EXHIBIT 2.2
-----------
AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AMONG
REDROLLER HOLDINGS, INC.
(formerly known as Aslahan Enterprises Ltd.)
REDROLLER ACQUISITION CORP.
AND
REDROLLER, INC.
November 13, 2007
TABLE OF CONTENTS
PAGE
ARTICLE I - THE MERGER.......................................................2
1.1 The Merger.................................................2
1.2 The Closing................................................2
1.3 Actions at the Closing.....................................2
1.4 Additional Actions.........................................3
1.5 Conversion of Company Securities...........................3
1.6 Dissenting Shares..........................................4
1.7 Fractional Shares..........................................5
1.8 Options....................................................5
1.9 Escrow.....................................................6
1.10 Certificate of Incorporation and Bylaws....................6
1.11 No Further Rights..........................................7
1.12 Closing of Transfer Books..................................7
1.13 Post-Closing Adjustment....................................7
1.14 Exemption From Registration................................8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY...................8
2.1 Organization, Qualification and Corporate Power............9
2.2 Capitalization.............................................9
2.3 Authorization of Transaction..............................10
2.4 Noncontravention..........................................10
2.5 Subsidiaries..............................................11
2.6 Financial Statements......................................12
2.7 Absence of Certain Changes................................13
2.8 Undisclosed Liabilities...................................13
2.9 Tax Matters...............................................13
2.10 Assets....................................................16
2.11 Owned Real Property.......................................16
2.12 Real Property Leases......................................16
2.13 Contracts.................................................17
2.14 Accounts Receivable.......................................18
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PAGE
2.15 Powers of Attorney. ......................................18
2.16 Insurance.................................................19
2.17 Litigation................................................19
2.18 Employees.................................................19
2.19 Employee Benefits.........................................20
2.20 Environmental Matters.....................................23
2.21 Legal Compliance..........................................24
2.22 Customers and Suppliers...................................24
2.23 Permits...................................................24
2.24 Certain Business Relationships With Affiliates............24
2.25 Brokers' Fees.............................................25
2.26 Books and Records.........................................25
2.27 Intellectual Property.....................................25
2.28 Disclosure................................................26
2.29 Duty to Make Inquiry......................................26
2.30 Board Actions.............................................26
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE
ACQUISITION SUBSIDIARY........................................26
3.1 Organization, Qualification and Corporate Power...........27
3.2 Capitalization............................................27
3.3 Authorization of Transaction..............................28
3.4 Noncontravention..........................................28
3.5 Subsidiaries..............................................29
3.6 Exchange Act Reports......................................30
3.7 Compliance with Laws......................................30
3.8 Financial Statements......................................31
3.9 Absence of Certain Changes................................31
3.10 Litigation................................................31
3.11 Undisclosed Liabilities...................................32
3.12 Tax Matters...............................................32
3.13 Assets....................................................33
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PAGE
3.14 Owned Real Property.......................................34
3.15 Real Property Leases......................................34
3.16 Contracts.................................................34
3.17 Accounts Receivable.......................................36
3.18 Powers of Attorney........................................36
3.19 Insurance.................................................36
3.20 Warranties................................................37
3.21 Employees.................................................37
3.22 Employee Benefits.........................................37
3.23 Environmental Matters.....................................39
3.24 Permits...................................................40
3.25 Certain Business Relationships With Affiliates............40
3.26 Tax-Free Reorganization...................................41
3.27 Split-Off.................................................42
3.28 Brokers' Fees.............................................42
3.29 Disclosure................................................42
3.30 Interested Party Transactions.............................43
3.31 Duty to Make Inquiry......................................43
3.32 Accountants...............................................43
3.33 Minute Books..............................................44
3.34 Board Action..............................................44
ARTICLE IV - COVENANTS......................................................44
4.1 Closing Efforts...........................................44
4.2 Governmental and Third-Party Notices and Consents.........44
4.3 Current Report............................................45
4.4 Operation of Company's Business...........................45
4.5 Access to Company Information.............................46
4.6 Operation of Parent's Business............................47
4.7 Access to Parent Information..............................49
4.8 Expenses..................................................49
4.9 Indemnification...........................................50
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4.10 Listing of Merger Shares..................................50
4.11 Name Change...............................................50
4.12 Split-Off.................................................50
4.13 Stock Option Plan.........................................50
4.14 Information Provided to Company Stockholders..............51
4.16 No Shorting...............................................51
4.17 Plan of Reorganization....................................52
ARTICLE V - CONDITIONS TO CONSUMMATION OF MERGER............................52
5.1 Conditions to Each Party's Obligations....................52
5.2 Conditions to Obligations of the Parent and the
Acquisition Subsidiary....................................52
5.3 Conditions to Obligations of the Company..................54
ARTICLE VI - INDEMNIFICATION................................................55
6.1 Indemnification by the Company Stockholders...............56
6.3 Indemnification Claims by the Parent......................57
6.4 Survival of Representations and Warranties................60
6.5 Limitations on Parent's Claims for Indemnification........61
ARTICLE VII - DEFINITIONS...................................................61
ARTICLE VIII - TERMINATION..................................................64
8.1 Termination by Mutual Agreement...........................64
8.2 Termination for Failure to Close..........................64
8.3 Termination by Operation of Law...........................64
8.5 Effect of Termination or Default; Remedies................65
8.6 Remedies; Specific Performance............................65
ARTICLE IX - MISCELLANEOUS..................................................66
9.1 Press Releases and Announcements..........................66
9.2 No Third Party Beneficiaries..............................66
9.3 Entire Agreement..........................................66
9.4 Succession and Assignment.................................66
9.5 Counterparts and Facsimile Signature......................66
9.6 Headings..................................................67
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9.7 Notices...................................................67
9.8 Governing Law.............................................68
9.9 Amendments and Waivers....................................68
9.10 Severability..............................................68
9.11 Submission to Jurisdiction................................68
9.12 Construction..............................................69
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AGREEMENT AND PLAN OF MERGER AND REORGANIZATION
AGREEMENT AND PLAN OF MERGER (this "Agreement"), dated as of November
13, 2007, by and among RedRoller Holdings, Inc. (formerly known as Aslahan
Enterprises Ltd.), a Delaware corporation (the "Parent"), RedRoller Acquisition
Corp., a Delaware corporation (the "Acquisition Subsidiary") and RedRoller,
Inc., a Delaware corporation (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 stockholders of
the Company will receive common stock of the Parent in exchange for their
shares of capital stock of the Company;
WHEREAS, simultaneously with the closing of the Merger, the Parent
shall complete a private placement of a minimum of 1,500,000 units (each, a
"Unit") and a maximum of 2,000,000 Units (exclusive of a 10% over allotment
option) of securities of the Parent (the "Private Placement Offering") at the
purchase price of $3.40 per Unit (the "PPO Price"), each Unit consisting of four
shares of the Parent's common stock, par value $0.001 per share (the "Parent
Common Stock"), and a five year warrant to purchase one share of Parent Common
Stock for an exercise price of $1.28 per whole share;
WHEREAS, contemporaneously with the closing of the Merger, the Parent
intends to split-off its wholly owned subsidiary, Aslahan Web Services, Inc., a
Nevada corporation ("AWS"), through the sale of all of the outstanding capital
stock of AWS (the "Split-Off") upon the terms and conditions of a split-off
agreement by and among Parent, ▇▇▇▇ ▇▇▇▇▇▇ (the "Buyer"), the Company and AWS,
substantially in the form of Exhibit A attached hereto (the "Split-Off
Agreement"); and
WHEREAS, the Parent, the Acquisition Subsidiary, and the Company desire
that the Merger qualify as a "reorganization" under Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code").
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. 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 corporate existence of the Acquisition Subsidiary shall cease and the
Company shall continue as the surviving corporation in the Merger (the
"Surviving Corporation"). The "Effective Time" shall be the time at which a
certificate of merger (the "Certificate of Merger") and other appropriate or
required documents prepared and executed in accordance with the Delaware General
Corporation Law (the "GCL") are filed with the Secretary of State of Delaware.
The Merger shall have the effects set forth in Section 259 of the GCL.
1.2 The Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") shall take place at the offices of DLA Piper US LLP in Boston,
Massachusetts commencing at 10:00 a.m. local time on November 13, 2007, or, 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 deliver to the Parent and the Acquisition Subsidiary the
various certificates, instruments and documents referred to in Section 5.2;
(b) the Parent and the Acquisition Subsidiary shall deliver to the Company the
various certificates, instruments and documents referred to in Section 5.3;
(c) the Surviving Corporation shall file the Certificate of Merger with the
Secretary of State of the State of Delaware;
(d) each of the stockholders of record of the Company immediately prior to the
Effective Time (collectively, the "Company Stockholders") shall deliver to the
Parent the certificate(s) representing his, her or its Company Shares (as
defined below);
(e) the Parent shall deliver certificates for the Initial Shares (as defined
below) to each Company Stockholder 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 seven individuals, (ii) the
resignations of all individuals who served as directors and/or officers of the
Parent immediately prior to the Closing Date, which resignations shall be
effective as of the Closing Date, (iii) evidence of the appointment of five
directors to serve immediately upon the Closing Date, three of whom shall have
been designated by the Company and two of whom shall have been designated by the
Parent, and (v) evidence of the appointment of such executive officers of the
Parent to serve immediately upon the Closing Date as shall have been designated
by the Company; and
(g) the Parent, ▇▇▇▇ ▇▇▇ ▇▇▇▇ (the "Indemnification Representative") and U.S.
Bank, N.A. (the "Escrow Agent") shall execute and deliver the Escrow Agreement
in substantially the form attached hereto as Exhibit B (the "Escrow Agreement")
and the Parent shall deliver to the Escrow Agent a certificate for the Escrow
Shares (as defined below) being placed in escrow on the Closing Date pursuant to
Section 1.9.
1.4 Additional Actions. If at any time after the Effective Time the Surviving
Corporation 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 Corporation, its right, title or interest in, to or under any of the
rights, privileges, powers, franchises, properties or assets of either the
Company or the Acquisition Subsidiary or (b) otherwise to carry out the purposes
of this Agreement, the Surviving Corporation 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 the Acquisition Subsidiary, all such deeds, bills of sale,
assignments and assurances and do, in the name and on behalf of the Company or
the 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 the Acquisition Subsidiary, as applicable, and otherwise to carry
out the purposes of this Agreement.
1.5 Conversion of Company Securities. Before the Effective Time, each issued and
outstanding share of the Company's Series A, Series B1 and Series B2 Convertible
Preferred Stock (the "Preferred Stock") shall convert, into shares of the
Company's common stock, apr value $0.01 per share ("Company Shares"), as
provided in the Company's Certificate of Incorporation, as amended. 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 Company Share issued and outstanding immediately prior to the Effective
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Time (other than Company Shares owned beneficially by the Parent or the
Acquisition Subsidiary and Dissenting Shares (as defined below)) shall be
converted into and represent the right to receive (subject to the provisions of
Section 1.6) such number of shares of Parent Common Stock as is equal to the
Common Conversion Ratio (as defined below). An aggregate of 10,230,940 shares of
Parent Common Stock shall be issued to the Company Stockholders upon conversion
of their Company Shares in connection with the Merger. 5,216,121 shares of
Parent Common Stock shall be reserved for issuance to the holders of
non-qualified stock options to acquire Company Shares ("Company NQSOs") granted
outside of the Company's 2006 Stock Option and Stock Incentive Plan (the
"Company Option Plan"), which such Company NQSOs shall be converted into Parent
Options (as hereinafter defined) in accordance with Section 1.8 hereof..
(b) The "Common Conversion Ratio" shall be obtained by dividing (i) 15,447,059
by (ii) the total number of outstanding Company Shares immediately prior to the
Effective Time on a diluted basis after giving effect to the exercise of all
outstanding Parent Options (as defined in Section 1.8(a)) and all other rights
to acquire Company Shares. Stockholders of record of the Company as of the
Closing Date (the "Indemnifying Stockholders") shall be entitled to receive
immediately 95% of the shares of Parent Common Stock into which their Company
Shares were converted pursuant to this Section 1.5 (the "Initial Shares"); the
remaining 5% of the shares of Parent Common Stock into which their Company
Shares were converted pursuant to this Section 1.5, rounded to the nearest whole
number (with 0.5 shares rounded upward to the nearest whole number) (the "Escrow
Shares"), shall be deposited in escrow pursuant to Section 1.9 and shall be held
and disposed of in accordance with the terms of the Escrow Agreement. The
Initial Shares and the Escrow Shares shall together be referred to herein as the
"Merger Shares."
(c) Each issued and outstanding share of common stock, no par value per share,
of the Acquisition Subsidiary shall be converted into one validly issued, fully
paid and nonassessable share of Surviving Corporation Common Stock.
1.6 Dissenting Shares.
(a) For purposes of this Agreement, "Dissenting Shares" means Company Shares
held as of the Effective Time by a Company Stockholder who has not voted such
Company Shares in favor of the adoption of this Agreement and the Merger and
with respect to which appraisal shall have been duly demanded and perfected in
accordance with Section 262 of the GCL and not effectively withdrawn or
forfeited prior to the Effective Time. Dissenting Shares shall not be converted
into or represent the right to receive shares of Parent Common Stock unless such
Company Stockholder's right to appraisal shall have ceased in accordance with
Section 262 of the GCL. If such Company Stockholder has so forfeited or
withdrawn his, her or its right to appraisal of Dissenting Shares, then, (i) as
of the occurrence of such event, such holder's Dissenting Shares shall cease to
be Dissenting Shares and shall be converted into and represent the right to
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receive the Merger Shares issuable in respect of such Company Shares pursuant to
Section 1.5, and (ii) promptly following the occurrence of such event, the
Parent shall deliver to such Company Stockholder a certificate representing 95%
of the Merger Shares to which such holder is entitled pursuant to Section 1.5
(which shares shall be considered Initial Shares for all purposes of this
Agreement) and shall deliver to the Escrow Agent a certificate representing the
remaining 5% of the Merger Shares to which such holder is entitled pursuant to
Section 1.5 (which shares shall be considered Escrow Shares for all purposes of
this Agreement).
(b) The Company shall give the Parent prompt notice of any written demands for
appraisal of any Company Shares, withdrawals of such demands, and any other
instruments that relate to such demands received by the Company. The Company
shall not, except with the prior written consent of the Parent, make any payment
with respect to any demands for appraisal of Company Shares or offer to settle
or settle any such demands.
1.7 Fractional Shares. No certificates or scrip representing fractional Initial
Shares shall be issued to Company Stockholders on the surrender for exchange of
certificates that immediately prior to the Effective Time represented Company
Shares converted into Merger Shares pursuant to Section 1.5 ("Certificates") and
such Company Stockholders 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 Initial Shares that would have otherwise
been issued to such Company Stockholders. In lieu of any fractional Initial
Shares that would have otherwise been issued, each former Company Stockholder
that would have been entitled to receive a fractional Initial Share shall, on
proper surrender of such person's Certificates, receive such whole number of
Initial Shares as is equal to the precise number of Initial Shares to which such
Company Stockholder would be entitled, rounded up or down to the nearest whole
number (with a fractional interest equal to 0.5 rounded upward to the nearest
whole number); provided that each such Company Stockholder shall receive at
least one Initial Share.
1.8 Options.
(a) As of the Effective Time, all Company NQSO's and options to purchase Company
Shares issued under the Company Option Plan (collectively, the "Options") to
purchase
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Company Shares issued by the Company, whether vested or unvested, (the "Old
Options") shall automatically be converted to become options to purchase shares
of Parent Common Stock ("Parent Options") without further action by the holder
thereof, all in accordance with the applicable provisions of the Company's 2006
Stock Option and Stock Incentive Plan. The Parent Option shall constitute an
option to acquire such number of shares of Parent Common Stock as is equal to
the number of Company Shares subject to the unexercised portion of the Old
Options multiplied by the Common Conversion Ratio (with any fraction resulting
from such multiplication to be rounded down to the nearest whole number). The
exercise price per share of each such Parent Option shall be equal to the
exercise price of such Old Option immediately prior to the Effective Time,
divided by the Common Conversion Ratio (rounded up to the nearest whole cent).
The Parent Options shall be granted under Parent's 2006 Stock Option Plan (the
"Parent Option Plan") and that plan's terms, exercisability, vesting schedule,
and status as an "incentive stock option" under Section 422 of the Code, if
applicable. It is the Parties intention that any Old Options intended to be
"incentive stock options" under Section 422 of the Code shall remain incentive
stock options as Parent Options.
(b) As soon as practicable after the Effective Time, the Parent or the Surviving
Corporation shall take appropriate actions to collect the Old Options and the
agreements evidencing the Old Options, which shall be deemed to be canceled and
shall entitle the holder to exchange the Old Options for Parent Options in the
Parent.
(c) The Parent shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Parent Common Stock for delivery upon exercise
of the Parent Options to be issued for Old Options in accordance with this
Section 1.8.
1.9 Escrow. On the Closing Date, the Parent shall deliver to the Escrow Agent a
certificate (issued in the name of the Escrow Agent or its nominee) representing
the Escrow Shares, as described in Section 1.5, for the purpose of securing the
indemnification obligations of the Indemnifying Stockholders set forth in this
Agreement. The Escrow Shares shall be held by the Escrow Agent pursuant to the
Escrow Agreement, in substantially the form set forth in Exhibit B attached
hereto. The Escrow Shares shall be held as a trust fund and shall not be subject
to any lien, attachment, trustee process or any other judicial process of any
creditor of any Party, and shall be held and disbursed solely for the purposes
and in accordance with the terms of the Escrow Agreement.
1.10 Certificate of Incorporation and Bylaws.
(a) The certificate of incorporation of the Company in effect immediately prior
to the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until duly amended or repealed.
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(b) The bylaws of the Company in effect immediately prior to the Effective Time
shall be the bylaws of the Surviving Corporation until duly amended or repealed.
1.11 No Further Rights. From and after the Effective Time, no Company Shares
shall be deemed to be outstanding, and holders of Certificates shall cease to
have any rights with respect thereto, except as provided herein or by law.
1.12 Closing of Transfer Books. At the Effective Time, the stock transfer books
of the Company shall be closed and no transfer of Company Shares shall
thereafter be made. If, after the Effective Time, Certificates are presented to
the Parent or the Surviving Corporation, they shall be cancelled and exchanged
for Initial Shares in accordance with Section 1.5, subject to Section 1.9 and to
applicable law in the case of Dissenting Shares.
1.13 Post-Closing Adjustment. In the event that, during the period commencing
from the Closing Date and ending on the second anniversary of the Closing Date,
the Company (or its controlling stockholders immediately prior to the Merger)
incurs any Loss with respect to, in connection with, or arising from any Parent
Liabilities, then promptly following the filing by the Parent with the
Securities and Exchange Commission (the "SEC") of a quarterly report relating to
the most recent completed quarter for which such determination has been made,
the Parent shall issue to the Company Stockholders and/or their designees such
number of shares of Parent Common Stock as would result from dividing (x) the
whole dollar amount representing such Losses by (y) one-fourth of the PPO Price.
The limit on the aggregate number of shares of Parent Common Stock issuable
under this Section 1.13 shall be 2,000,000 shares. As used in this Section 1.13:
(a) "Loss" shall mean any and all costs and expenses, including reasonable
attorneys' fees, court costs, reasonable accountants' fees, and damages and
losses, net of any insurance proceeds actually received by the Party suffering
the Loss with respect thereto; (b) "Claims" shall include, but are not limited
to, any claim, notice, suit, action, investigation, other proceedings (whether
actual or threatened); and (c) "Parent Liabilities" shall mean all Claims
against AWS or the Parent, and all liabilities, obligations or indebtedness of
any nature whatsoever of AWS, whenever accruing, and of the Parent, accruing on
or before the Closing Date (whether primary, secondary, direct, indirect,
liquidated, unliquidated or contingent, matured or unmatured), including, but
not limited to (i) any breach by the Parent or the Acquisition Subsidiary of any
of their respective representations or warranties set forth in Article III
herein, (ii) any breach by the Parent of any of the representations or
warranties set forth in the subscription agreement delivered to investors in
connection with the Private Placement Offering that has its basis in the
operations of Parent prior to the Closing, (iii) any breach by the Parent of any
of the representations or warranties of Parent set forth in that certain
Placement Agent Agreement by and between Parent, the Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇ &
Co., LLC, dated as of October 2, 2007, as amended, that has its basis in the
operations of Parent prior to the Closing (iv) any litigation threatened,
pending or for which a basis exists, that has resulted or may result in the
entry of judgment in damages or otherwise against the Parent or any Parent
Subsidiary (as defined in this Agreement); (v) any and all outstanding debts
owed by the Parent or any Parent
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Subsidiary; (vi) any and all internal or employee related disputes, arbitrations
or administrative proceedings threatened, pending or otherwise outstanding,
(vii) any and all liens, foreclosures, settlements, or other threatened, pending
or otherwise outstanding financial, legal or similar obligations of the Parent
or any Parent Subsidiary, (viii) any and all Taxes for which Parent or any of
its direct or indirect assets may be liable or subject, for any taxable period
(or portion thereof) ending on or before the Closing Date, including, without
limitation, any and all Taxes resulting from or attributable to Parent's
ownership or operation of the AWS assets, (ix) any and all Taxes for which
Parent or its assets may be liable or subject (including, without limitation,
the interests and assets of the Surviving Corporation and any Parent Subsidiary)
as a consequence of Parent's acquisition, formation, capitalization, ownership,
and Split-Off of AWS, whether related to a taxable period (or portion thereof)
ending on or after the Closing Date, and (x) all fees and expenses incurred in
connection with effecting the adjustments contemplated by this Section 1.13, as
such Parent Liabilities are determined by the Parent's independent auditors, on
a quarterly basis.
1.14 Exemption From Registration. Parent and the Company intend that the shares
of Parent Common Stock to be issued pursuant to Section 1.5 hereof or upon
exercise of Parent Options granted pursuant to Section 1.8 hereof in each case
in connection with the Merger will be issued in a transaction exempt from
registration under the Securities Act of 1933, as amended ("Securities Act"), by
reason of section 4(2) of the Securities Act and/or Rule 506 of Regulation D
promulgated by the SEC thereunder.
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent that the statements contained
in this Article II are true and correct, except as set forth in the disclosure
schedule provided by the Company to the Parent on the date hereof and accepted
in writing by the Parent (the "Disclosure Schedule"). The Disclosure Schedule
the Company prepares shall be arranged in paragraphs corresponding to the
numbered and lettered paragraphs contained in this Article II, and except to the
extent that it is clear from the context thereof that such disclosure also
applies to any other paragraph, the disclosures in any paragraph of the
Disclosure Schedule shall qualify only the corresponding paragraph in this
Article II. 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 of the executive officers of the Company, as well as any other
knowledge which such executive officers would have possessed had they made
reasonable inquiry with respect to the matter in question.
2.1 Organization, Qualification and Corporate Power. The Company is a
corporation
8
duly organized, validly existing and in corporate and tax good standing under
the laws of the State of Delaware. The Company 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, 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 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 Company has furnished or made available to the Parent
complete and accurate copies of its certificate of incorporation and bylaws. The
Company is not in default under or in violation of any provision of its
certificate of incorporation, as amended to date, or its bylaws, 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), results of operations or future prospects of the Company.
2.2 Capitalization. The authorized capital stock of the Company consists of
60,000,000 shares of which 50,000,000 are designated as Company Shares and
10,000,000 are designated as shares of preferred stock, of which 3,607,784
shares are designated as Series A Convertible Preferred Stock, par value $0.01
per share, and 1,000,000 shares are designated as Series B1 Convertible
Preferred Stock, par value $0.01 per share. As of the date of this Agreement,
15,527,419 Company Shares were issued and outstanding, no shares of any other
class of the Company's capital stock were issued and outstanding and no Company
Shares were held in the treasury of the Company. Section 2.2 of the Disclosure
Schedule sets forth a complete and accurate list of (i) all stockholders of the
Company, indicating the number and class of Company Shares held by each
stockholder, (ii) all outstanding Options, indicating (A) the holder thereof,
(B) the number of Company Shares subject to each Option and Existing Warrant,
(C) the exercise price, date of grant, vesting schedule and expiration date for
each Option or Existing Warrant, and (D) any terms regarding the acceleration of
vesting, and (iii) all stock option plans and other stock or equity-related
plans of the Company. All of the issued and outstanding Company Shares, and all
Company Shares that may be issued upon exercise of Options 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 Options
listed in Section 2.2 of the Disclosure Schedule, there are no notes or other
indebtedness convertible into shares of any class of the Company's capital stock
(the "Convertible Notes"), 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. There are no outstanding or authorized stock appreciation, phantom stock
or similar rights with respect to the Company. Except as set
9
forth in Section 2.2 of the Disclosure Schedule, 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. 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 Company Shares were issued in compliance with applicable
federal and state securities laws.
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,
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 Company Shares
entitled to vote on this Agreement and the Merger, the consummation by the
Company of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action on the part of the Company. Without
limiting the generality of the foregoing, the board of directors of the Company
(i) determined that the Merger is fair and in the best interests of the Company
and the Company Stockholders, (ii) adopted this Agreement in accordance with the
provisions of the GCL, and (iii) directed that this Agreement and the Merger be
submitted to the Company Stockholders for their adoption and approval and
resolved to recommend that the Company Stockholders vote in favor of the
adoption of this Agreement and the approval of the Merger. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms.
2.4 Noncontravention. Except as set forth in Section 2.4 of the Disclosure
Schedule, and subject to the filing of the Certificate of Merger as required by
the GCL, neither the execution and delivery by the Company of this Agreement,
nor the consummation by the Company of the transactions contemplated hereby,
will (a) conflict with or violate any provision of the certificate of
incorporation or bylaws of the Company, as amended to date, bylaws or other
organizational document of any Subsidiary (as defined below), (b) require on the
part of the Company or any Subsidiary 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
10
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 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 or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of their assets is
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 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, individually or
in the aggregate, 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, individually or in the
aggregate, 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 any Subsidiary or (e) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to the Company, any
Subsidiary or any of their 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 Company and not material to the Company; and
"Ordinary Course of Business" means the ordinary course of the Company's
business, consistent with past custom and practice (including with respect to
frequency and amount).
2.5 Subsidiaries.
(a) Section 2.5 of the Disclosure Schedule sets forth: (i) the name of each
Company Subsidiary; (ii) the number and type of outstanding equity securities of
each Subsidiary and a list of the holders thereof; (iii) the jurisdiction of
organization of each Subsidiary; (iv) the names of the officers and directors of
each Company Subsidiary; and (v) the jurisdictions in which each Company
Subsidiary is qualified or holds licenses to do business as a foreign
corporation or other entity. 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").
11
(b) Each Subsidiary is an entity duly organized, validly existing and in
corporate and tax good standing under the laws of the jurisdiction of its
incorporation. Each Subsidiary 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
qualification to do business, 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. Each
Subsidiary has all requisite 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 delivered or made available to the Parent complete and accurate
copies of the charter, bylaws or other organizational documents of each
Subsidiary. No Subsidiary is in default under or in violation of any provision
of its charter, bylaws or other organizational documents. All of the issued and
outstanding equity securities of each Subsidiary are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights. All equity
securities of each Subsidiary that are held of record or owned beneficially by
either the Company or any Subsidiary are held or owned 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. There are no outstanding or
authorized options, warrants, rights, agreements or commitments to which the
Company or any Subsidiary is a party or which are binding on any of them
providing for the issuance, disposition or acquisition of any equity securities
of any Subsidiary. There are no outstanding stock appreciation, phantom stock or
similar rights with respect to any Subsidiary. To the knowledge of the Company,
there are no voting trusts, proxies or other agreements or understandings with
respect to the voting of any equity securities of any Subsidiary.
(c) Except as set forth in Section 2.5(c) of the 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
which is not a Subsidiary.
2.6 Financial Statements. The Company has provided or made available to the
Parent: (a) the audited balance sheet of the Company (the "Company Balance
Sheet") at December 31, 2006 (the "Company Balance Sheet Date"), and the related
statements of operations and cash flows for the period from December 31, 2005
through December 31, 2006 (the "Year-End Financial Statements"); and (b) the
unaudited balance sheet of the Company (the "Company Interim Balance Sheet") at
June 30, 2007 (the "Company Interim Balance Sheet Date") and the related
statement of operations and cash flows for
12
the nine months ended June 30, 2007 (the "Company Interim Financial Statement"
and together with the Year-End Financial Statements, 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 the
financial condition, results of operations and cash flows of the Company and the
Subsidiaries 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 Securities Exchange Act of 1934 (the "Exchange Act")
and are consistent with the books and records of the Company and the
Subsidiaries, except as provided in the notes thereto.
2.7 Absence of Certain Changes. Since the Company Interim Balance Sheet Date,
and except as set forth in Section 2.7 of the Disclosure Schedule, (a) 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) neither the Company nor any Subsidiary has 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
Disclosure Schedule, none of the Company and its 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 Company Balance Sheet and Company Interim Balance Sheet referred to in
Section 2.6, (b) liabilities which have arisen since the Company Interim Balance
Sheet Date in the Ordinary Course of Business and (c) contractual and other
liabilities incurred in the Ordinary Course of Business which are not required
by GAAP to be reflected on a balance sheet.
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
13
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) Each of the Company and the 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 Company nor any 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 Company and the Subsidiaries are or were members. Each
of the Company and the Subsidiaries has paid on a timely basis all Taxes that
were due and payable. The unpaid Taxes of the Company and the Subsidiaries for
tax periods through the Company Interim 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 Interim Balance Sheet. Neither the Company nor any
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 Company or any Subsidiary during a prior
period) other than the Company and the Subsidiaries. All Taxes that the Company
or any 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.
(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 or any
Subsidiary since the Organization Date. No examination or audit of any Tax
Return of the Company or any Subsidiary by any Governmental Entity is currently
in progress or, to the knowledge of the Company, threatened or contemplated.
Neither the Company nor any Subsidiary has been informed by any jurisdiction
that the jurisdiction believes that the Company or Subsidiary was required to
file any Tax Return that was not filed. Neither the Company nor any 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.
(d) Neither the Company nor any Subsidiary: (i) is a "consenting corporation"
within the meaning of former Section 341(f) of the Code, and none of the assets
of the Company
14
or the Subsidiaries are subject to an election under former 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 Company and its
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).
(e) None of the assets of the Company or any 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.
(f) Neither the Company nor any 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.
(g) The Company has not taken any action, nor to the Company's knowledge is
there any fact or circumstance that could reasonably be expected to prevent the
Merger from qualifying as a reorganization within the meaning of Section 368(a)
of the Code. The Company is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code. Following the Merger, Company will hold
at least 90% of the fair market value of its net assets and at least 70% of the
fair market value of its gross assets held immediately prior to the Merger.
Company has no obligation, understanding, agreement, plan or intention to issue
additional shares of its stock that would result in Parent failing to acquire or
losing "control" of Company within the meaning of Section 368(c) of the Code.
Company is not aware of any plan on the part of Parent or any person related to
Parent, within the meaning of Treasury Regulation Section 1.368-1(e)(3) to
reacquire any of the Parent Common Stock issued in the Merger, other than the
potential forfeiture of Escrow Shares. To the Company's knowledge, following the
Merger, Parent will cause Company to either continue its historic business or
use a significant portion of its historic business assets in a business as
described in Treasury Regulation Section 1.368-1(d).
2.10 Assets. Each of the Company and the Subsidiaries owns or leases all
tangible
15
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be conducted. Except as set forth in Section 2.10 of the
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. Except as set forth in Section
2.10 of the Disclosure Schedule, no asset of the Company or any Subsidiary
(tangible or intangible) is subject to any Security Interest.
2.11 Owned Real Property. Neither the Company nor any Subsidiary owns any real
property, except as otherwise listed in Section 2.11 of the Disclosure Schedule.
2.12 Real Property Leases. Section 2.12 of the Disclosure Schedule lists all
real property leased or subleased to or by the Company or any Subsidiary 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 Disclosure Schedule. Except as set forth in Section 2.12 of the
Disclosure Schedule, with respect to each lease and sublease listed in Section
2.12 of the 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 Company nor any Subsidiary 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 any
Subsidiary or, to the knowledge of the Company, any other party under such lease
or sublease;
(d) neither the Company nor any 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 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
16
the current uses or the occupancy by the Company or a Subsidiary of the property
subject thereto.
2.13 Contracts.
(a) Section 2.13 of the Disclosure Schedule lists the following agreements
(written or oral) to which the Company or any 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 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 or
any Subsidiary 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 or noncompetition;
(vi) any employment or consulting agreement;
(vii) any agreement involving any officer, director or stockholder of
the Company or any affiliate, as defined in Rule 12b-2 under the
Securities Exchange Act of 1934 (the "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;
17
(ix) any agreement which contains any provisions requiring the Company
or any 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); and
(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.
(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 Disclosure
Schedule. With respect to each agreement so listed, and except as set forth in
Section 2.13 of the 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) neither the Company nor
any Subsidiary nor, to the knowledge of the Company, 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 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 any Subsidiary or, to the knowledge of the
Company, any other party under such contract.
2.14 Accounts Receivable. All accounts receivable of the Company and the
Subsidiaries reflected on the Company Interim Balance Sheet are valid
receivables subject to no setoffs or counterclaims and are current and, to the
Knowledge of the Company, 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 Interim Balance Sheet. All accounts receivable reflected in the
financial or accounting records of the Company that have arisen since the
Company Interim Balance Sheet Date are valid receivables subject to no setoffs
or counterclaims and are, to the Knowledge of the Company, 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 Interim Balance Sheet.
2.15 Powers of Attorney. Except as set forth in Section 2.15 of the Disclosure
Schedule, there are no outstanding powers of attorney executed on behalf of the
Company or any Subsidiary.
18
2.16 Insurance. Section 2.16 of the 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 or any 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 Company and the 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 Company nor
any Subsidiary may be liable for retroactive premiums or similar payments, and
the Company and the Subsidiaries are 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 has been
threatened in writing against the Company or any Subsidiary which (a) seeks
either damages in excess of $10,000 individually, or $25,000 in the aggregate,
or equitable relief or (b) if determined adversely to the Company or such
Subsidiary, could have, individually or in the aggregate, a Company Material
Adverse Effect.
2.18 Employees.
(a) Section 2.18 of the Disclosure Schedule contains a list of all employees of
the Company and each Subsidiary whose annual rate of compensation exceeds
$50,000 per year, along with the position and the annual rate of compensation of
each such person. Section 2.18 of the Disclosure Schedule contains a list of all
employees of the Company or any Subsidiary who are a party to a non-competition
agreement with the Company or any Subsidiary; copies of such agreements have
previously been delivered or made available to the Parent. To the knowledge of
the Company, no key employee or group of employees has any plans to terminate
employment with the Company or any Subsidiary.
(b) Neither the Company nor any Subsidiary is a 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
19
the past two years, by or on behalf of any labor union with respect to employees
of the Company or any Subsidiary. To the knowledge of the Company there are no
circumstances or facts which could individually or collectively give rise to a
suit based on discrimination of any kind.
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 Company or a Subsidiary.
(b) Section 2.19(b) of the Disclosure Schedule contains a complete and accurate
list of all Employee Benefit Plans maintained, or contributed to, by the
Company, any Subsidiary 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 previously 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, the Subsidiaries and the
ERISA Affiliates has in
20
all material respects met its obligations with respect to such Employee Benefit
Plan and has made all required contributions thereto. The Company, each
Subsidiary, 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.
(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, any Subsidiary, 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, any Subsidiary 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 any
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
21
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, any Subsidiary or any ERISA
Affiliate that would subject the Company, any 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 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.
(k) Section 2.19(k) of the Disclosure Schedule discloses each: (i) agreement
with any stockholder, director, executive officer or other key employee of the
Company or any Subsidiary (A) the benefits of which are contingent, or the terms
of which are materially altered, upon the occurrence of a transaction involving
the Company or any 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 Company or any 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 Company or any 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 Company
22
Interim Balance Sheet and are adequate and properly reflect the expenses
associated therewith in accordance with generally accepted accounting
principles.
2.20 Environmental Matters.
(a) Each of the Company and the Subsidiaries 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 or any 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
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 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 or a Subsidiary (whether
conducted by or on behalf of the Company or a Subsidiary or a third party, and
whether done at the initiative of the Company or a Subsidiary or directed by a
Governmental Entity or other third party) which were issued
23
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.
(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 or any Subsidiary.
2.21 Legal Compliance. Each of the Company and the Subsidiaries, 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 Company Material Adverse Effect.
2.22 Customers and Suppliers. Section 2.22 of the Disclosure Schedule sets forth
a list of each customer that accounted for more than 5% of the consolidated
revenues of the Company during the last full fiscal year or the interim period
through the Company Interim Balance Sheet date 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 or any Subsidiary.
2.23 Permits. Section 2.23 of the Disclosure Schedule sets forth a list of all
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 or any Subsidiary.
Such listed Permits are the only Permits that are required for the Company and
the 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 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
there is no 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 Disclosure Schedule, no Affiliate of the Company or of any
Subsidiary (a) owns any property or right, tangible or intangible, which is used
in the business of the Company or any Subsidiary, (b) has any claim or cause of
action against the Company or any
24
Subsidiary, or (c) owes any money to, or is owed any money by, the Company or
any Subsidiary. Section 2.24 of the Disclosure Schedule describes any
transactions involving the receipt or payment in excess of $25,000 in any fiscal
year between the Company or a Subsidiary and any Affiliate thereof which have
occurred or existed since the Organization Date, other than employment
agreements.
2.25 Brokers' Fees. Neither the Company nor any 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, except as listed in
Section 2.25 of the Disclosure Schedule.
2.26 Books and Records. The minute books and other similar records of the
Company and each Subsidiary contain complete and accurate records of all actions
taken at any meetings of the Company's or such Subsidiary's stockholders, board
of directors or any committees thereof and of all written consents executed in
lieu of the holding of any such meetings. The books and records of the Company
and each Subsidiary accurately reflect in all material respects the assets,
liabilities, business, financial condition and results of operations of the
Company or such Subsidiary and have been maintained in accordance with good
business and bookkeeping practices.
2.27 Intellectual Property. Each of the Company and the Subsidiaries owns or has
the right to use all Intellectual Property (as defined below) necessary (i) to
use, manufacture, market and distribute the products manufactured, marketed,
sold or licensed, and to provide the services provided, by the Company or the
Subsidiaries to other parties (together, the "Customer Deliverables") and (ii)
to operate the internal systems of the Company or the Subsidiaries that are
material to its business or operations, including, without limitation, computer
hardware systems, software applications and embedded systems (the "Internal
Systems"; the Intellectual Property owned by or licensed to the Company or the
Subsidiaries and incorporated in or underlying the Customer Deliverables or the
Internal Systems is referred to herein as the "Company Intellectual Property").
Each item of Company Intellectual Property will be owned or available for use by
the Surviving Corporation immediately following the Closing on substantially
identical terms and conditions as it was immediately prior to the Closing. The
Company or the appropriate Subsidiary has taken all reasonable measures to
protect the proprietary nature of each item of Company Intellectual Property. To
the knowledge of the Company, (a) no other person or entity has any rights to
any of the Company Intellectual Property owned by the Company or a Subsidiary
except pursuant to agreements or licenses entered into by the Company and such
person in the ordinary course, and (b) no other person or entity is infringing,
violating or misappropriating any of the Company Intellectual Property. For
purposes of
25
this Agreement, "Intellectual Property" means all (i) patents and patent
applications, (ii) copyrights and registrations thereof, (iii) computer
software, data and documentation, (iv) trade secrets and confidential business
information, whether patentable or unpatentable and whether or not reduced to
practice, know-how, manufacturing and production processes and techniques,
research and development information, copyrightable works, financial, marketing
and business data, pricing and cost information, business and marketing plans
and customer and supplier lists and information, (v) trademarks, service marks,
trade names, domain names and applications and registrations therefor and (vi)
other proprietary rights relating to any of the foregoing.
2.28 Disclosure. No representation or warranty by the Company contained in this
Agreement, and no statement contained in the Company's 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, 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 any Subsidiary or the transactions contemplated by
this Agreement.
2.29 Duty to Make Inquiry. To the extent that any of the representations or
warranties in this Article II are qualified by "knowledge" or "belief," the
Company represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
2.30 Board Actions. The Company's board of directors (a) has unanimously
determined that the Merger is fair and in the best interests of the Company
Stockholders and is on terms that are fair to the Company Stockholders and has
recommended the Merger to the Company Stockholders, and (b) shall submit the
Merger and this Agreement to the vote and approval of the Company Stockholders
or the approval of the Company Stockholders by written consent.
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 the statements contained in this Article III are true and correct,
except as set forth in the Parent Disclosure Schedule provided by the Parent and
the Acquisition Subsidiary to the Company on the date hereof and accepted in
writing by the Parent (the
26
"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 except to the extent that it is clear from the context
thereof that such disclosure also applies to any other paragraph, the
disclosures in any paragraph of the Parent Disclosure Schedule shall qualify
only the corresponding paragraph in this Article III. 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 of ▇▇▇▇ ▇▇▇▇▇▇,
the sole executive officer of the Parent, as well as any other knowledge which
such executive officer would have possessed had she made reasonable inquiry with
respect to the matter in question.
3.1 Organization, Qualification and Corporate Power. The Parent 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 corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware.
The Parent 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 have a Parent Material Adverse Effect (as defined below). The Parent
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 certificate of incorporation and bylaws. 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
or future prospects of the Parent and its subsidiaries, taken as a whole.
3.2 Capitalization. The authorized capital stock of the Parent consists of
225,000,000 shares of which 200,000,000 shares are designated as Parent Common
Stock, of which 13,860,000 shares were issued and outstanding as of the date of
this Agreement, and 25,000,000 shares are designated as preferred stock, none of
which are issued and outstanding as of the date of this Agreement. The Parent
Common Stock is presently eligible for quotation and trading on the NASD
Over-the-Counter Bulletin Board (the "OTCBB") in all ▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇. 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
27
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 16,800,000 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.
Immediately prior to the Effective Time, after giving effect to (i) the
surrender of 8,000,000 shares of Parent Common Stock by the former officer of
the Parent (the "Share Contribution") in connection with the Split-Off and (ii)
the cancellation of 326,667 shares of Parent Common Stock acquired by Calico
Capital Management, LLC (the "Cancellation") in connection with the transactions
contemplated hereby, there will be 5,533,333 shares of Parent Common Stock
issued and outstanding.
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 Escrow Agreement and to perform
its obligations hereunder and 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 (collectively, the "Transaction Documentation") and the consummation by
the Parent and the Acquisition Subsidiary of the transactions contemplated
hereby and thereby have been duly and validly authorized by all necessary
corporate action on the part of the Parent and Acquisition Subsidiary,
respectively. This Agreement has been duly and validly executed and delivered by
the Parent and the Acquisition Subsidiary and constitutes a valid and binding
obligation of the Parent and the Acquisition Subsidiary, enforceable against
them in accordance with its terms.
3.4 Noncontravention. Subject to compliance with the applicable requirements of
the Securities Act and any applicable state securities laws, the Exchange Act,
the regulations of the OTCBB and the filing of the Certificate of Merger as
required by the GCL, neither the execution and delivery by the Parent or the
Acquisition Subsidiary of this Agreement or the Transaction Documentation , 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 the certificate of incorporation or bylaws of the Parent or the Acquisition
Subsidiary, (b) require on the part of the Parent or the
28
Acquisition Subsidiary any filing with, or permit, authorization, consent or
approval of, any Governmental Entity, (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 adversely affect the
consummation of the transactions contemplated hereby or (ii) any notice, consent
or waiver the absence of which would not adversely affect the consummation of
the transactions contemplated hereby, or (d) 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) Parent has no Subsidiaries other than the Acquisition Subsidiary and AWS.
Each of the Acquisition Subsidiary and AWS 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 was formed solely
to effectuate the Merger, AWS 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 charter, bylaws 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 charter, bylaws or
other organizational documents. All of the issued and outstanding shares of
capital stock of the Acquisition Subsidiary are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. All shares of the
Acquisition Subsidiary are owned by 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. 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 stock appreciation, phantom stock or
similar rights with respect to the Acquisition Subsidiary. There are no voting
trusts, proxies or other agreements or understandings with respect to the voting
of any capital stock of the Acquisition Subsidiary.
(b) At all times from October 26, 2005, which was the date of incorporation of
the
29
Parent, through the date of this Agreement, the business and operations of the
Parent have been conducted exclusively through Parent.
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 (a)
Registration Statement on Form SB-2, which contained audited financial
statements for the period October 26, 2005 (inception) through February 28,
2006, as filed with the SEC, (b) Annual Report on Form 10-KSB for the Fiscal
Year ended February 28, 2007, which contained audited financial statements for
the period February 28, 2006 through February 28, 2007, (c) Quarterly Report on
Form 10-QSB/A for the quarterly period ended May 31, 2007 and (d) all other
reports filed by the Parent under Section 13 or subsections (a) or (c) of
Section 14 of the Exchange Act with the SEC since October 26, 2005 (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
October 26, 2005 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.
3.7 Compliance with Laws. Each of the Parent and its 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 the past and present officers, directors and Affiliates of the
Parent have not, been the subject of, nor does any officer or director of the
Parent have any reason to believe that 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;
30
(d) has not been the subject of any voluntary or involuntary bankruptcy
proceeding, nor has it been a party to any material litigation;
(e) has not, and the past and present officers, directors and Affiliates 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 under the Exchange Act), (iii) fairly present 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 with the books and records of the Parent.
3.9 Absence of Certain Changes. Since the date of the balance sheet contained in
the most recent Parent Report, 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.
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 subsidiary of the
Parent 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 where the amount at
31
issue exceeds or could reasonably be expected to exceed 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. None of the Parent and its 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 balance sheet contained in the most recent Parent
Report, (b) liabilities which have arisen since the date of the balance sheet
contained in the most recent Parent Report in the Ordinary Course of Business
and (c) contractual and other liabilities incurred in the Ordinary Course of
Business which are not required by GAAP to be reflected on a balance sheet.
3.12 Tax Matters.
(a) Except as set forth in Section 3.12 of the Parent Disclosure Schedule, each
of the Parent and the 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 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 Subsidiaries are or were members. Each
of the Parent and the Subsidiaries has paid on a timely basis all Taxes that
were due and payable. The unpaid Taxes of the Parent and the Subsidiaries for
tax periods through the date of the balance sheet contained in the most recent
Parent Report 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 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
Subsidiary during a prior period) other than the Parent and the Subsidiaries.
All Taxes that the Parent or any 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
Subsidiary since October 26, 2005. No examination or audit of any Tax Return of
the Parent or any Subsidiary by any Governmental Entity is currently in progress
or, to the knowledge of the Parent, threatened or contemplated. Neither the
Parent nor any Subsidiary has been informed by
32
any jurisdiction that the jurisdiction believes that the Parent or Subsidiary
was required to file any Tax Return that was not filed. Neither the Parent nor
any 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.
(c) Neither the Parent nor any Subsidiary: (i) is a "consenting corporation"
within the meaning of former Section 341(f) of the Code, and none of the assets
of the Parent or the Subsidiaries are subject to an election under former
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
its 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 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 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.
3.13 Assets. Each of the Parent and the Subsidiaries owns or leases all tangible
assets necessary for the conduct of its businesses as presently conducted and as
presently proposed to be 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 Subsidiary (tangible or intangible) is subject to any
Security Interest.
3.14 Owned Real Property. Neither the Parent nor any Subsidiary owns any real
property.
33
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 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 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 Subsidiary
or, to the knowledge of the Parent, any other party under such lease or
sublease;
(d) neither the Parent nor any Subsidiary has assigned, transferred, conveyed,
mortgaged, deeded in trust or encumbered any interest in the leasehold or
subleasehold; and
(e) the Parent is not aware of 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 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 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;
34
(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 $5,000, or (C) in which the Parent or any
Subsidiary 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 establishing 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 $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 or noncompetition;
(vi) any employment or consulting agreement;
(vii) any agreement involving any 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 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); and
(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.
(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
35
accordance with the terms thereof as in effect immediately prior to the Closing;
and (iii) neither the Parent nor any 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
Subsidiary or, to the knowledge of the Parent, any other party under such
contract.
3.17 Accounts Receivable. All accounts receivable of the Parent and the
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 balance sheet contained in the most recent Parent
Report. All accounts receivable reflected in the financial or accounting records
of the Parent that have arisen since the date of the balance sheet contained in
the most recent Parent Report 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 balance sheet contained in the most
recent Parent Report.
3.18 Powers of Attorney. There are no outstanding powers of attorney executed on
behalf of the Parent or any 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 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 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
Subsidiary may be liable for retroactive premiums or similar payments, and the
Parent and the 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 service sold or delivered by the Parent or any Subsidiary is
subject to any guaranty, warranty, right of credit or other indemnity other than
the
36
applicable standard terms and conditions of sale of the Parent or the
appropriate 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 Subsidiary whose annual rate of compensation
exceeds $50,000 per year, along with the position and the annual rate of
compensation of each such person. Each current or past employee of the Parent or
any Subsidiary has entered into a confidentiality/assignment of inventions
agreement with the Parent or such Subsidiary, a copy or form of which has
previously been delivered or made available to the Company. Section 3.21 of the
Parent Disclosure Schedule contains a list of all employees of the Parent or any
Subsidiary who are a party to a non-competition agreement with the Parent or any
Subsidiary; copies of such agreements have previously been delivered or made
available to the Company. To the knowledge of the Parent, no key employee or
group of employees has any plans to terminate employment with the Parent or any
Subsidiary.
(b) Neither the Parent nor any 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 within the past two years, by or on behalf of
any labor union with respect to employees of the Parent or any 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 Subsidiary 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 previously been delivered or made available to the
Company. Each Employee Benefit Plan has been administered in all material
respects in accordance with its terms and each of the Parent, the Subsidiaries
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 Parent, each Subsidiary, 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
37
(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.
(b) To the knowledge of the Parent, 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.
(c) 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.
(d) Neither the Parent, any 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 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 Employee Benefit Plan providing
benefits after termination of employment to any employee of the Parent or any
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 Employee Benefit Plan which is funded are reported at
their fair market value on the books and records of such Employee Benefit Plan.
(g) No act or omission has occurred and no condition exists with respect to any
38
Employee Benefit Plan maintained by the Parent, any Subsidiary or any ERISA
Affiliate that would subject the Parent, any 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 Employee Benefit Plan.
(h) 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.
(i) Each 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
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 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 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 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 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 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 Balance Sheet and are
adequate and properly reflect the expenses associated therewith in accordance
with generally accepted accounting principles.
3.23 Environmental Matters.
(a) Each of the Parent and the Subsidiaries has complied with all applicable
Environmental Laws, except for violations of Environmental Laws that,
individually or in
39
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 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 Subsidiary (whether conducted
by or on behalf of the Parent or a Subsidiary or a third party, and whether done
at the initiative of the Parent or a 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) The Parent is not aware of 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 Subsidiary.
3.24 Permits. Section 3.24 of the Parent Disclosure Schedule sets forth a list
of all 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) ("Parent Permits") issued to or held by the Parent or any
Subsidiary. Such listed Permits are the only Parent Permits that are required
for the Parent and the 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 there is no 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.
3.25 Certain Business Relationships With Affiliates. No Affiliate of the Parent
or of any Subsidiary (a) owns any property or right, tangible or intangible,
which is used in the business of the Parent or any Subsidiary, (b) has any claim
or cause of action against the Parent
40
or any Subsidiary, or (c) owes any money to, or is owed any money by, the Parent
or any Subsidiary. Section 3.25 of the Parent Disclosure Schedule describes any
transactions involving the receipt or payment in excess of $5,000 in any fiscal
year between the Parent or a Subsidiary and any Affiliate thereof which have
occurred or existed since the beginning of the time period covered by the Parent
Financial Statements, other than employment agreements.
3.26 Tax-Free Reorganization.
(a) The Parent (i) has no present plan or intention to liquidate the Surviving
Corporation or to merge the Surviving Corporation with or into any other
corporation or entity, or to sell or otherwise dispose of the stock of the
Surviving Corporation which Parent will acquire in the Merger, or to cause the
Surviving Corporation 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 (ii) has no present plan or intention, following the
Merger, to issue any additional shares of stock of the Surviving Corporation or
to create any new class of stock of the Surviving Corporation.
(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 Acquisition Subsidiary within the meaning of Section
368(c) of the Code.
(d) Immediately following the Merger, the Surviving Corporation 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
Corporation and will not transfer to the Surviving Corporation any assets
subject to liabilities in the Merger.
(g) Following the Merger, the Surviving Corporation 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 368 of the Code and the
Treasury Regulations promulgated thereunder.
41
(h) The Split-Off Agreement will constitute a legally binding obligation between
Parent and Buyer prior to the Effective Time; immediately following consummation
of the Merger, Parent will distribute the stock of AWS to Buyer in cancellation
of the Purchase Price Shares (as such term is defined in the Split-Off
Agreement); no property other than the capital stock of AWS will be distributed
by Parent to Buyer in connection with or following the Merger; upon execution of
the Split-Off Agreement, Buyer will have no right to sell or transfer the
Purchased Shares to any person without Parent's prior written consent, and
Parent will not consent (nor will it permit others to consent) to any such sale
or transfer; upon execution of the Split-Off Agreement, there will be no other
plan, arrangement, agreement, contract, intention, or understanding, whether
written or verbal and whether or not enforceable in law or equity, that would
permit Buyer to vote the Purchased Shares or receive any property or other
distributions from Parent with respect to the Purchased Shares other than the
capital stock of AWS.
3.27 Split-Off. As of the Effective Time, 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 in any way related to
its pre-Effective Time business operations.
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 Transaction Documentation, 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 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 Parent or any
"affiliate"
42
(as such term is defined in Rule 12b-2 under the Exchange Act) or "associate"
(as such term is defined in Rule 405 under the Securities Act) of any such
person has had, either directly or indirectly, (a) an interest in any person
that (i) furnishes or sells services or products that are furnished or sold or
are proposed to be furnished or sold by Parent or any Parent Subsidiary or (ii)
purchases from or sells or furnishes to Parent or any Parent Subsidiary any
goods or services, or (b) a beneficial interest in any contract or agreement to
which Parent or any Parent Subsidiary is a party or by which it may be bound or
affected. Neither Parent or 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.
3.31 Duty to Make Inquiry. To the extent that any of the representations or
warranties in this Article III are qualified by "knowledge" or "belief," Parent
represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry by its
directors, officers and key personnel.
3.32 Accountants. From inception through February, 9, 2007 Cinnamon ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇ & Company ("CJW & Co.") had been the Parent's accountants. From
February 15, 2007 through May 2, 2007 ▇▇▇▇▇▇ ▇.▇. ▇▇▇ Ltd. ("Gee") had been the
Parent's accountants. From May 2, 2007 to the present ▇▇▇▇▇▇▇ + Partners LLP
("Fazzari" and together with CJW & Co. and Gee, the "Accountants") has been the
Parent's accountants. Throughout the periods covered by the Financial Statements
each such Accountant was (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. Schedule 3.32 lists all non-audit services performed by any Accountant
for Parent and/or any Subsidiary since October 26, 2005. Other than with respect
to expressing an opinion as to the uncertainty of the Parent continuing as a
going concern, the report of ▇▇▇▇▇▇▇ + Partners LLP on the financial statements
of Parent for the past fiscal year did not contain an adverse opinion or a
disclaimer of opinion, or was qualified as to uncertainty, audit scope, or
accounting principles. During Parent's most recent fiscal year and the
subsequent interim periods, there were no disagreements with any of the
Accountants 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
any of the Accountants.
43
3.33 Minute Books. The minute books, if any, of Parent and each Subsidiary
contain, in all material respects, a complete and accurate summary of all
meetings of directors and stockholders or actions by written resolutions since
the time of organization of each such corporation through the date of this
Agreement, and reflect all transactions referred to in such minutes and
resolutions accurately, except for omissions which are not material. Parent has
provided true and complete copies of all such minute books, if any, to the
Company's representatives.
3.34 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 written consent.
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
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
44
Agreement and the transactions contemplated hereby (the "Current Report"). Each
of the Company and Parent shall use its reasonable efforts to 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. Further, the Parties shall prepare and file
with the SEC an amendment to the Current Report within four business days after
the Closing Date, if such Current Report was filed before the Closing Date.
4.4 Operation of Company's Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Company shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in 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 (and shall cause each Subsidiary not to), without the written consent of the
Parent:
(a) issue or sell, or redeem or repurchase, any stock or other securities of the
Company or any Warrants, Options or other rights to acquire any such stock or
other securities (except pursuant to the conversion or exercise of convertible
securities or Options or Warrants outstanding on the date hereof), or amend any
of the terms of (including without limitation the vesting of) any such
convertible securities or Options or Warrants;
(b) 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) 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
45
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;
(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 Subsidiary or any corporation, partnership, association or
other business organization or division thereof), other than purchases and sales
of assets in the Ordinary Course of Business;
(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, by-laws 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;
(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 Company Information.
(a) The Company shall (and shall cause each Subsidiary to) 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 and the Subsidiaries) to all premises, properties, financial and
accounting records, contracts, other records and
46
documents, and personnel, of or pertaining to the Company and each Subsidiary.
(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 confidential or proprietary
information of the Company or any Subsidiary that is furnished in writing to the
Parent or the Acquisition Subsidiary by the Company or any Subsidiary in
connection with this Agreement and is labeled confidential or proprietary;
provided, however, that it shall not include any information (A) which, at the
time of disclosure, is available publicly, (B) which, after disclosure, becomes
available publicly through no fault of the Parent or the Acquisition Subsidiary,
(C) which the Parent or the Acquisition Subsidiary knew or to which the Parent
or the Acquisition Subsidiary had access prior to disclosure, or (D) which the
Parent or the Acquisition Subsidiary rightfully obtains from a source other than
the Company or a Subsidiary.
4.6 Operation of Parent's Business. Except as contemplated by this Agreement,
during the period from the date of this Agreement to the Effective Time, the
Parent shall (and shall cause each Subsidiary to) conduct its operations in the
Ordinary Course of Business and in 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 Subsidiary not to), without the written consent of the
Company:
(a) 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, except as contemplated by, and in connection with, the Private
Placement Offering and the Merger;
(b) 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, except as
contemplated by, and in connection with, the Stock Split;
(c) create, incur or assume any indebtedness (including obligations in respect
of
47
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) 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 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 Option Plan covering 5,698,823
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), other than purchases and
sales of assets in the Ordinary Course of Business, except as contemplated by,
and in connection with, the Split-Off;
(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, by-laws 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;
(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 or (ii) any of the
conditions to the Merger set forth in Article V not being satisfied;
48
(m) make or change any Tax election, change any annual tax accounting period,
adopt or change any tax accounting method, file any amended Tax Return, enter
into any closing agreement, settle any Tax claim or assessment relating to the
Company, surrender any right to claim refund of Taxes, consent to any extension
or waiver of the limitation period applicable to any Tax claim or assessment
relating to the Company, or, other than in the ordinary course of business, take
any other action or omit to take any action that would have the effect of
increasing the Tax liability of the Parent; or (n) agree in writing or otherwise
to take any of the foregoing actions.
4.7 Access to Parent 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 confidential or proprietary information of the Parent or any
Subsidiary that is furnished in writing to the Company by the Parent or the
Acquisition Subsidiary in connection with this Agreement and is labeled
confidential or proprietary; provided, however, that it shall not include any
information (A) which, at the time of disclosure, is available publicly, (B)
which, after disclosure, becomes available publicly through no fault of the
Company, (C) which the Company knew or to which the Company had access prior to
disclosure or (D) which the Company rightfully obtains from a source other than
the Parent or the Acquisition Subsidiary.
4.8 Expenses. The costs and expenses of the Parent and the Company (including
legal 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.
49
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 incorporation or bylaws of the Company for
the benefit of any individual who served as a director 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 Corporation to, indemnify and hold harmless each present and
former director 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 Delaware law (and the Parent and the Surviving
Corporation 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 Listing of Merger Shares. The Parent shall take whatever steps are
necessary to cause the Merger Shares to be eligible for quotation on the NASD's
OTC Bulletin Board.
4.11 Name Change. As soon as reasonably practicable after the Effective Time,
the Parent shall take all necessary steps to enable it to change its corporate
name to such name as is agreeable to the Company, if the Parent has not already
done so prior to the Effective Time.
4.12 Split-Off. The Parent shall take whatever steps are necessary to enable it
to effect the Split-Off as of the Effective Time.
4.13 Stock Option Plan. The Board of Directors and shareholders of Parent shall
adopt the Parent Option Plan reserving for issuance 5,698,823 shares of Parent
Common Stock prior to or as of the Effective Time.
50
4.14 Information Provided to Company Stockholders. The Company shall prepare,
with the cooperation of the Parent, information to be sent to the holders of
Company Shares and the holders of Preferred Stock and Convertible Notes 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 Stockholders 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 Company Shares and the holders of Preferred Stock and Convertible
Notes. 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 Directors of the Company that the holders of
Company Shares and the holders of Preferred Stock and Convertible Notes approve
the Merger and this Agreement and the conclusion of the Board of Directors of
the Company that the terms and conditions of the Merger are advisable and fair
and reasonable to the 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 by the Parent prior to such inclusion.
4.16 No Shorting. The Company shall take whatever steps are necessary to ensure
that each Company Stockholder agrees that it will not, for a period commencing
on the date hereof and terminating one year after the Effective Time, directly
or indirectly, effect or agree to effect any short sale (as defined in Rule 200
under Regulation SHO of the Exchange Act), whether or not against the box,
establish any "put equivalent position" (as defined in Rule 16a-1(h) under the
Exchange Act) with respect to the Parent Common Stock, borrow or pre-borrow any
shares of Parent Common Stock, or grant any other right (including, without
limitation, any put or call option) with respect to the Parent Common Stock or
with respect to any security that includes, relates to or derives any
significant part of its value from the Parent Common Stock or otherwise seek to
hedge its position in the Parent Common Stock (each, a "Prohibited
Transaction").
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4.17 Plan of Reorganization. This Agreement is intended to constitute a "plan of
reorganization" within the meaning of Treasury Regulation Section 1.368-2(g).
From and after the date of this Agreement and until the Effective Time, each
party hereto shall use its reasonable best efforts to cause the Merger to
qualify, and will not knowingly take any action, cause any action to be taken,
fail to take any action or cause any action to fail to be taken which action or
failure to act could prevent the Merger from qualifying as a reorganization
under the provisions of Section 368(a) of the Code.
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) holders of no more than 10% of the outstanding Company Shares entitled to
vote on this Agreement shall have disapproved of this Agreement and the Merger;
(b) the completion of the offer and sale of the Private Placement Offering;
(c) satisfactory completion by Parent and Company of all necessary legal due
diligence; and
(d) the receipt of all information required to be included in the Current Report
on SEC Form 8-K required to be filed by the Parent as a result of 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 number of Dissenting Shares shall not exceed 5% of the number of
outstanding Company Shares as of the Effective Time;
(b) the Company and its Subsidiaries 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 or the Subsidiaries, except for any the failure of which to obtain or
effect would 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;
52
(c) [RESERVED]
(d) the representations and warranties of the Company set forth in this
Agreement 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, except to the extent that the inaccuracy of any such representation or
warranty is the result of events or circumstances occurring subsequent to the
date of this Agreement and any such inaccuracies, individually or in the
aggregate, would 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 (it being agreed that any materiality
qualifications in particular representations and warranties shall be disregarded
in determining whether any such inaccuracies would have a Company Material
Adverse Effect for purposes of this Section 5.2(c));
(e) the Company shall have performed or complied in all material respects with
its agreements and covenants required to be performed or complied with under
this Agreement as of or prior to the Effective Time;
(f) 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, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (iii)
have, individually or in the aggregate, a Company Material Adverse Effect, and
no such judgment, order, decree, stipulation or injunction shall be in effect;
(g) the Secretary of the Company shall have delivered to the Parent and the
Acquisition Subsidiary a certificate dated as of the Closing Date (the "Company
Certificate") certifying on behalf of the Company (i) that each of the
conditions specified in clauses (a) and (c) of Section 5.1 and clauses (a)
through (f) (insofar as clause (f) relates to Legal Proceedings involving the
Company or a Subsidiary) of this Section 5.2 is satisfied in all respects, (ii)
that attached thereto is a true and complete copy of the Certificate of
Incorporation of the Company, as in effect on the date of such certification,
(iii) that attached thereto is a true and complete copy of the Amended and
Restated Bylaws of the Company, as in effect on the date of such certification,
(iv) that attached thereto is a true and complete copy of all resolutions
adopted by the Board of Directors and stockholders of the Company authorizing
the execution, delivery and performance of this Agreement and the transactions
contemplated thereby, (v) to the incumbency and specimen signature of each
officer of the Company executing on behalf of the Company this Agreement and the
other agreements related hereto;
53
(h) the officers and directors of the Company named in Schedule 5.2 shall have
entered into agreements with the Parent pursuant to which they shall have agreed
to certain restrictions on the sale or other disposition of the Parent Common
Stock received by them in connection with the Merger for a period of 180 days
following the Closing Date;
(i) each Company Stockholder shall have agreed in writing not to engage in any
Prohibited Transactions;
(j) all notes and other indebtedness convertible into shares of any class of
capital stock of the Company shall have been discharged or converted into
Company Shares;
(k) the Company shall have made arrangements satisfactory to the Parent to
retire its entire outstanding indebtedness simultaneously with, or prior to, the
Closing; and
(l) [RESERVED]
5.3 Conditions to Obligations of the Company. The obligation of the Company to
consummate the Merger is subject to the satisfaction of the following additional
conditions:
(a) the Parent shall have obtained (and shall have provided copies thereof to
the Company and its Subsidiaries) 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 would
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;
(b) the representations and warranties of the Parent set forth in this Agreement
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, except
to the extent that the inaccuracy of any such representation or warranty is the
result of events or circumstances occurring subsequent to the date of this
Agreement and any such inaccuracies, individually or in the aggregate, would 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 (it being agreed that any materiality qualifications in particular
representations and warranties shall be disregarded in determining whether any
54
such inaccuracies would have a Parent Material Adverse Effect for purposes of
this Section 5.3(b));
(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, (ii) cause any of the transactions
contemplated by this Agreement to be rescinded following consummation or (iii)
have, individually or in the aggregate, a Parent Material Adverse Effect (as
such term is modified, with respect to Legal Proceedings, pursuant to Section
3.10 hereof), and no such judgment, order, decree, stipulation or injunction
shall be in effect;
(e) the Secretary of the Parent shall have delivered to the Company a
certificate dated as of the Closing Date (the "Parent Certificate") certifying
on behalf of the Parent (i) that each of the conditions specified in clauses (c)
and (d) of Section 5.1 and clauses (a) through (d) (insofar as clause (d)
relates to Legal Proceedings involving the Parent and the Acquisition
Subsidiary) of this Section 5.3 is satisfied in all respects, (ii) that attached
thereto is a true and complete copy of the Certificate of Incorporation of the
Parent, as in effect on the date of such certification, (iii) that attached
thereto is a true and complete copy of the Bylaws of the Parent, as in effect on
the date of such certification, (iv) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors and
stockholders of the Parent authorizing the execution, delivery and performance
of this Agreement and the transactions contemplated thereby, (v) to the
incumbency and specimen signature of each officer of the Parent executing on
behalf of the Parent this Agreement and the other agreements related hereto;
(f) [RESERVED]
(g) the total number of shares of Parent Common Stock issued and outstanding
immediately prior to the Effective Time shall equal 5,533,333 shares, after
giving effect to the Share Contribution and Cancellation, but excluding (i) the
shares of Parent Common Stock to be issued to accredited investors in the
Private Placement Offering; (ii) 11,078,960 shares of Parent Common Stock to be
issued to Company Stockholders in connection with the Merger; and (iii)
5,721,040 shares of Parent Common Stock to be issued to holders of Company NQSOs
upon the exercise of the Parent Options which such Company NQSOs are being
converted into in accordance with Section 1.8 hereof.
55
(h) [RESERVED]
(i) the Parent shall have adopted the Parent Option Plan;
(j) contemporaneously with the closing of the Merger, the Parent, AWS, and the
Buyer shall execute the Split-Off Agreement, which Split-Off is effective
simultaneous with the Merger.
ARTICLE VI - INDEMNIFICATION
6.1 Indemnification by the Company Stockholders. The Indemnifying Stockholders
receiving the Merger Shares pursuant to Section 1.5 shall indemnify the Parent
in respect of, and hold it harmless against, any and all debts, obligations and
other liabilities (whether absolute, accrued, contingent, fixed or otherwise, or
whether known or unknown, or due or to become due or otherwise), monetary
damages, fines, fees, penalties, interest obligations, deficiencies, losses and
expenses (including without limitation amounts paid in settlement, interest,
court costs, costs of investigators, fees and expenses of attorneys,
accountants, financial advisors and other experts, and other expenses of
litigation) ("Damages") incurred or suffered by the Surviving Corporation or the
Parent or any Affiliate thereof resulting from, relating to or constituting:
(a) any misrepresentation, breach of warranty or failure to perform any covenant
or agreement of the Company contained in this Agreement or the Company
Certificate;
(b) any failure of any Company Stockholder to have good, valid and marketable
title to the issued and outstanding Company Shares issued in the name of such
Company Stockholder, free and clear of all Security Interests; or
(c) any claim by a stockholder or former stockholder of the Company, or any
other person or entity, seeking to assert, or based upon: (i) ownership or
rights to ownership of any shares of stock of the Company; (ii) any rights of a
stockholder (other than the right to receive the Merger Shares pursuant to this
Agreement or appraisal rights under the applicable provisions of the GCL),
including any option, preemptive rights or rights to notice or to vote; (iii)
any rights under the certificate of incorporation or bylaws of the Company; or
(iv) any claim that his, her or its shares were wrongfully repurchased by the
Company.
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6.2 Indemnification by the Parent.
(a) The Parent shall indemnify the Indemnifying Stockholders in respect of, and
hold them harmless against, any and all Damages incurred or suffered by the
Indemnifying Stockholders resulting from, relating to or constituting any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement of the Parent or the Acquisition Subsidiary contained in this
Agreement or the Parent Certificate.
(b) The post-Closing adjustment mechanism set forth in Section 1.13 is intended
to secure the indemnification obligations of the Parent under this Agreement and
shall be the exclusive means for the Indemnifying Stockholders to collect any
Damages for which they are entitled to indemnification under this Article VI.
6.3 Indemnification Claims by the Parent.
(a) In the event the Parent is entitled, or seeks to assert rights, to
indemnification under Section 6.1, Parent shall give written notification to the
Indemnifying Stockholders of the commencement of any suit or proceeding relating
to a third party claim for which indemnification pursuant to this Article VI may
be sought. Such notification shall be given within 20 business days after
receipt by the Parent of notice of such suit or proceeding, and shall describe
in reasonable detail (to the extent known by the Parent) the facts constituting
the basis for such suit or proceeding and the amount of the claimed damages;
provided, however, that no delay on the part of the Parent in notifying the
Indemnifying Stockholders shall relieve the Indemnifying Stockholders of any
liability or obligation hereunder except to the extent of any damage or
liability caused by or arising out of such failure. Within 20 days after
delivery of such notification, the Indemnifying Stockholders may, upon written
notice thereof to the Parent, assume control of the defense of such suit or
proceeding with counsel reasonably satisfactory to the Parent; provided that (i)
the Indemnifying Stockholders may only assume control of such defense if (A) it
acknowledges in writing to the Parent that any damages, fines, costs or other
liabilities that may be assessed against the Parent in connection with such suit
or proceeding constitute Damages for which the Parent shall be indemnified
pursuant to this Article VI and (B) the ad damnum is less than or equal to the
amount of Damages for which the Indemnifying Stockholders are liable under this
Article VI and (ii) the Indemnifying Stockholders may not assume control of the
defense of a suit or proceeding involving criminal liability or in which
equitable relief is sought against the Parent. If the Indemnifying Stockholders
do not so assume control of such defense, the Parent shall control such defense.
The party not controlling such defense (the "Non-Controlling Party") may
participate therein at its own expense; provided that if the Indemnifying
Stockholders assume control of such defense and the Parent reasonably concludes
that the
57
Indemnifying Stockholders and the Parent have conflicting interests or different
defenses available with respect to such suit or proceeding, the reasonable fees
and expenses of counsel to the Parent shall be considered "Damages" for purposes
of this Agreement. The party controlling such defense (the "Controlling Party")
shall keep the Non-Controlling Party advised of the status of such suit or
proceeding and the defense thereof and shall consider in good faith
recommendations made by the Non-Controlling Party with respect thereto. The
Non-Controlling Party shall furnish the Controlling Party with such information
as it may have with respect to such suit or proceeding (including copies of any
summons, complaint or other pleading which may have been served on such party
and any written claim, demand, invoice, billing or other document evidencing or
asserting the same) and shall otherwise cooperate with and assist the
Controlling Party in the defense of such suit or proceeding. The Indemnifying
Stockholders shall not agree to any settlement of, or the entry of any judgment
arising from, any such suit or proceeding without the prior written consent of
the Parent, which shall not be unreasonably withheld or delayed; provided that
the consent of the Parent shall not be required if the Indemnifying Stockholders
agree in writing to pay any amounts payable pursuant to such settlement or
judgment and such settlement or judgment includes a complete release of the
Parent from further liability and has no other materially adverse effect on the
Parent. The Parent shall not agree to any settlement of, or the entry of any
judgment arising from, any such suit or proceeding without the prior written
consent of the Indemnifying Stockholders, which shall not be unreasonably
withheld or delayed.
(b) In order to seek indemnification under this Article VI, Parent shall give
written notification (a "Claim Notice") to the Indemnifying Stockholders which
contains (i) a description and the amount (the "Claimed Amount") of any Damages
incurred or reasonably expected to be incurred by the Parent, (ii) a statement
that the Parent is entitled to indemnification under this Article VI for such
Damages and a reasonable explanation of the basis therefor, and (iii) a demand
for payment (in the manner provided in paragraph (c) below) in the amount of
such Damages. The Indemnifying Stockholders shall deliver a copy of the Claim
Notice to the Escrow Agent.
(c) Within twenty (20) days after delivery of a Claim Notice, the Indemnifying
Stockholders shall deliver to the Parent a written response (the "Response") in
which the Indemnifying Stockholders shall: (i) agree that the Parent is entitled
to receive all of the Claimed Amount (in which case the Indemnifying
Stockholders and the Parent shall deliver to the Escrow Agent, within three days
following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Parent such number of
Escrow Shares as have an aggregate Value (as defined below) equal to the Claimed
Amount), (ii) agree that the Parent is entitled to receive part, but not all, of
the Claimed Amount (the "Agreed Amount") (in which case the Indemnifying
58
Stockholders and the Parent shall deliver to the Escrow Agent, within three days
following the delivery of the Response, a written notice executed by both
parties instructing the Escrow Agent to distribute to the Parent such number of
Escrow Shares as have an aggregate Value (as defined below) equal to the Agreed
Amount) or (iii) dispute that the Parent is entitled to receive any of the
Claimed Amount. If the Indemnifying Stockholders in the Response disputes its
liability for all or part of the Claimed Amount, the Indemnifying Stockholders
and the Parent shall follow the procedures set forth in Section 6.3(d) for the
resolution of such dispute (a "Dispute"). For purposes of this Article VI, the
"Value" of any Escrow Shares delivered in satisfaction of an indemnity claim
shall be $1.00 per Escrow Share (subject to equitable adjustment in the event of
any stock split, stock dividend, reverse stock split or similar event affecting
the Parent Common Stock since the Closing Date), multiplied by the number of
such Escrow Shares.
(d) During the sixty (60) day period following the delivery of a Response that
reflects a Dispute, the Indemnifying Stockholders and the Parent shall use good
faith efforts to resolve the Dispute. If the Dispute is not resolved within such
60-day period, the Indemnifying Stockholders and the Parent shall discuss in
good faith the submission of the Dispute to a mutually acceptable alternative
dispute resolution procedure (which may be non-binding or binding upon the
parties, as they agree in advance) (the "ADR Procedure"). In the event the
Indemnifying Stockholders and the Parent agree upon an ADR Procedure, such
parties shall, in consultation with the chosen dispute resolution service (the
"ADR Service"), promptly agree upon a format and timetable for the ADR
Procedure, agree upon the rules applicable to the ADR Procedure, and promptly
undertake the ADR Procedure. The provisions of this Section 6.3(d) shall not
obligate the Indemnifying Stockholders and the Parent to pursue an ADR Procedure
or prevent either such Party from pursuing the Dispute in a court of competent
jurisdiction; provided that, if the Indemnifying Stockholders and the Parent
agree to pursue an ADR Procedure, neither the Indemnifying Stockholders nor the
Parent may commence litigation or seek other remedies with respect to the
Dispute prior to the completion of such ADR Procedure. Any ADR Procedure
undertaken by the Indemnifying Stockholders and the Parent shall be considered a
compromise negotiation for purposes of federal and state rules of evidence, and
all statements, offers, opinions and disclosures (whether written or oral) made
in the course of the ADR Procedure by or on behalf of the Indemnifying
Stockholders, the Parent or the ADR Service shall be treated as confidential
and, where appropriate, as privileged work product. Such statements, offers,
opinions and disclosures shall not be discoverable or admissible for any
purposes in any litigation or other proceeding relating to the Dispute (provided
that this sentence shall not be construed to exclude from discovery or admission
any matter that is otherwise discoverable or admissible). The fees and expenses
of any ADR Service used by the Indemnifying Stockholders and the Parent shall be
shared equally by the Indemnifying
59
Stockholders and the Parent. The Parent and the Indemnifying Stockholders shall
deliver to the Escrow Agent, promptly following the resolution of the Dispute
(whether by mutual agreement, pursuant to an ADR Procedure, as a result of a
judicial decision or otherwise), a written notice executed by both parties
instructing the Escrow Agent as to what (if any) portion of the Escrow Shares
shall be distributed to the Parent (which notice shall be consistent with the
terms of the resolution of the Dispute).
(e) Notwithstanding the other provisions of this Section 6.3, if a third party
asserts (other than by means of a lawsuit) that the Parent is liable to such
third party for a monetary or other obligation which may constitute or result in
Damages for which such Parent may be entitled to indemnification pursuant to
this Article VI, and the Parent reasonably determines that it has a valid
business reason to fulfill such obligation, then (i) Parent shall be entitled to
satisfy such obligation, with prior notice to but without prior consent from the
Indemnifying Stockholders, (ii) Parent may subsequently make a claim for
indemnification in accordance with the provisions of this Article VI, and (iii)
Parent shall be reimbursed, in accordance with the provisions of this Article
VI, for any such Damages for which it is entitled to indemnification pursuant to
this Article VI (subject to the right of the Indemnifying Stockholders to
dispute the Parent's entitlement to indemnification, or the amount for which it
is entitled to indemnification, under the terms of this Article VI).
(f) For purposes of this Section 6.3 and the last two sentences of Section 6.4,
any references to the Indemnifying Stockholders (except provisions relating to
an obligation to make or a right to receive any payments provided for in Section
6.3 or Section 6.4) shall be deemed to refer to the Indemnification
Representative. The Indemnification Representative shall have full power and
authority on behalf of each Indemnifying Stockholder to take any and all actions
on behalf of, execute any and all instruments on behalf of, and execute or waive
any and all rights of, the Indemnifying Stockholders under this Article VI. The
Indemnification Representative shall have no liability to any Indemnifying
Stockholder for any action taken or omitted on behalf of the Indemnifying
Stockholders pursuant to this Article VI.
6.4 Survival of Representations and Warranties. All representations and
warranties contained in this Agreement, the Company Certificate or the Parent
Certificate shall (a) survive the Closing and any investigation at any time made
by or on behalf of Parent or the Indemnifying Stockholders and (b) shall expire
on the date two years following the Closing Date. If Parent delivers to an
Indemnifying Stockholders, before expiration of a representation or warranty,
either a Claim Notice based upon a breach of such representation or warranty, or
a notice that, as a result a legal proceeding instituted by or
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written claim made by a third party, the Parent reasonably expects to incur
Damages as a result of a breach of such representation or warranty (an "Expected
Claim Notice"), then such representation or warranty shall survive until, but
only for purposes of, the resolution of the matter covered by such notice. If
the legal proceeding or written claim with respect to which an Expected Claim
Notice has been given is definitively withdrawn or resolved in favor of the
Parent, the Parent shall promptly so notify the Indemnifying Stockholders; and
if the Parent has delivered a copy of the Expected Claim Notice to the Escrow
Agent and Escrow Shares have been retained in escrow after the Termination Date
(as defined in the Escrow Agreement) with respect to such Expected Claim Notice,
the Indemnifying Stockholders and the Parent shall promptly deliver to the
Escrow Agent a written notice executed by both parties instructing the Escrow
Agent to distribute such retained Escrow Shares to the Indemnifying Stockholders
in accordance with the terms of the Escrow Agreement.
6.5 Limitations on Parent's Claims for Indemnification.
(a) Notwithstanding anything to the contrary herein, the Parent shall not be
entitled to recover, or be indemnified for, Damages arising out of a
misrepresentation or breach of warranty set forth in Article II unless and until
the aggregate of all such Damages paid or payable by the Indemnifying
Stockholders collectively exceeds $100,000 (the "Damages Threshold") and then,
if such aggregate threshold is reached, the Parent shall only be entitled to
recover for Damages in excess of such respective threshold; and in no event
shall any Indemnifying Stockholder be liable under this Article VI for an
aggregate amount, whether paid in cash or in shares of Parent Common Stock,
greater than the product of the number of Escrow Shares held on account of such
Indemnifying Stockholder, pursuant to Section 1.5 above, multiplied by the
Value. For purposes of the preceding sentence, each Escrow Share delivered by a
party in payment of his or its obligations under this Article VI shall be valued
at the Value.
(b) The Escrow Agreement is intended to secure the indemnification obligations
of the Indemnifying Stockholders under this Agreement and shall be the exclusive
means for the Parent to collect any Damages for which it is entitled to
indemnification under this Article VI.
(c) Except with respect to claims based on fraud, after the Closing, the rights
of the Indemnified Stockholders and the Parent under this Article VI and the
Escrow Agreement shall be the exclusive remedy of the Indemnified Stockholders
and the Parent with respect to claims resulting from or relating to any
misrepresentation, breach of warranty or failure to perform any covenant or
agreement contained in this Agreement.
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(d) No Indemnifying Stockholder shall have any right of contribution against the
Surviving Corporation with respect to any breach by the Company of any of its
representations, warranties, covenants or agreements. The amount of Damages
recoverable by Parent under this Article VI with respect to an indemnity claim
shall be reduced by (i) any proceeds received by Parent with respect to the
Damages to which such indemnity claim relates, from an insurance carrier and
(ii) the amount of any tax savings actually realized by Parent, for the tax year
in which such Damages are incurred, which are clearly attributable to the
Damages to which such indemnity claim relates (net of any increased tax
liability which may result from the receipt of the indemnity payment or any
insurance proceeds relating to such Damages).
ARTICLE VII - DEFINITIONS
For purposes of this Agreement, each of the following defined terms is defined
in the Section of this Agreement indicated below.
Defined Term Section
------------ -------
Acquisition Subsidiary Introduction
ADR Procedure 6.3(d)
ADR Service 6.3(d)
Affiliate 2.13(a)(vii)
Agreed Amount 6.3(c)
Agreement Introduction
Certificate of Merger 1.1
Buyer Introduction
GCL 1.1
CERCLA 2.20(a)
Certificates 1.7
Claim Notice 6.3(b)
Claimed Amount 6.3(b)
Claims 1.13
Closing 1.2
Closing Date 1.2
Code Introduction
Common Conversion Ratio 1.5(b)
Company Introduction
Company Balance Sheet 2.6
Company Balance Sheet Date 2.6
Company Certificate 5.3(e)
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Company Interim Balance Sheet 2.6
Company Interim Balance Sheet Date 2.6
Company Interim Financial Statements 2.6
Company Stockholders 1.3(d)
Company Confidential Information 4.5(b)
Company Financial Statements 2.6
Company Material Adverse Effect 2.1
Company Shares 1.5(a)
Company Stockholder 1.3(d)
Contemplated Transactions 8.3
Controlling Party 6.3(a)
Convertible Notes 2.2
Current Report 4.3
Damages 6.1
Damages Threshold 6.5(a)
Defaulting Party 8.6
Disclosure Schedule Article II
Dispute 6.3(c)
Dissenting Shares 1.6(a)
Effective Time 1.1
Employee Benefit Plan 2.19(a)(i)
Environmental Law 2.20(a)
ERISA 2.19(a)(ii)
ERISA Affiliate 2.19(a)(iii)
Escrow Agent 1.3(h)
Escrow Agreement 1.3(h)
Escrow Shares 1.5(b)
Exchange Act 2.13(a)
Expected Claim Notice 6.4
GAAP 2.6
Governmental Entity 2.4
Indemnification Representative 1.3(g)
Indemnified Executives 4.9(b)
Indemnifying Stockholders 1.5(b)
Initial Shares 1.5(b)
AWS Introduction
Legal Proceeding 2.17
Loss 1.13
Merger Introduction
Merger Shares 1.5(b)
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Non-Controlling Party 6.3(a)
Non-Defaulting Party 8.6
Old Options 1.8(a)
Options 1.5(b)
Ordinary Course of Business 2.4
OTCBB 3.2
Parent Introduction
Parent Certificate 5.3(e)
Parent Common Stock 1.5(a)
Parent Confidential Information 4.7(b)
Parent Disclosure Schedule Article III
Parent Liabilities 1.13
Parent Material Adverse Effect 3.1
Parent Options 1.8(a)
Parent Option Plan 1.8(a)
Parent Reports 3.6
Party Introduction
Permit Application 2.31
Permits 2.23
Prohibited Transaction 4.17
PPO Price Introduction
Private Placement Offering Introduction
Reasonable Best Efforts 4.1
Response 6.3(c)
SEC 1.13
Securities Act 1.14
Security Interest 2.4
Preferred Stock 1.5
Share Contribution 3.2
Split-Off Introduction
Split-Off Agreement Introduction
Subsidiary 2.5(a)
Surviving Corporation 1.1
Tax Returns 2.9(a)(ii)
Taxes 2.9(a)(i)
Transaction Documentation 3.3
Unit Introduction
Value 6.3(c)
Year-End Financial Statements 2.6
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ARTICLE VIII - TERMINATION
8.1 Termination by Mutual Agreement. This Agreement may be terminated at any
time by mutual consent of the parties hereto, provided that such consent to
terminate is in writing and is signed by each of the parties hereto.
8.2 Termination for Failure to Close. This Agreement shall be automatically
terminated if the Closing Date shall not have occurred by December 31, 2007.
8.3 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.
8.4 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 of 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.
8.5 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
65
liability for damages actually incurred as a result of such Party's breach of
any term or provision of this Agreement.
8.6 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 IX - MISCELLANEOUS
9.1 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).
9.2 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 and Article VI concerning
indemnification are intended for the benefit of the Company Stockholders and (b)
the provisions in Section 4.9 concerning indemnification are intended for the
benefit of the individuals specified therein and their successors and assigns.
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9.3 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.
9.4 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.
9.5 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.
9.6 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.
9.7 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:
If to the Company or the Parent (subsequent to the Closing):
RedRoller Holdings, Inc.
Soundview Plaza
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇. ▇▇▇▇ ▇▇▇ ▇▇▇▇, Chief Executive Officer
with a copy to:
DLA Piper US LLP
▇▇ ▇▇▇▇ ▇▇▇▇▇▇ , ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to the Parent or the Acquisition Subsidiary (prior to the Closing):
RedRoller Holdings, Inc.
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Suite 123 - ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇ ▇▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
with a copy to:
▇▇▇▇▇ ▇▇▇▇▇▇ LLP
800 - ▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇.▇. ▇▇▇ ▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
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.
9.8 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 .
9.9 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.
9.10 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
68
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.
9.11 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 9.7. Nothing in this Section 9.11,
however, shall affect the right of any Party to serve legal process in any other
manner permitted by law.
9.12 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]
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IN WITNESS WHEREOF, the Parties have executed this Agreement as of the date
first above written.
REDROLLER HOLDINGS, INC.
(formerly known as Aslahan Enterprises Ltd.)
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Title: President
-------------------------------
REDROLLER ACQUISITION CORP.
By: /s/ ▇▇▇▇ ▇▇▇▇▇▇
-------------------------------------
Name: ▇▇▇▇ ▇▇▇▇▇▇
--------------------------------
Title: President
-------------------------------
REDROLLER, INC.
By: /s/ ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
-------------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇
--------------------------------
Title: President and Chief Executive Officer
-------------------------------
70