AGREEMENT AND PLAN OF MERGER AND REORGANIZATION AMONG 22ND CENTURY GROUP, INC. 22ND CENTURY ACQUISITION SUBSIDIARY, LLC AND 22nd CENTURY LIMITED, LLC JANUARY 25, 2011
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
AMONG
22ND
CENTURY ACQUISITION SUBSIDIARY, LLC
AND
22nd
CENTURY LIMITED, LLC
JANUARY
25, 2011
AGREEMENT
AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER AND
REORGANIZATION (this “Agreement”), dated as of January 25, 2011, by and
among 22nd Century Group, Inc. (formerly known as Touchstone Mining Limited), a
Nevada corporation (the “Parent”), 22nd Century Acquisition Subsidiary, LLC, a
Delaware limited liability company (the “Acquisition Subsidiary”), and 22nd
Century Limited, LLC, a Delaware limited liability company (the
“Company”). The Parent, the Acquisition Subsidiary and the Company
are each a “Party” and referred to collectively herein as the
“Parties.”
WHEREAS,
this Agreement contemplates a merger of the Acquisition Subsidiary with and into
the Company, with the Company remaining as the surviving entity after the merger
(the “Merger”), whereby the members of the Company will receive common stock of
the Parent in exchange for their limited liability company membership units of
the Company (each a “Unit” and, collectively, the “Units”) and warrants to
purchase common stock of the Parent in exchange for their warrants to purchase
Units;
WHEREAS,
the Company previously granted five year warrants to purchase an aggregate of
5,000,000 Units at an exercise price of $3.00 per Unit (each warrant so issued
being a “Company Warrant”) on a pro rata basis to holders of the Units prior to
the closing of the Merger and prior the consummation of the Private Placement
Offering (as defined below) (the “Company Members”);
WHEREAS,
prior to the closing of the Merger, the Company shall complete a private
placement (the “Private Placement Offering”) of a minimum of 4,000,000 PPO
Securities (as defined below) and a maximum of 8,000,000 PPO Securities, with
the right, at Company’s discretion, to sell an additional 1,000,000 PPO
Securities (the “Oversubscription Securities”), at the purchase price of $1.00
per PPO Security (the “PPO Price”), each such PPO Security consisting of one (1)
Unit and a five year warrant to purchase one half of one (1/2) Unit for an
exercise price of $1.50 per whole Unit (each a “PPO Warrant”);
WHEREAS,
in conjunction with the Private Placement Offering, the Company shall issue to
▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, LLC (the “Placement Agent”) a non-transferrable five-year
warrant to purchase such number of Units equal to eight percent (8%) of the
total number of PPO Securities sold in the Private Placement Offering at an
exercise price of $1.50 per Unit (the “Broker Warrant” and, together with the
Company Warrants and the PPO Warrants, the “Old Warrants”);
WHEREAS,
prior to the closing of the Merger, the Parent intends to split-off its wholly
owned subsidiary, Touchstone Split Corp., a Delaware corporation (the “Split-Off
Subsidiary” and together with the Acquisition Subsidiary, each a “Parent
Subsidiary” and, collectively, the “Parent Subsidiaries”), through the sale of
all of the outstanding capital stock of the Split-Off Subsidiary (the
“Split-Off”) upon the terms and conditions of that certain Split-Off Agreement,
dated of even date herewith, by and among the Parent and ▇▇▇▇▇ ▇▇▇▇▇▇ (the
“Buyer”), and the Split-Off Subsidiary, substantially in the form of Exhibit A attached
hereto (the “Split-Off Agreement”);
WHEREAS,
prior to the Split-Off and the closing of the Merger, the Parent intends (i) to
obtain forgiveness of all its outstanding promissory notes in an aggregate
principal amount of $162,327, (ii) cancel the shares of Parent Common Stock held
by Milestone Enhanced Fund Ltd. and Nanuk ▇▇▇▇▇▇, (iii) enter into contractual
agreements with certain shareholders of Parent pursuant to which an aggregate of
139,800 shares of Parent Common Stock will be cancelled (the “Parent Contractual
Agreement Share Cancellations”) as soon as practicable following the closing of
the Merger (such 139,800 shares of Parent Common Stock to be deemed to be no
longer issued and outstanding as of the date hereof for the purposes of this
Agreement), and (iv) effect a forward stock split by way of dividend and
subsequent cancellation so as to ensure that the number of shares of Parent
Common Stock directly and/or beneficially owned by all persons and entities who
were shareholders of the Parent immediately prior to the closing of the Merger
shall be equal to an aggregate of 19.9% of all the issued and outstanding shares
of Parent Common Stock after the closing of the Merger, exclusive of any shares
of Parent Common Stock that shall be issued in exchange for the Oversubscription
Securities (collectively, the “Parent Pre-Merger Transactions”);
WHEREAS,
after the Split-Off and the consummation of the Parent Pre-Merger Transactions
and prior to the closing of the Merger, the Parent shall not have any
subsidiaries other than the Acquisition Subsidiary and the Parent shall not have
any assets or liabilities whatsoever;
WHEREAS,
the Parent, the Acquisition Subsidiary and the Company desire that the Merger
qualify as a tax-free reorganization under Section 368 of the Internal Revenue
Code of 1986, as amended (the “Code”), and further, that the transaction also
qualify as a tax-free exchange under Section 351 of the Code, and that neither
the Merger nor any incorporation subject the holders of equity securities of the
Parent, the Acquisition Subsidiary, or the Company to tax liability under the
Code; and
WHEREAS,
upon the consummation of the Merger, each Unit shall be exchanged for one (1)
share of Parent’s common stock, $0.00001 par value per share (the “Parent Common
Stock”), and each PPO Warrant, Company Warrant, and Broker Warrant,
respectively, shall be exchanged for a PPO Conversion Warrant (as defined
below), a Company Conversion Warrant (as defined below) or a Broker Conversion
Warrant (as defined below), respectively, with the result being that the holders
of Units immediately prior to the Closing of the Merger shall hold an aggregate
of not less than 80.1% of the issued and outstanding shares of Parent Common
Stock following the Closing of the Merger.
NOW,
THEREFORE, in consideration of the representations, warranties and covenants
herein contained, and for other good and valuable consideration the receipt,
adequacy and sufficiency of which are hereby acknowledged, the Parties hereto,
intending legally to be bound, agree as follows:
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ARTICLE
I
THE
MERGER
1.1. The
Merger.
(a) Upon
and subject to the terms and conditions of this Agreement, the Acquisition
Subsidiary shall merge with and into the Company at the Effective Time (as
defined below). From and after the Effective Time, the separate
existence of the Acquisition Subsidiary shall cease and the Company shall
continue as the surviving entity in the Merger (the “Surviving
Entity”). The “Effective Time” shall be the time at which the
Certificate of Merger (the “Certificate of Merger”) and other appropriate or
required documents prepared and executed in accordance with the relevant
provisions of the Delaware Limited Liability Company Act (the “Act”) are filed
with the Secretary of State of Delaware. The Merger shall have the
effects set forth in the applicable provisions of the Act.
(b) At
the Effective Time and without any action on the part of any Party, the Parent
shall assume all of the debts, obligations, and liabilities of the Company,
including but not limited to, the obligations set forth in that certain
Placement Agency Agreement dated as of December 1, 2010 by and between the
Placement Agent and the Company (the “Placement Agency Agreement”).
1.2. The
Closing.
The
closing of the transactions contemplated by this Agreement (the “Closing”) shall
take place at the offices of ▇▇▇▇▇ & ▇▇▇▇▇▇▇ LLP in New York, New York
commencing at 10:00 a.m. local time on January 25, 2011, or at such other
location as may be designed by the Parties and, if all of the conditions to the
obligations of the Parties to consummate the transactions contemplated hereby
have not been satisfied or waived by such date, on such mutually agreeable later
date as soon as practicable (and in any event not later than three (3) business
days) after the satisfaction or waiver of all conditions (excluding the delivery
of any documents to be delivered at the Closing by any of the Parties) set forth
in Article V hereof (the “Closing Date”).
1.3. Actions at the
Closing.
At the
Closing:
(a) the
Company shall have satisfied the provisions of Sections 5.1 and 5.2 hereof and
shall deliver to the Parent and the Acquisition Subsidiary the various
certificates, instruments and documents referred to in Sections 5.1 and 5.2
hereof;
(b) the
Parent and the Acquisition Subsidiary shall have satisfied the provisions of
Sections 5.1 and 5.3 hereof and shall deliver to the Company the various
certificates, instruments and documents referred to in Sections 5.1 and 5.3
hereof;
(c) the
Surviving Entity shall file the Certificate of Merger with the Secretary of
State of the State of Delaware;
(d) each
holder of Units or Old Warrants immediately prior to the Closing of the Merger
shall, if requested by the Parent, deliver to the Parent the instrument(s), if
any, representing his, her or its Units or Old Warrants, as
applicable;
(e) the
Parent agrees to promptly deliver certificates for the Parent Common Stock and
the New Warrants (as defined below) to each holder of Units and Old Warrants in
accordance with Section 1.5;
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(f) the
Parent shall deliver to the Company (i) evidence that the Parent’s board of
directors is authorized to consist of five individuals; (ii) the resignations of
all individuals who served as directors or officers of the Parent immediately
prior to the Closing Date, which resignations of all such officers shall be
effective as of the Closing Date and which resignation of the sole director of
Parent shall be effective ten (10) days after the filing of a Schedule 14F-1
with the United States Securities and Exchange Commission (the “SEC”) after the
Closing; (iii) evidence of the appointment of five directors of the Parent to
serve following the Closing, who shall be: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
III, one (1) individual who shall be designated by the stockholders of the
Parent immediately prior to the Closing, who shall be “independent” as defined
by the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and who
shall be reasonably acceptable to the directors appointed by the Company, and
two (2) individuals who shall be designated by the Company and who shall be
“independent” as defined by the Exchange Act, with the term of office of ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ on the board of directors of the Parent to commence immediately after
the Closing, and with the term of office of all other directors of the Parent
appointed pursuant to the provisions of this Section 1.3(f) to commence ten (10)
days after the filing of a Schedule 14F-1 with the SEC after the Closing; and
(iv) evidence of the appointment of such executive officers of the Parent to
serve immediately following the Closing as shall have been designated by the
Company.
1.4. Additional
Actions.
If at any
time after the Effective Time the Surviving Entity shall consider or be advised
that any deeds, bills of sale, assignments or assurances or any other acts or
things are necessary, desirable or proper (a) to vest, perfect or confirm, of
record or otherwise, in the Surviving Entity, its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of either the Company or Acquisition Subsidiary or (b) otherwise to carry
out the purposes of this Agreement, then the Surviving Entity and its proper
officers and directors or their designees shall be authorized (to the fullest
extent allowed under applicable law) to execute and deliver, in the name and on
behalf of either the Company or Acquisition Subsidiary, all such deeds, bills of
sale, assignments and assurances and do, in the name and on behalf of the
Company or Acquisition Subsidiary, all such other acts and things necessary,
desirable or proper to vest, perfect or confirm its right, title or interest in,
to or under any of the rights, privileges, powers, franchises, properties or
assets of the Company or Acquisition Subsidiary, as applicable, and otherwise to
carry out the purposes of this Agreement.
1.5. Conversion of Company and
Acquisition Subsidiary Securities.
At the
Effective Time, by virtue of the Merger and without any action on the part of
any Party or the holder of any of the following securities:
(a) Each
Unit issued and outstanding immediately prior to the Effective Time shall be
converted as of the Effective Time into and represent the right to receive
(subject to the provisions of Section 1.6) one (1) share of Parent Common Stock
(each a “Merger Share” and, collectively, the “Merger Shares”). Each
Company Warrant, PPO Warrant, or Broker Warrant issued and outstanding
immediately prior to the Effective Time shall be converted into and represent
the right to receive a Company Conversion Warrant (as defined below), a PPO
Conversion Warrant (as defined below) or a Broker Conversion Warrant (as defined
below) as set forth in Sections 1.5(b), 1.5(c), and 1.5(d)
below.
4
(b) An
aggregate of (i) 16,000,000 shares of Parent Common
Stock and (ii) non-transferrable five-year warrants, in substantially the form
attached hereto as Exhibit B, to
purchase 5,000,000 shares of Parent Common Stock shall be issued to the Company
Members, with each Company Member receiving one (1) share of Parent Common Stock
in exchange for each Unit held by such Company Member plus a Company Conversion
Warrant to purchase the number of shares of Parent Common Stock, at an exercise
price of $3.00 per share, equal to the number of Units subject to the Company
Warrant previously held by such Company Member, and with each Company Conversion
Warrant containing, among other things, a cashless exercise provision to become
operative upon the later of: (A) one (1) year following the Parent’s filing of a
Form 8-K with respect to the Merger (the “Form 8-K Anniversary”) if a
registration statement pursuant to the Securities Act of 1933, as amended (the
“Securities Act”), with regard to the shares of Parent Common Stock issuable
upon exercise of the Company Conversion Warrants has not been filed by the Form
8-K Anniversary and (B) thirty (30) days following the date on which the earlier
filed registration statement with regard to the Merger Shares issued to the
holders of PPO Securities upon conversion of their Units has been declared
effective by the SEC if a registration statement pursuant to the Securities Act
with regard to the shares of Parent Common Stock issuable upon exercise of the
Company Conversion Warrants has not been filed prior to the expiry of such
thirty (30) day period, (the “Company Conversion Warrants”).
(c) An
aggregate of (i) such number of shares of Parent Common Stock equal to the
number of Units sold in the Private Placement Offering and (ii)
non-transferrable five-year warrants, in substantially the form attached hereto
as Exhibit C,
shall be issued to the individuals or entities who purchased the PPO Securities
in the Private Placement Offering (the “PPO Shareholders” and together with the
Company Members, the “Shareholders”), with each PPO Shareholder receiving one
(1) share of Parent Common Stock for each Unit purchased by such PPO Shareholder
in the Private Placement Offering plus a PPO Conversion Warrant to purchase the
number of shares of Parent Common Stock, at an exercise price of $1.50 per
share, equal to the number of Units subject to the PPO Warrant previously held
by such PPO Shareholder, and with each PPO Conversion Warrant containing, among
other things, a cashless exercise provision to become operative upon the later
of: (A) one (1) year following the Form 8-K Anniversary if a registration
statement pursuant to the Securities Act with regard to the shares of Parent
Common Stock issuable upon exercise of the PPO Conversion Warrants has not been
filed by the Form 8-K Anniversary and (B) thirty (30) days following the date on
which the earlier filed registration statement with regard to the Merger Shares
issued to the holders of PPO Securities upon conversion of their Units has been
declared effective by the SEC if a registration statement pursuant to the
Securities Act with regard to the shares of Parent Common Stock issuable upon
exercise of the PPO Conversion Warrants has not been filed prior to the expiry
of such thirty (30) day period, to purchase such number of shares of Parent
Common Stock equal to the number of Units subject to the PPO Warrants held the
PPO Shareholders (as defined below) prior to the consummation of the Merger at
an exercise price of $1.50 per share (the “PPO Conversion
Warrants”).
5
(d) A
non-transferrable five-year warrant, in substantially the form attached hereto
as Exhibit D
(the “Broker Conversion Warrant”), shall be issued to the Placement Agent in
exchange for the Broker Warrant held by Placement Agent prior to the
consummation of the Merger, with such Broker Conversion Warrant containing,
among other things, a cashless exercise provision, to purchase such number of
shares of Parent Common Stock equal to the number of Units subject to the Broker
Warrant at an exercise price of $1.50 per share (with the Broker Conversion
Warrant, together with the Company Conversion Warrants and the PPO Conversion
Warrants, being hereinafter collectively referred to as the “New
Warrants”).
(e) Each
issued and outstanding membership unit of the Acquisition Subsidiary (each an
“Acquisition Subsidiary Unit”) shall be converted into one validly issued, fully
paid and nonassessable membership unit of the Surviving Entity (each a
“Surviving Entity Unit”).
(f) After
giving full effect to all of the transactions contemplated by this Agreement,
(i) the number of shares of Parent Common Stock directly and/or beneficially
owned by all persons and entities who were shareholders of the Parent
immediately prior to the Closing of the Merger shall be equal to an aggregate of
19.9% of all the issued and outstanding shares of Parent Common Stock after the
Closing of the Merger, exclusive of any shares of Parent Common Stock that shall
be issued in exchange for the Oversubscription Securities and (ii) the number of
shares of Parent Common Stock directly and/or beneficially owned by all persons
or entities who were holders of Units immediately prior to the Closing of the
Merger shall equal to an aggregate of not less than 80.1% of the issued and
outstanding shares of Parent Common Stock after the Closing of the
Merger.
1.6. Fractional
Shares.
No
certificates or scrip representing fractional Merger Shares shall be issued to
Shareholders on the surrender for exchange of certificates that immediately
prior to the Effective Time represented Units converted into Merger Shares
pursuant to Section 1.5 (“Certificates”) and such Shareholders shall not be
entitled to any voting rights, rights to receive any dividends or distributions
or other rights as a stockholder of the Parent with respect to any fractional
Merger Shares that would have otherwise been issued to such
Shareholders. In lieu of any fractional Merger Shares that would have
otherwise been issued, each former Shareholder that would have been entitled to
receive a fractional Merger Share shall, on proper surrender of such person’s
certificates, receive such whole number of Merger Shares as is equal to the
precise number of Merger Shares to which such Shareholder would be entitled,
rounded up or down to the nearest whole number (with a fractional interest equal
to or greater than 0.5 of a share being rounded upward to the nearest whole
number and with each fractional interest less than 0.5 of a share being rounded
to zero).
1.7. Certificate of Formation and
Operating Agreement.
(a) The
Certificate of Formation of the Company in effect immediately prior to the
Effective Time shall be the certificate of formation of the Surviving Entity
until thereafter duly amended or repealed.
6
(b) The
Operating Agreement of the Company in effect immediately prior to the Effective
Time shall be the operating agreement of the Surviving Entity until thereafter
duly amended or repealed.
1.8. No Further
Rights.
From and
after the Effective Time, all Units issued and outstanding shall be held by the
Parent and all holders of Units other than the Parent shall cease to have any
rights with respect thereto, except for the right to receive securities of the
Parent as described in Section 1.5 of this Agreement or as otherwise provided
herein or by law.
1.9. Closing of Transfer
Books.
At the
Effective Time, the membership interest books of the Company shall be closed and
no transfer of Units shall thereafter be made. If, after the
Effective Time, Units are presented to the Parent or the Surviving Entity, they
shall be cancelled and exchanged for Merger Shares in accordance with
Section 1.5.
1.10. Exemption From
Registration.
The
Parent and the Company intend that all shares of Parent Common Stock and New
Warrants to be issued pursuant to Section 1.5 hereof in connection with the
Merger will be issued in a transaction exempt from registration under the
Securities Act, by reason of Section 4(2) of the Securities Act, Rule 506 of
Regulation D promulgated by the SEC thereunder and/or Regulation S promulgated
by the SEC.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company represents and warrants to the Parent that as of the date of this
Agreement and as of the closing of the Merger that the statements contained in
this Article II are true and correct in all material respects, except as
set forth in the disclosure schedule provided by the Company to the Parent on
the date hereof and as updated, if necessary, by the Company immediately prior
to the Closing, and collectively attached hereto as Exhibit E (the
“Company Disclosure Schedule”). The Company Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article II, and the disclosure of information on any
paragraph of the Company Disclosure Schedule shall qualify for disclosure on any
other paragraph of the Company Disclosure Schedule under this Article II to the
extent that it is readily apparent from a reading of such disclosure that it
also applies to such other paragraph of the Company Disclosure
Schedule. For purposes of this Article II, the phrase “to the
knowledge of the Company” or any phrase of similar import shall be deemed to
refer to the actual knowledge ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III, C. ▇▇▇▇▇▇▇
▇▇▇▇▇, and/or ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ (the “Executives”), as well as any other
knowledge that such individuals would have possessed had they made reasonable
inquiry with respect to the matters in question.
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2.1. Organization, Qualification
and Corporate Power.
The
Company is a limited liability company duly organized, validly existing and in
good standing under the laws of the State of Delaware. The Company is
duly qualified to conduct business and is in limited liability company good
standing under the laws of each jurisdiction in which the nature of its
businesses or the ownership or leasing of its properties requires such
qualification, except where the failure to be so qualified or in good standing,
individually or in the aggregate, has not had and would not reasonably be
expected to have a Company Material Adverse Effect (as defined
below). The Company has all requisite limited liability company power
and authority to carry on the businesses in which it is engaged and to own and
use the properties owned and used by it. The Company has furnished or
made available to the Parent complete and accurate copies of its Certificate of
Formation and Operating Agreement. The Company is not in default
under or in violation of any provision of its Certificate of Formation, as
amended to date, or its Operating Agreement, as amended to date. For
purposes of this Agreement, “Company Material Adverse Effect” means a material
adverse effect on the assets, business, condition (financial or otherwise), or
results of operations of the Company taken as a whole.
2.2. Capitalization.
As of the
date of this Agreement, 16,000,000 Units of the Company and Company Warrants to
purchase 5,000,000 Units of the Company are issued and
outstanding. Section 2.2 of the Company Disclosure Schedule sets
forth a complete and accurate list of (i) all members of the Company,
indicating the number of Units held by each member, (iii) all outstanding
Company Warrants, indicating (A) the holder thereof, (B) the number of
Units subject to each Company Warrant, and (C) the exercise price, date of
grant, and expiration date for each Company Warrant. All of the
issued and outstanding Units are, and all Units that may be issued upon exercise
of Company Warrants will be (upon issuance in accordance with their terms), duly
authorized, validly issued, fully paid, nonassessable and free of all preemptive
rights. Other than the Company Warrants listed in Section 2.2 of
the Company Disclosure Schedule, there are no outstanding or authorized options,
warrants, rights, agreements or commitments to which the Company is a party or
which are binding upon the Company providing for the issuance or redemption of
any of its capital stock. Except as set forth in Section 2.2 of the
Company Disclosure Schedule, there are no outstanding or authorized profits
interest or similar rights with respect to the Company. There are no
agreements to which the Company is a party or by which it is bound with respect
to the voting (including without limitation voting trusts or proxies),
registration under the Securities Act, or sale or transfer (including without
limitation agreements relating to pre-emptive rights, rights of first refusal,
co-sale rights or “drag-along” rights) of any securities of the
Company. Except as set forth in Section 2.2 of the Company Disclosure
Schedule, to the knowledge of the Company, there are no agreements among other
parties, to which the Company is not a party and by which it is not bound, with
respect to the voting (including without limitation voting trusts or proxies) or
sale or transfer (including without limitation agreements relating to rights of
first refusal, co-sale rights or “drag-along” rights) of any securities of the
Company. All of the issued and outstanding Units were issued in
compliance with applicable federal and state securities laws.
8
2.3. Authorization of
Transaction.
The
Company has all requisite power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. The execution and
delivery by the Company of this Agreement and the agreements contemplated hereby
to which the Company is a party (the “Company Transaction Agreements”) and,
subject to the adoption of this Agreement and the approval of the Merger by no
less than a majority of the votes represented by the outstanding Units entitled
to vote on this Agreement and the Merger (the “Shareholder Approval”), the
consummation by the Company of the transactions contemplated hereby or thereby
have been duly and validly authorized by all necessary corporate action on the
part of the Company. This Agreement and the Company Transaction
Agreements have been duly and validly executed and delivered by the Company and
constitute valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms.
2.4. Noncontravention.
Subject
to the receipt of Shareholder Approval and the filing of the Certificate of
Merger as required by the Act, neither the execution and delivery by the Company
of this Agreement or the Company Transaction Agreements, nor the consummation by
the Company of the transactions contemplated hereby or thereby, will
(a) conflict with or violate any provision of the Certificate of Formation
or Operating Agreement of the Company, as amended to date, (b) require on
the part of the Company any filing with, or any permit, authorization, consent
or approval of, any court, arbitrational tribunal, administrative agency or
commission or other governmental or regulatory authority or agency (a
“Governmental Entity”), except for such permits, authorizations, consents and
approvals for which the Company is obligated to use its Reasonable Best Efforts
(as defined below) to obtain pursuant to Section 4.2(a), (c) conflict with,
result in a breach of, constitute (with or without due notice or lapse of time
or both) a default under, result in the acceleration of obligations under,
create in any party the right to terminate, modify or cancel, or require any
notice, consent or waiver under, any contract or instrument to which the Company
is a party or by which the Company is bound or to which any of their assets are
subject, except for (i) any conflict, breach, default, acceleration,
termination, modification or cancellation in any contract or instrument set
forth in Section 2.4 of the Company Disclosure Schedule, for which the Company
is obligated to use its Reasonable Best Efforts to obtain waiver, consent or
approval pursuant to Section 4.2(b), (ii) any conflict, breach, default,
acceleration, termination, modification or cancellation which would not have a
Company Material Adverse Effect and would not adversely affect the consummation
of the transactions contemplated hereby or (iii) any notice, consent or
waiver the absence of which would not have a Company Material Adverse Effect and
would not adversely affect the consummation of the transactions contemplated
hereby, (d) result in the imposition of any Security Interest (as defined
below) upon any assets of the Company or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company or any
of its properties or assets. For purposes of this Agreement:
“Security Interest” means any mortgage, pledge, security interest, encumbrance,
charge or other lien (whether arising by contract or by operation of law), other
than (i) mechanic’s, materialmen’s, and similar liens, (ii) liens
arising under worker’s compensation, unemployment insurance, social security,
retirement, and similar legislation, and (iii) liens on goods in transit
incurred pursuant to documentary letters of credit, in each case arising in the
Ordinary Course of Business (as defined below) of the applicable Party and not
material to such Party; and “Ordinary Course of Business” means the ordinary
course of the applicable Party’s business, consistent with past custom and
practice (including with respect to frequency and amount).
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2.5. Subsidiaries.
Section
2.5 of the Company Disclosure Schedule sets forth the Subsidiaries (as defined
below) of the Company. Each Subsidiary of the Company is a limited
liability company duly organized, validly existing, and in limited liability
company good standing under the laws of the jurisdiction of its
formation. For purposes of this Agreement, a “Subsidiary” shall mean
any corporation, partnership, joint venture or other entity in which a Party
has, directly or indirectly, an equity interest representing 50% or more of the
equity securities thereof or other equity interests therein (collectively, the
“Subsidiaries”). Except as set forth in Section 2.5 of the Company
Disclosure Schedule, the Company does not control directly or indirectly or have
any direct or indirect equity participation or similar interest in any
corporation, partnership, limited liability company, joint venture, trust or
other business association.
2.6. Financial
Statements.
The
Company has provided or made available to the Parent the audited balance sheets
of the Company at December 31, 2009 and December 31, 2008 and the related
statements of operations and cash flows for the two year period ended December
31, 2009 and the unaudited interim balance sheet of the Company (the “Company
Balance Sheet”) at September 30, 2010 and the related unaudited statements of
operations and cash flows for the nine months then ended (collectively, the
“Company Financial Statements”). The Company Financial Statements
have been prepared in accordance with United States generally accepted
accounting principles (“GAAP”) applied on a consistent basis throughout the
periods covered thereby, fairly present in all material respects the financial
condition, results of operations and cash flows of the Company as of the
respective dates thereof and for the periods referred to therein, comply as to
form with the applicable rules and regulations of the SEC for inclusion of such
Company Financial Statements in the Parent’s filings with the SEC as required by
the Exchange Act and are consistent in all material respects with the books and
records of the Company.
2.7. Absence of Certain
Changes.
Since the
Company Balance Sheet Date, and except as set forth in Section 2.7 of the
Company Disclosure Schedule, (a) to the knowledge of the Company, there has
occurred no event or development which, individually or in the aggregate, has
had, or could reasonably be expected to have in the future, a Company Material
Adverse Effect, and (b) the Company has not taken any of the actions set
forth in paragraphs (a) through (m) of Section 4.4.
2.8. Undisclosed
Liabilities.
Except as
set forth in Section 2.8 of the Company Disclosure Schedules, the Company does
not have any material liability (whether known or unknown, whether absolute or
contingent, whether liquidated or unliquidated and whether due or to become
due), except for (a) liabilities shown on the Company Balance Sheet
referred to in Section 2.6 or disclosed in the notes thereto and
(b) contractual and other liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance
sheet.
10
2.9. Tax
Matters.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Taxes”
means all taxes, charges, fees, levies or other similar assessments or
liabilities, including without limitation income, gross receipts, ad valorem,
premium, value-added, excise, real property, personal property, sales, use,
transfer, withholding, employment, unemployment insurance, social security,
business license, business organization, environmental, workers compensation,
payroll, profits, license, lease, service, service use, severance, stamp,
occupation, windfall profits, customs, duties, franchise and other taxes imposed
by the United States of America or any state, local or foreign government, or
any agency thereof, or other political subdivision of the United States or any
such government, and any interest, fines, penalties, assessments or additions to
tax resulting from, attributable to or incurred in connection with any tax or
any contest or dispute thereof.
(ii) “Tax
Returns” means all reports, returns, declarations, statements or other
information required to be supplied to a taxing authority in connection with
Taxes.
(b) The
Company has filed on a timely basis all Tax Returns that it was required to
file, and all such Tax Returns were complete and accurate in all material
respects. The Company is not and has not ever been a member of a
group of corporations with which it has filed (or been required to file)
consolidated, combined or unitary Tax Returns. The Company has paid
on a timely basis all Taxes that were due and payable. The unpaid
Taxes of the Company for tax periods through the Company Balance Sheet Date do
not exceed the accruals and reserves for Taxes (excluding accruals and reserves
for deferred Taxes established to reflect timing differences between book and
Tax income) set forth on the Company Balance Sheet. The Company has
not had any actual or potential liability for any Tax obligation of any taxpayer
(including without limitation any affiliated group of corporations or other
entities that included the Company during a prior period). All Taxes
that the Company is or was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Entity.
(c) The
Company has delivered or made available to the Parent complete and accurate
copies of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Company since the date of the
Company’s incorporation in Delaware (the “Organization Date”). No
examination or audit of any Tax Return of the Company by any Governmental Entity
is currently in progress or, to the knowledge of the Company, threatened or
contemplated. The Company has not been informed by any jurisdiction that the
jurisdiction believes that the Company was required to file any Tax Return that
was not filed. The Company has not waived any statute of limitations
with respect to Taxes or agreed to an extension of time with respect to a Tax
assessment or deficiency.
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(d) The
Company: (i) has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code during the applicable
period specified in Section 897(c)(l)(A)(ii) of the Code; (ii) has no
actual or potential liability for any Taxes of any person (other than the
Company) under Treasury Regulation Section 1.1502-6 (or any similar
provision of federal, state, local, or foreign law), or as a transferee or
successor, by contract, or otherwise; and (iii) is not and has not been
required to make a basis reduction pursuant to Treasury Regulation
Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b).
(e) None
of the assets of the Company: (i) is property that is required to be
treated as being owned by any other person pursuant to the provisions of former
Section 168(f)(8) of the Code; (ii) is “tax-exempt use property”
within the meaning of Section 168(h) of the Code; or (iii) directly or
indirectly secures any debt the interest on which is tax exempt under
Section 103(a) of the Code.
(f) The
Company has not undergone a change in its method of accounting resulting in an
adjustment to its taxable income pursuant to Section 481 of the
Code.
2.10. Assets.
The
Company owns or leases all tangible assets reasonably necessary for the conduct
of its businesses as presently conducted. Except as set forth in
Section 2.10 of the Company Disclosure Schedule, each such tangible asset is
free from material defects, has been maintained in accordance with normal
industry practice, is in good operating condition and repair (subject to normal
wear and tear) and is suitable for the purposes for which it presently is
used. No asset of the Company (tangible or intangible) is subject to
any Security Interest.
2.11. Owned Real
Property.
The
Company does not own any real property, except as otherwise listed in Section
2.11 of the Company Disclosure Schedule.
2.12. Real Property
Leases.
Section 2.12
of the Company Disclosure Schedule lists all real property leased or subleased
to or by the Company and lists the term of such lease, any extension and
expansion options, and the rent payable thereunder. The Company has
delivered or made available to the Parent complete and accurate copies of the
leases and subleases listed in Section 2.12 of the Company Disclosure
Schedule. With respect to each lease and sublease listed in
Section 2.12 of the Company Disclosure Schedule:
(a) the
lease or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease or sublease will continue to be legal, valid, binding, enforceable and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect immediately prior to the Closing;
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(c) except
as could not be reasonably expected to constitute a Company Material Adverse
Effect, the Company nor, to the knowledge of the Company, any other party, is in
breach or violation of, or default under, any such lease or sublease, and no
event has occurred, is pending or, to the knowledge of the Company, is
threatened, which, after the giving of notice, with lapse of time, or otherwise,
would constitute a breach or default by the Company or, to the knowledge of the
Company, any other party under such lease or sublease;
(d) the
Company has not assigned, transferred, conveyed, mortgaged, deeded in trust or
encumbered any interest in the leasehold or subleasehold; and
(e) to
the knowledge of the Company, there is no Security Interest, easement, covenant
or other restriction applicable to the real property subject to such lease,
except for recorded easements, covenants and other restrictions which do not
materially impair the current uses or the occupancy by the Company of the
property subject thereto.
2.13. Contracts.
(a) Section
2.13 of the Company Disclosure Schedule lists the following agreements (written
or oral) to which the Company is a party as of the date of this
Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties providing for lease payments in excess of $25,000 per
annum or having a remaining term longer than 12 months;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services (A) which calls for
performance over a period of more than one year, (B) which involves more
than the sum of $25,000, or (C) in which the Company has granted
manufacturing rights, “most favored nation” pricing provisions or exclusive
marketing or distribution rights relating to any products or territory or has
agreed to purchase a minimum quantity of goods or services or has agreed to
purchase goods or services exclusively from a certain party;
(iii) any
agreement which, to the knowledge of the Company, establishes a partnership or
joint venture;
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $25,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement concerning confidentiality, noncompetition, or assignment of
inventions;
(vi) any
employment or consulting agreement;
13
(vii) any
agreement involving any officer, manager or member of the Company or any
affiliate, as defined in Rule 12b-2 under Exchange Act, thereof (an
“Affiliate”);
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Company Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Company to indemnify any
other party thereto (excluding indemnities contained in agreements for the
purchase, sale or license of products entered into in the Ordinary Course of
Business);
(x) any
other agreement (or group of related agreements) either involving more than
$25,000 or not entered into in the Ordinary Course of Business; and
(xi) any
agreement, other than as contemplated by this Agreement or the Private Placement
Offering, relating to the sales of securities of the Company to which the
Company is a party.
(b) The
Company has delivered or made available to the Parent a complete and accurate
copy of each agreement listed in Section 2.13 of the Company Disclosure
Schedule. With respect to each agreement so listed, and except as set
forth in Section 2.13 of the Company Disclosure
Schedule: (i) the agreement is legal, valid, binding and
enforceable and in full force and effect; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing; and (iii) the Company is not nor, to
the knowledge of the Company, is any other party, in breach or violation of, or
default under, any such agreement, and no event has occurred, is pending or, to
the knowledge of the Company, is threatened, which, after the giving of notice,
with lapse of time, or otherwise, would constitute a breach or default by the
Company or, to the knowledge of the Company, any other party under such
contract.
2.14. Accounts
Receivable.
All
accounts receivable of the Company reflected on the Company Balance Sheet are
valid receivables subject to no setoffs or counterclaims and are current and
collectible (within 90 days after the date on which it first became due and
payable), net of the applicable reserve for bad debts on the Company Balance
Sheet. All accounts receivable reflected in the financial or
accounting records of the Company that have arisen since the Company Balance
Sheet Date are valid receivables subject to no setoffs or counterclaims and are
collectible (within 90 days after the date on which it first became due and
payable), net of a reserve for bad debts in an amount proportionate to the
reserve shown on the Company Balance Sheet.
2.15. Powers of
Attorney.
Except as
set forth in Section 2.15 of the Company Disclosure Schedule, there are no
outstanding powers of attorney executed on behalf of the
Company.
14
2.16. Insurance.
Section 2.16
of the Company Disclosure Schedule lists each insurance policy (including fire,
theft, casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which the Company is a party. Such insurance
policies are of the type and in amounts customarily carried by organizations
conducting businesses or owning assets similar to those of the
Company. There is no material claim pending under any such policy as
to which coverage has been questioned, denied or disputed by the underwriter of
such policy. All premiums due and payable under all such policies
have been paid, the Company may not be liable for retroactive premiums or
similar payments, and the Company is otherwise in compliance in all material
respects with the terms of such policies. The Company has no
knowledge of any threatened termination of, or material premium increase with
respect to, any such policy. Each such policy will continue to be
enforceable and in full force and effect immediately following the Effective
Time in accordance with the terms thereof as in effect immediately prior to the
Effective Time.
2.17. Litigation.
As of the
date of this Agreement, there is no action, suit, proceeding, claim, arbitration
or investigation before any Governmental Entity or before any arbitrator (a
“Legal Proceeding”) which is pending or, to the knowledge of the Company, has
been threatened against the Company which (a) seeks damages in excess of the
lesser of (i) $10,000 individually, or (ii) $25,000 in the aggregate,
(b) if determined adversely to the Company could have, individually or in
the aggregate, a Company Material Adverse Effect, or (c) in any manner
challenges or seeks to prevent, enjoin, alter, or delay the transactions
contemplated by this Agreement.
2.18. Employees.
(a) Section
2.18 of the Company Disclosure Schedule contains a list of all employees of the
Company whose annual rate of compensation exceeds $50,000 per year, along with
the position and the annual rate of compensation of each such
person. Except as set forth on Section 2.18 of the Company Disclosure
Schedule, each current or past employee of the Company has entered into a
confidentiality and assignment of inventions agreement with the Company, a copy
or form of which has previously been delivered to the Parent. Section
2.18 of the Company Disclosure Schedule contains a list of all employees of the
Company who are a party to a non-competition agreement with the Company; copies
of such agreements have previously been delivered to the Parent. To
the knowledge of the Company, no employee or group of employees has any plans to
terminate employment with the Company.
(b) The
Company is not party to or bound by any collective bargaining agreement, nor has
any of them experienced any strikes, grievances, claims of unfair labor
practices or other collective bargaining disputes. To the knowledge
of the Company, no organizational effort has been made or threatened, either
currently or within the past two years, by or on behalf of any labor union with
respect to employees of the Company.
15
2.19. Employee
Benefits.
(a) For
purposes of this Agreement, the following terms shall have the following
meanings:
(i) “Employee
Benefit Plan” means any “employee pension benefit plan” (as defined in
Section 3(2) of ERISA), any “employee welfare benefit plan” (as defined in
Section 3(1) of ERISA), and any other written or oral plan, agreement or
arrangement involving direct or indirect compensation, including without
limitation insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, stock options, stock purchase, phantom stock, stock
appreciation or other forms of incentive compensation or post-retirement
compensation.
(ii) “ERISA”
means the Employee Retirement Income Security Act of 1974, as
amended.
(iii) “ERISA
Affiliate” means any entity which is, or at any applicable time was, a member of
(1) a controlled group of corporations (as defined in Section 414(b)
of the Code), (2) a group of trades or businesses under common control (as
defined in Section 414(c) of the Code), or (3) an affiliated service
group (as defined under Section 414(m) of the Code or the regulations under
Section 414(o) of the Code), any of which includes or included the
applicable Party.
(b) Section 2.19(b)
of the Company Disclosure Schedule contains a complete and accurate list of all
Employee Benefit Plans maintained, or contributed to, by the Company or any
ERISA Affiliate. Complete and accurate copies of (i) all
Employee Benefit Plans which have been reduced to writing, (ii) written
summaries of all unwritten Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans)
all plan financial statements for the last five plan years for each Employee
Benefit Plan, have been delivered or made available to the
Parent. Each Employee Benefit Plan has been administered in all
material respects in accordance with its terms and each of the Company and the
ERISA Affiliates has in all material respects met its obligations with respect
to such Employee Benefit Plan and has made all required contributions
thereto. The Company, each ERISA Affiliate and each Employee Benefit
Plan are in compliance in all material respects with the currently applicable
provisions of ERISA and the Code and the regulations thereunder (including
without limitation Section 4980 B of the Code, Subtitle K, Chapter 100
of the Code and Sections 601 through 608 and Section 701 et seq. of
ERISA). All filings and reports as to each Employee Benefit Plan
required to have been submitted to the Internal Revenue Service or to the United
States Department of Labor have been duly submitted.
(c) To
the knowledge of the Company, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Employee Benefit Plans and
proceedings with respect to qualified domestic relations orders) against or
involving any Employee Benefit Plan or asserting any rights or claims to
benefits under any Employee Benefit Plan that could give rise to any material
liability.
16
(d) All
the Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Employee Benefit Plans are
qualified and the plans and the trusts related thereto are exempt from federal
income taxes under Sections 401(a) and 501(a), respectively, of the Code,
no such determination letter has been revoked and revocation has not been
threatened, and no such Employee Benefit Plan has been amended since the date of
its most recent determination letter or application therefor in any respect, and
no act or omission has occurred, that would adversely affect its qualification
or materially increase its cost. Each Employee Benefit Plan which is
required to satisfy Section 401(k)(3) or Section 401(m)(2) of the Code
has been tested for compliance with, and satisfies the requirements of,
Section 401(k)(3) and Section 401(m)(2) of the Code for each plan year
ending prior to the Closing Date.
(e) Neither
the Company nor any ERISA Affiliate has ever maintained an Employee Benefit Plan
subject to Section 412 of the Code or Title IV of ERISA.
(f) At
no time has the Company or any ERISA Affiliate been obligated to contribute to
any “multiemployer plan” (as defined in Section 4001(a)(3) of
ERISA).
(g) There
are no unfunded obligations under any Employee Benefit Plan providing benefits
after termination of employment to any employee of the Company (or to any
beneficiary of any such employee), including but not limited to retiree health
coverage and deferred compensation, but excluding continuation of health
coverage required to be continued under Section 4980B of the Code or other
applicable law and insurance conversion privileges under state
law. The assets of each Employee Benefit Plan which is funded are
reported at their fair market value on the books and records of such Employee
Benefit Plan.
(h)
No act or omission has occurred and no
condition exists with respect to any Employee Benefit Plan maintained by the
Company or any ERISA Affiliate that would subject the Company or any ERISA
Affiliate to (i) any material fine, penalty, tax or liability of any kind
imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Employee Benefit Plan.
(i)
No Employee Benefit Plan is funded by,
associated with or related to a “voluntary employee’s beneficiary association”
within the meaning of Section 501(c)(9) of the Code.
(j)
Each Employee Benefit Plan is amendable and
terminable unilaterally by the Company at any time without liability to the
Company as a result thereof and no Employee Benefit Plan, plan documentation or
agreement, summary plan description or other written communication distributed
generally to employees by its terms prohibits the Company from amending or
terminating any such Employee Benefit Plan.
17
(k) Section
2.19(k) of the Company Disclosure Schedule discloses each: (i) agreement
with any Company Member, director, executive officer or other key employee of
the Company (A) the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving the
Company of the nature of any of the transactions contemplated by this Agreement,
(B) providing any term of employment or compensation guarantee or
(C) providing severance benefits or other benefits after the termination of
employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Company that may be subject to the tax imposed by
Section 4999 of the Code or included in the determination of such person’s
“parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Company any of the benefits of which
will be increased, or the vesting of the benefits of which will be accelerated,
by the occurrence of any of the transactions contemplated by this Agreement or
the value of any of the benefits of which will be calculated on the basis of any
of the transactions contemplated by this Agreement. The accruals for
vacation, sickness and disability expenses are accounted for on the Company
Balance Sheet and are adequate and materially reflect the expenses associated
therewith in accordance with GAAP.
2.20. Environmental
Matters.
(a) The
Company has complied with all applicable Environmental Laws (as defined below),
except for violations of Environmental Laws that, individually or in the
aggregate, have not had and would not reasonably be expected to have a Company
Material Adverse Effect. There is no pending or, to the knowledge of
the Company, threatened civil or criminal litigation, written notice of
violation, formal administrative proceeding, or investigation, inquiry or
information request by any Governmental Entity, relating to any Environmental
Law involving the Company, except for litigation, notices of violations, formal
administrative proceedings or investigations, inquiries or information requests
that, individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. For purposes of
this Agreement, “Environmental Law” means any federal, state or local law,
statute, rule or regulation or the common law relating to the environment,
including without limitation any statute, regulation, administrative decision or
order pertaining to (i) treatment, storage, disposal, generation and
transportation of industrial, toxic or hazardous materials or substances or
solid or hazardous waste; (ii) air, water and noise pollution;
(iii) groundwater and soil contamination; (iv) the release or
threatened release into the environment of industrial, toxic or hazardous
materials or substances, or solid or hazardous waste, including without
limitation emissions, discharges, injections, spills, escapes or dumping of
pollutants, contaminants or chemicals; (v) the protection of wild life,
marine life and wetlands, including without limitation all endangered and
threatened species; (vi) storage tanks, vessels, containers, abandoned or
discarded barrels, and other closed receptacles; (vii) health and safety of
employees and other persons; and (viii) manufacturing, processing, using,
distributing, treating, storing, disposing, transporting or handling of
materials regulated under any law as pollutants, contaminants, toxic or
hazardous materials or substances or oil or petroleum products or solid or
hazardous waste. As used above, the terms “release” and “environment”
shall have the meaning set forth in the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (“CERCLA”).
(b) Set
forth in Section 2.20(b) of the Company Disclosure Schedule is a list of
all documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Company (whether conducted by or on
behalf of the Company or a third party, and whether done at the initiative of
the Company or directed by a Governmental Entity or other third party) which
were issued or conducted during the past five years and which the Company has
possession of or access to. A complete and accurate copy of each such
document has been provided to the Parent.
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(c) To
the knowledge of the Company, there is no material environmental liability with
respect to any solid or hazardous waste transporter or treatment, storage or
disposal facility that has been used by the Company.
2.21. Compliance with
Laws.
Except as
set forth in Section 2.21 of the Company Disclosure Schedule, the
Company:
(a) and
the conduct and operations of its business, is in compliance with each
applicable law (including rules and regulations thereunder) of any federal,
state, local or foreign government, or any Governmental Entity, except for any
violations or defaults that, individually or in the aggregate, have not had and
would not reasonably be expected to have a Company Material Adverse
Effect;
(b) has
not, and to the knowledge of the Company, the past and present officers,
managers and Affiliates of the Company (in their respective capacities as such)
have not, been the subject of, nor does any of the Executives have any reason to
believe that the Company or any of its officers, managers or Affiliates will be
the subject of, any civil or criminal proceeding or investigation by any federal
or state agency alleging a violation of securities laws or a claim of breach of
fiduciary duty;
(c) has
not been the subject of any voluntary or involuntary bankruptcy proceeding, nor,
in the past five (5) years, has it been a party to any material litigation nor,
to the knowledge of the Company, has any third-party company, of which any of
the Executives is or has been an a director or officer, been the subject of any
voluntary or involuntary bankruptcy proceeding; and
(d) has
not, and to the knowledge of the Company, the past and present officers,
managers and Affiliates of the Company (in their respective capacities as such)
have not, been the subject of, nor does any of the Executives have any reason to
believe that the Company or any of its officers, mangers or Affiliates will be
the subject of, any civil, criminal or administrative investigation or
proceeding brought by any federal or state agency having regulatory authority
over such entity or person.
2.22. Customers.
Section 2.22
of the Company Disclosure Schedule sets forth a list of each customer that
accounted for more than $10,000.00 of the consolidated revenues of the Company
during the last two full fiscal years and the amount of revenues accounted for
by such customer during such period. No such customer has notified
the Company in writing within the past year that it will stop buying services
from the Company.
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2.23. Permits.
Section
2.23 of the Company Disclosure Schedule sets forth a list of all material
permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) (“Permits”) issued to or held by the Company. Such
listed Permits are the only Permits that are required for the Company to conduct
its business as presently conducted except for those the absence of which,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Company Material Adverse Effect. Each such Permit
is in full force and effect and, to the knowledge of the Company, no suspension
or cancellation of such Permit is threatened and, to the knowledge of the
Company, there is no reasonable basis for believing that such Permit will not be
renewable upon expiration. Each such Permit will continue in full
force and effect immediately following the Closing.
2.24. Certain Business
Relationships With Affiliates.
Except as
listed in Section 2.24 of the Company Disclosure Schedule, no Affiliate of the
Company (a) owns any material property or right, tangible or intangible, which
is used in the business of the Company, (b) has any claim or cause of action
against the Company, or (c) owes any money to, or is owed any money by, the
Company. Section 2.24 of the Company Disclosure Schedule describes any
transactions involving the receipt or payment in excess of $25,000 in any fiscal
year between the Company and any Affiliate thereof which have occurred or
existed since the Organization Date, other than employment
agreements.
2.25. Brokers’
Fees.
The
Company does not have any liability or obligation to pay any fees or commissions
to any broker, finder or agent with respect to the transactions contemplated by
this Agreement, except as listed in Section 2.25 of the Company Disclosure
Schedule.
2.26. Books and
Records.
The
minute books and other similar records of the Company contain complete and
accurate records, in all material respects, of all actions taken at any meetings
of the Company’s members, managers, executive officers, or any committees
thereof and of all written consents executed in lieu of the holding of any such
meetings since the formation of the Company through the date of this
Agreement. The Company has provided true and complete copies of all
such minute books and other similar records to the Parent.
2.27. Intellectual
Property.
(a) The
Company owns, is licensed or otherwise possesses legally enforceable rights to
use, license and exploit all issued patents, copyrights, trademarks, service
marks, trade names, trade secrets, and registered domain names and all
applications for registration therefor (collectively, the "Intellectual Property
Rights") and all computer programs and other computer software, databases,
know-how, proprietary technology, formulae, and development tools, together with
all goodwill related to any of the foregoing (collectively, the "Intellectual
Property"), in each case as is necessary to conduct its business as presently
conducted, the absence of which would be reasonably likely to result in a
Company Material Adverse Effect.
20
(b) Section
2.27(b) of the Company Disclosure Schedule sets forth, with respect to all
issued patents and all registered copyrights, trademarks, service marks and
domain names registered with any Governmental Entity or for which an application
for registration has been filed with any Governmental Entity, (i) the
registration or application number, the date filed and the title, if applicable,
of the registration or application and (ii) the names of the jurisdictions
covered by the applicable registration or application. Section
2.27(b) of the Company Disclosure Schedule identifies each agreement currently
in effect containing any ongoing royalty or payment obligations of the Company
in excess of $25,000 per annum with respect to Intellectual Property Rights and
Intellectual Property that are licensed or otherwise made available to the
Company.
(c) Except
as set forth on Section 2.27(c) of the Company Disclosure Schedule, all
Intellectual Property Rights that have been registered with any Governmental
Entity are valid and subsisting, except as would not reasonably be expected to
have a Company Material Adverse Effect. As of the Effective Date, in connection
with such registered Intellectual Property Rights, all necessary registration,
maintenance and renewal fees will have been paid and all necessary documents and
certificates will have been filed with the relevant Governmental
Entities.
(d) The
Company is not and will not, as a result of the consummation of the Merger or
other transactions contemplated by this Agreement, be in breach in any material
respect of any license, sublicense or other agreement relating to the
Intellectual Property Rights, or any licenses, sublicenses or other agreements
as to which the Company is a party and pursuant to which the Company uses any
patents, copyrights (including software), trademarks or other intellectual
property rights of or owned by third parties (the "Third Party Intellectual
Property Rights"), the breach of which would be reasonably likely to result in a
Company Material Adverse Effect.
(e) Except
as set forth on Section 2.27(e) of the Company Disclosure Schedule, the Company
has not been named as a defendant in any suit, action or proceeding which
involves a claim of infringement or misappropriation of any Third Party
Intellectual Property Right and the Company has not received any notice or other
communication (in writing or otherwise) of any actual or alleged infringement,
misappropriation or unlawful or unauthorized use of any Third Party Intellectual
Property. With respect to its marketed products, the Company does not, to its
knowledge, infringe any third party intellectual property rights. With respect
to its product candidates and products in research or development, after the
same are marketed, the Company will not, to its knowledge, infringe any third
party intellectual property rights.
(f) To
the knowledge of the Company, except as set forth on Section 2.27(f) of the
Company Disclosure Schedule, no other person is infringing, misappropriating or
making any unlawful or unauthorized use of any Intellectual Property Rights in a
manner that has an impact on the business of the Company, except for such
infringement, misappropriation or unlawful or unauthorized use as would be
reasonably expected to have a Company Material Adverse Effect.
21
2.28. Disclosure.
No
representation or warranty by the Company contained in this Agreement or any
Company Transaction Agreement, and no statement contained in the Company
Disclosure Schedule or any other document, certificate or other instrument
delivered or to be delivered by or on behalf of the Company pursuant to this
Agreement or therein, contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary, in
light of the circumstances under which it was or will be made, in order to make
the statements herein or therein not misleading. The Company has
disclosed to the Parent all material information relating to the business of the
Company or the transactions contemplated by this Agreement.
2.29. Warranties.
No product or service sold or delivered
by the Company is subject to any guaranty, warranty, right of credit or other
indemnity other than the applicable standard terms and conditions of sale of the
Company, which are set forth in Section 2.29 of the Company Disclosure
Schedule.
2.30 Interested Party
Transactions.
Except as set forth in Section 2.30 of
the Company Disclosure Schedule, to the knowledge of the Company, no officer,
manager, or member of the Company or any Affiliate or “associate” (as such term
is defined in Rule 405 under the Securities Act) of any such person currently
has or has had, either directly or indirectly, (a) an interest in any person or
entity that (i) furnishes or sells services or products that are furnished or
sold or are proposed to be furnished or sold by the Company or (ii) purchases
from or sells or furnishes to the Company any goods or services, or (b) a
beneficial interest in any contract or agreement to which the Company is a party
or by which it may be bound or affected. The Company has not extended
or maintained credit, arranged for the extension of credit, or renewed an
extension of credit, in the form of a personal loan to or for any manager or
executive officer (or equivalent thereof) of the Company.
2.31 Manager
Action.
The Company’s managers (or equivalent
thereof) have unanimously determined that the Merger is advisable and in the
best interests of the Company Members and is on terms that are fair to such
Company Members.
22
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF THE PARENT
AND
THE ACQUISITION SUBSIDIARY
Each of
the Parent and the Acquisition Subsidiary represents and warrants to the Company
that as of the date of this Agreement and as of the closing of the Merger that
the statements contained in this Article III are true and correct in all
material respects, except as set forth in the disclosure schedule provided by
the Parent and the Acquisition Subsidiary to the Company on the date hereof, and
as updated, if necessary, by the Parent and the Acquisition Subsidiary
immediately prior to the Closing, and collectively attached hereto as Exhibit F (the
“Parent Disclosure Schedule”). The Parent Disclosure Schedule shall
be arranged in paragraphs corresponding to the numbered and lettered paragraphs
contained in this Article III, and the disclosure of information on any
paragraph of the Parent Disclosure Schedule shall qualify for disclosure on any
other paragraph of the Parent Disclosure Schedule under this Article III to the
extent that it is readily apparent from a reading of such disclosure that it
also applies to such other paragraph of the Parent Disclosure
Schedule. For purposes of this Article III, the phrase “to the
knowledge of the Parent” or any phrase of similar import shall be deemed to
refer to the actual knowledge the directors and executive officers of the
Parent, after due inquiry with the former directors and executive officers of
the Parent, as well as any other knowledge that such individuals would have
possessed had they made reasonable inquiry with respect to the matters in
question.
3.1. Organization, Qualification
and Corporate Power.
Each of
the Parent and the Split-Off Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of the State of Nevada, and the
Acquisition Subsidiary is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of
Delaware. Each of the Parent and the Parent Subsidiaries is duly
qualified to conduct business and is in corporate and tax good standing under
the laws of each jurisdiction in which the nature of its businesses or the
ownership or leasing of its properties requires such qualification, except where
the failure to be so qualified or in good standing would not reasonably be
expected to have a Parent Material Adverse Effect (as defined
below). Each of the Parent and the Parent Subsidiaries has all
requisite corporate power and authority to carry on the businesses in which it
is engaged and to own and use the properties owned and used by
it. The Parent has furnished or made available to the Company
complete and accurate copies of its Articles of Incorporation and Bylaws and the
organizational documents of the Parent Subsidiaries. Neither the
Parent nor any Parent Subsidiary, as applicable, is in default under or in
violation of any provision of its Articles of Incorporation, as amended to date,
its Bylaws, as amended to date, or its organizational documents, as
applicable. For purposes of this Agreement, “Parent Material Adverse
Effect” means a material adverse effect on the assets, business, condition
(financial or otherwise), results of operations of the Parent and the Parent
Subsidiaries, taken as a whole. Notwithstanding anything contained
herein to the contrary, any events, individually or in the aggregate, with an
actual or potential financial impact on the Parent in an amount equaling or
exceeding an aggregate of Five Thousand Dollars ($5,000.00) shall be deemed to
constitute a Parent Material Adverse Effect.
23
3.2. Capitalization.
The
authorized capital stock of the Parent consists of 300,000,000 shares of Parent
Common Stock, of which 5,325,200 shares are issued and outstanding as of the
date of this Agreement and 10,000,000 shares of preferred stock, $0.0001 par
value per share, of which no shares are outstanding. The Parent
Common Stock is presently eligible for quotation on the OTC Markets and is not
subject to any notice of suspension or delisting. Parent Common Stock
is registered under the Exchange Act. All of the issued and
outstanding shares of Parent Common Stock are duly authorized, validly issued,
fully paid, nonassessable and free of all preemptive rights. There
are no outstanding or authorized options, warrants, rights, agreements or
commitments to which the Parent is a party or which are binding upon the Parent
providing for the issuance or redemption of any of its capital
stock. There are no outstanding or authorized stock appreciation,
phantom stock or similar rights with respect to the Parent. There are
no agreements to which the Parent is a party or by which it is bound with
respect to the voting (including without limitation voting trusts or proxies),
registration under the Securities Act, or sale or transfer (including without
limitation agreements relating to pre-emptive rights, rights of first refusal,
co-sale rights or “drag-along” rights) of any securities of the
Parent. To the knowledge of the Parent, there are no agreements among
other parties, to which the Parent is not a party and by which it is not bound,
with respect to the voting (including without limitation voting trusts or
proxies) or sale or transfer (including without limitation agreements relating
to rights of first refusal, co-sale rights or “drag-along” rights) of any
securities of the Parent. All of the issued and outstanding shares of
Parent Common Stock were issued in compliance with applicable federal and state
securities laws. The Merger Shares to be issued at the Closing
pursuant to Section 1.5 hereof, when issued and delivered in accordance with the
terms hereof and of the Certificate of Merger, shall be duly and validly issued,
fully paid and nonassessable and free of all preemptive rights and will be
issued in compliance with applicable federal and state securities
laws. Furthermore, the shares of Parent Common Stock underlying the
New Warrants will have been duly and validly authorized and reserved for
issuance, and when issued in accordance with the terms of the New Warrants shall
be duly and validly issued, fully paid and nonassessable and free of all
preemptive rights and will be issued in compliance with applicable federal and
state securities laws. Immediately prior to the Closing of the
Merger, the stockholders of the Parent shall collectively hold such number of
shares of Parent Common Stock as would represent not more than 19.9% of the
total issued and outstanding shares of Parent Common Stock immediately
subsequent to the Closing of the Merger, exclusive of any shares of Parent
Common Stock that shall be issued in exchange for any Oversubscription
Securities.
3.3. Authorization of
Transaction.
Each of
the Parent and the Acquisition Subsidiary has all requisite power and authority
to execute and deliver this Agreement and (in the case of the Parent) the
Split-Off Agreement and to perform its obligations hereunder and
thereunder. The Split-Off Subsidiary has all requisite power and
authority to execute and deliver the Split-Off Agreement and to perform its
obligations thereunder. The execution and delivery by the Parent and
the Acquisition Subsidiary of this Agreement and (in the case of the Parent) the
Split-Off Agreement, and the agreements contemplated hereby and thereby to which
the Parent or the Acquisition Subsidiary is a party (collectively, the “Parent
Transaction Agreements”), and the consummation by the Parent and the Acquisition
Subsidiary of the transactions contemplated hereby and thereby, and the
execution by the Split-Off Subsidiary of the Split-Off Agreement and the
consummation by the Split-Off Subsidiary of the transactions contemplated
thereby, have been duly and validly authorized by all necessary corporate action
on the part of the Parent, the Acquisition Subsidiary and the Split-Off
Subsidiary, as applicable. This Agreement and the Parent Transaction
Agreements have been duly and validly executed and delivered by the Parent and
the Acquisition Subsidiary and constitute valid and binding obligations of the
Parent and the Acquisition Subsidiary, enforceable against each of them in
accordance with their terms.
24
3.4. Noncontravention.
Subject
to the filing of the Certificate of Merger as required by the Act, neither the
execution and delivery by the Parent or the Acquisition Subsidiary of this
Agreement or the Parent Transaction Agreements, nor the consummation by the
Parent or the Acquisition Subsidiary of the transactions contemplated hereby or
thereby, will (a) conflict with or violate any provision of its Articles of
Incorporation or Bylaws or its Certificate of Formation or Operating Agreement,
as applicable, of the Parent or the Acquisition Subsidiary, (b) require on
the part of the Parent or the Acquisition Subsidiary any filing with, or permit,
authorization, consent or approval of, any Governmental Entity, except for such
permits, authorizations, consents and approvals for which the Company is
obligated to use its Reasonable Best Efforts to obtain pursuant to Section
4.2(a), (c) conflict with, result in breach of, constitute (with or without
due notice or lapse of time or both) a default under, result in the acceleration
of obligations under, create in any party any right to terminate, modify or
cancel, or require any notice, consent or waiver under, any contract or
instrument to which the Parent or the Acquisition Subsidiary is a party or by
which either is bound or to which any of their assets are subject, except for
(i) any conflict, breach, default, acceleration, termination, modification
or cancellation which would not have a Parent Material Adverse Effect and would
not adversely affect the consummation of the transactions contemplated hereby or
(ii) any notice, consent or waiver the absence of which would not have a
Parent Material Adverse Effect and would not adversely affect the consummation
of the transactions contemplated hereby, (d) result in the imposition of any
Security Interest upon any assets of the Parent or the Acquisition Subsidiary or
(e) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to the Parent or the Acquisition Subsidiary or any of
their properties or assets.
3.5. Subsidiaries.
(a) The
Parent has no Subsidiaries other than the Acquisition Subsidiary and Split-Off
Subsidiary. The Split-Off Subsidiary is a corporation duly organized,
validly existing and in corporate and tax good standing under the laws of the
jurisdiction of its incorporation. The Acquisition Subsidiary is a
limited liability company duly organized, validly existing and limited liability
company good standing under the laws of the jurisdiction of its
formation. The Acquisition Subsidiary was formed solely to effectuate
the Merger, the Split-Off Subsidiary was formed solely to effectuate the
Split-Off, and neither of them has conducted any business operations since its
organization. The Parent has delivered or made available to the
Company complete and accurate copies of the Certificate of Formation, Operating
Agreement or other organizational documents of the Acquisition
Subsidiary. The Acquisition Subsidiary has no assets other than
minimal paid-in capital, it has no liabilities or other obligations, and it is
not in default under or in violation of any provision of its Certificate of
Formation, Operating Agreement or other organizational documents. All
of the issued and outstanding membership interest units of the Acquisition
Subsidiary are duly authorized, validly issued, fully paid, nonassessable and
free of preemptive rights. All membership interest units of the
Acquisition Subsidiary are owned by the Parent free and clear of any
restrictions on transfer (other than restrictions under the Securities Act and
state securities laws), claims, Security Interests, options, warrants, rights,
contracts, calls, commitments, equities and demands. Except for the
Split-Off Agreement, there are no outstanding or authorized options, warrants,
rights, agreements or commitments to which the Parent or the Acquisition
Subsidiary is a party or which are binding on any of them providing for the
issuance, disposition or acquisition of any capital stock of any Parent
Subsidiary. There are no outstanding profit interests or similar
rights with respect to the Acquisition Subsidiary. To the knowledge
of the Parent, there are no voting trusts, proxies or other agreements or
understandings with respect to the voting of any capital stock of the
Acquisition Subsidiary.
25
(b) At
all times from September 12, 2005, which was the date of incorporation of the
Parent, through the date of this Agreement, the business and operations of the
Parent have been conducted exclusively through the Parent.
(c) The
Parent does not control directly or indirectly or have any direct or indirect
equity participation or similar interest in any corporation, partnership or
limited liability company, joint venture, trust or business association, other
than the Parent Subsidiaries.
3.6. Exchange Act
Reports.
The
Parent has furnished or made available to the Company complete and accurate
copies, as amended or supplemented, of its Registration Statement on Form SB-2
and all reports filed by the Parent under Section 13 or subsections (a) or
(c) of Section 14 of the Exchange Act with the SEC since January 24, 2006,
which was the effective date of the Registration Statement on Form SB-2 (such
reports are collectively referred to herein as the “Parent
Reports”). The Parent Reports constitute all of the documents
required to be filed by the Parent under Section 13 or subsections (a) or
(c) of Section 14 of the Exchange Act with the SEC from January 24, 2006 through
the date of this Agreement. The Parent Reports complied in all
material respects with the requirements of the Exchange Act and the rules and
regulations thereunder when filed. As of their respective dates, the
Parent Reports did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The Parent has not received any notice from the SEC
suspending the effectiveness of any Registration Statement and, to the Parent’s
knowledge, no proceedings for that purpose have been initiated or threatened by
the SEC.
3.7. Compliance with
Laws.
Each of
the Parent and the Parent Subsidiaries:
(a) and
the conduct and operations of their respective businesses, are in compliance
with each applicable law (including rules and regulations thereunder) of any
federal, state, local or foreign government, or any Governmental Entity, except
for any violations or defaults that, individually or in the aggregate, have not
had and would not reasonably be expected to have a Parent Material Adverse
Effect;
(b) has
complied with all federal and state securities laws and regulations, including
being current in all of its reporting obligations under such federal and state
securities laws and regulations;
(c) has
not, and, to the knowledge of the Parent, Nanuk ▇▇▇▇▇▇, ▇▇▇▇▇▇ Asirwatham, ▇▇▇▇▇
▇▇▇▇▇▇ and the present officers, directors and Affiliates of the Parent (in
their respective capacities as such) have not, been the subject of, nor does any
officer or director of the Parent have any reason to believe that the Parent or
any of its officers, directors or Affiliates will be the subject of, any civil
or criminal proceeding or investigation by any federal or state agency alleging
a violation of securities laws or a claim of breach of fiduciary
duty;
26
(d) has
not been the subject of any voluntary or involuntary bankruptcy proceeding, nor
has it been a party to any material litigation, nor, to the knowledge of the
Parent, has any third-party company, of which any current director or officer of
Parent or any of Parent’s Subsidiaries is or has been a director or officer,
been the subject of any voluntary or involuntary bankruptcy
proceeding;
(e) has
not, and, to the knowledge of the Parent, Nanuk ▇▇▇▇▇▇, ▇▇▇▇▇▇ Asirwatham, ▇▇▇▇▇
▇▇▇▇▇▇ and the present officers, directors and Affiliates (in their respective
capacities as such) have not, been the subject of, nor does any officer or
director of the Parent have any reason to believe that the Parent or any of its
officers, directors or Affiliates will be the subject of, any civil, criminal or
administrative investigation or proceeding brought by any federal or state
agency having regulatory authority over such entity or person;
(f) does
not and will not on the Closing, have any liabilities, contingent or otherwise,
including but not limited to notes payable and accounts payable, and is not a
party to any executory agreements; and
(g) is
not a “blank check company” as such term is defined by Rule 419 of the
Securities Act.
3.8. Financial
Statements.
The
audited financial statements and unaudited interim financial statements of the
Parent included in the Parent Reports (collectively, the “Parent Financial
Statements”) (i) complied as to form in all material respects with applicable
accounting requirements and, as appropriate, the published rules and regulations
of the SEC with respect thereto when filed, (ii) were prepared in accordance
with GAAP applied on a consistent basis throughout the periods covered thereby
(except as may be indicated therein or in the notes thereto, and in the case of
quarterly financial statements, as permitted by Form 10-QSB or Form 10-Q under
the Exchange Act), (iii) fairly present in all material respects the
consolidated financial condition, results of operations and cash flows of the
Parent as of the respective dates thereof and for the periods referred to
therein, and (iv) are consistent in all material respects with the books and
records of the Parent.
3.9. Absence of Certain
Changes.
Since the
date of (i) the balance sheet delivered to the Company pursuant to Section
5.3(i) hereof and (ii) the balance sheet contained in the most recent Parent
Report (collectively, the “Parent Balance Sheet”), (a) to the knowledge of the
Parent, there has occurred no event or development which, individually or in the
aggregate, has had, or could reasonably be expected to have in the future, a
Parent Material Adverse Effect and (b) neither the Parent or the Acquisition
Subsidiary has taken any or the actions set forth in paragraphs (a) through (m)
of Section 4.6.
27
3.10. Litigation.
Except as
disclosed in the Parent Reports, as of the date of this Agreement, there is no
Legal Proceeding which is pending or, to the Parent’s knowledge, threatened
against the Parent or any Parent Subsidiary which, if determined adversely to
the Parent or such Subsidiary, could have, individually or in the aggregate, a
Parent Material Adverse Effect or which in any manner challenges or seeks to
prevent, enjoin, alter or delay the transactions contemplated by this
Agreement. For purposes of this Section 3.10, any such pending or
threatened Legal Proceedings which seeks damages in excess of the lesser of
$10,000 per Legal Proceeding or $25,000 in the aggregate shall be considered to
possibly result in a Parent Material Adverse Effect hereunder.
3.11. Undisclosed
Liabilities.
Except as
set forth in Section 3.11 of the Parent Disclosure Schedule, none of the Parent
and the Parent Subsidiaries has any liability (whether known or unknown, whether
absolute or contingent, whether liquidated or unliquidated and whether due or to
become due), except for (a) liabilities shown on the Parent Balance Sheet
which do not exceed One Thousand Dollars ($1,000.00) individually or in the
aggregate, (b) liabilities which have arisen since the date of the Parent
Balance Sheet in the Ordinary Course of Business which do not exceed One
Thousand Dollars ($1,000.00) individually or in the aggregate and
(c) contractual and other liabilities incurred in the Ordinary Course of
Business which do not exceed One Thousand Dollars ($1,000.00) individually or in
the aggregate and which are not required by GAAP to be reflected on a balance
sheet.
3.12. Tax
Matters.
(a) Each
of the Parent and the Parent Subsidiaries has filed on a timely basis all Tax
Returns that it was required to file, and all such Tax Returns were complete and
accurate in all material respects. Neither the Parent nor any Parent
Subsidiary is or has ever been a member of a group of corporations with which it
has filed (or been required to file) consolidated, combined or unitary Tax
Returns, other than a group of which only the Parent and the Parent Subsidiaries
are or were members. Each of the Parent and the Parent Subsidiaries
has paid on a timely basis all Taxes that were due and payable. The
unpaid Taxes of the Parent and the Parent Subsidiaries for tax periods through
the date of the Parent Balance Sheet do not exceed the accruals and reserves for
Taxes (excluding accruals and reserves for deferred Taxes established to reflect
timing differences between book and Tax income) set forth on such balance
sheet. Neither the Parent nor any Parent Subsidiary has any actual or
potential liability for any Tax obligation of any taxpayer (including without
limitation any affiliated group of corporations or other entities that included
the Parent or any Parent Subsidiary during a prior period) other than the Parent
and the Parent Subsidiaries. All Taxes that the Parent or any Parent
Subsidiary is or was required by law to withhold or collect have been duly
withheld or collected and, to the extent required, have been paid to the proper
Governmental Entity.
(b) The
Parent has delivered or made available to the Company complete and accurate
copies of all federal income Tax Returns, examination reports and statements of
deficiencies assessed against or agreed to by the Parent or any Parent
Subsidiary since September 12, 2005 (the date of incorporation of the
Parent). No examination or audit of any Tax Return of the Parent or
any Parent Subsidiary by any Governmental Entity is currently in progress or, to
the knowledge of the Parent, threatened or contemplated. Neither the
Parent nor any Parent Subsidiary has been informed by any jurisdiction that the
jurisdiction believes that the Parent or such Subsidiary was required to file
any Tax Return that was not filed. Neither the Parent nor any Parent
Subsidiary has waived any statute of limitations with respect to Taxes or agreed
to an extension of time with respect to a Tax assessment or
deficiency.
28
(c) Neither
the Parent nor any Parent Subsidiary: (i) is a “consenting corporation”
within the meaning of Section 341(f) of the Code, and none of the assets of
the Parent or the Parent Subsidiaries are subject to an election under
Section 341(f) of the Code; (ii) has been a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the applicable period specified in Section 897(c)(l)(A)(ii) of
the Code; (iii) has made any payments, is obligated to make any payments,
or is a party to any agreement that could obligate it to make any payments that
may be treated as an “excess parachute payment” under Section 280G of the
Code; (iv) has any actual or potential liability for any Taxes of any
person (other than the Parent and the Parent Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of federal, state,
local, or foreign law), or as a transferee or successor, by contract, or
otherwise; or (v) is or has been required to make a basis reduction
pursuant to Treasury Regulation Section 1.1502-20(b) or Treasury Regulation
Section 1.337(d)-2(b).
(d) None
of the assets of the Parent or any Parent Subsidiary: (i) is property that
is required to be treated as being owned by any other person pursuant to the
provisions of former Section 168(f)(8) of the Code; (ii) is
“tax-exempt use property” within the meaning of Section 168(h) of the Code;
or (iii) directly or indirectly secures any debt the interest on which is
tax exempt under Section 103(a) of the Code.
(e) Neither
the Parent nor any Parent Subsidiary has undergone a change in its method of
accounting resulting in an adjustment to its taxable income pursuant to
Section 481 of the Code.
(f) No
state or federal “net operating loss” of the Parent determined as of the Closing
Date is subject to limitation on its use pursuant to Section 382 of the
Code or comparable provisions of state law as a result of any “ownership change”
within the meaning of Section 382(g) of the Code or comparable provisions
of any state law occurring prior to the Closing Date.
3.13. Assets.
Each of
the Parent and the Acquisition Subsidiary owns or leases all tangible assets
reasonably necessary for the conduct of its businesses as presently
conducted. Each such tangible asset is free from material defects,
has been maintained in accordance with normal industry practice, is in good
operating condition and repair (subject to normal wear and tear) and is suitable
for the purposes for which it presently is used. No asset of the
Parent or any Parent Subsidiary (tangible or intangible) is subject to any
Security Interest.
3.14. Owned Real
Property.
Neither
the Parent nor any Parent Subsidiary owns any real property.
29
3.15. Real Property
Leases.
Section
3.15 of the Parent Disclosure Schedule lists all real property leased or
subleased to or by the Parent or any Parent Subsidiary and lists the term of
such lease, any extension and expansion options, and the rent payable
thereunder. The Parent has delivered or made available to the Company
complete and accurate copies of the leases and subleases listed in
Section 3.15 of the Parent Disclosure Schedule. With respect to
each lease and sublease listed in Section 3.15 of the Parent Disclosure
Schedule:
(a) the
lease or sublease is legal, valid, binding, enforceable and in full force and
effect;
(b) the
lease or sublease will continue to be legal, valid, binding, enforceable and in
full force and effect immediately following the Closing in accordance with the
terms thereof as in effect immediately prior to the Closing;
(c) neither
the Parent nor any Parent Subsidiary nor, to the knowledge of the Parent, any
other party, is in breach or violation of, or default under, any such lease or
sublease, and no event has occurred, is pending or, to the knowledge of the
Parent, is threatened, which, after the giving of notice, with lapse of time, or
otherwise, would constitute a breach or default by the Parent or any Parent
Subsidiary or, to the knowledge of the Parent, any other party under such lease
or sublease;
(d) neither
the Parent nor any Parent Subsidiary has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold; and
(e) to
the knowledge of the Parent, there is not any Security Interest, easement,
covenant or other restriction applicable to the real property subject to such
lease, except for recorded easements, covenants and other restrictions which do
not materially impair the current uses or the occupancy by the Parent or a
Parent Subsidiary of the property subject thereto.
3.16. Contracts.
(a) Section
3.16 of the Parent Disclosure Schedule lists the following agreements (written
or oral) to which the Parent or any Parent Subsidiary is a party as of the date
of this Agreement:
(i) any
agreement (or group of related agreements) for the lease of personal property
from or to third parties;
(ii) any
agreement (or group of related agreements) for the purchase or sale of products
or for the furnishing or receipt of services;
(iii) any
agreement, to the knowledge of the Parent, establishing a partnership or joint
venture;
30
(iv) any
agreement (or group of related agreements) under which it has created, incurred,
assumed or guaranteed (or may create, incur, assume or guarantee) indebtedness
(including capitalized lease obligations) involving more than $5,000 or under
which it has imposed (or may impose) a Security Interest on any of its assets,
tangible or intangible;
(v) any
agreement concerning confidentiality, noncompetition, or assignment of
inventions;
(vi) any
employment or consulting agreement;
(vii) any
agreement involving any current or former officer, director or stockholder of
the Parent or any Affiliate thereof;
(viii) any
agreement under which the consequences of a default or termination would
reasonably be expected to have a Parent Material Adverse Effect;
(ix) any
agreement which contains any provisions requiring the Parent or any Parent
Subsidiary to indemnify any other party thereto (excluding indemnities contained
in agreements for the purchase, sale or license of products entered into in the
Ordinary Course of Business);
(x) any
other agreement (or group of related agreements) either involving more than
$5,000 or not entered into in the Ordinary Course of Business; and
(xi) any
agreement, other than as contemplated by the Private Placement Offering, this
Agreement and the Split-Off, relating to the sales of securities of Parent or
any Parent Subsidiary to which the Parent or such Subsidiary is a
party.
(b) The
Parent has delivered or made available to the Company a complete and accurate
copy of each agreement listed in Section 3.16 of the Parent Disclosure
Schedule. With respect to each agreement so
listed: (i) the agreement is legal, valid, binding and
enforceable and in full force and effect; (ii) the agreement will continue
to be legal, valid, binding and enforceable and in full force and effect
immediately following the Closing in accordance with the terms thereof as in
effect immediately prior to the Closing; and (iii) neither the Parent nor
any Parent Subsidiary nor, to the knowledge of the Parent, any other party, is
in breach or violation of, or default under, any such agreement, and no event
has occurred, is pending or, to the knowledge of the Parent, is threatened,
which, after the giving of notice, with lapse of time, or otherwise, would
constitute a breach or default by the Parent or any Parent Subsidiary or, to the
knowledge of the Parent, any other party under such contract.
31
3.17. Accounts
Receivable.
All
accounts receivable of the Parent and the Parent Subsidiaries reflected on the
Parent Reports are valid receivables subject to no setoffs or counterclaims and
are current and collectible (within 90 days after the date on which it first
became due and payable), net of the applicable reserve for bad debts on the
Parent Balance Sheet. All accounts receivable reflected in the
financial or accounting records of the Parent that have arisen since the date of
the Parent Balance Sheet are valid receivables subject to no setoffs or
counterclaims and are collectible (within 90 days after the date on which it
first became due and payable), net of a reserve for bad debts in an amount
proportionate to the reserve shown on the most recent Parent Balance
Sheet.
3.18. Powers of
Attorney.
There are
no outstanding powers of attorney executed on behalf of the Parent or any Parent
Subsidiary.
3.19. Insurance.
Section 3.19
of the Parent Disclosure Schedule lists each insurance policy (including fire,
theft, casualty, general liability, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond and
surety arrangements) to which the Parent or any Parent Subsidiary is a
party. Such insurance policies are of the type and in amounts
customarily carried by organizations conducting businesses or owning assets
similar to those of the Parent and the Parent Subsidiaries. There is
no material claim pending under any such policy as to which coverage has been
questioned, denied or disputed by the underwriter of such policy. All
premiums due and payable under all such policies have been paid, neither the
Parent nor any Parent Subsidiary may be liable for retroactive premiums or
similar payments, and the Parent and the Parent Subsidiaries are otherwise in
compliance in all material respects with the terms of such
policies. The Parent has no knowledge of any threatened termination
of, or material premium increase with respect to, any such
policy. Each such policy will continue to be enforceable and in full
force and effect immediately following the Closing in accordance with the terms
thereof as in effect immediately prior to the Closing.
3.20. Warranties.
No
product or service sold or delivered by the Parent or any Parent Subsidiary is
subject to any guaranty, warranty, right of credit or other indemnity other than
the applicable standard terms and conditions of sale of the Parent or the
appropriate Parent Subsidiary, which are set forth in Section 3.20 of the
Parent Disclosure Schedule.
3.21. Employees.
(a) Section
3.21 of the Parent Disclosure Schedule contains a list of all employees of the
Parent and each Parent Subsidiary along with the position and the annual rate of
compensation of each such person. No current or past employee of the
Parent or any Parent Subsidiary has entered into a confidentiality and
assignment of inventions agreement with the Parent or such Parent Subsidiary,
Section 3.21 of the Parent Disclosure Schedule contains a list of all employees
of the Parent or any Parent Subsidiary who are a party to a non-competition
agreement with the Parent or any Parent Subsidiary; copies of such agreements
have previously been delivered to the Company. Except as contemplated
by this Agreement and the Split-Off Agreement, to the knowledge of the Parent,
no employee or group of employees has any plans to terminate employment with the
Parent or any Parent Subsidiary.
32
(b) Neither
the Parent nor any Parent Subsidiary is a party to or bound by any collective
bargaining agreement, nor have any of them experienced any strikes, grievances,
claims of unfair labor practices or other collective bargaining
disputes. The Parent has no knowledge of any organizational effort
made or threatened, either currently or since the date of organization of the
Parent, by or on behalf of any labor union with respect to employees of the
Parent or any Parent Subsidiary.
3.22. Employee
Benefits.
(a) Section 3.22(a)
of the Parent Disclosure Schedule contains a complete and accurate list of all
Employee Benefit Plans maintained, or contributed to, by the Parent, any Parent
Subsidiary or any ERISA Affiliate (the “Parent Employee Benefit
Plans”). Complete and accurate copies of (i) all Parent Employee
Benefit Plans which have been reduced to writing, (ii) written summaries of
all unwritten Parent Employee Benefit Plans, (iii) all related trust
agreements, insurance contracts and summary plan descriptions, and (iv) all
annual reports filed on IRS Form 5500, 5500C or 5500R and (for all funded plans)
all plan financial statements for the last five plan years for each Parent
Employee Benefit Plan, have been delivered or made available to the
Company. Each Parent Employee Benefit Plan has been administered in
all material respects in accordance with its terms and each of the Parent, the
Parent Subsidiaries and the ERISA Affiliates has in all material respects met
its obligations with respect to such Parent Employee Benefit Plan and has made
all required contributions thereto. The Parent, each Parent
Subsidiary, each ERISA Affiliate and each Parent Employee Benefit Plan are in
compliance in all material respects with the currently applicable provisions of
ERISA and the Code and the regulations thereunder (including without limitation
Section 4980 B of the Code, Subtitle K, Chapter 100 of the Code and
Sections 601 through 608 and Section 701 et seq. of
ERISA). All filings and reports as to each Parent Employee Benefit
Plan required to have been submitted to the Internal Revenue Service or to the
United States Department of Labor have been duly submitted.
(b) To
the knowledge of the Parent, there are no Legal Proceedings (except claims for
benefits payable in the normal operation of the Parent Employee Benefit Plans
and proceedings with respect to qualified domestic relations orders) against or
involving any Parent Employee Benefit Plan or asserting any rights or claims to
benefits under any Parent Employee Benefit Plan that could give rise to any
material liability.
(c) All
the Parent Employee Benefit Plans that are intended to be qualified under
Section 401(a) of the Code have received determination letters from the
Internal Revenue Service to the effect that such Parent Employee Benefit Plans
are qualified and the plans and the trusts related thereto are exempt from
federal income taxes under Sections 401(a) and 501(a), respectively, of the
Code, no such determination letter has been revoked and revocation has not been
threatened, and no such Parent Employee Benefit Plan has been amended since the
date of its most recent determination letter or application therefor in any
respect, and no act or omission has occurred, that would adversely affect its
qualification or materially increase its cost. Each Parent Employee
Benefit Plan which is required to satisfy Section 401(k)(3) or
Section 401(m)(2) of the Code has been tested for compliance with, and
satisfies the requirements of, Section 401(k)(3) and Section 401(m)(2)
of the Code for each plan year ending prior to the Closing
Date.
33
(d) Neither
the Parent, any Parent Subsidiary, nor any ERISA Affiliate has ever maintained
an Employee Benefit Plan subject to Section 412 of the Code or Title IV of
ERISA.
(e) At
no time has the Parent, any Parent Subsidiary or any ERISA Affiliate been
obligated to contribute to any “multiemployer plan” (as defined in
Section 4001(a)(3) of ERISA).
(f) There
are no unfunded obligations under any Parent Employee Benefit Plan providing
benefits after termination of employment to any employee of the Parent or any
Parent Subsidiary (or to any beneficiary of any such employee), including but
not limited to retiree health coverage and deferred compensation, but excluding
continuation of health coverage required to be continued under
Section 4980B of the Code or other applicable law and insurance conversion
privileges under state law. The assets of each Parent Employee
Benefit Plan which is funded are reported at their fair market value on the
books and records of such Parent Employee Benefit Plan.
(g) No
act or omission has occurred and no condition exists with respect to any Parent
Employee Benefit Plan that would subject the Parent, any Parent Subsidiary or
any ERISA Affiliate to (i) any material fine, penalty, tax or liability of any
kind imposed under ERISA or the Code or (ii) any contractual indemnification or
contribution obligation protecting any fiduciary, insurer or service provider
with respect to any Parent Employee Benefit Plan.
(h) No
Parent Employee Benefit Plan is funded by, associated with or related to a
“voluntary employee’s beneficiary association” within the meaning of
Section 501(c)(9) of the Code.
(i) Each
Parent Employee Benefit Plan is amendable and terminable unilaterally by the
Parent at any time without liability to the Parent as a result thereof and no
Parent Employee Benefit Plan, plan documentation or agreement, summary plan
description or other written communication distributed generally to employees by
its terms prohibits the Parent from amending or terminating any such Parent
Employee Benefit Plan.
(j) Section
3.22(j) of the Parent Disclosure Schedule discloses
each: (i) agreement with any stockholder, director, executive
officer or other key employee of the Parent or any Parent Subsidiary
(A) the benefits of which are contingent, or the terms of which are
materially altered, upon the occurrence of a transaction involving the Parent or
any Parent Subsidiary of the nature of any of the transactions contemplated by
this Agreement, (B) providing any term of employment or compensation
guarantee or (C) providing severance benefits or other benefits after the
termination of employment of such director, executive officer or key employee;
(ii) agreement, plan or arrangement under which any person may receive
payments from the Parent or any Parent Subsidiary that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of
such person’s “parachute payment” under Section 280G of the Code; and
(iii) agreement or plan binding the Parent or any Parent Subsidiary,
including without limitation any stock option plan, stock appreciation right
plan, restricted stock plan, stock purchase plan, severance benefit plan or
Employee Benefit Plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of any
of the transactions contemplated by this Agreement or the value of any of the
benefits of which will be calculated on the basis of any of the transactions
contemplated by this Agreement. The accruals for vacation, sickness
and disability expenses are accounted for on the most recent Parent Balance
Sheet and are adequate and materially reflect the expenses associated therewith
in accordance with GAAP.
34
3.23. Environmental
Matters.
(a) Each
of the Parent and the Parent Subsidiaries has complied with all applicable
Environmental Laws, except for violations of Environmental Laws that,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. There is no
pending or, to the knowledge of the Parent, threatened civil or criminal
litigation, written notice of violation, formal administrative proceeding, or
investigation, inquiry or information request by any Governmental Entity,
relating to any Environmental Law involving the Parent or any Parent Subsidiary,
except for litigation, notices of violations, formal administrative proceedings
or investigations, inquiries or information requests that, individually or in
the aggregate, have not had and would not reasonably be expected to have a
Parent Material Adverse Effect.
(b) Set
forth in Section 3.23(b) of the Parent Disclosure Schedule is a list of all
documents (whether in hard copy or electronic form) that contain any
environmental reports, investigations and audits relating to premises currently
or previously owned or operated by the Parent or a Parent Subsidiary (whether
conducted by or on behalf of the Parent or a Parent Subsidiary or a third party,
and whether done at the initiative of the Parent or a Parent Subsidiary or
directed by a Governmental Entity or other third party) which were issued or
conducted during the past five years and which the Parent has possession of or
access to. A complete and accurate copy of each such document has
been provided to the Parent.
(c) To
the knowledge of the Parent, there is not any material environmental liability
of any solid or hazardous waste transporter or treatment, storage or disposal
facility that has been used by the Parent or any Parent Subsidiary.
3.24. Permits.
Section
3.24 of the Parent Disclosure Schedule sets forth a list of all material
permits, licenses, registrations, certificates, orders or approvals from any
Governmental Entity (including without limitation those issued or required under
Environmental Laws and those relating to the occupancy or use of owned or leased
real property) issued to or held by the Parent or any Parent Subsidiary (“Parent
Permits”). Such listed Permits are the only Parent Permits that are
required for the Parent and the Parent Subsidiaries to conduct their respective
businesses as presently conducted except for those the absence of which,
individually or in the aggregate, have not had and would not reasonably be
expected to have a Parent Material Adverse Effect. Each such Parent
Permit is in full force and effect and, to the knowledge of the Parent, no
suspension or cancellation of such Parent Permit is threatened and, to the
knowledge of Parent, there is no reasonable basis for believing that such Parent
Permit will not be renewable upon expiration. Each such Parent Permit
will continue in full force and effect immediately following the
Closing.
35
3.25. Certain Business
Relationships With Affiliates.
No
Affiliate of the Parent or of any Parent Subsidiary (a) owns any material
property or right, tangible or intangible, which is used in the business of the
Parent or any Parent Subsidiary, (b) has any claim or cause of action
against the Parent or any Parent Subsidiary, or (c) owes any money to, or
is owed any money by, the Parent or any Parent
Subsidiary. Section 3.25 of the Parent Disclosure Schedule
describes any transaction or series of related transactions involving the
receipt or payment in excess of $1,000 in any fiscal year between the Parent or
a Parent Subsidiary and any Affiliate thereof which have occurred or existed
since the beginning of the time period covered by the Parent Financial
Statements.
3.26. Tax-Free
Incorporation.
(a) The
Parent (i) is not an “investment company” as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code; (ii) has no present
plan or intention to liquidate the Surviving Entity or to merge the Surviving
Entity with or into any other corporation or entity, or to sell or otherwise
dispose of the equity interest of the Surviving Entity which the Parent will
acquire in the Merger, or to cause the Surviving Entity to sell or otherwise
dispose of its assets, all except in the ordinary course of business or if such
liquidation, merger, disposition is described in Section 368(a)(2)(C) or
Treasury Regulation Section 1.368-2(d)(4) or Section 1368-2(k); and
(iii) has no present plan or intention, following the Merger, to issue any
additional equity interest of the Surviving Entity or to create any new class of
equity interest of the Surviving Entity.
(b) The
Acquisition Subsidiary is a wholly-owned subsidiary of the Parent, formed solely
for the purpose of engaging in the Merger, and will carry on no business prior
to the Merger.
(c) Immediately
prior to the Merger, the Parent will be in control of the Acquisition Subsidiary
within the meaning of Section 368(c) of the Code.
(d) Immediately
following the Merger, the Surviving Entity will hold at least 90% of the fair
market value of the net assets and at least 70% of the fair market value of the
gross assets held by the Company immediately prior to the Merger (for purposes
of this representation, amounts used by the Company to pay reorganization
expenses, if any, will be included as assets of the Company held immediately
prior to the Merger).
(e) The
Parent has no present plan or intention to reacquire any of the Merger
Shares.
(f) The
Acquisition Subsidiary will have no liabilities assumed by the Surviving Entity
and will not transfer to the Surviving Entity any assets subject to liabilities
in the Merger.
36
(g) Following
the Merger, the Surviving Entity will continue the Company’s historic business
or use a significant portion of the Company’s historic business assets in a
business as required by Section 351 of the Code and the Treasury
Regulations promulgated thereunder.
(h) The Split-Off
Agreement will constitute a legally binding obligation among the Parent,
the Split-Off Subsidiary and the Buyer prior to the Effective
Time. Immediately prior to the Closing Date of the Merger, the
Parent will distribute the stock of the Split-Off Subsidiary to the Buyer
in consideration of the Purchase Price (as such term is defined in the Split-Off
Agreement).
3.27. Split-Off.
Immediately
prior to the Closing Date of the Merger, the Parent will have discontinued all
of its business operations which it conducted prior to the Effective Time by
closing the transactions contemplated by the Split-Off
Agreement. Upon the closing of the transactions contemplated by the
Split-Off Agreement, the Parent will have no material liabilities, contingent or
otherwise.
3.28. Brokers’
Fees.
Except as
set forth on Section 3.28 of the Parent Disclosure Schedule, neither the Parent
nor the Acquisition Subsidiary has any liability or obligation to pay any fees
or commissions to any broker, finder or agent with respect to the transactions
contemplated by this Agreement.
3.29. Disclosure.
No
representation or warranty by the Parent contained in this Agreement or in any
of the Parent Transaction Agreements, and no statement contained in the any
document, certificate or other instrument delivered or to be delivered by or on
behalf of the Parent pursuant to this Agreement or therein, contains or will
contain any untrue statement of a material fact or omits or will omit to state
any material fact necessary, in light of the circumstances under which it was or
will be made, in order to make the statements herein or therein not
misleading. The Parent has disclosed to the Company all material
information relating to the business of the Parent or any Parent Subsidiary or
the transactions contemplated by this Agreement.
3.30. Interested Party
Transactions.
Except
for the Split-Off Agreement, to the knowledge of the Parent, no officer,
director or stockholder of the Parent or any Affiliate or “associate” (as such
term is defined in Rule 405 under the Securities Act) of any such person
currently has or has had, either directly or indirectly, (a) an interest in any
person or entity that (i) furnishes or sells services or products that are
furnished or sold or are proposed to be furnished or sold by the Parent or any
Parent Subsidiary or (ii) purchases from or sells or furnishes to the Parent or
any Parent Subsidiary any goods or services, or (b) a beneficial interest in any
contract or agreement to which the Parent or any Parent Subsidiary is a party or
by which it may be bound or affected. Neither the Parent nor any
Parent Subsidiary has extended or maintained credit, arranged for the extension
of credit, or renewed an extension of credit, in the form of a personal loan to
or for any director or executive officer (or equivalent thereof) of the Parent
or any Parent Subsidiary.
37
3.31. Accountants.
Child,
▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, PLLC is and has been the Parent’s registered public
accounting firm since January 23, 2007. Throughout its engagement by
the Parent, Child, ▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, PLLC has been (a) a registered
public accounting firm (as defined in Section 2(a)(12) of the ▇▇▇▇▇▇▇▇-▇▇▇▇▇ Act
of 2002), (b) “independent” with respect to Parent within the meaning of
Regulation S-X and (c) in compliance with subsections (g) through (l) of Section
10A of the Exchange Act and the related rules of the Commission and the Public
Company Accounting Oversight Board. Section 3.32 of the Parent
Disclosure Schedule lists all non-audit services performed by Child, ▇▇▇ ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇, PLLC for Parent and/or any Parent Subsidiary since January 23,
2007. The report of Child, ▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, PLLC on the
financial statements of the Parent for the most recent fiscal year did not
contain an adverse opinion or a disclaimer of opinion, or was qualified as to
uncertainty, audit scope, or accounting principles, although it did express
uncertainty as to the Parent’s ability to continue as a going
concern. During the Parent’s most recent fiscal year and the
subsequent interim periods, there were no disagreements with Child, ▇▇▇ ▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇, PLLC on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedures. None
of the reportable events listed in Item 304(a)(1)(iv) of Regulation S-B occurred
with respect to Child, ▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, PLLC.
3.32. Minute
Books.
The
minute books and other similar records of the Parent and each Parent Subsidiary
contain complete and accurate records, in all material respects, of all actions
taken at any meetings of directors and stockholders or actions by written
consent in lieu of the holding of any such meetings since the time of
organization of each such corporation through the date of this
Agreement. The Parent has provided true and complete copies of all
such minute books, and other similar records to the Company’s
representatives.
3.33. Board
Action.
The
Parent’s Board of Directors (a) has unanimously determined that the Merger is
advisable and in the best interests of the Parent’s stockholders and is on terms
that are fair to such Parent stockholders and (b) has caused the Parent, in its
capacity as the sole stockholder of the Acquisition Subsidiary, and the Board of
Directors of the Acquisition Subsidiary, to approve the Merger and this
Agreement by unanimous written consent.
3.34. Stockholder
Action
A
majority of the stockholders of Parent, acting by written consent, shall have
approved (a) the changing of the name of Parent to a name acceptable to the
Company; (b) the Split-Off Agreement and the transactions contemplated thereby;
(c) the adoption of the Parent Option Plan (as defined below); and (d) the
Amended and Restated Articles of Incorporation of the Parent in substantially
the form attached hereto as Exhibit
G.
38
3.35. Discontinuation of Business
Operations
As of the
Closing, the Parent and all Parent Subsidiaries shall not have any business
operations. As of the Closing, the Parent shall have no assets or liabilities,
contingent or otherwise.
ARTICLE
IV
COVENANTS
4.1. Closing
Efforts.
Each of
the Parties shall use its best efforts, to the extent commercially reasonable
(“Reasonable Best Efforts”), to take all actions and to do all things necessary,
proper or advisable to consummate the transactions contemplated by this
Agreement, including without limitation using its Reasonable Best Efforts to
ensure that (i) its representations and warranties remain true and correct
in all material respects through the Closing Date and (ii) the conditions
to the obligations of the other Parties to consummate the Merger are
satisfied.
4.2. Governmental and Third-Party
Notices and Consents.
(a) Each
Party shall use its Reasonable Best Efforts to obtain, at its expense, all
waivers, permits, consents, approvals or other authorizations from Governmental
Entities, and to effect all registrations, filings and notices with or to
Governmental Entities, as may be required for such Party to consummate the
transactions contemplated by this Agreement and to otherwise comply with all
applicable laws and regulations in connection with the consummation of the
transactions contemplated by this Agreement.
(b) The
Company shall use its Reasonable Best Efforts to obtain, at its expense, all
such waivers, consents or approvals from third parties, and to give all such
notices to third parties, as are required to be listed in Section 2.4 of
the Company Disclosure Schedule.
4.3. Current
Report.
As soon
as reasonably practicable after the execution of this Agreement, the Parties
shall prepare a current report on Form 8-K relating to this Agreement and the
transactions contemplated hereby (the “Current Report”). Each of the
Company and the Parent shall cause the Current Report to be filed with the SEC
within four business days of the execution of this Agreement and to otherwise
comply with all requirements of applicable federal and state securities
laws.
4.4. Operation of
Business.
Except as
contemplated by this Agreement, during the period from the date of this
Agreement to the Effective Time, the Company shall conduct its operations in the
Ordinary Course of Business and in material compliance with all applicable laws
and regulations and, to the extent consistent therewith, use its Reasonable Best
Efforts to preserve intact its current business organization, keep its physical
assets in good working condition, keep available the services of its current
officers and employees and preserve its relationships with customers, suppliers
and others having business dealings with it to the end that its goodwill and
ongoing business shall not be impaired in any material
respect. Without limiting the generality of the foregoing, prior to
the Effective Time, the Company shall not, without the written consent of the
Parent (which shall not be unreasonably withheld or delayed):
39
(a) except
as contemplated by, and in connection with, the transactions contemplated by
this Agreement or the Private Placement Offering, issue or sell, or redeem or
repurchase, any securities of the Company or any warrants, options or other
rights to acquire any such securities, or amend any of the terms of (including
without limitation the vesting of) any such convertible securities or options or
warrants;
(b) except
as contemplated by, and in connection with, the transactions contemplated by
this Agreement, split, combine or reclassify any shares of its securities;
declare, set aside or pay any dividend or other distribution (whether in cash,
stock or property or any combination thereof) in respect of its
securities;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases) except in the Ordinary Course of Business or in connection with the
transactions contemplated by this Agreement; assume, guarantee, endorse or
otherwise become liable or responsible (whether directly, contingently or
otherwise) for the obligations of any other person or entity; or make any loans,
advances or capital contributions to, or investments in, any other person or
entity;
(d) enter
into, adopt or amend any Employee Benefit Plan or any employment or severance
agreement or arrangement or (except for normal increases in the Ordinary Course
of Business for employees who are not Affiliates) increase in any manner the
compensation or fringe benefits of, or materially modify the employment terms
of, its managers, officers or employees, generally or individually, or pay any
bonus or other benefit to its managers, officers or employees;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any
corporation, partnership, association or other business organization or division
thereof), other than purchases and sales of assets in the Ordinary Course of
Business and except as contemplated by, and in connection with, the Private
Placement Offering;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its Certificate of Formation, Operating Agreement or other organizational
documents;
(i) change
in any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
40
(j) enter
into, amend, terminate, take or omit to take any action that would constitute a
violation of or default under, or waive any rights under, any material contract
or agreement;
(k) institute
or settle any Legal Proceeding;
(l) take
any action or fail to take any action permitted by this Agreement with the
knowledge that such action or failure to take action would result in
(i) any of the representations and warranties of the Company set forth in
this Agreement becoming untrue or (ii) any of the conditions to the Merger
set forth in Article V not being satisfied; or
(m) agree
in writing or otherwise to take any of the foregoing actions.
4.5. Access to
Information.
(a) The
Company shall permit representatives of the Parent to have full access (at all
reasonable times, and in a manner so as not to interfere with the normal
business operations of the Company) to all premises, properties, financial and
accounting records, contracts, other records and documents, and personnel, of or
pertaining to the Company.
(b) Each
of the Parent and the Acquisition Subsidiary (i) shall treat and hold as
confidential any Company Confidential Information (as defined below),
(ii) shall not use any of the Company Confidential Information except in
connection with this Agreement, and (iii) if this Agreement is terminated
for any reason whatsoever, shall return to the Company all tangible embodiments
(and all copies) thereof which are in its possession. For purposes of
this Agreement, “Company Confidential Information” means any information of the
Company that is furnished to the Parent or the Acquisition Subsidiary by the
Company in connection with this Agreement; provided, however, that it
shall not include any information (A) which, at the time of disclosure, is
available publicly other than as a result of disclosure by the Parent, the
Acquisition Subsidiary or their respective directors, officers, employees,
agents or advisors, (B) which, after disclosure, becomes available publicly
through no fault of the Parent or the Acquisition Subsidiary or their respective
directors, officers, employees, agents or advisors, (C) which the Parent or
the Acquisition Subsidiary knew or to which the Parent or the Acquisition
Subsidiary had access prior to disclosure, provided that the source of such
information is not known by the Parent or the Acquisition Subsidiary to be bound
by a confidentiality obligation to the Company, or (D) which the Parent or
the Acquisition Subsidiary rightfully obtains from a source other than the
Company provided that the source of such information is not known by the Parent
or the Acquisition Subsidiary to be bound by a confidentiality obligation to the
Company.
4.6. Operation of
Business.
Except as
contemplated by this Agreement, the Split-Off Agreement, or the Private
Placement Offering, during the period from the date of this Agreement to the
Effective Time, the Parent shall (and shall cause each Parent Subsidiary to)
conduct its operations in the Ordinary Course of Business and in material
compliance with all applicable laws and regulations and, to the extent
consistent therewith, use its Reasonable Best Efforts to preserve intact its
current business organization, keep its physical assets in good working
condition, keep available the services of its current officers and employees and
preserve its relationships with customers, suppliers and others having business
dealings with it to the end that its goodwill and ongoing business shall not be
impaired in any material respect. Without limiting the generality of
the foregoing, prior to the Effective Time, the Parent shall not (and shall
cause each Parent Subsidiary not to), without the written consent of the
Company:
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(a) except
as contemplated by, and in connection with, the transactions contemplated by
this Agreement, the Split-Off Agreement, or the Private Placement Offering,
issue or sell, or redeem or repurchase, any stock or other securities of the
Parent or any rights, warrants or options to acquire any such stock or other
securities;
(b) except
as contemplated by, and in connection with, the transactions contemplated by
this Agreement split, combine or reclassify any shares of its capital stock;
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;
(c) create,
incur or assume any indebtedness (including obligations in respect of capital
leases); assume, guarantee, endorse or otherwise become liable or responsible
(whether directly, contingently or otherwise) for the obligations of any other
person or entity; or make any loans, advances or capital contributions to, or
investments in, any other person or entity;
(d) except
as contemplated by, and in connection with, the transactions contemplated by
this Agreement or the Split-Off Agreement, enter into, adopt or amend any Parent
Employee Benefit Plan or any employment or severance agreement or arrangement or
(except for normal increases in the Ordinary Course of Business for employees
who are not Affiliates) increase in any manner the compensation or fringe
benefits of, or materially modify the employment terms of, its directors,
officers or employees, generally or individually, or pay any bonus or other
benefit to its directors, officers or employees, except for the adoption of
Parent’s 2010 Equity Incentive Plan (the “Parent Option Plan”), in substantially
the form attached hereto as Exhibit H, covering
an aggregate of 4,250,000 shares of Parent Common Stock in connection with the
Merger;
(e) acquire,
sell, lease, license or dispose of any assets or property (including without
limitation any shares or other equity interests in or securities of any Parent
Subsidiary or any corporation, partnership, association or other business
organization or division thereof), except as contemplated by, and in connection
with, the Split-Off or the Private Placement Offering;
(f) mortgage
or pledge any of its property or assets or subject any such property or assets
to any Security Interest;
(g) discharge
or satisfy any Security Interest or pay any obligation or liability other than
in the Ordinary Course of Business;
(h) amend
its charter, bylaws or other organizational documents;
(i) change
in any material respect its accounting methods, principles or practices, except
insofar as may be required by a generally applicable change in
GAAP;
42
(j) enter
into, amend, terminate, take or omit to take any action that would constitute a
violation of or default under, or waive any rights under, any material contract
or agreement;
(k) institute
or settle any Legal Proceeding;
(l) take
any action or fail to take any action permitted by this Agreement with the
knowledge that such action or failure to take action would result in
(i) any of the representations and warranties of the Parent and/or the
Acquisition Subsidiary set forth in this Agreement becoming untrue in any
material respect or (ii) any of the conditions to the Merger set forth in
Article V not being satisfied; or
(m) agree
in writing or otherwise to take any of the foregoing actions.
4.7. Access to
Information.
(a) The
Parent shall (and shall cause the Acquisition Subsidiary to) permit
representatives of the Company to have full access (at all reasonable times, and
in a manner so as not to interfere with the normal business operations of the
Parent and the Acquisition Subsidiary) to all premises, properties, financial
and accounting records, contracts, other records and documents, and personnel,
of or pertaining to the Parent and the Acquisition Subsidiary.
(b) The
Company (i) shall treat and hold as confidential any Parent Confidential
Information (as defined below), (ii) shall not use any of the Parent
Confidential Information except in connection with this Agreement, and
(iii) if this Agreement is terminated for any reason whatsoever, shall
return to the Parent all tangible embodiments (and all copies) thereof which are
in its possession. For purposes of this Agreement, “Parent
Confidential Information” means any information of the Parent or any Parent
Subsidiary that is furnished to the Company by the Parent or the Acquisition
Subsidiary in connection with this Agreement; provided, however, that it
shall not include any information (A) which, at the time of disclosure, is
available publicly other than as a result of disclosure by the Company or its
managers, officers, employees, agents or advisors, (B) which, after
disclosure, becomes available publicly through no fault of the Company or its
managers, officers, employees, agents or advisors, (C) which the Company
knew or to which the Company had access prior to disclosure, provided that the
sources of such information is not known by the Company to be bound by a
confidentiality obligation to the Parent or any Parent Subsidiary or
(D) which the Company rightfully obtains from a source other than the
Parent or an Parent Subsidiary, provided that the source of such information is
not known by the Company to be bound by a confidentiality obligation to the
Parent or any Parent Subsidiary.
4.8. Expenses.
The costs
and expenses of the Parent and the Company (including but not limited to broker,
legal and accounting fees and expenses of the Parent and the Company) incurred
in connection with this Agreement and the transactions contemplated hereby shall
be payable at Closing from the proceeds of the Private Placement
Offering.
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4.9. Indemnification.
(a) The
Parent shall not, for a period of three years after the Effective Time, take any
action to alter or impair any exculpatory or indemnification provisions now
existing in the Certificate of Formation or Operating Agreement of the Company
for the benefit of any individual who served as a manager or officer of the
Company at any time prior to the Effective Time, except for any changes which
may be required to conform with changes in applicable law and any changes which
do not affect the application of such provisions to acts or omissions of such
individuals prior to the Effective Time.
(b) From
and after the Effective Time, the Parent agrees that it will, and will cause the
Surviving Entity to, indemnify and hold harmless each present and former manager
and officer of the Company (the “Indemnified Executives”) against any costs or
expenses (including attorneys’ fees), judgments, fines, losses, claims, damages,
liabilities or amounts paid in settlement incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, arising out of or pertaining to matters
existing or occurring at or prior to the Effective Time, whether asserted or
claimed prior to, at or after the Effective Time, to the fullest extent
permitted under Nevada or Delaware law (and the Parent and the Surviving Entity
shall also advance expenses as incurred to the fullest extent permitted under
Delaware law, provided the Indemnified Executive to whom expenses are advanced
provides an undertaking to repay such advances if it is ultimately determined
that such Indemnified Executive is not entitled to
indemnification).
4.10. Quotation of Merger
Shares.
The
Parent shall take whatever steps are necessary to cause the Merger Shares to be
eligible for quotation on the OTC Markets.
4.11. Split-Off.
The
Parent shall take whatever steps are necessary to enable it to effect the
Split-Off immediately prior to the Closing Date of the Merger.
4.12. Stock Option
Plan.
The Board
of Directors and shareholders of the Parent shall adopt the Parent Option Plan
reserving for issuance an aggregate of 4,250,000 shares of Parent Common Stock
prior to or as of the Effective Time.
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4.13. Information Provided to
Company Members.
The
Company shall prepare, with the cooperation of the Parent, information to be
sent to the holders of Units in connection with receiving their approval of the
Merger, this Agreement and related transactions. Such information shall
constitute a disclosure of the offer and issuance of the shares of Parent Common
Stock to be received by the Company Members in the Merger. The Parent
and the Company shall each use Reasonable Best Efforts to cause information
provided to such holders to comply with applicable federal and state securities
laws requirements. Each of the Parent and the Company agrees to
provide promptly to the other such information concerning its business and
financial statements and affairs as, in the reasonable judgment of the providing
party or its counsel, may be required or appropriate for inclusion in the
information sent, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with the other's counsel and auditors in the
preparation of the information to be sent to the holders of
Units. The Company will promptly advise the Parent, and the Parent
will promptly advise the Company, in writing if at any time prior to the
Effective Time either the Company or the Parent shall obtain knowledge of any
facts that might make it necessary or appropriate to amend or supplement the
information sent in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law. The
information sent shall contain the recommendation of the Board of Managers of
the Company that the holders of Units approve the Merger and this Agreement and
the conclusion of the Board of Managers of the Company that the terms and
conditions of the Merger are advisable and fair and reasonable to such holders.
Anything to the contrary contained herein notwithstanding, the Company shall not
include in the information sent to such holders any information with respect to
the Parent or its affiliates or associates, the form and content of which
information shall not have been approved in writing by the Parent prior to such
inclusion.
4.14. Information Provided to
Stockholders of Parent.
The
Parent shall prepare, with the cooperation of the Company, information to be
sent to the holders of Parent Common Stock in connection with receiving their
approval of (a) the changing of the name of Parent to a name acceptable to the
Company; (b) the Split-Off Agreement and the transactions contemplated thereby;
(c) the adoption of the Parent Option Plan; and (d) the Amended and Restated
Articles of Incorporation of the Parent in substantially the form attached
hereto as Exhibit
G. The Parent and the Company shall each use Reasonable Best
Efforts to cause information provided to such holders to comply with applicable
federal and state securities laws requirements. Each of the Parent
and the Company agrees to provide promptly to the other such information
concerning its business and financial statements and affairs as, in the
reasonable judgment of the providing party or its counsel, may be required or
appropriate for inclusion in the information sent, or in any amendments or
supplements thereto, and to cause its counsel and auditors to cooperate with the
other's counsel and auditors in the preparation of the information to be sent to
the holders of Parent Common Stock. The Parent will promptly advise
the Company, and the Company will promptly advise the Parent, in writing if at
any time prior to the Effective Time either the Company or the Parent shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the information sent in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. Anything to the contrary contained herein
notwithstanding, the Parent shall not include in the information sent to such
holders any information with respect to the Company or its affiliates or
associates, the form and content of which information shall not have been
approved in writing by the Company prior to such inclusion.
4.15. Investor Relations
Agreement.
Following
the Closing of the Merger, the Parent shall use its Reasonable Best Efforts to
establish an investors’ relations program pursuant to which the Parent will
enter into agreements with one or more third-parties selected by the Parent’s
Board of Directors following the Merger to provide investors’ relations services
to the Parent, such investors’ relations program to have a budget of at least
$250,000 and warrants to purchase up to 250,000 shares of Parent Common
Stock.
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4.16. Legal
Counsel.
The law
firm of Gottbetter & Partners, LLP, which has served as legal counsel of the
Parent prior to and through the Closing of the Merger, shall not provide legal
services to Parent after the Closing of the Merger. Following the
Closing of the Merger, Gottbetter & Partners, LLP will serve as legal
counsel to the PPO Shareholders to advise and represent the PPO Shareholders
with regard to the registration by the Parent under the Securities Act of
certain shares of Parent Common Stock issued by the Parent in the Merger in
exchange for the PPO Securities. The Parent shall pay Gottbetter
& Partners, LLP the aggregate amount of Fifty Thousand Dollars ($50,000.00)
upon the filing of such registration statement for its legal services to the PPO
Shareholders as set forth in this Section 4.16; provided, however, that
Gottbetter & Partners, LLP shall continue to represent the PPO Shareholders
in connection with the registration statement described herein until the earlier
of its effectiveness or its termination, for no additional
compensation.
4.17. Advisor
Agreement.
Prior to
the Closing of the Private Placement Offering, the Parent shall enter into an
advisor agreement (the “Advisor Agreement”), in substantially the form attached
hereto as Exhibit
I, with the Placement Agent, which Advisor Agreement will not be
effective until immediately after the closing of the Private Placement Offering
and the Closing of the Merger, and pursuant to which the Placement Agent shall
be compensated solely with a non-transferrable five-year warrant to purchase
five hundred thousand (500,000) shares of Parent Common Stock at an exercise
price of $1.50 per share, such warrant to contain, among other things, a
cashless exercise provision.
4.18. Registration
Agreement.
Prior to the Closing of the Merger, the
Parent shall adopt and be bound by certain provisions regarding registration
rights contained in a securities purchase agreement (the “Securities Purchase
Agreement”), in substantially the form attached hereto as Exhibit
J.
ARTICLE
V
CONDITIONS
TO CONSUMMATION OF MERGER
5.1. Conditions to Each Party’s
Obligations.
The
respective obligations of each Party to consummate the Merger are subject to the
satisfaction of the following conditions:
(a) this
Agreement and the Merger shall have received the approval of at least a majority
of the votes represented by each of (i) the outstanding Units and (ii) the
outstanding shares of common stock of the Acquisition Subsidiary entitled to
vote on this Agreement and the Merger;
46
(b) the
completion of the offer and sale of the Private Placement Offering;
(c) satisfactory
completion by the Parent and the Company of all necessary due
diligence;
(d) the
Parent and each of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ III, and C. ▇▇▇▇▇▇▇ ▇▇▇▇▇
shall have entered into the employment agreements attached hereto as Exhibit K (the
“Employment Agreements”), which Employment Agreements contain the same terms as
contained the employment agreements that each of the Employees currently has
with the Company ;
(e) the
Parent and the Company shall have obtained all necessary board, shareholder,
member, manager, and third party consents and approvals, as applicable;
and
(f) there
be no injunction or order in effect by any governmental authority prohibiting
the Merger.
5.2. Conditions to Obligations of
the Parent and the Acquisition Subsidiary.
The
obligation of each of the Parent and the Acquisition Subsidiary to consummate
the Merger is subject to the satisfaction (or waiver by the Parent) of the
following additional conditions:
(a) the
Company shall have obtained (and shall have provided copies thereof to the
Parent) all waivers, permits, consents, approvals or other authorizations, and
effected all of the registrations, filings and notices, referred to in
Section 4.2 which are required on the part of the Company, except for any
the failure of which to obtain or effect does not, individually or in the
aggregate, have a Company Material Adverse Effect or a material adverse effect
on the ability of the Parties to consummate the transactions contemplated by
this Agreement;
(b) the
representations and warranties of the Company set forth in this Agreement (when
read without regard to any qualification as to materiality or Material Adverse
Effect contained therein) shall be true and correct as of the date of this
Agreement and shall be true and correct as of the Effective Time as though made
as of the Effective Time (provided, however, that to the extent such
representation and warranty expressly relates to an earlier date, such
representation and warranty shall be true and correct as of such earlier date),
except for any untrue or incorrect representation and warranty that,
individually or in the aggregate, does not have a Company Material Adverse
Effect or a material adverse effect on the ability of the Parties to consummate
the transactions contemplated by this Agreement;
(c) the
Company shall have performed or complied with its agreements and covenants
required to be performed or complied with under this Agreement as of or prior to
the Effective Time;
(d) no
Legal Proceeding shall be pending wherein an unfavorable judgment, order,
decree, stipulation or injunction would (i) prevent consummation of any of
the transactions contemplated by this Agreement, or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
47
(e) the
Company shall have delivered to the Parent and the Acquisition Subsidiary a
certificate (the “Company Certificate”) to the effect that each of the
conditions specified in clauses (a) and (c) (with respect to the Company’s
due diligence of the Parent) of Section 5.1 and clauses (a) through (d)
(insofar as clause (d) relates to Legal Proceedings involving the Company)
of this Section 5.2 is satisfied in all respects;
(f) each
of the Executives and each individual or entity who will be a beneficial owner
of ten percent (10%) or more of the issued and outstanding shares of Parent
Common Stock immediately following the Closing shall have entered into a Lock-Up
Agreement (the “Lock-Up Agreement”) in substantially the form attached hereto as
Exhibit L;
provided, however, that the provisions of the Lock-Up Agreements for Clearwater
Partners, LLC and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ shall not apply to any shares of Parent
Common Stock or any PPO Conversion Warrant issued to Clearwater Partners, LLC or
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ upon consummation of the Merger in exchange for the Units and
PPO Warrant of the Company contained in the PPO Securities purchased by
Clearwater Partners, LLC or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ in the Private Placement Offering
nor shall the provisions of the Lock-Up Agreements for Clearwater Partners, LLC
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ apply to any shares of Parent Common Stock issued to
Clearwater Partners, LLC or ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ upon exercise of any PPO Conversion
Warrant;
(g) there
shall have been no material adverse changes to the Company’s business since the
date of this Agreement;
(h) the
Company shall have delivered to the Parent all audited and unaudited financial
statements of the Company as may be required pursuant to any applicable SEC
regulation; and
(i)
the Parent shall have received from ▇▇▇▇▇ &
Lardner LLP, special counsel to the Company, an opinion in the form attached
hereto as Exhibit
M, addressed to the Parent and dated as of the Closing Date.
5.3. Conditions to Obligations of
the Company.
The
obligation of the Company to consummate the Merger is subject to the
satisfaction (or waiver by the Company) of the following additional
conditions:
(a) the
Parent shall have obtained (and shall have provided copies thereof to the
Company) all of the waivers, permits, consents, approvals or other
authorizations, and effected all of the registrations, filings and notices,
referred to in Section 4.2 which are required on the part of the Parent,
except for any the failure of which to obtain or effect does not, individually
or in the aggregate, have a Parent Material Adverse Effect or a material adverse
effect on the ability of the Parties to consummate the transactions contemplated
by this Agreement;
48
(b) the
representations and warranties of the Parent set forth in this Agreement (when
read without regard to any qualification as to materiality or Material Adverse
Effect contained therein) shall be true and correct as of the date of this
Agreement and shall be true and correct as of the Effective Time as though made
as of the Effective Time (provided, however, that to the extent such
representation or warranty expressly relates to an earlier date, such
representation and warranty shall be true and correct as of such earlier date),
except for any untrue or incorrect representation and warranty that,
individually or in the aggregate, does not have a Parent Material Adverse Effect
or a material adverse effect on the ability of the Parties to consummate the
transactions contemplated by this Agreement;
(c) each
of the Parent and the Acquisition Subsidiary shall have performed or complied
with its agreements and covenants required to be performed or complied with
under this Agreement as of or prior to the Effective Time;
(d) no
Legal Proceeding shall be pending wherein an unfavorable judgment, order,
decree, stipulation or injunction would (i) prevent consummation of any of
the transactions contemplated by this Agreement, or (ii) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation, and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(e) the
Parent shall have delivered to the Company a certificate (the “Parent
Certificate”) to the effect that each of the conditions specified in clause (c)
(with respect to the Parent’s due diligence of the Company) of Section 5.1 and
clauses (a) through (d) (insofar as clause (d) relates to Legal
Proceedings involving the Parent and the Parent Subsidiaries) of this
Section 5.3 is satisfied in all respects;
(f) the
total number of shares of Parent Common Stock issued and outstanding immediately
prior to the Effective Time shall equal such number of shares of the Parent
Common Stock as would represent not more than 19.9% of the total issued and
outstanding Parent Common Stock immediately following the Closing of the Merger,
exclusive of any shares of Parent Common Stock that shall be issued in exchange
for any Oversubscription Securities;
(g) the
Parent shall have adopted the Parent Option Plan, in substantially the form
attached hereto as Exhibit
H;
(h) the
Company shall have received a certificate of Parent’s transfer agent and
registrar certifying that as of the Closing Date there are 5,465,000 shares of
Parent Common Stock issued and outstanding (after giving effect to the Parent
Pre-Merger Transactions, excluding the Parent Contractual Agreement Share
Cancellations);
(i) prior
to the Closing of the Merger, the Parent, the Split-Off Subsidiary and the Buyer
shall execute the Split-Off Agreement and consummate the Split-Off and the
transactions contemplated thereby, with evidence thereof which is reasonably
satisfactory to legal counsel to the Company being provided to the
Company;
49
(j) prior
to the Closing of the Merger, the Parent shall have consummated the Parent
Pre-Merger Transactions, with evidence thereof which is reasonably satisfactory
to legal counsel to the Company being provided to the Company; and
(k) the
Company shall have received from Gottbetter & Partners, LLP, counsel to the
Parent and the Acquisition Subsidiary, an opinion in the form attached hereto as
Exhibit N,
addressed to the Company and dated as of the Closing Date.
ARTICLE
VI
TERMINATION
6.1. Termination by Mutual
Agreement.
This
Agreement may be terminated at any time by mutual consent of the Parties,
provided that such consent to terminate is in writing and is signed by each of
the Parties.
6.2. Termination for Failure to
Close.
This
Agreement shall be automatically terminated if the Closing Date shall not have
occurred by January 28, 2011, unless such date is extended by mutual written
consent of the Parties.
6.3. Termination by Operation of
Law.
This
Agreement may be terminated by any Party hereto if there shall be any statute,
rule or regulation that renders consummation of the transactions contemplated by
this Agreement (the “Contemplated Transactions) illegal or otherwise prohibited,
or a court of competent jurisdiction or any government (or governmental
authority) shall have issued an order, decree or ruling, or has taken any other
action restraining, enjoining or otherwise prohibiting the consummation of such
transactions and such order, decree, ruling or other action shall have become
final and nonappealable.
6.4. Termination for Failure to
Perform Covenants or Conditions.
This
Agreement may be terminated prior to the Effective Time:
(a) by
the Parent and the Acquisition Subsidiary if: (i) any of the
representations and warranties made in this Agreement by the Company shall not
be materially true and correct, when made or at any time prior to consummation
of the Contemplated Transactions as if made at and as of such time;
(ii) any of the conditions set forth in Section 5.2 hereof have not been
fulfilled in all material respects by the Closing Date; (iii) the Company
shall have failed to observe or perform any of its material obligations under
this Agreement; or (iv) as otherwise set forth herein; or
(b) by
the Company if: (i) any of the representations and warranties made in this
Agreement by the Parent or the Acquisition Subsidiary shall not be materially
true and correct when made or at any time prior to consummation of the
Contemplated Transactions as if made at and as of such time; (ii) any of
the conditions set forth in Section 5.3 hereof have not been fulfilled in all
material respects by the Closing Date; (iii) the Parent or the Acquisition
Subsidiary shall have failed to observe or perform any of their material
respective obligations under this Agreement; or (iv) as otherwise set forth
herein.
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6.5. Effect of Termination or
Default; Remedies.
In the
event of termination of this Agreement as set forth above, this Agreement shall
forthwith become void and there shall be no liability on the part of any Party
hereto, provided that such Party is a Non-Defaulting Party (as defined
below). The foregoing shall not relieve any Party from liability for
damages actually incurred as a result of such Party’s breach of any term or
provision of this Agreement.
6.6. Remedies; Specific
Performance.
In the
event that any Party shall fail or refuse to consummate the Contemplated
Transactions or if any default under or beach of any representation, warranty,
covenant or condition of this Agreement on the part of any Party (the
“Defaulting Party”) shall have occurred that results in the failure to
consummate the Contemplated Transactions, then in addition to the other remedies
provided herein, the non-defaulting Party (the “Non-Defaulting Party”) shall be
entitled to seek and obtain money damages from the Defaulting Party, or may seek
to obtain an order of specific performance thereof against the Defaulting Party
from a court of competent jurisdiction, provided that the Non-Defaulting Party
seeking such protection must file its request with such court within forty-five
(45) days after it becomes aware of the Defaulting Party’s failure, refusal,
default or breach. In addition, the Non-Defaulting Party shall be
entitled to obtain from the Defaulting Party court costs and reasonable
attorneys’ fees incurred in connection with or in pursuit of enforcing the
rights and remedies provided hereunder.
ARTICLE
VII
MISCELLANEOUS
7.1. Nonsurvival of
Representations and Warranties.
None of the representations and
warranties in this Agreement shall survive the Effective Time. This
Section 7.1 shall not limit any covenant or agreement of the parties that by its
terms contemplates performance after the Effective Time.
7.2. Press Releases and
Announcements.
No Party
shall issue any press release or public announcement relating to the subject
matter of this Agreement without the prior written approval of the other
Parties; provided, however, that any
Party may make any public disclosure it believes in good faith is required by
applicable law, regulation or stock market rule (in which case the disclosing
Party shall use reasonable efforts to advise the other Parties and provide them
with a copy of the proposed disclosure prior to making the
disclosure).
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7.3. No Third Party
Beneficiaries.
This
Agreement shall not confer any rights or remedies upon any person other than the
Parties and their respective successors and permitted assigns; provided, however, that
(a) the provisions in Article I concerning issuance of the Merger
Shares are intended for the benefit of the Company Members, (b) the
provisions in Section 4.9 concerning indemnification are intended for the
benefit of the individuals specified therein and their successors and assigns
and (c) the provisions in Article II and Article III are intend, in part, for
the benefit of the Placement Agent.
7.4. Entire
Agreement.
This
Agreement (including the documents referred to herein) constitutes the entire
agreement among the Parties and supersedes any prior understandings, agreements
or representations by or among the Parties, written or oral, with respect to the
subject matter hereof.
7.5. Succession and
Assignment.
This
Agreement shall be binding upon and inure to the benefit of the Parties named
herein and their respective successors and permitted assigns. No
Party may assign either this Agreement or any of its rights, interests or
obligations hereunder without the prior written approval of the other Parties;
provided that the Acquisition Subsidiary may assign its rights, interests and
obligations hereunder to a wholly-owned subsidiary of the Parent.
7.6. Counterparts and Facsimile
Signature.
This
Agreement may be executed in two or more counterparts, each of which shall be
deemed an original but all of which together shall constitute one and the same
instrument. This Agreement may be executed by facsimile
signature.
7.7. Headings.
The
section headings contained in this Agreement are inserted for convenience only
and shall not affect in any way the meaning or interpretation of this
Agreement.
7.8. Notices.
All
notices, requests, demands, claims, and other communications hereunder shall be
in writing. Any notice, request, demand, claim or other communication
hereunder shall be deemed duly delivered four business days after it is sent by
registered or certified mail, return receipt requested, postage prepaid, or one
business day after it is sent for next business day delivery via a reputable
nationwide overnight courier service, in each case to the intended recipient as
set forth below:
52
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If
to the Company or the Parent (subsequent to the Closing):
▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇
▇▇▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
Copy
to (which copy shall not constitute notice hereunder):
▇▇▇▇▇
& Lardner LLP
▇▇▇▇
▇ ▇▇▇▇▇▇ ▇.▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
▇▇▇▇▇
& Lardner LLP
▇▇▇
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
|
If
to the Parent or the Acquisition Subsidiary (prior to the
Closing):
▇▇▇▇▇
▇▇ ▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇,
▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇▇ ▇▇▇▇▇▇
|
Copy
to (which copy shall not constitute notice hereunder):
Gottbetter
& Partners, LLP
▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇
▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn:
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
Facsimile:
(▇▇▇) ▇▇▇-▇▇▇▇
|
|
Any Party
may give any notice, request, demand, claim or other communication hereunder
using any other means (including personal delivery, expedited courier, messenger
service, telecopy, telex, ordinary mail or electronic mail), but no such notice,
request, demand, claim or other communication shall be deemed to have been duly
given unless and until it actually is received by the Party for whom it is
intended. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set
forth.
7.9. Governing
Law.
This
Agreement shall be governed by and construed in accordance with the internal
laws of the State of New York without giving effect to any choice or conflict of
law provision or rule (whether of the State of New York or any other
jurisdiction) that would cause the application of laws of any jurisdictions
other than those of the State of New York.
53
7.10. Amendments and
Waivers.
The
Parties may mutually amend any provision of this Agreement at any time prior to
the Effective Time. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by all of the
Parties. No waiver of any right or remedy hereunder shall be valid
unless the same shall be in writing and signed by the Party giving such
waiver. No waiver by any Party with respect to any default,
misrepresentation or breach of warranty or covenant hereunder shall be deemed to
extend to any prior or subsequent default, misrepresentation or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
7.11. Severability.
Any term
or provision of this Agreement that is invalid or unenforceable in any situation
in any jurisdiction shall not affect the validity or enforceability of the
remaining terms and provisions hereof or the validity or enforceability of the
offending term or provision in any other situation or in any other
jurisdiction. If the final judgment of a court of competent
jurisdiction declares that any term or provision hereof is invalid or
unenforceable, the Parties agree that the court making the determination of
invalidity or unenforceability shall have the power to limit the term or
provision, to delete specific words or phrases, or to replace any invalid or
unenforceable term or provision with a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision, and this Agreement shall be enforceable as so
modified.
7.12. Submission to
Jurisdiction.
Each of
the Parties (a) submits to the jurisdiction of any state or federal court
sitting in the County of New York in the State of New York in any action or
proceeding arising out of or relating to this Agreement, (b) agrees that
all claims in respect of such action or proceeding may be heard and determined
in any such court, and (c) agrees not to bring any action or proceeding
arising out of or relating to this Agreement in any other court. Each
of the Parties waives any defense of inconvenient forum to the maintenance of
any action or proceeding so brought and waives any bond, surety or other
security that might be required of any other Party with respect
thereto. Any Party may make service on another Party by sending or
delivering a copy of the process to the Party to be served at the address and in
the manner provided for the giving of notices in Section 7.8. Nothing
in this Section 7.12, however, shall affect the right of any Party to serve
legal process in any other manner permitted by law.
7.13. Construction.
(a) The
language used in this Agreement shall be deemed to be the language chosen by the
Parties to express their mutual intent, and no rule of strict construction shall
be applied against any Party.
(b) Any
reference to any federal, state, local or foreign statute or law shall be deemed
also to refer to all rules and regulations promulgated thereunder, unless the
context requires otherwise.
[SIGNATURE
PAGE FOLLOWS]
54
IN WITNESS WHEREOF, the Parties have
executed this Agreement as of the date first above written.
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PARENT:
|
||
|
By:
|
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
|
|
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Name:
|
▇▇▇▇▇
▇▇▇▇▇▇
|
|
|
Title:
|
Chief
Executive Officer
|
|
|
ACQUISITION
SUBSIDIARY:
|
||
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22ND
CENTURY ACQUISITION SUBSIDIARY,
LLC
|
||
|
BY:
22ND CENTURY GROUP, INC., its sole
member
|
||
|
By:
|
/s/ ▇▇▇▇▇ ▇▇▇▇▇▇
|
|
|
Name:
|
▇▇▇▇▇
▇▇▇▇▇▇
|
|
|
Title:
|
Chief
Executive Officer
|
|
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COMPANY:
|
||
|
22nd
CENTURY LIMITED, LLC
|
||
|
By:
|
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
|
|
|
Name:
|
▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇
|
|
|
Title:
|
Chief
Executive
Officer
|
|
55