AGREEMENT AND PLAN OF MERGER by and among MOBILEPRO CORP., INREACH INTERNET, INC., INREACH INTERNET, LLC, and BALCO HOLDINGS, INC. Dated as of October 31, 2005
by
and among
INREACH
INTERNET, INC.,
INREACH
INTERNET, LLC,
and
BALCO
HOLDINGS, INC.
Dated
as of October
31,
2005
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ARTICLE
I
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THE
MERGER
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1
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Section
1.1
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The
Merger
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1
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Section
1.2
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Effect
of the Merger; Closing
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1
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Section
1.3
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Certificate
of Incorporation
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2
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Section
1.4
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Bylaws
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2
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|
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Section
1.5
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Board
of Directors and Officers
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2
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Section
1.6
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Conversion
of Membership Interests
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2
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Section
1.7
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Membership
Interest Transfer Books
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3
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Section
1.8
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Securities
Law Issues
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3
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ARTICLE
II
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REPRESENTATIONS
AND WARRANTIES OF THE COMPANY AND COMPANY PARENT
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3
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Section
2.1
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Organization,
Qualification and Corporation Power
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3
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Section
2.2
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Capitalization;
Subsidiaries
|
4
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Section
2.3
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Ownership
of Company Membership Interests
|
5
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Section
2.4
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Authority
Relative to this Agreement
|
5
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Section
2.5
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No
Conflict; Required Filings and Consents
|
6
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Section
2.6
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Investment
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6
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Section
2.7
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Financial
Statements; Debt
|
7
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Section
2.8
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Absence
of Certain Changes
|
7
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|
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Section
2.9
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Tax
Matters.
|
8
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Section
2.10
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Title
to Properties
|
9
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Section
2.11
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Environmental
Matters
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9
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Section
2.12
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Intellectual
Property
|
10
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Section
2.13
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Material
Agreements
|
12
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Section
2.14
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Insurance
|
14
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Section
2.15
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Litigation
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14
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Section
2.16
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Employees;
Labor Matters
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14
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Section
2.17
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Employee
Benefits
|
15
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Section
2.18
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Permits
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16
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Section
2.19
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Real
Property
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16
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Section
2.20
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Broker’s
Fees
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16
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Section
2.21
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Books
and Records
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16
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-i-
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Section
2.22
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Banking
Relationships and Investments
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17
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Section
2.23
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Prepaid
Accounts
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17
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Section
2.24
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Disclosure
|
17
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ARTICLE
III
|
REPRESENTATIONS
AND WARRANTIES OF PARENT, BUYER AND BUYER SUB
|
17
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Section
3.1
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Organization,
Qualification and Corporation Power
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17
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Section
3.2
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Capitalization
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18
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|
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Section
3.3
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Authority
Relative to this Agreement
|
18
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Section
3.4
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No
Conflict; Required Filings and Consents
|
19
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Section
3.5
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SEC
Reports
|
19
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Section
3.6
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Buyer
Sub
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20
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Section
3.7
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Broker’s
Fees
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20
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ARTICLE
IV
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FURTHER
COVENANTS AND ASSURANCES
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20
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Section
4.1
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Securities
Laws
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20
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Section
4.2
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Public
Announcements
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20
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Section
4.3
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Reviewed
and
Audited Financial Statements
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21
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Section
4.4
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Non-Competition
and Other Covenants.
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22
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Section
4.5
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Adjustment
of Merger Consideration
|
22
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Section
4.6
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Real
Property Deliveries
|
23
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Section
4.7
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Termination
of Related Party Arrangements
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23
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Section
4.8
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Release
|
23
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Section
4.9
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SBC
Litigation
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23
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Section
4.10
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Accounts
and Investments
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24
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Section
4.11
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Further
Assurances
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24
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Section
4.12
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Post-Closing
Tax Cooperation
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24
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Section
4.13
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Payment
of Niwot Capital, LLC
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24
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Section
4.14
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Office
Lease
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24
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Section
4.15
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Accounting
Services
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24
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Section
4.16
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Accounting
System
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25
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ARTICLE
V
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CONDITIONS
OF MERGER
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25
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Section
5.1
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Conditions
to Obligations of Buyer and Buyer Sub to Effect the Merger
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25
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-ii-
|
Section
5.2
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Conditions
to Obligations of the Company and Company Parent to Effect
the
Merger
|
26
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ARTICLE
VI
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SURVIVAL
AND INDEMNIFICATION
|
27
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Section
6.1
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Survival
of Representations and Warranties
|
27
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Section
6.2
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Indemnification
of Parent, Buyer and Buyer Sub
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27
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Section
6.3
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Indemnification
of the Company and Company Parent
|
28
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Section
6.4
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General
Notice and Procedural Requirements for Indemnity Claims
|
28
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Section
6.5
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Notice
and Procedural Requirements for Third Party Claims
|
28
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Section
6.6
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Notice
and Procedural Requirements for Direct Claims
|
29
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Section
6.7
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Maximum
Liability; Sole Recourse
|
30
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Section
6.8
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Basket
|
30
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ARTICLE
VII
|
GENERAL
PROVISIONS
|
30
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Section
7.1
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Notices
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30
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Section
7.2
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Expenses
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31
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Section
7.3
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Amendment
|
31
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Section
7.4
|
Entire
Agreement
|
31
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Section
7.5
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No
Third-Party Beneficiaries
|
32
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Section
7.6
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Assignment
|
32
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Section
7.7
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Severability
|
32
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Section
7.8
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Governing
Law
|
32
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Section
7.9
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Headings;
Interpretation
|
32
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Section
7.10
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Construction
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32
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Section
7.11
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Counterparts
|
32
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Section
7.12
|
Confidentiality
|
32
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-iii-
THIS
AGREEMENT AND PLAN OF MERGER,
dated
as of October
31,
2005
(this “Agreement”),
is
made by and among Mobilepro Corp., a Delaware corporation (“Buyer”), InReach
Internet, Inc.
a
Delaware corporation and a direct wholly owned subsidiary of Buyer
(“Buyer
Sub”),
InReach Internet, LLC, a California limited liability company (the “Company”),
and
Balco Holdings, Inc., a California corporation and sole member of the Company
(“Company
Parent”).
WHEREAS,
the
Board of Directors of Buyer, Buyer Sub, and Company Parent, and the Manager
of
Company, have determined that it is in the best interests of their respective
companies and their stockholders or members to consummate the business
combination transaction provided for herein in which the Company will, subject
to the terms and conditions set forth herein, merge with and into Buyer Sub,
with Buyer Sub being the surviving entity (the “Merger”);
and
WHEREAS,
the
parties desire to make certain representations, warranties and agreements in
connection with the Merger and also to prescribe certain conditions to the
Merger;
NOW,
THEREFORE,
in
consideration of the premises and the mutual covenants, warranties and
agreements contained herein, and intending to be legally bound hereby, the
parties hereto agree as follows:
ARTICLE
I
THE
MERGER
Section
1.1 The
Merger.
Subject
to the terms and conditions of this Agreement, in accordance with the General
Corporation Law of the State of Delaware (the “Delaware
Law”) and
the
California Corporations Law (the “California
Law”),
upon
the execution of this Agreement and concurrent with the filing of Certificates
of Merger with the Secretaries of State of the State of Delaware and the State
of California, respectively (each a “Certificate
of Merger”
and
collectively the “Merger
Certificates”)
(in
accordance with the relevant provisions of Delaware Law and California Law,
respectively), the Company shall merge with and into Buyer Sub. The separate
corporate existence of the Company will cease upon the filing of the Merger
Certificates (the “Effective
Time”),
and
Buyer Sub will continue as the surviving company (hereinafter sometimes referred
to as the “Surviving
Company”)
in the
Merger. Buyer Sub, as the surviving company after the Merger, will be governed
by the laws of the State of Delaware.
For
purposes of this Agreement, the date of execution of this Agreement shall be
known as the “Closing
Date”
and the
actions taken on such date and at such time, the “Closing.”
Section
1.2 Effect
of the Merger; Closing.
At and
after the Effective Time, the Merger shall have the effects set forth in this
Agreement and the applicable provisions of Delaware Law
and
California Law.
At the
Effective Time all the property, rights, privileges, powers and franchises
of
the Company and Buyer Sub will vest in the Surviving Company, and all debts,
liabilities and duties of the Company and Buyer Sub not paid by the Company
at
or before Closing will become the debts, liabilities and duties of the Surviving
Company.
Section
1.3 Certificate
of Incorporation.
At the
Effective Time, the Certificate of Incorporation of Buyer Sub, as in effect
immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Company, provided however,
that
Article I of the Certificate of Incorporation of the Surviving Company will
be
amended to reflect that the name of the Surviving Company will be “InReach
Internet, Inc.”
Section
1.4 Bylaws.
At the
Effective Time, the bylaws of Buyer Sub, as in effect immediately prior to
the
Effective Time, shall be the bylaws of the Surviving Company, provided however,
that the bylaws of the Surviving Company will be amended to reflect that the
name of the Surviving Company will be “InReach
Internet, Inc.”
Section
1.5 Board
of Directors and Officers.
The
directors and officers of Buyer Sub immediately prior to the Effective Time
shall continue to be the directors and officers of the Surviving Company, each
to hold office in accordance with the Certificate of Incorporation and bylaws
of
the Surviving Company, until their respective successors are duly elected or
appointed (as the case may be) and qualified.
Section
1.6 Conversion
of Membership Interests.
At the
Effective Time, by virtue of the Merger and without any action on the part
of
Buyer Sub, the Company or the holder of any shares of capital stock of Buyer
Sub
or the holder of any Company Membership Interests:
(a) The
Company Membership Interests (as defined in Section 2.2(a)) issued and
outstanding immediately prior to the Effective Time shall, as an aggregate
whole
and not on an individual basis, shall be converted into and become the right
to
receive:
(i) Two
Million One Hundred Eleven Thousand Eight Hundred Seventy Three Dollars
($2,111,873) (the “Cash
Consideration”).
(ii)
The Applicable
Number of fully paid and nonassessable shares (determined
in accordance with this Section 1.6) of Buyer Common Stock (as defined in
Section 3.2(a)) (the “Stock
Consideration”,
and,
collectively with the Cash Consideration the “Merger
Consideration”),
such
Stock Consideration subject to adjustment in accordance with Section 4.5 of
this
Agreement. The “Applicable
Number”
shall
be determined by dividing Nine Hundred Fifty Thousand Dollars ($950,000) by
the
average of the closing prices of Parent Common Stock on the OTC-BB stock market
on the twenty (20) trading days ending the day before the Closing (the
“Closing
Price”)
of Buyer
Common Stock for purposes of determining the Applicable Number. The Stock
Consideration shall be subject to the rights and obligations set forth in the
Registration Rights Agreement described in Section 5.1(k) and shall be issued
to
Company Parent at the Closing; provided, however, that the Stock Consideration
shall be subject to adjustment as provide in Section 4.5.
(b) Buyer
shall assume
a
Working Capital Deficit of the Company of up to an aggregate total of $350,000.
For purposes of this Agreement, “Working
Capital Deficit”
shall
mean the difference between (x) the sum of the Company’s cash and current
receivables of 30 days or less and (y) the Company’s current liabilities,
including any deferred revenues of the Company, all determined in accordance
with United States generally accepted accounting principles applied on a
consistent basis (“GAAP”)
as of
the date of the Reviewed Balance Sheet.
-2-
(c) The
shares of Buyer Common Stock issued as Merger Consideration will not have been
registered and will be deemed to be “restricted securities” under federal
securities laws and may not be resold without registration under or exemption
from the Securities Act of 1933, as amended (the “Securities
Act”).
Each
certificate evidencing shares of Buyer Common Stock to be issued as Merger
Consideration shall have the following legend:
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED. SUCH SHARES MAY NOT BE SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION WITHOUT EXEMPTION UNDER THE
SECURITIES ACT OR AN OPINION OF LEGAL COUNSEL REASONABLY ACCEPTABLE TO MOBILEPRO
CORP. THAT SUCH REGISTRATION IS NOT REQUIRED.
Section
1.7 Membership
Interest Transfer Books.
(a) At
the
Effective Time, the membership interest transfer books of the Company will
be
closed and there will not be any further registration of transfers of any
membership interests, options or warrants thereafter on the records of the
Company.
Section
1.8 Securities
Law Issues.
Based in
part on the representations of Company Parent made in Section 2.6 herein, Buyer
Common Stock to be issued in the Merger will be issued pursuant to an exemption
from registration under Section 4(2) of the Securities Act of 1933, as amended
(the “Securities
Act”)
and/or
Rule 506 under Regulation D promulgated under the Securities Act and applicable
state securities laws.
ARTICLE
II
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY AND
COMPANY PARENT
Except
as
set forth in the Company Disclosure Letter attached to this Agreement (the
“Company
Disclosure Letter”),
the
Company and Company Parent, jointly and severally, represent and warrant to
Parent, Buyer and Buyer Sub as follows:
Section
2.1 Organization,
Qualification and Corporation Power.
The
Company (a) is a limited liability company duly organized, validly existing
and
in good standing under the laws of the jurisdiction in which it is organized
and
has the requisite corporate power and authority to own, operate or lease its
properties and to carry on its business as is now being conducted and proposed
to be conducted, except where the failure to be so organized, existing and
in
good standing or to have such power and authority would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect
(as defined below) on the Company, and (b) is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes such qualification
necessary, other than in such jurisdictions where the failure so to qualify
or
to be in good standing would not reasonably be expected to have, individually
or
in the aggregate, a Material Adverse Effect on the Company. The Company has
furnished to Buyer true, correct and complete copies of its Articles of
Organization and operating agreement.
-3-
For
purposes of this Agreement, the term “Material
Adverse Effect”
when
used in connection with an entity means any change, event, circumstance or
effect whether or not such change, event, circumstance or effect is caused
by or
arises in connection with a breach of a representation, warranty, covenant
or
agreement of such entity in this Agreement that is or is reasonably likely
to be
materially adverse to the business, assets (including intangible assets),
capitalization, financial condition, operations or results of operations,
employees or prospects of such entity taken as a whole with its subsidiaries,
except to the extent that any such change, event, circumstance or effect is
caused by results from (i) changes in general economic conditions, (ii) changes
affecting the industry generally in which such entity operates (provided that
such changes do not affect such entity in a substantially disproportionate
manner) or (iii) changes in the trading prices for such entity’s capital
stock.
Section
2.2 Capitalization;
Subsidiaries.
(a) One
Hundred Percent (100%) of the Company membership interests (the “Company
Membership Interests”)
are
held by Company Parent. Other than the Company Membership Interests, there
are
no other classes, series or types of equity for the Company. Company Parent
holds good and marketable title to such Company Membership Interests, free
and
clear of all liens, agreements, voting trusts, proxies and other arrangements
or
restrictions of any kind whatsoever (other than normal restrictions on transfer
under applicable federal and state securities laws). All issued and outstanding
units of Company Membership Interests have been duly authorized and were validly
issued, are fully paid and nonassessable, are not subject to any right of
rescission, are not subject to preemptive rights by statute, the Articles of
Organization or the operating agreement of the Company, or any agreement or
document to which the Company is a party or by which it is bound and have been
offered, issued, sold and delivered by the Company in compliance with all
registration or qualification requirements (or applicable exemptions therefrom)
of applicable federal and state securities laws. The Company is not under any
obligation to register under the Securities Act any of its presently outstanding
securities or any securities that may be subsequently issued. There is no
liability for dividends accrued but unpaid with respect to the Company’s
outstanding securities.
No
certificates representing the Company Membership Interests have been
issued.
(b) There
are
no existing (i) options, warrants, calls, preemptive rights, subscriptions
or
other rights, convertible securities, agreements or commitments of any character
obligating the Company to issue, transfer or sell any units of membership
interests or other equity interest in, the Company or securities convertible
into or exchangeable for such units of membership interests or equity interests,
(ii) contractual obligations of the Company to repurchase, redeem or otherwise
acquire any units of membership interest of the Company or (iii) voting trusts
or similar agreements to which the Company is a party with respect to the voting
of the units of membership interests of the Company.
(c) The
Company does not have any direct or indirect Subsidiaries or any interest,
direct or indirect, in any corporation, partnership, joint venture or other
business entity.
-4-
For
purposes of this Agreement, the term “Subsidiary”
of a
Person means any corporation or other legal entity of which such Person (either
alone or through or together with any other Subsidiary) owns, directly or
indirectly, more than 50% of the stock or other equity interests the holders
of
which are generally entitled to vote for the election of the board of directors
or other governing body of such corporation or other legal entity.
For
purposes of this Agreement, the term “Person”
shall
mean any individual, firm, corporation, partnership, limited liability company,
trust, joint venture, Governmental Entity or other entity.
Section
2.3 Ownership
of Company Membership Interests.
(a) Company
Parent is the record and beneficial owner of, and has good and valid title
to,
all of the Company Membership Interests, which Company Membership Interests
(i)
are free and clear of all liens, mortgages, encumbrances, pledges, claims,
options, charges, easements, restrictions, covenants, conditions of record,
encroachments, security interests and claims of every kind and character (each,
a “Lien”)
and
(ii) are free of any other restriction (including any restriction on the right
to vote, sell or otherwise dispose of such capital stock or other ownership
interests).
(b) There
are
no outstanding existing (i) options, warrants, calls, preemptive rights,
subscriptions or other rights, convertible securities, agreements or commitments
of any character to which Company Parent is a party obligating Company Parent
to
issue, transfer or sell any Company Membership Interests or other equity
interest in the Company or securities convertible into or exchangeable for
such
units of membership interests or equity interests or (ii) voting trusts,
unitholders’ agreements or similar agreements to which Company Parent is a party
with respect to the voting of the Company Membership Interests owned by Company
Parent.
Section
2.4 Authority
Relative to this Agreement.
The
Company has the necessary corporate power and authority to enter into this
Agreement and, subject to the filing of the
Merger Certificates as required by Delaware and California Law, to
carry
out its obligations hereunder. Company Parent has the necessary competency,
power and authority to enter into this Agreement and carry out the obligations
hereunder. The execution and delivery of this Agreement by the Company and
the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company
and
Company Parent and, subject to the filing of the Merger Certificates as required
by Delaware and California Law, no other corporate proceeding is necessary
for
the execution and delivery of this Agreement by the Company, the performance
by
the Company of its obligations hereunder and the consummation by the Company
of
the transactions contemplated hereby. This Agreement has been duly executed
and
delivered by the Company and Company Parent and, assuming the due authorization,
execution and delivery of this Agreement by Buyer and Buyer Sub, constitutes
a
legal, valid and binding obligation of the Company and Company Parent,
enforceable against each in accordance with its terms, except that the
enforceability hereof may be subject to (a) applicable bankruptcy, insolvency
or
other similar laws, now or hereinafter in effect, affecting creditors’ rights
generally, and (b) the general principles of equity (regardless of whether
enforceability is considered at a proceeding at law or in equity).
-5-
Section
2.5 No
Conflict; Required Filings and Consents.
(a) Except
as
set forth in Section 2.5(a) of the Company Disclosure Letter, the execution
and
delivery of this Agreement by the Company and Company Parent does not, and
the
consummation by the Company and Company Parent of the transactions contemplated
hereby will not, (i) conflict with or violate any law, court order, judgment
or
decree applicable to the Company or Company Parent, or by which any of their
property is bound, (ii) violate or conflict with the Articles of Organization
or
operating agreement (or comparable organizational documents) of the Company,
or
(iii) result in any breach of or constitute a default (or an event which with
notice or lapse of time of both would become a default) under, or give to others
any rights of termination or cancellation of, or result in the creation of
a
Lien on any of the properties or assets of the Company pursuant to, any
contract, instrument, Permit or license to which the Company is a party or
by
which the Company or any of its property is bound, except in the case of clauses
(i) and (iii) for conflicts, violations, breaches or defaults which,
individually or in the aggregate, would not have or result in a Material Adverse
Effect on the Company.
(b) Except
for the filing of
the
Merger Certificates
and any
applicable requirements, if any, under “takeover” or “blue sky” laws of various
states, the Company is not required to submit any notice, report or other filing
with any federal, state or local or foreign government, political subdivision
thereof, any court, administrative, regulatory or other governmental agency,
commission or authority or any non-governmental United States or foreign
self-regulatory agency, commission or authority or any arbitral tribunal (each,
a “Governmental
Entity”)
in
connection with the execution, delivery or performance of this Agreement or
the
consummation of the transactions contemplated hereby the failure of which to
submit would, individually or in the aggregate, have or result in a Material
Adverse Effect on the Company. No waiver, consent, approval or authorization
of
any Governmental Entity or any third party is required to be obtained or made
by
the Company in connection with its execution, delivery or performance of this
Agreement the failure of which to obtain or make, individually or in the
aggregate, would have or result in a Material Adverse Effect on the
Company.
Section
2.6 Investment.
Company
Parent:
(a) Understands
that the shares of Buyer Common Stock issuable as Merger Consideration will
not
have been registered and will be deemed “restricted securities” under federal
securities laws and may not be sold without registration under or exemption
from
the Securities Act;
(b) Has
such
knowledge and experience in financial and business matters that it is capable
of
evaluating the merits and risks of its investment in Buyer and has the capacity
to protect its own interests; and
(c) Acknowledges
that an investment in shares of Buyer Common Stock by way of the Merger is
highly speculative and entails a substantial degree of risk, and Company Parent
has the ability to bear the economic risk of its investment.
-6-
Section
2.7 Financial
Statements; Debt.
(a) Attached
as Section 2.7(a) of the Company Disclosure Letter are the Company’s unaudited
balance sheets dated as of December 31, 2004 and 2003, income statements and
statement of cash flows for the years then ended and (ii) the Company’s
unaudited balance sheets (the “Company
Balance Sheet”),
statements of cash flows and income statements each dated as of
September 30, 2005 and 2004 (the “Balance
Sheet Date”)
(all
such financial statements being collectively referred
to
herein as the “Company
Financial Statements”).
The
Company Financial Statements (a) agree with the books and records of the
Company, (b) fairly present the financial condition of the Company at the date
therein indicated and the results of operation for the period therein specified
and (c) have been prepared in accordance with GAAP.
(b) The
Company has no material debt, liability or obligation of any nature, whether
accrued, absolute, contingent or otherwise, and whether due or to become due,
that is not reflected or reserved against in the Company Financial Statements
that are not material in amount either individually or
collectively.
Section
2.8 Absence
of Certain Changes.
Except
as set forth in Section 2.8 of the Company Disclosure Letter, since August
1,
2005, there has not been with respect to the Company:
(a) any
change in the financial condition, properties, assets, liabilities, business
or
operations thereof which change by itself or in conjunction with all other
such
changes, whether or not arising in the ordinary course of business, has had
or
will have a Material Adverse Effect thereon;
(b) any
material loss of customers. Set forth on Section 2.8(b) of the Company
Disclosure Letter is a true, correct and complete list of all customers lost
in
the preceding twelve (12) months, including all revenue generated from any
customer generating at least One Thousand Dollars ($1,000) per month in revenue
for the Company for the thirty six (36) months preceding the date on which
they
were no longer customers;
(c) no
notice
of impending cancellation, or a material price increase, from any Incumbent
Local Exchange Carrier or other provider of data transmission
services;
(d) any
contingent liability incurred thereby as guarantor or otherwise with respect
to
the obligations of others;
(e) any
mortgage, encumbrance or lien placed on any of the properties owned by
Company;
(f) any
material obligation or liability incurred thereby other than obligations and
liabilities incurred in the ordinary course of business;
(g) any
purchase or sale or other disposition, or any agreement or other arrangement
for
the purchase, sale or other disposition, of any of the properties or assets
thereof other than in the ordinary course of business;
-7-
(h) any
damage, destruction or loss, whether or not covered by insurance, materially
and
adversely affecting the properties, assets or business thereof;
(i) any
declaration, setting aside or payment of any dividend on, or the making of
any
other distribution in respect of, the units of membership interests thereof,
any
split, combination or recapitalization of the units of membership interests
thereof or any direct or indirect redemption, purchase or other acquisition
of
units of membership interests thereof;
(j) any
labor
dispute or claim of unfair labor practices, any change in the compensation
payable or to become payable to any of its officers, employees or agents, or
any
bonus payment or arrangement made to or with any of such officers, employees
or
agents;
(k) any
change with respect to the management, supervisory or other key personnel
thereof;
(l) any
payment or discharge of a material lien or liability thereof which lien was
not
either shown on the Company Balance Sheet or incurred in the ordinary course
of
business thereafter; or
(m) any
obligation or liability incurred thereby to any of its officers, directors,
managers or stockholders or any loans or advances made thereby to any of its
officers, directors, managers or stockholders except normal compensation and
expense allowances payable to officers.
Section
2.9 Tax
Matters.
Except
as
set forth in Section 2.9 of the Company Disclosure Letter:
(a) The
Company is a single member limited liability company and is disregarded for
federal and state income tax purposes. The Company has timely filed all Tax
Returns that it was required to file, and all such Tax Returns were correct
and
complete in all material respects. All Tax liabilities of the Company for all
taxable periods or portions thereof ending on or prior to the Effective Time
have been, or will be timely paid or are adequately reserved for in the Company
Financial Statements, other than such Tax liabilities as are being or may be
contested in good faith by the Company or Company Parent. There are no ongoing
federal, state, local or foreign audits or examination of any Tax Return of
the
Company. The Company has not waived any statute of limitations in respect of
Taxes or agreed to any extension of time, and no such waiver or extension has
been required with respect to a Tax assessment or deficiency. No claim has
ever
been made by an authority in a jurisdiction where the Company does not file
Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are
no Liens on any of the assets of the Company that arose in connection with
any
failure (or alleged failure) to pay any Tax.
(b) The
Company has withheld or collected and paid or deposited in accordance with
law
all Taxes required to have been withheld or collected and paid or deposited
by
the Company in connection with amounts paid or owing to any employee,
independent contractor, creditor, stockholder, or other third
party.
-8-
(c) There
is
no dispute or claim concerning any Tax liability of the Company either (i)
claimed or raised by any authority in writing or (ii) to the Company’s
Knowledge.
(d) For
purposes of this Agreement:
(i) “Knowledge”
or
words of similar import means all information that is actually known, following
reasonable investigation (unless otherwise specified herein), and in the case
of
the Company, by Xxxxx
Xxxxxxx (the Company’s Chief Financial Officer) or Xxxx Xxxxxxxx (the Company’s
President and Chief Operating Officer).
(ii) “Taxes”
means
all taxes, charges, fees, levies or other similar assessments or liabilities,
including income, gross receipts, ad valorem, premium, value-added, excise,
real
property, personal property, sales, use, transfer, withholding, employment,
payroll and franchise taxes imposed by a Governmental Entity, 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,
and
any amounts of Taxes of a third Person that a Person or any Subsidiary of such
Person is liable to pay by law or otherwise; and
(iii) “Tax
Returns”
means
all reports, returns, declarations, statements or other information supplied
or
required to be supplied to a taxing authority in connection with Taxes including
any schedules, attachments or amendments thereto.
(e) The
Company Parent acknowledges and agrees that all Tax Returns to be filed and
Taxes to be paid for the period beginning January 1, 2005 through the Effective
Time are the sole responsibility of the Company Parent.
Section
2.10 Title
to Properties.
The
Company has good and marketable title to all of its assets as shown on the
Company Balance Sheet, free and clear of all liens, charges, restrictions or
encumbrances (other than for taxes not yet due and payable). All machinery
and
equipment included in such properties is in good condition and repair, normal
wear and tear excepted, and all leases of real or personal property to which
the
Company is a party are fully effective in accordance with their terms. The
Company is not in violation of any zoning, building, safety or environmental
ordinance, regulation or requirement or other law or regulation applicable
to
the operation of owned or leased properties (the violation of which would have
a
Material Adverse Effect on its business), or has received any notice of
violation with which it has not complied.
Section
2.11 Environmental
Matters.
Except
as
set forth in Section 2.11 of the Company Disclosure Letter:
(a) During
the period that the Company has leased or owned its properties or owned or
operated any facilities, to the Knowledge of the Company, there have been no
disposals, releases or threatened releases of Hazardous Materials (as defined
below) on, from or under such properties or facilities. The Company has no
Knowledge
of any
presence, disposals, releases or threatened releases of Hazardous Materials
on,
from or under any of such properties or facilities, which may have occurred
prior to the Company having taken possession of any of such properties or
facilities. For the purposes of this Agreement, the terms “disposal,”“release,”
and
“threatened
release”
shall
have the definitions assigned thereto by the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq., as
amended (“CERCLA”).
For
the purposes of this Agreement “Hazardous
Materials”
shall
mean any hazardous or toxic substance, material or waste which is or becomes
prior to the Closing regulated under, or defined as a “hazardous substance,”“pollutant,”“contaminant,”“toxic chemical,”“hazardous materials,”“toxic
substance” or “hazardous chemical” under (1) CERCLA; (2) any similar federal,
state or local law; or (3) regulations promulgated under any of the above laws
or statutes.
-9-
(b) To
the
Knowledge of Company none
of
the properties or facilities of the Company is in violation of any federal,
state or local law, ordinance, regulation or order relating to industrial
hygiene or to the environmental conditions on, under or about such properties
or
facilities, including, but not limited to, soil and ground water condition.
During the time that the Company has owned or leased its properties and
facilities, to the Company’s Knowledge, no third party, has used, generated,
manufactured or stored on, under or about such properties or facilities or
transported to or from such properties or facilities any Hazardous
Materials.
(c) During
the time that the Company has owned or leased its properties and facilities,
there has been no litigation brought, to Company’s Knowledge, or threatened
against the Company by, or any settlement reached by the Company with, any
party
or parties alleging the presence, disposal, release or threatened release of
any
Hazardous Materials on, from or under any of such properties or
facilities.
Section
2.12 Intellectual
Property.
(a) The
term
“Intellectual
Property”
means
any (i) patents, (ii) trademarks, service marks, trade names, brand names,
trade
dress, slogans, logos and internet domain names, (iii) inventions, discoveries,
ideas, processes, formulae, designs, models, industrial designs, know-how,
proprietary information, trade secrets, and confidential information (including
customer lists, training materials and related matters, research and marketing
and sales plans), whether or not patented or patentable, (iv) copyrights,
writings and other copyrightable works and works in progress, databases and
software, (v) all other intellectual property rights and foreign equivalent
or
counterpart rights and forms of protection of a similar or analogous nature
or
having similar effect in any jurisdiction throughout the world, (vi) all
registrations and applications for registration of any of the foregoing, (vii)
all common law trademarks and service marks used by the Company and (viii)
any
renewals, extensions, continuations, divisionals, reexaminations or reissues
or
equivalent or counterpart of any of the foregoing in any jurisdiction throughout
the world. The term “Company
IP”
means
any Intellectual Property used or held for use by the Company, in the conduct
of
their businesses as currently conducted and currently proposed to be conducted.
(b) Section
2.12(b) of the Company Disclosure Letter sets forth a true, correct and complete
list (including, the owner, title, registration or application number and
country of registration or application, as applicable) of all of the following
Company IP: (i) registered trademarks, (ii) applications for trademark
registration, (iii) domain names, (iv) patents, (v) applications for patents,
(vi) registered copyrights (vii) applications for copyright registration and
(viii) licenses of all Intellectual Property (other than off-the-shelf business
productivity software that is the subject of a shrink wrap or click wrap
software license agreement (“Desktop
Software”))
to or
from the Company. The Company has delivered or made available to Buyer prior
to
the execution of this Agreement true, complete and correct copies of all
licenses of Company IP both to and from the Company, except Desktop
Software.
-10-
(c) The
Company IP set forth on Section 2.12(b) of the Company Disclosure Letter
constitutes all of the Intellectual Property used by and necessary for the
Company to operate its business as currently conducted and currently proposed
to
be conducted. The Company owns all legal and beneficial right, title and
interests in the Company IP, and the Company has the valid, sole and exclusive
right to use, assign, transfer and license all such Company IP for the life
thereof for any purpose, free from (i) any Liens, and (ii) any requirement
of
any past, present or future royalty payments, license fees, charges or other
payments, or conditions or restrictions whatsoever.
(d) All
patent, trademark, service xxxx, copyright, patent and domain name registrations
or applications set forth on Section 2.12(b) of the Company Disclosure Letter
are in full force and effect and have not been abandoned, dedicated, disclaimed
or allowed to lapse for non-payment of fees or taxes or for any other
reason.
(e) None
of
the Company IP owned by the Company has been declared or adjudicated invalid,
null or void, unpatentable or unregistrable in any judicial or administrative
proceeding. To the Knowledge of the Company
without
investigation, none of the Company IP used (but not owned) by the Company has
been declared or adjudicated invalid, null or void, unpatentable or
unregistrable in any judicial or administrative proceeding.
(f) The
Company has not received any written notices of, or has Knowledge (without
investigation) of, any infringement or misappropriation by or of, or conflict
with, any third party with respect to the Company IP or Intellectual Property
owned by any third party. To the Knowledge of Company
without
investigation, the Company has not infringed, misappropriated or otherwise
violated or conflicted with any Intellectual Property of any third party. The
operation of the Company does not, as currently conducted, infringe,
misappropriate or otherwise violate or conflict with the Intellectual Property
of any third party.
(g) The
transactions contemplated by this Agreement will not affect the right, title
and
interest of the Company in and to the Company IP, and the Company has taken
all
commercially reasonable steps to maintain and protect the Company IP owned
by
the Company and, until the Effective Time, will continue to maintain and protect
such Company IP so as to not materially adversely affect the validity or
enforceability of such Company IP.
(h) To
the
Knowledge of the Company, no officer, employee, director or manager of the
Company is obligated under any contract (including any license, covenant or
commitment of any nature) or other agreement, or subject to any judgment, decree
or order of any court or administrative agency, that would conflict or interfere
with the performance of such person’s duties as an officer, employee, director
or manager of the Company, the use of such person’s best efforts to promote the
interests of the Company or the Company’s business as conducted or as currently
proposed to be conducted by the Company. No prior employer of any current or
former employee of the Company has any right, title or interest in the Company
IP and to the Knowledge of the Company, no person or entity has any right,
title
or interest in any Company IP. It is not and will not be with respect to the
business as currently proposed to be conducted necessary for the Company to
use
any inventions of any of its employees made prior to their employment by the
Company.
-11-
Section
2.13 Material
Agreements.
(a) Section
2.13 of the Company Disclosure Letter sets forth a true, correct and complete
list of the following agreements (whether written or oral and including all
amendments thereto) to which the Company is a party or a beneficiary or by
which
the Company or any of its assets are bound (collectively, the “Material
Agreements”):
(i) any
real
estate leases;
(ii) any
other
agreement for the provision of services by the Company that have accounted
for
revenues of more than One Thousand Dollars ($1,000) during any month since
the
Balance Sheet Date;
(iii) any
agreement creating, evidencing, securing, assuming, guaranteeing or otherwise
relating to any debt for which the Company is liable or under which it has
imposed (or may impose) a Lien on any of the assets, tangible or intangible,
of
the Company;
(iv) any
capital or operating leases or conditional sales agreements relating to personal
property of the Company;
(v) any
supply or manufacturing agreements or arrangements pursuant to which the Company
is entitled or obligated to acquire any assets from a third party with a fair
market value in excess of One Thousand Dollars ($1,000);
(vi) any
insurance policies;
(vii) any
employment, consulting, noncompetition, or separation agreements or
arrangements;
(viii) any
agreement with or for the benefit of Company Parent, officer, director, manager
or employee of the Company, or any Affiliate of the Company, or any Person
controlled by such individual or family member thereof;
(ix) any
license to which the Company is a party;
(x) any
agreement in which the Company has granted rights to license, sublicense or
copy, “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;
-12-
(xi) any
written arrangement establishing a partnership or joint venture;
and
(xii) a
list of
all parties to any written arrangement concerning confidentiality,
non-disclosure or noncompetition;
(xiii) any
written
arrangement other than those described in Sections 2.13(a)(i) through (xii)
under which the consequences of a default or termination could have a Material
Adverse Effect on the Company; and
(xiv) any
other
agreement or arrangement pursuant to which the Company or its Subsidiaries
could
be required to make or be entitled to receive aggregate payments in excess
of
Ten Thousand Dollars ($10,000.00) or entered into outside of
the
ordinary course of business.
For
purposes of this Agreement, “Affiliate”
means
another Person that directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, any
Person.
(b) The
Company has delivered to or made available to Buyer a true, correct and complete
copy of each Material Agreement and a written summary of each oral Material
Agreement. With respect to each Material Agreement:
(i) each
Material Agreement is legal, valid, binding and enforceable and in full force
and effect with respect to the Company and, to the Knowledge of the
Company
without
investigation, the written arrangement is legal, valid, binding and is
enforceable and in full force and effect with respect to each other party
thereto (in each case except as enforceability may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium or other similar
laws affecting the enforcement of creditor’s rights generally, and except that
the availability of equitable remedies, including specific performance, is
subject to the discretion of the court before which any proceeding therefor
may
be brought);
(ii) subject
to the third-party consents described in Section 2.5(a) of the Company
Disclosure Letter, each Material Agreement will continue to be legal, valid,
binding and enforceable and in full force and effect against the Company, and
to
the Knowledge of the Company without
investigation against each other party thereto, immediately following the
Closing in accordance with the terms thereof (in each case except as
enforceability may be limited by bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium or other similar laws affecting the enforcement
of
creditor’s rights generally, and except that the availability of equitable
remedies, including specific performance, is subject to the discretion of the
court before which any proceeding therefor may be brought) as in effect prior
to
the Closing; and
(iii) the
Company is not in breach or default, and, to the Knowledge of the
Company
without
investigation, no other party thereto is in breach or default, and no event
has
occurred which with notice or lapse of time would constitute a breach or default
or permit termination, modification, or acceleration, under the written
arrangement.
-13-
Section
2.14 Insurance.
(a) Section
2.14 of the Company Disclosure Letter sets forth a true, correct and complete
list of each insurance policy (including fire, theft, casualty, general
liability, director and officer, workers compensation, business interruption,
environmental, product liability and automobile insurance policies and bond
and
surety arrangements) to which the Company is a party, a named insured, or
otherwise the beneficiary of coverage at any time within the past year. Section
2.14 of the Company Disclosure Letter sets forth a true, correct and complete
list of each person or entity required to be listed as an additional insured
under each such policy. Each such policy shall be in full force and effect
until
such time as the period covered by any prepaid premiums has
expired.
(b) The
Company is not in breach or default, and does not anticipate being in breach
or
default prior to the Closing (including with respect to the payment of premiums
or the giving of notices) under any such policy, and, to the Knowledge of
Company, no event has occurred which, with notice or the lapse of time, would
constitute such a breach or default or permit termination, modification or
acceleration, under such policy; and the Company has not received any written
notice or, to the Knowledge of the Company, oral notice, from the insurer
disclaiming coverage or reserving rights with respect to a particular claim
or
such policy in general. The Company has not incurred any material loss, damage,
expense or liability covered by any such insurance policy for which it has
not
properly asserted a claim under such policy.
Section
2.15 Litigation.
(a) There
are
no claims, actions, suits, proceedings or investigations of any nature pending
or, to the Knowledge of the Company
without
investigation, threatened against the Company or any properties or rights of
the
Company, before any court, administrative, governmental or regulatory authority
or body. The Company is not subject to any order, judgment, injunction or
decree.
(b) There
are
no agreements or other documents or instruments settling any material claim,
complaint, action, suit or other proceeding against the Company.
Section
2.16 Employees;
Labor Matters.
(a) Set
forth
on Section 2.16(a) of the Company Disclosure Letter is a true, correct and
complete list of all current employees of the Company, including date of
employment, current title and compensation (including commissions, bonus and
other compensation), and date and amount of last increase in compensation.
None
of the Company’s employees are members of a labor union. The Company is not a
party to any collective bargaining, union or labor agreements, contracts or
other arrangements with any group of employees, labor union or employee
representative and to the Knowledge of the Company, there is no organization
effort currently being made by or on behalf of any labor union with respect
to
employees of the Company. The Company has not experienced, and to the Knowledge
of the Company, there is no basis for, any strike, grievances, claims of unfair
labor practices, material labor trouble, work stoppage, slow down or other
interference with or impairment of the business of Company.
-14-
(b) To
the
Knowledge of the Company
without
investigation, no employee has any plans to terminate employment with the
Company within six months of the date hereof.
(c) The
Company is in compliance in all material respects with all currently applicable
laws and regulations respecting wages, hours, occupational safety, or health,
fair employment practices, and discrimination in employment terms and
conditions, and is not engaged in any unfair labor practice. There are no
pending claims against the Company under any workers compensation plan or policy
or for long term disability. There are no proceedings pending or, to the
Knowledge of the Company, threatened, between the Company and its
employees.
(d) Section
2.16(a) of the Company Disclosure Letter sets forth a true, correct and complete
list of Persons whose employment has been terminated by the Company in the
90
days prior to Closing.
Section
2.17 Employee
Benefits.
(a) Except
as
set forth in Section 2.17(a) of the Company Disclosure Letter, neither the
Company nor any predecessor in interest thereof has maintained, or currently
maintains, any Employee Benefit Plan. At no time has the Company or any ERISA
Affiliate been obligated to contribute to any “multi-employer plan” (as defined
in Section 4001(a)(3) of ERISA). Neither the Company nor any predecessor in
interest thereof has any liabilities or obligations with respect to any Employee
Benefit Plan.
(b) Section
2.17(b) of the Company Disclosure Letter discloses each: (i) agreement with
any
director, executive officer or other key employee of the Company, including
(A)
the benefits of which are contingent, or the terms of which are altered, upon
the occurrence of a transaction involving the Company of the nature of any
of
the transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee or (C) providing severance benefits or
other benefits after the termination of employment of such director, executive
officer or key employee; (ii) agreement, plan or arrangement under which any
person may receive payments from the Company that may be subject to the tax
imposed by Section 4999 of the Code or included in the determination of such
person’s “parachute payment” under Section 280G(b)(1) of the Code; and (iii)
agreement or plan binding the Company, including any option plan, stock
appreciation right plan, restricted stock plan, stock purchase plan, severance
benefit plan, or any 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.
(c) For
purposes of this Agreement:
(i) “Employee
Benefit Plan”
means
any “employee pension benefit plan” (as defined in Section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended), 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 insurance coverage, severance benefits, disability benefits, deferred
compensation, bonuses, options, or other forms of incentive compensation or
post-retirement compensation; and
-15-
(ii) “ERISA
Affiliate”
means
any entity which is a member of (i) a controlled group of corporations (as
defined in Section 414(b) of the Code), (ii) a group of trades or businesses
under common control (as defined in Section 414(c) of the Code), or (iii) 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 the Company
or its Subsidiaries.
Section
2.18 Permits.
Section
2.18 of the Company Disclosure Letter sets forth a true, correct and complete
list of all material permits, licenses, registrations, certificates, orders
or
approvals from any Governmental Entity (including those issued or required
under
applicable export laws or regulations) (“Permits”)
issued
to or held by the Company. Such listed Permits are the only Permits that are
required for the Company to conduct their business as presently conducted.
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 following the
Closing.
Section
2.19 Real
Property.
(a) Owned
Real Property. The Company owns no real property.
(b) Leased
Real Property. Section 2.19(b) of the Company Disclosure Letter sets forth
a
true and correct list of all real property leased or subleased to the Company
(the “Leased
Real Property”).
The
Company has made available to Buyer true and correct copies of such leases
and
subleases, each as amended to date. Except as set forth on Section 2.19(b)
of
the Company Disclosure Letter, with respect to each lease and sublease of Leased
Real Property each lease or sublease is in full force and effect in all material
respects and is valid and enforceable by Buyer or the Company in accordance
with
its terms, except to the extent that its enforceability may be subject to
applicable bankruptcy, insolvency, reorganization, moratorium, receivership
and
similar laws affecting the enforcement of creditors’ rights generally and to
general equitable principles.
Section
2.20 Broker’s
Fees.
Except
for Company’s obligations pursuant to that certain Business Brokerage Agreement
between Company and Niwot Capital, LLC dated ________, 2005, shall
be
paid contemporaneously with the Closing, neither
the Company, Company Parent nor any of their Subsidiaries has any liability
or
obligation to pay any fees or commissions to any broker, investment banking
firm, finder or agent with respect to the transactions contemplated by this
Agreement.
Section
2.21 Books
and Records.
(a) The
books, records and accounts of the Company (a) are in all material respects
true, complete and correct, (b) have been maintained in accordance with good
business practices on a basis consistent with prior years, (c) are stated in
reasonable detail and accurately and fairly reflect the transactions and
dispositions of the assets of the Company, and (d) accurately and fairly reflect
the basis for the Company Financial Statements.
-16-
(b) The
Company has devised and maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (a) transactions are executed
in accordance with management’s general or specific authorization; (b)
transactions are recorded as necessary (i) to permit preparation of financial
statements in conformity with generally accepted accounting principles or any
other criteria applicable to such statements, and (ii) to maintain
accountability for assets, and (c) the amount recorded for assets on the books
and records of the Company is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any
differences.
Section
2.22 Banking
Relationships and Investments.
Section
2.22 of the Company Disclosure Letter sets forth sets forth a true, correct
and
complete list of each of the Company’s accounts, deposits, safe-deposit boxes or
borrowing relationships, factoring arrangements or other loan facilities or
relationships, including the names of all persons authorized to draw on those
accounts or deposits, or to borrow under loan facilities, or to obtain access
to
such boxes (the “Accounts”).
Section 2.22 of the Company Disclosure Letter sets forth a true, correct and
complete list of all certificates of deposit, debt or equity securities and
other investments owned, beneficially or of record, by the Company (the
“Investments”).
The
Company has good and legal title to all Investments.
Section
2.23 Prepaid
Accounts
Section
2.23 of the Company Disclosure Letter sets forth a true, correct and complete
list of each prepaid customer account serviced by the Company. This list shall
contain any customer who pays in advance more than one month.
Section
2.24 Disclosure.
No
representation or warranty by the Company contained in this Agreement, including
any statement contained in the Company Disclosure Letter or any document
delivered in connection herewith, contains any untrue statement of a material
fact or omits to state any material fact necessary, in light of the
circumstances under which it was made, in order to make the statements herein
not misleading.
ARTICLE
III
REPRESENTATIONS
AND WARRANTIES OF BUYER AND BUYER SUB
Except
as
set forth in the Buyer Disclosure Letter attached to this Agreement (the
“Buyer
Disclosure Letter”),
Buyer
and Buyer Sub, jointly and severally, represent and warrant to the Company
and
Company Parent as follows:
Section
3.1 Organization,
Qualification and Corporation Power.
Each of
Buyer and Buyer Sub as of the Effective Time (a) is a corporation duly
organized, validly existing and in good standing under the Laws of the
jurisdiction in which it is organized and has the requisite corporate power
and
authority and any necessary governmental authority to own, operate or lease
the
properties that it purports to own, operate or lease and to carry on its
business as it is now being conducted and proposed to be conducted, and (b)
is
duly qualified as a foreign corporation to do business, and is in good standing,
in each other jurisdiction where the character of its properties owned, operated
or leased or the nature of its activities makes such qualification necessary,
except in the case of clause (b) for failures which, when taken together with
all other such failures, would not have a Material Adverse Effect on Buyer.
Buyer Sub is a wholly owned Subsidiary of Buyer.
-17-
Section
3.2 Capitalization.
(a) The
authorized capital stock of Buyer consists of 1,500,000,000
shares
of common stock, $0.001 par value (the “Buyer
Common Stock”),
20,035,425
shares
of preferred stock, $0.001 par value and 35,425 shares of Series A Convertible
Preferred Stock, $0.001 par value (the “Series
A Preferred Stock”).
As of
September
15, 2005
and the Effective Time, (i) 388,978,011
shares
of Buyer Common Stock were issued and outstanding and 35,378 shares of Series
A
Preferred Stock were issued and outstanding and (ii) 30,000,000
shares
of Buyer Common Stock were reserved for issuance under Buyer’s 2001 Equity
Performance Plan. All of the issued and outstanding shares of Buyer Common
Stock
and Series A Preferred Stock (i) have been duly authorized and validly issued;
(ii) are fully paid and nonassessable; (iii) are free and clear of all Liens;
and (iv) are free of any other restriction (including any restriction on the
right to vote, sell or otherwise dispose of such capital stock or other
ownership interests). The certificates representing Buyer Common Stock are
in
proper form for the enforcement of the rights and limitations of rights
pertaining to such Shares which are set forth in Buyer’s certificate of
incorporation, as amended, and bylaws. There are no declared or accrued but
unpaid dividends with respect to any Buyer Common Stock.
(b) Except
as
disclosed on Section 3.2(b) of the Buyer Disclosure Letter, there are no
existing (i) options, warrants, calls, preemptive rights, subscriptions or
other
rights, convertible securities, agreements or commitments of any character
obligating Buyer or any of its Subsidiaries to issue, transfer or sell any
shares of capital stock or other equity interest in, Buyer or any of its
Subsidiaries or securities convertible into or exchangeable for such shares
or
equity interests, (ii) contractual obligations of Buyer or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any capital stock of
Buyer or any of its Subsidiaries or (iii) voting trusts or similar agreements
to
which Buyer or any of its Subsidiaries is a party with respect to the voting
of
the capital stock of Buyer or any of its Subsidiaries.
(c) The
authorized capital stock of Buyer Sub consists of 1,000 shares of common stock,
$0.001 par value (the “Buyer
Sub Common Stock”),
of
which 1,000 shares were issued and outstanding. Buyer owns all of the issued
and
outstanding shares of Buyer common stock. Buyer owns all of the issued and
outstanding shares of Buyer Sub Common Stock. All of the issued and outstanding
shares of Buyer Sub Common Stock (i) have been duly authorized and validly
issued; (ii) are fully paid and nonassessable; (iii) are free and clear of
all
Liens; and (iv) are free of any other restriction (including any restriction
on
the right to vote, sell or otherwise dispose of such capital stock or other
ownership interests).
Section
3.3 Authority
Relative to this Agreement.
As of
the Effective Time each of Buyer and Buyer Sub has the necessary corporate
power
and authority to enter into this Agreement and, subject to the filing of the
Certificate of Merger, to carry out its obligations hereunder. The execution
and
delivery of this Agreement by Buyer and Buyer Sub and the consummation by them
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Buyer and Buyer Sub and, subject
to
the filing of the filing of the Certificate of Merger, no other corporate
proceeding is necessary for the execution and delivery of this Agreement by
Buyer and Buyer Sub, the performance by them of their respective obligations
hereunder and the consummation by them of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by the Buyer and Buyer
Sub
and, assuming the due authorization, execution and delivery of this Agreement
by
the Company and Company Parent, constitutes a legal, valid and binding
obligation of the Buyer and Buyer Sub, enforceable against each in accordance
with its terms, except that the enforceability hereof may be subject to (a)
applicable bankruptcy, insolvency or other similar laws, now or hereinafter
in
effect, affecting creditors’ rights generally, and (b) the general principles of
equity (regardless of whether enforceability is considered at a proceeding
at
law or in equity).
-18-
Section
3.4 No
Conflict; Required Filings and Consents.
(a) The
execution and delivery of this Agreement by each of Buyer and Buyer Sub do
not,
and the consummation by each of them of the transactions contemplated hereby
will not, (i) conflict with or violate any law, court order, judgment or decree
applicable to Buyer or Buyer Sub or by which any of their respective property
is
bound, (ii) violate or conflict with the certificate of incorporation or bylaws
(or comparable organizational documents) of either Buyer or Buyer Sub, or (iii)
result in any breach of, or constitute a default (or an event which with notice
or lapse of time of both would become a default) under, or give to others any
rights of termination or cancellation of, or result in the creation of a Lien
on
any of the properties or assets of Buyer or any of its Subsidiaries pursuant
to,
any contract, instrument, Permit or license to which Buyer or any of its
Subsidiaries is a party or by which Buyer or any of its Subsidiaries or their
respective property is bound, except in the case of clauses (i) and (iii) for
conflicts, violations, breaches or defaults which, individually or in the
aggregate, would not have or result in a Material Adverse Effect on
Buyer.
(b) Except
for the filing of the Certificate of Merger, and applicable requirements, if
any, under “takeover” or “blue sky” laws of various states, none of Buyer or
Buyer Sub is required to submit any notice, report or other filing with any
Governmental Entity in connection with the execution, delivery or performance
of
this Agreement or the consummation of the transactions contemplated hereby
the
failure of which to submit would, individually or in the aggregate, have or
result in a Material Adverse Effect on Buyer. No waiver, consent, approval
or
authorization of any Governmental Entity or any third party is required to
be
obtained or made by Buyer or Buyer Sub in connection with its execution,
delivery or performance of this Agreement the failure of which to obtain or
make, individually or in the aggregate, would have or result in a Material
Adverse Effect on Buyer.
Section
3.5 SEC
Reports.
Buyer
has filed all forms, reports, schedules, registration statements, proxy
statements and other documents (including any document required to be filed
as
an exhibit thereto) required to be filed by Buyer with the Securities and
Exchange Commission (“SEC”)
since
December 31, 2003. All such required forms, reports, schedules, registration
statements, proxy statements and other documents (including those that Buyer
may
file subsequent to the date hereof) are referred to herein as the “SEC
Reports.”
As of
their respective dates, the SEC Reports (including any financial statements
or
schedules included or incorporated by reference therein) (i) were prepared
in
all material respects in accordance with the requirements of the Securities
Act
or the Securities Exchange Act of 1934 (the “Exchange
Act”),
as
the case may be, and the rules and regulations of the SEC thereunder applicable
to such SEC Reports and (ii) did not at the time they were filed (or if amended
or superseded by a filing prior to the date of this Agreement, then on the
date
of such filing) contain any untrue statement of a material fact or omit to
state
a material fact required to be stated therein or necessary in order to make
the
statements therein, in light of the circumstances under which they were made,
not misleading. As of the date hereof, there has not been any Material Adverse
Effect with respect to Buyer that would require disclosure under the Securities
Act.
-19-
Section
3.6 Buyer
Sub.
Buyer
Sub is not and has never been a party to any material agreement and has not
conducted any activities other than in connection with the organization of
Buyer
Sub, the negotiation and execution of this Agreement and the consummation of
the
transactions contemplated hereby. Buyer Sub has not incurred or assumed any
expenses or liabilities prior to the Closing.
Section
3.7 Broker’s
Fees.
None of
Buyer or Buyer Sub has any liability or obligation to pay any fees or
commissions to any broker, investment banking firm, finder or agent with respect
to the transactions contemplated by this Agreement.
ARTICLE
IV
FURTHER
COVENANTS AND ASSURANCES
Section
4.1 Securities
Laws.
(a) Buyer,
Buyer Sub, and the Company will take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of Buyer Common Stock in connection with the Merger. The Company
will use commercially reasonable efforts to assist Buyer as may be necessary
to
comply with such securities and blue sky laws.
(b) So
long
as Buyer or any successor entity has securities registered under Securities
Act
or the Exchange Act, Buyer or such successor entity will file all reports
required to be filed by it under the Securities Act and the Exchange Act, all
to
the extent required pursuant to Rule 144 to enable stockholders who exchange
Shares for Buyer Common Stock pursuant to the terms of this Agreement to sell
Buyer Common Stock pursuant to Rule 144 adopted by the Securities and Exchange
Commission under the Securities Act (as such rule may be amended from time
to
time) or any similar rule or regulation hereafter adopted by the Securities
and
Exchange Commission.
Section
4.2 Public
Announcements.
Buyer,
Buyer Sub, the Company and Company Parent will consult with each other before
holding any press conferences, analyst calls or other meetings or discussions
and before issuing any press release or other public announcements with respect
to the transactions contemplated by this Agreement, including the Merger. The
parties will provide each other the opportunity to review and comment upon
any
press release or other public announcement or statement with respect to the
transactions contemplated by this Agreement, including the Merger, and will
not
issue any such press release or other public announcement or statement prior
to
such consultation, except as may be required by applicable law, court process
or
by obligations pursuant to any listing agreement with any national securities
exchange. The parties agree that the initial press release or releases to be
issued with respect to the transactions contemplated by this Agreement will
be
mutually agreed upon prior to the issuance thereof. In addition, the Company
and
Company Parent will consult with Buyer regarding communications with customers,
stockholders and employees relating to the transactions contemplated by this
Agreement.
-20-
Section
4.3 Reviewed
and Audited Financial Statements.
(a) Preparation
of Reviewed Balance Sheet and Audited Financial Statements.
Promptly after the Effective Time, the certified public accountant of the Buyer
shall
be
provided with access to the Books and Records and financial information of
the
Company and shall (i)
review the Company’s
balance
sheet as of October 31, 2005 (“Reviewed
Balance Sheet”)
and
review the Company’s balance sheet as of October 31,, 2004 and review the income
and cash flow statements for the ten month periods ended October 31, 2005 and
2004, and (ii) audit the balance
sheets
as of December
31, 2004
and
2003, and the statements of income and cash flows for the years then ended
within
seventy-five (75) days of the Effective Time (the “Audited
Financial Statements”).
The
costs and expenses of said review and audit shall be borne equally by the
Company Parent and Buyer; provided, however, that Company Parent’s portion of
said costs and expenses shall be limited to Ten Thousand Dollars ($10,000).
The
Reviewed Balance Sheet and the Audited Financial Statements shall (a) be
prepared based on the books and records of the Company, (b) fairly present
the
financial condition of the Company at the date therein indicated and the results
of operation for the period therein specified and (c) be prepared in accordance
with GAAP.
(b) Dispute
Resolution.
In the
event that the Company Parent disagrees with the accuracy of the Audited
Financial Statements, the Company Parent shall deliver a written notice of
disagreement (a) (“Dispute
Notice”)
within
ten (10) days of its receipt of the Reviewed Balance Sheet and/or Audited
Financial Statements (the “Review
Period”)
setting forth in reasonable detail the basis for such dispute. If the Company
Parent does not deliver a Dispute Notice within the Review Period, then the
Reviewed Balance Sheet and/or Audited Financial Statement shall be final and
binding on the parties, effective as of the first business day following the
Effective Time. In the event the Company Parent delivers to Buyer a Dispute
Notice in a timely manner, then Buyer and Company Parent shall attempt in good
faith to resolve such dispute within ten (10) days from the date of the Dispute
Notice. If Buyer and the Company Parent cannot reach an agreement within such
ten (10) day period (or such longer period as they may mutually agree), then
the
dispute shall be promptly referred to mediation in accordance with the rules
of
the American Arbitration Association (“AAA”)
should
the total amount in dispute not exceed $120,000.00. In the event that the amount
in dispute exceeds $120,000.00, then in such event the dispute shall be
submitted to arbitration under the rules of the AAA governing commercial
disputes. The arbitration shall take place in the State of Maryland
before a
single neutral arbitrator. The parties may conduct only essential discovery
prior to the hearing, as defined by the AAA arbitrator. The arbitrator shall
issue a written decision, which contains essential findings and conclusions
on
which the decision is based. Judgment upon the determination or award rendered
by the arbitrator may be entered in any court having jurisdiction thereof.
The
non-prevailing party shall be responsible for all fees, costs, and expenses
associated with any mediation and/or arbitration arising under this Agreement;
provided, however, that if neither
party shall fully prevail with respect to the amount of adjustment claimed
by
such party to be required following the preparation of the Audited Financial
Statements, then each party shall bear a portion of the fees, costs and expenses
of mediation and/or arbitration based on a comparative analysis of the claims
made by each party and the result of such proceedings. For example, if Buyer
claims that a $10,000 adjustment is required following preparation of the
Audited Financial Statements, Company claims that no adjustment is required,
and
arbitration or mediation results in a finding that a $6,000 adjustment is
required, then in that event Company Parent shall pay 60% of all expenses,
fees
and costs, and Buyer shall pay 40%.
-21-
Section
4.4 Non-Competition
and Other Covenants.
(a) Agreement
Not to Compete.
For a
period of two (2) years after the Closing Date, Company Parent and its
Affiliates shall not be engaged or interested in any business which competes
directly with the business of the Company as is currently conducted, or in
those
states in which the Company or its Affiliates has specific plans to conduct
business and the Company Parent or its Affiliates have knowledge of such plans
at, or prior to the Closing. Company Parent and its Affiliates shall be deemed
to be interested in a business if it is engaged or interested in that business
as a stockholder, director, officer, employee, salesman, sales representative,
agent, partner, individual proprietor, consultant or otherwise, but not if
such
interest is limited solely to ownership of (i) 2% or less of the equity or
debt
securities of any class of a corporation whose shares are listed for trading
on
a national securities exchange or traded in the over the counter market and
(ii)
up to an amount that is less than 50% of the equity securities of any class
of
Pac West.
(b) Non-solicitation.
For a
period of two (2) years after the Closing Date, Company Parent and its
Affiliates shall not, directly or indirectly, (i) cause or attempt to cause
any
customer, client, account or vendor, or prospective customer, client, account
or
vendor to divert, terminate, limit or in any manner modify or fail to enter
into
any actual or potential business relationship with the Company, or (ii) divert,
solicit or employ, or attempt to divert, solicit or employ, any employees of
the
Company; provided, however, that Company Parent or any of its Affiliates may
employ Xxxx Xxxxxxxx at any time if she is not then a full-time employee of
Buyer,
Buyer
Sub,
or any
of Buyer’s Affiliates. For
purposes of this Section 4.4, a prospective customer, client, account or vendor
shall mean any customer, client, account or vendor that Company Parent was
involved with or had knowledge of for the twelve month period prior to the
Closing Date.
(c) Necessary
and Reasonable.
Company
Parent agrees that the covenants provided for in Section 4.4 hereof are
necessary and reasonable in order to protect the Company in the conduct of
its
business, to protect the trade secrets and other proprietary information of
the
Company and to protect the Company in the utilization of the assets, tangible
and intangible, including the goodwill of the Company.
Section
4.5 Adjustment
of Merger Consideration.
The
Merger Consideration due
and
payable to Company Parent in accordance with Section 1.6 will be adjusted
as follows:
-22-
(a) Reductions
in Merger Consideration at Closing.
If the
Closing Balance Sheet (as defined in Section 5.1(i)) reveals a Working Capital
Deficit, the Cash Consideration shall be reduced by one dollar for every dollar
of Working Capital Deficit greater than $350,000 on the Closing Balance
Sheet.
(b) Reductions
in Merger Consideration After Closing.
In
the
event the Reviewed Balance Sheet reveals a Working Capital Deficit in excess
of
$350,000, Company Parent shall surrender the certificate representing the Stock
Consideration that was issued at the Closing, the Buyer shall offset the
additional excess amount against the Stock Consideration and Buyer shall issue
a
new certificate representing the Stock Consideration as adjusted.
Section
4.6 Real
Property Deliveries.
The
Company agrees that if, immediately prior to or at the Closing, or at any time
after the Effective Time, Buyer considers or is advised that any further deeds,
assignments or assurances are reasonably necessary or desirable to vest, perfect
or confirm in Buyer title to any property or rights of the Company, Buyer and
its proper officers and directors may execute and deliver all such proper deeds,
assignments and assurances and do all other things necessary or desirable to
vest, perfect or confirm title to such property or rights in Buyer and otherwise
to carry out the purpose of this Agreement, in the name of the Company or
otherwise.
Section
4.7 Termination
of Related Party Arrangements.
The
Company and Company Parent shall cause all Material Agreements described in
Sections 2.13(a)(viii) of the Company Disclosure Letter, other than those listed
in Section 4.7 of the Company Disclosure Letter, to be terminated immediately
prior to the Closing with no further liability or obligation on the part of
any
party thereto.
Section
4.8 Release.
(a) Effective
at the time of the Closing, Company Parent hereby, without any further action,
releases and forever discharges the Company and its officers, directors,
managers, employees and Affiliates (other than Buyer and Buyer Sub), from any
and all liabilities, claims, obligations, actions, causes of action, suits
at
law or in equity of whatever kind or nature, debts, dues, sums of money,
accounts, reckonings, bonds, bills, specialties, covenants, Material Agreements,
controversies, promises, variances, trespasses, judgments, verdicts, extents,
executions, Liens, payments, damages, costs, attorneys fees, expenses, and
demands of any kind or nature, which Company Parent may have or may have had,
known or unknown, from the beginning of the world through and including the
Closing Date, against the Company or any of its officers, directors, managers,
employees or affiliates (other than Buyer and Buyer Sub).
(b) Notwithstanding
the foregoing, nothing contained in clause (a) above shall constitute a release
by Company Parent for claims against Buyer or Buyer Sub arising out of Buyer’s
or Buyer Sub’s obligations under this Agreement.
Section
4.9 SBC
Litigation.
At
or prior
to the Closing,
Company, Company Parent, Buyer, and Buyer Sub shall execute and deliver the
Assignment of Litigation attached as Exhibit F hereto, pertaining to
that
certain matter captioned linkLine
Communications, Inc., InReach Internet LLC, et al.
v.
SBC California, Inc., et al.,
Case
No. CV 03-5265 SVW (SHx) in the United States District Court for the Central
District of California (Western Division) (the “SBC Litigation”),
pursuant
to which Company will assign to Company Parent certain rights with respect
to
the SBC Litigation, including without limitation certain rights to control
said
litigation and receive a portion of the proceeds therefrom, if any.
-23-
Section
4.10 Accounts
and Investments.
At or
prior to the Closing, the Company will transfer to the Buyer Sub title,
ownership and access rights to each of the Accounts and Investments listed
on
Section 2.22 of the Company Disclosure Letter. Following the Closing, the
Company, each of its Affiliates, members, managers, agents and employees will
have no rights whatsoever to each of the Accounts and Investments listed on
Section 2.22 of the Company Disclosure Letter.
Section
4.11 Further
Assurances.
The
parties agree to execute and deliver all such other instruments and take all
such other action as any party may reasonably request from time to time, after
Closing and without payment of further consideration, in order to effectuate
the
transactions provided for herein.
Section
4.12 Post-Closing
Tax Cooperation.
Following the Closing Date, Buyer and Buyer Sub, on the one hand, and Company
Parent on the other hand, shall cooperate fully with each other to the extent
reasonably requested by the other in connection with the filing of Tax Returns
and any audit, litigation, or other proceeding with respect to Taxes or Tax
Returns of or with respect to the Company, Company Parent, or Company Parent’s
shareholders,
provided, however, that such cooperation shall not relieve Company Parent of
its
obligations to file Tax Returns and pay Taxes required of the Company
Parent.
Such
cooperation shall include the retention and (upon the other party’s request) the
provision of records and information which are reasonably relevant to any such
Tax Return, filing audit, litigation or other proceeding, and making personnel
available on a mutually convenient basis to provide additional information
and
explanation of any material provided hereunder. The parties further agree,
upon
request by other, to use all reasonable efforts to obtain and provide any
certificate or other document from any governmental authority or any other
person as may be necessary to mitigate, reduce, or eliminate any Tax that could
be imposed with respect to the Company and the transactions contemplated hereby.
Further, each of the parties agree to provide, upon request of the other, any
and all information required to be reported pursuant to the Internal Revenue
Code and all Treasury Department Regulations promulgated
thereunder.
Section
4.13 Payment
of Niwot Capital, LLC.
At
Closing Company Parent shall pay the broker’s fee owed to Niwot Capital, LLC and
provide to Buyer within Five (5) days following the Closing a payoff letter
from
Niwot Capital, LLC.
Section
4.14 Office
Lease.
At
Closing, the Surviving Company and Company Parent shall enter into a lease
for
40% the existing office space currently occupied by the Company at $1.00 monthly
per square foot for a term of not less than two years with two (2) two year
options to renew with rent escalation at 3% per year with existing security
deposit to remain in place in form and content substantially similar to that
attached as Exhibit
E
(the
“Lease”).
-24-
Section
4.15 Accounting
Services.
Company
Parent shall continue to provide to the Surviving Company the accounting
services as it currently provides to the Company prior to Closing at $575 per
month through January 1, 2006 or unless sooner terminated at the discretion
of
the Company.
Section
4.16 Accounting
System.
Company
Parent shall continue to provide the Surviving Company with use of accounting
software system through December 31, 2005 or unless sooner terminated at the
discretion of the Surviving Company.
ARTICLE
V
CONDITIONS
OF MERGER
Section
5.1 Conditions
to Obligations of Buyer and Buyer Sub to Effect the
Merger.
The
obligations of Buyer and Buyer Sub to effect the Merger will be subject to
the
satisfaction or waiver of the following conditions prior to the Effective Time:
(a) Representations
and Warranties.
Those
representations and warranties of the Company and Company Parent set forth
in
this Agreement will be true and correct as of the Closing Date (except to the
extent such representations and warranties expressly relate to a specific date
in which case such representations and warranties will be true and correct
as of
such date). Buyer shall receive a certificate to such effect executed by the
Company’s Chief Operating Officer.
(b) Agreements
and Covenants.
The
Company and Company Parent shall have performed in all material respects all
obligations and complied in all material respects with all agreements and
covenants of the Company and Company Parent required to be performed or complied
with by it under this Agreement. Buyer shall receive a certificate to such
effect executed by the Company’s Chief Operating Officer.
(c) Secretary
Certificates.
Buyer
will have received from the corporate secretary of each of the Company and
Company Parent a certificate (i) certifying as to such entity’s Articles of
Organization, (ii) certifying as to such entity’s operating agreement, (iii)
certifying as to such entity’s resolutions of its Manager (in the case of
Company) and Board of Directors (in the case of Company Parent), (vi) certifying
as to such entity’s resolutions of its shareholders (in the case of Company
Parent) and member(s) (in the case of Company) and (v) attesting to the
incumbency of such entity’s officers.
(d) Good
Standing.
Buyer
will have received a certificate of the Secretary of State or other applicable
Governmental Authority certifying the good standing of the Company in its
jurisdiction of organization as of a date within seven days of the Closing
Date.
(e) Minute
Books, Etc.
Buyer
shall receive on the Closing Date corporate records relating to the
organization, ownership and maintenance of the Company.
(f) Resignations.
Buyer
will have received written resignations, effective as of the Closing Date,
of
each of the managers and officers of the Company from all manager positions
and
offices with the Company;
-25-
(g) Required
Consents.
Any
consent, authorization, order or approval, in a form reasonably acceptable
to
Buyer, of (or filing or registration with) any third party identified by Buyer
on Schedule 5.1(g) will have been obtained or made.
(h) Legal
Opinion.
Buyer
will have received an opinion, dated the Closing Date, of counsel to the
Company, in substantially the form of Exhibit
A
attached
hereto.
(i) Closing
Balance Sheet and Income Statement.
Buyer
will have received from the Company, a closing
balance sheet, dated as of October 31, 2005, attached hereto as Exhibit
B and
based
on Company’s estimates of the matters contained therein (“Closing Balance
Sheet”). Promptly following the Effective Time, Company Parent shall provide
Buyer with a closing balance sheet and income statements prepared in accordance
with Section 2.7.
(j) Employment
Agreement.
The
Surviving Company and Xxxx Xxxxxxxx will have agreed in principal on the terms
of her employment, and shall have executed an Employment Agreement in
substantially the form of Exhibit
C
attached
hereto dated on or before the Closing Date (to become effective on the Closing
Date), between the Surviving Company and each of Xxxx Xxxxxxxx.
(k) Registration
Rights Agreement.
Buyer
and Company Parent will have executed and delivered the Registration Rights
Agreement providing for piggyback registration rights with respect to the Stock
Consideration in the form attached hereto as Exhibit
D
(the
“Registration
Rights Agreement”).
(l) Office
Lease.
The
Surviving Company and Company Parent shall have executed and delivered the
Lease
as defined in Section 4.14.
(m) Assignment
of Litigation.
The
Company and Company Parent shall have executed and delivered to Assignment
of
Litigation described in Section 4.9.
Section
5.2 Conditions
to Obligations of the Company and Company Parent to Effect the
Merger.
The
obligations of the Company and Company Parent to effect the Merger will be
further subject to the satisfaction or waiver of the following conditions prior
to the Effective Time:
(a) Representations
and Warranties.
Those
representations and warranties of Buyer and Buyer Sub set forth in this
Agreement will be true and correct as of the Closing Date (except to the extent
such representations and warranties expressly relate to a specific date in
which
case such representations will be true and correct as of such date). The Company
shall receive a certificate to such effect executed by Buyer’s Chief Executive
Officer.
(b) Agreements
and Covenants.
Buyer
and Buyer Sub shall have performed in all material respects all obligations
and
complied in all material respects with all agreements and covenants of Buyer
and
Buyer Sub required to be performed or complied with by them under this
Agreement. The Company shall receive a certificate to such effect executed
by
Buyer’s Chief Executive Officer.
-26-
(c) Secretary
Certificates.
The
Company will have received from the corporate secretary of each of Buyer and
Buyer Sub a certificate (i) certifying Parent’s Certificate of Incorporation,
Buyer’s Articles of Incorporation and Buyer Sub’s Certificate of Incorporation,
(ii) certifying the bylaws of Buyer and Buyer Sub, (iii) certifying the
resolutions of the board of directors of Buyer and Buyer Sub and (iv) certifying
the resolutions of the stockholder of Buyer Sub.
(d) Good
Standing.
The
Company will have received a certificate of the Secretary of State or other
applicable Governmental Authority certifying the good standing of Buyer in
its
jurisdiction of organization as of a date within seven days of the Closing
Date.
(e) Employment
Agreement.
The
Surviving Company and Xxxx Xxxxxxxx will have agreed in principal on the terms
of her employment, and shall have executed an Employment Agreement in
substantially the form of Exhibit
C
attached
hereto dated on or before the Closing Date (to become effective on the Closing
Date), between the Surviving Company and Xxxx Xxxxxxxx.
(f) Registration
Rights Agreement.
Buyer
and Company Parent will have executed and delivered the Registration Rights
Agreement.
(g) Assignment
of Litigation.
Buyer
and Buyer Sub shall have executed and delivered the Assignment of Litigation
described in Section 4.9.
ARTICLE
VI
SURVIVAL
AND INDEMNIFICATION
Section
6.1 Survival
of Representations and Warranties.
The
representations and warranties of the parties contained in this Agreement or
in
any instrument delivered pursuant hereto will remain operative and in full
force
and effect, regardless of any investigation made by or on behalf of the other
parties to this Agreement, (i) in the case of the representations and warranties
contained in Section 2.3, at all times from and after the Closing; (ii) in
the
case of the representations and warranties contained in Sections 2.1, 2.2,
2.4
and 2.9, until 60 days after the expiration of the applicable statute of
limitations with respect to the matter to which the claim relates, as such
limitation period may be extended from time to time; (iii) in the case of
representations and warranties contained in Section 2.11, until the date which
is three (3) years following the Closing Date; and (iv) in the case of all
other
representations and warranties, until the date which is one (1) year following
the Closing Date (each such period referred to herein as the “Survival
Period”);
provided,
however,
that,
in each case, such representations and warranties shall survive beyond their
respective periods with respect to any inaccuracy therein or breach thereof,
notice of which shall have been duly given within such applicable period in
accordance with Section 6.4, 6.5 or 6.6 hereof, as applicable. The covenants
and
agreements (as opposed to the representations and warranties in Articles 2
and
3) of the parties contained in this Agreement or in any instrument delivered
pursuant hereto or in connection herewith will survive the Closing and will
remain in full force and effect at all times after the Closing.
-27-
Section
6.2 Indemnification
of Buyer and Buyer Sub.
Subject
to the limitations set forth in this Article VI, the Company and Company Parent
agree to jointly and severally indemnify and hold harmless Buyer and Buyer
Sub,
and each of their respective officers, directors, agents and employees, and
each
person, if any, who controls or may control Buyer and Buyer Sub within the
meaning of the Securities Act from and against any and all claims, demands,
actions, causes of actions, losses, costs, damages, liabilities and expenses
including, without limitation, reasonable legal fees (hereinafter referred
to as
“Damages”)
arising
out of any misrepresentation or breach of or default in connection with any
of
the representations, warranties and covenants given or made by the Company
or
Company Parent in this Agreement or any certificate, document or instrument
delivered by or on behalf of the Company or Company Parent pursuant hereto.
The
foregoing are collectively referred to as the “Buyer
Indemnity Claims.”
Section
6.3 Indemnification
of the Company and Company Parent.
Subject
to the limitations set forth in this Article VI, Buyer and Buyer Sub agree
to
jointly and severally indemnify and hold harmless the Company and Company Parent
and their respective officers, directors, Shareholders, Subsidiaries, Affiliates, managers,
agents and employees, from and against any and all Damages
arising
out of any (a) misrepresentation or breach of or default in connection with
any
of the representations, warranties and covenants given or made by Buyer or
Buyer
Sub in this Agreement or any certificate, document or instrument delivered
by or
on behalf of Buyer or Buyer Sub pursuant hereto; and (b) post-Closing operation
of Company or Company’s business, including without limitation all debts,
liabilities, duties and other obligations of Company to the extent not required
to be paid or satisfied by Company or Company Parent prior to the Closing
pursuant to this Agreement. The foregoing are collectively referred to as the
“Company
and Company Parent Indemnity Claims.” The
Company and Company Parent Indemnity Claims together with Buyer Indemnity Claims
are collectively referred to as the “Indemnity
Claims.”
Section
6.4 General
Notice and Procedural Requirements for Indemnity Claims.
Notwithstanding the foregoing, the party or person having the indemnity
obligation under this Article VI (the “Indemnifying
Party”),
shall
be obligated to indemnify and hold harmless the party or person entitled to
indemnity under this Article VI (the “Indemnified
Party”),
only
with respect to any Indemnity Claims of which the Indemnified Party notifies
with specificity the Indemnifying Party in accordance with Section 7.1 of this
Agreement and, if applicable, within the following time period: (i) with regard
to any representation or warranty under this Agreement, prior to the end of
the
Survival Period of such representation or warranty; or (ii) with regard to
any
covenant under this Agreement which by its terms expires, prior to the end
of
the survival period relating to such covenant.
Section
6.5 Notice
and Procedural Requirements for Third Party Claims.
If a
complaint, claim or legal action is brought by a third party (a “Third
Party Claim”)
as to
which an Indemnified Party is entitled to indemnification under Section 6.2
or
6.3 of the Agreement, and subject to the applicable Survival Period, the
Indemnified Party shall give written notice of such Third Party Claim to the
Indemnifying Party in accordance with Section 7.1 of this Agreement promptly
after the Indemnified Party receives notice thereof, which notice shall include
a copy of any letter, complaint or similar writing received by the Indemnified
Party; provided however, that any failure to provide or delay in providing
such
information shall not constitute a bar or defense to indemnification except
to
the extent the Indemnifying Party has been prejudiced thereby.
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The
Indemnifying Party shall have the right to assume the defense of such Third
Party Claim with counsel reasonably satisfactory to the Indemnified Party.
After
notice from the Indemnifying Party to the Indemnified Party of the Indemnifying
Party’s election so to assume the defense of such Third Party Claim, the
Indemnifying Party shall not be liable to the Indemnified Party for any legal
or
other expenses subsequently incurred by the Indemnified Party in connection
with
the defense of such Third Party Claim except as hereinafter provided. If the
Indemnifying Party elects to assume such defense and select counsel, the
Indemnified Party may participate in such defense through its own separate
counsel, but the fees and expenses of such counsel shall be borne by the
Indemnified Party unless: (i) otherwise specifically agreed by the Indemnifying
Party, or (ii) counsel selected by the Indemnifying Party determines that
because of a conflict of interest between the Indemnifying Party and the
Indemnified Party such counsel for the Indemnifying Party cannot adequately
represent both parties in conducting the defense of such action. In the event
the Indemnified Party maintains separate counsel because counsel selected by
the
Indemnifying Party has determined that such counsel cannot adequately represent
both parties because of a conflict of interest between the Indemnifying Party
and the Indemnified Party, then the Indemnifying Party shall not have the right
to direct the defense of such Third Party Claim on behalf of the Indemnified
Party.
The
failure of the Indemnifying Party to notify an Indemnified Party of its election
to defend such Third Party Claim within thirty (30) days after notice thereof
was given to the Indemnifying Party shall be deemed a waiver by the Indemnifying
Party of its rights to defend such Third Party Claim.
If
the
Indemnifying Party assumes the defense of a Third Party Claim, the obligations
of the Indemnifying Party shall include taking all steps necessary in the
defense of such Third Party Claim and holding the Indemnified Party harmless
from and against any and all Damages caused or arising out of any settlement
approved by the Indemnified Party or any judgment in connection with the claim
or litigation.
If
the
Indemnifying Party does not assume the defense of such Third Party Claim in
accordance with this Section, the Indemnified Party may defend against such
claim or litigation in such manner as it deems appropriate; provided, however,
that the Indemnified Party may not settle such Third Party Claim without the
prior written consent of the Indemnifying Party; provided that the Indemnifying
Party may not withhold such consent unless it has provided security of a type
and in an amount reasonably acceptable to the Indemnified Party for the payment
of its indemnification obligations with respect to such Third Party Claim.
The
Indemnifying Party shall promptly reimburse the Indemnified Party for the amount
of Damages caused or arising out of any judgment rendered with respect to such
Third Party Claim, and for all costs and expenses incurred by the Indemnified
Party in the defense of such claim.
The
Indemnifying Party may settle any Third Party Claim in its sole discretion
without the prior written consent of the Indemnified Party, provided that such
settlement involves only the payment of cash by the Indemnifying Party to the
claimant and does not impose any other obligation on the Indemnifying Party
or
any liability or obligation on the Indemnified Party.
-29-
Section
6.6 Notice
and Procedural Requirements for Direct Claims.
Any
claim for indemnification by an Indemnified Party on account of Damages which
do
not result from a Third Party Claim (a “Direct
Claim”)
shall
be asserted by giving the Indemnifying Party reasonably prompt notice thereof
in
accordance with Section 7.1 of this Agreement; provided, however, that any
failure to provide, or delay in providing, such notification shall not
constitute a bar or defense to indemnification except to the extent the
Indemnifying Party has been prejudiced thereby. After receiving notice of a
Direct Claim, the Indemnifying Party will have a period of thirty (30) days
within which to respond in writing to such Direct Claim. If the Indemnifying
Party rejects such claim or does not respond within such thirty (30) day period
(in which case the Indemnifying Party will be deemed to have rejected such
claim), the Indemnified Party will be free to pursue such remedies as may be
available to the Indemnified Party on the terms and subject to the provisions
of
this Article VI.
Section
6.7 Maximum
Liability; Sole Recourse.
Notwithstanding anything to the contrary herein, (a) in no event will the
Company or Company Parent’s indemnity obligations under this Article VI exceed
the aggregate amount of the Merger Consideration; and (b) Buyer’s and Buyer
Sub’s sole and exclusive recourse for any and all claims, losses, damages and
expenses arising directly or indirectly from this Agreement or the transactions
contemplated hereby shall be for indemnification as provided in this Article
VI.
In no event will Buyer’s indemnity obligations under this Article VI exceed the
aggregate amount of the
Merger Consideration.
Section
6.8 Basket.
Notwithstanding
anything to the contrary herein, in no event shall an Indemnifying Party have
any liability for an indemnity obligation under this Article VI unless and
until
the Damages relating to the party’s Indemnity Claims exceed $50,000 in the
aggregate, provided,
however
that the
provisions of this Section 6.8 shall not be construed to apply to the
adjustments in Section 4.5. From and after the time the aggregate Damages for
an
Indemnified Party’s Indemnity Claims exceed $50,000,
the
limitation set forth in this Section 6.8 shall be of no further force and effect
and the Indemnifying Party shall be liable for the entire amount of the Damages,
subject to the liability limitations of Section 6.7.
ARTICLE
VII
GENERAL
PROVISIONS
Section
7.1 Notices.
All
notices and other communications given or made pursuant hereto will be in
writing and will be deemed to have been duly given or made (a) as of the date
delivered, if delivered personally or by overnight courier, (b) on the third
Business Day after deposit in the U.S. mail, if mailed by registered or
certified mail (postage prepaid, return receipt requested), or (c) when
successfully transmitted by facsimile (with a confirming copy of such
communication to be sent as provided in clauses (a) or (b) above), and, in
each
case to the parties at the following addresses or facsimile number (or at such
other address for a party as will be specified by like notice, except that
notices of changes of address will be effective upon receipt):
-30-
(a) If
to
Buyer or Buyer Sub:
0000
Xxxxxxxxx Xxxx., Xxxxx 000
Xxxxxxxx,
XX 00000
Attention: Xxx
X.
Xxxxxx, President and CEO
Facsimile: (000)
000-0000
With
a
copy (which will not constitute notice) to:
Xxxxxx
Xxxxxx LLP
0000
Xxxxxxxxxxx Xxx., X.X., Xxxxx 000
Xxxxxxxxxx,
X.X. 00000
Attention: Xxxxxx
X.
Xxxxx, Esq.
Facsimile: (000)
000-0000
(b) If
to the
Company or Company Parent:
Balco
Holdings, Inc.
00
Xxxxx
Xxxxx
Xxxxxxx,
XX 00000
Attention: Xxxxx
Xxxxxxx or Chief Financial Officer
Facsimile: (000)
000-0000
With
a
copy (which will not constitute notice) to:
Xxxxxxx,
Xxxxxx & Xxxxx LLP
0000
Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx,
XX 00000-0000
Attention: Xxxxxxx
X. Xxxxxxx, Esq.
Facsimile: (000)
000-0000
For
purposes of this Agreement, a “Business Day” shall mean any day that is not a
Saturday, a Sunday or other day on which banking organizations in Washington,
D.C. are authorized or required by law to close.
Section
7.2 Expenses.
All
fees, costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby will be paid by the party incurring such fees,
costs and expenses.
Section
7.3 Amendment.
This
Agreement may not be amended except by an instrument in writing signed by the
parties hereto.
Section
7.4 Entire
Agreement.
This
Agreement and the schedules and exhibits attached hereto, constitute the entire
agreement and supersede any and all other prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof.
-31-
Section
7.5 No
Third-Party Beneficiaries.
Except
for the parties hereto, this Agreement is not intended to confer upon any other
Person any rights or remedies hereunder.
Section
7.6 Assignment.
This
Agreement will not be assigned by operation of law or otherwise. This Agreement
will be binding upon, and will be enforceable by and inure to the benefit of
the
parties hereto and their respective successors and assigns.
Section
7.7 Severability.
If any
term or other provision of this Agreement is invalid, illegal or incapable
of
being enforced by any rule of law, or public policy, all other conditions and
provisions of this Agreement will nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner adverse to any party. Upon such
determination that any term or other provision is invalid, illegal or incapable
of being enforced, the parties hereto will negotiate in good faith to modify
this Agreement so as to effect the original intent of the parties as closely
as
possible in an acceptable manner to the end that transactions contemplated
hereby are fulfilled to the maximum extent possible.
Section
7.8 Governing
Law.
This
Agreement will be governed by, and construed in accordance with, the
laws
of the
State of Delaware
applicable to contracts executed in and to be performed entirely by Delaware
residents within Delaware.
Section
7.9 Headings;
Interpretation.
The
headings contained in this Agreement are for reference purposes only and will
not affect in any way the meaning or interpretation of this Agreement. Whenever
the words “include,”“includes”
or
“including”
are
used in this Agreement, they will be understood to be followed by the words
“without
limitation.”
Section
7.10 Construction.
In the
event of an ambiguity or question of intent or interpretation arises, this
Agreement will be construed as if drafted jointly by the parties and no
presumption or burden of proof will arise favoring or disfavoring any party
by
virtue of the authorship of any provisions of this Agreement.
Section
7.11 Counterparts.
This
Agreement may be executed in one or more counterparts, and by the different
parties hereto in separate counterparts, each of which when executed will be
deemed to be an original but all of which will constitute one and the same
agreement.
-32-
Section
7.12 Confidentiality.
The
Company and Buyer each recognize that they have received and will receive
confidential information concerning the other during the course of the Merger
negotiations and preparations. Accordingly, Buyer,
Buyer Sub, the Company and Company Parent each agree (a) to use its respective
best efforts to prevent the unauthorized disclosure of any confidential
information concerning the other that was or is disclosed during the course
of
such negotiations and preparations, and is clearly designated in writing as
confidential at the time of disclosure, and (b) to not make use of or permit
to
be used any such confidential information other than for the purpose of
effectuating the Merger and related transactions. The obligations of this
section will not apply to information that (i) is or becomes part of the public
domain, (ii) is disclosed by the disclosing party to third parties without
restrictions on disclosure, (iii) is received by the receiving party from a
third party without breach of a nondisclosure obligation to the other party
or
(iv) is required to be disclosed by law.
*
* *
-33-
IN
WITNESS WHEREOF,
Buyer,
Buyer Sub, the Company and Company Parent have executed this Agreement as of
the
date first written above.
By:
/s/ Xxx X.
Xxxxxx
Name:
Xxx
X.
Xxxxxx
Title:
President
and CEO
INREACH
INTERNET, INC.
By:
/s/ Xxx X.
Xxxxxx
Name:
Xxx
X.
Xxxxxx
Title:
CEO
BALCO
HOLDINGS, INC.
By:
/s/ Xxxxxx
Xxxxxxxx
Name:
Xxxxxx Xxxxxxxx
Title:
Chief Financial Officer
[Signature
Page to Agreement and Plan of Merger]
-34-
EXHIBIT
A
OPINION
A-1
EXHIBIT
B
CLOSING
BALANCE SHEET AND INCOME STATEMENT
B-1
EXHIBIT
C
EMPLOYMENT
AGREEMENT
C-1
EXHIBIT
D
REGISTRATION
RIGHTS AGREEMENT
D-1
EXHIBIT
E
LEASE
E-1
EXHIBIT
F
ASSIGNMENT
OF LITIGATION
F-1
