AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
AGREEMENT
OF MERGER AND
PLAN
OF REORGANIZATION
BY
AND AMONG
FTOH
ACQUISITION CORP.
and
0XX0.XXX,
INC.
Dated as
of: November 3, 2010
- 1
-
AGREEMENT
OF MERGER AND PLAN OF REORGANIZATION
THIS
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION (this “Agreement”) is made
and entered into on November 3, 2010, by and among FTOH Corp., a Delaware
corporation (“Parent”), FTOH
Acquisition Corp., a Delaware corporation (“Acquisition Corp.”),
which is a wholly-owned subsidiary of Parent, and 0xx0.xxx, Inc., a Delaware
corporation (the “Company”).
WITNESSETH:
WHEREAS,
the Board of Directors of each of Acquisition Corp., Parent and the Company have
each determined that it is fair to and in the best interests of their respective
corporations and stockholders for Acquisition Corp. to be merged with and into
the Company (the “Merger”) upon the
terms and subject to the conditions set forth herein;
WHEREAS,
the Board of Directors of each of Parent, Acquisition Corp. and the Company have
approved the Merger in accordance with the General Corporation Law of the State
of Delaware (the “DGCL”) and upon the
terms and subject to the conditions set forth herein, in the Delaware
Certificate of Merger attached as Exhibit A hereto (the
“Certificate of
Merger”);
WHEREAS,
the requisite stockholders of the Company (the “Stockholders”) and
Parent have each approved this Agreement, the Certificate of Merger and the
transactions contemplated and described hereby and thereby, including, without
limitation, the Merger, and Parent, as the sole stockholder of Acquisition
Corp., has approved by written consent pursuant to Section 228(a) of the DGCL,
this Agreement, the Certificate of Merger and the transactions contemplated and
described hereby and thereby, including, without limitation, the
Merger;
WHEREAS,
immediately following the Closing (as defined below), Parent (as it will exist
as of the closing of the Merger) will sell a minimum of $6,000,000 and a maximum
of $10,000,000 of its newly-issued shares of common stock, in a private
placement offering to accredited investors (the “Private Placement”)
for the purpose of financing the ongoing business and operations of the
Surviving Corporation (as defined below) following the Merger; and
WHEREAS,
the parties hereto intend that the Merger contemplated herein shall qualify as a
“reorganization” within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, as amended (the “Code”), by reason of
Section 368(a)(2)(E) of the Code, and this Agreement will be, and is hereby
adopted as, a “plan of reorganization” within the meaning of Section 1.368-2(g)
of the U.S. Income Tax Regulations promulgated under the Code (the “Treasury
Regulations”).
NOW,
THEREFORE, in consideration of the mutual agreements and covenants hereinafter
set forth, the parties hereto agree as follows:
ARTICLE
I.
THE
MERGER
Section
1.01 Merger. Subject
to the terms and conditions of this Agreement and the Certificate of Merger,
Acquisition Corp. shall be merged with and into the Company in accordance with
Section 252 of the DGCL. At the Effective Time (as defined below), the separate
legal existence of Acquisition Corp. shall cease, and the Company shall be the
surviving corporation in the Merger (sometimes hereinafter referred to as the
“Surviving
Corporation”) and shall continue its corporate existence under the laws
of the State of Delaware under the name “0xx0.xxx, Inc.”
Section
1.02 Effective
Time. The Merger shall become effective upon the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with Section 251(c) of the DGCL and upon the occurrence of the later
of: (A) the record date established by the Board of Directors of the Parent for
effectiveness of the Merger or (B) the date which FINRA (the Financial Industry
Regulatory Authority, Inc.) has approved the effectiveness of the Merger. The
time at which the Merger shall become effective as aforesaid is referred to
hereinafter as the “Effective
Time.”
Section
1.03 Closing. The closing
of the Merger (the “Closing”) shall occur
concurrently with the Effective Time (the “Closing Date”). The
Closing shall occur at the offices of Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP
referred to in Section 10.01 hereof. At the Closing, all of the documents,
certificates, agreements, opinions and instruments referenced in Article VII
will be executed and delivered as described therein. At the Effective Time, all
actions to be taken at the Closing shall be deemed to be taken
simultaneously.
Section
1.04 Certificate of
Incorporation, By-Laws, Directors and Officers.
(a) The
Certificate of Incorporation of the Company, as in effect immediately prior to
the Effective Time, attached as Exhibit B hereto, as
amended by the Certificate of Merger, shall be the Certificate of Incorporation
of the Surviving Corporation from and after the Effective Time until amended in
accordance with applicable law and such Certificate of
Incorporation.
(b) The
By-Laws of the Company, as in effect immediately prior to the Effective Time,
attached as Exhibit
C hereto, shall be the By-Laws of the Surviving Corporation from and
after the Effective Time until amended in accordance with applicable law, the
Certificate of Incorporation of the Surviving Corporation and such
By-Laws.
(c) The
directors and officers listed in Exhibit D hereto
shall be the directors and officers of the Surviving Corporation and Parent, and
each shall hold his or her respective office or offices from and after the
Effective Time until his or her successor shall have been elected and shall have
qualified in accordance with applicable law, or as otherwise provided in the
Certificate of Incorporation or By-Laws of the Surviving Corporation or the
Certificate of Incorporation or By-Laws of Parent, as the case may
be.
- 2
-
Section
1.05 Assets and
Liabilities. At the Effective Time, the Surviving Corporation shall
possess all the rights, privileges, powers and franchises of a public as well as
of a private nature, and be subject to all the restrictions, disabilities and
duties of each of Acquisition Corp. and the Company (collectively, the “Constituent
Corporations”); and all the rights, privileges, powers and franchises of
each of the Constituent Corporations, and all property, real, personal and
mixed, and all debts due to any of the Constituent Corporations on whatever
account, as well as all other things in action or belonging to each of the
Constituent Corporations, shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectively the property of the Surviving
Corporation as they were of the several and respective Constituent Corporations,
and the title to any real estate vested by deed or otherwise in either of such
Constituent Corporations shall not revert or be in any way impaired by the
Merger; but all rights of creditors and all liens upon any property of any of
the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by
it.
Section
1.06 Manner and Basis of
Converting Shares.
(a) At
the Effective Time:
(i)
each share of common stock, par value $0.0001 per
share of Acquisition Corp. that shall be outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive one (1) share of
common stock, $0.0001 par value per share, of the Surviving Corporation, so that
at the Effective Time, Parent shall be the holder of all of the issued and
outstanding shares of the Surviving Corporation;
(ii) each
share of common stock, par value $0.0001 per share, of the Company (the “Company Common
Stock”) beneficially owned by the Stockholders listed on Schedule 1.06(a)(ii)
(other than (A) shares of Company Common Stock as to which appraisal rights are
perfected pursuant to the applicable provisions of the DGCL and not withdrawn or
otherwise forfeited and (B) shares of Company Common Stock set forth in Sections
1.06(a)(iii) hereof), shall, by virtue of the Merger and without any action on
the part of the holders thereof, be converted into the right to receive one (1)
share of common stock, par value $0.0001 per share, of Parent (the “Parent Common
Stock”), with fractional shares of Parent Common Stock rounded up or down
to the nearest whole share (the “Exchange
Ratio”);
(iii) each
share of Company Common Stock held in the treasury of the Company immediately
prior to the Effective Time shall be cancelled in the Merger and cease to exist;
and
(iv) each
share of Parent Common Stock issued for each share of Company Common Stock
outstanding shall at the Effective Time, be subject to such restrictions and
limitations as are set forth on Schedule 1.06(a)(ii) and Schedule 2.03 with such
restrictions and limitations to be prominently noted on any stock certificate
issued to any Stockholder and duly noted in the stock transfer records
maintained by the Parent.
(b) After
the Effective Time, there shall be no further registration of transfers on the
stock transfer books of the Surviving Corporation of the shares of Company
Common Stock that were outstanding immediately prior to the Effective
Time.
- 3
-
Section
1.07 Surrender and Exchange of
Certificates.
(a) Promptly
after the Effective Time and upon (a) surrender of a certificate or certificates
representing shares of Company Common Stock that were outstanding immediately
prior to the Effective Time or an affidavit and indemnification in form
reasonably acceptable to counsel for Parent stating that such Stockholder has
lost its certificate or certificates or that such have been destroyed and (b)
delivery of a Letter of Transmittal (as described in Article IV hereof), Parent
shall issue to each record holder of Company Common Stock surrendering such
certificate, certificates or affidavit and Letter of Transmittal, a certificate
or certificates registered in the name of such Stockholder representing the
number of shares of Parent Common Stock that such Stockholder shall be entitled
to receive as set forth in Sections 1.06(a)(ii) hereof. Until the certificate,
certificates or affidavit is or are surrendered together with the Letter of
Transmittal as contemplated by this Section 1.07 and Article IV hereof, each
certificate or affidavit that immediately prior to the Effective Time
represented any outstanding shares of Company Common Stock shall be deemed at
and after the Effective Time to represent only the right to receive upon
surrender as aforesaid the Parent Common Stock specified in Schedule 1.06(a)(ii)
for the holder thereof or to perfect any rights of appraisal that such holder
may have pursuant to the applicable provisions of the DGCL.
Section
1.08 Treatment of Company
Options.
(a) At
the Effective Time, by virtue of the Merger and in accordance with the terms of
the Company Option Plan and/or the applicable Company Option, each outstanding
Company Option that has not been exercised by the holders thereof prior to the
Effective Time, whether vested or unvested, shall be terminated and cancelled as
of the Effective Time and shall not be assumed or otherwise replaced by
Parent. The Company agrees to take all action necessary to effect
this cancellation of Company Options upon the Effective Time, including but not
limited to, adopting all resolutions, giving all notices, obtaining consents
from each Company Option holder and taking any other actions which are
reasonably necessary to effectuate this Section 1.08.
(b) For
purposes of this Agreement, “Option Plan” means the Company’s 2008
Plan.
(c) For
purposes of this Agreement, “Company Option” means outstanding options to
purchase shares of Company Common Stock.
Section
1.09 Treatment of Restricted Stock. At the Effective
Time, each share of Company Common Stock that is outstanding and unvested or is
subject to a repurchase option or obligation, risk of forfeiture or other
condition under any applicable restricted stock purchase agreement or other
contract with the Company or under which the Company has any rights as of
immediately prior to the Effective Time (each, an “Assumed Unvested Restricted
Stock Award” or “Performance A Shares”), shall be assumed by Parent, up
to a maximum of 3,500,000 shares of Company Common Stock. In
accordance with its terms, each Assumed Unvested Restricted Stock Award shall be
converted into that number of shares of Parent Common Stock equal to the product
obtained by multiplying (x) the number of shares of Company Common Stock subject
to such Assumed Unvested Restricted Stock Award immediately prior to the
Effective Time by (x) the Exchange Ratio, rounded down to the nearest whole
share of Parent Common Stock. The Assumed Unvested Restricted Stock
Award shall otherwise be subject to the same terms and conditions (including as
to vesting and issuance) as were applicable under the respective Company
restricted Common Stock award immediately prior to the Effective
Time. Prior to the Effective Time, the Company shall take all action
that may be necessary to ensure that, from and after the Effective Time, Parent
is entitled to exercise any such repurchase option or other right set forth in
any such restricted stock purchase agreement or other contract.All Assumed
Unvested Restricted Stock Awards shall be subject to the additional terms and
conditions for vesting and/or forfeiture set forth on Schedule 1.09
hereto. In addition, in accordance with the Company’s special
incentive plan, 2,500,000 shares of Parent Common Stock issued by the Company
(the “Assumed Special
Incentive Award” or “Performance B Shares”) shall be subject to the
additional terms and conditions for vesting and/or forfeiture set forth on
Schedule 1.09 hereto.
- 4
-
Section
1.10 Parent
Stock. Parent agrees that it will cause the Parent Common
Stock into which the Company Common Stock is converted at the Effective Time
pursuant to Sections 1.06(a)(ii) to be available for such purposes. Parent
further covenants that immediately following the Effective Time, Parent will
effect cancellations of its outstanding shares of Parent Common Stock and that
there will be no more than: (A) 8,350,000 pre-Merger shares of Parent Common
Stock issued and outstanding (subject to adjustment for rounding) following
Parent’s 1:8.344159089 forward stock split (by way of dividend) payable October
29, 2010 (or such later date as FINRA may require) and (B) 1,500,000 newly
issued restricted shares of Parent Common Stock issued upon assumption and
mandatory conversion of $2.1 million original principal amount of Company’s
Convertible Promissory Notes dated as of October 15, 2010, with a Fixed
Conversion Price (as defined in the Notes) of $1.40 per share of Parent Common
Stock; and (C) the number of shares of Parent Common Stock issuable to accepted
subscribers in the Company’s private placement (the “PIPE Shares”) which
shall be not less than $3,000,000 at the Effective Time sold at a purchase price
of $1.00 per share (collectively, (A), (B), and (C), the “Pubco Shares” and
each holder thereof a “Pubco Holder”), and
that no other pre-Merger common or preferred stock or equity securities or any
options, warrants, rights or other agreements or instruments convertible,
exchangeable or exercisable into common or preferred stock or other equity
securities shall be issued or outstanding, except as described
herein.
Section
1.11 Operation of Surviving
Corporation. The Company acknowledges that upon the
effectiveness of the Merger, and the material compliance by Parent and
Acquisition Corp. with their respective duties and obligations hereunder
(including, but not limited to, Section 6.05 hereof), Parent shall have the
absolute and unqualified right to deal with the assets and business of the
Surviving Corporation as its own property without limitation on the disposition
or use of such assets or the conduct of such business.
Section
1.12 Further
Assurances. From time to time, from and after the Effective
Time, as and when reasonably requested by Parent, the proper officers and
directors of the Company as of the Effective Time shall, for and on behalf and
in the name of the Company or otherwise, execute and deliver all such deeds,
bills of sale, assignments and other instruments and shall take or cause to be
taken such further actions as Parent, Acquisition Corp. or their respective
successors or assigns reasonably may deem necessary or desirable in order to
confirm or record or otherwise transfer to the Surviving Corporation title to
and possession of all of the properties, rights, privileges, powers, franchises
and immunities of the Company or otherwise to carry out fully the provisions and
purposes of this Agreement and the Certificate of Merger.
- 5
-
ARTICLE
II.
REPRESENTATIONS
AND WARRANTIES OF THE COMPANY
The
Company hereby represents and warrants to Parent and Acquisition Corp. and each
of the Company’s PIPE investors and each holder of 6% Convertible Notes issued
as of October 15, 2010 by Parent as follows. Notwithstanding anything to the
contrary contained herein, disclosure in a schedule hereto, in the unaudited
financial statements of Company or in any other document or agreement sent or
delivered by Company or its representatives prior to the date
hereof (collectively, the “Disclosures”) shall
be deemed to be disclosure of such items for all purposes under this Agreement,
including, without limitation, for all applicable representations and warranties
of the Company:
Section
2.01 Organization, Standing,
Subsidiaries, Etc.
(a) The
Company is a corporation duly organized and existing in good standing under the
laws of the State of Delaware and has all requisite corporate power and
authority to carry on its business, to own or lease its properties
and assets, to enter into this Agreement and the Certificate of Merger and to
carry out the terms hereof and thereof. Copies of the Certificate of
Incorporation and By-Laws of the Company that have been delivered to Parent and
Acquisition Corp. prior to the execution of this Agreement are true and complete
and have not since been amended or repealed.
(b) The
Company has no subsidiaries or direct or indirect interest (by way of stock
ownership or otherwise) in any firm, corporation, limited liability company,
partnership, association or business.
Section
2.02 Qualification. The
Company is duly qualified to conduct business as a foreign corporation and is in
good standing (if such concept is applicable in the relevant jurisdiction) in
each jurisdiction wherein the nature of its activities or its properties owned
or leased makes such qualification necessary, except where the failure to be so
qualified would not have a material adverse effect on the financial condition,
properties, assets, liabilities, business operations, results of operations or
prospects of the Company taken as a whole (the “Condition of the
Company”).
- 6
-
Section
2.03 Capitalization of the
Company. The authorized capital stock of the Company consists
of 27,000,000 shares of Company Common Stock and 500,000 shares of Preferred
Stock, of which there are or shall be issued at the Effective Time (and
following the recapitalization of Company effective immediately prior to the
Effective Time (the “Recapitalization
Plan”)) and as set forth on Schedule 2.03 hereof only: (A) 2,000,000
shares of Company Common Stock upon mandatory exchange of Company bridge loans
under agreements dated as of September 29, 2010(the “New Bridge Loans”),
such Company loans to be cancelled at the Effective Time, the principal and
interest of which will be deemed repaid and re-invested in newly issued common
stock of the Company contemporaneously with Closing with all rights and benefits
applicable to the PIPE shares under the Subscription Agreement therefore to be
available to such New Bridge Loan Shares; (B) 3,275,000 shares of Company Common
Stock issued prior to the Effective Time to the prior bridge lenders to the
Company in cancellation of any and all obligations to such bridge lenders under
the Recapitalization Plan; (C)8,558,000 shares of Company Common Stock issued
prior to the Effective Time to Company management and employees and advisors, in
satisfaction of any and all obligations to Company management, employees and
advisors prior to the Effective Time; (D) 242,500 shares of Company Common Stock
issued to the holders of Series A Preferred Stock and other shares of
the Company, converted into Company Common Stock under the Recapitalization
Plan, in satisfaction of any and all obligations to holders of such Series A
Preferred Stock and any other senior classes of capital stock of the Company,
issued by the Company under the Recapitalization Plan; and (E) 1,334,000 shares
of Company Common Stock issued as placement agent fees by the Company prior to
the Effective Time in satisfaction of any and all obligations to brokers,
finders and others related to the Merger (collectively, the “5:1 Shares”) and no
shares of Preferred Stock issued and outstanding, respectively, each of which
5:1 Share of Company Common Stock outstanding at the Effective Time to be
exchanged on a share for share basis for one share of Parent Common Stock at the
Effective Time, and such shares are duly authorized, validly issued, fully paid
and non-assessable, and none of such shares have been issued in violation of the
preemptive rights of any natural person, corporation, business trust,
association, limited liability company, partnership, joint venture, other
entity, government, agency or political subdivision (each, a “Person”). The offer,
issuance and sale of such shares of Company Common Stock were (a) exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the “Securities Act”), (b)
registered or qualified (or were exempt from registration or qualification)
under the registration or qualification requirements of all applicable state
securities laws and (c) accomplished in conformity with all other applicable
securities laws. None of such shares of Company Common Stock are subject to a
right of withdrawal or a right of rescission under any federal or state
securities or “Blue Sky” law. Except as otherwise set forth in this Agreement or
any Schedule hereto, the Company has no outstanding options, rights or
commitments to issue Company Common Stock or other Equity Securities (as defined
below) of the Company, and there are no outstanding securities convertible or
exercisable into or exchangeable for Company Common Stock or other Equity
Securities of the Company. For purposes of this Agreement, “Equity Security”
shall mean any stock or similar security of an issuer or any security (whether
stock or Indebtedness for Borrowed Money (as defined below)) convertible, with
or without consideration, into any stock or other equity security, or any
security (whether stock or Indebtedness for Borrowed Money) carrying any warrant
or right to subscribe to or purchase any stock or similar security, or any such
warrant or right.
Section
2.04 Indebtedness. The
Company has no Indebtedness for Borrowed Money. For purposes of this Agreement,
“Indebtedness for
Borrowed Money” shall mean (a) all Indebtedness in respect of money
borrowed including, without limitation, Indebtedness that represents the unpaid
amount of the purchase price of any property and is incurred in lieu of
borrowing money or using available funds to pay such amounts and not
constituting an account payable or expense accrual incurred or assumed in the
ordinary course of business of the Company, (b) all Indebtedness evidenced by a
promissory note, bond or similar written obligation to pay money or (c) all such
Indebtedness guaranteed by the Company or for which the Company is otherwise
contingently liable. Furthermore, for purposes of this Agreement, “Indebtedness” shall
mean any obligation of the Company which, under generally accepted accounting
principles in the United Stated (“GAAP”), is required
to be shown on the balance sheet of the Company as a liability. Any obligation
secured by a mortgage, pledge, security interest, encumbrance, lien or charge of
any kind (a “Lien”), shall be
deemed to be Indebtedness, even though such obligation is not assumed by the
Company.
Section
2.05 Company
Stockholders. Schedule 2.05 hereto
contains a true and complete list of the names of the record owners of all of
the outstanding shares of Company Common Stock and other Equity Securities of
the Company, together with the number of securities held or to which such Person
has rights to acquire. To the knowledge of the Company, there is no voting
trust, agreement or arrangement among any of the beneficial holders of Company
Common Stock affecting the nomination or election of directors or the exercise
of the voting rights of Company Common Stock.
- 7
-
Section
2.06 Corporate Acts and
Proceedings. The execution, delivery and performance of this
Agreement and the Certificate of Merger (together, the “Merger Documents”)
have been duly authorized by the Board of Directors of the Company and have been
approved by the requisite vote of the Stockholders, and all of the corporate
acts and other proceedings required for the due and valid authorization,
execution, delivery and performance of the Merger Documents and the consummation
of the Merger have been validly and appropriately taken, except for the filings
referred to in Section 1.02.
Section
2.07 Governmental
Consents. All material consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with any federal or state governmental authority on the part of the
Company required in connection with the consummation of the Merger shall have
been obtained prior to, and be effective as of, the Closing.
Section
2.08 Compliance with Laws and
Instruments. To the knowledge of the Company, the business,
products and operations of the Company have been and are being conducted in
compliance in all material respects with all applicable laws, rules and
regulations, except for such violations thereof for which the penalties, in the
aggregate, would not have a material adverse effect on the Condition of the
Company. The execution, delivery and performance by the Company of the Merger
Documents and the consummation by the Company of the transactions contemplated
by this Agreement: (a) will not cause the Company to violate or contravene (i)
any applicable provision of law, (ii) any rule or regulation of any agency or
government, (iii) any order, judgment or decree of any court for which such
violation or contravention would not have a material adverse effect on the
Condition of the Company, or (iv) any provision of the Certificate of
Incorporation or By-Laws of the Company, (b) will not violate or be in conflict
with, result in a breach of or constitute (with or without notice or lapse of
time, or both) a default under, any indenture, loan or credit agreement, deed of
trust, mortgage, security agreement or other contract, agreement or instrument
to which the Company is a party or by which the Company or any of its properties
is bound or affected, except as would not have a material adverse effect on the
Condition of the Company and (c) will not result in the creation or imposition
of any Lien upon any property or asset of the Company. The Company is not in
violation of, or (with or without notice or lapse of time, or both) in default
under, any term or provision of its Certificate of Incorporation or By-Laws or
of any indenture, loan or credit agreement, deed of trust, mortgage, security
agreement or, except as would not materially and adversely affect the Condition
of the Company, any other material agreement or instrument to which the Company
is a party or by which the Company or any of its properties is bound or
affected.
Section
2.09 Binding
Obligations. The Merger Documents constitute the legal, valid
and binding obligations of the Company and are enforceable against the Company
in accordance with their respective terms, except as such enforcement is limited
by bankruptcy, insolvency and other similar laws affecting the enforcement of
creditors’ rights generally and by general principles of equity.
Section
2.10 Broker’s and Finder’s
Fees. No Person has, or as a result of the transactions contemplated or
described herein will have, any right or valid claim against the Company,
Parent, Acquisition Corp. or any Stockholder for any commission, fee or other
compensation as a finder or broker, or in any similar capacity.
- 8
-
Section
2.11 Financial
Statements. Parent has previously been provided with drafts of
the Company’s (i) unaudited balance sheet (the “Balance Sheet”) as of
December 31, 2009 (the “Company Balance Sheet
Date”), (ii) unaudited statements of operations and accumulated deficits
and cash flows for the years ended December 31, 2009 and December 31, 2008,
(iii) unaudited balance sheet as of June 30, 2010, and (iv) unaudited statements
of operations and accumulated deficits and cash flows for the six months ended
June 30, 2010 and June 30, 2009. Such financial statements are collectively
referred to as the “Financial
Statements.” The Financial Statements are in accordance with the books
and records of the Company and present fairly in all material respects the
financial condition of the Company at the dates therein specified and the
results of its operations and changes in financial position for the periods
therein specified.
Section
2.12 Absence of Undisclosed
Liabilities. The Company has no material obligation or liability (whether
accrued, absolute, contingent, liquidated or otherwise, whether due or to become
due), arising out of any transaction entered into at or prior to the Closing,
except (a) as disclosed in the Balance Sheet, (b) to the extent set forth on or
reserved against in the Balance Sheet or the notes to the Financial Statements,
(c) current liabilities incurred and obligations under agreements entered into
in the usual and ordinary course of business since the Company Balance Sheet
Date, none of which (individually or in the aggregate) has had or will have a
material adverse effect on the Condition of the Company, (d) any liabilities not
required to be reflected in the liabilities column of a balance sheet prepared
in accordance with GAAP, (e) liabilities and obligations incurred in connection
with this Agreement and the transactions contemplated hereby and (f) by the
specific terms of any written agreement, document or arrangement identified in
the Disclosures.
Section
2.13 Changes. Since
the Company Balance Sheet Date, the Company has not (a) incurred any debts,
obligations or liabilities, absolute, accrued, or to the Company’s knowledge,
contingent or otherwise, whether due or to become due involving an aggregate
principal amount in excess of $50,000, except for fees, expenses and liabilities
incurred in connection with the Merger and related transactions and current
liabilities incurred in the usual and ordinary course of business, (b)
discharged or satisfied any Liens other than those securing, or paid any
obligation or liability other than, current liabilities shown on the Balance
Sheet and current liabilities incurred since the Company Balance Sheet Date, in
each case in the usual and ordinary course of business and the discharge or
satisfaction of which would not have (individually or in the aggregate) a
material adverse effect on the Condition of the Company, (c) mortgaged, pledged
or subjected to Lien any of its assets, tangible or intangible other than in the
usual and ordinary course of business, (d) sold, transferred or leased any of
its assets, except in the usual and ordinary course of business, (e) cancelled
or compromised any debt or claim, or waived or released any right, of material
value, (f) suffered any physical damage, destruction or loss (whether or not
covered by insurance) materially and adversely affecting the Condition of the
Company, (g) encountered any labor union difficulties, (h) made or granted any
wage or salary increase of $25,000 or more or made any increase in the amounts
payable under any profit sharing, bonus, deferred compensation, severance pay,
insurance, pension, retirement or other employee benefit plan, agreement or
arrangement, other than in the ordinary course of business consistent with past
practice of $25,000, or entered into any employment agreement with any executive
officer or key employee of the Company, (i) declared or paid any
dividends on or made any other distributions with respect to, or purchased or
redeemed, any of its outstanding capital stock except pursuant to agreements
approved by the Board of Directors of the Company with employees, officers,
directors or consultants of other persons performing services for the Company,
(j) suffered or experienced any change in, or condition affecting, the Condition
of the Company other than changes, events or conditions in the usual and
ordinary course of its business, none of which (either by itself or in
conjunction with all such other changes, events and conditions) has been
materially adverse, (k) made any change in the accounting principles, methods or
practices followed by it or depreciation or amortization policies or rates
theretofore adopted except as required by GAAP or applicable law, (l) made or
permitted any material amendment or termination of any material contract,
agreement or license to which it is a party, (m) suffered any material loss not
reflected in the Balance Sheet or its statement of income for the period ended
on the Company Balance Sheet Date, (n) paid, or made any accrual or arrangement
for payment of, bonuses or special compensation of any kind or any severance or
termination pay to any present or former officer, director, employee,
stockholder or consultant except as approved by the Board of Directors of the
Company, (o) made or agreed to make any charitable contributions or incurred any
non-business expenses in excess of $50,000 in the aggregate or (p) entered into
any agreement, or otherwise obligated itself, to do any of the
foregoing.
- 9
-
Section
2.14 Assets and
Contracts.
(a) Schedule 2.14(a)
contains a true and complete list of all real property leased by the Company and
of all tangible personal property owned or leased by the Company having a cost
or fair market value of greater than $250,000. All the real property listed in
Schedule
2.14(a) is leased by the Company under valid leases enforceable against
the Company in accordance with their terms except as such enforcement may be
limited by bankruptcy, insolvency, reorganization or other similar laws
affecting creditors’ rights generally and by general principles of equity, and
there is not, under any such lease, any existing default or event of default or
event which with notice or lapse of time, or both, would constitute a default by
the Company, and the Company has not received any notice or claim of any such
default by the Company. The Company does not own any real property.
(b) Except
as expressly set forth in this Agreement, the Financial Statements or the notes
thereto, or as disclosed in Schedule 2.14(b)
hereto, the Company is not a party to any written or oral agreement not made in
the ordinary course of business in excess of $50,000 that is material to the
Company. Except as disclosed in Schedule 2.14(b)
hereto, the Company is not a party to any written or oral (i) agreement for the
purchase of fixed assets or for the purchase of materials, supplies or equipment
in excess of normal operating requirements, (ii) agreement for the employment of
any officer, individual employee or other Person on a full-time basis or any
agreement with any Person for consulting services, (iii) indenture, loan or
credit agreement, note agreement, deed of trust, mortgage, security agreement,
promissory note or other agreement or instrument relating to or evidencing
Indebtedness for Borrowed Money or subjecting any asset or property of the
Company to any Lien or evidencing any Indebtedness, (iv) guaranty of any
Indebtedness, (v) other than as set forth in Schedule 2.14(a)
hereto, lease or agreement under which the Company is lessee of or holds or
operates any property, real or personal, owned by any other Person under which
payments to such Person exceed $250,000 per year, (vi) agreement granting any
preemptive right, right of first refusal or similar right to any Person, (vii)
agreement or arrangement with any Affiliate or any “associate” (as such term is
defined in Rule 405 under the Securities Act) of the Company or any present or
former officer, director or stockholder of the Company, (viii) agreement
obligating the Company to pay any royalty or similar charge for the use or
exploitation of any tangible or intangible property, (ix) covenant not to
compete or other material restriction on its ability to conduct a business or
engage in any other activity, (x) agreement to register securities under the
Securities Act or (xi) collective bargaining agreement. Except as disclosed in
Schedule
2.14(b), none of the agreements, contracts, leases, instruments or other
documents or arrangements listed in Schedules 2.14(a) and
2.14(b)
requires the consent of any of the parties thereto other than the Company to
permit the contract, agreement, lease, instrument or other document or
arrangement to remain effective following consummation of the Merger and the
transactions contemplated hereby. For purposes of this Agreement, an “Affiliate” shall mean
any Person that directly or indirectly controls, is controlled by, or is under
common control with, the indicated Person.
- 10
-
(c) The
Company has made available to Parent and Acquisition Corp. true and complete
copies of all agreements and other documents and a description of all applicable
oral agreements disclosed or referred to in Schedules 2.14(a) and
2.14(b), as
well as any additional agreements or documents, requested by Parent or
Acquisition Corp. The Company has in all material respects performed all
obligations required to be performed by it to date and is not in default in any
material respect under any of the material contracts, agreements, leases,
documents, commitments or other arrangements to which it is a party or by which
it or any of its property is otherwise bound or affected.
Section
2.15 Personnel. The
Company has complied in all material respects with all laws relating to the
employment of labor, and the Company has encountered no material labor union
difficulties. Other than pursuant to ordinary arrangements of compensation to
personnel, the Company is not under any obligation or liability to any officer,
director, consultant or staff member of the Company.
Section
2.16 Tax Returns and
Audits.
(a) Except
as disclosed in Schedule 2.16(a)
hereto, all required federal, state and local Tax Returns (as defined below) of
the Company have been accurately prepared in all material respects and duly and
timely filed, and all federal, state and local Taxes (as defined below) required
to be paid with respect to the periods covered by such Tax Returns have been
paid to the extent that the same are material and have become due, except where
the failure to file or pay could not reasonably be expected to have a material
adverse effect upon the condition of the Company, the Surviving Corporation or
Parent. Except as disclosed in Schedule 2.16(a)
hereto, the Company is not and has not been delinquent in the payment of any
material Tax. The Company has not had a material Tax deficiency proposed or
assessed against it and has not executed a waiver of any statute of limitations
on the assessment or collection of any Tax. None of the Company’s federal income
tax returns has been audited by any governmental authority; and none of the
Company’s state or local income or franchise tax returns has been audited by any
governmental authority. The reserves for Taxes reflected on the Balance Sheet,
if any, have been accrued in accordance with GAAP for the payment of all unpaid
Taxes payable by the Company as of the Company Balance Sheet Date. Since the
Company Balance Sheet Date, the Company has made provisions on its books of
account in accordance with GAAP for all Taxes with respect to its business,
properties and operations for such period. Except as disclosed in Schedule 2.16(a)
hereto, the Company has withheld or collected from each payment made to each of
its employees the amount of all taxes (including, but not limited to, federal,
state and local income taxes, Federal Insurance Contribution Act taxes and
Federal Unemployment Tax Act taxes) required to be withheld or collected
therefrom, and has paid the same to the proper Tax receiving officers or
authorized depositaries. There are no federal, state, local or foreign audits,
actions, suits, proceedings, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns of the Company now pending, and
the Company has not received any written notice of any proposed audits,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns. The Company is not obligated to make a payment, nor is it a party
to any agreement that under certain circumstances could obligate it to make a
payment that would not be deductible under Section 280G of the Code. The Company
has not agreed, nor is it required, to make any adjustments under Section 481(a)
of the Code (or any similar provision of state, local and foreign law), whether
by reason of a change in accounting method or otherwise, for any Tax period for
which the applicable statute of limitations has not yet expired. The Company (i)
is not a party to, nor is it bound by or obligated under, any Tax sharing
agreement, Tax indemnification agreement or similar contract or arrangement,
whether written or unwritten (collectively, “Tax Sharing
Agreements”), and (ii) does not have any potential liability or
obligation to any Person as a result of, or pursuant to, any such Tax Sharing
Agreements.
- 11
-
(b) For
purposes of this Agreement, the following terms shall have the meanings provided
below:
(i)
“Tax” or “Taxes” shall mean (A)
any and all taxes, assessments, customs, duties, levies, fees, tariffs, imposts,
deficiencies and other governmental charges of any kind whatsoever (including,
but not limited to, taxes on or with respect to net or gross income, franchise,
profits, gross receipts, capital, sales, use, ad valorem, value added, transfer,
real property transfer, transfer gains, transfer taxes, inventory, capital
stock, license, payroll, employment, social security, unemployment, severance,
occupation, real or personal property, estimated taxes, rent, excise, occupancy,
recordation, bulk transfer, intangibles, alternative minimum, doing business,
withholding and stamp), together with any interest thereon, penalties, fines,
damages costs, fees, additions to tax or additional amounts with respect
thereto, imposed by the United States (federal, state or local) or other
applicable jurisdiction; (B) any liability for the payment of any amounts
described in clause (A) as a result of being a member of an affiliated,
consolidated, combined, unitary or similar group or as a result of transferor or
successor liability, including, without limitation, by reason of Treasury
Regulation Section 1.1502-6; and (C) any liability for the payments of any
amounts as a result of being a party to any Tax Sharing Agreement or as a result
of any express or implied obligation to indemnify any other Person with respect
to the payment of any amounts of the type described in clause (A) or
(B).
(ii) “Tax Return” shall
include all returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns (including Form 1099 and
partnership returns filed on Form 1065) required to be supplied to a Tax
authority relating to Taxes.
Section
2.17 Patents and Other Intangible
Assets.
Except as
set forth on Schedule 2.17 hereto, to the Company’s knowledge, the Company owns
or has the right to use, free and clear of all Liens, claims and restrictions,
all patents, trademarks, service marks, trade names, copyrights, licenses and
rights with respect to the foregoing used in or necessary for the conduct of its
business as now conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any Person under or with respect to any of the
foregoing and (ii) is not obligated or under any liability to make any payments
by way of royalties, fees or otherwise to any owner or licensor of, or other
claimant to, any patent, trademark, service xxxx, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise.
- 12
-
(a) Except
as set forth on Schedule 2.17 (a) hereto, to the knowledge of the Company, the
Company owns and has the unrestricted right to use all trade secrets, if any,
including know-how, negative know-how, formulas, patterns, programs, devices,
methods, techniques, inventions, designs, processes, computer programs and
technical data and all information that derives independent economic value,
actual or potential, from not being generally known or known by competitors
(collectively, “Intellectual
Property”) required for or incident to the development, operation and
sale of all products and services sold by the Company, free and clear of any
right, Lien or claim of others; provided, however, that the
possibility exists that other Persons, completely independently of the Company
or its employees or agents, could have developed Intellectual Property similar
or identical to that of the Company. The Company is not aware of any such
development of substantially identical trade secrets or technical information by
others. All Intellectual Property can and will be transferred by the Company to
the Surviving Corporation as a result of the Merger and without the consent of
any Person other than the Company.
Section
2.18 Employee Benefit Plans;
ERISA.
(a) Except
as disclosed on Schedule 2.18 hereto,
there are no “employee benefit plans” (within the meaning of Section 3(3) of
ERISA) nor any other employee benefit or fringe benefit arrangements, practices,
contracts, policies or programs of every type other than programs merely
involving the regular payment of wages, commissions, or bonuses established,
maintained or contributed to by the Company, whether written or unwritten and
whether or not funded. The plans listed on Schedule 2.18 hereto
are hereinafter referred to as the “Employee Benefit
Plans.”
(b) All
current and prior material documents, including all amendments thereto, with
respect to each Employee Benefit Plan have been made available to Parent and
Acquisition Corp. or their advisors.
(c) To
the knowledge of the Company, all Employee Benefit Plans are in material
compliance with the applicable requirements of ERISA, the Code and any other
applicable state, federal or foreign law.
(d) There
are no pending claims or lawsuits that have been asserted or instituted against
any Employee Benefit Plan, the assets of any of the trusts or funds under the
Employee Benefit Plans, the plan sponsor or the plan administrator of any of the
Employee Benefit Plans or against any fiduciary of an Employee Benefit Plan with
respect to the operation of such plan, nor does the Company have any knowledge
of any incident, transaction, occurrence or circumstance that might reasonably
be expected to form the basis of any such claim or lawsuit.
- 13
-
(e) There
is no pending or, to the knowledge of the Company, contemplated investigation,
or pending or possible enforcement action by the Pension Benefit Guaranty
Corporation, the Department of Labor, the Internal Revenue Service or any other
government agency with respect to any Employee Benefit Plan and the Company has
no knowledge of any incident, transaction, occurrence or circumstance which
might reasonably be expected to trigger such an investigation or enforcement
action.
(f) No
actual or, to the knowledge of the Company, contingent liability exists with
respect to the funding of any Employee Benefit Plan or for any other expense or
obligation of any Employee Benefit Plan, except as disclosed on the financial
statements of the Company, and no contingent liability exists under ERISA with
respect to any “multi-employer plan,” as defined in Section 3(37) or Section
4001(a)(3) of ERISA.
(g) No
events have occurred or are expected to occur with respect to any Employee
Benefit Plan that would cause a material change in the costs of providing
benefits under such Employee Benefit Plan or would cause a material change in
the cost of providing for other liabilities of such Employee Benefit
Plan.
Section
2.19 Title to Property and
Encumbrances. The Company has good, valid and indefeasible
marketable title to all properties and assets used in the conduct of its
business (except for property held under valid and subsisting leases that are in
full force and effect and which are not in default) free of all Liens and other
encumbrances, except Permitted Liens (as defined below) and such ordinary and
customary imperfections of title, restrictions and encumbrances as do not,
individually or in the aggregate, materially detract from the value of the
property or assets or materially impair the use made thereof by the Company in
its business. Without limiting the generality of the foregoing, the Company has
good and indefeasible title to all of its properties and assets reflected in the
Balance Sheet, except for property disposed of in the usual and ordinary course
of business since the Company Balance Sheet Date and for property held under
valid and subsisting leases that are in full force and effect and that are not
in default. For purposes of this Agreement, “Permitted Liens”
shall mean (a) Liens for Taxes and assessments or governmental charges or levies
not at the time due or in respect of which the validity thereof shall currently
be contested in good faith by appropriate proceedings or that are otherwise not
material; (b) Liens in respect of pledges or deposits under workmen’s
compensation laws or similar legislation, carriers’, warehousemen’s, mechanics’,
laborers’ and materialmens’ and similar Liens, if the obligations secured by
such Liens are not then delinquent or are being contested in good faith by
appropriate proceedings; (c) Liens securing debt that is reflected in the
Balance Sheet, (d) statutory or common law Liens to secure obligations to
landlords, (e) Liens incidental to the conduct of the business of the
Company that do not in the aggregate materially detract from the value of its
property or materially impair the use made thereof by the Company in its
business and (f) such other Liens as would not reasonably be expected to have a
material adverse effect on the Condition of the Company.
Section
2.20 Condition of
Properties. All facilities, machinery, equipment, fixtures and
other properties owned, leased or used by the Company are in reasonably good
operating condition and repair, subject to ordinary wear and tear, and are
adequate and sufficient for the Company’s business.
- 14
-
Section
2.21 Insurance
Coverage. There is in full force and effect one or more
policies of insurance issued by insurers of recognized responsibility, insuring
the Company and its properties, products and business against such losses and
risks, and in such amounts, as are customary for corporations of established
reputation engaged in the same or similar business and similarly situated. The
Company has not been refused any insurance coverage sought or applied for, and
the Company has no reason to believe that it will be unable to renew its
existing insurance coverage as and when the same shall expire upon terms at
least as favorable to those currently in effect, other than possible increases
in premiums that do not result from any act or omission of the Company. No suit,
proceeding or action or, to the best current actual knowledge of the Company,
threat of suit, proceeding or action has been asserted or made against the
Company within the last five years due to alleged bodily injury, disease,
medical condition, death or property damage arising out of the function or
malfunction of a product, procedure or service designed, manufactured, sold or
distributed by the Company.
Section
2.22 Litigation. Except
as disclosed in Schedule 2.22 hereto,
there is no legal action, suit, arbitration or other legal, administrative or
other governmental proceeding pending or, to the knowledge of the Company,
threatened against or affecting the Company or its properties, assets or
business. To the knowledge of the Company, the Company is not in default with
respect to any order, writ, judgment, injunction, decree, determination or award
of any court or any governmental agency or instrumentality or arbitration
authority.
Section
2.23 Licenses. The
Company possesses from all appropriate governmental authorities all licenses,
permits, authorizations, approvals, franchises and rights necessary for the
Company to engage in the business currently conducted by it, all of which are in
full force and effect.
Section
2.24 Interested Party
Transactions. Except as described on Schedule 2.24 annexed
hereto, no officer, director or stockholder of the Company or any Affiliate or
“associate” (as such term is defined in Rule 405 under the Securities Act) of
any such Person or the Company has or has had, either directly or indirectly,
(a) an interest in any Person that (i) furnishes or sells services or products
that are furnished or sold or are proposed to be furnished or sold by the
Company or (ii) purchases from or sells or furnishes to the Company any goods or
services, or (b) a beneficial interest in any contract or agreement to which the
Company is a party or by which it may be bound or affected.
Section
2.25 Questionable
Payments. Neither the Company nor any director, officer or, to
the knowledge of the Company, agent, employee or other Person associated with or
acting on behalf of the Company, has used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payments to government
officials or employees from corporate funds; established or maintained any
unlawful or unrecorded fund of corporate monies or other assets; made any false
or fictitious entries on the books of record of any such corporations; or made
any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment.
Section
2.26 Obligations to or by
Stockholders. Except as set forth in Schedule 2.27 hereto,
pursuant to ordinary arrangements of compensation to personnel or in connection
with this Agreement or the transactions contemplated hereby, the Company has no
liability or obligation or commitment to any Stockholder or any Affiliate or
“associate” (as such term is defined in Rule 405 under the Securities Act) of
any Stockholder, nor does any Stockholder or any such Affiliate or associate
have any liability, obligation or commitment to the Company.
- 15
-
Section
2.27 Duty to Make
Inquiry. To the extent that any of the representations or
warranties in this Article II are qualified by “knowledge” or “belief,” the
Company represents and warrants that it has made due and reasonable inquiry and
investigation concerning the matters to which such representations and
warranties relate, including, but not limited to, diligent inquiry of its
directors, officers and key personnel.
Section
2.28 Disclosure. There
is no fact relating to the Company that the Company has not disclosed to Parent
and Acquisition Corp. in writing that has had or is currently having a material
and adverse effect on the Condition of the Company. No representation or
warranty by the Company herein and no information disclosed in the schedules or
exhibits hereto by the Company contains any untrue statement of a material fact
or omits to state a material fact necessary to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.
ARTICLE
III.
REPRESENTATIONS
AND WARRANTIES OF PARENT AND ACQUISITION CORP.
Parent
and Acquisition Corp. represent and warrant to the Company as follows.
Notwithstanding anything to the contrary contained herein, disclosure of items
in the Parent SEC Documents (as defined below) shall be deemed to be disclosure
of such items for all purposes under this Agreement, including, without
limitation, for all applicable representations and warranties of Parent and
Acquisition Corp.:
Section
3.01 Organization and
Standing. Parent is a corporation duly organized and existing
in good standing under the laws of the State of Delaware. Acquisition Corp. is a
corporation duly organized and existing in good standing under the laws of the
State of Delaware. Parent and Acquisition Corp. have heretofore delivered to the
Company complete and correct copies of their respective Certificates of
Incorporation and By-Laws as now in effect. Parent and Acquisition Corp. have
full corporate power and authority to carry on their respective businesses as
they are now being conducted and as now proposed to be conducted and to own or
lease their respective properties and assets. Neither Parent nor Acquisition
Corp. has any subsidiaries (except Parent’s ownership of Acquisition Corp.) or
direct or indirect interest (by way of stock ownership or otherwise) in any
firm, corporation, limited liability company, partnership, association or
business. Parent owns all of the issued and outstanding capital stock of
Acquisition Corp. free and clear of all Liens, and Acquisition Corp. has no
outstanding options, warrants or rights to purchase capital stock or other
securities of Acquisition Corp., other than the capital stock owned by Parent.
Unless the context otherwise requires, all references in this Article III to
“Parent” shall be treated as being a reference to Parent and Acquisition Corp.
taken together as one enterprise.
Section
3.02 Qualification. Parent
is duly qualified to conduct business as a foreign corporation and is in good
standing in each jurisdiction wherein the nature of its activities or its
properties owned or leased makes such qualification necessary, except where the
failure to be so qualified would not have a material adverse effect on the
condition, properties, assets, liabilities or business operations of Parent (the
“Condition of the
Parent”).
- 16
-
Section
3.03 Corporate
Authority. Each of Parent and/or Acquisition Corp. (as the
case may be) has full corporate power and authority to enter into the Merger
Documents and the other agreements to be made pursuant to the Merger Documents,
and to carry out the transactions contemplated hereby and thereby. All corporate
acts and proceedings required for the authorization, execution, delivery and
performance of the Merger Documents and such other agreements and documents by
Parent and/or Acquisition Corp. (as the case may be) have been duly and validly
taken or will have been so taken prior to the Closing. Each of the Merger
Documents constitutes a legal, valid and binding obligation of Parent and/or
Acquisition Corp. (as the case may be), each is enforceable against it and/or
them in accordance with its terms, except as such enforcement may be limited by
bankruptcy, insolvency, reorganization or other similar laws affecting
creditors’ rights generally and by general principles of equity.
Section
3.04 Broker’s and Finder’s
Fees. No Person is entitled by reason of any act or omission
of Parent or Acquisition Corp. to any broker’s or finder’s fees, commission or
other similar compensation with respect to the execution and delivery of the
Merger Documents, or with respect to the consummation of the transactions
contemplated thereby, except as set forth in the Disclosures.
Section
3.05 Capitalization.
(a) The
authorized capital stock of Parent consists of 190,000,000shares of Parent
Common Stock and 10,000,000 shares of preferred stock. All outstanding shares of
the capital stock of Parent are validly issued and outstanding, fully paid and
non-assessable, and none of such shares have been issued in violation of the
preemptive rights of any Person. Parent has no outstanding options,
rights or commitments to issue shares of Parent Stock or any other Equity
Security of Parent or Acquisition Corp., and there are no outstanding securities
convertible or exercisable into or exchangeable for shares of Parent Common
Stock or any other Equity Security of Parent or Acquisition Corp. There is no
voting trust, agreement or arrangement among any of the beneficial holders of
Parent Common Stock affecting the nomination or election of directors or the
exercise of the voting rights of Parent Common Stock. The offer, issuance and
sale of such shares of Parent Common Stock were (a) exempt from the registration
and prospectus delivery requirements of the Securities Act, (b) registered or
qualified (or were exempt from registration or qualification) under the
registration or qualification requirements of all applicable state securities
laws and (c) accomplished in conformity with all other applicable securities
laws. None of such shares of Parent Common Stock are subject to a right of
withdrawal or a right of rescission under any federal or state securities or
“Blue Sky” law.
(b) The
authorized capital stock of Acquisition Corp. consists of 3,000 shares of common
stock, par value $0.0001 per share (the “Acquisition Corp. Common
Stock”), of which 1,000 shares are issued and outstanding. All of the
outstanding Acquisition Corp. Common Stock is owned by Parent. All outstanding
shares of the capital stock of Acquisition Corp. are validly issued and
outstanding, fully paid and non-assessable, and none of such shares have been
issued in violation of the preemptive rights of any Person. Acquisition Corp.
has no outstanding options, rights or commitments to issue shares of Acquisition
Corp. Common Stock or any other Equity Security of Acquisition Corp., and there
are no outstanding securities convertible or exercisable into or exchangeable
for shares of Acquisition Corp. Common Stock or any other Equity Security of
Acquisition Corp.
Section
3.06 Acquisition
Corp. Acquisition Corp. is a wholly-owned Delaware subsidiary
of Parent that was formed specifically for the purpose of the Merger and that
has not conducted any business or acquired any property, and will not conduct
any business or acquire any property prior to the Closing Date, except in
preparation for and otherwise in connection with the transactions contemplated
by the Merger Documents and the other agreements to be made pursuant to or in
connection with the Merger Documents.
- 17
-
Section
3.07 Validity of
Shares. The shares of Parent Common Stock to be issued at the
Closing pursuant to Section 1.06(a)(ii) hereof, when issued and delivered in
accordance with the terms of the Merger Documents, shall be duly and validly
issued, fully paid and non-assessable. The shares of Parent Common Stock will be
free of any Liens, other than Liens created by or imposed in connection with
this Agreement and the transactions contemplated hereby and not subject to any
preemptive rights or rights of first refusal issued by the
Company. Based in part on the representations and warranties of the
Stockholders as contemplated by Article IV hereof and assuming the accuracy
thereof, the issuance of the Parent Common Stock upon consummation of the Merger
pursuant to Sections 1.06(a)(ii) will be exempt from the registration and
prospectus delivery requirements of the Securities Act and from the
qualification or registration requirements of any applicable state “Blue Sky” or
securities laws.
Section
3.08 Corporate Acts and
Proceedings. The execution, delivery and performance of the
Merger Documents have been duly authorized by the Board of Directors of Parent
and Acquisition Corp. and have been approved by Parent, the sole stockholder of
Acquisition Corp., and all of the corporate acts and other proceedings required
for the due and valid authorization, execution, delivery and performance of the
Merger Documents and the consummation of the Merger have been validly and
appropriately taken, except for the filings referred to in Section
1.02.
Section
3.09 SEC Reporting and
Compliance.
(a) Parent
filed a registration statement on Form S-1 under the Securities Act, which
became effective on February 12, 2009, (the “Parent Registration
Statement”). Since that date, Parent has timely filed with the
U.S. Securities and Exchange Commission (the “Commission”) all
registration statements, proxy statements, information statements and reports
required to be filed pursuant to the Securities Exchange Act of 1934, as amended
(the “Exchange
Act”). Parent has not filed with the Commission a certificate on Form 15
pursuant to Rule 12h-3 of the Exchange Act.
(b) Parent
has made available to the Company true and complete copies of the registration
statements, information statements and other reports (collectively, the “Parent SEC
Documents”) filed by Parent with the Commission. None of the Parent SEC
Documents, as of their respective dates, contained any untrue statement of a
material fact or omitted to state a material fact necessary in order to make the
statements contained therein not misleading.
(c) Parent
is not an investment company within the meaning of Section 3 of the Investment
Company Act of 1940, as amended.
(d) The
shares of Parent Common Stock are quoted on the Over-the-Counter (OTC) Bulletin
Board under the symbol “TIMR.OB” and Parent is in compliance in all material
respects with all rules and regulations of the OTC Bulletin Board applicable to
it and the Parent Common Stock.
(e) Between
the date hereof and the Closing Date, Parent shall continue to satisfy the
filing requirements of the Exchange Act and all other requirements of applicable
securities laws and of the OTC Bulletin Board.
- 18
-
(f) The
Parent SEC Documents include all certifications and statements required of it,
if any, by (i) Rule 13a-14 or 15d-14 under the Exchange Act, and (ii) 18 U.S.C.
Section 1350 (Section 906 of the Xxxxxxxx-Xxxxx Act of 2002), and each of such
certifications and statements contain no qualifications or exceptions to the
matters certified therein other than a knowledge qualification, permitted under
such provision, and have not been modified or withdrawn and neither Parent nor
any of its officers has received any notice from the Commission questioning or
challenging the accuracy, completeness, form or manner of filing or submission
of such certifications or statements.
(g) Parent
has otherwise complied with the Securities Act, Exchange Act and all other
applicable federal and state securities laws.
Section
3.10 Financial
Statements. The balance sheets and statements of operations,
stockholders’ equity and cash flows contained in the Parent SEC Documents (the
“Parent Financial
Statements”) (a) have been prepared in accordance with GAAP applied on a
basis consistent with prior periods (and, in the case of unaudited financial
information, on a basis consistent with year-end audits), (b) are in accordance
with the books and records of Parent and (c) present fairly in all material
respects the financial condition of Parent at the dates therein specified and
the results of its operations and changes in financial position for the periods
therein specified. The financial statements included in parent’s
Annual Report on Form 10-K for the year ended December 31, 2009 were audited by
Xxxxxxx & Associates, LLP. Parent’s
current independent registered public accounting firm is Xxxxxxxx
Xxxxxx Inc.
Section
3.11 Governmental
Consents. All material consents, approvals, orders, or
authorizations of, or registrations, qualifications, designations, declarations,
or filings with any federal or state governmental authority on the part of
Parent or Acquisition Corp. required in connection with the consummation of the
Merger shall have been obtained prior to, and be effective as of, the
Closing.
Section
3.12 Compliance with Laws and
Other Instruments. The execution, delivery and performance by
Parent and/or Acquisition Corp. of the Merger Documents and the other agreements
to be made by Parent or Acquisition Corp. pursuant to or in connection with the
Merger Documents and the consummation by Parent and/or Acquisition Corp. of the
transactions contemplated by the Merger Documents (a) will not cause Parent
and/or Acquisition Corp. to violate or contravene (i) any provision of law, (ii)
any rule or regulation of any agency or government, (iii) any order, judgment or
decree of any court or (iv) any provision of their respective charters or
By-laws as amended and in effect on and as of the Closing Date and will not
violate or be in conflict with, result in a breach of or constitute (with or
without notice or lapse of time, or both) a default under any material
indenture, loan or credit agreement, deed of trust, mortgage, security agreement
or other agreement or contract to which Parent or Acquisition Corp. is a party
or by which Parent and/or Acquisition Corp. or any of their respective
properties is bound and (b) will not result in the creation or imposition of any
Lien upon any property or asset of Parent. Parent is not in violation of, or
(with or without notice or lapse of time, or both) in default under, any term or
provision of its Certificate of Incorporation or By-Laws or of any indenture,
loan or credit agreement, deed of trust, mortgage, security agreement or, except
as would not materially and adversely affect the condition of Parent, any other
material agreement or instrument to which Parent is a party or by which Parent
or any of its properties is bound or affected.
- 19
-
Section
3.13 No General
Solicitation. In issuing the Parent Stock in the Merger
hereunder, neither Parent nor anyone acting on its behalf has offered to sell
the Parent Stock by any form of general solicitation or
advertising.
Section
3.14 Binding
Obligations. The Merger Documents constitute the legal, valid
and binding obligations of Parent and Acquisition Corp., and are enforceable
against Parent and Acquisition Corp., in accordance with their respective terms,
except as such enforcement is limited by bankruptcy, insolvency and other
similar laws affecting the enforcement of creditors’ rights generally and by
general principles of equity.
Section
3.15 Absence of Undisclosed
Liabilities. Neither Parent nor Acquisition Corp. has any
material obligation or liability (whether accrued, absolute, contingent,
liquidated or otherwise, whether due or to become due), arising out of any
transaction entered into at or prior to the Closing, except (a) as disclosed in
the Parent SEC Documents, (b) to the extent set forth on or reserved against in
the balance sheet of Parent in the most recent Parent SEC Document filed by
Parent (the “Parent
Balance Sheet”) or the notes to the Parent Financial Statements, (c)
current liabilities incurred and obligations under agreements entered into in
the usual and ordinary course of business since the date of the Parent Balance
Sheet (the “Parent
Balance Sheet Date”), none of which (individually or in the aggregate)
materially and adversely affects the Condition of Parent and (d) by the specific
terms of any written agreement, document or arrangement attached as an exhibit
to the Parent SEC Documents.
Section
3.16 Changes. Since
the Parent Balance Sheet Date, except as disclosed in the Parent SEC Documents,
Parent has not (a) incurred any debts, obligations or liabilities, absolute,
accrued or, to Parent’s knowledge, contingent, whether due or to become due,
except for current liabilities incurred in the usual and ordinary course of
business, (b) discharged or satisfied any Liens other than those securing, or
paid any obligation or liability other than, current liabilities shown on the
Parent Balance Sheet and current liabilities incurred since the Parent Balance
Sheet Date, in each case in the usual and ordinary course of business, (c)
mortgaged, pledged or subjected to Lien any of its assets, tangible or
intangible, other than in the usual and ordinary course of business, (d) sold,
transferred or leased any of its assets, except in the usual and ordinary course
of business, (e) cancelled or compromised any debt or claim, or waived or
released any right of material value, (f) suffered any physical damage,
destruction or loss (whether or not covered by insurance) that could reasonably
be expected to have a material adverse effect on the Condition of the Parent,
(g) entered into any transaction other than in the usual and ordinary course of
business, (h) encountered any labor union difficulties, (i) made or granted any
wage or salary increase or made any increase in the amounts payable under any
profit sharing, bonus, deferred compensation, severance pay, insurance, pension,
retirement or other employee benefit plan, agreement or arrangement, other than
in the ordinary course of business consistent with past practice, or entered
into any employment agreement, (j) issued or sold any shares of capital stock,
bonds, notes, debentures or other securities or granted any options (including
employee stock options), warrants or other rights with respect thereto, (k)
declared or paid any dividends on or made any other distributions with respect
to, or purchased or redeemed, any of its outstanding capital stock, (l) suffered
or experienced any change in, or condition affecting, the Condition of the
Parent other than changes, events or conditions in the usual and ordinary course
of its business, none of which (either by itself or in conjunction with all such
other changes, events and conditions) could reasonably be expected to have a
material adverse effect on the Condition of the Parent, (m) made any change in
the accounting principles, methods or practices followed by it or depreciation
or amortization policies or rates theretofore adopted, (n) made or permitted any
amendment or termination of any material contract, agreement or license to which
it is a party, (o) suffered any material loss not reflected in the Parent
Balance Sheet or its statement of income for the year ended on the Parent
Balance Sheet Date, (p) paid, or made any accrual or arrangement for payment of,
bonuses or special compensation of any kind or any severance or termination pay
to any present or former officer, director, employee, stockholder or consultant,
(q) made or agreed to make any charitable contributions or incurred any
non-business expenses in excess of $5,000 in the aggregate or (r) entered into
any agreement, or otherwise obligated itself, to do any of the
foregoing.
- 20
-
Section
3.17 Tax Returns and
Audits. All required federal, state and local Tax Returns of
Parent have been accurately prepared in all material respects and duly and
timely filed, and all federal, state and local Taxes required to be paid with
respect to the periods covered by such Tax Returns have been paid to the extent
that the same are material and have become due, except where the failure so to
file or pay could not reasonably be expected to have a material adverse effect
upon the Condition of the Parent. Parent is not and has not been delinquent in
the payment of any material Tax. Parent has not had a material Tax deficiency
assessed against it. None of Parent’s federal income, state and local income and
franchise tax returns has been audited by any governmental authority. The
reserves for Taxes reflected on the Parent Balance Sheet have been accrued in
accordance with GAAP for the payment of all unpaid Taxes payable by Parent with
respect to the period ended on the Parent Balance Sheet Date. There are no
federal, state, local or foreign audits, actions, suits, proceedings,
investigations, claims or administrative proceedings relating to Taxes or any
Tax Returns of Parent now pending, and Parent has not received any written
notice of any proposed audits, investigations, claims or administrative
proceedings relating to Taxes or any Tax Returns.
Section
3.18 Employee Benefit Plans;
ERISA.
(a) Except
as disclosed in the Parent SEC Documents, there are no “employee benefit plans”
(within the meaning of Section 3(3) of ERISA) nor any other employee benefit or
fringe benefit arrangements, practices, contracts, policies or programs other
than programs merely involving the regular payment of wages, commissions, or
bonuses established, maintained or contributed to by Parent. Any plans listed in
the Parent SEC Documents are hereinafter referred to as the “Parent Employee Benefit
Plans.”
(b) Any
current and prior material documents, including all amendments thereto, with
respect to each Parent Employee Benefit Plan have been given to the Company or
its advisors.
(c) All
Parent Employee Benefit Plans are in material compliance with the applicable
requirements of ERISA, the Code and any other applicable state, federal or
foreign law.
(d) There
are no pending, or to the knowledge of Parent, threatened, claims or lawsuits
which have been asserted or instituted against any Parent Employee Benefit Plan,
the assets of any of the trusts or funds under the Parent Employee Benefit
Plans, the plan sponsor or the plan administrator of any of the Parent Employee
Benefit Plans or against any fiduciary of a Parent Employee Benefit Plan with
respect to the operation of such plan.
(e) There
is no pending, or to the knowledge of Parent, threatened, investigation or
pending or possible enforcement action by the Pension Benefit Guaranty
Corporation, the Department of Labor, the Internal Revenue Service or any other
government agency with respect to any Parent Employee Benefit
Plan.
- 21
-
(f) No
actual or, to the knowledge of Parent, contingent liability exists with respect
to the funding of any Parent Employee Benefit Plan or for any other expense or
obligation of any Parent Employee Benefit Plan, except as disclosed on the
financial statements of Parent or the Parent SEC Documents, and to the knowledge
of Parent, no contingent liability exists under ERISA with respect to any
“multi-employer plan,” as defined in Section 3(37) or Section 4001(a)(3) of
ERISA.
Section
3.19 Title to Property and
Encumbrances. Parent has good, valid and indefeasible
marketable title to all properties and assets used in the conduct of its
business (except for property held under valid and subsisting leases that are in
full force and effect and which are not in default) free of all Liens and other
encumbrances, except Permitted Liens and such ordinary and customary
imperfections of title, restrictions and encumbrances as do not, individually or
in the aggregate, materially detract from the value of the property or assets or
materially impair the use made thereof by Parent in its business. Without
limiting the generality of the foregoing, Parent has good and indefeasible title
to all of its properties and assets reflected in the Parent Balance Sheet,
except for property disposed of in the usual and ordinary course of business
since the Parent Balance Sheet Date and for property held under valid and
subsisting leases that are in full force and effect and that are not in
default.
Section
3.20 Litigation. There
is no legal action, suit, arbitration or other legal, administrative or other
governmental proceeding pending or, to the knowledge of Parent, threatened
against or affecting Parent or Acquisition Corp. or any of their respective
properties, assets or businesses. To the knowledge of Parent, neither Parent nor
Acquisition Corp. is in default with respect to any order, writ, judgment,
injunction, decree, determination or award of any court or any governmental
agency or instrumentality or arbitration authority.
Section
3.21 Licenses. Parent
possesses from all appropriate governmental authorities all licenses, permits,
authorizations, approvals, franchises and rights necessary for the Company to
engage in the business currently conducted by it, all of which are in full force
and effect.
Section
3.22 Interested Party
Transactions. No officer, director or stockholder of Parent or
any Affiliate or “associate” (as such term is defined in Rule 405 under the
Securities Act) of any such Person or of Parent has or has had, either directly
or indirectly, (a) an interest in any Person that (i) furnishes or sells
services or products that are furnished or sold or are proposed to be furnished
or sold by Parent or (ii) purchases from or sells or furnishes to Parent any
goods or services, or (b) a beneficial interest in any contract or agreement to
which Parent is a party or by which it or any of its assets may be bound or
affected.
Section
3.23 Questionable
Payments. Neither Parent, Acquisition Corp. nor, to the
knowledge of Parent, any director, officer, agent, employee or other Person
associated with or acting on behalf of Parent or Acquisition Corp. has used any
corporate funds for unlawful contributions, gifts, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payments to government officials or employees from corporate funds;
established or maintained any unlawful or unrecorded fund of corporate monies or
other assets; made any false or fictitious entries on the books of record of any
such corporations; or made any bribe, rebate, payoff, influence payment,
kickback or other unlawful payment.
- 22
-
Section
3.24 Obligations to or by
Stockholders. Parent has no liability or obligation or
commitment to any stockholder of Parent or any Affiliate or “associate” (as such
term is defined in Rule 405 under the Securities Act) of any stockholder of
Parent, nor does any stockholder of Parent or any such Affiliate or associate
have any liability, obligation or commitment to Parent.
Section
3.25 Assets and
Contracts. Except as expressly set forth in this Agreement,
the Parent Balance Sheet or the notes thereto, or the Parent SEC Documents,
Parent is not a party to any written or oral agreement not made in the ordinary
course of business that is material to Parent. Parent does not own any real
property. Except as expressly set forth in this Agreement, the Parent Balance
Sheet or the notes thereto, or the Parent SEC Documents, Parent is not a party
to or otherwise barred by any written or oral (a) agreement with any labor
union, (b) agreement for the purchase of fixed assets or for the purchase of
materials, supplies or equipment in excess of normal operating requirements, (c)
agreement for the employment of any officer, individual employee or other Person
on a full-time basis or any agreement with any Person for consulting services,
(d) bonus, pension, profit sharing, retirement, stock purchase, stock option,
deferred compensation, medical, hospitalization or life insurance or similar
plan, contract or understanding with respect to any or all of the employees of
Parent or any other Person, (e) indenture, loan or credit agreement, note
agreement, deed of trust, mortgage, security agreement, promissory note or other
agreement or instrument relating to or evidencing Indebtedness for Borrowed
Money or subjecting any asset or property of Parent to any Lien or evidencing
any Indebtedness, (f) guaranty of any Indebtedness, (g) lease or agreement under
which Parent is lessee of or holds or operates any property, real or personal,
owned by any other Person, (h) lease or agreement under which Parent is lessor
or permits any Person to hold or operate any property, real or personal, owned
or controlled by Parent, (i) agreement granting any preemptive right, right of
first refusal or similar right to any Person, (j) agreement or arrangement with
any Affiliate or any “associate” (as such term is defined in Rule 405 under the
Securities Act) of Parent or any present or former officer, director or
stockholder of Parent, (k) agreement obligating Parent to pay any royalty or
similar charge for the use or exploitation of any tangible or intangible
property, (1) covenant not to compete or other restriction on its ability to
conduct a business or engage in any other activity, (m) distributor, dealer,
manufacturer’s representative, sales agency, franchise or advertising contract
or commitment, (n) agreement to register securities under the Securities Act,
(o) collective bargaining agreement or (p) agreement or other commitment or
arrangement with any Person continuing for a period of more than three months
from the Closing Date that involves an expenditure or receipt by Parent in
excess of $1,000. Parent maintains no insurance policies or insurance coverage
of any kind with respect to Parent, its business, premises, properties, assets,
employees and agents. No consent of any bank or other depository is required to
maintain any bank account, other deposit relationship or safety deposit box of
Parent in effect following the consummation of the Merger and the transactions
contemplated hereby. Parent and Acquisition Corp. has made
available to Company true and complete copies of all agreements and other
documents and a description of all applicable oral agreements disclosed or
referred to in this
Section 3.25 as well as any additional agreements or documents, requested
by Company. Parent and Acquisition Corp. have in all material respects performed
all obligations required to be performed by it to date and is not in default in
any material respect under any of the material contracts, agreements, leases,
documents, commitments or other arrangements to which it is a party or by which
it or any of its property is otherwise bound or affected.
- 23
-
Section
3.26 Personnel. Other
than pursuant to ordinary arrangements of compensation to personnel, Parent is
not under any obligation or liability to any officer, director, employee,
consultant or Affiliate of Parent.
Section
3.27 Duty to Make
Inquiry. To the extent that any of the representations or
warranties in this Article III are qualified by “knowledge” or “belief,” Parent
and Acquisition Corp. represent and warrant that each has made due and
reasonable inquiry and investigation concerning the matters to which such
representations and warranties relate, including, but not limited to, diligent
inquiry of its directors, officers and key personnel.
Section
3.28 Disclosure. There
is no fact relating to Parent that Parent has not disclosed to the Company in
writing that materially and adversely affects nor, insofar as Parent can now
foresee, will materially and adversely affect, the condition (financial or
otherwise), properties, assets, liabilities, business operations, results of
operations or prospects of Parent. No representation or warranty by Parent
herein and no information disclosed in the schedules or exhibits hereto by
Parent contains any untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained herein or therein not
misleading.
ARTICLE
IV.
ADDITIONAL
REPRESENTATIONS, WARRANTIES AND
COVENANTS
OF THE STOCKHOLDERS
Promptly
after the Effective Time, Parent shall cause to be mailed to each holder of
record of Company Common Stock that was converted pursuant to Section 1.06
hereof into the right to receive Parent Stock a letter of transmittal (“Letter of
Transmittal”) that shall contain additional representations, warranties
and covenants of such Stockholder, including without limitation, that (a) such
Stockholder has full right, power and authority to deliver such Company Common
Stock and Letter of Transmittal, (b) the delivery of such Company Common Stock
will not violate or be in conflict with, result in a breach of or constitute a
default under, any indenture, loan or credit agreement, deed of trust, mortgage,
security agreement or other agreement or instrument to which such Stockholder is
bound or affected, (c) such Stockholder has good, valid and marketable title to
all shares of Company Common Stock indicated in such Letter of Transmittal and
that such Stockholder is not affected by any voting trust, agreement or
arrangement affecting the voting rights of such Company Common Stock, (d)
whether such Stockholder is an “accredited investor,” as such term is defined in
Regulation D under the Securities Act and that such Stockholder is acquiring
Parent Stock for investment purposes, and not with a view to selling or
otherwise distributing such Parent Stock in violation of the Securities Act or
the securities laws of any state and (e) such Stockholder has had an opportunity
to ask and receive answers to any questions such Stockholder may have had
concerning the terms and conditions of the Merger and the Parent Stock and has
obtained any additional information that such Stockholder has requested.
Delivery shall be effected, and risk of loss and title to the Company Common
Stock shall pass, only upon delivery to Parent (or an agent of Parent) of (x)
certificates evidencing ownership thereof as contemplated by Section 1.07 hereof
(or affidavit of lost certificate), and (y) the Letter of Transmittal containing
the representations, warranties and covenants contemplated by this Article
IV.
- 24
-
ARTICLE
V.
CONDUCT
OF BUSINESSES PENDING THE MERGER.
Section
5.01 Conduct of Business by the
Company Pending the Merger. Prior to the Effective Time,
unless Parent or Acquisition Corp. shall otherwise agree in writing or as
otherwise contemplated by this Agreement or as required by applicable
laws:
(a) the
business of the Company shall be conducted only in the ordinary
course;
(b) except
as may be necessary or appropriate in order to result in the capitalization
contemplated in Section 1.09 and 1.10 hereof, and in connection with satisfying
Parent’s Exchange Ratio and issuance contemplated therein and as set forth in
the schedules hereto,the Company shall not (i) directly or indirectly redeem,
purchase or otherwise acquire or agree to redeem, purchase or otherwise acquire
any shares of its capital stock except pursuant to agreements approved by the
Board of Directors of the Company with employees, officers, directors,
consultants or other persons performing services for the Company or through the
exercise of any right of first refusal held by the Company; (ii) amend its
Certificate of Incorporation or By-laws except to effectuate the transactions
contemplated in the Disclosures or (iii) split, combine or reclassify the
outstanding Company Common Stock or declare, set aside or pay any dividend
payable in cash, stock or property or make any distribution with respect to any
such stock;
(c) except
as may be necessary or appropriate in order to result in the capitalization
contemplated in Section 1.09 and 1.10 hereof, and in connection with satisfying
Parent’s Exchange Ratio and issuance contemplated therein and as set forth in
the schedules hereto, the Company shall not (i) issue or agree to issue any
additional shares of, or options, warrants or rights of any kind to acquire any
shares of, Company Common Stock, except to issue shares of Company Common Stock
in connection with any matter relating to the Disclosures, upon exercise of
outstanding Equity Securities of the Company and upon conversion of the
Company’s preferred stock to Company Common Stock; (ii) acquire or dispose of
any fixed assets or acquire or dispose of any other substantial assets other
than in the ordinary course of business; (iii) incur additional Indebtedness or
any other liabilities or enter into any other transaction other than in the
ordinary course of business; (iv) enter into any contract, agreement, commitment
or arrangement with respect to any of the foregoing or (v) except as
contemplated by this Agreement, enter into any contract, agreement, commitment
or arrangement to dissolve, merge, consolidate or enter into any other material
business combination;
(d) the
Company shall use its commercially reasonable efforts to preserve intact the
business organization of the Company, to keep available the service of its
present officers and key employees, and to preserve the good will of those
having business relationships with it;
- 25
-
(e) the
Company will not, nor will it authorize any director or authorize or knowingly
permit any officer or employee or any attorney, accountant or other
representative retained by it to make, solicit, knowingly encourage any
inquiries with respect to, or engage in any negotiations concerning, any
Acquisition Proposal (as defined below for purposes of this paragraph). The
Company will promptly advise Parent orally and in writing of any such inquiries
or proposals (or requests for information) and the substance thereof. As used in
this paragraph, “Acquisition Proposal”
shall mean any proposal for a merger or other business combination involving the
Company or for the acquisition of a substantial equity interest in it or any
material assets of it other than as contemplated by this Agreement. The Company
will immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any Person conducted heretofore with respect to
any of the foregoing; and
(f) the
Company will not enter into any new employment agreements with any of its
officers or employees or grant any increases in the compensation or benefits of
its officers and employees or amend any employee benefit plan or
arrangement.
Section
5.02 Conduct of Business by
Parent and Acquisition Corp. Pending the Merger. Prior to the Effective
Time, unless the Company shall otherwise agree in writing or as otherwise
contemplated by this Agreement:
(a) the
business of Parent and Acquisition Corp. shall be conducted only in the ordinary
course; provided, however, that Parent
shall take the steps necessary to have discontinued its existing business
without liability to Parent or Acquisition Corp. immediately following the
Effective Time;
(b) neither
Parent nor Acquisition Corp. shall (i) directly or indirectly redeem, purchase
or otherwise acquire or agree to redeem, purchase or otherwise acquire any
shares of its capital stock; (ii) amend its charter or by-laws other than to
effectuate the transactions contemplated hereby; or (iii) split, combine or
reclassify its capital stock or declare, set aside or pay any dividend payable
in cash, stock or property or make any distribution with respect to such
stock;
(c) neither
Parent nor Acquisition Corp. shall (i) issue or agree to issue any additional
shares of, or options, warrants or rights of any kind to acquire shares of, its
capital stock; (ii) acquire or dispose of any assets other than in the ordinary
course of business (except for dispositions in connection with Section 5.02(a)
hereof); (iii) incur additional Indebtedness or any other liabilities or enter
into any other transaction except in the ordinary course of business; (iv) enter
into any contract, agreement, commitment or arrangement with respect to any of
the foregoing or (v) except as contemplated by this Agreement, enter into any
contract, agreement, commitment or arrangement to dissolve, merge, consolidate
or enter into any other material business contract or enter into any
negotiations in connection therewith;
(d) neither
Parent nor Acquisition Corp. will, nor will they authorize any director or
authorize or permit any officer or employee or any attorney, accountant or other
representative retained by them to, make, solicit, encourage any inquiries with
respect to, or engage in any negotiations concerning, any Acquisition Proposal
(as defined below for purposes of this paragraph). Parent will promptly advise
the Company orally and in writing of any such inquiries or proposals (or
requests for information) and the substance thereof. As used in this paragraph,
“Acquisition
Proposal” shall mean any proposal for a merger or other business
combination involving Parent or Acquisition Corp. or for the acquisition of a
substantial equity interest in either of them or any material assets of either
of them other than as contemplated by this Agreement. Parent will immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Person conducted heretofore with respect to any of the
foregoing; and
- 26
-
(e) neither
Parent nor Acquisition Corp. will enter into any new employment agreements with
any of their officers or employees or grant any increases in the compensation or
benefits of their officers and employees.
ARTICLE
VI.
ADDITIONAL
AGREEMENTS
Section
6.01 Access and
Information.
(a) The
Company, on the one hand, and Parent and Acquisition Corp., on the other hand,
shall each afford to the other and to the other’s accountants, counsel and other
representatives reasonable access during normal business hours throughout the
period prior to the Effective Time to all of its properties, books, contracts,
commitments and records (including but not limited to tax returns) and during
such period, each shall furnish promptly to the other all information concerning
its business, properties and personnel as such other party may reasonably
request, provided that no investigation pursuant to this Section 6.01 shall
affect any representations or warranties made herein.
(b) Each
party shall hold, and shall cause its employees and agents to hold, in
confidence all such information (other than such information that (i) is already
in such party’s possession or (ii) becomes generally available to the public
other than as a result of a disclosure by such party or its directors, officers,
managers, employees, agents or advisors or (iii) becomes available to such party
on a non-confidential basis from a source other than a party hereto or its
advisors, provided that such source is not known by such party to be bound by a
confidentiality agreement with or other obligation of secrecy to a party hereto
or another party until such time as such information is otherwise publicly
available; provided, however, that (i) any
such information may be disclosed to such party’s directors, officers, employees
and representatives of such party’s advisors who need to know such information
for the purpose of evaluating the transactions contemplated hereby (it being
understood that such directors, officers, employees and representatives shall be
informed by such party of the confidential nature of such information), (ii) any
disclosure of such information may be made as to which the party hereto
furnishing such information has consented in writing and (iii) any such
information may be disclosed pursuant to a judicial, administrative or
governmental order or request; provided, further, that the
requested party will promptly so notify the other party so that the other party
may seek a protective order or appropriate remedy and/or waive compliance with
this Agreement and if such protective order or other remedy is not obtained or
the other party waives compliance with this provision, the requested party will
furnish only that portion of such information that is legally required and will
exercise its best efforts to obtain a protective order or other reliable
assurance that confidential treatment will be accorded the information
furnished. If this Agreement is terminated, each party will deliver to the other
all documents and other materials (including copies) obtained by such party or
on its behalf from the other party as a result of this Agreement or in
connection herewith, whether so obtained before or after the execution
hereof.
- 27
-
Section
6.02 Additional
Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use its commercially reasonable
efforts to take, or cause to be taken, all action and to do, or cause to be
done, all things necessary, proper or advisable under applicable laws and
regulations to consummate and make effective the transactions contemplated by
this Agreement, including using its commercially reasonable efforts to satisfy
the conditions precedent to the obligations of any of the parties hereto, to
obtain all necessary waivers, and to lift any injunction or other legal bar to
the Merger (and, in such case, to proceed with the Merger as expeditiously as
possible). In order to obtain any necessary governmental or regulatory action or
non-action, waiver, consent, extension or approval, each of Parent, Acquisition
Corp. and the Company agrees to take all reasonable actions and to enter into
all reasonable agreements as may be necessary to obtain timely governmental or
regulatory approvals and to take such further action in connection therewith as
may be necessary. In case at any time after the Effective Time any further
action is necessary or desirable to carry out the purposes of this Agreement,
the proper officers and/or directors of Parent, Acquisition Corp. and the
Company shall take all such necessary action.
Section
6.03 Publicity. No
party shall issue any press release or public announcement pertaining to the
Merger that has not been agreed upon in advance by Parent and the Company,
except as Parent reasonably determines to be necessary in order to comply with
the rules of the Commission or of the principal trading exchange or market for
the Parent Common Stock, provided, that in such case Parent shall provide prior
written notice to the Company and will use its best efforts to allow the Company
to review and reasonably approve any such press release or public announcement
prior to its release.
Section
6.04 Appointment of Directors and
Officers. Immediately at the Effective Time, Parent shall
accept the resignations of the current officers and directors of Parent, and
shall cause the persons listed as directors in Exhibit D hereto to
be elected to the Board of Directors of Parent. At the first annual meeting of
Parent stockholders and thereafter, the election of members of Parent’s Board of
Directors shall be accomplished in accordance with the By-laws of Parent and the
rules of the Commission.
Section
6.05 Tax
Matters. None of the Parent, Acquisition Corp. or the Company
shall, and they shall not permit any of their Affiliates, to take any action
prior to or following the Effective Time if such action would reasonably be
expected to cause the Merger to fail to qualify as a reorganization within the
meaning of Section 368(a) of the Code.
- 28
-
Section
6.06 Indemnification of Officers
and Directors of the Company and Parent.
(a) For
a period of six years from and after the Effective Time, Parent and the
Surviving Corporation, jointly and severally, agree to indemnify (including the
advancement of expenses) and hold harmless all past and present officers and
directors of the Parent and the Company to the same extent such individuals are
entitled to indemnification by the Company pursuant to the
Company’s Certificate of Incorporation, By-Laws, employment
agreements and/or indemnification agreements, each as in effect as of the date
of this Agreement, and otherwise to the fullest extent permitted under
applicable law, for any costs or expenses (including attorneys’ fees and
expenses), judgments, fines, losses, claims, settlements, damages or liabilities
incurred in connection with any claim, action, suit, proceeding or
investigation, whether civil, criminal, administrative or investigative, arising
out of or pertaining to acts or omissions that occurred at or prior to the
Effective Time. Parent shall cause to be maintained in effect for not
less than six (6) years after the Effective Time any policy of directors’ and
officers’ liability insurance maintained by the Company as of the Effective Time
with respect to matters occurring prior to the Effective Time (the “Current Policies”);
provided, however, that Parent may
substitute therefor policies of insurance providing for substantially the same
coverage as the Current Policies containing terms and conditions no less
favorable in the aggregate to any person covered by such Current Policies than
the terms and conditions of the Current Policies. This Section 6.08
shall survive the consummation of the Merger, and is intended to be for the
benefit of, and shall be enforceable by, all past and present officers and
directors of the Parent and the Company, their respective heirs and personal
representatives and shall be binding upon Parent and the Surviving
Corporation. The obligations of Parent and the Surviving Corporation
under this Section 6.08 shall not be terminated or modified in such a manner as
to adversely affect any indemnitee to whom this Section 6.08 applies without the
express written consent of such affected indemnitee.
(b) If
Parent, the Surviving Corporation or any of their successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of their assets and
Intellectual Property to any person, then, and in each such case, to the extent
necessary, proper provision shall be made so that the successors and assigns of
Parent or the Surviving Corporation, as the case may be, shall assume the
obligations set forth in this Section 6.08.
(c) The
rights of each past and present officer and director of the Parent and the
Company under this Section 6.08 shall be in addition to any rights such
individual may have under the Company’s certificate of incorporation and bylaws
or under any applicable law.
ARTICLE
VII.
CONDITIONS
TO PARTIES’ OBLIGATIONS
Section
7.01 Conditions to Parent and
Acquisition Corp. Obligations. The obligations of Parent and
Acquisition Corp. under the Merger Documents are subject to the fulfillment, at
or prior to the Closing, of the following conditions, any of which may be waived
in whole or in part by Parent:
(a) The
representations and warranties of the Company under this Agreement shall be
deemed to have been made again on the Closing Date and shall then be true and
correct in all material respects.
(b) The
Company shall have performed and complied in all material respects with all
agreements and conditions required by this Agreement to be performed or complied
with by it on or before the Closing Date.
- 29
-
(c) There
shall not exist on the Closing Date any Default (as defined below) or Event of
Default (as defined below) or any event or condition that, with the giving of
notice or lapse of time or both, would constitute a Default or Event of Default
and, since the Company Balance Sheet Date, there shall have been no material
adverse change in the Condition of the Company. For purposes of this Agreement,
“Default” shall
mean a default or failure in the due observance or performance of any covenant,
condition or agreement on the part of a party to be observed or performed under
the terms of the Merger Documents, if such default or failure in performance
shall remain un-remedied for five (5) days. Furthermore, for purposes of this
Agreement, “Event of
Default” shall mean (i) the failure to pay any Indebtedness for Borrowed
Money, or any interest or premium thereon, within five (5) days after the same
shall become due, whether such Indebtedness shall become due by scheduled
maturity, by required prepayment, by acceleration, by demand or otherwise, (ii)
an event of default under any agreement or instrument evidencing or securing or
relating to any such Indebtedness or (iii) the failure to perform or observe any
material term, covenant, agreement or condition on its part to be performed or
observed under any agreement or instrument evidencing or securing or relating to
any such Indebtedness when such term, covenant or agreement is required to be
performed or observed.
(d) No
action or proceeding before any court, governmental body or agency shall have
been threatened, asserted or instituted to restrain or prohibit, or to obtain
substantial damages in respect of, the Merger Documents or the carrying out of
the transactions contemplated by the Merger Documents.
(e)
Parent and Acquisition Corp. shall have received the
following:
(i)
copies of resolutions of the Board of Directors and the
Stockholders, certified by the Secretary of the Company, authorizing and
approving the execution, delivery and performance of the Merger Documents and
all other documents and instruments to be delivered pursuant
thereto;
(ii) a
certificate of incumbency executed by the Secretary of the Company certifying
the names, titles and signatures of the officers authorized to execute any
documents referred to in this Agreement and further certifying that the
Certificate of Incorporation and By-laws of the Company delivered to Parent and
Acquisition Corp. at the time of the execution of this Agreement have been
validly adopted and have not been amended or modified;
(iii) a
certificate, dated the Closing Date, executed by the Chief Executive Officer of
the Company certifying that he has no knowledge of any plan to issue any
securities of the Company except as set forth in the Disclosures, and the
Company has not entered into any agreement, written or oral, to issue any
securities of the Company except as described in the Disclosures or this
Agreement;
(iv) evidence
as of a recent date of the good standing and corporate existence of the Company
issued by the Secretary of State of the State of Delaware and evidence that the
Company is qualified to transact business as a foreign corporation and is in
good standing in each state of the United States and in each other jurisdiction
where the character of the property owned or leased by it or the nature of its
activities makes such qualification necessary; and
- 30
-
(v) such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as Parent and Acquisition Corp. may reasonably
request.
(f) All
corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments and documents mentioned herein or incident to any such transactions
shall be reasonably satisfactory in form and substance to Parent and Acquisition
Corp. The Company shall furnish to Parent and Acquisition Corp. such supporting
documentation and evidence of the satisfaction of any or all of the conditions
precedent specified in this Section 7.01 as Parent or its counsel may reasonably
request.
Section
7.02 Conditions to the Company’s
Obligations. The obligations of the Company under the Merger
Documents are subject to the fulfillment, at or prior to the Closing, of the
following conditions, any of which may be waived in whole or in part by the
Company.
(a) The
representations and warranties of Parent and Acquisition Corp. under this
Agreement shall be deemed to have been made again on the Closing Date and shall
then be true and correct in all material respects.
(b) Parent
and Acquisition Corp. shall have performed and complied in all material respects
with all agreements and conditions required by the Merger Documents to be
performed or complied with by them on or before the Closing Date.
(c) There
shall not exist on the Closing Date any Default or Event of Default or any event
or condition that, with the giving of notice or lapse of time or both, would
constitute a Default or Event of Default and, since the Parent Balance Sheet
Date, there shall have been no material adverse change in the Condition of the
Parent.
(d) The
Company shall have received the following:
(i) copies
of resolutions of Parent’s and Acquisition Corp.’s respective boards of
directors and the sole stockholder of Acquisition Corp., certified by their
respective Secretaries, authorizing and approving, to the extent applicable, the
execution, delivery and performance of the Merger Documents and all other
documents and instruments to be delivered by them pursuant thereto;
(ii) a
certificate of incumbency executed by the respective Secretaries of Parent and
Acquisition Corp. certifying the names, titles and signatures of the officers
authorized to execute the documents referred to in this Agreement and further
certifying that the Certificates of Incorporation and By-Laws of Parent and
Acquisition Corp. appended thereto have not been amended or
modified.
- 31
-
(iii) a
certificate, dated the Closing Date, executed by the President or Chief
Executive Officer of each of the Parent and Acquisition Corp., certifying that
(A) except for the filing of the Certificate of Merger, all consents,
authorizations, orders and approvals of, and filings and registrations with, any
court, governmental body or instrumentality that are required for the execution
and delivery of the Merger Documents and the consummation of the Merger shall
have been duly made or obtained, and all material consents by third parties
required for the Merger have been obtained, (B) such officer has no knowledge of
any plan to issue any securities of Parent, and Parent has not entered into any
agreement, written or oral, to issue any securities of Parent except as
described in this Agreement and (C) no action or proceeding before any court,
governmental body or agency has been threatened, asserted or instituted to
restrain or prohibit, or to obtain substantial damages in respect of, the Merger
Documents or the carrying out of the transactions contemplated by any of the
Merger Documents;
(iv) a
certificate of Olde Monmouth Stock Transfer Co., Inc., Parent’s transfer agent
and registrar, certifying, as of the business day prior to the Closing Date, a
true and complete list of the names and addresses of the record owners of all of
the outstanding shares of Parent Common Stock, together with the number of
shares of Parent Common Stock held by each record owner and the total number of
shares of Parent Common Stock then outstanding;
(v) the
executed resignations of all directors and officers of Parent, with the director
resignations to take effect at the Closing Date;
(vi) evidence
as of a recent date and within five (5) days of the Effective Date of the good
standing and corporate existence of each of Parent and Acquisition Corp. issued
by the Secretary of State of the State of Delaware and evidence that Parent and
Acquisition Corp. are qualified to transact business as foreign corporations and
are in good standing in each state of the United States and in each other
jurisdiction where the character of the property owned or leased by them or the
nature of their activities makes such qualification necessary; and
(vii) such
additional supporting documentation and other information with respect to the
transactions contemplated hereby as the Company may reasonably
request.
(e) All
corporate and other proceedings and actions taken in connection with the
transactions contemplated hereby and all certificates, opinions, agreements,
instruments and documents mentioned herein or incident to any such transactions
shall be satisfactory in form and substance to the Company. Parent and
Acquisition Corp. shall furnish to the Company such supporting documentation and
evidence of satisfaction of any or all of the conditions specified in this
Section 7.02 as the Company may reasonably request.
(f) No
action or proceeding before any court, governmental body or agency shall have
been threatened, asserted or instituted to restrain or prohibit, or to obtain
substantial damages in respect of, the Merger Documents or the carrying out of
the transactions contemplated by the Merger Documents.
- 32
-
ARTICLE
VIII.
INDEMNIFICATION
AND RELATED MATTERS
Section
8.01 Indemnification by
Parent. Parent shall indemnify and hold harmless the Company and the
Stockholders and their respective directors, officers, employees and Affiliates
(together the “Company
Indemnified Parties”), and shall reimburse the Company Indemnified
Parties for, any loss, liability, claim, damage, expense (including, but not
limited to, costs of investigation and defense and reasonable attorneys’ fees)
or diminution of value (collectively, “Damages”) arising
from or in connection with (a) any material breach or inaccuracy in any of the
representations and warranties of Parent and Acquisition Corp. in this Agreement
or in any certificate delivered by Parent and Acquisition Corp. to the Company
pursuant to this Agreement, or any actions, omissions or statements of fact
inconsistent with any such representation or warranty, (b) any failure by Parent
or Acquisition Corp. to perform or comply in any material respect with any
covenant or agreement in this Agreement, (c) any claim for brokerage or finder’s
fees or commissions or similar payments based upon any agreement or
understanding alleged to have been made by any such party with Parent or
Acquisition Corp. in connection with any of the transactions contemplated by
this Agreement, (d) taxes attributable to any transaction or event occurring on
or prior to the Closing, (e) any claim relating to or arising out of any
liabilities reflected in the Parent Financial Statement or with respect to
accounting fees arising thereafter, (f) any litigation, action, claim,
proceeding or investigation by any third party relating to or arising out of the
business or operations of Parent, or the actions of Parent or any holder of
Parent capital stock prior to the Effective Time, (g) any claim relating to or
arising out of any liabilities unrelated to the business of the
Company. Notwithstanding the foregoing, Parent shall pay out of
proceeds of the PIPE, various fees and expenses in connection with the execution
and performance of this Agreement and all matters related thereto, at or
following Closing as to which no indemnification obligation shall be
applicable.
Indemnification by
Company:. Company shall indemnify and hold harmless the Parentand its
respective directors, officers, employees and Affiliates (together the “Parent Indemnified
Parties”), and shall reimburse the Parent Indemnified Parties for, any
loss, liability, claim, damage, expense (including, but not limited to, costs of
investigation and defense and reasonable attorneys’ fees) or diminution of value
(collectively, “Parent
Damages”) arising from (a) any and all claims, losses and liabilities
related to the prior financings of the Company, whether occurring prior to or
after the date hereof, (b) any claims asserted by MDB Capital Group LLC, or (c)
any and all claims and liabilities unrelated to the business of the
Company.
Section
8.02 Survival. All
representations, warranties, covenants and agreements of Parent and Acquisition
Corp. contained in this Agreement or in any certificate delivered pursuant to
this Agreement shall survive the Closing for the time period set forth in
Section 8.03 notwithstanding any investigation conducted with respect thereto.
The representations and warranties of the Company contained in this Agreement or
in any certificate delivered pursuant to this Agreement shall not survive the
Closing.
Section
8.03 Time Limitations.
Neither Parent nor Acquisition Corp. shall have any liability (for
indemnification or otherwise) with respect to any representation or warranty, or
agreement to be performed and complied with prior to the Effective Time, unless
on or before the two-year anniversary of the Effective Time (the “Claims Deadline”),
Parent is given notice of a claim with respect thereto, in accordance with
Section 8.06, specifying the factual basis therefor in reasonable detail to the
extent then known by the Company Indemnified Parties.
Section
8.04 Limitation on Parent
Liability. The obligations of Parent and Acquisition Corp. to the Company
Indemnified Parties set forth in Section 8.01 shall be subject to the following
limitations:
(a) The
aggregate liability of Parent and Acquisition Corp. to the Company Indemnified
Parties under this Agreement shall be payable by the issuance of additional
shares of Parent Common Stock pursuant to Section 8.07.
- 33
-
(b) Other
than claims based on fraud or for specific performance, injunctive or other
equitable relief, the indemnity provided in this Article VIII shall be the sole
and exclusive remedy of the Company Indemnified Parties against Parent and
Acquisition Corp. at law or equity for any matter covered by Section
8.01.
Section
8.05 Limitation on Company
Liability. [Intentionally Omitted]
Section
8.06 Notice of
Claims.
(a) If,
at any time on or prior to the Claims Deadline, any of the Company Indemnified
Parties shall assert a claim for indemnification pursuant to Section 8.01, such
Company Indemnified Party shall submit to Parent a written claim in good faith
signed by an authorized officer of the Company or other Company Indemnified
Party, as applicable, stating (i) that a Company Indemnified Party incurred or
reasonably believes it may incur Damages and the reasonable estimate of the
amount of any such Damages; (ii) in reasonable detail, the facts alleged as the
basis for such claim and the section or sections of this Agreement alleged as
the basis or bases for the claim; and (iii) if the Damages have actually been
incurred, the number of additional shares of Parent Common Stock to which the
Stockholders are entitled to with respect to such Damages, which shall be
determined as provided in Section 8.07 below. If the claim is for Damages which
the Company Indemnified Parties reasonably believe may be incurred or are
otherwise un-liquidated, the written claim of the applicable Company Indemnified
Party shall state the reasonable estimate of such Damages, in which event a
claim shall be deemed to have been asserted under this Article VIII in the
amount of such estimated Damages, but no distribution of additional shares of
Parent Common Stock to the Stockholders pursuant to Section 8.07 below shall be
made until such Damages have actually been incurred.
(b) In
the event that any action, suit or proceeding is brought against any Company
Indemnified Party with respect to which Parent may have liability under this
Article VIII, Parent shall have the right, at its cost and expense, to defend
such action, suit or proceeding in the name and on behalf of the Company
Indemnified Party; provided, however, that a
Company Indemnified Party shall have the right to retain its own counsel, with
fees and expenses paid by Parent, if representation of the Company Indemnified
Party by counsel retained by Parent would be inappropriate because of actual or
potential differing interests between Parent and the Company Indemnified Party.
In connection with any action, suit or proceeding subject to Article VIII,
Parent and each Company Indemnified Party agree to render to each other such
assistance as may reasonably be required in order to ensure proper and adequate
defense of such action, suit or proceeding. Parent shall not, without the prior
written consent of the applicable Company Indemnified Party, which consent shall
not be unreasonably withheld or delayed, settle or compromise any claim or
demand if such settlement or compromise does not include an irrevocable and
unconditional release of such Company Indemnified Party for any liability
arising out of such claim or demand.
- 34
-
Section
8.07 Payment of Damages.
In the event that the Company Indemnified Parties shall be entitled to
indemnification pursuant to this Article VIII for actual Damages incurred by
them, Parent shall, within thirty (30) days after the final determination of the
amount of such Damages, issue to the Stockholders that number of additional
shares of Parent Common Stock in an aggregate amount equal to the quotient
obtained by dividing (x) the amount of such Damages by (y) the Fair Market Value
per share of the Parent Common Stock as of the date (the “Determination Date”)
of the submission of the notice of claim to Parent pursuant to Section 8.06.
Such shares of Parent Common Stock shall be issued to the Stockholders pro rata,
in proportion to the number of shares of Parent Common Stock issued (or
issuable) to the Stockholders at the Effective Time. For purposes of this
Section 8.07, “Fair
Market Value” shall mean, with respect to a share of Parent Common Stock
on any Determination Date, the average of the daily closing prices for the 10
consecutive business days prior to such date. The closing price for each day
shall be the last sales price or in case no sale takes place on such day, the
average of the closing high bid and low asked prices, in either case (a) as
officially quoted on the OTC Bulletin Board, the NYSE Amex, the NASDAQ Stock
Market or such other market on which the Parent Common Stock is then listed for
trading or quoted, or (b) if, in the reasonable judgment of the Board of
Directors of Parent, the OTC Bulletin Board, the NYSE Amex or the NASDAQ Stock
Market is no longer the principal United States market for the Parent Common
Stock, then as quoted on the principal United States market for the Parent
Common Stock as determined by the Board of Directors of Parent, or (c) if, in
the reasonable judgment of the Board of Directors of Parent, there exists no
principal United States market for the Parent Common Stock, then as reasonably
determined in good faith by the Board of Directors of Parent.
ARTICLE
IX.
TERMINATION
PRIOR TO CLOSING
Section
9.01 Termination of
Agreement. This Agreement may be terminated at any time prior
to the Closing:
(a) by
the mutual written consent of the Company, Acquisition Corp. and
Parent;
(b) by
the Company, if Parent or Acquisition Corp. (i) fails to perform in any material
respect any of its agreements contained herein required to be performed by it on
or prior to the Closing Date, or (ii) materially breach any of their
representations, warranties or covenants contained herein, which failure or
breach is not cured within thirty (30) days after the Company has notified
Parent and Acquisition Corp. of its intent to terminate this Agreement pursuant
to this paragraph (b);
(c) by
Parent and Acquisition Corp. if the Company (i) fails to perform in any material
respect any of its agreements contained herein required to be performed by it on
or prior to the Closing Date or (ii) materially breaches any of its
representations, warranties or covenants contained herein, which failure or
breach is not cured within thirty (30) days after Parent or Acquisition Corp.
has notified the Company of its intent to terminate this Agreement pursuant to
this paragraph (c);
(d) by
either the Company, on the one hand, or Parent and Acquisition Corp., on the
other hand, if there shall be any order, writ, injunction or decree of any court
or governmental or regulatory agency binding on Parent, Acquisition Corp. or the
Company that prohibits or materially restrains any of them from consummating the
transactions contemplated hereby, provided that the parties hereto shall have
used their best efforts to have any such order, writ, injunction or decree
lifted and the same shall not have been lifted within ninety (90) days after
entry by any such court or governmental or regulatory agency;
or
- 35
-
(e) by
either the Company, on the one hand, or Parent and Acquisition Corp., on the
other hand, if the Closing has not occurred on or prior to November 1, 2010 , or
such later date, which shall be no later than December 1, 2010, for any reason
other than delay or nonperformance of the party seeking such
termination.
Section
9.02 Termination of
Obligations. Termination of this Agreement pursuant to this
Article IX shall terminate all obligations of the parties hereunder, except for
the obligations under Sections 6.01(b), 6.03, 6.08, 10.03 and 10.11; provided, however, that
termination pursuant to paragraphs (b) or (c) of Section 9.01 shall not relieve
the defaulting or breaching party or parties from any liability to the other
parties hereto.
ARTICLE
X.
MISCELLANEOUS
Section
10.01 Notices. Any
notice, request or other communication hereunder shall be given in writing and
shall be served either personally, by overnight delivery or delivered by mail,
certified return receipt and addressed to the following addresses:
If to
Parent or Acquisition Corp.:
000
Xxxxxxxxx Xxxxxxxx
Xxxxxxxxxx,
XX 00000
Attn:
President
With a
copy to:
Sichenzia
Xxxx Xxxxxxxx Xxxxxxx LLP
00
Xxxxxxxx, 00xx Xxxxx
Xxx Xxxx,
Xxx Xxxx 00000
Attention:
Xxxxxx X. Xxxxxx, Esq.
If to the
Company:
0xx0.xxx,
Inc.
0000
Xxxxxxxxx Xxx XX
Xxxxxxx,
XX 00000
Attention:
Xxxxx Xxxxxxx
Notices
shall be deemed received at the earlier of actual receipt or three (3) business
days following mailing. Counsel for a party (or any authorized representative)
shall have authority to accept delivery of any notice on behalf of such
party.
Section
10.02 Entire
Agreement. This Agreement, including the schedules and
exhibits attached hereto and other documents referred to herein, contains the
entire understanding of the parties hereto with respect to the subject matter
hereof. This Agreement supersedes all prior agreements and undertakings between
the parties with respect to such subject matter.
- 36
-
Section
10.03 Expenses. Each
party shall bear and pay all of the legal, accounting and other expenses
incurred by it in connection with the transactions contemplated by this
Agreement.
Section
10.04 Time. Time
is of the essence in the performance of the parties’ respective obligations
herein contained.
Section
10.05 Severability. Any
provision of this Agreement that is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
Section
10.06 Successors and
Assigns. This Agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors, assigns and
heirs; provided, however, that neither party shall directly or indirectly
transfer or assign any of its rights hereunder in whole or in part without the
written consent of the others, which may be withheld in its sole discretion, and
any such transfer or assignment without said consent shall be void.
Section
10.07 No
Third Parties Benefited. This Agreement is made and entered
into for the sole protection and benefit of the parties hereto, their
successors, assigns and heirs, and no other Person shall have any right or
action under this Agreement.
Section
10.08 Counterparts. This
Agreement may be executed in one or more counterparts, with the same effect as
if all parties had signed the same document. Each such counterpart shall be an
original, but all such counterparts together shall constitute a single
agreement.
Section
10.09 Recitals, Schedules and
Exhibits. The Recitals, Schedules and Exhibits to this
Agreement are incorporated herein and, by this reference, made a part hereof as
if fully set forth herein.
Section
10.10 Section Headings and
Gender. The Section headings used herein are inserted for
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. All personal pronouns used in this Agreement
shall include the other genders, whether used in the masculine, feminine or
neuter gender, and the singular shall include the plural, and vice versa,
whenever and as often as may be appropriate.
Section
10.11 Governing
Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of Delaware without
regard to principles of conflicts of laws, and the applicable terms of Section 1
shall be governed by the DGCL.
[Signature
Page Follows]
- 37
-
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement to be binding
and effective as of the day and year first above written.
|
PARENT:
|
|
|
By:
|
/s/ Xxxxx
Xxxxxx
|
|
Name:
Xxxxx Xxxxxx
|
|
|
Title:
President
|
|
|
ACQUISITION
CORP:
|
|
|
FTOH
ACQUISITION CORP.
|
|
|
By:
|
/s/ Xxxxx
Xxxxxx
|
|
Name:
Xxxxx Xxxxxx
|
|
|
Title:
President
|
|
|
COMPANY:
|
|
|
0xx0.xxx,
Inc.
|
|
|
By:
|
/s/ Xxxxx
Xxxxxxx
|
|
Name:
Xxxxx Xxxxxxx
|
|
|
Title:
Chief Executive Officer
|
|
|
/s/ Xxxx
Xxxxxxxxx
|
|
|
Xxxx
Xxxxxxxxx, Chairman
|
|
|
/s/ Xxxxx
Xxxxxxx
|
|
|
Xxxxx
Xxxxxxx, Director
|
|
|
/s/ Xxxxxxx
Xxxxxxx
|
|
|
Xxxxxxx
Xxxxxxx, Director
|
|
[SIGNATURE
PAGE TO AGREEMENT OF MERGER AND PLAN OF REORGANIZATION]
- 38
-
Exhibit
A
(Certificate
of Merger)
- 39
-
Exhibit
B
(Certificate
of Incorporation)
- 40
-
Exhibit
C
(By-Laws)
- 41
-
Exhibit
D
(Directors
and Officers)
Parent:
Xxxx
Xxxxxxxxx, Executive Chairman/Board Member
Xxx
Xxxxxxx, Member of the Board of Directors and CEO, Secretary
Xxxxxxx
Xxxx, Chief Financial Officer
Acquisition
Corp/0xx0.xxx, Inc.:
Xxx
Xxxxxxx, Member of the Board of Directors and CEO
Xxxxxxxx
Xxxx, Executive Vice President of Corporate Development (post
Closing)
Xxxx
Xxxxxxxxx, Officer
- 42
-
Exhibit
E
(Disclosures)
SCHEDULE
OF EXCEPTIONS
This
Schedule of Exceptions is made and given pursuant to Section 3 of
the Agreement of Merger and Plan of Reorganization, dated November 3,
2010 (the “Agreement”), between 0xx0.xxx, Inc. (the “Company”) and FTOH CORP.
and FTOH ACQUISITION CORP. All capitalized terms used but not defined herein
shall have the meanings as defined in the Agreement, unless otherwise provided.
The section numbers below correspond to the section numbers of the
representations and warranties in the Agreement; provided, however, that any
information disclosed herein under any section number shall be deemed to be
disclosed and incorporated into any other section number under the Agreement
where such disclosure would be reasonably apparent on the face of such
disclosure.
Nothing
in this Schedule of Exceptions is intended to broaden the scope of any
representation or warranty contained in the Agreement or to create any covenant.
Inclusion of any item in this Schedule of Exceptions (1) does not represent
a determination that such item is material or establish a standard of
materiality, (2) does not represent a determination that such item did not
arise in the ordinary course of business, (3) does not represent a
determination that the transactions contemplated by the Agreement require the
consent of third parties, and (4) shall not constitute, or be deemed to be,
an admission to any third party concerning such item.
- 43
-
Schedule
1.06 (a) (ii)
Schedule
2.03 and 1.09
The
Company has issued prior to the Effective Time an additional 3,500,000 shares of
Company Common Stock to certain persons (the “Management Restricted A
Shares”) and 2,500,000 shares of Company Common Stock to certain persons
(the “Management
Restricted B Shares”) under the Company’s Incentive Plans (the “Company A-B Plans”)
which are subject to claw-back upon the occurrence of certain events (or
non-occurrence of certain events).
Each of
the Management Restricted A Shares and Management Restricted B Shares shall be
converted into one share of Parent Common Stock at the Effective Time, and shall
be subject to the same restrictions, disabilities and limitations as such shares
possessed under the Company Plans, in effect at the Effective Time, and all
policies and practices in effect or adopted by Parent following the Effective
time governing management incentive awards and their potential restriction or
cancellation and forfeiture.
At the
Effective Time, Parent shall adopt and assume the Company A-B Plans as
Parent Plans as provided in Section 1.09 hereof and shall continue to
be bound by all the terms and provisions thereof, including the additional terms
and conditions as follows:
Assumed Unvested Restricted
Stock Awards and Assumed
Special Incentive Award]:
If the
employee or Assumed Unvested Restricted Stock Award or Assumed Special Incentive
Award holder or transferor is terminated for Cause (as defined for the senior
executives of the Company) or employee, holder or transferor terminates his
employment without Good Reason (as defined for the senior executives of the
Company), in each case within twelve (12) months of the date of this Agreement,
all Shares issued or issuable under the Company A Shares Plan and Assumed
Unvested Restricted Stock Awards and Assumed Special Incentive Award (and all
profits therefrom) shall be surrendered and Shares returned to the Company for
cancellation without payment. The terms of Company A Shares or
Assumed Unvested Restricted Stock Awardsor Assumed Special Incentive Awardshall
not be modified prior to twelve (12) months following the final closing of the
Company’s private placement conducted in conjunction with this Merger Agreement
(the “PIPE”) unless mutually agreed to by the Company and the majority of the
PIPE shareholders. Subject to the terms of any individual lockup
agreements entered with award holders and applicable law and regulations (Rule
144) the Company A Shares Plan are intended to be able to be transferred without
restriction upon achievement of the below milestones, and satisfaction of any
applicable (Rule 144) holding period.
In addition, Company A
Shares Plan [including Assumed Unvested Restricted Stock Awards] are subject to
the following:
subject
to forfeiture according to the following schedule (non-cumulative):
- 25% to
vest upon achievement of at least $1.5MM in revenue in Q1-11 (or
Q4-10)
- 25% to
vest upon achievement of at least $3.0MM in Q2-11 (or Q1-11)
- 44
-
- 25% to
vest upon achievement of at least $6.0MM in Q3-11 (or Q2-11)
- 25%
upon Company achieving positive EBITDA for a quarter not later than
Q4-11.
In addition, Company B
Shares Plan [including Assumed Special Incentive Awards] are subject to the
following:
|
|
a.
|
500,000
shares shall be vested on the date of this Agreement;
and
|
|
|
b.
|
1,000,000
shares to be vested if NASDAQ listing prior to January 1, 2012: and (i)
closing of an equity or equity linked financing for more than $10 million
of net proceeds to the Company (exclusive of any financing in connection
with or closely related to the acquisition of 5:1 or the Company’s initial
PIPE and Bridge); or (ii) any acquisition during 2011 of a company with
annualized revenues of at least $20 million at the time of acquisition;
and
|
|
|
c.
|
1,000,000
shares to be vested if NASDAQ listing prior to January 1, 2012: and (i)
closing of an equity or equity linked financing for more than $20 million
of net proceeds to the Company (exclusive of any financing in connection
with or closely related to the acquisition of 5:1 or the Company’s initial
PIPE and Bridge); or (ii) any acquisition during 2011 of a company with
annualized revenues of at least $100 million at the time of
acquisition.
|
Each of
the vesting/forfeiture requirements shall be based upon the Parent’s audited
financial statements (in the case of quarterly reports, reviewed financial
statements) filed with the SEC which include the financial results for the prior
vesting period.
All
vesting subject to claw-backs in the event of breaches of company policy,
contracts or agreements with recipient, restatements and adjustments in prior
SEC reported periods, and as set forth in the Company A/B Plans.
In
addition: (A) 250,000 shares of Parent Common Stock reserved for issuance to
director appointees designated by the Frost Group; (B) 1,580,102 restricted
shares/options for Parent Common Stock reserved for awards to employees and
consultants under the Parent 2011 Incentive Stock Plan following the Effective
Time as determined by Parent’s Compensation Committee (or Board of Directors) at
fair market value (not less than $1.00 per share); (C) 306,348 shares of Parent
Common Stock reserved for warrants issuable to Bridge Lender’s designee at fair
market value (not less than $1.00 per share); and (D) (i) 133,382 shares of
Parent Common Stock issued as Advisor Shares and 866,618 shares of Parent Common
Stock reserved for Advisory Warrants issuable to Company designees of strategic
importance to the Company exercisable at fair market value (not less than $1.00
per share) .
- 45
-
Each of
Section 2.03 (C), (D), and (E) shares of Parent Common Stock shall be subject to
12 month lock-up agreements (with leakout and other provisions as set forth in
the individual lockup agreements) following the Effective Time, which may not be
modified of amended, provided, however, shares of Parent Common Stock issued
under Section 2.03 (E) shall be released from such lock-up in the event that the
Parent issues equity or equity-linked securities with net proceeds of at least
$10 million to Parent (exclusive of the PIPE offering), and provided, further,
that if the underwriter of placement agent of such offering requests, such
shares shall be subject to an additional lock-up period as required by the
underwriter or placement agent for such offering, up to 12 months following
closing of such offering.
Section
2.04 Indebtedness
Company
executed a senior secured bridge loan with Xxxxxx Capital Marketing LLC for
$600,000 on September 29, 2010 and for $250,000 on October __,
2010.
The
Company has an outstanding senior secured loan ($____,000 principal amount
outstanding from Silicon Valley Bank under a Loan and Security Agreement dated
October __, 2009.
Financing
agreements are available on the Due Diligence site.
Section
2.08 Compliance with Laws and Instruments
The
Company is Insolvent per Sec. 8.5 of the Loan and Security Agreement (“LSA”)
dated October __, 2010 with Silicon Valley Bank, which is constitutes an Event
of Default under the LSA. LSA available on Due Diligence site, and
has received a waiver or any and all defaults or events of default and Silicon
Valley Bank has consented to this Agreement and the Merger and the transactions
contemplated and related thereto.
Section
2.10 None other than the Company’s agreement to issue 1,334,000 shares to MDB
Capital Group, LLC.
Section
2.12. The Company is having discussions with certain members of its
sales team for payment of Q1/Q2 bonuses which, if earned, up to $300,000 may be
due to sales persons in consideration of their continued services. No
determination as to eligibility or payment may be made without first disclosing
the name of each sales person, the amount claimed earned, if not earned, the
justification by management for consideration of payment..
Section
2.13. Changes
See Sec.
2.04 disclosure.
Section
2.14 Assets and Contracts
(a)
The
following are leases, all for office space, and expiration date for
each. Copies of these leases are on the Due Diligence
site.
|
Location
|
Term
|
|
000
Xxxxxxxx Xx Xxxx 0
|
Xxxxx-xx-xxxxx
|
|
Xxx
Xxxxxxxxx, XX 00000
|
|
|
0000
0xx Xxxxxx Xxxxxxxxx, Xxxxx 000
|
January
27, 2012
|
|
Xxxxx
Xxxxxx, XX 00000
|
|
|
0000
Xxxxxxx Xxx, 0xx XX
|
July
31, 2011
|
|
Xxxxxxx
XX 00000
|
|
|
000
Xxxx Xxxxxx Xxxxx 0xx Xxxxx,
|
October
31, 2010
|
|
Xxx
Xxxx, XX 00000
|
- 46
-
On
September 15, 2010 the company received a 5-day Notice to Perform or Quit for
its office space in Santa Xxxxxx due to non-payment., which has since been
cleared.
(b)
The
company has Indemnification agreements with certain Officers and
Directors. Its standard commercial agreements contain limited
indemnification.
Some of
the company’s commercial agreements require specific approval to
transfer. The company has not yet requested such approval from those
commercial partners and does not anticipate any of those partners to withhold
approval in a Change in Control.
(ii)
Preliminary discussions with certain individuals to take a Board and/or Chairman
position with Company.
(iii) and
(iv) See Sec. 2.04
(vii)
Xxxxx Xxxxxxx is President and Manager of Xxxxxxx Media Capital
LLC. Company has Restricted Stock Purchase Agreements with current
and former employees, officers and directors.
(c) The
Company is past due paying certain publisher, advisors and vendors as summarized
in AP schedule provided to Parent, the most recent version on the Due Diligence
site. (see Section 2.22)
Section
2.15 Personnel
See
subsection 2.12.
Sec 2.17
Patents and Other Intangible Assets
Company
uses some open source software that contains various restrictions on usage and
distribution, however the company has rights to this software in the manner in
which it is being used. A list of such open source software is included on
the Due Diligence site.
Section
2.24 Interested Party Transactions
See Sec.
2.14 (b) (vii)
Section
2.26 Obligations to or by Stockholders
- 47
-
See Sec.
2.14 (b) (vii)
Section
2.22 Litigation
The
Company is involved in a dispute with MDB Capital Group LLC concerning the
timing of payment under a Termination Agreement and the number of shares due in
connection with the termination of an LOI. In the event the shares
are issued as payments made following the Effective Time, the Company may be
required to take a charge against earnings for accounting
purposes. This charge will be excluded (if non-cash) in determination
of EBITDA under any employment agreement, plan, or other compensatory
arrangement that considers EBITDA as a triggering, claw-back or vesting
item.
- 48
-
