without limitation obtaining all Consents of
any person or entity, whether private or governmental, required in connection
with the consummation of the transactions contemplated herein. In
furtherance, and not in limitation of the foregoing, it is the intent of the
parties to consummate the transactions contemplated herein at the earliest
practicable time, and they respectively agree to exert commercially reasonable
efforts to that end, including without limitation: (i) the removal or
satisfaction, if possible, of any objections to the validity or legality of
the transactions contemplated herein; and (ii) the satisfaction of the
conditions to consummation of the transactions contemplated hereby.
4.5. Further Assurances; Cooperation; Notification.
(a) Each party hereto will, before, at and after Closing,
execute and deliver such instruments and take such other actions as the other
party or parties, as the case may be, may reasonably require in order to carry
out the intent of this Agreement. Without limiting the generality of the
foregoing, at any time after the Closing, at the reasonable request of Parent
and without further consideration, the Company will execute and deliver such
instruments of sale, transfer, conveyance, assignment and confirmation and
take such action as Parent may reasonably deem necessary or desirable in order
to more effectively consummate the transactions contemplated hereby.
(b) At all times from the date hereof until the Closing,
each party will promptly notify the other in writing of the occurrence of any
event which it reasonably believes will or may result in a failure by such
party to satisfy the conditions specified in this Article IV.
4.6. Supplements to Disclosure Schedule. Prior to the Closing,
each party will supplement or amend its respective Disclosure Schedule with
respect to any event or development which, if existing or occurring at or
prior to the date of this Agreement, would have been required to be set forth
or described in the Disclosure Schedule or which is necessary to correct any
information in the Disclosure Schedule or in any representation and warranty
of the Company which has been rendered inaccurate by reason of such event or
development.
4.7. Public Announcements. None of the parties hereto will make
any public announcement with respect to the transactions contemplated herein
without the prior written consent of the other parties, which consent will not
be unreasonably withheld or delayed; provided, however, that any of the
parties hereto may at any time make any announcements that are required by
applicable Law so long as the party so required to make an announcement
promptly upon learning of such requirement notifies the other parties of such
requirement, and discusses with the other parties in good faith the exact
proposed wording of any such announcement and receives the prior consent of
the other parties, which consent shall not unreasonably be withheld.
4.8. Satisfaction of Conditions Precedent. Each party will use
commercially reasonable efforts to satisfy or cause to be satisfied all the
conditions precedent that are applicable to them, and to cause the
transactions contemplated by this Agreement to be consummated, and, without
limiting the generality of the foregoing, to obtain all material consents and
authorizations of third parties and to make filings with, and give all notices
to, third parties that may be necessary or reasonably required on its part in
order to effect the transactions contemplated hereby.
4.9. Waiver of Dissenters Rights. The Company shall obtain from
all holders of Company Common Stock a written consent to the Merger for
purposes of effecting such holders' waiver of their rights to dissent from the
Merger and to be paid the fair value of their Company Common Stock in
accordance with applicable provisions of the Pennsylvania Code.
ARTICLE V COVENANTS OF THE PARTIES SUBSEQUENT TO CLOSING
5.1. Working Capital Commitment From Parent. During each of the
four consecutive calendar quarters following the Closing Date, Parent will
provide a minimum of $200,000 to the Surviving Corporation on the first day of
each calendar quarter (two business days after the Closing Date with respect
to the first calendar quarter after Closing) to support its operations,
provided that such amount shall be reduced by $50,000 for the first calendar
quarter after Closing in full payment and satisfaction of all amounts due
under that certain Agreement for $50,000 Loan dated November 9, 2006 issued by
the Company to Parent.
5.2. Employment Agreements. Parent shall enter into employment
agreements with each of the parties identified on Exhibit "C" attached hereto
for a minimum of one year at a salary rate not to exceed the amounts set forth
on Exhibit "C", and with such salaries to be paid from working capital
provided to the Surviving Corporation by Parent as outlined in Section 5.1
above. Furthermore, if the Surviving Corporation achieves Milestone No. 1,
Parent shall guarantee the employment of all persons who are employees of the
Surviving Corporation two months after Closing for at least an additional year
thereafter and, upon achievement of each Milestone, the term of the employment
agreement for each Company Shareholder that is employed by the Surviving
Corporation or Parent shall be extended for one additional year.
5.3. Sales and Marketing Commitment. The Surviving Corporation
agrees that it shall use at least 15% of the funds (a) provided by the Parent
as outlined in Section 5.1 above; and (b) generated by the Surviving
Corporation, after payment of all costs classified as server bandwidth
expense, server expense or server leasing expense or other similar categories
under the heading User Service Bandwidth under Cost of Goods Sold in the
Surviving Corporation's income statement, using the same classifications that
the Company used in the ordinary course of business prior to the Closing Date,
to pay sales and marketing expenses of the Surviving Corporation.
5.4. Operational Responsibility. Following the Closing, the
Company Principal Shareholders and the Surviving Corporation's employees shall
have operational responsibility for the Surviving Corporation, including
financial statement reporting responsibility, the allocation of all normal
operating expenses and the payment of the Surviving Corporation's corporate
debts in accordance with good business practice. The foregoing
notwithstanding, Parent must approve all expenses, whether capital expenses or
operating expenses, incurred other than in the delivery of digital media
syndication and distribution services for individuals and enterprises;
providing consumer and producer data collection and analytics services; or any
other products or services approved by Parent's board of directors, that
exceed $35,000, provided that, in the event that the Surviving Corporation
becomes cash flow positive without counting any intercompany loans or other
cash provided by Parent as positive cash flow, then such limit shall be
increased to $200,000 before any Parent approval is required. Parent shall
permit all proceeds from the Surviving Corporation's operations to remain at
the Surviving Corporation for use in growing and promoting its business. In
the event that Parent causes the Surviving Corporation to send any of the
proceeds of its operations to Parent or to use such proceeds for any purpose
other than the growth and promotion of Surviving Corporation's business, then
all Milestones that remain eligible to be satisfied shall automatically be
deemed satisfied and all additional consideration related to such Milestones
shall immediately be issued to the Company Shareholders. However, the Company
Shareholders shall remain subject to all remaining obligations under the Lock-
Up/Leak-Out Agreement. The parties acknowledge and agree that from time to
time Parent and its affiliates will place advertisements and other sources of
revenues on or through media, products or services operated by the Surviving
Corporation. The parties acknowledge and agree that all revenues generated
from such advertisements or other sources by the Surviving Corporation, Parent
or any Affiliate of Parent through media, products or services operated by the
Surviving Corporation shall be credited to the Surviving Corporation for
purposes of calculating revenues and EBITDA to determine satisfaction of the
Milestones and all cash collected as a result of these revenues shall belong
to the Surviving Corporation.
5.5. Budgets. Parent and the Company Shareholders agree to
negotiate in good faith to agree jointly upon an operational budget for the
Surviving Corporation for 2008. If Milestone No. 2 is achieved, then Parent
and the Company Shareholders agree negotiate in good faith to agree jointly
upon an operational budget for the Surviving Corporation for 2009. Parent
shall fund each of these budgets in a timely manner and shall not take any
action to prohibit or hinder the Surviving Corporation from satisfying these
budgets. For purposes of this Section 5.5, in any year, either party shall be
deemed to have used good faith if the budget that it proposes for the
Surviving Corporation for that year includes revenue, expense and enterprise
funding amounts and equivalent assumptions that were used in the Surviving
Corporation's budget in the prior year for each line item or category. The
Company and the Company Principal Shareholders shall establish an operational
budget for the Surviving Corporation for 2007.
5.6. Parent Board of Directors. At Closing, ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
shall be appointed to the Board of Directors of the Parent, which Board shall
have no more than four members following this appointment. ▇▇. ▇▇▇▇▇▇▇▇ or
another designee of the Company Shareholders shall be entitled to fill this
seat on the Parent Board of Directors for a period no shorter than the term of
the Lock-Up/Leak-Out Agreements. Furthermore, if the Surviving Corporation
achieves Milestone No. 2 and the Surviving Corporation's revenues constitute
at least 35% of the Parent's revenues on a consolidated basis for four
continuous quarters, the Company Shareholders shall have the right to appoint
a second person to the Parent's Board of Directors. Neither Parent nor any
members of Parent's Board of Directors shall take any action to remove, vote
out or fill a vacancy of either ▇▇. ▇▇▇▇▇▇▇▇ or another designee of the
Company Shareholders except as designated by the Company Shareholders. If a
Company designee is removed from the Board of Directors of Parent for any
reason, then the Company Shareholders shall immediately be permitted to select
a new designee to the Board of Directors of Parent.
5.7. Overhead Support. Parent shall provide the Surviving
Corporation with the use of professional, marketing and programming personnel
as requested by the Surviving Corporation, subject to availability of such
personnel which shall be determined in Parent's sole discretion. Parent
agrees that any such expenses in excess of $250,000 in any fiscal year shall
be taken into account when calculating EBITDA to determine whether the above-
referenced Milestones have been achieved, but will not, in any circumstances,
be billed on a cash basis to the Surviving Corporation's profit and loss
calculations or be repaid to Parent by the Surviving Corporation. The
Surviving Corporation shall request all such personnel assistance from the
Chief Executive Officer of Parent or such other designee appointed by the
Chief Executive Officer. To the extent Parent agrees to permit the use of
such personnel by the Surviving Corporation, Parent and the Surviving
Corporation shall agree upon (i) the specific personnel to be used, (ii) the
project for which they will be used, (iii) the duration of time, stated in an
approximate range of hours, of the project and (iv) an hourly rate at which
such personnel's time will be charged to the Surviving Corporation. The
officers of the Surviving Corporation shall be permitted to supervise such
personnel while they are working on projects for the Surviving Corporation.
On a regular basis, which shall be no less than every thirty (30) days, Parent
shall provide a written report to the Surviving Corporation indicating the
total expenses incurred on such projects. The Surviving Corporation shall be
permitted to cease using such personnel and to deny the assistance of such
personnel offered by Parent in performing services for the Surviving
Corporation. Services provided in connection with Public Company Expenses
shall not be subject to this Section 5.7 and the Surviving Corporation shall
cooperate with Parent in completing these tasks at Parent's expense.
5.8. Right of First Refusal. In the event that Parent enters
into any agreement providing for the merger or acquisition of the Surviving
Corporation, or the disposition of all or substantially all of the Surviving
Corporation's assets, to a third party, then Parent shall give the Company
Shareholders who remain shareholders of Parent as of such date written notice
of any such agreement within one business day of its execution, which notice
shall include the terms and conditions of the proposed transaction (the "Offer
Notice"). The Company Shareholders shall each have the right to purchase up
to their pro rata share of the Surviving Corporation's capital stock or assets
on the terms and conditions set forth in the Offer Notice and shall exercise
their right by written notice to Parent delivered within seven business days
after receipt of the Offer Notice, provided that, in order to exercise this
right, the Company Shareholders who remain shareholders of Parent as of such
date must elect to purchase all of the capital stock or assets of the
Surviving Corporation in accordance with the terms and conditions set forth in
the Offer Notice. In the event that some of the Company Shareholders do not
exercise this option, then Parent shall notify the Company Shareholders who
have elected to exercise this option and such Company Shareholders shall have
an additional seven business days to purchase the remaining interest in the
Surviving Corporation on a pro rata basis. If the Company Shareholders elect
to exercise this option, then the closing of such transaction shall occur
within 90 days of the day of the Offer Notice.
5.9. Financial Records. The Surviving Corporation shall maintain
complete and accurate monthly financial statements and general corporate books
and records necessary to prepare the financial statements and other reports
necessary to determine satisfaction of the Milestones. The Surviving
Corporation shall submit financial statements on a quarterly basis to the
Parent within thirty days after the end of each calendar quarter.
5.10. Compliance With Blue Sky Laws. Parent shall use its best
efforts to comply with the securities and blue sky laws of all jurisdictions
that are applicable to the issuance of the Parent Common Stock pursuant to
this Agreement.
5.11. Benefits. Subject to the terms and conditions of any
employment agreement, policy or benefit plan of Parent, as in effect from time
to time, employees of the Surviving Corporation shall be entitled to receive
401(k), health, welfare, and vacation benefits similar to those maintained by
Parent for its employees.
5.12. Parent Stock Option Plan. Subject to the approval of
Alpha Capital Aktiengesellschaft, Genesis Microcap, Inc. and Whalehaven
Capital Fund, Ltd., within ninety (90) days after the Closing Date, Parent
shall implement a stock option plan for the benefit of its employees. Parent
shall allocate options to purchase no less than 475,000 shares of Parent
Common Stock for award to employees of the Surviving Corporation. For each
Milestone that is satisfied, Parent shall allocate options to purchase no less
than 450,000 shares of Parent Common Stock for award to employees of the
Surviving Corporation. Parent's Board of Directors shall have final authority
to set and determine the terms of all option awards and to approve all option
awards to employees of the Surviving Corporation. Any compensation expense
determined in accordance with SFAS No. 123R to be directly related to the
grant or exercise of stock options pursuant to this stock option plan shall be
treated as an expense of the Surviving Corporation for financial accounting
purposes and in the calculation of EBITDA.
5.13. Events of Default. In the event that Parent breaches any
of its covenants set forth in Section 5.1, Section 5.2, Section 5.4, Section
5.5, Section 5.6, Section 5.7, Section 5.8, Section 5.10, Section 5.11 or
Section 5.12 and such breach is not cured within five (5) days of receipt of
written notice from the Company Shareholders, then each of the Milestones that
remains eligible to be satisfied shall automatically be deemed satisfied and
all additional consideration related to such Milestones shall immediately be
due and payable to the Company Shareholders and the Company Shareholders shall
be released from all remaining obligations under the Lock-Up/Leakout
Agreement.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE PARENT
AND MERGER SUBSIDIARY
Notwithstanding any other provision of this Agreement to the contrary,
the obligation of Parent and Merger Subsidiary to effect the transactions
contemplated herein will be subject to the satisfaction at or prior to the
Closing, or waiver by Parent, of each of the following conditions:
6.1. Representations and Warranties True. The representations
and warranties of the Company contained in this Agreement, including without
limitation in the Company Disclosure Schedule initially delivered to Parent as
Exhibit 2.1 (and not including any changes or additions delivered to Parent
pursuant to Section 4.6), will be true, complete and accurate in all material
respects as of the date when made and at and as of the Closing Date as though
such representations and warranties were made at and as of such time, except
for changes specifically permitted or contemplated by this Agreement, and
except insofar as the representations and warranties relate expressly and
solely to a particular date or period, in which case they will be true and
correct at the Closing with respect to such date or period.
6.2. Performance. The Company will have performed and complied
in all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by the
Company on or prior to the Closing.
6.3. Required Approvals and Consents.
(a) All action required by law and otherwise to be taken
by the Company Shareholders to authorize the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will have been duly and validly taken.
(b) All Consents of or from all Authorities required
hereunder to consummate the transactions contemplated herein, will have been
delivered, made or obtained, and Parent will have received copies thereof.
6.4. Agreements and Documents. Parent and Merger Subsidiary will
have received the following agreements and documents, each of which will be in
full force and effect:
(a) a certificate executed on behalf of the Company by its
Chief Executive Officer confirming that the conditions set forth in Sections
6.1, 6.2, 6.3, 6.5, 6.6 and 6.7 have been duly satisfied;
(b) a unanimous written consent executed by the Board of
Directors of the Company and a unanimous written consent executed by the
Company Shareholders approving this Agreement, the Transaction Documents to
which the Company is a party and the transactions contemplated herein and
therein;
(c) an Investment Letter in the form of Exhibit 6.4(c)
attached hereto and incorporated herein by reference signed by the Company
Shareholders;
(d) Employment Agreements in the form of Exhibit "C"
attached hereto and incorporated herein by referenced executed by each of the
Company Principal Shareholders and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇;
(e) an executed counterpart to the Lockup/Leakout
Agreement in substantially in the form attached as Exhibit "D" hereto executed
by each of the Company Shareholders; and
(f) an executed counterpart to the Registration Rights
Agreement substantially in the form attached as Exhibit "E" hereto executed by
Parent.
6.5. Adverse Changes. No change will have occurred in the
business, financial condition, prospects, assets or operations of the Company
since December 31, 2006, except as set forth in the Company Disclosure
Schedule, that has a Material Adverse Effect.
6.6. No Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any Authority or other person or
entity will have been instituted or threatened which delays or questions the
validity or legality of the transactions contemplated hereby or which, if
successfully asserted, would, in the reasonable judgment of Parent,
individually or in the aggregate, otherwise have a Material Adverse Effect on
the Company's business, financial condition, prospects, assets or operations
or prevent or delay the consummation of the transactions contemplated by this
Agreement.
6.7. Legislation. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby
or any of the conditions to the consummation of such transaction.
6.8. Appropriate Documentation. The Parent will have received,
in a form and substance reasonably satisfactory to Parent, dated the Closing
Date, all certificates and other documents, instruments and writings to
evidence the fulfillment of the conditions set forth in this Article VI as
Parent may reasonably request.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE COMPANY
Notwithstanding anything in this Agreement to the contrary, the
obligation of the Company to effect the transactions contemplated herein will
be subject to the satisfaction at or prior to the Closing of each of the
following conditions:
7.1. Representations and Warranties True. The representations
and warranties of Parent and Merger Subsidiary contained in this Agreement
will be true, complete and accurate in all material respects as of the date
when made and at and as of the Closing, as though such representations and
warranties were made at and as of such time, except for changes permitted or
contemplated in this Agreement, and except insofar as the representations and
warranties relate expressly and solely to a particular date or period, in
which case they will be true and correct at the Closing with respect to such
date or period.
7.2. Performance. The Parent will have performed and complied in
all material respects with all agreements, covenants, obligations and
conditions required by this Agreement to be performed or complied with by
Parent at or prior to the Closing.
7.3. Required Approvals and Consents.
(a) All action required by law and otherwise to be taken
by the directors and stockholders of the Parent to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby will have been duly and validly taken.
(b) Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein, will have been delivered,
made or obtained, and the Company will have received copies thereof.
7.4. Agreements and Documents. The Company will have received
the following agreements and documents, each of which will be in full force
and effect:
(a) a certificate executed on behalf of Parent by its
Chief Executive Officer confirming that the conditions set forth in Sections
7.1, 7.2, 7.3, 7.5, 7.6 and 7.7 have been duly satisfied;
(b) resolutions of the board of directors of Parent and
the board of directors and sole stockholder of Merger Subsidiary, certified by
the secretary of Parent, approving this Agreement, each of the Transaction
Documents to which Parent and Merger Subsidiary are parties and the
transactions contemplated herein and therein including, but not limited to,
the Merger and the issuance of the Closing Date Payment;
(c) Employment Agreements in the form of Exhibit "C"
attached hereto and incorporated herein by reference signed by the Parent and
the Company Principal Shareholders and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇;
(d) an executed counterpart to the Lockup/Leakout
Agreement in substantially the same form attached as Exhibit "D" hereto
executed by Parent; and
(e) an executed counterpart to the Registration Rights
Agreement substantially in the form attached as Exhibit "E" hereto executed by
Parent.
7.5. Adverse Changes. No change will have occurred in the
business, financial condition, prospects, assets or operations of Parent since
September 30, 2006, except as set forth in the Parent Disclosure Schedule,
that has a Material Adverse Effect.
7.6. No Proceeding or Litigation. No suit, action,
investigation, inquiry or other proceeding by any Authority or other person or
entity will have been instituted or threatened which delays or questions the
validity or legality of the transactions contemplated hereby or which, if
successfully asserted, would, in the reasonable judgment of the Company,
individually or in the aggregate, otherwise have a Material Adverse Effect on
Parent's business, financial condition, prospects, assets or operations or
prevent or delay the consummation of the transactions contemplated by this
Agreement.
7.7. Legislation. No Law will have been enacted which prohibits,
restricts or delays the consummation of the transactions contemplated hereby
or any of the conditions to the consummation of such transaction.
7.8. Appropriate Documentation. The Company will have received,
in a form and substance reasonably satisfactory to Company, dated the Closing
Date, all certificates and other documents, instruments and writings to
evidence the fulfillment of the conditions set forth in this Article VI as the
Company may reasonably request.
7.9. Closing Date Payment. The Closing Date Payment as outlined
in Section 1.3(b) to be paid to the Company Shareholders and the legal fees to
be paid to ▇▇▇▇ ▇▇▇▇▇ LLP as outlined in Section 10.1 will have been paid.
ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES, INDEMNIFICATION
8.1. Survival. The representations, warranties, covenants and
agreements of the Company and the Company Principal Shareholders, on the one
hand, and Parent, on the other hand, contained in this Agreement will survive
the Closing Date but only to the extent specified below:
(a) All covenants and agreements contained in this
Agreement that contemplate performance thereof following the Closing Date will
survive the Closing Date in accordance with their terms.
(b) All representations and warranties contained in this
Agreement will survive the Closing Date for a period of eighteen (18) months
following the Closing Date, at which point such representations and warranties
and any claim for indemnification for breach thereof will terminate, except
for pending claims as of such date of termination.
8.2. Indemnification by Parent. Parent will indemnify, defend
and hold harmless the Company Shareholders and their respective successors and
permitted assigns, and the officers, employees, directors, managers, members,
partners and stockholders of such Persons (collectively, the "Seller
Indemnitees") from and against, and will pay to the Seller Indemnitees the
amount of, any and all out-of-pocket losses, liabilities, claims, damages,
penalties, fines, judgments, awards, settlements, Taxes, costs, fees, expenses
(including, but not limited to, reasonable attorney and investigation fees)
and disbursements (collectively, "Losses") actually incurred by any of the
Seller Indemnitees following the Closing Date based upon, arising out of or
relating to (a) any breach of or inaccuracy in the representations and
warranties of Parent contained in this Agreement; (b) any breach of the
covenants or agreements of Parent contained in this Agreement; (c) Parent's
ownership or operation of the Business after the Closing (other than as a
result of facts or circumstances giving rise to a claim by Parent for
indemnification described in Section 8.3); and (d) the failure of Parent to
pay, perform or discharge when due the liabilities of the Company assumed in
the Merger.
8.3. Indemnification by the Company and Company Principal
Shareholders. The Company and each of the Company Principal Shareholders
severally, but not jointly, will indemnify, defend and hold harmless, Parent,
its Affiliates and their respective successors and permitted assigns, and the
officers, employees, directors, managers, members, partners and stockholders
of such Persons (collectively, the "Buyer Indemnitees") from and against, and
will pay to the Buyer Indemnitees the amount of, any and all Losses actually
incurred by any of the Buyer Indemnitees following the Closing Date based
upon, arising out of or relating to (a) any breach of or inaccuracy in the
representations and warranties of the Company and the Company Principal
Shareholders contained in this Agreement; (b) any breach of the covenants or
agreements of the Company contained in this Agreement; and (c) the Company's
ownership or operation of the Business prior to the Closing.
8.4. Exclusive Remedy. The parties agree that, with the
exception of fraud or claims by a party for indemnification that are assumed
by the other party pursuant to Section 8.2 or Section 8.3, the exclusive
remedies of the parties against each other for any Losses based upon, arising
out of or otherwise in respect of the matters set forth in this Agreement are
the remedies of the parties set forth in this Article VIII. The provisions of
this Section 8.4 shall not, however, (i) prevent or limit a cause of action
under Section 8.7 to obtain an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof,
(ii) prevent or limit any party's right to assert any available legal
defenses, claims or cross-claims or implead a party in any legal proceeding by
any Person which has not been fully assumed by the other party pursuant to
this Article VIII or (iii) prevent or limit any party from seeking
contribution from any other party through an action or otherwise with respect
to any order that holds any two or more of the parties hereto jointly and
severally liable.
8.5. Limitations on Indemnification Payments. Notwithstanding
anything in this Agreement to the contrary, the right of an Indemnitee to
indemnification is limited as follows:
(a) The Buyer Indemnitees will be entitled to
indemnification pursuant to Section 8.3(a) to the extent (but only to the
extent) that the aggregate amount of all Losses suffered by the Buyer
Indemnitees pursuant to Section 8.3(a) exceeds $25,000, and then only to the
extent of the excess, up to a maximum amount equal to $500,000 provided that,
each Company Principal Shareholder shall only be obligated to indemnify the
Buyer Indemnitees for his pro rata portion of any Losses suffered by the Buyer
Indemnitees exceeding $25,000 up to a maximum of $125,000. Any
indemnification to Buyer Indemnitees shall be payable only by surrender of
shares of Parent Common Stock by the Company Principal Shareholders at a value
equal to the last sale price of the Parent Common Stock on the date on which
the Buyer Indemnitees notify the Company Principal Shareholders of a claim for
indemnification, provided that, in no event shall such shares be valued a
price per share that is less than the last sale price of the Parent Common
Stock on the Closing Date.
(b) The Buyer Indemnitees' right to indemnification
pursuant to Section 8.3 on account of any Losses will be reduced by all
insurance or other third party indemnification proceeds actually received by
the Buyer Indemnitees with respect to such Loss. Parent shall use reasonable
efforts to claim and recover any Losses suffered by the Buyer Indemnitees
under any such insurance policies or other third party indemnities. The Buyer
Indemnitees shall remit to the Company any such insurance or other third party
proceeds which are paid to the Buyer Indemnitees with respect to Losses for
which the Buyer Indemnitees have previously compensated pursuant to Section
8.3.
(c) The Buyer Indemnitees' right to indemnification
pursuant to Section 8.3 on account of any Losses will be reduced by the net
amount of the Tax benefits actually realized by the Buyer Indemnitees by
reason of such Loss. Parent shall use reasonable efforts to claim and realize
all such Tax benefits.
(d) No party will be entitled to indemnification pursuant
to Section 8.2 or Section 8.3 for punitive, consequential (including lost
profits and diminution in value), exemplary or special damages with respect to
any claim for indemnity under this Article VIII which does not involve a Third
Party Claim.
8.6. Procedures. All claims for indemnification under this
Agreement shall be asserted and resolved as follows:
(a) Third Party Claim.
(i) Opportunity to Defend Third Party Claims. In
the event of any claim by a third party against a Buyer Indemnitee or Seller
Indemnitee for which indemnification is available hereunder (a "Third Party
Claim"), the Buyer Indemnitee or the Seller Indemnitee, as applicable
("Indemnitee"), shall give written notice thereof (a "Claims Notice") to the
Company and Company Principal Shareholders, if indemnification is sought
against the Parent, or the Parent, if indemnification is sought against the
Company and/or the Company Shareholders (each an "Indemnifying Party"). A
Claims Notice must describe the Third Party Claim in reasonable detail, and
indicate the amount of the Loss claimed by the third party. No delay in or
failure to give notice of a Third Party Claim will adversely affect any of the
other rights or remedies of an Indemnitee under this Agreement, or alter or
relieve the Indemnifying Party of its obligation to indemnify the applicable
Indemnitee except to the extent that the Indemnifying Party is materially
prejudiced thereby. The Indemnifying Party has the right, exercisable by
written notice to the Indemnitee, within sixty (60) days of receipt of a
Claims Notice from the Indemnitee, to assume and conduct the defense of such
claim with counsel selected by the Indemnifying Party. If the Indemnifying
Party has assumed such defense as provided in this Section 8.6(a)(i), the
Indemnifying Party will not be liable for any legal expenses subsequently
incurred by any Indemnitee in connection with the defense of such Claim. If
the Indemnifying Party does not assume the defense of any third party claim in
accordance with this Section 8.6(a)(i), the Indemnitee may continue to defend
such claim at the sole cost of the Indemnifying Party (subject to the
limitations set forth in this Article VIII) and the Indemnifying Party may
still participate in, but not control, the defense of such third party claim
at the Indemnifying Party's sole cost and expense. The Indemnitee will not
consent to a settlement of, or the entry of any judgment arising from, any
such claim, without the prior written consent of the Indemnifying Party (such
consent not to be unreasonably withheld or delayed). Except with the prior
written consent of the Indemnitee (such consent not to be unreasonably
withheld or delayed), no Indemnifying Party, in the defense of any such claim,
will consent to the entry of any judgment or enter into any settlement that
(i) provides for injunctive or other nonmonetary relief affecting the
Indemnitee or (ii) does not include as an unconditional term thereof the
giving by each claimant or plaintiff to such Indemnitee of a release from all
liability with respect to such claim or litigation. In any such Third Party
Claim, the party responsible for the defense of such claim (the "Responsible
Party") shall, to the extent reasonably requested by the other party, keep
such other party informed as to the status of such claim, including all
settlement negotiations and offers. Each Party shall use all reasonable
efforts to make available to the Responsible Party and its representatives all
books and records of such Party and the Business relating to such third party
claim and shall cooperate with the Responsible Party in the defense of the
third party claim.
(ii) Settlement. The Responsible Party shall
promptly notify the other party of each settlement offer with respect to a
Third Party Claim. Such other party shall promptly notify the Responsible
Party whether or not such party is willing to accept the proposed settlement
offer. If the Company and the Company Shareholders are willing to accept the
proposed settlement offer but Parent refuses to accept such settlement offer,
then if (i) such settlement offer requires only the payment of money damages,
requires no other actions by any Indemnitee, does not impose any restriction
on Parent with respect to the operation of the Business and provides a
complete release of all Indemnitees that are a party to such third party claim
with respect to the subject matter thereof, and (ii) the Company and the
Company Shareholders agree in writing that the entire amount of such proposed
settlement constitutes Losses that are indemnifiable (subject to the
limitations set forth in this Article VIII), then the amount payable to the
Indemnitees with respect to such third party claim will be limited to the
amount of such settlement offer subject to the limitations contained in this
Article VIII. The Company and the Company Shareholders may nevertheless
propose in writing a good faith, reasonable settlement offer (a "Company
Proposed Settlement Offer") that requires only the payment of money damages,
requires no other actions by any Indemnitee, does not impose any restriction
on Parent with respect to the operation of the Business and provides a
complete release of all Indemnitees who are parties to such third party claim
with respect to the subject matter thereof; provided, however, that the
Company and the Company Shareholders agree in writing that the entire amount
of such proposed settlement constitutes Losses that are indemnifiable (subject
to the limitations set forth in this Article VIII). If Parent refuses to
agree to or make a Company Proposed Settlement Offer to the claimant in the
third party claim, any amount payable to a Buyer Indemnitee with respect to
such Third Party Claim will be limited to the amount of such proposed
settlement offer. If any such settlement offer is made to any claimant and
rejected by such claimant, the amount payable to an Indemnitee with respect to
such claim will not be limited to the amount of such settlement offer but will
remain subject to all other limitations set forth in this Agreement.
(b) Direct Claim. As soon as reasonably practicable after
an Indemnitee has actual knowledge of any claim to which Indemnitee is
entitled to indemnity under Section 8.2 or Section 8.3 that does not involve a
Third Party Claim (a "Direct Claim"), the Indemnitee shall give written notice
thereof (an "Indemnity Notice") to the Indemnifying Party. An Indemnity
Notice must describe the Direct Claim in reasonable detail, and indicate the
amount (estimated, as necessary and to the extent feasible) of the Loss that
has been or may be suffered by the Indemnitee. No delay in or failure to give
notice of a Direct Claim will adversely affect any of the other rights or
remedies of an Indemnitee under this Agreement, or alter or relieve the
Indemnifying Party of its obligation to indemnify the applicable Indemnitee
except to the extent that the Indemnifying Party is materially prejudiced
thereby. The Indemnifying Party shall respond to any Indemnity Notice within
thirty (30) days (the "Indemnity Response Period") after the date that the
Indemnity Notice is sent by the Indemnitee. Any response to the Indemnity
Notice (an "Indemnity Response") must specify whether or not the Indemnifying
Party disputes its obligations to indemnity the Indemnitee with respect to the
Direct Claim asserted in the Indemnity Notice. If the Indemnifying Party
fails to give an Indemnity Response within the Indemnity Response Period, it
will be deemed not to dispute the asserted Direct Claim. If the Indemnifying
Party elects not to dispute the asserted Direct Claim, whether by failing to
give a timely Indemnity Response or otherwise, then the amount of Losses
alleged in such Indemnity Notice will be conclusively deemed to be an
obligation of the Indemnifying Party, and the Indemnifying Party shall pay, in
cash (or tender of shares of the Parent Common Stock for cancellation if
Parent is the Indemnitee), to the Indemnitee within fifteen (15) days after
the last day of the applicable Indemnity Response Period the amount specified
in the Indemnity Notice. If Indemnifying Party delivers to Indemnitee an
Indemnity Response within the Indemnity Response Period indicating that it
disputes one or more of the matters identified in the Indemnity Notice, the
Indemnifying Party and Indemnitee shall promptly meet and use their reasonable
efforts to settle the dispute. If the Indemnifying Party and the Indemnitee
are unable to reach agreement within thirty (30) days after the conclusion of
the Indemnity Response Period, then either the Indemnifying Party or the
Indemnitee may resort to other legal remedies subject to the limitations set
forth in this Article VIII.
8.7. Specific Performance. Each party's obligation under this
Agreement is unique. If any party should breach its covenants under this
Agreement, the parties each acknowledge that it would be extremely
impracticable to measure the resulting damages; accordingly, the nonbreaching
party or parties, in addition to any other available rights or remedies they
may have under the terms of this Agreement, may ▇▇▇ in equity for specific
performance, and each party expressly waives the defense that a remedy in
damages will be adequate.
8.8. Subrogation. Upon making any indemnity payment pursuant to
Section 8.2 or Section 8.3, as applicable, the Indemnifying Party shall be
subrogated to all rights of the indemnified party against any third party in
respect of the Losses to which the payment related. The parties hereto will
execute upon request all instruments reasonably necessary to evidence and
perfect the above described subrogation rights.
ARTICLE IX TERMINATION AND ABANDONMENT
9.1. Termination by Mutual Consent. This Agreement may be
terminated at any time prior to the Closing by the written consent of the
Company, Merger Subsidiary and Parent.
9.2. Termination by Either the Company or Parent. This Agreement
may be terminated by either the Company or Parent if the Closing is not
consummated by the Termination Date (provided that the right to terminate this
Agreement under this Section 9.2 will not be available to any party whose
failure to fulfill any obligation under this Agreement has been the cause of
or resulted in the failure of the Closing to occur on or before such date).
9.3. Termination by Parent. This Agreement may be terminated at
any time prior to the Closing by Parent if all of the conditions set forth in
Article VII shall have been satisfied and any of the conditions provided for
in Article VI have not been met or waived by Parent in writing, Parent has
notified the Company that such condition has not been met and has allowed the
Company at least ten (10) days to satisfy such condition and such condition is
not capable of being satisfied prior to the Termination Date.
9.4. Termination by the Company. This Agreement may be
terminated prior to the Closing by the Company if all of the conditions set
forth in Article VI shall have been satisfied and any of the conditions
provided for in Article VII have not been met or waived by the Company in
writing, the Company has notified Parent that such condition has not been met
and has allowed Parent at least ten (10) days to satisfy such condition and
such condition is not capable of being satisfied prior to the Termination
Date.
9.5. Procedure and Effect of Termination. In the event of
termination of this Agreement and abandonment of the transactions contemplated
hereby by the Company or Parent pursuant to this Article IX, written notice
thereof will be given to all other parties and this Agreement will terminate
and the transactions contemplated hereby will be abandoned, without further
action by any of the parties hereto. If this Agreement is terminated as
provided herein:
(a) Each of the parties will, upon request, redeliver all
documents, work papers and other material of the other parties relating to the
transactions contemplated hereby, whether obtained before or after the
execution hereof, to the party furnishing the same;
(b) No party will have any liability for a breach of any
representation, warranty, agreement, covenant or the provision of this
Agreement, unless such breach was due to a willful or bad faith action or
omission of such party or any representative, agent, employee or independent
contractor thereof;
(c) All filings, applications and other submissions made
pursuant to the terms of this Agreement will, to the extent practicable, be
withdrawn from the agency or other person to which made; and
(d) In the event of a termination pursuant to Section 9.2,
the party terminating the Agreement shall pay the other party a termination
fee equal to Seventy Five Thousand Dollars ($75,000).
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1. Expenses. The Parent, Merger Subsidiary and the Company
will each bear their own costs and expenses relating to the transactions
contemplated hereby, including without limitation, fees and expenses of legal
counsel, accountants, investment bankers, brokers or finders, printers,
copiers, consultants or other representatives for the services used, hired or
connected with the transactions contemplated hereby, provided that, Parent
shall pay all legal fees and expenses incurred by the Company in connection
with this transaction and due and owing to ▇▇▇▇ ▇▇▇▇▇ LLP on the Closing Date
up to $75,000 and the Company shall pay all additional legal fees and expenses
owing to ▇▇▇▇ ▇▇▇▇▇ LLP. Such payment shall be made on the Closing Date and
shall not be considered an expense for purposes of calculating EBITDA and such
payment by Parent shall not be considered part of the cash which Parent has
committed to provide to the Surviving Corporation pursuant to Section 5.1.
10.2. Amendment and Modification. Subject to applicable Law,
this Agreement may be amended or modified by the parties hereto at any time
with respect to any of the terms contained herein; provided, however, that all
such amendments and modifications must be in writing duly executed by all of
the parties hereto.
10.3. Waiver of Compliance; Consents. Any failure of a party to
comply with any obligation, covenant, agreement or condition herein may be
expressly waived in writing by the party entitled hereby to such compliance,
but such waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition will not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure. No single or
partial exercise of a right or remedy will preclude any other or further
exercise thereof or of any other right or remedy hereunder. Whenever this
Agreement requires or permits the consent by or on behalf of a party, such
consent will be given in writing in the same manner as for waivers of
compliance.
10.4. No Third Party Beneficiaries. Except as otherwise
provided herein, nothing in this Agreement will entitle any person or entity
(other than a party hereto or the Company Shareholders who are not parties
hereto and his, her or its respective successors and assigns permitted hereby)
to any claim, cause of action, remedy or right of any kind.
10.5. Notices. All notices, requests, demands and other
communications required or permitted hereunder will be made in writing and
will be deemed to have been duly given and effective: (i) on the date of
delivery, if delivered personally; (ii) on the earlier of the fourth (4th) day
after mailing or the date of the return receipt acknowledgment, if mailed,
postage prepaid, by certified or registered mail, return receipt requested; or
(iii) on the date of transmission, if sent by facsimile, telecopy, telegraph,
telex or other similar telegraphic communications equipment, or to such other
person or address as the Company will furnish to the other parties hereto in
writing in accordance with this subsection.
If to the Company: Webmayhem Inc., dba Liberated Syndication
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attn.: ▇▇▇▇ ▇▇▇▇▇▇
With a copy to: ▇▇▇▇ ▇▇▇▇▇, LLP
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇.▇.
▇▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn.: ▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
or to such other person or address as the Company will furnish to the other
parties hereto in writing in accordance with this subsection.
If to any Company Shareholder following the Merger, to the address set
forth in the representation letter executed and delivered by such shareholder
pursuant to Section 5.4(b) hereto.
If to the Parent: ▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, CEO
Wizzard Software Corporation
▇▇▇▇ ▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
or to such other person or address as Parent will furnish to the other parties
hereto in writing in accordance with this subsection.
10.6. Assignment. This Agreement and all of the provisions
hereof will be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this Agreement
nor any of the rights, interests or obligations hereunder will be assigned
(whether voluntarily, involuntarily, by operation of law or otherwise) by any
of the parties hereto without the prior written consent of the other parties.
10.7. Governing Law. This Agreement and the legal relations
among the parties hereto will be governed by and construed in accordance with
the internal substantive laws of the Commonwealth of Pennsylvania (without
regard to the laws of conflict that might otherwise apply) as to all matters,
including without limitation matters of validity, construction, effect,
performance and remedies.
10.8. Counterparts. This Agreement may be executed
simultaneously in one or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the same
instrument.
10.9. Headings. The table of contents and the headings of the
sections and subsections of this Agreement are inserted for convenience only
and will not constitute a part hereof.
10.10. Entire Agreement. This Agreement, the Disclosure
Schedule of each party and the exhibits and other writings referred to in this
Agreement or in the Disclosure Schedule or any such exhibit or other writing
are part of this Agreement, together they embody the entire agreement and
understanding of the parties hereto in respect of the transactions
contemplated by this Agreement and together they are referred to as this
"Agreement" or the "Agreement." There are no restrictions, promises,
warranties, agreements, covenants or undertakings, other than those expressly
set forth or referred to in this Agreement. This Agreement supersedes all
prior agreements and understandings between the parties with respect to the
transaction or transactions contemplated by this Agreement. Provisions of
this Agreement will be interpreted to be valid and enforceable under
applicable Law to the extent that such interpretation does not materially
alter this Agreement; provided, however, that if any such provision becomes
invalid or unenforceable under applicable Law such provision will be stricken
to the extent necessary and the remainder of such provisions and the remainder
of this Agreement will continue in full force and effect.
10.11. Definitions. As used in this Agreement and the
Exhibits delivered pursuant to this Agreement, the following definitions will
apply:
"Affiliate" shall mean (a) an "affiliate" as defined under Rule 12b-2 of
the Securities Exchange Act of 1934, as amended, (b) a Person who directly or
indirectly controls, is controlled by or is under common control with the
Person specified and (c) any Person owning directly or indirectly at least
five percent (5%) of the outstanding equity interests of any other Person.
"EBITDA" shall be measured as though the Surviving Corporation is
operating as a private company in the ordinary course of business as it was
conducted prior to the Effective Time. Accordingly, EBITDA shall mean net
income of the Surviving Corporation before taking into account deductions for
interest, taxes, the depreciation of assets, the amortization of costs,
expenses incurred in connection with this transaction, and Public Company
Expenses, excluding in all cases financial results of assets, businesses or
entities acquired after Closing by Parent or any Affiliate, with all
components of EBITDA determined in accordance with GAAP.
"GAAP" shall mean generally accepted accounting principles in the United
States, in effect from time to time.
"Material Adverse Effect" with respect to a party means a material
adverse change in or effect on the business, operations, financial condition,
properties or liabilities of that party; provided, however, that a Material
Adverse Effect will not be deemed to include (i) changes as a result of the
announcement of this transaction, (ii) events or conditions arising from
changes in general business or economic conditions or (iii) changes in
generally accepted accounting principles.
"Person" shall mean any corporation, partnership, limited liability
company, trust, individual, unincorporated organization or a governmental
agency or political subdivision thereof, as the context may require.
"Podcast Media File Download" shall mean an audio or video that is
requested for download from the Libsyn media delivery network.
"Public Company Expense" shall mean any of the following amounts to the
extent charged to the Surviving Corporation after the Closing: (i) audit fees,
(ii) fees of counsel relating to public company requirements, (iii) fees of
the Securities and Exchange Commission, the National Association of Securities
Dealers, Inc., or any national securities exchange or quotation service,
whether or not located in the United States, (iv) charges for Parent's legal
or accounting personnel or outside consultants relating to public company
requirements including, but not limited to, any fees or expenses incurred to
comply with the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act of 2002 or related regulations, or (v)
other corporate overhead charges (unless the Surviving Corporation and Parent
agree in writing that any particular corporate overhead charges shall not be
deemed a Public Company Expense and may be included in the calculation of
EBITDA).
"Tax or Taxes" means, with respect to any Person, (i) all income taxes
(including any tax on or based upon net income, gross income, income as
specially defined, earnings, profits or selected items of income, earnings or
profits) and all gross receipts, sales, use, ad valorem, transfer, franchise,
license, withholding, payroll, employment, excise, severance, stamp,
occupation, commercial rent, premium, property or windfall profit taxes,
alternative or add-on minimum taxes, customs duties and other taxes, fees,
assessments or charges of any kind whatsoever, together with all interest and
penalties, additions to tax and other additional amounts imposed by any taxing
authority (domestic or foreign) on such person (if any) and (ii) any liability
for the payment of any amount of the type described in clause (i) above as a
result of (A) being a "transferee" (within the meaning of Section 6901 of the
Internal Revenue Code or any Law) of another person, (B) being a member of an
affiliated, combined or consolidated group or (C) a contractual arrangement or
otherwise.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Transaction Documents" shall mean the Escrow Agreement, the
Registration Rights Agreement, the Employment Agreements and the Lock-Up/Leak-
Out Agreement.
"Unique IP Address" shall mean each distinct internet address that
requests a media file download from the Libsyn media delivery network.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day and year first above written.
Parent
WIZZARD SOFTWARE CORPORATION,
a Colorado corporation
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▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
Merger Subsidiary
WIZZARD ACQUISITION CORP., a
Pennsylvania corporation
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▇▇▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Chief Executive Officer
The Company
WEBMAYHEM INCORPORATED, a
Pennsylvania corporation dba Liberated
Syndication
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇, its President
The Company Principal Shareholders
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EXHIBIT "A"
FORM OF ESCROW AGREEMENT
EXHIBIT "B"
MERGER CONSIDERATION
EXHIBIT "C"
FORM OF EMPLOYMENT AGREEMENTS
EXHIBIT "D"
FORM OF LOCK UP/LEAK OUT AGREEMENT
EXHIBIT "E"
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT 2.1
COMPANY DISCLOSURE SCHEDULE
EXHIBIT 3.1
PARENT DISCLOSURE SCHEDULE
EXHIBIT 6.4(C)
FORM OF INVESTMENT LETTER